ESG Weekly News Update: November 11, 2020
General ESG News:
Financial Times: Companies defy investor demands on climate change
Despite the rise in “net zero” announcements from businesses across the world, few public companies are likely to meet the targets of the Paris agreement to tackle climate change, according to research from J Safra Sarasin, the Swiss bank.
According to the analysis, which focused on past, current and future emissions of 6,000 groups, businesses globally appear on course for a 4 degree rise, while in Europe that number stands at 3.5 degrees.
This is despite big shareholders demanding companies cut emissions as concerns mount that businesses that fail to take global warming seriously could become investment pariahs.
While the focus of most leaders starts and ends with their business, the best are capable of seeing the whole picture themselves. The most influential and lasting companies are those with visions that extend beyond revenue and profit margins. If you want your company to make it through this difficult moment, you need to be focused on doing good for more than just your shareholders.
In 2020, nothing in business can be secret anymore. Companies can hardly plan a press release before consumers learn what’s going on, and consumers are very picky these days. According to a survey from marketing firms Markstein and Certus Insights, nearly half of consumers pay close attention to a brand’s efforts to be socially and environmentally responsible before they buy their products. This means companies won’t be the only ones to know if they're sticking to the mission.
IR Magazine: ESG: The legacy of Covid-19
Over the past few months, however, there has been a serious return of ESG issues to the corporate agenda. Indeed, ESG-focused corporate announcements have been listed in the ranking of the top eight news stories from reputation intelligence, analysis and media monitoring company alva for the last 15 consecutive weeks.
Indeed, a lasting focus on ESG could be the legacy this crisis has left on corporates. Perhaps this is because the realization that our societies and industries can, in fact, fail has become frighteningly real over the last six months. Covid-19 has highlighted how suddenly and quickly the institutions and organizations we take for granted can be challenged.
ESG Channel: Diversity Improves Corporate Strength
Research has shown that groups composed of people from similar backgrounds refrain from challenging prevailing views, along with the positive impacts that diverse groups can have on improved decision making, risk oversight and innovation. Other studies have revealed that management teams with a critical mass of racial, ethnic and gender diversity are more likely to generate above-average profitability. Those that promote workforce diversity and inclusion through transparent hiring, promotion and wage practices have seen improved productivity, revenues and market share.
On the other hand, companies with limited diversity are more likely to underperform peers and face reputation risks.
Wall Street Journal: What Is Greenwashing? Here Is What Investors Need to Know
“Greenwashing is when firms and funds give misleading claims about their products or ESG credentials,” says Ben Colton, global co-head of asset stewardship for State Street Global Advisors. “It misdirects capital away from the goals and preferences of the investors who choose sustainable funds.”
It can be difficult for inexperienced investors to distinguish a company that is really green from one that just claims to be. In the past, for example, most oil stocks wouldn’t have been viewed as sustainable investments, yet many big oil firms are now embracing clean energy.
This is where sophisticated money managers can be helpful. They have the resources to conduct systematic analysis to discern the green from the green-washed.
ESG Disclosures, Standards, Rankings, Data and Reporting:
Investor’s Business Daily: 50 Best ESG Companies 2019: Top Stocks For Environmental, Social And Governance Values
Among companies with ESG ratings of AAA or AA from MSCI ESG Research as of Sept. 11, 2019, these 50 companies had the highest IBD Composite Ratings, reflecting broad strength in fundamental and technical areas linked to price performance. Nearly all have a Composite Rating of 80 or higher, putting them in the top 20% of stocks.
A new study published by investment management firm Fidelity International has a strong positive correlation between companies’ ESG ratings and their relative market performance in the first 3 quarters of 2020. According to the study, high ESG-ranked companies outperformed lower-ranked peers in 8 of the first nine months of the year.
According to the study, over the period, stocks with an ESG rating of ‘A’ outperformed the MSCI AC World Index. Additionally, the study identified a clear linear relationship across the ESG ratings groups, with each one beating its lower rated group from A down to E. Results in fixed income were similar to those in equities, with bonds of A-rated companies outperforming B’s, which in turn outperformed lower ESG-ranked securities.
