ESG Weekly News Update: December 2, 2020
General ESG News:
Professional services firm KPMG announced the release of the 2020 KPMG Survey of Sustainability Reporting, with findings including more widespread use of sustainability reporting by the largest companies across the world, but room to improve on areas including biodiversity loss and balanced SDG impact reporting.
According to the survey, ESG transparency overall continues to increase, with 80% of companies now reporting on sustainability, up from 75% in the prior survey conducted in 2017. Notably, the pace of growth has picked up as well, with only a 2 percentage point increase reported in the 2015-2017 period. By region, North America leads on sustainability reporting rates with 90% of companies reporting (up from 83% in the prior survey), followed by Asia Pacific at 84% (vs 78% prior), Europe at 77% (unchanged), and Middle East and Africa at 59%.
ESG Disclosures, Standards, Rankings, and Reporting:
Reporting and disclosure-focused organizations the International Integrated Reporting Council (IIRC) and Sustainability Accounting Standards Board (SASB) announced an agreement to merge and form the Value Reporting Foundation. Through this combination, the organizations aim to provide investors and companies with a comprehensive corporate reporting framework across the full range of enterprise value drivers and standards to drive global sustainability performance.
According to the IIRC and SASB, the merger will also advance the work of CDP, CDSB, GRI, IIRC and SASB in the ‘Statement of Intent To Work Together Towards Comprehensive Corporate Reporting,’ which outlines a vision for a comprehensive corporate reporting system.
“This merger is a significant advancement towards building a comprehensive system of corporate reporting, as we work to ensure integrated reporting and sustainability disclosure have the same level of rigor as financial accounting and disclosure. But reporting should never be for reporting’s sake. Our focus is on ensuring businesses have effective governance over enterprise value creation factors and that investors are able to fulfil their role as stewards. We will continue to advance integrated thinking to achieve this.” Charles Tilley, CEO, IIRC, added.
Corporate Secretary: ESG: Social seen as most difficult to analyze
Improved long-term returns and risk mitigation are the key motivators behind ESG integration, with social seen as the most difficult element to analyze and integrate, according to a series of snap polls held at the recent Truvalue Labs ESG Investing Forum.
Two final polls surveyed respondents on which ESG themes are likely to be the big drivers, both in the coming year and in the next three to five years. The resounding answer was climate change. Although inequality ranks relatively high for the coming year, at 30 percent, just 11 percent say it will be the biggest driver over the longer-term outlook.
Gender diversity ranks low across both questions at 4 percent and 5 percent, respectively, but respondents see sustainable consumption – no doubt because of its links to climate change – as a growth area.
ESG data science company RepRisk and financial services provider Apex Group announced the launch of a new strategic partnership, aimed at expanding access to material ESG risk data for private markets participants.
RepRisk uses a combination of machine learning and human intelligence to offer quantitative risk analytics and proprietary metrics for more than 150,000 public and private companies, covering every global sector and market. The RepRisk ESG data covers a broad range of issues, including human rights, labor practices, corruption and the environment.
Under the new partnership, Apex’s ESG Rating and Advisory Portal will now include RepRisk Analytics Reports and Cases Data on private companies, allowing unrivalled ESG insights to private companies and their investors.
Pension & Investments: Canadian plans call on firms to improve ESG disclosures
Canadian pension plans with about C$1.66 trillion ($1.26 trillion) in assets are calling on companies and investors to step up when it comes to the environmental, social and governance information they disclose and use in investment decision-making.
Seven investment management and pension plans issued a joint statement. The signatories want companies to report relevant ESG data in a standardized way in part by adopting the Sustainability Accounting Standards Board standards and the Task Force on Climate-Related Financial Disclosures framework.
The CEOs also cited how the ongoing impact of the coronavirus pandemic has highlighted social inequity, systemic racism, environmental threats and board effectiveness. Companies and investors should take the opportunity now to make changes.
Sustainable investing trends are touching every part of the market, and Credit Suisse believes one theme stands out: companies focused on pushing energy-consuming industries like buildings and the transportation sector toward a zero-carbon world.
Amid a surge in ESG investing, the firm said these stocks should see increased momentum under President-elect Joe Biden given the former vice president’s ambitious climate targets.
The past year has brought a burgeoning interest among mainstream investors about the role of biodiversity in mitigating corporate risk. Companies rely on healthy ecosystems to treat and dissipate waste, maintain fertile soil and ensure water and air quality, as well as the health and well-being of their employees, suppliers, customers and communities.
In January, four asset managers — AXA Investment Managers, BNP Paribas Asset Management, Sycomore Asset Management and Mirova — asked investors to increase their focus on biodiversity preservation.
This fall, a Task Force on Nature-related Financial Disclosures (TNFD) was formed to "help financial institutions shift finance from destructive activities and toward nature-based solutions," in the words of United Nations Secretary-General António Guterres. Based on the success of the Task Force on Climate-related Financial Disclosures, the new working group includes a global consortium of financial institutions. Following initial discussions this year, a TNFD framework will be developed in 2021 and launched in 2022.
BlackRock has developed a new analytics offering that it claims sets “a new standard in providing investors actionable security-level data on climate risk”.
It said that with Aladdin Climate, investors could now analyze climate risk and opportunities at the security level and measure the impact of policy changes, technology, and energy supply on specific investments.
