General ESG News
Be ready to disclose more information, due to both increasing regulation and shareholder action.
Focus on both internal and external transparency, especially around climate change and diversity, equity, and inclusion.
Get ahead of upcoming standards.
Be ready to help solve larger problems.
Be the positive change you speak about.
Collect the data needed to answer stakeholder and regulator questions.
Know about changes to the amortization of intangible assets, such as trade names.
Business World: Timely and necessary convergence in ESG reporting
On November 3rd the IFRS Foundation formally announced the establishment of the International Sustainability Standards Board (ISSB). The purpose of the ISSB is to provide high-quality, comprehensive, baseline of ESG information for investors and capital markets.
Every good cake begins with good ingredients, the Technical Readiness Working Group for the ISSB contains representatives from some of the top sustainability framework organizations including Task Force for Climate-related Financial Disclosures (TCFD), the Value Reporting Framework (VRF) which houses the International <IR> Framework and the Sustainability Accounting Standards Board (SASB) Sustainability Accounting Standards, the Climate Disclosure Standards Board (CDSB), the World Economic Forum (WEF), and the International Accounting Standards Board (IASB).
The ISSB standards will be making their debut in the first quarter of 2022.
Companies are disclosing some types of risks but not others. Banks are failing to align their public commitments with their on-the-ground practices and there remains a stubborn disconnect between investors' needs for relevant ESG data and what companies are disclosing.
By tens of billions per quarter is pouring into ESG funds and green bonds are being issued at an impressive rate but how on earth will financial institutions balance self-interest with that of investors and needs of billions of humans?
ESG Is Now Incorporated into the Ratings of AM Best & Other Major Insurance Company Rating Agencies
ESG Information Can Improve the Investment Portfolio
ESG Improves Risk Management Processes & Company Reputation
There is a strong and growing link between sustainability scores and brand equity value according to a 2020 study from Catalonia University, in Barcelona, Spain.
62% of executives say they are not ready to communicate their actions on ESG, a 2021 study by Barley and Jefferies says.
Here are 7 tips to gain a competitive advantage that is proactive and integrated:
1. Rally around a purpose
2. Explore brand values
3. Redefine your mission statement
4. Establish strategic goals
5. Assess and share ESG performance
6. Use results-driven stories
7. Make your story authentic
As interest in ESG (and ESG investing) continues to increase, it will become increasingly important to know what defines an ESG-compliant company as opposed to one that has simply adjusted its marketing materials.
One tell-tale sign of ESG integration is a focus on employees, which leads to an “open-source” company. Three ways to identify an open-source company include:
o Open communication o Empowerment and ownership o Minimal middle management and hierarchical structures.
National Law Review: What to Watch: ESG in Mergers and Acquisitions
Both buyers and sellers are placing increased focus on ESG considerations. Sellers can use ESG metrics to determine the valuation of their business, and buyers can use these metrics to better understand their target’s value and risks, even with the current lack of standardized ESG frameworks.
Both buyers and sellers should consider the influence of ESG reporting on M&A due diligence, and how to structure diligence requests in a way that maximizes the relevance of the information collected.
Sustainable Brands: Where Is the New Roadmap for Business and Human Rights Taking Us?
At this year’s Human Rights Forum, the topic was described as a strategic issue (not just operational), requiring a “change of corporate culture and business models.”
The UN also launched the new 10-year human rights roadmap, in which human rights shortfalls are recognized as systemic challenges that require systems-level change, not just corporate violations.
The roadmap outlines a mix of regulatory and voluntary actions established in the UN Guiding Principles, and it indicates that the momentum toward mandatory human rights due diligence is a “wave that should be seized.”
The growth of sustainable finance over the next decade is seen as a major opportunity to highlight the responsibility of investors to manage human rights risks in their portfolios.
BusinessTech: Top 10 risks and headaches for businesses right now
Aon’s recent 2021 Global Risk Management survey identifies 10 major risks at the top of mind for decision-makers representing companies of all sized across 16 industrial sectors. These risks include:
1. Cyberattack/data breach
2. Business interruption
3. Economic slowdown/slow recovery
4. Commodity price risk/scarcity of materials
5. Reputational/brand damage
6. Regulatory/legislative changes
7. Pandemic risk/health crises
8. Supply chain or distribution failure
9. Increasing competition
10. Failure to innovate/meet customer needs
As critical pieces of infrastructure become more susceptible to the effects of climate change, state officials are having to determine which pieces can be saved, and at what cost.
