ESG Weekly News Update: April 29, 2022
General ESG News
The New York Times: A Climate Snapshot
The National Oceanic and Atmospheric Association (NOAA) published its monthly report on global climate trends. The findings include:
March 2022 was the fifth warmest since 1880, with parts of South and Southeast Asia seeing the hottest temperatures on record.
About 55% of the lower 48 states are suffering from drought (which is actually slightly better than last month).
California saw its driest first quarter on record, with just 1.66 inches of precipitation from January through March.
The NOAA expects May, June, and July to be exceptionally warm in most of the U.S.
La Niña is expected to continue throughout 2022, prolonging the drought in the West and leading to a more active Atlantic hurricane season.
Bloomberg Law: Who Should Be in Charge of Board ESG Responsibilities?
Boards must consider and evaluate differing ESG oversight philosophies and decide, based on businesses they oversee and the work they need to discharge board oversight, the most sensible approach for assignment of ESG responsibilities within each board entity.
Topics to consider include how the board’s fiduciary obligations intersect with ESG; The role of board committees in governance; allocating ESG within the board; and management's role in ESG oversight.
Forbes: Climate Change Could Spark Future Pandemics, Study Finds
Global warming could fuel future pandemics by dramatically increasing the risk viruses will jump into humans from other animals, researchers warned Thursday.
The researchers examined how climate change could alter the geographic range of some 3,100 mammal species between now and 2070 and how this might affect the transmission of viruses between species.
The researchers said these “spillover events” will be predominately driven by bats and concentrated in densely populated areas such as Asia and Africa.
GreenBiz: Moving Beyond the Triple Bottom Line, For Equity’s Sake
Speaking with Hunter Lovins, author of “Natural Capitalism, she made a statement that “good sustainability follows what she calls the integrated bottom line, not the triple bottom line.” She describes how the triple bottom line was not encouraging companies to account for environmental and social factors and “in the event that profit is threatened, almost every company [sheds its environmental and social efforts and reverts to] traditional profit maximization.” The integrated bottom line is the basis for regenerative value creation because as companies pursue responsible business practices in the operations, long term value results.
The ultimate goal of sustainability is to seek prosperity rather than solely profit. Sustainability is a tool for lasting survival, flourishing, resilience, and regeneration for people and planet, now and in the future.
Clinical Trial Arena: The E in ESG: How CROs Aim to Leave a Positive Ecological Mark
Clinical Trials Arena combed through publicly available CRO reports on their Environmental, Social, and Governance strategy. Here are some of the findings:
IQVIA looks to reduce greenhouse gas emissions
LabCorp makes strides with recycling
Medpace uses solar power
Syneos is conscious of its green property footprint.
Wall Street Journal: The Case for Taking the ‘G’ Out of ESG
Governance is an evaluation system to ensure that managers make decisions in the interest of the company. This includes consideration of the corporation’s mission, objectives, strategies, business decisions, board oversight, and executive compensation.
Governance differs as an overlay embedded in the company while the environmental and social aspects of ESG are outcomes from the company. The E and S commitments and actions shift to become companies’ purposeful outcomes rather than unintentional byproducts. However, a company must balance these objectives with the concerns of other stakeholders like shareholders and financial returns.
Third-party ESG ratings firms typically combine metrics from all three categories to produce an overall score, suggesting good governance adds to good E and S for the benefit of all stakeholders. The author suggests that governance should be left out of an ESG score to have a more honest assessment of a corporation’s commitment to stakeholders because governance is required and universal across all companies regardless of whether they focus on ESG-related actions and commitments or not.
New York Times: Protesters Amass at White House Demanding Action on Climate
Environmental activists have been protesting the government’s slow response to act on climate change. Biden promised climate change action, but many plans stall in Senate due to opposition.
Despite a campaign promise to stop new oil and gas extraction, Biden has stated he would open more public lands to drilling to adhere to a federal judge’s order.
Biden also committed to halving greenhouse gases by 2050, but this goal will likely be unachievable if a major climate legislation is not enacted within the next few months.
Bloomberg: West Virginia Blasts S&P ESG Scorign as ‘Politically Subjective’
S&P Global Ratings has a new system that scores governments on ESG topics such as human rights, social integration, low-carbon strategies, climate measures, and sustainable finance. The first scorecard was released on March 31st.
Most states received neutral scores, but West Virginia received a negative social score and moderately negative environmental score although West Virginia has the fourth-highest bond rating at AA-.
