ESG News Update: July 24, 2020
General ESG News:
Stakeholders are increasingly holding companies to a higher social standard, demanding that they demonstrate a real commitment to advancing racial equality, beyond donations and promises.
We believe racial injustice is becoming a material issue that has the potential to change our ESG Evaluations and credit perspectives, although the full effects are not yet clear.
Companies' values and discrimination records are under intense scrutiny, prompting responses from 217 S&P 500 companies as of June 25, 2020, to protect their reputations and businesses, particularly from negative comments on social media.
U.S. Chamber of Commerce: The Role of ESG in the Business Community
ESG is continuously evolving—just like our markets. In 1955 investors had to seriously consider the impacts of the Cold War and superpower confrontation with the Soviet Union on their portfolios. Obviously, the Soviet Union no longer exists.
Today, for many companies, climate change and carbon emissions impact long-term value, thereby becoming a factor that retirement fund managers should take into consideration. Cybersecurity is also increasingly a concern that investors will have to consider. These are issues that represent an evolution in the way we invest and are top of mind for institutional investment firms and individuals.
Regulators are absolutely right to update regulations in order to ensure that institutions always prioritize economic return over other factors when making decisions on behalf of retail investors. That is common sense and government policies need to ensure that return and evolving investor needs go hand in hand.
Seeking Alpha: ESG Gains Traction In China As Investor Base Expands
Awareness of environmental, social and governance issues has increased in China, and government initiatives and increased foreign investor participation in China's markets are largely driving it.
ESG investment has gained increasing attention from China's capital market participants, helped by the release of more policies and guidance from regulators. For example, as part of the Chinese government's efforts to reduce pollution and improve environmental standards, a new regulation required listed companies to disclose environmental information from 2020. Therefore, national interest is one of the drivers of improved practices the government is pushing.
ESG Standards and Rankings:
According to C&S, environmental, social and governance (ESG) disclosure is becoming mainstream globally, with a multitude of frameworks and requirements now attempting to provide investors with quality corporate data.
From institutional asset managers and pension plan sponsors to wealth advisors and retail investors, interest in ESG investing is accelerating rapidly across all types of investors at every level. By making this data easily accessible and consumable, all financial market stakeholders can have visibility into the material ESG risks within companies.
City Business: The rise of ESG investing: It’s easier to make a difference
Today, ESG investing is estimated to be more than $20 trillion in assets under management (AUM), or about a quarter of all worldwide professionally managed assets. It’s safe to say that ESG investing isn’t a fad. Over time, the focus placed on ESG will likely be a sign of corporate responsibility for all stakeholders. For investors, it is an opportunity to align their investments with their desire to make a difference.
Corporate Knights: Post-pandemic focus on risk reduction means good news for ESG investing
In a recent report, COVID-19’s Influence on the European PE Market, two PitchBook analysts said private investors have now entered “defensive mode,” with a specific emphasis on risk identification and resilience.
“Greater premiums will be placed on business stability and resilience as companies brace themselves for inevitable black swans” (the next existential disasters), says PitchBook. “We think investors will double down on ESG following this crisis, as society becomes more sensitive to companies ‘doing the wrong thing.’”
Responsible Investor: Initiative launched to get impact and ESG on agenda of the next US President
Just weeks before the US Department of Labour (DoL) proposed to limit pension funds’ ability to invest in ESG-focused funds, rattling the responsible investment industry globally, the Tipping Point Fund on Impact Investing (TPF) announced new grants to help organisations develop public policy on issues like fiduciary duty and ESG.
The matter has been a “political football” for years, says Fran Seegull, Project Director for the TPF and the Executive Director of the US Impact Investing Alliance. She says the recent DoL announcement reflects the need for a better understanding amongst policymakers and regulators about ESG and impact investing.
Twelve of 14 institutional investors interviewed for a U.S. Government Accountability Office study said they seek out information on companies’ ESG issues because they’re trying to better understand risks that may affect the companies’ long-term financial performance.
The GAO study found that public companies vary in their disclosure of environmental, social and governance issues, and this occurs not only across industries but within them. And some institutional investors are suggesting new legislative or regulatory requirements aimed at enhancing the ESG disclosures made.
Prohibiting use of ESG funds as default options would be a huge obstacle for growth of ESG in 401(k) plans. “The prior guidance (from the Department of Labor) left some room for considering an ESG fund as a default option,” said Mikaylee O’Connor, head of defined contribution solutions at RVK, a New York-based consulting firm that advises workplace retirement plans. “But based on the proposed regulation, this is likely not possible.”
“It’s very important that long-term investors have access to economically driven ESG strategies, because these are risks that will show up in stock price over time,” Ed Farrington, head of retirement strategies at Natixis said.
Financial Times: Letter: ESG has been hijacked by political activists
The problem is that ESG has been hijacked by political activists who want to use other people’s money to advance their own agendas. The definition of ESG is vague, at best, and has become merely an excuse for asset managers to apply their own prejudices to investment choices.
It is time to reclaim ESG as a force for good, not an excuse to promote a political agenda. The Department of Labor is trying to accomplish that difficult task.
Six out of ten British businesses have cut investment in sustainable practices as a result of the coronavirus pandemic, according to a report that has raised concerns about the economy’s ability to “build back better” in the wake of the virus.
Speaking about the findings, Ivalua procurement expert Alex Saric said: “COVID-19 has forced many companies to change their priorities to focus on ‘business as usual’ and ensuring their survival, creating further barriers when it comes to implementing sustainability initiatives.”
The Street: Will ESG Credentials Power Apple Even Higher?
This past week, Apple pledged to become carbon neutral across all aspects of its business by 2030.
The corporate side of Apple was already considered to be carbon neutral, so the company is extending this to its manufacturing and supply chain processes. The company plans to increase efficiency for 75% of its carbon cutback, and then develop “innovative carbon removal solutions” for the remaining 25%.
"Low carbon aluminum emits three times less CO2 into the environment than primary aluminum made from coal-fired electricity. The big impact on reducing greenhouse gases occurs when manufacturers adopt the widespread use of low carbon aluminum," says Barker.
Apple set the benchmark for an effective ESG (environmental, social, and governance) program that other companies may soon follow. In their ELYSIS joint venture partnership with Alcoa and Rio Tinto, Apple plans to use low carbon aluminum in their phones and computers. The company disclosed that aluminum represents 24% of their manufacturing carbon footprint. Apple will literally take a bite out of the apple by their use of low carbon aluminum to reduce their emissions.