General ESG News
Many of the currently proposed climate change ‘solutions’ are inaccessible to people living in extreme poverty and underdeveloped countries.
The climate-change solutions being proposed in the West pose a danger to the environment. Electric vehicles are extremely dependent on extractive resources. Electric cars require almost four times as much copper as conventional vehicles.
The greater access the world has to a myriad of energy sources, the faster environmentally friendly technology can be developed. Rationing fossil fuels will only slow the process of decreasing carbon emissions and has the potential to cost lives in the process.
Energy News: Climate change could cost U.S. $2 trillion each year
A White House report outlining climate change’s potential impact on the federal budget, concluding that floods, droughts, wildfires and hurricanes could cost the U.S. $2 trillion each year by 2100.
The biggest U.S. solar trade group claims a federal investigation of solar panel imports from southeast Asia has jeopardized the supply chain and plunged the industry into its “most serious crisis” ever, while a company that called for the probe dismisses the claims.
An oil company wants to sell credits in California’s transportation carbon market to finance construction of a Texas carbon-capture plant, which would pump carbon into aging oil fields to squeeze out more petroleum.
“Governance should be viewed as the means of facing environmental and social risks and opportunities – not as an isolated element,” said SquareWell Partners.
According to SquareWell, the combining of E, S, and G is dependent on the growth of passive investments, as well as the growth of the ESG industry: “the proliferation of disclosure frameworks on ESG issues alongside the myriad of ESG ratings and research providers.”
Additionally, ISS has expanded its climate governance expectations for the largest corporate greenhouse gas (GHG) emitters, warning that it might recommend against the re-election of responsible board members where firms do not have appropriate climate disclosures in place.
Startups and growth companies are raising more funds than ever and growing at a rapid pace, but if managed improperly, this growth may not lead to success. Despite increased cash flows to startups, 75% of them still fail.
This failure can be attributed to a number of factors, many of which are external and out of company control, but one thing startups can control during their highest growth periods is their human capital management strategy.
Many hyper-growth companies face an annual turnover rate of around 25%, which can place monumental costs on the company in terms of recruiting, training, etc. Five best practices for managing human capital during hyper-growth include:
Understanding the “what now” before the “what next”
Hiring an internal recruiting team
Creating a new company archetype
Pre-allocating a percentage of funds raised for change management integration and training
Defining a growth rubric.
Europe has been the driving force behind many ESG policy-making and legislative developments, which have made their way into the U.S.
It is also recently being recognized that the E, S, and G are all intertwined, and before companies can make any significant environmental and social change, they need a strong foundation of good governance. Risk management is at the heart of the board responsibilities at every organization, and ESG is a fundamental risk for almost all businesses in the ever-changing landscape of expectations and regulations.
In recent years, ESG legislation has taken hold in Europe and elsewhere in the form of the Taxonomy Regulation, the Sustainable Finance Disclosure Regulation (SFDR), the European Green Bond Standard, the EU Regulation 2021/119 (Fit for 55), the TCFD and the Non-Financial Reporting Directive, the Corporate Sustainability Reporting Directive, and the Directive on Corporate Sustainability Due Diligence.
Insurance Journal: How Talent Chiefs Led Through the Pandemic
The issues highlighted by the COVID-19 pandemic also helped emphasize the importance of HR positions and why HR leaders must be considered true business partners in leading an organization, from employee health and safety to managing employee relations and benefits.
HR leaders were once compared to the elementary school principal, but are now becoming the school nurse, according to Caryn Angelson of Tokio Marine North America.
The pandemic has created the need for flexibility and constant communication with employees, as well as the recognition that a hybrid workplace will become the new reality for many companies. This new reality also leads to the need for improved technological and connective capabilities.
The pandemic-fueled “Great Resignation” has changed the landscape of what are viewed as ‘perks’ of employment and what are now considered table stakes, and companies are focusing more than ever on talent attraction and retention, with a specific focus on recruiting people from diverse backgrounds. Some companies, including Nationwide, have even combined their HR and DEI organizations/departments to facilitate collaboration.
