ESG Weekly News Update: October 28, 2020
Death Valley National Park
General ESG News:
Pensions & Investments: Moody’s assesses COVID-19 accelerating shift to ESG
The continuing impact of the COVID-19 pandemic has made systemic ESG shifts more tangible, Moody's Investors Service said Thursday in its quarterly ESG Focus report.
Even when the pandemic subsides, companies will have to invest more in safety measures. Environmental and governance issues will also pose credit risks, according to the report, which looks at credit risks in the context of rising sea levels, renewable energy demand, travel and tourism, and corporate governance assessments.
The pandemic has accelerated the transition to a low-carbon economy, with some governments tying financial support to environmental priorities, including rescue packages for European airlines.
Sunday Observer: Triple bottom line should be part of corporate DNA
The concept of the triple bottom line, the planet, people, profit, Corporate Social Responsibility (CSR) and all initiatives and programs launched by global and local corporates and business leaders is showcased as a feather in their business cap and not as a part of their business DNA, Chairman and Co-founder, Ath Pavura, Chandula Abeywickrema said in an interview with Sunday Observer Business on Friday.
“It is very clear now that Covid-19 has thrown all to the deep end, we need to go beyond approach of triple bottom line, Planet , People, Profit to a quadruple bottom line to articulate and mandate the business corporate to work on the fourth P which is the progress of the planet and the people.”
At the onset of the pandemic, companies hit the pause button on sustainability initiatives to focus on their people's immediate health and wellness. But they have since re-established momentum, driven by cost-saving opportunities and competitive advantages.
"At the very beginning of COVID – 19 there was a slowdown in activity on sustainability while everyone in the world was getting their bearings, but it came back fairly quickly," says Mindy S. Lubber, CEO of Ceres, speaking recently at the Bloomberg Green Festival. "When you have something the size of the pandemic, you see how it can disrupt human lives, resources, the economy — it was the perfect example of how climate change will disrupt our system in many of the ways COVID - 19 has."
Environmental, social, and governance (ESG) issues continue to rise in importance for global companies, a trend driven by investors, employees, customers, and other stakeholders. How are companies approaching ESG risks and opportunities? What are the accepted ESG benchmarks? What ESG issues will predominate over the coming years?
In this episode of our Connected With Latham podcast series, Kristina Wyatt, Latham’s Director of Sustainability, addresses these questions and more with the Co-Chairs of Latham’s ESG Task Force, Houston partner Ryan Maierson and London partner Paul Davies.
National Law Review: With ESG, Things Aren’t Always As Green As They Seem
Environmental, social, and governance (“ESG”) investing has captured the attention (and dollars) of more institutional investors each year and continues to grow exponentially. However, how can an ESG investor be sure that the investments it is making truly align with the values those funds purport to prioritize? The answer is unfortunately not always clear on an investment’s face and, with no standardized systems or regulations establishing clear ESG criteria, institutional investors and the financial services companies that deal with them should proceed cautiously.
Because ESG investing is rapidly growing in popularity and because what makes an investment ESG can vary widely, companies face a temptation to seem environmentally-, socially-, and/or governance-conscious even when their actions do not justify the ESG label.
In a session called “The Risk in Doing the Right Thing. How to Lead With Purpose During an Era of Social Disruption,” Adam Hildreth, founder and CEO of early-warning risk intelligence firm Crisp, and Rishad Tobaccowala discussed the unique challenges facing companies today, and ways in which smart communicators can harness technology to help them manage in that environment.
He urged companies to think about ESG—traditionally defined as environmental, social, and governance issues—in a different way: as employees, society and government. “I think one of the things that drove corporate engagement with the Black Lives Matter movement is that a lot of employees went to management and urged them to take a stance.”
ESG Disclosures, Standards, Rankings and Reporting:
ISS ESG, the responsible investment arm of Institutional Shareholder Services Inc. (ISS), today announced the launch of a proprietary ISS ESG U.S. Diversity Index as well as ISS ESG Governance QualityScore (GQS) Index family.
The ISS ESG U.S. Diversity Index is the first to select constituents exhibiting both broad ethnic and gender representation for board directors and named executive officers (NEOs).
The ISS ESG Governance QualityScore Index family, meanwhile, is a set of sector-neutral indices of well-governed companies and those deemed to be responsible market participants based on their ISS ESG GQS score as well as assessments based on ISS ESG’s Norms and Controversial Weapons Research.
