General ESG News
While companies often say that employees are their most valuable asset, their boards rarely contain any HR experts, but this is changing as companies deal with resignations, employee burnout, issues with corporate culture, and more.
Last year, the portion of director roles across S&P 500 companies with HR skills increased to 19.4% (from 11.3% two years ago).
Talent management now tops the list of topics requiring more attention in the boardroom, according to a PwC survey. In this survey, C-suite executives also cited the ability to hire and retain talent as the most important factors and biggest risks to reaching their organization’s goals in 2022.
Beyond pandemic-induced labor strugglers, there is an ongoing push to diversify boards. The number of S&P 500 seats held by Black women increased by more than 25% last year; some of these came from the HR field.
While companies prioritize environmental issues, the wealth gap continues to expand, increasing the number of vulnerable populations, and this has been magnified by the COVID-19 pandemic.
The ‘S’ component of ESG can be broken into three pillars: education, health, and protection from exploitation. These pillars also increase the potential for environmental success.
Unfortunately, current actions/solutions are often piecemeal and are not fundamentally solving any problems. If corporations want to create positive change in any area, they need to focus on social pillars.
The National Law Review: ESG and Tax: Don’t Be Left Behind
Businesses are increasingly expected to set clear tax policies that align with their ESG commitments, and these commitments also have consequences for taxes.
Taxation is also becoming a key governmental tool to drive corporate behavioral changes; some governments are introducing taxes and levies to incentivize businesses to adopt improved ESG practices.
There is a shift from compliance and transparency to showing why a tax approach was adopted and how it connects to a business’s overall ESG strategies. Businesses should ensure effective processes and controls are in place to manage tax risk and tax governance.
Money Control: Focusing on governance – decoding the ‘G’ in ESG
PwC’s leaders discuss the governance aspect of ESG in its second episode of ‘ESG: A bridge to action.’ Vivek Prasad, Markets Leader of PwC India, notes that governance is about transparency, ethical business conduct, board composition, and policies and processes. Organizations that invest in governance have seen improved shareholder trust and stock market performance.
Prasad explains that it is important for companies to set targets and objectives and to align their operational decisions to achieve them.
Nilanjan Roy, CEO of Infosys, also notes that value creation for stakeholders, the community, and the environment should be priorities for organizations moving forward in their ESG journey.
Business Daily: ESG as a tool for strategic corporate communication
Through strategic corporate communication, stakeholders are informed and become aware of a company’s reputation promise. It ensures organizations are trustworthy and present themselves in a manner consistent with their promise.
ESG reporting can be used as a strategic corporate communication tool to tell the authentic story of how companies establish an ESG strategy with metrics to monitor their progress.
Companies can also leverage various ESG standards to create a story that enhances their reputation and delivers long-term value creation to stakeholders.
Data and technology enable companies to gain insights into their business, and they allow companies to improve their efficiency and present their data effectively.
Investors are increasingly seeing the potential impact of climate change on the financial performance of companies in their investment portfolio. Proxy advisers are changing their voting recommendations in response to climate-related concerns. Additionally, the SEC expects companies to include financially material climate-related risks and opportunities in their regular filings.
Strong governance is key to ensuring accountability for net-zero commitments. Directors must ensure that the commitments are incorporated into a broader business strategy. Board oversight should include:
Understanding climate change risks and opportunities to the business
Understanding climate change in relation to the company’s strategy
Assessing the existing governance and oversight structure
Understanding the company’s reporting strategy
For business leaders looking to play a leadership role in the transition to a low-carbon economy, they can commit to the following “resolutions”:
Locking in an ESG data management strategy, depending on business sector and size, and with the awareness of impending SEC regulation
Starting to develop an ESG action plan with a clear path to net zero and other targets
Engaging and inspiring team members, especially as workforces increasingly consider companies’ environmental and social commitments when evaluating places to work.
GreenBiz: 3 ways startups ‘do ESG’ well
Two-thirds of investors see ESG criteria as core to their decisions over the next three years, and businesses face real financial consequences for failing to meet expectations for ESG disclosure and performance. The companies doing ESG well start with a programmatic approach and encourage a mindset shift from shareholder to stakeholder capitalism. Three considerations startups make to achieve this include
Start with a mission that reflects the business’s corporate values and leadership buy-in.