Riley Moore, West Virginia State Treasurer, opposes S&P’s new system. He stated, “So despite our state’s excellent financial position, our taxpayers could now be punished with higher borrowing costs simply because S&P doesn’t like our state’s industries and demographic profile.” Moore questions at what point the ratings scheme will stop and whether individuals may face ESG scores as part of credit scores.
Utah officials are in line with Moore, and Texas has threatened to ban state investments in companies that break relationships with oil and gas companies due to ESG initiatives. Florida removed some self-governance privileges from Walt Disney Co. since it objected to a new law limiting gender identity and sexual orientation instruction within schools.
CFO Dive: Most executives admit to ESG ‘greenwashing’: survey
According to a global survey sponsored by Google Cloud, 58% of executives claim their companies engage in “greenwashing.” Many executives desire to improve accountability and take action on sustainability. Approximately a third of executives agree with the phrase, “my company treats sustainability like a PR stunt.”
The public comment period for the SEC’s proposed rules on climate-related disclosures will end on May 20th. ESG has been a leading priority for corporate executives, but many companies lack the technology, resources, and commitment to act.
Private Equity International: Company-wide understanding of ESG can help reduce compliance risk
If all sections of a private equity (PE) firm understand the firm’s ESG program, then the vast understanding can mitigate ESG risks and improve investment decisions. PE firms’ investment teams should monitor how current portfolio company ESG commitments align with the firm’s commitments.
The “big six” ESG compliance issues are:
1. Anti-corruption and anti-bribery,
2. Cybersecurity and privacy,
3. Human rights and supply chain,
4. Diversity, equity and inclusion,
5. Climate, and
6. Sanctions.
Supply Management: How to embed sustainability in the supply chain today
A survey found that only 13% of organizations identify sustainability as a “key element” of IT procurement processes, but 45% believe it would be a key element within three years.
Organizations should start embedding sustainability within their supply chains. RFPs should clearly refer to required sustainability targets and their weight when scoring a potential supplier.
Diversity, Equity, and Inclusion
JD Supra: Top 5 Ways to Build a Diverse and Inclusive Company Culture
Creating a diverse and inclusive company culture fosters innovation and is key for hiring and retaining top talent, especially in the face of the “Great Resignation”. Five ways to cultivate this type of workplace culture include:
Establishing policies that codify DE&I into the organization
Creating safe spaces
Leading by example
Maintaining a pipeline of opportunities
Setting and tracking goals.
ESG Disclosures, Standards, Rankings, and Reporting
The new SEC proposals, which are under consultation until May, will require businesses to disclose their approach to managing and mitigating climate risks, climate scenario analyses, and climate risk oversight.
Crucially, companies with revenues over $75 million will be required to disclose not only their Scope 1 and 2 emissions, but Scope 3 as well, starting in 2024 (from 2023 results). Addressing Scope 3 emissions is seen as vital to meeting climate targets.
The SEC argues that investors are increasingly recognizing that climate risk is financial risk, so these issues are material for financial decisions. Ironically, the most emissions-intensive sectors are those who are typically already reporting on their emissions, but the requirements can pose serious changes for most large, public companies.
Some states are threatening to sue the SEC over the proposed plan, while other states and even individual cities may be imposing their own disclosure requirements.
Few companies have set goals for addressing emissions throughout their supply chain, and there is confusion about what exactly is needed for measurement and disclosure, so many are hoping the SEC will provide more clarity and guidance before imposing the regulations.
National Law Review: Litigation and Enforcement Impact of the SEC’s Proposed Rules on Climate-Related Disclosure
The Securities and Exchange commission's proposed rules on climate related disclosure, released March 21st, 2022, represents a significant change in public company disclosure requirements and, if adopted, with far reaching effects not only on all public companies but also on those within the company's value chain. The following is a brief overview of the enforcement and litigation environment related to climate risk and ESG issues.
Corporate governance, including a robust and integrated risk assessment and compliance program, is critical to both addressing the proposed rules and mitigating risks. When a company evaluates the new disclosure requirements, their climate related and other ESG risks, and related business strategy, they should also be including litigation and enforcement risk in their analysis.
Investment Trends
The Wall Street Journal: Robo Advisers Target Young Adults Interested in ESG Investing
Money-management firms are increasingly adding robo-advising features to attract younger customers, but these features can come with high fees and may struggle to pinpoint specific themes. Still, ESG robo advisers are increasing in number and popularity.
Ally, Axos, Betterment, E*Trade, M1, and Wealthfront all offer low-minimum, ESG-focused robo advisers using different client questionnaires and risk assessments, all with fees of 0.3% or less.