Financial market data provider Refinitiv and media company FORTUNE announced today that they are partnering on the Measure Up Initiative, aiming to make corporate diversity disclosure the new standard of doing business.
According to the companies, Measure Up, which will be powered by Refinitiv’s ESG governance data, will help business leaders across industries tackle one of the biggest barriers to a just and equitable society: the continued lack of racial and ethnic diversity in corporate workplaces. The new initiative aims to establish diversity disclosure and accountability as a critical metric for stakeholder-driven businesses. The companies note that while companies frequently make commitments about diversity and inclusion, very few actually report metrics on how well they’re executing on these pledges.
Fitch Ratings has launched its interactive Environmental, Social and Governance (ESG) dashboard for structured finance and covered bond programs. This dynamic tool shows the distribution of Fitch's ESG Relevance Scores (ESG.RS) for more than 4,800 structured finance transactions and covered bond programs globally and enables users to customize their search by region, country, sector and sub-sector. The dashboard will be updated every quarter. Fitch has also updated its interactive ESG relevance heat-map for 3Q20, with new regional and country selection capabilities.
Over the course of the last decade, a number of global financial banks – including BBVA- have aligned with the recommendations on non-financial reporting and disclosures issued by different international organizations including the Financial Stability Board and its recommendations through the Climate-Related Financial Disclosures Working Group (TCFD), the UN Environment Program – Finance Initiative (UNEP FI), or the different national legislations. These suggestions are intended to help companies raise awareness about their environmental commitment by including and disclosing information on climate related risks and opportunities.
Global brokerage firm Interactive Brokers Group announced today the launch of Impact Dashboard, a new interactive tool designed to help clients evaluate and invest in companies that align with their values. The dashboard is free for Interactive Brokers clients to use.
Using Impact Dashboard, investors are able to assess, build and adjust portfolios according to sustainability aspects, by selecting from 13 impact values and principles including Clean Air, Pure Water, Ocean Life, Land Health, Consumer Safety, Ethical Leadership, Gender Equality, Racial Equality, LGBTQ Inclusion, Company Transparency, Sustainable Product Lifecycle, Mindful Business Models and Fair Labor & Thriving Communities.
Investment Executive: Asset managers placing more emphasis on ESG analysis: report
Across the globe, a higher percentage of asset managers are using “explicit qualitative or quantitative environmental, social and governance (ESG) factor assessments” as part of their investment processes, says Russell Investments’ sixth annual ESG Manager Survey.
The survey and accompanying report, which examines the practices and views of 400 asset managers across a range of asset classes, said that 78% of respondents used ESG analysis (up from 73% a year earlier) and 75% were signatories to the United Nations’ Principles of Responsible Investment (up from 72% in 2019).
The survey found that asset managers are “increasingly combining externally produced ESG data with internally produced ESG metrics” and taking different approaches to their ESG analysis.
ETF Trends: ESG Theme Could Dominate Fund Assets
Environmental, social, and governance or ESG investing could be the next big theme that could reshape passive investments ahead.
According to PricewaterhouseCoopers, as much as 57% of mutual fund assets in Europe will be invested in funds that consider environmental, social and governance factors by 2025, or €7.6 trillion or $8.9 trillion, compared to 15.1% at the end of last year, Bloomberg reports. Furthermore, 77% of institutional investors surveyed by PwC indicated plans to stop buying non-ESG products within the next two years.
With more clients looking to align their investments with goals such as mitigating climate change, wealth managers next year will enhance their platforms to track those objectives. Wealth managers will also implement changes in how advisors discuss environmental, social, and governance goals (ESG) with clients.
“Portfolio managers that currently use AI [artificial intelligence] to screen patent filings and other data sources will broaden its use to meet the demands of an increasingly socially conscious investor,” writes Forrester analyst Vijay Raghavan in the predictions, which the market research firm shared with Barron’s Advisor. “We see the interest in ESG among retail investors as a point of differentiation in 2021 and table stakes in the years to come.”
Finding the best ESG companies with strong stocks and growth needn't be a trade-off with environmental, social and governance values. Nvidia (NVDA), Pool (POOL), Salesforce.com (CRM), Adobe (ADBE) and West Pharmaceutical Services (WST) show that to be the case.