ESG is a long game that requires adjusted timescales for impact.
ESG must be market based.
A few common pitfalls businesses face in their ESG journey are forgetting the social dimension, taking a reactive and/or piecemeal approach, and treating ESG as an afterthought.
With 45% emissions reduction needed by 2030 to keep warming below 1.5°C, it is imperative for governments and corporations to put greater emphasis on reaching net-zero.
Join Reuters Events for a one-hour debate with senior leaders sharing how they are tackling net zero actions in their organizations: Link to free webinar “Bridging the Net Zero Innovation Gap: How Collaboration and Technology is Critical to a 1.5°C Pathway” held on Tuesday, February 15th at 11AM GMT, 12PM CET.
Morningstar: Are You Ready For ESG?
Danielle LeClair, Morningstar Canada’s Director of Manager Research, provides tips on companies looking to further pursue and integrate ESG into their businesses.
Absolutely, ESG lenses will become the norm going forward. Investors are more informed about ESG factors and how it impacts returns, ESG data is improving, and regulation is coming.
It is important for investors to be proactive when it comes to understanding the sustainable aspects of their portfolios and making changes where they see necessary.
When picking a mutual fund, it is important for investors to have an initial understanding of their own mission and values related to ESG, this will help guide them and their decisions moving forward.
Family businesses are ahead of the game on ESG. According to PwC’s Family Business Survey 2021, 93% of survey respondents engage in some form of social responsibility activities and 43% said family businesses like theirs could lead the way on sustainable business practices. To translate your company mission into concrete policies that can help you address ESG challenges, prioritize these steps:
Strategize. What is the business case for your particular organization around ESG?
Assess. What is most important to your stakeholders?
Prioritize. Which areas should you focus on that will really drive organizational change?
Evaluate. Which of your existing policies and priorities will help you achieve your ESG goals?
The National Tribune: Encouraging Responsible Sourcing in Our Supply Chains
One consequence of globalization is firms increasingly seeking low-cost sources of products. 95% of textiles and apparel products used around the world are important from another country. Many suppliers cut corners by using forced labor, engaging in irresponsible practices, exploiting poor working conditions, using hazardous materials, etc.
A Nielson survey found 55% of global respondents are willing to pay extra for responsibly sourced products and services, this number has increased each year.
Governments and consumers play a significant role in creating positive change. Governments could provide partial funding for certifications that keep business sourcing practices transparent. Consumers can do research prior to purchasing to ensure what they are buying is being ethically sourced. There is an increasing number of people in society who are willing to pay more to promote responsible sourcing, but this only works when businesses are transparent.
Regenerative agriculture is one of biggest farming trends of the day, running alongside carbon market trends.
The concept of turning carbon into a tradable asset is becoming more feasible across the food supply chain. For consumer-packaged goods (CPG) companies, it is challenging to offset their Scope 3 greenhouse gas (GHG) emissions which happen outside their operation but inside their supply chain. By purchasing credits, companies compensate for their emissions and offset their carbon footprint. The other side of this is farmers investing in more sustainable land management practices in exchange for carbon credits.
A major challenge is the minimal knowledge we have on field conditions and the difficulty to predict how much carbon could be in the soil in the long term. We need more transparent data and reporting.
Getting enough growers to make the transition to these management practices is a challenge as it takes upfront capital and ongoing incentives.
Fact Set: The “E” In ESG: 10 Trends to Watch
More firms are making an effort to reduce their carbon footprint in the years ahead. With ongoing focus on ESG in vesting, here are ten environmental trends that will illustrate the bigger picture of what is occurring.
Carbon capture and sequestration (CCS)
Increased supply chain efforts
Blurring of issues across certain industries
Small efforts could accumulate
Focus on private company emissions
Standardization of reporting
A broader climate lens
Environmental concerns translate to risks
Corporate America is seeing a renewed push for equity, and employee resource groups (ERGs) have been developed to represent employees from underrepresented backgrounds and identities. However, some members of ERGs note that the burden of effecting change within their organization can amount to what feels like an unpaid second job.