The Washington Post asked each state’s transportation department how they are planning for climate change. About two dozen states responded, and only a handful of the respondents described projects that were designed with climate change impacts in mind.
President Biden’s $1.2 trillion infrastructure package provides a down payment on the amount needed to maintain future infrastructure, but it is only a small portion of what is needed. The new U.S. Department of Transportation predicts that no aspect of the nation’s transportation system will go untouched by climate change.
While there are partisan debates over how and how quickly to reduce carbon emissions, leaders across the country are adapting to climate change effects, especially changes to the road network. Despite the need for dramatic change, states are still only taking limited proactive measures.
Institutional Asset Manager: 59% of businesses lose work due to poor ESG performance
DWF conducted a survey that found that 56% of respondents rate the ESG performance of their own company as neutral or weak, and just under half have increased pressure on the ESG matters related to their business. However, just 35% say they have fully considered the legal and ethical implications of ESG disclosure and commitments.
Additionally, 59% of senior executives across eight global sectors said that poor ESG performance is negatively impacting their companies.
The new ESG Book, launched by a global alliance and available for all companies, investors, standards-setters, and other stakeholders, follows five principles based on the shared mission to establish ESG data as a public good:
1. Companies are custodians of their own data
2. Transparency on data usage and interactions bring more meaningful reporting
3. Accessibility and impartiality
4. Framework neutrality
5. Easing the reporting burden
ESG Book enables more comparable and high-quality ESG data, advancing the mission of marking markets more sustainable.
Francesca Placa, Manager of Corporate Solutions at Sustainalytics for a discussion on supply chain sustainability. Investors, employees, customers, and other stakeholders are increasingly engaging with companies and pressing them to address the ESG risks of their supply chains. Additionally, many voluntary reporting standards are including supply chain disclosure requirements.
Building a sustainable supply chain starts at the top, where business leaders are incentivized to consider the ESG impacts of their supply chains.
The next step is to look at lower-tier suppliers (beyond Tier 1), which is where the most significant potential risks can be found. Accurate ESG research and ratings can help companies identify areas of concern, prioritize spending, and help high-risk suppliers improve their ESG risks.
One final driver of ESG reporting is legal compliance as more laws are passed that require some level of ESG- or sustainability-related disclosure.
The main current issues with ESG reporting are the lack of a standardized reporting framework and data assurance requirements, which can lead to information overload and potentially misleading disclosure.
RepRisk has published its ESG data methodology on its website, aiming to boost transparency and help investors make better-informed sustainable investing decisions.
RepRisk combines machine learning and human intelligence to offer risk analysis and proprietary metrics for more than 185,000 public and private companies. The data covers a wide range of ESG issues.
This announcement comes at a time when the use of ESG ratings and data service providers is rapidly increasing, but the market still lacks transparency.
The Globe and Mail: Investors forcing change on companies with lagging ESG principles
As investors increase their focus on companies’ ESG performance, they are also seeking to engage with companies that still have significant progress to make, especially around climate change risks and opportunities.
Investment firms are coming together to call on companies to adopt major ESG reporting frameworks to increase consistency and comparability.
Companies that are lagging in ESG performance risk losing access to or facing higher costs of capital, but real, global change will require engaging businesses that are high emitters, for example, to encourage structural change.
Investment advisors view collaborative engagement strategies as a positive approach toward making progress on major ESG issues.
Advisor Perspectives: Four ESG Myths About Emerging-Market Corporates
Emerging-market (EM) corporate debt is one of the fastest-growing bond sectors, but many investors hesitate to buy EM corporates due to the following misconceptions:
1. EM companies are bad actors when it comes to the environment. While it’s true that EM companies were once heavy emitters, this is no longer the case.
2. EM corporations have a terrible governance track record. On the whole, EM corporates have just slightly lower governance levels than those in developed markets.
3. Applying ESG to EM corporate bonds is too complicated. With robust research methodology and investment processes, it is possible to identify and address ESG risks associated with EM corporates.