S&P Global’s ESG risk assessment data company Trucost announced today the results of a study indicating outperformance by investment portfolios comprised of companies aligned with the United Nations’ Sustainable Development Goals (SDGs)*. According to the analysis, SDG-aligned portfolios generated superior returns to the S&P 500, and incorporating the Trucost SDG dataset into a portfolio led to a better performance than a non-SDG aligned portfolio.
The Global Reporting Initiative (GRI), one of the leading organizations promoting standardized ESG reporting, announced today the launch of The GRI Business Leadership Forum, aiming to leverage the power of corporate reporting to drive action towards accomplishing the UN Sustainable Development Goals (SDGs).
The new forum is built around a series of quarterly online sessions with representatives from key stakeholder groups, including investors, governments, regulators, supply chains, civil society and academia, aiming to facilitate dialogue and collaboration between companies and their stakeholders. GRI reporting organizations around the world can now sign up for the two-year program, which will start in March 2021.
RepRisk, a leading ESG data science firm combining machine learning and human intelligence, today announced it is working with J.P. Morgan to offer front-office decision makers access to ESG risk data through J.P. Morgan’s flagship multi-asset data and analytics platform, DataQuery.
RepRisk offers quantitative risk analytics and proprietary metrics for public and private companies from every sector and market across the globe, serving leading financial institutions and corporates in their ESG integration and risk management processes across operations, business relationships, and investments.
FT Adviser: ESG inflows quadruple in 2020
Figures from the Investment Association, published today (November 5), showed responsible investment funds saw net flows of £7.1bn in the nine months to September this year — 275 per cent more than the £1.9bn measured in the first first three quarters of 2019.
In September alone, responsible investments funds saw net inflows of nearly £1bn and total assets in environmental, social and governance portfolios stood at £40bn at the end of the month.
“In a year clouded by uncertainty, responsible investment funds are a beacon for how savers can put their money to work to support positive change globally, and our industry can be proud that these funds are reaching new heights of popularity.”
Sustainable investments in Europe have grown significantly over the past decade, especially as more institutional investors commit to responsible investing standards. As they look to integrate environmental, social and governance (ESG) factors into their investment strategies, financial services firm Nordea recently released a guide to sustainable investing, outlining key trends and several approaches for ESG investing.
“The global focus on sustainability is likely to continue, and one should not underestimate the demand effect as more investors allocate to companies well-positioned from an ESG point of view,” Nordea said in its report.
Institutional Asset Manager: Higher ESG ratings linked to outperformance in 2020, finds Fidelity
Stocks with higher ESG ratings outperformed those with weaker ESG ratings in every month from January to September, other than April, according to new research by Fidelity International.
The research timeframe covers both the coronavirus market crash in March, and the recovery from April onwards, and suggests a strong positive correlation between a company’s relative market performance and its ESG rating.
Evidence increasingly shows us that millennials’ investment choices typically align with their values, many of which are indicative of an ethos that favors sustainability, good governance and environmental awareness.
The report states millennials and high net-worth millennials are already driving rapid global growth in ESG investment, with 83% actively reviewing the ESG impact of their investment holdings, while 57% have deliberately halted or declined to invest in a company based on the impact its products or services have on the health and well-being of people and the environment.
International Investment: Appetite for ESG accelerates during pandemic
The pandemic has increased public interest in sustainable investing, according to a survey by Aviva.
The survey of over 500 people with investments found that over half (55%) said that the pandemic had had an impact on their likelihood to take ESG factors into consideration when deciding where to invest their money. Among those who said they already consider ESG, 81% said the pandemic made this even more important.
67% said environmental factors are the most important, namely those that related to pollution, climate change, waste and recycling and promoting animal welfare.