HR leaders note the struggle of rebuilding and maintaining company culture in the new remote-hybrid landscape, especially for new talent. Executives are increasing their efforts to keep people engaged and connected.
The global pandemic has also caused a shift in peoples’ overall priorities, and many workers are choosing to prioritize their wellbeing more than ever, and companies must respond in kind. Managers and leaders should frequently check in on their employees for the good of the employee, as well as for the overall health of the business.
Compliance Week: Greenwashing under the spotlight
There is a disconnect between financial institutions’ commitments and actions, which begs for greater transparency to more effectively hold financial institutions accountable.
A few financial authorities around the world are prioritizing how to address greenwashing concerns with the hope that consistent environmental reporting standards will produce greater clarity and assurance to the retail and institutional investment field.
Companies are pressured to provide evidence of actions aligned with their statements as anti-greenwashing actions increase, including litigation related to greenwashing or general consumer protection.
National Geographic: ‘It’s now or never’: UN climate report’s 4 urgent takeaways
The UN’s Intergovernmental Panel on Climate Change (IPCC) released a new report on Monday, Climate Change 2022: Mitigation of Climate Change. The report noted that if urgent action is not taken, we will fail to limit global temperature warming to 1.5 degrees Celsius.
Currently, greenhouse gas (GHG) emissions are likely to result in twice as much warming, about 3.2 degrees Celsius by 2100. Although GHG emissions dropped in 2020 due to pandemic lockdowns, GHG emissions greatly increased in 2021, exceeding 2019.
Politics and change resistance are the primary obstacles preventing necessary actions or policies to meet climate goals.
Efforts to reduce methane emissions, a more potent but less persistent greenhouse gas, have the potential to quickly reduce warming.
The Government of Japan is funding and supporting a new project by the United Nations Development Programme (UNDP) to improve human rights standards in business in 17 countries and make progress to achieve the Sustainable Development Goals and 2030 Agenda.
The project serves two purposes to guide companies to carry out Human Rights Due Diligence (HRDD) and help the 17 countries develop policies to tackle business-related human rights abuses.
As some companies are behind in setting sustainability goals, they may consider this five-step action plan:
1. Establish a sustainable business strategy;
2. Embed sustainable data into business processes and networks;
3. Manage carbon and climate exposure throughout the supply chain;
4. Embrace circularity and become regenerative; and
5. Prioritize people across the supply chain.
Insurance Business: S&P Global: 57% of rated Asia-Pacific companies face ESG risks
S&P Global Ratings released a report disclosing the rating agency’s ESG credit indicators on over 500 rated companies in China, India, Indonesia, Japan, Korea, Australia, and New Zealand. The report noted that 57% of rated Asia-Pacific companies face ESG risks on more than U.S. $4 trillion in aggregated debt.
Environmental factors have the most significant negative influence, and the report stated that the rated companies will encounter environmental risks for the next two years because fossil fuels still account for much of the power generation mix in Asia-Pacific.
Since many of the rated companies in these countries are family-owned, they often have less established governance structures and below average transparency and disclosure standards.
The report found that social factors have the least negative influence, affecting 19% of rated companies.
Sustainable Brands: The Purpose Gloves Are Off: How to Not End Up on the Ropes
Corporate Knights, based in Canada, annually ranks the world’s 100 most sustainable corporations and recently rated 34 Canadian companies with a social purpose. The report found that only about half invest in authentic implementation while the other half are at risk of purpose-washing.
The report concluded that companies lack guidance on purpose execution, those without effective implementation risk alienating their stakeholders, and those with authentic implementation will result in positive influence, resources, and sustainable impacts.
The British Standards Institute is developing a UK standard for purpose-driven organizations. Canada needs more purpose governance and implementation guidelines. However, the United Way Social Purpose Institute in Canada provides a free Social Purpose Assessment Tool to assist companies in assessing and rating their actions towards implementing their purpose.
