ESG Weekly News Update: October 7, 2020
General ESG News:
As more companies are stepping up to take meaningful action on social responsibility, the challenge lies in finding the right balance between check-the-box reporting and self-promotional content. The goal: to identify an engagement strategy that allows your business to do well (with investors) while doing good.
Reporting can be resource-intensive, which is why it is so surprising when the final products are often relegated to obscure web pages upon release. But if companies consider these reports as opportunities to communicate with ESG fund stakeholders, the return on investment can be huge.
Financial Times: Practical steps to a boardroom revolution
Mindy Lubber, chief executive of Ceres, a sustainability non-profit organization, said even the terminology should change to make sustainability a boardroom priority. “Stop calling it ESG. These are financial issues. Climate risk needs to be looked at by the board as a risk the company faces. It needs to be integrated into all risk management.”
“The problem historically has been putting industry first . . . public interest too often gets lost,” said Adam Kanzer, BNP Paribas Asset Management’s head of stewardship. “We need to be talking about stabilising the climate rather than creating a level playing field for the market.”
Supporting employees must be a priority for companies, said Liz Hilton Segel, managing partner for North America at McKinsey. This means paying attention to their mental health, which has been strained by the pandemic, and helping employees adapt to automation and other workplace changes.
Stanford Social Innovation Review: Climate Action Is Too Big for ESG Mandates
Climate risk diverges from most social and governance concerns, because it impacts physical assets and often results in direct costs. According to Barron’s, 60 percent of companies in the S&P 500 Index “hold assets that are at high risk of at least one type of climate-change physical risk.”
Additionally, climate change is a macro risk factor, unlike other ESG concerns such as board quality and employee relations, whose effects manifest through multiple, interconnected channels like economic risk and public health risk.
There is also a pragmatic argument for disentangling environmental concerns from combined ESG mandates: while some of the most consequential social and governance issues are implicated in conflicts of interest between managers and other stakeholders, climate risk is less encumbered.
In the year since, top executives at big corporations have tried to demonstrate their commitment to the new “stakeholder” capitalism. In an op-ed for the Wall Street Journal marking the anniversary, Roundtable President Joshua Bolten characterized the short-term investors who dominate trading on Wall Street as a “malignant influence” on business and politics, “undermining public confidence in the free-market system and fueling support for politicians who oppose it.” And last month, revising its somewhat hedged policy on climate change, the Roundtable threw its support behind putting a price on carbon to reduce greenhouse gas emissions by 80 percent by 2050.
Yet there remains considerable skepticism about whether this rhetorical commitment will actually change the way chief executives manage their companies — or whether it was simply a PR stunt. Earlier this month, a watchdog group calling itself the Test of Corporate Purpose issued a report, complete with a ranking of company performance, purporting to show that companies that signed the BRT statement have been no more socially responsible during the coronavirus pandemic than those that didn’t.
Pensions & Investments: Road map for California ESG integration unveiled
California pension funds and policymakers have a road map for integrating climate change risk and other ESG considerations into their investment decisions, thanks to a partnership between the U.N.-supported Principles for Responsible Investment and UC Berkeley Law's Center for Law, Energy & the Environment.
The California road map released Tuesday offers 40 recommendations in seven environmental, social and governance categories, with a focus on climate change. Top recommendations include convening a state task force on ESG in investment and mandatory climate-risk stress testing for financial institutions.
For the state's public pension funds, the road map recommends developing governance structures that encourage long- term and data-driven ESG investment decisions.
I spent the month of March deciphering close to 100 corporate press releases. In these memos, companies like Disney, Netflix, Vans and Airbnb highlighted their responses to the virus. These responses included monetary and in-kind donations to support front-line workers, research and the socioeconomic ripple effect of the disease.
Why do businesses create responses like these? Well, the intentionality of generosity in times of crisis can be summarized with a blend of the following: fear of missing out (FOMO), sincerity and mass product demonstration.
