ESG Weekly News Update: August 12, 2022
General ESG News
GreenBiz: What’s the purpose of ‘purpose’?
In the areas of sustainability and CSR, ‘purpose’ has become ubiquitous and is often interchanged with ‘mission.’ However, 'mission' is meant to describe the what, while purpose describes the why.
Companies focusing on defining a purpose over taking real action are now facing criticism from investors, the media, and politicians. One critic argues that a certain company was “laboring under the weight of a management which is obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business.”
Many investors do not see the connection between purpose and profit, and this is part of the long-standing discussion about whether sustainability, CSR, and purpose are distractions from productivity and profit or if the elements are linked.
For a purpose to be effective, it must begin internally and be embedded within the corporate culture. It must have high-level buy-in and become a management strategy with tangible goals that support the company’s sustainability goals.
Forbes: Focus, Focus, Focus: A Common-Sense Way To Reduce ESG Sprawl
Confusion and a lack of focus are clear in everything from ESG ratings to sustainability reports, and part of this is due to regulators prescribing that companies focus on a wide range of “material” factors, stakeholders, and initiatives. This becomes an obstacle to real change.
One potential solution would be to ask companies to focus on just a couple of stakeholder groups and domains deemed most influential, then ask rating agencies to concentrate on KPIs related to these stakeholder groups.
Investors and analysts can gain insight into the areas a company cares most about by looking at the areas it chooses to link to CEO compensation.
BBC: Supermarket food could soon carry eco-labels, says study
According to new research from Oxford University, supermarket customers may soon be able to check the environmental impact of food before putting it in their cart.
The UK only requires food manufacturers to list their main ingredients, by percentage, not amount. Using public databases, Oxford researchers have estimated the composition and impacts of thousands of food products.
Peter Scarborough, an Oxford University professor, told BBC News he hopes that the research leads to an eco-labeling system for customers, but he believes that the bigger impact would come if the food industry used it to cut its environmental footprint.
Bloomberg: Europe Braces for Extreme Heat as Power Infrastructure Wobbles
Another heat wave is expected to hit Europe this week, adding to the pressure on the strained power infrastructure there. The UK, Germany, and France are all expected to reach temperatures of up to 36 degrees Celsius (96.8 degrees Fahrenheit).
In this temperature range, the demand for cooling rises significantly and dry conditions are exasperated.
Extreme head this summer broke records, England recorded the driest July in 90 years highlighting the impact the climate crisis is having on infrastructure. The Rhine River, a vital transport route for goods, has water levels so low that trade is at risk of halting.
Wildfires near London put railway lines at risk of buckling and forced power stations to operate at a lower level to avoid overheating. In France, a temporary waiver was in effect for five nuclear power plants to discharge hot water into rivers.
Diversity, Equity, and Inclusion
Bloomberg: Frontline Workers Feel Overlooked by Corporate Diversity Initiatives
New research on mobility by McKinsey & Co. found that while workers of color are overrepresented in the many low-paying frontline jobs, promotions from these positions usually go to white workers.
The survey of 15,000 employees found that hourly workers on the frontline are 20% less likely than those working in corporate offices to believe that DEI initiatives are effective.
A new survey by Willis Towers Watson found that over 60% of large employers are finding it difficult to hire and retain hourly frontline workers, citing that one of the top reasons employees are quitting is the lack of opportunity for career advancement.
People of color face additional barriers to promotion in the ingrained biases of managers, and the discrepancy in sponsorship, and career support.
Forbes: DEI: Still A Buzzword For Many Companies, But The ROI Is Real
According to a 2020 CREW Network survey, women occupy only 36.7% of the commercial real estate industry, there is a fixed salary gap of 10.2% and a bonus gap of 55.9% between genders in 2020 and, of course, for Black, Asian, and Latinx women, the gap is even wider.
This study notes that companies who prioritize DEI outperform others in earnings, governance, innovation, and opportunity.
According to Kerri Davis, Fortress CEO, making diversity and inclusion a priority has led to a phenomenal company culture that embraces transparency, innovation, communication, and growth.
Forbes: How to Continue Pushing Forward When Unhappy With Our DEI Progress?