The UN Secretary-General Antonio Guterres announced Monday the launch of a new High-Level Expert Group tasked with developing standards used to set, measure, and track the net-zero commitments of non-state entities.
In September, the Science-Based Targets initiative released study results that found that of the more than 4,200 companies in the G20 that have climate targets, only 20% are science-based.
The new Expert Group aims to make recommendations before the end of 2022 across four areas, including current standards and definitions for setting net zero targets, credibility criteria to assess objectives, measurement and reporting of net zero pledges, processes for verifying progress toward net zero commitments and decarbonization plans, and a road map to communicate standards and criteria into international and national regulations.
Guterres exclaimed, “we are in a race against time to limit global heating to 1.5 degrees. And we are losing.”
Zurich-based Direct Air Capture startup, Climeworks, announced Wednesday that it has raised nearly $650 million in an equity funding round led by global private markets firm Partners Group and Singapore sovereign wealth fund GIC. The funding will be used to scale Climeworks Direct Air Capture capacity.
DAC technology extracts CO2 directly from the atmosphere for use as a raw material or permanently removed when combined with storage. Climeworks has emerged as a leading DAC provider, with 15 plants built globally to date.
The DAC machines are powered solely by renewable energy or energy from waste. The machines consist of modular carbon dioxide collectors that draw in air with fans and capture CO2 on the surface of a highly selective filter material, and extract the high concentration carbon dioxide.
Diversity, Equity, and Inclusion
A recent report from Bain finds that less than a quarter of Black employees feel included at work, and despite recent diversity and inclusion efforts, Black employees are disproportionately confined to lower positions within their organization. Black employees also make up the highest proportion of front-line workers, and are much less likely to hold mid-level and executive positions than any other racial group.
Simply hiring individuals with diverse backgrounds is not enough, as this inevitably leads to clashing and tensions. Employees need to feel psychologically safe, engaged, and encouraged to share their perspectives.
Workplace inclusion starts with leadership, and new insights even find that diversity in leadership (or the lack thereof) is key in helping employees make decisions about whether they want to stay at an organization in hopes of moving into a leadership position, or if they should move on.
The two main enablers of inclusion are behavior enablers, which include growth opportunities and open communication, and systemic enablers, which include company values and safe spaces.
As the SEC has recently focused on amending rules to require human capital management disclosures from companies, HR departments must be alert. ESG priorities are also spreading from environmental to social and governance issues, which directly concern HR individuals.
HR employees are crucial actors in evaluating companies’ actions on diversity, inclusion, equity and other aspects of ESG important to employees. HR leaders should expect more pointed questions from board members on DEI.
HR departments are in the position to lead their companies on ESG strategies, retaining talented employees, and building solid brands.
ESG Disclosures, Standards, Rankings, and Reporting
The SEC’s 2022 exam priorities will include several new emerging areas of focus, including private funds, ESG investing, retail investor protections, information security and operational resiliency, and emerging technologies.
The SEC notes that the published priorities are not exhaustive and will not be the only areas the Division focuses on in its examinations. “The scope of any examination is determined through a risk-based approach that includes an analysis of historical information, operations, services, products, and other possible risk factors,” stated an SEC spokesperson.
The SEC will be scrutinizing disclosures by registered investment advisors ("RIA") that advertise ESG strategies or ESG criteria, to ensure disclosures do not include materially false and misleading statements or omissions.
The SEC's recent proposed rule to enhance and standardize climate-related disclosures is a first step towards creating a uniform disclosure framework that would mitigate some of these disclosure risks.
The SEC will continue to focus on ESG-related advisory services and investment products to ensure that these funds:
Are accurately disclosing their ESG investing approaches
Have implemented policies and procedures to ensure their ESG-related disclosures are in compliance with federal securities laws
Are voting client securities in accordance with proxy voting policies and procedures and in alignment with their ESG-related disclosures and mandates
Are not overstating or misrepresenting the ESG factors considered or incorporated into portfolio selection (e.g., greenwashing), such as in their performance advertising and marketing.