There is a potentially more effective way that consumers and industry leaders can make their voices heard beyond protesting and voting, and that is to focus on their investments,” says Richard Steel, author of Elevated Economics and CEO of Parsec Ventures in San Francisco. “There is already a massive push to see a change in Washington, ameliorate policing, achieve social justice, and to reduce carbon emissions, among other issues. One of the easiest and most effective ways to make change happen is to put your money where your mouth is. Investing in companies that are in line with your social and moral values is becoming table stakes.”
Not everyone agrees with the theory behind ESG-based investing. “Stock focused ESG efforts will never work,” says Jeremy Keil, a financial planner at Keil Financial Partners in Milwaukee. “You aren’t giving money to the company when you buy a stock, you are buying it from another person and giving them the money.”
President Barack Obama’s administration made socially conscious businesses a priority through an executive Office of Social Innovation and Civic Participation. The Trump administration closed the office, but given rising interest in sustainable investing, “we anticipate that a similar initiative may arise under a Biden-Harris administration,” says Adam Bendell CEO at Toniic, a network of impact investors.
A related push by impact investors is to create more transparency around corporate environmental and social practices. The Sustainable Accounting Standards Board (SASB) has been advocating for SEC-required financial accounting disclosure to include social and environmental disclosures as well.
The U.S. Impact Investing Alliance is now urging the President-elect to build consensus around reforms outlined by the Federal Reserve that would “strengthen and reaffirm the Community Reinvestment Act (CRA).”
The U.S. withdrew officially last Wednesday from the Paris Climate Accord, the international climate change forum. Biden has pledged to rejoin it as soon as he takes office, a move that alone is expected to spur further development of the clean energy industry in the U.S.
The US election highlighted the importance of ESG (environmental, social and governance) issues with voters keenly focused on policies relating to climate change, including stances on the renewable energy sector.
Human rights issues were also at the forefront of voters' minds in areas such as equal access to medical resources, addressing escalating racial problems or instigating gender equality reforms.
Biden was much more measured as results came to hand and key takeaways from his victory address included commitments to bringing together a seemingly divided nation by addressing key issues such as health care and human rights, while also highlighting that ‘’science’’ would be central to his vision of transforming America into a smarter and more sustainable country.
401K Specialist Magazine: ‘Disappointing’ DOL Final Rule on ESG Investing Could Face Challenges
The Department of Labor says its final ESG rule released Oct. 30 “intends to provide clear regulatory guideposts for fiduciaries of private-sector retirement and other employee benefit plans in light of recent trends involving environmental, social and governance (ESG) investing,” per a DOL statement announcing the final rule.
The final rule is likely to be challenged in court, or could be vacated before it is enacted if Joe Biden ends up winning the presidential election, still undecided as of mid-day Nov. 4.
Jon Hale, director of ESG research for the Americas at Morningstar Inc., told Bloomberg in October the proposed rule is so “shoddily constructed” that it’s unlikely to withstand legal scrutiny.
A broad alliance of civil society groups is seeking to establish new rules for Swiss-based companies doing business abroad. Voters decide on their initiative on November 29.
It represents the culmination of over ten years of campaigning for human rights and environmental protection by Swiss non-governmental organizations, which are supported mainly by the political left.
The vote is seen as potentially harmful for Swiss multinationals and the country’s economy, as it puts a spotlight on ethical business standards and allegedly improper practices.
Companies and Industries:
We started to address deforestation several years ago, as part of a longer-term engagement strategy pertaining to sectors covered in the OECD’s Responsible Business Conduct Guidelines and the impacts of companies’ operations and products.
This led us to start prioritizing companies with the highest risks in the palm oil sector, as well as other agribusinesses such as livestock and food staple companies. The deforestation we were seeing in Asia, primarily in Indonesia and Malaysia, prompted us to focus our engagements with companies producing and sourcing palm oil.
Deforestation and climate are clearly issues for the global economy and they’re closely interconnected. There’s the impact of a company’s business on the climate and the impact of climate change on a company’s business. It’s a two-way interaction.
