ESG News Update: November 18, 2020
General ESG News:
Pennsylvania Business Report: COVID-19 resurgence seen as greatest current challenge for businesses, survey finds
A WSFS Back survey of 300 businesses throughout the Greater Philadelphia region and Delaware discovered 64 percent believe a resurgence of COVID-19 is their greatest foreseen challenge.
· Additionally, 46 percent stating the greatest challenge is an uncertain operating environment, and 43 percent stating it was the cost to modify workspaces for their employees.
The survey also discovered that 54 percent of business leaders were optimistic about business growth. During the pandemic, 79 percent of minority-owned businesses and 71 percent of the manufacturing, wholesale, and distribution sectors have experienced growth.
Delaware Business Times: Waltz: ESG leaps to the peak of the business alphabet in 2021
Expect your ESG to be measured in 2021. Even among closely-held, family-owned and partnership-owned businesses, prepare your firm to be asked some unusual, perhaps uncomfortable, questions next year.
D&I, or diversity and inclusion, is one of the critically important parts of managing a business’ ESG. Pay attention to your waste stream, and how your own vendors handle both the raw materials and the waste. Beyond your hiring practices, take a look at other human capital and governance issues, among them, who and how do you promote leadership?
ESG Disclosures, Standards, Rankings and Reporting:
Bloomberg Law: ANALYSIS: Will Investors Get the ESG Data They Want in 2021?
The Investor Advisory Committee of the Securities and Exchange Commission, in calling for Commission action, stated that “the time has come” for the SEC to act on mandatory ESG disclosure requirements. The Commission is likely to act in three main ways.
Initially, the staff will likely prepare a proposal on expanding the disclosures required concerning board consideration of diversity matters.
The staff will also likely draft initial climate change proposals, reflecting the recommendations of the Investor Advisory Committee. The committee urged the Commission to establish a principles-based framework providing issuer-specific, material, decision-useful information reflecting the same data that companies use to make their own business decisions.
Finally, the staff will likely recommend a proposal to expand required human capital disclosures to cover metrics on workforce diversity, part- and full-time workforce makeup and turnover, and tenure.
MSCI announced the launch of the MSCI ESG Industry Materiality Map, a public tool aimed at providing transparency into the dynamic and industry-specific MSCI ESG Rating model, allowing users to delve into key Environmental, Social and Governance issues that impact different industries.
The company stated that the map explores the key E, S and G issues by GICS sub-industry or sector and their contribution to companies’ overall ESG Ratings. MSCI also said that the Materiality Map showcases some recent ESG Ratings model enhancements, which include a heightened focus on corporate behaviours, such as fraud and anti-competitiveness practices, across all sectors, assigning greater weight to governance, alongside environmental and social considerations.
Morningstar announced that it has begun formally integrating environmental, social, and governance (ESG) factors into its analysis of stocks, funds, and asset managers. This will include the integration of Sustainalytics research into Morningstar’s equity research methodology.
According to Morningstar, Sustainalytics data will be utilized and in a manner that aligns with Morningstar’s investment philosophy through two principal channels: the Morningstar Economic Moat Rating, which measures a firm’s sustainable competitive advantage, and the Uncertainty Rating, which gauges the relative predictability of future cash flows.
The company also announced that its manager research analysts will analyze the extent to which asset managers are incorporating ESG factors as part of its new Morningstar ESG Commitment Level evaluation. Analysts will assess the analytics and personnel committed to each strategy and the extent to which the strategy incorporates those resources into the investment process.
S&P Dow Jones Indices (S&P DJI) announced the results of its annual rebalancing and reconstitution assessments of its preeminent Dow Jones Sustainability Indices (DJSI).
The key factor in selecting constituents for a DJSI index is a company’s S&P Global ESG Score, calculated under SAM’s annual Corporate Sustainability Assessment (CSA). Overall, for the 2020 review, 3,429 companies were assessed, with a record 1,386 completing the rigorous CSA questionnaire, an increase of 19% over the prior year.
