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ESG News Update: July 17, 2020



General ESG News:

ETF Stream: MSCI: Deconstructing the E, S and G

  • The study, entitled Deconstructing ESG Ratings Performance, tested the significance of the E, S and G scores of companies across various time frames, sectoral differences and weighting schemes between 2006 and 2019.

  • MSCI found the governance pillar scores proved to be more significant than the environmental and social pillars over a shorter period, such as one year, in terms of their impact on profitability, idiosyncratic risk and systematic risk. This was because they were more directly linked to short-term events and incident risks.

  • Alternatively, over longer periods, environmental and social indicators became more significant as reflected by the stock-price performance. Two factors that proved this were carbon emissions and labor management which showed minimal significance on profitability over the short term but had the largest performance impact on all of MSCI’s 11 ESG key issues over the long term.

Politico: Welcome to The Agenda: Sustainability

  • The social forces driving this shift are tectonic ones. Millennials, now the largest living generation, in a recent survey ranked climate change and protecting the environment as their top social concern, higher than health care, economic inequality or personal safety. Investors are increasingly pouring money into companies that publicly commit to sustainability goals including reducing fossil fuel use, hiring a more diverse workforce and treating workers fairly; about $12 trillion in assets are now managed by “environmental, social and governance," or ESG, funds. Meanwhile consumers, particularly the desirable younger cohorts, now expect their products to be renewable, reusable and sensitive to the environment—and they want politicians and brands to wave that flag high.

  • Issue includes: Six Places Doing It Right and Should Banks Be Forced to Price In Climate Change?

ESG Standards and Rankings:

DavisPolk: ESG Disclosure Frameworks –Recent Updates

  • Updates in the past two months to voluntary ESG disclosure frameworks raise questions for companies about these overlapping and arguably competing standards.

  • The joint SASB/GRI statement identifies the central issue –“[for] companies that use both standards, the reporting effort can be high.”  How high this burden will be going forward, however, is a function of how developed a company’s ESG reporting infrastructure and actual reporting are, as well as the makeup of a company’s investors and other stakeholders.

Yahoo Finance: The Conference Board Launches ESG Advantage Benchmarking Platform, Powered by ESGAUGE

  • For public companies working to stay ahead of the curve on Environmental, Social, and Governance (ESG) matters, the stakes have never been higher, or the spotlight brighter. Yet timely, relevant, and reliable data in these areas have remained limited, fragmentary, and costly—until now.

  • Today, The Conference Board fills the gap with the introduction of the ESG Advantage Benchmarking Platform, Powered by ESGAUGE, the most comprehensive, powerful, and reliable benchmarking tool in the marketplace. This online platform will allow subscriber US public companies to benchmark themselves against peer groups in five areas: executive compensation, director compensation, board practices, CEO succession, and shareholder voting.

Investment Trends:

Financial Times Adviser: Be critical of ESG credentials to avoid greenwashing funds

  • It is therefore of crucial importance for advisers to be able to interrogate a fund’s ESG approach and to identify any potential greenwashing on the part of the fund manager.

  • Advisers should demand transparency. Genuinely sustainable fund managers should be transparent about how they invest and be prepared to be challenged.

ETF Trends: Investors Must Understand the Long-Term Risks Associated with ESG

  • “All investments have impacts on the environment and society, and investors increasingly want to know about these impacts and what they mean for their investments,” wrote Andy Pettit in a Morningstar article. “First, investors want to know how these impacts align with their values. Second, investors increasingly want to consider long-term environmental, social, and governance risks such as climate change when they make long-term investments. However, investors do not fall into exclusive camps of being focused on either values or risk. Rather, many investors care about both aspects to varying degrees simultaneously.”

Responsible Investor: Positive ESG screening trumps divestment and best-in-class approaches, says Nordea

  • Nordea has concluded that investing in companies with improving ESG performance, or positive selection strategies, could result in higher returns compared to a pure divestment or best-in-class approach.

Forbes: Most ESG Investing Makes A Charade Of Fighting Climate Change

  • Thus far, ESG funds have merely divested capital from the fossil fuel industry. They have put hardly any capital into new cleantech companies that could help with the energy transition. Energy efficiency technologies, hydrogen power, carbon capture and nuclear fusion remain severely underfunded. Instead, ESG investors reallocate capital to almost risk-free opportunities like Apple, Amazon, Microsoft, Alphabet and Facebook, which deliver above-market returns.

  • I believe that ESG investors genuinely care about the environment. They feel a sense of social responsibility and civic duty that shapes their decisions. However, just divesting from oil and gas companies is not tantamount to creating a clean, sustainable future. To make a difference and become more credible, ESG investors must not only invest much more in the clean technologies necessary for a cleaner future, but push hard for social and governance changes. We need to move from ESG to GSE. 

Government Policy:

Plan Sponsor: DOL’s Proposed ESG Restrictions Criticized by Senate Democrats

  • More than a dozen Democratic members of the U.S. Senate have filed and openly published a comment letter addressed to Department of Labor (DOL) Secretary Eugene Scalia, calling on the regulator to dial back its proposed rule seeking to restrict the use of environmental, social and governance (ESG)-themed investments within tax qualified retirement plans governed by the Employee Retirement Income Security Act (ERISA).

S&P Global: The EU Recovery Plan Could Create Its Own Green Safe Asset

  • The EU is intending to use its post-pandemic recovery plan to reinforce its fight against climate change. About 30% of the "Next Generation EU" €750 billion fiscal plan to aid the post-COVID-19 recovery would target climate-friendly projects, according to European Council President, Charles Michel's latest proposal. This translates to a potential of €225 billion of additional green financial instruments, reinforcing the EU Green Deal's pledges (see table 1 for a breakdown of the plan by budget commitments).

  • By issuing around €225 billion of green bonds, the EU would also become the largest supranational provider of liquidity for a green safe asset.

Companies:

Clean Energy Wire: BlackRock's ESG shift mounts sustainability pressure on Germany's energy-hungry companies

  • The strategic shift of US investment management firm BlackRock to align its financial operations with sustainability criteria starts having an impact on Germany's most energy intensive companies, Peter Köhler and Robert Landgraf write in Handelsblatt.

  • Schmitz said the asset management firm had sent a reminder about the application of so-called ESG (environmental, social, governance) investment criteria to 244 companies and that it withheld its support for individual board members or for the entire board of 53 companies, including German heavyweights like Daimler, Lufthansa, Siemens or Heidelberg Cement.


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