The Wall Street Journal recently published a ranking of the 100 most sustainably managed companies in the world. The topic of sustainability has great impact in the food space, with many brands building entire business models around it, and yet the industry is wildly underrepresented on the list.
Food companies, in general, have never been overly transparent about their supply chains and activities. Due to the breadth of the food space, many companies deem their supply chain as part of their competitive advantage and therefore are guarded about it. Additionally, much of the food system has been designed around commodity agriculture and large-scale processing, making transparency even harder.
The next generation of food brands are focused on sustainability and serving the needs of customers, prioritizing good business over just good marketing.
Few big four sports teams to date have made headlines for their work with (or towards) an ESG cause. But Craig Jonas, founder and CEO of CoPeace (an impact investing holding company), anticipates pro organizations will take a greater interest in the macro issues affecting their communities moving forward: “COVID-19 plus the struggle for racial justice plus the climate crisis is moving [ESG-focused initiatives] along faster than ever before, and sports is going to be a part of that party.”
Perhaps the biggest reason teams have historically been hesitant to partake in ESG initiatives is the astronomical growth of the industry over the last two decades. “Everyone thought sports were bulletproof. Everything was new multiples and rising valuations.” Stakeholders had little motivation to venture beyond the status quo. But the pandemic has forced even the richest organizations to cut costs and find new revenue streams.
Pensions & Investments: Blackstone adds global head of real estate ESG
Eric Duchon was named global head of real estate ESG at Blackstone Group. Mr. Duchon will work with Blackstone's global real estate asset management teams to build on environmental, social and governance efforts throughout the firm's $329 billion global real estate portfolio, according to a news release Thursday.
CSR Wire (Dow): Why Purpose Leads to Profits
Recently, Dow was named to the 2021 list of JUST 100 companies, a ranking by Forbes and JUST Capital of America’s best corporate citizens, and also was rated as the leading chemical company among workers.
Profit and purpose should not be an either/or proposition. In fact, research finds that companies that pay attention to ESG see higher profitability and a reduction of downside risk. By harnessing the power of purpose and integrating it into our decision-making, Dow creates long-term sustainable value – for our business and our stakeholders.
Enbridge Inc. today announced expanded environmental, social and governance (ESG) goals and targets related to greenhouse gas (GHG) emissions reduction and diversity and inclusion as well as increasing transparency and accountability of our ESG priorities and results. Setting goals in areas core to our business and stakeholders is just one of the ways Enbridge is further integrating ESG into strategy, operations and decision-making.
A new goal to achieve net zero GHG emissions by 2050; with an interim target to reduce GHG emissions intensity 35% by 2030
Increased representation of diverse groups within our workforce by 2025
Further strengthening Board diversity with an increased goal of 40% representation of women and new goal of 20% of Racial and Ethnic groups by 2025
Most transparency and reporting of safety and reliability targets
Sparrows Capital has launched a range of ESG portfolios on its platform-based model portfolio service, SCore MPS, aimed at financial advisers.
The SCore Responsible MPS comprises 11 portfolios containing equity exposures rising from zero to 100 per cent, in 10 per cent increments. This is designed to allow advisers to select the risk level appropriate for each client’s attitude to risk. The portfolios are globally diversified, multi-asset and liquid, with sterling as the base currency.
Landmark Information has today launched its new Environmental, Social and Governance (ESG) management platform - RiskHorizon - focused on delivering rich, comprehensive assessments to a broad audience of investors, property asset owners and managers, from private equity and investment houses to corporates and their lawyers.
The platform provides thorough and actionable global ESG due diligence of their corporate investments and acquisitions.
Responsible Investor: FactSet to acquire ESG provider Truvalue Labs
Financial data provider FactSet is to acquire US-based ESG and AI specialist Truvalue Labs for an undisclosed fee.
The transaction, expected to close later this year, is latest in ESG data house consolidation trend.
Portland Business Journal: Navex Global adds ESG to its ethics, compliance, governance management software suite
This latest acquisition will bring Navex Global into the growing market of ESG software as more companies and investors want to monitor environmental, social and governance metrics.