This year’s highest profile additions on the DJSI World index, based on free-float market capitalization are Humana, Ecolab, and Fast Retailing. The three largest deleted companies are Alphabet, Bank of America Corp, and United Parcel Service.
ESG ratings provider Sustainalytics announced today the launch of Impact Metrics, designed to enable investors to systematically monitor, measure and report on the social and environmental impacts of their portfolios.
Impact Metrics are based on Sustainalytics’ new Impact Framework, which covers six impact themes that correspond to one or more of the Sustainable Development Goals (SDGs). The framework comprises two social areas and three environmental areas, including climate action, healthy ecosystems, resource security, basic needs, and human development.
Sustainalytics stated that it is launching Impact Metrics as regulatory initiatives such as the EU Sustainable Finance Action Plan and the growing importance of issues like climate change and diversity are becoming key priorities for institutional and individual investors alike.
In Michael O’Leary and Warren Valdmanis’ recent book, Accountable: The Rise of Citizen Capitalism, they argue that Adam Smith–style invisible hand capitalism is ineffective—and out of date—and that companies need to reorient themselves to serve more than just shareholders.
“I think that we have this meatheaded short-term-ism in our economy that prevents even businesses from realizing what’s in their long-term best interests sometimes” said Warren Valdmanis, Coauthor of Accountable.
“Is sustainability or ESG important to investing?” And nine out of 10 millennials will say, “Yes, of course you should be thinking about environmental and social issues in your investment portfolio.”
Clients are expressing interest in environmental, social and governance (ESG) issues and advisors are routinely integrating the approach into portfolios. The practice is reshaping wealth management.
The trade group US SIF, which tracks sustainable investing, said that one of every four dollars under management in the U.S. was invested according to sustainable investment strategies, a figure that totaled $12 trillion.
Andrew Lee, who heads UBS Wealth Management’s sustainable and impact investing, said UBS found that sustainable investing has become interlinked with company financial performance. Social themes related to health care and climate change dominate client conversations about sustainable investing at UBS.
Exploring and choosing to invest sustainably is a personal and unique experience, and there are multiple strategies under the sustainable umbrella. Some investors see such investing as not only ethical but an exercise in risk-mitigation, avoiding poor corporate actors and other risks.
Advisors can start by asking clients what sustainable investing means — and what’s most important — to them.
When rolling sustainable funds into client portfolios, financial advisors often starts with low-cost, broad-based exchange-traded funds or funds with a social or sustainable focus that meet portfolio allocation needs.
ESG investing has widespread appeal. It is not a partisan phenomenon and has even won over its biggest skeptic: Wall Street.
According to Morningstar, against the backdrop of the surging pandemic, global ESG funds saw inflows of $45.7 billion in the first quarter of 2020—compared to an outflow of $387.7 billion in non-ESG funds.
The market has seen what ESG investors have long seen—the value of ESG factors in identifying the winners and losers of long-term investments.
State Street Global Advisors, the asset management business of State Street Corporation, announced the launch of the SPDR Bloomberg SASB® Corporate Bond ESG Select ETF (RBND).
The SPDR Bloomberg SASB Corporate Bond ESG Select ETF seeks to track the Bloomberg SASB US Corporate ESG Ex-Controversies Select Index. The index measures the performance of investment grade corporate bonds issued by companies that demonstrate certain environmental, social and governance characteristics, while also exhibiting risk and return characteristics that are comparable to those of the Bloomberg Barclays US Corporate Index.
“RBND is designed to help investors cut through the noise and integrate material ESG factors at the core of their fixed income portfolios,” said Noel Archard, global head of SPDR product at State Street Global Advisors.
FT Adviser: How ESG-linked stocks outperformed in 2020
Companies with better environmental, social and governance ratings had better returns in almost every month of 2020 so far.
Figures from Fidelity’s Putting Sustainability to the Test report showed stocks at the top of the fund house’s ESG rating scale outperformed those with weaker ratings in every month from January to September, apart from April.
Scottish Widows announced it was to divest nearly half a billion pounds from companies that failed to meet its new environmental, social and governance standards as it looked to protect investors from ESG investment risks.