BlackRock also announced that it had expanded access to environmental, social and governance (ESG) data through new partnerships with data providers Sustainalytics and Refinitiv.
Leading market data companies S&P Global and IHS Markit announced a definitive merger agreement, combining the companies in a transaction valuing IHS Markit at an enterprise value of $44 billion. From the perspective of ESG investors, the merger creates a powerhouse in terms of ESG, climate and energy transition data, services and tools.
The companies highlighted their complimentary ESG, climate and energy transition capabilities. On the Data and Platforms side, the merger brings together S&P’s ESG scores offerings with IHS Markit’s workflow and reporting platforms, and emissions database. S&P provides ESG equity indices and pricing benchmarks for energy transition factors including carbon and hydrogen, matching well with IHS’ ESG fixed income indices.
Women continue to make more financial decisions on behalf of the household and more women are also turning to the investing decisions. In fact, women are leading the field when it comes to Environmental, Social and Corporate Governance investing, according to a recent article in Fortune magazine.
In general, a higher percentage of women are interested in ESG investing than men, says CFP Cathy Curtis, CEO of Curtis Financial Planning in Oakland, California. A Calvert/Investment News study showed that usage of ESG funds are up 25% year over year and the trend of ESG investing is more pronounced in women, with 53% doing so currently.
With women making financial choices that have a long-term impact on society, the environment and overall business performance, small businesses and major corporations will need to step up and find ways to support social issues such as climate change, racial and gender inequality, and social justice.
Businesses that prepare for the transition of wealth to women could see four-times faster revenue growth, according to a McKinsey & Co. report.
ESG is more than just a “do-good” mentality. There is a no-compromise approach when it comes to investors’ performance expectations for ESG. The increasing number of ESG options reflect the diversity of investor objectives, including avoiding or reducing ESG risk, while seeking a measurable impact, in pursuit of better investment outcomes. One-third of investors agree it’s possible to achieve market-rate returns investing in companies based on their social or environmental impact; more Millennials (55%) than Gen X (35%) and Boomers (24%) agree with this.
The 2020s will be about renewed commitment and putting ESG investing into action, including continuous improvement of ESG reporting, sustainable investing, and education with the individual investor to better understand their motivations and support their goals across the various stages of their ESG journey (as learners, adopters, and ultimately, leaders).
Companies and Industries:
A wide range of oil and gas companies agreed on Nov. 23 to report methane emissions with a much higher level of transparency as part of a reboot of the Oil and Gas Methane Partnership (OMGP).
OGMP 2.0 will aim to deliver a 45% reduction in the industry's methane emissions by 2025, and a 60%-75% reduction by 2030. The framework includes not only a company's own operations, but also the many joint ventures responsible for a substantial share of their production.
The OGMP 2.0 framework will apply to the full oil and gas value chain, not only upstream production. It would also include midstream transportation and downstream processing and refining — areas with substantial emissions potential that are often left out of reporting at present.
Panera was the first national fast-food chain to label the calorie counts of its menu, and now it’s the first to tag its food with its climate impact. Just as the company served as a case study to the industry that revealing calories wouldn’t kill sales, Panera hopes it can do the same for climate action.
Working with the World Resources Institute, Panera features a "Cool Food Meal" badge on 55 percent of its offerings. These meals are made up of ingredients that emit less than 5.38 kilograms of carbon dioxide per meal, the cutoff developed by WRI.
Rival restaurant company Chipotle has announced a similar initiative, Real Foodprint, that compares ingredients sustainably sourced by Chipotle to their traditional counterparts. HowGood, an independent research company partnering with Chipotle, calculated that Chipotle’s carne asada emits 181.2 less carbon dioxide than the industry average steaks and improves 11.6 square feet of soil health.
Following the recent U.S. presidential election, the Forest-Climate Working Group (FCWG) released an ambitious federal policy platform, intended to help Congress leverage forests for climate change action. The platform includes five detailed proposals that guide policymakers on how to help private forest owners and public land managers overcome existing financial and technical obstacles, enabling them to grow powerful climate solutions in America’s forests.
The FCWG aims to address the challenges and increase the climate change mitigation potential from forests and forest products by: 1) Create a new forest conservation easement program; 2) Create a landowner tax credit for private forest carbon actions; 3) Remove the cap on the Reforestation Trust Fund; 4) Create a low carbon footprint building tax credit; 5) Expand Forest Inventory and Analysis (FIA) Program funding.
The FCWG policy platform lays out a roadmap of tangible steps to ensure that our forests are part of the climate solution. As the 117th U.S. Congress prepares to undertake a range of legislation, climate inevitably will play a dominant role.
John Kerry helped bring the world into the Paris climate agreement and expanded America's reputation as a climate leader. That reputation is now in tatters, and President-elect Joe Biden is asking Kerry to rebuild it again — this time as U.S. climate envoy.
For example, he could use executive orders and direct government agencies to tighten regulations on greenhouse gas emissions; increase research and development in clean energy technologies; and empower states to exceed national standards, as California did in the past with auto emission standards. A focus on a just and equitable transition for communities and people affected by the decline of fossil fuels will also be key to creating a sustainable transition.
Once Biden takes office, Kerry will be joining ongoing high-level discussions on the energy transition at the U.N. General Assembly and other gatherings of international leaders. With the U.S. no longer obstructing work on climate issues, the G-7 and G-20 have more potential for progress on energy and climate.