ESG Disclosures, Standards and Rankings:
Investment solutions provider Russell Investments released today the results of its sixth annual ESG Manager Survey, indicating that investment managers are increasing the use of ESG integration in their investment processes, and are more frequently engaging companies on sustainability issues. The study also found, however, that most managers have yet to employ ESG or climate-related portfolio performance measures.
While ESG integration is clearly increasing in focus among investment managers, the Russell Investments study found that ESG accountability is lagging, with only 22% of the respondents reporting having portfolio performance measures for portfolio managers or analysts with direct ties to ESG-profile or climate-risk criteria.
Rep Trak: The Perception vs. Ratings Gap in ESG
Communications leaders know that perception is reality, and it’s no different when it comes to your company’s ESG initiatives. In a recent analysis, RepTrak’s Data Science Team found that there may be a gap between what your company does, and what your stakeholders think your company does when it comes to ESG.
If there’s a gap between your company’s ESG rating and the public's perception of your ESG efforts, it could affect your bottom line. People are 60% more likely to buy from a company with a high ESG perception score than a low one.
Seeking Alpha: It's Time For Sustainable Shareholder Activism
Stakeholder capitalism entails the development of new approaches to corporate value creation. Systems-level theory argues for the integration of ESG factors into portfolio construction. Shareholder engagement/activism is a viable approach to creating alpha.
Businesses need to do their share in achieving the UN 2030 Sustainable Development Goals (SDGs).
Canada has the potential to become 'ground-zero' for sustainable shareholder activism.
Wall Street Journal: What You Need to Know About Social-Impact Investing
It is an investing strategy that goes by many names. Some call it socially responsible investing. Others call it social-impact investing, or just impact investing. Still others call it ESG (for environmental, social and governance) investing.
But whatever the name, they all have one thing in common: a lot of misunderstanding.
That’s because investors think they know intuitively what socially responsible/social-impact/impact/ESG investing is all about. But many of their assumptions are superficial at best or just plain wrong.
Deutsche Bank upgraded BlackRock and Eaton Vance shares to a Buy, citing “powerful” demand for sustainable investing that could bring a tide of cash to the asset-management companies.
Asset growth at both firms can average “5% or better,” beating their peers, the bank said. That would allow both stocks to trade at premiums to the asset-management group, according to Deutsche analysts led by Brian Bedell.
ETF Trends: There Is Rising Demand for ESG Fund Solutions
According to Broadridge Financial Solutions‘ new report, growing number of investor want active managers to introduce ESG funds as an investment option. So far, a majority >68% of ESG assets in the U.S are now in actively managed funds.
“From both a supply and demand perspective, we have witnessed a shift toward achieving positive environmental and social outcomes alongside competitive investment returns,” Jag Alexeyev, Director Distribution Insights at Broadridge Financial Solutions, said in a note. “Active managers are in the driver’s seat when it comes to ESG, but in order to maintain their edge in this segment, they need to highlight their agility to proactively manage risks, leverage active ownership, pursue dynamic high-conviction strategies and deliver sustainable outcomes.”
In practice, investors use ESG ratings to score companies according to their ESG contribution, and in most cases avoid companies with poor ratings. In reality however, this does not work that well.
In the light of the finding by the US Select Subcommittee on the Coronavirus Crisis found that that ‘383 companies whose bonds were bought by the Fed paid dividends to their shareholders, including 95 that also conducted layoffs, and 227 companies had been accused of illegal conduct sometime in the past three years’, central banks in general and the Fed in particular have room to make a significant impact on corporate social responsibility by only buying assets of firms who have credible ESG credentials.
There are short-term challenges for investors and sustainable investing at large. It's still difficult to get the right tool off the shelf at the right moment. The data world is still not up to speed. There's a lot of inconsistency and incoherence. However, at the same time, there is a lot of innovation happening and I'm quite confident that much better data analytics and capabilities are being brought to the marketplace. This will enable financial institutions to embrace this agenda much faster.
Businesses have long understood that efficiency is important to reduce costs and reduce potential liabilities. But it is only recently that corporations have started to understand that their emissions and footprint are more than just the cost factor in the equation. Many of them did just enough to comply with regulation — a game of compliance optimization. That has changed radically because carbon and emissions are now seen as one of the central pillars for a future license to operate.
