ESG Weekly News Update: February 1, 2021
Mount Rainier National Park
General ESG News
CSR is no longer a niche play; a business' bottom line and brand growth depend on it.
The proliferation of CSR, combined with the unique challenges brought about by Covid-19, has resulted in the birth of a new type of CSR. Known as supply chain finance as a service, or SCFaaS, this function offers corporations and other large enterprises the opportunity to assist smaller businesses via invoice financing.
On the opposite side of the coin, CSR is also being reimagined when it comes to charitable donations. In the midst of a pandemic-induced economic downturn, donations to charities have become less frequent, despite more people requiring support than ever. For companies that thrived in 2020, revisiting their ESG program can be a new focus in 2021. Enterprises can use their bottom line for good.
In 2021 big businesses will turn their lens away from vanity CSR projects and onto initiatives with actual impact, whether that be niche communities or developing nations.
Through the first three quarters of 2020, all was relatively quiet on the global shareholder activism front. Then, in the fourth quarter, activists broke loose. Fifty-seven new campaigns launched, including broadsides against Intel, Public Storage, ExxonMobil, and The Walt Disney Company.
“The rise in the launch of ESG-related funds and campaigns focused on sustainability issues enables activists to improve perceived ESG weaknesses in businesses but also bolster fundraising by branding themselves as forward-thinking and socially conscious,” Lazard directors wrote in their report. “This trend is likely to continue as more limited partners intensify their focus on allocating capital in a way that betters society.”
Private equity firms continued to use “activist-like” tactics at public companies. Examples included Cerberus calling for Germany’s Commerzbank to cuts costs, adopt a new strategy, and appoint two of its nominees to the board and New Mountain’s demanding governance and operating improvements at small-cap IT firm Virtusa.
Harvard Business Review: ESG Impact Is Hard to Measure — But It’s Not Impossible
Around the globe, a third of all professionally managed assets, or roughly $30 trillion, are now subject to ESG criteria. That’s a remarkable sum, one that represents an increase of more than 30% since 2016. Between April and June of 2020 alone, investors poured more than $70 billion into ESG equity funds, vastly exceeding recent annual flows.
Our current focus on ESG measurement is dangerously narrow. It fails to capture the complex, systemic nature of social and environmental systems, and indeed that of business organizations themselves.
ESG and impact measures can help us keep score, and, when necessary, make course corrections. Ultimately, however, no matter how and what we measure, we need to act our way into greater understanding, insight, and even purpose.
Many ESG measures already very effectively capture inputs, but they presume causality — that adding women to top management teams, say, will produce better outcomes. But measures that capture inputs (such as the numbers of women on those teams) don’t capture outcomes (such as decision-making that reflects diverse perspectives) and impacts (such as the social value created by such decisions). We have to look behind the numbers and ask how, why, and under what conditions they came about.
Competitive advantage now hinges on sustainable transformation. Sustainable transformation builds on digital transformation and then incorporates environmental, social, and corporate governance (ESG) data and corporate social responsibility (CSR) goals into the products and services that a business commercializes.
ESG is already gaining widespread attention, yet most initiatives across industries fail. Why? The primary cause is data: lack of data, lack of standards, and lack of understanding of how to use data. With a competitive edge, data-driven companies win.
After this year’s shifts in company operations and consumer behavior, organizations will emerge from the pandemic digitally transformed, at least at a foundational level. Now, organizations must ensure that their transformation is sustainable. Taking a data-backed approach to ESG allows companies to do just that: build organizations that can better adapt to the rapidly changing demands of stakeholders, the environment, and the economy
ESG Disclosures, Standards, Rankings, and Reporting
Finextra: Nasdaq releases ESG reporting platform
Nasdaq, Inc. (Nasdaq: NDAQ) announced today it will offer corporate clients an environmental, social, and governance (ESG) workflow and reporting service.
The platform seeks to help companies navigate the complex series of corporate sustainability frameworks available in the market today, streamlining the data gathering and response process to provide a more efficient way to send ESG-related data to ratings agencies and other stakeholders.
Rather than using pre-calculated ESG scores, ESGiQ helps create a custom measure for performance for public and private companies, as well as ESG-focused investors. MZ can assist clients with tracking, monitoring and properly reporting material ESG factors to various stakeholders, rating agencies and financial media.
MZ's ESGiQ platform leverages deep consulting expertise and a proprietary software platform, which features an intuitive user interface that reacts to real-time inputs, tracks historical information, and has 100% flexibility to adopt any well-known ESG reporting standard (i.e. SASB, GRI, TCFD), as well as custom metrics. Together, the ESGiQ platform provides a comprehensive approach to cost-effectively implement and streamline ESG reporting into long-term sustainability strategies, while obtaining greater insight into ESG best practices and even understanding how specific sub-segments of ESG metrics affect financial performance and risk.
Green Biz: Can we finally standardize ESG standards?