4. ESG is too new and too niche to be effective with EM corporates. While the terminology may be new, ESG risks are not – they are real credit risks and must be top of mind for investors.
Asset Servicing Times: ESG remains a key focus in private capital industry
85% of private capital investors have increased focus on ESG over the past 12-18 months, yet only 29% say ESG principles have a “major role” in their investments according to an IQ-EQ Nomura and Barton Consulting survey.
The construction and operation of real estate contributes to approximately 40% of global greenhouse gas emissions.
The real estate investment community is beginning to recognize their moral duty to generate environmental and social returns alongside financial ones.
The role of embodied carbon or carbon attributable to the extraction of raw materials and construction process is likely to become an increasing focus for the real estate market.
Real estate investment MGMT entails the collection, processing and reporting of ESG data in various areas including:
· Disclosure by legislation in Task Force on Climate-Related Financial Disclosures.
· Reporting against Global Real Estate Benchmark (GRESB)
· Reporting against UN Sustainable Development Goals (SDG’s)
· Data gathered and reported upon by real estate managers for investment decisions/reports.
Allbirds, which reports its first earnings as a public company on Tuesday, has looked to set itself apart from other companies in the sneaker and apparel space like Adidas, Nike and Lululemon through its heavy focus on environmentally friendly products and business practices, which is a key differentiator in both traditional and ESG-focused markets.
As more money is flowing into ESG-focused investments, Wall Street analysts appear to be bullish on the stock, expecting further growth as more consumers make sustainability part of their purchase decisions. Allbirds plays into several structural investment themes and megatrends like consumers shifting toward a direct relationship with brands and accelerating the ESG conversation in casual and athletic products.
One main expected challenge will be keeping sustainability as the center focus in a highly competitive sneaker and apparel market, especially as larger brands investor more into sustainable R&D; Allbirds does not hold the patents on its materials or design.
Corporate Knights: Four Steps asset owners take to invest in vital climate action
The huge scope and scale of climate crisis will require monumental amount of private capital and the cost of inaction is steep.
Leading Canadian and global investors are also coming to the table and making climate action a key part of their investment strategies. They have recognized that investing in climate action has a positive impact on the planet and pocketbooks. Furthermore, all investors can integrate climate change into their portfolios by:
1. Engaging in shareholder activism
2. Monitoring and tracking impact performance
3. Employ active investment strategies
4. Join pledges and coalitions
Despite being an incredibly fast-moving market, most cryptocurrency assets are not accounted for in existing regulatory parameters. A recent Deloitte report finds that 76% of respondents agree or strongly agree that a “uniform global regulatory response will be critical to digital assets becoming more mainstream.”
We are now at the critical point where we must reconcile blockchain and digital assets with the ESG factors that are at the top of the agenda for world leaders, institutional investors, and other stakeholders.
The carbon footprint of crypto mining calls for greater reliance on renewable energy, and the digitalization of financial services can help break down barriers and democratize investment for more financial inclusion.
The nature of blockchain and digital assets transcends borders, which means that it requires a unified, collaborative regulatory and framework effort.
The explosive growth of the sustainability linked loan market has exposed several risks, including the quality of the criteria that determine the interest rate on the loans, the key performance indicators that are linked to the loan interest rates, the pricing structures for the loans, and the verification of performance objectives
Samu Slotte of Danske notes that the issue is partly one of incentives, since investors are the ones demanding the loans, and the individual clients often back away from external verification processes due to the cost.
Money Marketing: Platforum: The quiet revolution of ESG fund data across Europe
MiFID II is a legislative framework instituted by the European Union (EU) to regulate financial markets in the bloc and improve protections for investors, amendments to this will come into effect August 2022.
Investment managers typically focus on how companies held by their funds are managing ESG-related risks and end investors are traditionally more concerned with ESG-related outcomes. Data providers are now developing metrics that can address end investors outcomes.
ESG investing is on track to reach $53 Trillion by 2025, which is more than 1/3 of the total US assets under management. Europe accounts for half of global ESG assets but the US has had the strongest expansion in 2021.
ETFs or Exchange Traded Funds are also gaining popularity for investors. In response to this Invesco just listed new ESG ETFs based on the Nasdaq-100 ESG Index and the Nasdaq Next Generation 100 ESG Index. Now investors can access the top Nasdaq-listed companies with the tilt in exposure toward personal values.
