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ESG Weekly News Update: April 1, 2022

General ESG News 

Sustainable Brands: More companies Are Stating a Social Purpose; But Are They Implementing It?

  • According to a recent report from Corporate Knights, while companies are increasingly stating a social purpose, they are struggling to successfully implement it.

  • The study also found that companies taking action to implement their social purposes are doing so in some areas more than others. For example, many companies are able to align their company values and culture with their social purpose while lacking in social purpose governance, especially in the areas of board oversight and the CEO role.

  • Toby Heaps, CEO and co-founder of Corporate Knights, states, “We believe that to address society’s challenges, business needs a new operating system. Businesses that adopt a social purpose as the reason they exist get partway there but need to go the second step to implement their purpose.”

ESG Today: EU Proposes Rules to Address Environmental Impact of Consumer Products

  • The European Commission launched several proposals to improve the sustainability profile of nearly all products across the EU, making them more environmentally friendly, circular, and energy-efficient throughout their lifecycles.

  • Frans Timmermans, Executive Vice President of the European Green Deal, stated, “Today’s proposals will ensure that only the most sustainable products are sold in Europe…This is how we bring balance back in our relationship with nature and reduce our vulnerability to disruptions in global supply chains.”

ESG Today: Climate Action 100+ Assessment of Major Emitters Reveals Big Gaps in Climate Strategies

  • Climate Action 100+, a climate-focused investor engagement initiative, published its results on its recent Net Zero Company Benchmark assessments. The assessment evaluated the world’s largest greenhouse gas emitting companies and their emission reduction goals, decarbonization strategies, and climate disclosure practices.

  • The results generally showed that companies have prioritized climate action, but there are still large gaps lacking initiation and execution of meaningful strategies.

PensionsAge: Ignoring ESG leaves clients ‘at risk’, warns BoE senior adviser

  • A Bank of England senior adviser, Michael Sheren, warned that asset owners who do not focus on ESG issues place their clients at risk. He also noted that net-zero considerations must be done in the context of carbon credits.

GreenBiz: Regulators rein in the ESG bandwagon

  • Last fall, PwC found that 49% of investors worldwide would divest from companies that are not sufficiently acting on ESG issues, and 79% identified a firm’s management of ESG risks and opportunities as an important factor for investment decisions.

  • As ESG is quickly progressing, regulators are trying to slow down the process with guardrails to mitigate risks of injury. The SEC responded to investors’ ESG information demands with an “all-agency approach” while the EU’s Sustainable Finance Disclosure Regulation (SFDR) is mandating ESG disclosure for asset managers, yet the International Organization of Securities is acting beyond SFDR. Asian countries are shifting as regulators may mandate ESG disclosure within the next few years.

  • Jean Rogers, founder of the Sustainability Accounting Standards Board and current global head of ESG at Blackstone, comments that “the key opportunity for the [International Sustainability Standards Board] will be to align global markets around an approach to sustainability standards-setting and core principles, while allowing for jurisdictional differences in implementation.”

Forbes: The Big Differentiator: Why ESG Reporting Is An Opportunity For Success

  • The issue of adequately addressing ESG has now become more than an environmental and social issue-it affects many companies' bottom line.

  • Making ESG a part of core values and goals can remove the temptation to view ESG as an annual or quarterly requirement and instead solidify ESG as a 24/7 commitment.

  • Succeeding in ESG reporting requires more than just the right digital solution. Using existing company resource planning platforms, which can provide information about daily processes and procedures directly related to ESG competency, can be helpful.

  • Companies should associate ESG with reporting as well as the opportunity to differentiate their organization in front of investors and customers.

GreenBiz: 10 ways to retain ESG talent

  • Ellen Weinreb’s top 10 list of ways to retain ESG talent:

  1. Focus on impact – managers should take heed and talk with their team and prospective hires about what the company can do to best support them to make more of an impact.

  2. Show them the money – candidates are getting offers two times what they were earning previously.

  3. Give them a better title – companies that want to retain talent should create clear career pathways.

  4. Close the gap between employee and CEO – people want to be close to decision-making power, that’s where real impact can happen.