Over the years, there has been more talk than action on reducing confusion and burden in the reporting space. To be fair, some of the burden is self-inflicted by companies that insist on publishing 100-plus page sustainability reports.
As we enter 2021, there are strong signals of meaningful change in the sustainability reporting world. Three main trends are emerging: Mandatory disclosure, investor Demand and consolidated ESG standards.
The IFRS Foundation received more than 500 comment letters on its sustainability standards proposal with many key stakeholders in support. Given the momentum, the IFRS Foundation seems well-positioned to accomplish the elusive goal of a single global ESG standard.
Fitch Ratings has updated the interactive ESG dashboard for Corporates, a tool that shows the distribution of Fitch's ESG Relevance Scores (ESG.RS) for 1,547 entities globally.
The dashboard shows that ESG risks were influencing rating decisions for 23.3% of Corporates as of Dec. 31, 2020, with governance once again the dominant factor (influencing 12.8% of ratings by itself) followed by social (4.4%), and environmental (3.5%).
Axios: ESG standards go global
55 of the world's largest companies are allowing themselves to be compared on key environmental, social, and governance standards. The long-awaited announcement standardizes reporting on everything from anti-corruption protocols to pay equality and greenhouse gas emissions.
The standardized metrics are global, and — crucially — have been signed onto by all four of the big accountancy companies. Deloitte, EY, KPMG and PwC will ensure that all companies calculate the metrics the same way, making it possible for the first time to accurately measure companies against each other.
The new standards will make life a lot easier for regulators, investors, or anybody else who wants to to judge companies on areas from water consumption to the amount of tax they pay.
Dozens of the world's largest companies representing trillions of dollars in market capitalization pledged to use a uniform set of "Stakeholder Capitalism Metrics" in their mainstream disclosures amid broader global efforts to streamline and standardize reporting on environmental, social and governance topics.
The 21 core stakeholder capitalism metrics are based on existing voluntary standards and offer "universal, comparable disclosures" that companies can report on "regardless of industry or region," according to a news release.
Think Advisor: Fidelity Launches ESG Tech Solution for Advisors
Fidelity Investments has just launched an open architecture technology solution to help RIAs engage with clients about environmental, social and governance investing and create ESG-focused portfolios.
The product, known as ESG Pro, “gives advisors everything they need to get started with ESG in one streamlined solution,” said Rick Smyers, managing director at Fidelity Labs, the firm’s internal fintech incubator, in a statement. “It provides advisors with tools to deepen their relationships with existing clients — and engage prospective clients — by developing sophisticated investment strategies that align with clients’ distinct values.”
ESG Pro has two components: the client engagement side, which helps advisors discuss ESG investing with clients, and the portfolio side, which helps advisors create ESG portfolios and compare current portfolios to ESG models and more.
Building on its commitment to drive positive change through its data and insight, Refinitiv today announced that its ESG company scores are now available for free on Refinitiv.com. Users will also now have access to Refinitiv ESG data through the Refinitiv ESG Voice App.
Global asset manager Invesco announced today the launch by Invesco Canada of a series of new index mutual funds structured as fund-of-ETFs, including two new ESG offerings. The new ESG funds include the Invesco S&P 500 ESG Index ETF Fund and the Invesco S&P/TSX Composite ESG Index ETF Class.
The Invesco S&P 500 ESG Index ETF Fund seeks to replicate the performance of the S&P 500 ESG Index on a hedged basis, while The Invesco S&P/TSX Composite ESG Index ETF Class aims to track the performance of the S&P/TSX Composite ESG Index. Each of the indices are broad-based, and market-cap-weighted, designed to measure the performance of securities meeting sustainability criteria, while maintaining similar overall industry group weights as the S&P 500 and S&P/TSX Composite, respectively
Green Biz: How Wall Street can win on climate In 2021
Even amidst a global pandemic, 2020 proved climate finance and a focus on environmental, social and governance (ESG) issues are more than passing fads, with net-zero financed emissions commitments from Morgan Stanley, JP Morgan and a group of 30 international asset managers — Net Zero Asset Management Initiative — with $9 trillion in assets under management.
Wall Street must integrate climate into its core business, evolving its approach to capital allocation and changing its relationships with carbon-intensive industries. Asset owners will demand no less of asset managers.
Advancing sustainable investing in 2021 also will necessitate a shift in proxy voting among the world’s largest asset managers.
Investors should double down on climate-friendly advocacy, supporting both financial regulations and regulations of carbon-intensive sectors consistent with a 1.5 degrees Celsius scenario.
Companies and Industries
Today, at the annual Davos gathering—taking place virtually this year—more than 60 global companies announced they have signed onto a commitment to follow this common set of ESG goals. The announcement will take place during a panel on Implementing Stakeholder Capitalism, featuring the WEF’s founder, Klaus Schwab, Salesforce CEO Marc Benioff, and Bank of America CEO Brian T. Moynihan, among others. In total, 61 companies across industries and geographies have signed onto the pledge. Others include Siemens, PayPal, Heineken, Deloitte, Sony, Unilever, Dell, and Royal Dutch Shell.