Some feel that because diversity, equity, and inclusion goals produce small dividends, it might not be worth it to continue prioritizing these goals, but if companies give up too soon, the same issues that started these goals will resurface.
There are steps that can be taken to help with that uneasy or unfulfilled feeling.
First is to acknowledge the current situation and then determine if the goals that have been set are realistic.
The second is to ask for help and embrace establishing new goals and the vulnerability that comes with asking for help.
The third is to celebrate the wins. Celebrating wins can help move the goals forward and engage employees.
ESG Disclosures, Standards, Rankings, and Reporting
Reuters: Missouri Attorney General Investigates Morningstar Over ESG Ratings
Eric Schmitt, Missouri Attorney General, announced an investigation into Morningstar Inc, to assess whether the company violated consumer-product state law with its evaluations of ESG issues.
The investigation is looking into both ESG matters and determining if the firm violated a separate law regarding efforts to protect Israel from a campaign to isolate the Jewish state in response to its treatment of Palestinians.
Morningstar and Sustainalytics, an ESG ratings unit, are alleged to have violated the Missouri Merchandising Practices Act by omitting or misrepresenting facts. Schmitt states that the violations could have occurred with the sale of ESG products to Missouri businesses and other consumers.
Reuters: ECB, IMF call on climate standard setters to align company disclosures
The European Central Bank (ECB) and IMF call for a global standard for corporate climate disclosures that are aligned with European and United States alternatives. The International Sustainability Standards Board (ISSB) proposed global “baseline” reporting standards. All these efforts are to diminish greenwashing. others call for more precise definitions of concepts for clearer standards and to avoid duplication in reporting.
The London Stock Exchange Group (LSEG) identified many differences between the EU’s and ISSB’s definitions and further claims multiple standards create risk fragmentation. The ECB asserts that any international standard should consist of double materiality to meet users’ expectations.
Reuters: Britain says global sustainability disclosures need phasing in
The new International Sustainability Standard Board (ISSB) was set up in 2021 to write global baseline rules for companies to disclose the risks and opportunities from climate change to help crack down on greenwashing or companies exaggerating their green credentials.
Companies around the world worry about the fragmentation of disclosures and terminologies between the United States and the European Union.
Britain plans to introduce the ISSB standards for listed companies but some proposals may prove challenging if made mandatory straight away.
Investment Trends
ESG Today: CBRE Group Signs $3.5 Billion Facility Linked to Sustainability Goals
CBRE Group, a commercial real estate services and investment firm, recently announced a new five-year $3.5 billion revolving credit agreement, with its terms aligned with several of the company’s sustainability goals.
According to CBRE’s 2021 Corporate Responsibility Report, 53% of the firm’s occupied space has been certified under LEED, BREEAM, WELL or Fitwel, CBRE’s spend with sustainable suppliers was $3.4 billion in 2021 (according to EcoVadis assessments), and the company has set a goal to transition its vehicle fleet to EVs by 2035.
Emma Giamartino, Chief Financial and Investment Officer at CBRE Group, said: “The new facility enhances our capacity and flexibility to invest in CBRE’s growth while advancing our environmental, social and governance goals, we appreciate this continued vote of confidence from our lenders in our people, platform and strategy.”
Forbes: How Corporate Boards Can Avoid ESG Investing Pitfalls
Stakeholders are increasingly pressuring corporate boards to invest and act to boost ESG performance. However, boards feel paralyzed by the possibilities of public scrutiny, greenwashing, and other harm to their reputation and credibility. ESG is also receiving backlash from GOP lawmakers who oppose ESG litigation and investments against fossil fuel-producing companies.
Companies should make direct investments in projects with positive ESG dynamics to avoid ESG pitfalls. A direct investment can take two forms – as a developer or as a tax equity investor. Investing as a developer can be illogical for companies as the returns are low and speculative. Tax equity investments provide predictable, market-rate returns with low risk and can be done with little to no expertise in the underlying projects. Tax equity investments can provide companies with a noncontroversial approach for positive environmental and social impacts.