  5. Expand leadership opportunities – there are many ways for sustainability people to lead at a company.

  6. Keep it fresh – managers should think about how to create growth opportunities and give employees a chance to build something new or explore a fresh idea of their own design.

  7. Create a culture of flexible work – talk to your team about what kind of flexibility they need to achieve their personal and professional aspirations.

  8. Beef up your benefits- Some employers have increased mental health support, some have increased support for caregivers, and providing emergency financial assistance.

  9. Cultivate deep inclusion – employees need to feel a sense of belonging at work, but modern workplace structures and systems marginalize certain groups, especially people of color.

  10. Invest in your bosses – relationships at work matter, and if you want your employees to grow and learn, start by giving their boss the skills and strategies to be better managers.

ESG Today: Nasdaq Launches World’s First Indices Tracking the Price of Removing Carbon from the Atmosphere

  • The indices will follow the price of CO2 Removal Certificates (CORCs) issued by carbon removal marketplace

  • In the coming years, demand for carbon offsets that mitigate the release of greenhouse gases, and related credits, is expected to increase significantly.

  • Carbon credits are challenged by issues such as insufficient or inconsistent data to assess the effectiveness of projects, as well as a lack of liquidity.

  • By launching its index, Nasdaq intends to encourage investments and support project financing decisions by promoting standardization and transparency in the carbon removal market.

Diversity, Equity, and Inclusion

BusinessWire: CBL Properties Joins Over 2,000 CEOs in Major Commitment to Advance Diversity and Inclusion in the Workplace

  • CBL Properties has signed onto the CEO Action for Diversity & Inclusion, a growing commitment from leading global CEOs to advance diversity throughout their organizations.

  • CBL CEO Stephen Lebovitz said, “Enhancing our culture with a greater sense of inclusivity and belonging will help us strengthen CBL by attracting and retaining diverse team members.”

ESG Today: abrdn Says it Will Vote Against Companies Who Do Not Meet Diversity Expectations

  • The UK-based investment company abrdn has announced its increased DEI expectations for portfolio companies, including a requirement for companies in the S&P 1500 and Russell 3000 to have at least one racially or ethnically diverse board member.

  • This new requirement builds on the firm’s existing expectations for large-cap companies to have at least 25% female representation on their boards; this may increase to 30% in 2023.

  • In 2021, abrdn voted against management recommendations 165 on DEI-related matters.

Moonshot: Forbidden words in diverse and inclusive companies

  • Researchers stated, “To create a truly inclusive culture, it’s crucial that you take a hard look at how people in all areas of your company are using language.” They also presented four ways in which a company can ensure its language promotes diversity and inclusion:

  1. Review job postings to ensure language neutrality;

  2. Create a list of words that are forbidden in product development;

  3. Create a guide to inclusive language; and

  4. Leverage the messenger effect.

GreenBiz: When ESG meets DEI and goes back to the office

  • An ESG Summit was held where the conversation focused on how commercial building owners and their tenants are meeting employees' shifting needs in a nearly post-COVID world that is also confronting social and environmental change.

  • Some challenges are obvious:

  • Creating welcoming environments for those who haven't set foot in an office for some time (and who may not yet have met their colleagues face to face);

  • Figuring out staggered work schedules for those who will be combining work in the office and remotely;

  • The kinds of amenities to make available, balancing those desired by employees with those that ensure a safe workspace as we all grope our way out of the pandemic.

  • The disability community “never had a voice in the physical offices,” noted Vu. “As we go back into the office, we're talking a lot about race and ethnicity, and that's an important kind of grounding for the conversation around diversity. But there's also the intersection of all these other experiences, too.”

ESG Disclosures, Standards, Rankings, and Reporting

Yahoo! Finance: The 3 Trends Shaping ESG Reporting in Finance in 2022

  1. More confidence in ESG credentials: Historically, stakeholders have been wary about companies’ ESG and CSR credentials, and while there is still a lack of trust, companies are realizing that they must establish a practice of reporting with consistent and trustworthy data in order to develop a strong relationship with stakeholders.