In 2020, only about 5% of companies with ERGs compensated their groups’ leaders for work that reached beyond their normal responsibilities, but this extended to 28% in 2021. Currently, there are questions about what type of compensation to tie to this extra work.
There are also issues surrounding employees who focus on ERG work and then receive negative feedback about falling behind or doing less in their ‘regular’ role.
Companies are receiving significant returns from ERGs in terms of better employee engagement, reduced turnover, reputational improvements, etc., and many argue that the individuals helping drive these benefits should be compensated.
Josh Bersin, a leading voice in talent strategy, sees a reset during the ongoing pandemic that he describes as the shift toward human-centered leadership, human-centered management, and valuing employees as assets (not just labor and expenses). This ultimately leads to employee empowerment, development, and investment.
The Josh Bersin Company recently released a report highlighting the importance of agility, purpose, and open feedback forums for employees.
Bersin also notes that HR is becoming more customized to each company, and the company’s report shows that positive business outcomes are stronger for companies that provide above-average rewards and benefits. The report also found that HR structure does not matter as much as accountability.
According to new research from Corbin Advisors, 84% of investors surveyed reported that ESG has grown in importance as an investment factor over the last two years. However, the social component of ESG has been challenging to quantify, but CFOs have been honing their focus on key priorities related to the social component and its impacts on bottom line, including:
Employee retention saves the bottom line
Access to the best and brightest is essential to both short- and long-term value creation
Engaged employees contribute more significantly
For companies looking to bring ESG into their vision, there are three critical steps that can help offer a competitive advantage:
Decide that you’re ready to actually commit
Break down the E, S, and G individually
Build clear, actionable, smaller steps to achieve goals within each category
The consequences of not building ESG into corporate vision will outweigh the initial investment needed to build out a robust ESG strategy.
Diversity, Equity, and Inclusion
Building a racially inclusive culture can be done with intention, persistence, and focus, and it is important for leaders to view inclusion as a real, albeit challenging, aspiration. There are five specific outcomes that can yield tangible results:
Solicit anonymous feedback
Increase objectivity in selection processes
Find problem areas and conduct root cause analysis to fix them
Bring everyone into the discussion (literally)
Up to half of the total workforce is comprised of external workers like consultants, contractors, contingent laborers, and project-based talent. There are many barriers in how to best include this workforce when examining DEI practices.
Some of the biggest challenges when working with companies and bringing external workers into the DEI space include a lack of worker data, difference in rules for extended workers, and supplier diversity is present but not necessarily worker diversity. Building out DEI practices around the extended workforce will create competitive advantage and uplift the workforce as a whole.
In her book, Caste: The Origins of our Discontents, Isabel Wilkerson notes the similarities between racism and casteism, stating “what some people call racism could be seen as merely one manifestation of the degree to which we have internalized the larger American caste system.” (Caste: granting or withholding of respect, status, honor, attention, privilege, resources to someone based on their perceived rank or standing in the hierarchy. Synonym: Class)
To become a truly inclusive society, we must face the issue of caste and social class head on. Social class is a source of bias and discrimination across all stages of work. We must expand our DEI scope to fully include social class and caste as factors that are imperative to acknowledge and address.
The pandemic has hit women, and particularly diverse women, disproportionately hard economically. In the technology industry there has been an increase in representation alongside an increase in feelings of burnout.
57% of technology professionals feel that remote work has made them more productive. Women have mixed feelings about whether the shift has been beneficial as the line between career and home has become increasingly blurred. 42% of women in tech took on more household work during the pandemic compared to only 11% of men doing so.
Leadership must be intentional about communicating with the people they employ to ensure there are inclusive and empowering practices implemented in their teams.
Business Chief: Diversity and Inclusion – Are Businesses Doing Enough?
Shobha Meera, Chief CSR Officer at Capgemini Group and Amy Lynch, Head of Diversity, Equity, and Inclusion at Thoughtworks UK discuss their views on what has changed and what still needs to be done to properly embrace diversity and inclusion.
DEI is being shaped by the evolving profile of the modern workforce. Greater understanding and value for diverse abilities alongside advocacy are the emerging factors that are changing the DEI landscape.