Economic Times: Why investors should graduate risk-return expectations from widely assumed ESG
India currently ranks 120th out of 165 nations in terms of progress toward the UN SDGs. However, the country has set aggressive targets, including a goal of net zero carbon by 2070.
Additionally, the SEBI has launched the business responsibility and sustainability reporting (BRSR) framework to standardize ESG reporting. ESG integration in investing is another major trend in India, with the most popular strategy based on negative screening, but it is shifting toward a more holistic approach.
Experts note that investors should graduate risk-return expectations from widely assumed ESG to be a return-compromiser to a return-enhancer.
The New York Times: Warren Buffett Faces Renewed Climate Change Challenge by Investors
As Mr. Buffett holds out setting goals for greenhouse gas emissions reduction, more critics complain that the Berkshire Hathaway conglomerate are doing less to cut emissions than similar companies.
Mr. Buffett has repeatedly resisted shareholders. He argues that subsidiaries like Berkshire Hathaway Energy disclose plenty of information about their emissions and are spending billions on renewable energy.
The activists say they will continue to pressure Mr. Buffer to release comprehensive climate disclosures and risk assessments for the entire conglomerate.
Bloomberg: Fund Managers Doing Bogus ESG ‘Engagement’ Are Put On Notice
ESG funds that are peddling deceptive engagement strategies are about to feel some heat as Morningstar Inc. continues to move to the next stage of its quality control of the industry.
According to Morningstar, genuine ESG funds held about $2.7 trillion in managed assets at the end of the fourth quarter.
Engagement isn't only a strategy for shareholders, but also for bondholders. Bondholders are “always asked to participate in new issues, but then this has to come with new commitments.”
Wall Street Journal: Invesco Launches Electric-Vehicle Metals ETF Amid Price Surge
Invesco Ltd. Is launching an exchange traded fund for metals used to build electric vehicles, a sign of growing investor appetite for commodities and products tide to the energy transition.
The new fund, officially called the Invesco Electric Vehicle Metals Commodity Strategy No K-1 ETF, is believed to be the first commodity fund linked to the shift away from fossil fuels, the company said. It will hold futures contracts and other financial products that are in high demand for their uses in electric cars and other clean energy products.
ESG Today: WisdomTree Launches Decarbonization Themed Waste-to-Energy & Recycling-Focused ETF
ETF provider and asset manager WisdomTree announced yesterday the launch of wisdom tree recycling decarbonization UCITS ETF (WRCY), aiming to offer exposure to the global decarbonization megatrend by tracking companies involved in waste-to-energy and recycling technologies.
Waste-to-energy is the process of energy generation from waste such as garbage, animal manure, agricultural products, and or animal fats. In turn, this generates renewable natural gas and diesel used to produce electricity or as a transportation fuel for compressed natural gas cars (RNG) or diesel (RND) to fuel trucks.
The ETF is classified as an article nine fund under the Sustainable Finance Disclosure Regulation SFDR. Index constituents are selected and weighted based on their revenue exposure to themes and carbon emission reporting status.
Yahoo! Finance: Schwab Introduces Third-Party ESG Ratings for Individual Stocks
Charles Schwab announced Wednesday that it has begun providing clients with access to MSCI Environmental, Social, and Governance (ESG) ratings for individual securities. The ratings are now available to clients through the Research tool on schwab.com.
An MSCI ESG Rating is designed to measure companies’ resilience to long term industry material ESG risks. It rates over 8500 companies, and the rating model uses a rule-based methodology to identify industry leaders and laggards according to their exposure to financially relevant risks and how well they manage those risks relative to peers.
According to Schwab's Q1 2022 Retail Client Sentiment Report, nearly a quarter of a clients say they make investing decisions today in accordance with their values or areas of interest in another one in five say they would like to invest more closely based on personal values or interests.
Bloomberg: Investors Crank Up Pressure on Companies with Record Climate, Race Proxy Proposals
Over 200 environmental and social resolutions have been submitted to corporations across the country to decide at annual meetings. BlackRock supports many of these proposals, demanding more action from companies. Investors will have to vote on various topics, including racial impacts, coronavirus vaccine distribution, animal welfare, and excessive financing of the fossil-fuel industry.
Investors of Meta Platforms, previously Facebook, Inc., are requesting information on potential civil and human rights harm caused by the metaverse. Apple Inc. shareholders went against management with their support of a civil-rights audit. Costco Wholesale Corp. shareholders supported a proposal to set science-based targets to ensure the achievement of net-zero emissions by 2050 or earlier.