Institutional investors and other stakeholders have demanded more transparency to ensure that companies are caring for and managing their workforces effectively and respectfully. Consequently, businesses have reconsidered the way they report Human Capital Management (HCM) information by providing more detail and expanding the use of KPIs.
HCM is a broad term that covers the different ways in which companies acquire, train, manage and care for their employees – and how those factors affect the performance of the business.
Politicians, regulators, and investors have helped to push HCM up the agenda, leading to more details arriving in the public domain.
HCM topics like diversity, equity and inclusion (DE&I) now share space in the minds of the C-suite, environmental topics like greenhouse gas emissions.
Sustainable investing is driving capital and corporate priorities, and ESG is a significant component to a company’s brand.
If companies set ESG goals and produce actionable plans, they can make assessable and attainable progress that can also result in experience with and reputation for good stewardship.
Beyond profitability, ESG reputation is critical to draw investors’ interests.
Because customers are more likely than ever to evaluate a brand’s ESG priorities and reputation, companies should prioritize establishing a strong brand loyalty with authenticity and transparency.
Corporate culture and employee engagement are important to attract and retain diverse talent.
Oracle Cloud Enterprise Performance Management (EPM) is a comprehensive tool to plan, manage, and report on ESG practices.
Christina Thomas, a partner at Mayer Brown, discussed the U.S. Securities and Exchange Commission and its proposed rule changes during the 2022 NAREIT REITwise conference.
The SEC discussed updating human capital management disclosure rules on top of proposing new rules on diversity and climate change. Ever since the SEC released the original human capital disclosure rules, disclosure varies across companies and industries.
There are benefits for companies from the new disclosure requirements but also burdening costs from the increased regulations.
The Net-Zero Asset Owner Alliance is calling for the adjustment of ESG engagements strategies aiming to reduce carbon emissions more effectively.
According to the Net-Zero Alliance, engagement strategies should be moved beyond portfolio companies, instead targeting whole sectors and public policy.
Systematic stewardship, as proposed by the Net-Zero Alliance, would see asset owners convene multiple stakeholders across industries and supply chains and have them work together to cut emissions.
Investment Monitor: Regulations are pushing investors to embrace ESG
According to a Barnett Waddingham survey, 91% of respondents say that complying with regulatory development has been one of the main drivers in embracing ESG.
Companies who embrace ESG opportunities and effectively manage risk and integrate sustainability considerations into their investment thinking should be well prepared for the transition to a low-carbon economy.
42% of respondents of a Barnett Waddingham survey say that new regulations can encourage investors to make changes to their portfolios.
Regulation related to ESG is set to play a significant role in changing the asset management industry, impacting investors’ disclosures and strategy.
According to the ESG Global Survey 2021, 66% of asset managers and 64% of asset owners believe that regulation is likely to accelerate and deepen their organization's ESG strategy.
Anastasia Georgiou, Director of Client Services Adviser Segment at Morningstar Europe, argues that wealth managers must focus on ESG as a means of adding value for clients, rather than as a compliance exercise.
Newly imposed EU regulations can appear daunting, but client demand for sustainable investing is still increasing. Georgiou offers a few tips for wealth managers to use to avoid common pitfalls:
Don't be overwhelmed by the explosion of data and leverage your firm’s resources.
Put your customers at the heart of the proposition based on their personal motivations.
Get ahead of the digital disrupters by listening to individual needs and translating regulatory requirements into an accessible solution.
Visual Capitalist: Investors’ Top 5 ESG Challenges
A recent iShares survey analyzes the challenges European investors, in particular, face when shifting their capital toward sustainable assets:
Transitioning portfolios tailored to sustainability requirements can be time consuming, and the financial and sustainability impacts may not be clear.
Making sense of the data is required to assess measurable outputs of investments.
Choosing the right product is difficult among the rapidly growing landscape of sustainable ETFs and other funds.