By joining the pledge, the companies are committing to report to their investors and stakeholders the metrics that are most relevant to their businesses, “or briefly explaining why a different approach is more appropriate.” In addition, they’re committing to be public advocates for the goals, encouraging business partners to do the same, and advocating for an ever-evolving, more consistent standard so that “there’s convergence in this very complicated ecosystem of metrics and disclosures around sustainability.”
Despite years of progress by leading corporations toward ESG, corporate social responsibility (CSR), environmental health and safety (EHS) and sustainability goals, the reality is that board members overseeing these companies are still trying to discern how all of this applies to them.
Risk and reputation are two of the most fundamental aspects of "duty of care" for sitting board directors. Corporate leaders who take a broader view of their long-term strategy, including how they will meet ESG demands, will be better positioned to address new risks and opportunities.
Board oversight includes advising the management team on the company strategy, and ensuring improved long term value for all stakeholders. Directors must understand how ESG issues can affect that strategy, and be in a position to assess and address both challenges and opportunities
World Economic Forum: Companies must focus on resiliency, profitability and sustainability
Stakeholders today are closely looking at what a brand says, does, and where it stands on issues like sustainability, equality, transparency and fair employment practices.
Bank of America found that companies with a better Environment Social Governance record than their peers produced higher three-year returns, were more likely to become high-quality stocks, were less likely to have large price declines, and were less likely to go bankrupt.
Stakeholders expect that companies anticipate and prepare for environmental and social change and follow best corporate governance practices to prepare for any shocks or disruptions. It’s about building competitive advantage, lowering risk, getting ahead of new regulations, gaining ground with investors, and adjusting to new consumer demands.
Sustainability is about more than reporting your carbon footprint, implementing carbon taxes, or compensation on a voluntary basis. Technology can help companies measure their carbon footprint across the whole value chain, allowing them to make responsible business decisions while taking sustainability into account.
UN Secretary-General, António Guterres, Chair of the Board of the UN Global Compact, today announced a new three-year strategic plan to increase and accelerate corporate sustainability and principled business.
With the pandemic and ongoing climate crisis undoing much of the progress the world has achieved since adopting the SDGs in 2015, the new UN Global Compact strategy calls on the global business community to increase its contribution to achieving the 2030 Agenda for Sustainable Development and the Paris Agreement.
As a special initiative of the UN Secretary-General, the United Nations Global Compact is a call to companies everywhere to align their operations and strategies with Ten Principles in the areas of human rights, labour, environment and anti-corruption.
National Law Review: ESG in the First 100 Days?
There are some indications that a Biden administration — especially coupled with a Democratic Congress — may seek to amplify ESG reporting in the U.S. As an early indication of such action, the new administration is expected to view ESG through a more positive lens compared to the outgoing Trump administration.
Some retirement plan investors are hoping that political control will lead to new guidance on environmental, social and governance (ESG) investing.
Szapiro anticipates that there will be new issuer disclosures—or a push to require companies to disclose their risks related to ESG issues—rather than a rollback for now. He says the administration might focus on drawing new guidance or clarification on the rule, including a field assistance bulletin or a FAQ on pecuniary and non-pecuniary matters.
The new secretary of labor—a position Biden recently nominated Boston Mayor Marty Walsh for—is also likely to support ESG investing.
President Biden will sign executive orders today that will, among other things, press for a review of the Labor Department’s recent ruling on ESG investments.
The Washington Post notes that the regulations he is instructing agencies to review “range from a recent Labor Department rule preventing environmentally sustainable mutual funds from being default retirement investments” to a Transportation Department regulation making it easier to transport liquefied natural gas by rail.
Addressing interconnected global challenges - from COVID-19 to climate change and inequality - will require rethinking international institutions, leadership and where solutions come from.
An increase in nationalistic leaders in powerful countries was making solving the world’s problems harder. That is hampering efforts to tackle a range of big problems at once, from the pandemic and climate change to terrorism, surging migration and free-trade disputes, said Andrew Mitchell, a former British international development secretary.
Washington Post: Every Cabinet job is about climate change now
President Biden seems to recognize that addressing climate change is not the responsibility solely of the Environmental Protection Agency.
The climate Cabinet is much larger than just the nominal climate team, because almost every Cabinet job is actually a climate job. Most departments — from Interior to Transportation — can help reduce U.S. greenhouse gas emissions and improve climate resilience. And with gridlock likely to continue in the closely divided Congress, rulemaking in the executive branch may be the only way to make a difference.
Climate change is an economywide problem requiring economywide solutions. If the Biden administration thinks about it in those holistic terms, it can still accomplish a lot to address on the biggest crisis facing the planet.