ESG Today: BlackRock’s eFront Partners with Clarity AI to Provide ESG Data to Prive Markets Investors
Clarity AI, an ESG analytics and data platform, partnered with BlackRock's alternative investment platform, eFront, in an effort to allow private market investors to create quantitative sustainability assessments of their portfolios.
The partnership promotes communication across LPs, GPs, and portfolio companies, and aims to solve the gap in sustainability metrics beyond publicly listed companies.
Clarity AI uses big data to create actionable sustainability and impact insights and allows a breadth of companies, countries, and local governments to access this information. Furthermore, this information supports client reporting to aid investors in their efforts to meet new sustainability disclosure requirements.
ESG News: Australia’s NGS Super Divests From Fossil Fuel Companies On Path Towards Carbon Neutrality
NGS Super extended its exclusion and restricts holdings with companies that:
Generate over 30% of revenue from the distribution, power generation, or extraction of thermal coal, or
Are key players in the oil and gas production and exploration sector.
Divesting companies that are most exposed to stranded asset risk will likely generate higher returns in the long run.
There are some exceptions to the exclusion and companies may be removed from the exclusion list if they make significant improvements based on the assessment.
NGS Super will highly likely increase divestments with its 2030 goal of a carbon-neutral investment portfolio.
Companies and Industries
ESG News: Northern Trust Asset Management Launches Quantitative ESG Strategy for EMEA and APAC Investors
Northern Trust Asset Management (NTAM), one of the largest global investment managers, has recently expanded its suite of responsible quantitative investment solutions. This new strategy will be available to investors in certain jurisdictions across Europe and Asia-Pacific.
The company understands that material ESG factors are pre-financial indicators that can affect a company’s future financial viability and clients’ long-term risk-adjusted investment returns.
According to Michael Hunstad, head of quantitative strategies at NTAM, the company’s quality score increases the quality bias found in many ESG strategies, while their portfolio construction techniques seek to avoid uncompensated risks.
Today, NTAM has been involved with the foundation of several organizations, including One Planet Asset Manager Initiative and Climate Action 100+. These initiatives seek to advance the understanding of the implication of climate-related risks and opportunities.
GreenBiz: How the aluminum industry is forging a path toward decarbonization
Alcoa has the eighth-largest production of aluminum in the world. In order to reduce the environmental impact, many aluminum end users have begun to work toward decarbonizing the material itself.
The company has developed a unique strategy of sustainability practices within its product lines. Unfortunately, that alone might not be enough as supply chain communications can offer additional challenges to decarbonization engagement.
Other industries are offering low-carbon aluminum products that are more streamlined and easier for businesses to maintain commitments to decarbonization. One line of action is to benchmark standards to move the aluminum industry to work on a more cohesive path toward a less carbon-intensive process.
The Wall Street Journal: Insurer Spurs Companies to Mitigate Climate-Related Risks
Insurance companies like FM Global are offering millions of dollars in premium reductions to better protect policyholders against risks including wildfires, floods, and hurricanes.
FM Global alone is providing $300 million and believes it will have the potential to eliminate more than $100 billion in risk exposure.
The past hurricanes Harvey, Irma, and Maria, along with wildfires in California, caused enough damage in 2017 to be the costliest in the insurance industry ever.
Reasons behind the latest decision include rising business disruption due to climate risks, a heightened focus by policyholders on ESG, and the company's strong financial stability.
The New York Times: Tesla Prevails Over Most Activist Shareholder Proposals
Tesla is considered by many a pioneer in the electric car industry. But the company has been accused of racial discrimination at its California factory and of union busting. At shareholders' meetings, only one proposal has prevailed, allowing large shareholders to nominate alternate members of the board of directors.
In recent years, activist shareholders have been trying harder to change the behavior of Tesla, with support of large investment firms, such as BlackRock and Vanguard. This movement led to a conservative backlash accusing ESG of being “an outrageous scam”.
The company maintains its mission to “accelerate the world’s transition to sustainable energy”. As a response to shareholders’ latest resolution, Tesla said it “did not tolerate discrimination, harassment, retaliation or any mistreatment of employees in the workplace or work-related situations”.