Simply put, diversity and inclusion boost innovation and creativity which helps to build and progress resiliency within businesses.
Answering the question “What is the best single piece of advice you would give a CEO when it comes to DEI?” Shobha highlights how change starts with your actions and how you build your team. Amy urges you to stay open, listen and learn, and understand everyone's experiences are different.
Also covered in Sustainability Mag: The state of Diversity and Inclusion in 2022
ESG Disclosures, Standards, Rankings, and Reporting JD Supra: Companies Face New Pressure From Shareholders and Regulators To Disclose Political Policies and Contributions
In the 2021 proxy season, shareholder proposals requesting the disclosure of corporate political spending passed at the highest rate ever recorded (40%). The impacts of this movement go beyond companies that have faced shareholder proposals, as 370 of the S&P 500 companies now disclose some or all their political spending (up from 332 in 2020).
Currently, ESG disclosure is only required if the topics are considered material, and there is no guidance about whether political spending is considered a material ESG factor. However forthcoming SEC rules may provide clarity, as then-acting SEC Chair Allison Herren Lee in 20201 argued that ESG factors and corporate political spending are inextricably linked.
In recent years, emerging market private capital funds have taken significant strides to integrate ESG into investment decisions. To celebrate this, impact investor CDC Group partnered with Global Private Capital Association (GPCA) to launch the SEG Performance Award for Private Capital Funds.
This year, there are two winners of the award: Silverstreet Capital (sector-focused fund manager award) and Adenia Partners (generalist fund manager award).
The private debt market has focused more on ESG in the past year, and investors are increasingly needing to identify and evaluate ESG risks as part of their underwriting and due diligence processes.
Many investments now come with sustainability-linked terms and incentives for companies to measure and quantify their ESG efforts. An “ESG margin ratchet” is now common in private debt deals, where borrowers gain access to a small reduction in the margin when they hit certain ESG-related metrics. However, agreeing on these metrics has proved difficult.
Some investors that are taking a proactive approach to ESG are also including requirements for ESG documentation.
Considering all that has happened over the past two years, investors have begun preparing their portfolios and setting expectations for what is to come. Demand for safe-haven assets is on the rise and the 18 ETFs with “inflation” in their name or description have all had positive cash inflows this year.
The three investment trends to watch this year, according to Artem Milinchuk, a Forbes Finance Council Member, are:
Covid-19's lingering impact on portfolios
Investors continue to embrace alternative investments
ESG allocations will continue to increase
MSCI took the performance of the flagship MSCI All County World (ACWI) index with more than 2,9000 large and mid-cap stocks. MSCI’s ESG indices use a sector-inclusive methodologies which help to mitigate the influence of individual sectors on returns.
The average reduction in exposure to oil and gas relative to the parent index was 0.92%. The MSCI ACWI SRI index had the lowest exposure to oil and gas and –2.41% compared to the parent index. The main driver of ESG returns last year was stock selection.
World Economic Forum: 3 reasons why private equity can lead the charge on ESG strategy
The conversation about ESG and private equity has been largely around reporting guidelines and metrics, but the motivation for private equity to lead the charge on ESG improvement can be explained in three key reasons:
The private equity target is ultimately growth
Management and shareholders have a close relationship
Private equity managers can ground ESG in strategy and operational excellence
Wall Street Journal: Investing for Social Good and the Long View
Creating real value requires cultural change. Investors attuned to ESG can spot trends early and investing in these trends is where value will be created.
With our divided society, it is up to investors to make distinctions between good and bad ESG practices and the companies that hold these values.
Harvard Law School Forum on Corporate Governance: Investors Press for Progress on ESG Matters
The Securities and Exchange Commission plans to propose new disclosure requirements.
There is a record number of shareholder proposals involving ESG that won majority support last year.
Investors are demanding that boards actively oversee climate risk mitigation efforts and implore companies to meet the minimum director diversity goals and ESG disclosures.
UN-supported responsible investing organization, Principles for Responsible Investment (PRI) announced the release of a report, titled “Diversity, Equity & Inclusion: Key Action Areas for Investors,” encouraging investors to improve DEI performance Tuesday. It outlined a series of actions for investors to follow throughout the scope of their industry.