The U.S. Securities and Exchange Commission (SEC) voted Sept. 23 to amend its shareholder proposal rule, effectively depriving most retail investors of the ability to use the process to protect and advance their interests.
In so doing, the SEC is dampening an important risk signal to corporate management and investors, especially with respect to environmental, social and governance issues. The change appears to have been heavily influenced by a network of corporate oil and gas interests, and is likely to be contested in court.
Plan Sponsor: ESG As a Fiduciary Consideration
In an interview with PLANSPONSOR, Vikram Gandhi, a Harvard Business School professor who developed the school’s first course on impact investing, made the case for pension plans interested in ESG investing. For these plans, he says, the fiduciary obligation is to preserve and increase capital given a certain level or risk, especially if employers are considering the long term. “If you have a long-term time horizon, then you should be thinking of ESG [investments] as part of the investment process, because otherwise you’re not fulfilling your fiduciary obligation,” he argues.
Like other investments, adding ESG strategies requires robust processes, documentation and testing to fulfill fiduciary responsibilities. Schechtman says he believes the DOL’s proposal places an undue burden on these investments by adding a higher hurdle for sponsors to clear to vet ESG investing and, thus, adding a layer of complexity for employers to navigate.
More than half the asset managers of defined-contribution retirement plans, including 401(k) plans, intend to keep promoting funds that use environmental, social, and governance, or ESG, criteria in the next 12 months, despite pushback from regulators, according to a study by Cerulli Associates.
The U.S. Labor Department is currently weighing a controversial proposal to curb ESG options in 401(k) plans.
Companies and Industries:
The idea of “doing good” as a company is quickly evolving from “nice to have” to “must have” for fundraising food and beverage businesses as investors and industry strategics increasingly integrate and place more weight on environmental, social and governance issues when seeking and evaluating opportunities, according to several venture capitalists.
Large strategic food and beverage players also increasingly are interested in scaling businesses that can demonstrably help them achieve ambitious, publicly declared sustainability or social governance goals, Erin VanLanduit, managing director, Tyson Ventures, added at the virtual summit.
BlackRock’s iShares announced that the launch of the iShares € Govt Bond Climate UCITS ETF, the first climate risk-adjusted government bond ETF in the market. The new ETF aims to track the FTSE Advanced Climate Risk-Adjusted European Monetary Union (EMU) Government Bond Index (EGBI).
According to FTSE Russell, physical risk represents the level of climate related risk exposure to the country and its economy from the physical effects of climate change. Transition risk represents the level of climate related risk exposure of the country’s economy as measured by the distance to reach the modelled emissions needed to meet a 2-degree alignment. Resilience represents a country’s preparedness and actions to cope with its level of climate related risk exposure.
ESG Today: Salesforce Launches $100 Million Impact Fund
Customer Relationship Management solutions provider Salesforce announced today the launch of a $100 million Impact Fund from the company’s strategic investment arm, Salesforce Ventures. The fund aims to accelerate the growth of cloud companies addressing some of today’s most pressing needs including education and reskilling, climate action, diversity, equity and inclusion, and providing tech for nonprofits and foundations.
According to Salesforce, the focus areas of the new fund include Education + Workforce Development; Sustainability; Diversity, Equity & Inclusion, and; Social Sector Technology.
Globe Newswire: PIMCO Launches PIMCO ESG Income Fund
PIMCO, one of the world’s premier fixed income investment managers, has launched the PIMCO ESG Income Fund, which targets investments with strong Environmental, Social and Governance (ESG) credentials, while aiming to maintain a high and consistent level of dividend income for investors.
Moody’s announced today that it has enhanced Moody’s CreditView, its leading research, data and analytics platform serving credit market professionals, with a wide range of environmental, social and governance (ESG) and climate analysis. The expansion of Moody’s CreditView is part of Moody’s broader effort to deliver a comprehensive, integrated suite of ESG solutions to the market and addresses user feedback that extra-financial information and analysis are becoming increasingly important for assessing an issuer’s risk profile.