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ESG Weekly News Update: February 19, 2021

Antelope Canyon, Arizona

General ESG News

Reuters: Family-owned firms lag on setting ESG priorities - PwC survey

  • Family-owned businesses are falling behind on setting environmental and social standards, with just over a third having set a sustainability strategy, a survey published by PwC on Tuesday found

  • Without the investor pressure that listed companies face to conform to and set environmental, social and governance (ESG) standards, family businesses have implemented what PwC described as an “increasingly out-of-date conception of how businesses should respond to society”

Green Biz: From the boardroom to Wall Street, ESG is crucial for financial resilience

  • A rising demand from the public for transparency and purpose in business and a growing awareness among corporations that sustainability is integral to financial health

  • As diverse business stakeholders adjust to the climate crisis, social justice movements and a global pandemic, sustainable investing tactics are increasingly proven to benefit companies’ stability and profitability.

  • ESG fluency is an essential component of successful contemporary risk management for boards

  • While boards have made some progress toward embracing sustainability principles within their purview, they still have a way to go.

NC State University: How B Corps Offer Real-World Lessons for Future Business Leaders

  • Jessica Yinka Thomas, Director of the Business Sustainability Collaborative and Lecturer - They work with companies pursuing B Corp Certification or improving their social and environmental impact.

  • “We look at how businesses can operate in a socially, environmentally, and ethically responsible manner, studying B Corps throughout that class,” she says

  • We hosted regular webinars, an annual B Academics Roundtable, and started to build out a founding leadership team. In 2019, we became a 501(c)3 nonprofit and have really started to formalize the organization. B Academics is an independent organization from B Lab, the nonprofit that oversees B Corp Certification.

  • It’s also engaging for students as a movement that includes well-known brands, like Patagonia, Ben & Jerry’s, Seventh Generation, and New Belgium.

ESG Today: NAVEX Survey Finds Companies Adopting ESG Practices, But Lack Confidence in Sustainability Performance

  • Found the vast majority of companies have put ESG initiatives in place, but many lack confidence in their sustainability performance.

  • Publicly traded companies were the most likely to have ESG initiatives in place at 88%, followed by 79% of venture and private equity-backed companies, and of privately-owned companies.

  • Only 50% of respondents said that their company performs very effectively against environment metrics, 39% rated performance against governance as very effective, and only 37% with respect to social issues.

Businesswire: Environmental, Social and Governance (ESG) Global Survey Conducted by NAVEX Global Reveals Strong Adoption Across Public and Private Companies

  • NAVEX Global®, the leader in integrated risk and compliance management solutions, today shared key findings from a survey of managers and senior executives on ESG practices at companies across the U.S., U.K., France and Germany

  • While investor demand has elevated ESG interest and practices amongst publicly traded companies, this survey revealed the focus on ESG extends to privately held companies as well. 88% of publicly traded companies have ESG initiatives in place followed by 79% of venture and private equity-backed companies and 67% of privately-owned companies, according to respondents.

Forbes: Why It's Time To Prioritize ESG Initiatives In Your Business

  • This desire for ESG disclosures is driven by the growing interest in "sustainable investing." Morningstar reported that sustainability-focused index fund assets had doubled in the past three years to more than $250 billion as of mid-2020. Highly influential institutional investors have been outspoken on their support for ESG disclosures

  • With the increased attention across industry sectors now, companies of all sizes will need to put an ESG program in place

  • If you view ESG reporting as a risk-management and check-the-box exercise, you'll miss out on the opportunity to use it to improve your company's performance. The real risk here is that your ability to return value to shareholders could be hampered by not addressing ESG demands

The Deal: Webcat: The Evolving Climate of ESG Governance, Management and Disclosures

  • This webcast discusses the current environment regarding ESG governance, management and disclosure requirements as well as guidance issued by regulatory authorities in order to examine best practices for companies determining appropriate ESG processes and disclosures in the future

Forbes: Green Business Is Good Business: Why Transparency Is Key For Corporate Sustainability

  • Transparency around sustainability efforts is a business-critical component to consider. Transparency breeds accountability, which is a big part of what drives change and improved results

  • Being transparent about the real impact of products or services helps to show potential customers you’re trustworthy and helps them to make more informed decisions.