Key action areas include Inclusive Corporate Cultures, Inclusive Business Models, and Inclusive Societies. Each action area has a set of specific actions and focuses on incorporating value chain DEI performance into the investment stewardship process.
This past Tuesday, the Intercontinental Exchange (ICE), a global exchange and clearing house operator, announced the release of a new report examining the market for impact bonds. According to ICE, issuance of green, social, and sustainable bonds continued to expand rapidly last year, reaching $1.04 trillion.
Impact bonds issuance grew across all issuer types, with government and supranational issues among the largest individual issuers.
One phenomenon discussed in the report is the growth of favorable pricing for green bond issues, or a ‘greenium,’ over similar issues lacking green credentials. The report recorded the difference in yields over the year between German green bonds relative to their non-green twins. The premium spread of the green bond issue over its counterpart bond widened over the year.
Global alternative investment manager Apollo announced the launch of a Supplier Diversity program, setting a new goal to achieve more than $1 billion in spend with diverse businesses across its private equity funds portfolio companies.
To achieve this goal, Apollo has joined the National Minority Supplier Development Council (NMSDC) and the Women’s Business Enterprise National Council (WBENC) and will utilize its Apollo Portfolio Performance Solutions (APPS) resources platform to provide a toolkit to ensure best practices.
Carletta Ooton, Head of ESG for Private Equity at Apollo stated “[we] have worked incredibly hard to create a scalable framework that will empower our portfolio companies and drive greater impact for diverse supplier across industries.” Her team recognizes this is just the beginning of a long journey to help positively impact the industry.
Nuveen, the $1.3 trillion AUM investment manager of TIAA, announced the final close of its first private equity impact fund, Nuveen Global Impact Fund, raising a total of $218 million in commitments from a diverse mix of investors. Some investments are aimed at addressing sustainable development challenges like climate change and income inequality.
The new fund will enable businesses to reduce waste, use resources in a circular way, improve efficiency, and expand access to products and services, among other actions.
Companies & Industries
GreenBiz: The ESG benefits of cooperatives
Cooperatives play a key role in promoting good governance and improving opportunities for market participants. By definition, co-ops are “autonomous associations of persons united voluntarily to meet their common economic, social, and cultural needs through a jointly owned and democratically controlled enterprise.” More than 90% of U.S. co-ops are consumer-owned, but employee-owned co-ops are increasing in popularity.
In the U.S., more than 40% of people belong to at least one cooperative, and recent surveys find that co-op workers see wage increases and better-quality training, job security, and job satisfaction than their non-cooperative counterparts.
Many cooperatives demonstrate a good governance structure for supporting climate-friendly solutions. Regulatory changes (like those that would allow for more community representation over grid policies) would bring even more co-op models to scale, especially for clean energy. The efforts for more community wealth building through clean energy cooperatives is growing.
The U.S. Army unveiled its first climate strategy for protecting and training soldiers amid worsening climate disasters. The plan also includes reaching net-zero emissions by 2050.
As a part of its strategy, the Army plans to install a microgrid on all its installations by 2030, have a fully electric non-tactical vehicle fleet by 2035, and cut emissions from buildings. They have already completed 950 renewable energy projects.
They also plan to incorporate climate change topics into their leader development and workforce training and will publish climate change lessons and best practices starting in 2024.
Thomas Reuters: 5 Key Risks for Financial Service Firms in 2022
The pandemic, shifts in politics, emergence of climate risks, innovation in cryptos, and need to deliver great consumer outcomes are all key board room considerations. The following are five key risks for firms to focus on in 2022:
The ‘G’ in ESG
The Wall Street Journal: Projects to Capture Carbon Emissions Get New Boost Despite Dismal Record
NRG Energy shut down the carbon emissions capture project Petra Nova just four years after it launched when the expected end use for the carbon was no longer economically viable. More than 80% of proposed commercial carbon-capture efforts around the world have failed for similar reasons.
