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ESG News Update: July 28, 2020

General ESG News:

Bloomberg Opinion: Socially Conscious Investing Thrives Amid Pandemic

  • At the moment when so many industries are staggered by the coronavirus pandemic, investors are beating the market by putting their money in companies committed to environmental, social and governance priorities favoring transparency, diversity and sustainability.

  • For more and more companies, doing the right thing is becoming as much a business imperative as a social responsibility, especially in the market for renewable energy.

Los Angeles Times: It’s been a landmark year for investor action on climate change

  • Rather than drive investor attention away from climate change, the pandemic has cemented interest, with many investors fearing the economic fallout seen during the pandemic could be replicated if the world fails to halt global warming, said Mirza Baig, global head of governance at Aviva Investors.

  • With a growing business case, more than 450 asset managers, with $40 trillion in assets, have signed up to an initiative called Climate Action 100+ to force the world’s biggest carbon emitters to tackle global warming. BlackRock joined the group in January.

  • With public pledges and increased staff, companies now face the prospect of intense shareholder scrutiny. Small shareholders were easy to ignore, but large asset managers cannot be easily brushed aside. The jump by large investment firms into the climate change fight “will send a shiver up the spine of the companies that have not dealt with this before or are ignoring the issue,” said Jamie Bonham, director of corporate engagement at NEI Investments, a small Canadian investment manager with $5.8 billion of assets under management.

ESG Standards and Rankings:

Chief Investment Officer: Racial Injustice Will Have Greater Weight in ESG Scores, S&P Global Says

  • About 43% of companies in the S&P 500, or 217 businesses, have publicly made statements to show their solidarity for the Black Lives Matter movement and to protect their reputations, according to the S&P Global Ratings report. The companies most likely to have made public responses were in consumer goods or the financial sector, while the businesses least likely to announce support were in energy, industrials, or materials, the report found.

  • But making public statements is not enough to appease internal or external stakeholders. Some companies supporting Black Lives Matter are late to the cause, and get chided, particularly from Millennials or Gen Zers, who question the business’ sincerity.

  • Instead, S&P analysts reported increasing investor interest in whether companies are addressing the lack of diversity among their ranks, the report said.

Investment Trends:

The Motley Fool: The Coronavirus Market Crash Is an Opportunity for ESG Companies

  • Investment in companies that pay attention to environmental, social, and governance (ESG) issues has taken off in recent years. In 2018, ESG investment assets reached $30.7 trillion globally, up 34% from the two years prior, according to a report by the Global Sustainable Investment Alliance .

  • While ESG investors normally have to sift through the details, the coronavirus has made it easier to see which companies are acting in a socially conscious way. Companies are facing tough, highly-visible decisions every day. Additionally, the tragic killing of George Floyd and the subsequent nationwide protests of police brutality that followed have also shined a light on whether companies are really addressing racial inequality.

Triple Pundit: The Value in ESG for the Workforce And Investors Is Greater Than Ever (Here's Why)

  • In a newly transparent world, we can peer into the windows of companies to see whether or not they are being honest about what’s going on in the world, what’s happening in the minds of consumers, and what’s occurring within their own ranks of employees, partners and customers.

  • In a way, the pandemic has accelerated the ESG movement faster than any of us might have imagined: It has given us more free time to research, a bigger spotlight on what companies are doing in a crisis, and a rare opportunity to step back as a community to ask ourselves how the public and private sectors help or hinder us lowly consumers with their beliefs, values and actions.

The Asset: Covid-19 highlights advantages of ESG integration

  • For asset managers, those in a more advanced stage of integrating ESG factors into their investment strategies and portfolios are in a better position to identify companies that can perform better than their peers during and after the health crisis.

  • In the study titled “ESG Integration, Investment -led, Expert-driven”, published in July 2020, JPMAM presents a 10-point scoring system for ESG integration that is currently being used by their investment teams for evaluating companies on the extent to which they have integrated ESG factors into their business models and operations.

  • The scoring system, which is based on the Principles of Responsible Investments (PRI) endorsed by the United Nations, includes a host of factors that cover three major areas, namely: research and investment management, which attempts to determine if ESG integration is an integral part of the research or investment due diligence process; documentation, which determines if there is documentation as to how ESG is integrated;  and monitoring, which determines if there is a clear assignment of roles and responsibilities in the ESG integration process to ensure risk management and oversight are in place.

Advisor Perspectives: Is ESG a Factor?

  • Increasingly, investors are asking if ESG is a factor. We answer this question using the criteria set forth by our Research Affiliates colleagues in their 2016 Graham and Dodd Scroll–winning article, “Will Your Factor Deliver? An Examination of Factor Robustness and Implementation Costs.” We conclude that ESG is not a factor.

  • We do believe, however, that ESG could be a powerful theme as new owners of capital—in particular, women and millennials—prioritize ESG in their portfolios over the next two decades. Progress in aligning definitions of “good” and “bad” ESG companies will also enhance the ability of the ESG theme to deliver positive investor outcomes.

Government Policy:

Investment News: SEC, DOL take different approaches to regulating ESG investing

  • The Department of Labor recently proposed a rule that would update and clarify investment rules for employer-sponsored retirement plans, such as 401(k) accounts. Under the measure, plan fiduciaries are instructed not to make investment decisions that promote environmental, social and governance goals above achieving the highest return possible for retirement savers.

  • On the other side of Capitol Hill, the Securities and Exchange Commission also is setting its regulatory sights on ESG investing. This year for the first time, it has made reviewing how registered investment advisers handle ESG an examination priority.

  • The SEC “has a particular interest in the accuracy and adequacy of disclosures provided by RIAs offering clients new types or emerging investment strategies, such as strategies focused on sustainable and responsible investing, which incorporate environmental, social, and governance criteria,” the agency said in its exam priorities document.

Financial Advisor: Morningstar: DOL's ESG Proposal 'Out Of Step' With Best Advisor Practices

  • If the Department of Labor passes the rule as proposed “it would lead to worse outcomes for plan participants as plan sponsors shy away from assessing ESG risks in selecting investments. Indeed, since most participants use qualified default investment options—and ESG considerations would be barred in these options—most participants would not get the benefits that ESG risk analysis can deliver,” Brock Johnson, president of Morningstar Retirement Services, said.

United Nations: Sustainable investing and private sector efforts and initiatives on environmental, social and governance (ESG) factors

  • More individual investors are expressing interest in sustainable investing practices (from 71 per cent in 2015 to 85 per cent in 2019, in one survey). Financiers are increasingly divesting from companies that are at odds with some of the SDGs. For example, a group of institutional investors representing nearly $4 trillion of assets under management—the UN-convened Net-Zero Asset Owner Alliance, committed to transitioning their investment portfolios to net-zero greenhouse gas (GHG) emissions by 2050. In the banking sector, 130 banks from 49 countries have committed, through the Principles for Responsible Banking launched in 2019, to work with their clients to encourage sustainable practices.

  • The private sector transformation is not happening fast enough nor at the required scale. Such a transformation will require rethinking corporate governance, raising public policy ambitions and making the financial system a force for change.

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