The emerging climate trend is a crucial factor for investors to consider, but some are not sure how to incorporate climate considerations into their portfolio.
Company engagement is key for fund providers to ensure they are driving long-term value.
Quality Digest: Asset Owners Struggle With Widespread ESG Investment Realignment
About 60 percent of the largest U.S. and Western Europe-based asset owners are building ESG portfolios, yet only 25% have integrated ESG scoring into existing investment-manager selection processes, and 29% have made requests to all their existing investment managers to present ESG strategies and plans.
Tobacco and weapon manufacturers are getting screened out the most by those exercising negative screening while firms applying positive screening are favoring healthcare sector investments. U.S.-based asset owners remain more skeptical about whether ESG investment realignment can deliver higher returns.
CIOs have been most concerned about data gaps about public companies’ environmental and social performance. Other concerns include data quantity, quality, and scoring consistency in measuring ESG performance.
JP Morgan and entrepreneurship network Techstars announced last week the launch of a new accelerator program, aimed at investing over $80 million in diverse and underrepresented entrepreneurs across the U.S.
The new partnership will help to bridge the racial and ethnic divide by providing access to capital, one-on-one mentorship, and customized programming.
Kristin Kallergis Rowland, Global Head of Alternative Investments at JP Morgan Private Bank, stated, “Together with Techstar, [JP Morgan’s] goal is to improve access to the capital and other resources needed by underrepresented entrepreneurs to start, fund, and scale their businesses.”
HSBC has launched two new ETFs designed to help investors integrate net zero considerations into their portfolios using Paris-Aligned Benchmarks (PABs), which are defined under EU rules.
The new ETFs will track the MSCI Emerging Markets Climate Paris Aligned Benchmark Index and the MSCI AC Asia Pacific ex Japan Climate Paris Aligned Benchmark Index, and they expand HSBC’s Paris-aligned benchmark equity ETF range to six funds.
Companies & Industries
Companies that embrace ESG can demonstrate their dedication to the greater good, an increasingly attractive proposition for employees demanding a sense of mission from their workplace.
In a survey conducted shortly after the outbreak of the pandemic, 65% of employees said they are more likely to work in a company that has a strong environmental policy.
The environmental and governance aspects of ESG are important, but business leaders must also invest in the resilience and well-being of their workers, paying special attention to issues that affect the health, community, economic stability, education and social identity of their workforce.
One study has found that companies that invest in health, safety and environmental programs outperform the S&P 500 on average.
Simple cost-effective ways to implement ESG solutions in the workplace:
Focus on the built environment
Social engagement & community building
Incentivize environmental engagement.
The Russian invasion of Ukraine is exposing the unregulated business of ESG ratings, after investments considered to be “socially conscious” bought into a regime that’s being accused of war crimes.
Regulators are calling for urgent work to clarify the myriad standards and practices being used to inform ESG ratings.
In spite of most raters marking Russia down for its record of suppressing dissent at home and aggression abroad, the country has maintained the green light for ESG investing.
The International Organization of Securities Commissions (IOSCO) said that ratings companies should provide greater transparency on how they reach their rating conclusions and regularly review their methodology.
According to NYU Business professors, “If you’re an investor who has been picking stocks based on ESG scores under the assumption that your money is likely to be funding more socially responsible corporate behavior, you should be very disappointed.”
JP Morgan Chase chairman and CEO Jamie Dimon published his annual letter to shareholders on Monday with the release of the bank's annual report. The implications of the war in Ukraine were a dominant theme, including the war's impact on global energy. The letter called for both increased domestic energy production while simultaneously urging massive investment in the development of clean energy sources.
Additional steps highlighted in the letter include government policies to drive capital deployment to low carbon solutions, such as carbon taxes.
Dimon wrote enthusiastically, “the curved towards net zero can still be bent before it's too late.”