  2. A collaborative approach to ESG reporting: Regulations are evolving and the information needed to develop comprehensive ESG reports is becoming more intensive, so teams are needing to coordinate around a single reporting model and establish clear roles across multi-departmental teams.

  3. Continued standardization of ESG, and tighter regulations: The move towards greater standardization and robust disclosure is being driven by the need for greater transparency, which in turn fosters trust, and this is vital to ESG program success and overall business success.

JDSupra: ESG as the Next Frontier in Privacy and Data Governance: Moving Beyond Regulatory Compliance

  • An increasing number of companies are disclosing and including privacy and data governance metrics in their ESG reporting framework to improve their overall risk strategy, sustainability, and long-term stakeholder trust.

  • If a company plans to integrate privacy and data governance into its ESG framework, it should consider:

  1. Establishing a forward-looking privacy and data governance framework

  2. Developing privacy and data governance metrics

  3. Adopting privacy and cybersecurity by design

  4. Creating a culture of accountability

  5. Adopting data minimization strategies

  6. Incorporating data ethics and algorithmic transparency.

GlobeSt: Challenges and Solutions to Meeting SEC Climate-Risk Disclosure Rules

  • While some companies are already disclosing this information as part of their ESG programs, this SEC rule would standardize the practice. The proposed rules would require reporting on:

  • Climate-related risks and their material impacts on the business

  • Processes and plans to manage climate-related risks

  • GHG emissions and reduction goals

  • Availability of utility data – it can be challenging for property owners or asset managers to gather utility data on the property in order to report GHG emissions.

  • Consistency of climate change data – some climate hazards, such as flooding, can be assessed using industry-accepted data and methodology, whereas many others do not, and data companies report on them differently.

  • Making improvements – resilience measures and energy efficiency measures may pay off in the long run, but they may be expensive upfront, particularly when new systems are installed.

  • Changes in process and procedures – whether a company is reporting for ESG or to meet the SEC disclosure rules, gathering data on the properties will be a key step.

HK Law: Navigating the Waters: The SEC's Focus on ESG

  • The SEC sat to discuss the agency's history on matters of Environmental, Social and Governance (ESG), the existing disclosure framework and materiality paradigm, existing rules that involve ESG considerations and the agency's recently proposed rule that, if enacted, will mandate sweeping new climate-related disclosures for public companies.

  • So far, the SEC’s ESG Task Force, and the Division of Enforcement more generally, has been looking into material gaps or misstatements in issuers' SEC filings relating to climate and other ESG issues.

  • Apart from instances of alleged ESG disclosure fraud, the Enforcement Division is prepared to utilize a variety of non-scienter, controls-based provisions for enforcement actions, including potential strict liability provisions involving ESG disclosure.

  • The existing and long-standing disclosure regime, including as it pertains to ESG, can generally be summarized in two buckets: Principles-based disclosure and Targeted rules addressing ESG-related issues.

Investment Trends

Forbes: ESG Is The Third Wave Of Change In Asset Management After Graham And MPT

  • At the end of 2021, investors poured record inflows into ESG funds around the world. Amy Domini, one of Time’s 100 Most Influential People and a self-proclaimed advocate of impact investing, views ESG as the third major wave of change in asset management after Benjamin Graham’s value investing and modern portfolio theory.

  • Domini expects modern portfolio theory to remain in place during the ‘new age’ of ESG investing, especially as it encourages diversification to reduce risk. She also notes that the value of ESG is being recognized on Wall Street.

  • Investors can use ESG to gauge whether or not corporations have good governance and management, which in turn reveals whether or not they are good at avoiding problems. Investors can also use ESG to identify potential regulatory issues and risks, especially in the supply chain.

  • Domini believes that, eventually, ESG will be applied to the entirety of assets under management.

Money Control: As sustainability reporting kicks in, ESG investing faces global credibility risk

  • On April 1, 2022, new corporate governance rules from the Securities and Exchange Board of India (Sebi) will take effect, requiring the top 1,000 companies by market cap to include Business Responsibility and Sustainability Report in their annual reports.