DWS stands accused by its former head of sustainability of misrepresenting its ESG credentials in its 2020 annual report.
New EU rules under the Sustainable Finance Disclosure Regulation have asked asset manager to sort funds into different categories, articles six, eight and nine, based on how they engage with sustainability.
Hortense Bioy, global director of sustainability research at Morningstar says “The new regulation is pushing asset managers to rethink their marketing lingo at the same time as they’re reviewing their legal filings to comply with the new regulation.”
The new TD Morningstar ESG Canada Corporate Bond Index ETF (TMCC) and TD Morningstar ESG U.S. Corporate Bond Index ETF TMUC) offer investors access to corporate bond benchmarks that are screened for ESG performance.
The new ETFs aim to maintain similar interest rate sensitivities, yields, sector weights, and credit quality as the non-ESG screen counterparts.
TD will use the research capabilities of Morningstar and Sustainalytics to maintain and screen the ETFs.
The Net-Zero Asset Owner Alliance has published Scaling Blended Finance, a discussion paper that calls for a “blended finance solution” to facilitate the mobilization of large amounts of climate financing capital to emerging markets.
According to the paper, blended finance is meant to bring together public or philanthropic capital and private funding into a common investment structure. These vehicles are de-risking instruments that help investors invest in investments like new climate mitigation technologies that have high perceived risk profiles.
The primary obstacles to climate finance mobilization in emerging markets include elevated risk perception, restricted market access, and the lack of data transparency.
ISS has launched Collaborative Engagement Services, which aims to enable joint outreach and dialogue between investors and companies on key ESG-related themes.
The new services are based on two ISS ESG solutions: Pooled Engagement and a new ISS ESG Thematic Engagement Solution, which will go live in January of 2022.
ISS ESG will formulate goals for each thematic engagement and will provide baseline benchmarking information, as well as an online engagement tracking tool, engagement dialogue analysis, and reporting.
BNP Paribas has announced the launch of the BNP Paribas Social Bond Fund, which provides investors with exposure to bonds issues to finance projects that have positive social impacts.
Social bonds have been one of the fastest growing segments of the sustainable finance market. According to BNP Paribas, the new fund will invest in three main areas, promoting access to essential services like water, health, affordable housing, employment, food security, socioeconomic progress, or basic infrastructure. At least 75% of bonds will be labeled social or sustainable.
Goldman Sachs has announced that it will boost board diversity requirements for companies and will vote against boards that do not meet its gender and ethnic representation expectations beginning in 2022.
Under the new policy, Goldman Sachs will expect its portfolio companies in the S&P 500 and the FTSE 100 to have at least one diverse director from an underrepresented ethnic minority group, and it will expand expectations for public companies with 10 or more board members to have at least two women on the board.
The firm will vote against all members of boards in the U.S. that do not include any women and against members of nominating committees that do not meet other expectations.
The updated policy aligns with the stewardship team’s broader engagement efforts to promote sustainable and inclusive corporate behavior.
Companies and Industries
Pensions & Investments: SEC guidance opens the door for more proxy proposals
The latest bulletin from SEC’S division of corporation finance outlined changes on what constitutes “ordinary business” and “economic relevance” topics that determine whether a shareholder proposal should be excluded from a company’s proxy statement.
Chair, Public Company Advisory Practice at Goodwin, Sean Donahue says “It's pretty clear that the goal of this, whether it's stated or implicit, is to allow more E and S proposals to end up in company proxy”.
During the previous administration changes were executed that gave companies a more lenient ability to exclude shareholder proposals from the proxy statement by filling a no-action letter with SEC.
The historical SEC precedent concerning what is eligible to be thrown out through the no-action process has been restored as of Nov 3rd,2021 giving way to more equitable consideration and presence of ESG issues in proxy statements.
Insurance Business: Businesses scrambling to figure out ESG risks
The ESG landscape is rapidly evolving, and applying appropriate governance mechanisms around ESG risk factors is crucial for companies to mitigate their exposure. Every industry and business structure is different, but companies can take the natural starting point of identifying their specific carbon footprint, for example, and figuring out how to improve.
An internal focus is needed before turning to the complexities of the supply chain, and each business must determine its most material risks, disclose and get credit for current actions, and devise a strategy for future mitigation.