Bank of America revealed Monday that it has more than doubled its sustainable finance activity in 2021, reaching an all-time high of $250 billion in capital mobilized for financing UN SDG-aligned green and social projects. The increase in financing followed the launch of a commitment made by Bank of America last year to achieve $1.5 trillion in sustainable finance mobilization and deployment by 2030.
Paul Donofrio, Vice Chair of Bank of America, said, “our sustainable finance strategy permeates every aspect of how we deliver for our client [and will continue to] continuously to play catalytic role in scaling our environmental transition and inclusive social development goals across the globe.”
Last year the bank sustainable finance activities included mobilizing billions of dollars for environmental transition projects and activities, addressing climate change and promoting circular economy, including solutions for renewable energy, energy efficiency, clean transportation, water incidents sanitation, sustainable agriculture, and carbon capture and sequestration. They also put money towards social inclusive development, advancing community development, affordable housing, health care, education, financial and digital inclusion, access to basic services, racial and gender equality, and improving and promoting environmental justice.
Moody's investors service announced Tuesday it has expanded its ESG profile and credit impact scores to several new industries and sectors. Moody’s integrates ESG considerations into the credit analysis of companies and organizations in these sectors including each entity’s risk exposure and the degree of credit impact.
Brian Cahill, Managing Director of ESG at Moody’s Investors Service, said, “Our ESG issuer profile scores and credit impact scores provide a transparent, consistent, and quantified assessment of how ESG impacts our credit analysis.”
Environmental commodities manager and developer ClimeCo announced Wednesday it has raised more than $50 million in an investment round, with proceeds aimed at developing the company's decarbonization projects globally.
ClimeCo aims at helping clients enhance their sustainability impact by offering policy advisory, risk management, offset sourcing, and project development services. The company manages a portfolio that includes carbon offsets, plastic credits, renewable energy credits (RECs), forecasted mitigation units (FMUs), criteria air pollutants, and water quality credits.
The financing will enable ClimeCo to grow its global project development efforts in areas including reforestation, mangrove restoration, and ocean plastic recovery/reuse.
Technology platform Novata announced the launch of its ESG data management platform aimed at enabling private market players to collect and report on portfolio companies ESG metrics and impacts.
According to Novata, the platform was informed by the needs of general partners and limited partners and is driven by an increasing interest in ESG in private markets coupled with the challenges for market participants to collect and measure ESG data.
American Express (Amex) announced Wednesday a series of climate focus initiatives and offerings, including plans to launch new solutions enabling corporate clients to measure, manage, and offset the carbon footprint of their spending.
Amex is going to offer new digital products and services, develop and expanded carbon footprint dashboards, develop a carbon offset referral suite, expand the availability of recycled plastic cards, and more.
Jennifer Skyler, Chief Corporate Affairs Officer at American Express, said, “we are excited to introduce our new suite of offerings that will enable our corporate clients to make conscious decisions to promote a low carbon future.”
Citi will be offering sustainable trade and working capital (T&WC) loans to clients, which offer favorable pricing for loans used to finance international trade finance and every day activities, if proceeds are used for sustainability-focused purposes.
The loan solution will initially launch in 80 countries across Europe, Asia Pacific, the Middle East, Africa, and Latin America, with plans to roll out across North America in 2022.
The solution furthers the bank’s commitment to facilitate $1 trillion in sustainable finance by 2030.
The SEC is rejecting company requests to exclude shareholder proposals related to climate change and social issues from their proxies, and retail and activist investors are being more aggressive with their environmental and social proposals.
Some companies are choosing not to even go through the no-action process because they do not think they will succeed. The SEC has rejected 30% of corporate challenges to these proposals in the 2022 proxy season, and the number of these proposals filed has increased significantly even from just last year.
Shareholders are also bringing forth more specific demands than ever before, and some have stated that they were encouraged specifically by the SEC’s recent policy changes.
It is worth noting that while favorable votes on proxy proposals generally are not legally binding, the SEC has stated that it can persuade corporate leaders to take action.
Although SEC policies have shifted, the true test of investor expectations will be the results of the proxy votes, themselves.