Among stocks with ESG ratings of AAA or AA from MSCI ESG Research as of Aug. 3, 2020, these 50 leading ESG companies had the highest IBD Composite Ratings as of Oct. 13, 2020, reflecting broad strength in fundamental and technical areas linked to stock price performance.
Wealth Briefing: Mind The Gap: Advisors Seek More ESG Knowledge
On top of changing regulations, and research showing that roughly half of advisors lack training on ESG or the confidence to discuss its concepts with clients, Aviva Investors is launching a new training regimen next month to help fill the knowledge gap.
Firms see it as a growing slice of their investment business but advising confidently on ESG day-to-day is trailing the wider industry's fixation on launching new ESG products, particularly as younger investors are making climate change, biodiversity and inequality central to their investment values. Only a third of advisors polled said that they consider ESG options each time they discuss investments with clients. Most want to ramp up as quickly as possible regardless of EU mandates. Aviva says 280 advisors have already signed up.
Until agreed-upon frameworks like the Sustainability Accounting Standards Board become standard and comprehensive, most organizations will report their policies in text reports, and most analysts and watchdogs will also report their analyses and research in text reports.
There are multiple challenges in reading reports to understand how an organization pursues and achieves ESG activities. Thankfully, technology — in particular, artificial intelligence technology — can be used to address these challenges.
By focusing on specific user workflows — in this case, making ESG decisions regarding organizational activities based on large volumes of text data — AI technology can be used to address relevant and value-adding challenges.
Should Joe Biden win the presidency and the Democrats take the Senate, the new administration will push for some kind of carbon tax deal, a cut on carbon emissions or at the very least, mandatory disclosure of carbon emissions. A Biden administration is likely to push for green investments, either via explicit green linked fiscal stimulus, subsidies and/or via regulation.
There is much to like about the recently released Davos scorecard of ESG metrics. Assuming that some version of this scorecard is mandated in a Biden presidency, a fundamental analyst will have access to new information on E & labor related S to assess a firm’s productive efficiency: (e.g., freshwater/land use, air pollution and nature loss measures), workforce efficacy (e.g., labor costs, training provided, diversity inclusion) and capital allocation (e.g., ESG links to capital allocation).
As the honeymoon phase of ESG investing ends, harder questions will be asked regarding firms attempts to cloak themselves in virtue to score PR points.
Companies and Industries:
S&P Global: ESG metrics no longer a "fad" to mining industry
Environmental, social and governance metrics have become an increasingly hot topic for the mining industry and were not just a gimmick, panelists said at this year's London Metal Exchange Week.
The need for renewable energy and low-carbon production methods -- including local supply chains -- were being thrust to the top of investors' agendas as the world grapples with the coronavirus pandemic, they said at the virtual event.
These days "you have to know about ESG...[it will be] core front and center of the industry" going forward, Hamilton said.
The COVID-19 pandemic has not only disrupted the social and economic realities of our communities, but also undermined some of the basic infrastructure we depend on. Our water infrastructure has been at the heart of this realization; its importance to health, hygiene, and safety has never been more obvious, yet millions of disadvantaged and vulnerable households still lack reliable and affordable access to water. Meanwhile, climate change has fueled extreme droughts, fires, and floods that have disrupted or destroyed this essential infrastructure. COVID-19 has exposed the continued neglect of our water infrastructure, magnifying long-standing social and environmental stressors as well as economic inequities.
Financial analytics vendor FactSet has agreed to buy AI-driven environmental, social, and governance (ESG) data outfit Truvalue Labs. Financial terms of the deal were not disclosed.
San Francisco-based TruValue applies AI-driven technology to over 100,000 unstructured text sources in 13 languages, including news, trade journals, and nongovernmental organizations and industry reports, to provide daily signals that identify positive and negative ESG behavior.
Private Equity Wire: Landmark Information acquires RiskHorizon platform from Anthesis
Landmark Information – a provider of information to the UK’s property market – has has acquired the Environmental, Social and Governance (ESG) due diligence platform, RiskHorizon, from global sustainability consultancy Anthesis Group.
The platform delivers valuable global insights to a broad group of asset owners and managers, from private equity and investment houses to corporates and their lawyers. It provides a comprehensive and actionable ESG due diligence screen of their global corporate acquisition(s) or investments across the world. It also enables the effective management of ESG within an existing business, newly acquired assets and supply chains.