  • ESG rankings can be useful for holding companies accountable to investors (and to measure and compare them), but this can become a problem when impacts and outcomes are not globally standardized.

  • Additionally, with the ongoing Russia-Ukraine conflict, it has come to light that many ESG funds were ‘parked’ in Russian assets, and many were also based in ‘negative stocks’ like coal, energy, and weapons, which are typically excluded from ESG funds that use screens.

  • Experts argue that companies using ESG/sustainability purely as a marketing tool are ‘heading for trouble.’ These experts also express concerns about the opacity of ESG measurement.

  • ESG fund managers around the world are increasingly acknowledging that they may need to take a more restrained approach to ESG investing.

Lexology: ESG and M&A: Vetting a Target’s ESG Strengths and Weaknesses to Assess Value, Go-Forward Risks and Disclosure Requirements

  • As ESG has come into investor focus, there has also been increased attention to ESG issues in M&A due diligence, especially in public company deals. However, the quantification of ESG as a due diligence factor remains an evolving area. There are some key questions buyers can ask to help determine whether ESG will help or hurt the target:

  • How does the target approach corporate governance?

  • What is management’s attitude toward ESG?

  • What is the target’s workplace culture?

  • How does the target approach sexual harassment and related issues?

  • How does the target promote a diverse workforce?

  • What does the target do to retain employees?

  • What is the target’s impact on the actual environment?

  • What are the geopolitical risks?

  • Companies that embrace the increased focus on ESG and undertake due diligence to understand the value and risks of a potential acquisition may be able to avoid ESG issues and be in a position to use ESG disclosures to highlight their socially conscious actions and attract investors and consumers.

Companies and Industries

WBCSD: Roadmap to ESG Leadership: Food & Agriculture

  • The World Business Council for Sustainable Development (WBCSD) recently published a Roadmap to ESG Leadership (available free for download) as a joint work with TSC and leading food and agriculture companies.

  • The report outlines an aligned workflow and a common assessment framework as the core foundations for ESG leadership benchmarking. It then provides an analysis of three themes that have proven crucial in defining and driving such leadership: enterprise risk management, materiality, and data.

Forbes: How The World’s Largest Companies Can Become A Driving Force For Clean Tech

  • Governments are not equipped to solve climate change without help from leading corporations; this article posits five reasons why the world’s largest companies are well-positioned to help lead the global sustainability movement:

  1. Many big companies produce large carbon footprints.

  2. Stakeholders are demanding greater corporate action.

  3. Large companies can leverage their advantages (e.g., tech, brands, talent, channels, customers, capital, etc.)

  4. In the war for talent, employees want the chance to change the world.

  5. Large companies can build on their track records and reap the benefits.

Harvard Law: BlackRock’s 2022 Engagement Priorities

  • BlackRock has detailed its top corporate engagement priorities for 2022, as well as relevant KPIs:

  • Board quality and effectiveness, including board diversity and information about dependent vs. independent members

  • Strategy, purpose, and financial resilience, including industry- and company- specific metrics, risks, and opportunities

  • Incentives aligned with value creation, including rewards for executives who perform on sustainability initiatives

  • Climate and natural capital, including risk management and climate scenario analyses and net zero plans

  • Company impacts on people, including actions taken to support a diverse and engaged workforce and management’s role in overseeing this process

  • BlackRock engages companies from the perspective of a long-term investor and uses its engagements with corporations to inform its voting decisions and do maintain ongoing dialogues with executives and board directors to advance sound business practices and sustainability efforts.

  • The firm notes that it initiates many of its engagements because companies’ disclosures do not provide the information necessary to assess the quality of their governance and business practices.

Government Policy

Bloomberg: ESG Investors Get Big Win With New SEC Climate Rule (Podcast)

  • The latest episode of Bloomberg Law’s “On The Merits” podcast dives into the recently proposed SEC climate change disclosure regulations for public companies.

  • Bloomberg News sustainability editor Eric Roston and Bloomberg Tax’s Amanda Iacone discuss what the new disclosure rules will mean for companies, investors, and accountants.

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