The SEC denied requests made by Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley “to reject resolutions that call on banks to produce audited reports, ensuring their financing doesn’t add to new fossil-fuel supplies as required by the International Energy Agency’s so-called 2050 scenario.”
BlackRock, Vanguard and State Street’s investing unit, State Street Global Advisors, have stated they will vote against companies’ management that fail to act on matters including workforce diversity and climate change.
Bloomberg: Cash Pouring Into ESG Debt Seen Suppressing Green Bond Yields
Greenium is the yield discount that green bonds offer compared to conventional bonds, and analysts claim that the greenium will hover around four to five basic points for the rest of 2022.
Analysts also state that when regular investors consider a green or conventional bond from the same company, they will select the green bond because it helps lower their calculated “portfolio emissions.”
Increasing evidence shows that issues can sell green bonds at a slightly cheaper rate than normal debt, plus they have a slightly higher price in secondary-market trading.
Barclays has not found any evidence of green-bond outperformance.
Wall Street Journal: All the ESG Investing Terms, Explained
This article provides definitions for a list of terms that are commonly used in ESG investment discussions from B Corp to community development investing, conscious capitalism, EEOC diversity disclosures, greenwashing, negative screening, PET plastic, and more.
Companies and Industries
As the aviation industry faces growing pressure to decarbonize, Lufthansa is integrating carbon-neutral flying into its booking options for passengers. It is offering three options for passengers to offset emissions from their ticket purchase, fund the use of sustainable aviation fuels (SAFs), and fund climate protection projects facilitated by non-profit organization myclimate (or a combination of options).
The company plans to expand these options to the rest of its group of airlines, including Austrian Airlines, Brussels Airlines, and SWISS in the coming months, and to make it available to bookings made on mobile devices.
Forbes: Is The Future Of Supercars Electric?
Supercars, beyond their speed, have the appeal of high price tags and exclusivity. New electric supercars are offering another desirable feature – acceleration – and are surpassing fossil fuel-burning cars in this aspect. Currently, the two fastest accelerating cars in the world are electric.
It is expected that as EV technology improves in the coming years, electric cars will begin to top all performance rankings. Traditional car enthusiasts make arguments about missing the sound of engine noise and gear shifting, but this is obviously a matter of preference.
Since electric supercars are already demonstrating top performance, their lack of representation and acceptance is a matter of concept and perception, and as with other climate-friendly technologies, it is only a matter of time before the age of EVs phases out the internal combustion supercar.
Reuters: U.S. regulator sues Brazilian miner Vale over ‘false and misleading’ dam claims
The SEC is suing Brazilian miner Vale over alleged false and misleading ESG disclosures, safety certificates and audits about dam safety prior to a 2019 disaster that killed 270 people. Vale denies the allegations that it violated any SEC regulations.
According to the SEC, Vale knew for years that its dam did not meet internationally recognized safety standards. Besides the significant death toll from the burst dam in 2019, it caused “immeasurable environmental and social harm.”
The SEC has pledged to crack down on companies inflating their ESG and sustainability claims.
Electrek: Here’s how a new US protectionist move is backfiring badly on the US solar industry [update]
The US Department of Commerce (DOC) is investigating whether Southeast Asian solar cell manufacturers are using parts made in China that would normally be subject to a tariff. While the intentions of the investigation are just, the US solar industry argues that the DOC investigation will devastate their businesses, which rely on solar module imports to meet growing renewable energy demands.
According to a new analysis from the Solar Energy Industries Association (SEIA), solar installation forecasts for 2022 and 2023 are being cut by 46%. More than 80% of survey respondents said the investigation is delaying or halting their purchase or use of photovoltaic modules.
Auxin Solar is a California-based solar panel manufacturer arguing that a tariff on solar imports would boost domestic manufacturing, but the majority of the industry disagrees.
According to the SEIA, 84% of all US solar module imports come from the four countries currently under investigation, and all companies surveyed in the SEIA analysis say they are expecting disruptions to their value chain.
ESG Today: WM to Invest Over $800 Million to Increase Renewable Natural Gas Production
The waste management and environmental services provider WM is planning to invest $825 million over the next four years to grow its renewable energy footprint, specifically renewable natural gas.
WM plans to launch 17 new projects across North America by 2026 and is expected to displace 1.3 million metric tons of carbon emissions in that time frame.
The Wall Street Journal: Shareholders Push an Array of ESG Proposals
Many shareholders are proposing change. Some want banks to stop financing new fossil-fuel projects, others are asking companies to extend paid sick leave to cover part-time employees, and many are pressing businesses to go beyond lofty-sounding commitments to ESG issues. Shareholders want to see businesses genuinely incorporate their ESG goals into their operations. They want to see results.