Entrepreneur: 5 Big Mistakes Companies Make when Tackling ESG
1. Avoiding the issue
ESG is not a passing phenomenon.
2. Overwhelm and grasp at the straws
Don’t let the alphabet soup of frameworks and standards dissuade you from taking the ESG journey. Hire an ESG consultancy like Summit Strategy Group to help!
3. A bolted-on approach
Remember that ESG strategy need to be integrated in the overall company strategy not treated like an add-on siloed endeavor.
4. Thoughtless marketing
Be conscious of what you share and keep in mind that an unsubstantiated claims can put you at risk of greenwashing.
5. Taking it too far
Optimizing ESG is a balancing act too heavy in on area might compromise the outcome in another. Spread the attention across all sectors of ESG, Environmental, Social and Governance.
Banks and their regulators are closely examining their environmental exposures and reconsidering their support of companies that generate significant carbon emissions. They are also focusing on social values like diversity, equity, and inclusion, as well as expanding access to capital in underserved communities.
The key challenge is developing an ESG approach that creates meaningful change while also accounting for the realities of running a business.
Disclosure demands from regulators and other stakeholders are increasing, and banks are still trying to understand all potential consequences of shifting toward more ESG-focused strategies.
Some banks are farther along their ESG journeys than others, with some disclosing the greenhouse gas emissions of their loans and investments and others issuing new bonds to support minority developers.
Water companies in the UK have faced calls to be renationalized or transferred back to state ownership for years due to concerns of tax avoidance, unfair investor payouts, and crimes against the environment.
Southern Water the supplier for 4.2 million customers in Kent, Sussex, Hampshire and Isle of Wight was fined a 90 million Pounds for deliberately dumping billions of liters of raw sewage into protected seas over several years for financial gain.
In an effort to change tune, Southern Water then accepted investment from an Australian infrastructure investor, Macquarie. Macquarie owned the Thames Water from 2006-2016 and made similar sewage pollution issues for the River Thames. Southern claimed the investment meant “good news for its customers, local government and regional economy” but many think that this move is more likely to further erode public trust.
ResearchAndMarket.com’s “Sustainable Packaging Market 2021-2026" is now available and it projects growth at a CAGR of 5.03% to reach $348.919 billion by 2026.
Food, beverage, and cosmetics products are increasingly being packaged with sustainable materials, and a major catalyst in the process is the emergence of new sustainable packaging materials that further reduce environmental impacts.
The COVID-19 pandemic has created a rise in public waste due to the discarding of personal protective equipment and the demand for bottled water, disposable wipes, sanitizers, and plastic bags.
Unfortunately, solid waste generation is projected to exceed recycling capacity by 2050, even for packaging materials that are recyclable and often viewed as environmentally friendly.
Cost increases are a major obstacle in the sustainable packaging industry. Non-biodegradable plastics remain the most preferred packaging material in the world due to their low costs.
KKR has launched its Sustainability Expert Advisory Council (SEAC), a six-member council that aims to bolster the firm’s ESG capabilities. The six independent experts in the council span a range of ESG topics like climate, DEI, labor and workforce, governance and transparency, and data responsibility.
KKR is an active investor in ESG and sustainability-related themes, and it has tripled the size of its ESG team over the past year.
Clarity AI’s recent $50 million funding round was led by SoftBank Vision Fun 2, BlackRock, and Fifth Wall ClimateTech Fund. Clarity AI is an impact evaluation and assessment platform that is designed to help investors manage the impacts of their portfolios.
The term “tree equity” in President Biden’s Build Back Better Act has been singled out, mocked, and criticized, but it is really referring to the fact that there is researching showing that more tree canopy can save lives threatened by heat waves.
A lack of vegetation can cause urban heat islands, which are often found in underserved communities, which then bear the brunt of extreme heat events.
Historical segregation policies have served to isolate minority communities, and the tree equity portion of the Build Back Better Act aims to redress some of these policies and expand urban tree canopies, especially in neighborhoods with high poverty rates.
With the right funding, this project could have an immediate and tangible impact. The biggest remaining challenging is passing the bill through the Senate where Republicans continue to ridicule the request for $3 billion for ‘non-racist trees.’