Forbes: How the Tech Industry Can Shape ESG 2.0
ESG is at a critical point with a quickly evolving regulatory landscape, shifts towards remote work, and the development of sustainable finance. There are enormous opportunities for tech companies to capitalize on their leadership in this evolving space.
The tech sector makes up the largest portion of many of the S&P 500’s most popular ESG equity funds. There is increased scrutiny on the standardization of ESG rating and tech companies can support regulations that will strengthen investor confidence in ESG.
Over 83% of tech executives are white and only 32% of directors are women. Tech companies should focus on bringing in new solution sets to address the lack of diversity and to address issues like bias in AI.
Tech companies should incorporate ESG into their strategic plan as it is now seen as a powerful financial tool the industry can adopt.
Bloomberg: The EV Race Is Turning a Gold Rush Haven Into a Battery Hub
Kalgoorlie in Western Australia has been dominated by gold for centuries. However, the most in-demand mining leaders are no longer those that mine gold, but those that mine elements like lithium, cobalt, nickel, and manganese -- the most critical elements in batteries for electric vehicles.
Australian mining companies have been signing contracts with Ford, Tesla, etc. and aim to deliver a rapid expansion in the production of raw materials for EVs. Some are selling off their stake in underground gold operations.
Bloomberg: The US Climate Bill Could Make Now the Best Time to Go Solar
The climate bill has the potential to make the transition to a low carbon economy transition more affordable while also subsidizing purchases of electric cars, heat pumps, high-tech water heaters and battery-storage systems — clean-energy upgrades that will offshoot the demand for more household electricity.
If passed, the climate bill would restore a 30% tax credit for residential solar systems, making it applicable to panels installed in 2022, and extend the program to January 1, 2034.
According to Suzanne Leta, senior director at residential solar company SunPower Corp, “There's no question in my mind that all these incentives will make the difference for consumers on the fence about solar, accelerating access to the technology for Americans across the country, especially those that are low to moderate income.”
ESG Today: Apple Invests in Clean Energy to Address Emissions Impact of Powering Devices
Apple is addressing the climate impact from charging Apple devices in Australia through a new renewable energy investment.
This new investment is included in their current goal to become carbon neutral by. 2030.
Electricity used by customers charging their devices accounts for 22% of Apple’s carbon footprint.
Apple plans to use energy from the Upper Burdekin Wind Farm in Queensland, Australia as they have determined their investment in the wind farm can provide enough energy to power 80,000 homes.
Reuters: Slow to Wake Up to Climate Change, Hotels Sector Vows to Tread More Lightly
The world’s first energy-positive hotel is set to open in 2024 in Norway. Svart, the circular hotel, will include 94 hotel rooms fully powered by solar energy generated from rooftop solar panels, with surplus energy channeled back into the grid to offset the energy consumption during construction.
The hotel is a part of the Six Senses brand, a leader in sustainable hotels, and will operate as a completely circular economy. This will include technology that captures waste heat to generate energy, as well as its own recycling and waste management facilities.
While tourism has historically been a lagging sector, there has been a recent shift with more than 500 travel-related businesses signing on to the World Tourism Organization (UWWTO) initiative, which Is designed to accelerate climate action across the industry.
There is increased pressure from clients, employees, government regulations, and investors for sustainable travel and tourism. While bigger brands have already been aware of their obligation to promote sustainability, smaller luxury hotels are needing to jump on board.
Bloomberg: Corporations Join the Nuclear Fusion Craze
The new U.S. Senate climate pact involves federal funding and incentives for fusion, attracting companies and ventures in this industry. Last year, private investors contributed $3.4 billion to the fusion industry. Mike Dennis, a Bloomberg Intelligence strategist, “pegged the eventual nuclear fusion market at $40 trillion.”
TAE Technologies, a southern California nuclear fusion company, raised $250 million and received investments from Chevron Corp., Google, and Sumitomo Corp. Sumitomo plans to “ultimately expand its capabilities in the power production business” with an “ecosystem” around fusion. Chevron views fusion as “a promising low-carbon future heat and energy source.”