A majority of Apple shareholders voted in favor of telling the board to study how the company's alleged use of concealment clauses in employment contracts affects the reporting and oversight of harassment and discrimination allegations.
The Securities and Exchange Commission (SEC) is now saying companies should generally present for a shareholder vote any questions raising “issues with a broad societal impact.”
At Amazon, shareholders will vote on a resolution that asks the board to examine and report on the company's position on collective labor bargaining. The proposal points to what shareholders describe as a “misalignment” between public statements and reality on the issue.
The new push by investors on the ESG front means that companies have a greater stake in successfully negotiating with shareholder groups to reach compromises and avoid proxy fights like the one between Exxon Mobil and Engine No.1.
TechMonitor: Cybersecurity Is an ESG Concern for Investors but Businesses Are Holding Back on Transparency
With the number of cyber threats facing businesses growing by the day, cyber risk management is becoming a priority for many organizations. Developing standards around cyber incident reporting could assist companies in further integrating cyber security into their environmental, social, and governance goals.
In the UK, The Cyber Security Breaches Survey 2022 from the Department for Digital, Culture, Media, And Sport (DCMS) shows that 39% of companies fell victim to at least one cyber-attack in the past year, with 31% of businesses and 20 per 6th 26% of charities estimating they were attacked at least once a week.
Even if companies don't want to disclose full details of cyber-attack incidents, J. Stern’ Kosmopoulou says “businesses can show investors they are focused on cybersecurity by ensuring their governance structures reflect this.” She also says cyber security should feature prominently in any risk mapping carried out by companies as part of ESG strategies. Regulations on cyber security can help drive standardization and increased transparency.
Forbes: Spinnova Proves Its Next Gen Fibers Are ‘Climate Positive’, Revealing Their Carbon Handprint
Next-gen materials companies promise environmental impact reduction, but quantitative data is lacking since these companies are still young with new raw inputs.
Spinnova is a company seeking to increase impact data. Spinnova worked with Clonet, a third-party consultant, to assess the carbon footprint and handprint of their fibers. Carbon footprint is a measure of the greenhouse gas emissions from a material, process, person or event. Carbon handprint considers the broader resource use and efficiency, which is a more holistic evaluation that includes not only negative impacts but also positive climate impacts from solutions to address climate change.
Brands are now blending Spinnova’s new fiber with cotton with the ability to evaluate exact emissions reductions based on the percentage of used Spinnova fibers. Brands are attracted to the potential to be able to market “carbon neutral” sustainability credentials of their materials.
New York Times: Hotels with Net-Zero Ambitions
Many global travelers would like to travel more sustainably and stay at hotels with green initiatives. Most major hotels committed to carbon-neutrality by 2050 or sooner, but they struggle to design energy-efficient buildings or renovate them with green technology.
Green construction is outpacing traditional buildings. Efficient systems include geothermal heating and cooling. Zero waste is a difficult goal, but hotels have reduced waste by using email and digital messaging, refillable jars of water rather than plastic bottles, and refuse containers for recycling, food waste, and trash.
BAI: ESG is a banking trend to watch
As ESG investments have been trending, it is also expected that ESG-related concern will also continue to grow for banks and credit unions. However, banks are also challenged by the “lack of robust and granular forward-looking data for their borrowers and counterparties.”
Industry watchers are expecting voluntary metrics to become consistent and comparable requirements. ESG strengthens risk management practices, reputation, and overall good business practices.
Government Policy
Harvard Law School Forum on Corporate Governance: ESG and Climate Change Blind Spots: Turning the Corner on SEC Disclosure
The article analyzes four areas in which the SEC did not reform ESG disclosure or impeded shareholders’ access to ESG data:
1. the SEC’s refusal to act on several rulemaking petitions submitted during the years 2009 to 2018, which called for expanded ESG disclosure;
2. the SEC’s grudging promulgation of rules concerning social disclosures as required by Congress in the Dodd-Frank Act of 2010;
3. the SEC’s 2020 revisions to SEC Rule 14a-8, which make the submission of shareholder proposals more difficult, thereby thwarting investor efforts to raise ESG concerns; and
4. an SEC commitment beginning in 2016 to move away from line-item disclosure to a more principles-based system.
Other ESG disclosure blind spots include the mistaken assumption that publicly traded companies already operate under an affirmative disclosure obligation whenever information is material, including ESG information. There is some resistance to the idea that most ESG information is material and useful to decision-making, using traditional definitions of materiality.