Global issuance of sustainable bonds – including green bonds, social bonds and sustainability bonds – hit a record $127.3 billion in the third quarter of 2020.
Given the record strength in the quarter, Moody’s has raised its forecast for 2020 sustainable bond issuance, now estimating it could approach $425 billion.
Sovereign sustainable bond issuance continues to grow, reaching over $33 billion year-to-date, from $22 billion in all of 2019. Sustainability-linked debt remains an emerging area with strong growth potential, totaling $20.8 billion in the third quarter.
Sustainable bond issuance represented a 6.1% share of global debt issuance, a new quarterly record. Green loans totaled just $1.2 billion in the third quarter, falling after the record $12.6 billion during the second quarter.
Companies and Industries:
According to the Coller FAIRR Protein Producer Index, 60 of the world’s largest meat and dairy producers do not have targets in place to reduce their greenhouse gas (GHG) emissions.
The majority of the producers that the FAIRR report analyzed are headquartered in Asia, a region that is driving much of the world’s increased animal protein consumption.
“The Index demonstrates that investors must continue to push for sustainability improvements across the meat and dairy sector as a whole as it is far from optimal,” added Nina Roth, Director of Responsible Investment at BMO Global Asset Management.
In March, Samsonite announced a new global sustainability strategy that outlines its commitments across four priority areas: Product Innovation; Carbon Action; Thriving Supply Chain; and Our People, including engagement, development, diversity and inclusion.
Samsonite operates using a primarily decentralized management structure across its four key regions: North America; Asia; Europe; and Latin America. With the strong support of its regional presidents, the company formed a global sustainability committee and a global carbon reduction committee. Membership is varied across functional areas and included human resources, marketing, sourcing, facilities, retail, finance and product development.
Another way the sustainability team engaged internal stakeholders was by holding extensive feedback sessions with representatives from different functional areas about the respective goals to ensure that they would be able to successfully implement initiatives and provide data that would be useful and practical when demonstrating progress.
Daily Energy Insider: Electric companies make headway on environmental, social, and governance issues
Environmental, social, and governance (ESG) issues have become an important consideration for investors, and electric companies are working to implement strategies to provide transparency and meet their goals in all three areas.
Jocelyn Perry, EVP & CFO with Fortis, said the gas and electric utility also has environmental goals, with a plan to be 75 percent coal-free by 2035. Although she says the ESG plan at Fortis has traditionally been centered around the environment and governance, the company has made strides this year to focus on social issues.
Con Edison launched its formal diversity and inclusion strategy in 2015. That strategy includes four pillars: learning; using leaders to cascade messages; policies, practices, and procedures; and communication and engagement. The environment is also a priority for Con Edison, and the company has encouraged decision-making based on metrics associated with climate change.
The election of Joe Biden as the next president of the U.S. is expected to have wide-ranging implications for investors who care about the environment and society, even if Congress remains divided.
Prioritizing Social Businesses: President Barack Obama’s administration made socially conscious businesses a priority through an executive Office of Social Innovation and Civic Participation. “We anticipate that a similar initiative may arise under a Biden-Harris administration,” says Adam Bendell CEO at Toniic, a network of impact investors.
Improving Corporate ESG Disclosure: The U.S. Impact Investing Alliance points out there is actually growing consensus among bipartisan leaders in Congress as well as the SEC’s Investor Advisory Council on the value of corporate disclosure of ESG.
Reforming the Community Reinvestment Act and Boosting CDFIs: 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 CRA.”
Supporting Clean Energy and Sustainable Business Models: While the solar energy industry, in particular, has done well under Trump, under Biden, the industry could thrive, especially as businesses may no longer have to deal with tariffs on solar parts made in China and Mexico.
The election of a new, climate-focused US presidential administration will have significant implications for sustainability-focused investors. The incoming administration has now stated that it plans to go beyond aligning itself with the goals of the Paris Agreement, aiming to establish the US as a global leader, promoting more ambitious national climate policies worldwide.
The plans, published on the team’s website, suggests significant investments over the next several years in key sectors including renewable energy, infrastructure, electric vehicles, buildings and appliances, and low-carbon transit, among others.