ESG Today: Australia Financial Regulator Says Financial Institutions Not Yet Embedding Climate Risk
Australia Prudential Regulation Authority (APRA), Australia’s financial services regulator, announced the release of the climate risk survey results from the financial services sector. The self-assessment survey found that most institutions had not yet embedded climate risk into their risk management framework.
APRA announced in a statement with the results that the financial market participants are more generally aligned with last year's final prudential practice guide, CPG 299, guidance.
Metrics and targets were a key area of improvement highlighted in the report, as most institutions are reporting and measuring climate risk but very few use more advanced metrics like Scope 3 or financed emissions.
Government Policy
Bloomberg: Senate Passes Democrats’ Landmark Tax, Climate, Drugs Bill
The tax, climate and drug bill passed in the Senate 51 to 50 with Democrats in favor of the largest investment to address climate change the U.S. has ever made. The bill is headed to the House where the Democratic majority is likely to pass it this Friday.
The funding is expected to assist in cutting greenhouse gas emissions by 40% from 2005 levels by 2030.
The legislation will further aim to stop large corporations from taking advantage of tax breaks and allow for negotiations on drug pricing. These additions are projected to make a substantial cut to buget deficits.
Two key priorities for Democrats were not addressed in this bill, the 15% global minimum tax deal and increasing the $10,000 cap on state and local tax deduction. Nonetheless, Democrats are reportedly satisfied with the outcome.
The New York Times: Why Australia’s Climate Bill Matters
In last year’s global climate conference, Australia was named a global laggard in climate change policy. However, this week, the lower house of Parliament passed a bill that would commit the country to reducing its carbon emissions by 43% by 2030 (from 2005 levels). The bill is expected to pass the Senate next month.
While the bill is recognized as the most significant piece of climate legislation in a decade, critics also argue that it does not go far enough. Most crucially, by encoding the 43% target into law, businesses and local governments are encouraged to invest in reducing their emissions without worrying that competitors will not do the same and will be rewarded for not making such investments.
The bill also gives authority to an independent group of experts – the Climate Change Authority – to monitor the country’s progress toward its targets. It also integrates a framework for further action, and sets repeated adjustment as the default, building momentum over time.
The U.S. Department of Energy (DOE) has put out a Request For Information (RFI) for public input on a new $750 million Advanced Energy Manufacturing and Recycling Grant Program, which would be funded by Biden’s Infrastructure Law.
The program would support small- and medium-sized manufacturers to produce or recycle clean energy products and deploy GHG emissions reduction equipment at facilities in coal communities.
The program would also expand clean energy infrastructure in the U.S., strengthen domestic supply chains, and support Biden’s goals to decarbonize the economy.
Bloomberg: India to Stop Carbon Credit Exports Until Climate Goals Are Met
India’s Power and Renewable Energy Minister, Raj Kumar Singh, notes: “Carbon credits are not going to be exported. No question, these credits will have to be generated by domestic companies, bought by domestic companies.”
India's Prime Minister, Narendra Modi, is looking to change the energy conservation law in order to create a domestic carbon market and push forward energy transition goals in order to reduce greenhouse gas emissions.
According to revised submissions to its cabinet, India is looking to increase the percentage of clean energy in its electricity grid mix to 50%, from the current 42% mix, by the end of the decade.
The New York Times: Five Decades in the Making: Why It Took Congress So Long to Act on Climate
The advisor to President Nixon, Daniel Patrick Moynihan, wrote a detailed memo on the impact of climate change on the planet in 1969. Now, 53 years later, Congress is close to responding to this memo with government action.
Senate Democrats passed the $370 billion “Climate Bill” to promote action to address climate change, moving the country away from traditional fossil fuels and towards renewable energy. Former Vice President Al Gore stated that the nation has crossed a major and necessary threshold for acting on the climate crisis through legislative effort.
Natural disasters linked to climate change have garnered national attention and helped build political support for action, as extreme wildfires, droughts, and floods have affected all corners of the country. Additionally, a shift towards monetary incentives rather than a tax on pollution has been an effective strategy change.
Historical efforts that proved ineffective included a carbon tax, a “cap-and-trade" bill, and an “energy tax”. While it has taken Congress decades to act on climate change, there is hope that this Climate Bill marks a change in strategy that will result in government action.