Most carbon-capture initiatives do not save companies money or generate profits, and they pose an added business expense. However, carbon capture projects are now attracting new attention. A fresh round of projects is in development, supported by about $12 billion in funding from the U.S. Infrastructure Bill.
Large fossil fuel companies are lobbying Congress to increase tax credit to make the projects more economically viable. Many activists argue that accelerating these projects is the only realistic way to reach Paris Agreement targets.
Congress is currently considering boosting the credit for collecting carbon emissions by 70% to $85 per metric ton if the carbon is stashed in geologic formations or $60 if it is sent down oil wells. Direct air projects can earn $180 per metric ton if the carbon is stored and $130 for oil.
Almost 75% of CFOs say their job is impacted by ESG performance expectations but only 6% of them have their pay tied to how well they do against those goals.
Deloitte defines three roles' CFOs must play when it comes to ESG: tracking progress towards regulatory and investor expectations, demonstrating ROI of purpose and embedding purpose in investment criteria.
In an EY survey, half of investors say companies ESG reporting lacks substance. EY states that gap is between how useful companies believe their ESG reporting is and the views of investors who use that information to make decisions.
Chris Kuehn, CFO of industrial manufacturer Trane Technologies, is measuring his company's performance against its Gigaton challenge. This challenge is based on a goal of reducing global emissions by 2% by 2030. He has specific ESG goals to tie to compensation to performance and hopes other like-minded companies will sign up for their own Gigaton challenge.
Anderson Krenak is a member of the indigenous Krenak people who live along the banks of the River Doce in Brazil. On November 5th, 2015, a mining company's dam collapsed, killing 19 people, injuring many others, and destroying the Krenak heartland. Anderson is seeking compensation as one member of a 200,000-strong suit, demanding $7 billion in damages. He wants to send the message that miners cannot come to their country and do damage.
Litigation finance is small but growing, estimated to be worth about $13 billion in 2021. Many firms are moving towards ESG related cases as regulations and disasters increase.
This is part two of Robert Reiss’ interview of commercial real estate companies and their commitments to ESG. The interviewees are as follows: Sonny Kalsi, co-CEO of BentallGreenOak; Sara Armbruster, CEO of Steelcase; and Joe Derhake, PE, CEO of Partner Engineering and Science, Inc.
Some topics on the next frontier for ESG for the CRE industry include aligning goals of the company with the Paris Climate Agreement, adopting models of partnership to leverage each other's scales, and embracing the power of data.
Democratizing ESG priorities allows for stakeholders to contribute which can increase the speed and relevance of the decision-making process while uplifting employees, customers, and communities.
Banks and lenders are taking a closer look at their role in transitioning to a low-carbon economy, and Sustainalytics provides a list of measurement and reporting best practices for financial institutions, as well as the related initiatives and guiding frameworks/organizations.
The Bank of England (BoE) announced on Wednesday the launch of the second round of the Biennial Exploratory Scenario (BES) exercise. The BES is designed to explore climate-related risks facing financial institutions, including both transitional and physical risks.
The tests use three scenarios including ‘early,’ ‘late,’ and ‘no action,’ which highlight a range of outcomes from scenarios that follow the most efficient path to net-zero.
The BES also wants to understand the challenges banks business models face and hope to make sense of the financial vulnerability of the industry in the face of climate change.
Senators Mark R. Warner and Sherrod Brown have sent a letter to the SEC to require companies to report on how many workers are not classified as full-time employees, including independent contractors and subcontractors. The senators stated that the disclosure of this data is key to fully capturing companies’ human capital management.
The senators also note that investors need this type of information to understand how companies treat people, especially as the practice of using subcontracted workers in things like the customer serve, hospitality, and real estate industries has grown in recent years.
The USDA plans to spend $1 billion on projects for farmers, ranchers, and forest owners that use practices that curb greenhouse gas emissions or capture and store carbon. This investment comes after President Biden called on U.S. farmers to lead the way in offsetting emissions and pledged to cut emissions from the agriculture sector (which currently account for more than 10% of all U.S. emissions) in half by 2030.
Some farmers, ranchers, and foresters have already embraced these climate-friendly practices, but others are wary of upfront costs and uncertain returns. In response, the government is aiming to incentivize these projects.