  • It is important to remember this isn’t about trying to prove you’re the most eco-friendly. It’s about being honest and open and providing customers with the ability to make their own decisions regarding the products and services they consider purchasing. Consider leveraging various tools to aid in the process. Life cycle assessment (LCA) and an environmental product declaration (EPD) can both help assess the impact of a product and then disclose that information to be transparent regarding its impact

  • Transparency equals trust; trust is everything. There is a direct correlation between the level of trust between an organization and its customers to the health and success of that organization. Corporate sustainability isn’t about getting more plants in the office or making packaging recyclable. It’s about progressive and systemic change

Fitch Ratings: Cyber Risk Poses Increased ESG Challenges to Municipal Govts

  • Cyber breaches pose significant social and governance risks, which are reflected in our ESG framework and which we analyze when evaluating all credits, including states and local governments. Specifically, cyber risk is both a social risk in terms of safety and security, as well as a governance risk in terms of management effectiveness. A municipality’s ESG Relevance Score would be elevated if cyber risk were deemed to be material to the rating

  • It is important for municipal entities to have a systematic organizational approach to cyber hygiene that includes redundancies, robust policies and training that produce a cyber-conscious workforce. Without a robust cyber hygiene, governance protocols may prove inadequate in preserving the security of systems and may elevate safety risks for the community at large

ESG Disclosures, Standards, Rankings, and Reporting:

PR Newswire: S&P Global makes over 9,000 ESG Scores publicly available to help increase transparency of corporate sustainability performance

  • S&P Global (NYSE: SPGI) launched a new public webpage highlighting S&P Global's full suite of environment, social and governance (ESG) solutions, and for the very first time, access to S&P Global ESG Scores on 9,200 companies

  • Users can now search the widest coverage of ESG scores in the market. The publicly available S&P Global ESG Scores are a performance-based score ranging from 0-100 and include "E," "S" and "G" dimension scores, peer comparisons, historical changes, and material ESG criteria data by industry.

  • Martina Cheung, Head of ESG at S&P Global and President of S&P Global Market Intelligence said: "With increasing interest in ESG, reporting standards are evolving and market participants across every industry are looking to measure and manage ESG risks and opportunities.

Journal of Accountancy: A road map for ESG disclosures and assurance

  • Investors are showing more interest in ESG information, and some are calling on public companies to incorporate into SEC submissions ESG disclosures on topics such as climate change and diversity and inclusion metrics.

  • Interest in the reliability of this information is expected to lead to higher demand for attestation engagements performed on this information by auditors.

  • The report can be used to help auditors inform their clients’ approach to ESG disclosures, to help clients determine whether to seek an attestation report on ESG information, and to help determine how to report ESG information in an SEC submission.

  • “The road map explores how and why ESG disclosures are being included in SEC submissions and provides practitioners with insight into the risk and legal considerations associated with performing assurance engagements over such information,” Desiré Carroll, CPA, senior manager–Public Accounting for the Association

S&P Global: From Large Cap to All Cap: Introducing the S&P MidCap 400 ESG and S&P SmallCap 600 ESG Indices

  • As per the S&P ESG Index Series Methodology, the indices aim to offer benchmark-like returns and improved sustainability profiles relative to their benchmarks

  • Indeed, scant reporting of sustainability metrics among smaller-sized firms has thus far dampened ESG efforts below a certain cap size.

  • Educate smaller firms on sustainability topics of growing importance to investors

  • Raise the bar on sustainable business practices as companies compete to join the ranks of the ESG indices.

  • This positive correlation between ESG performance and firm size means that the standard ESG score exclusion criteria would likely result in an eligible universe that is simply too narrow to maintain a broad and diversified index.

MondoVisione: Refinitiv Rolls Out MarketPsych ESG Analytics TO Analyze Corporate Sustainability-Related News And Social Media In Near Real-Time – Institutional Investors, Governments, Regulators, Analysts To Benefit From Comprehensive Numerical ESG Insights On Companies

  • To monitor perceptions of sustainability and ESG risk, Refinitiv and MarketPsych have partnered to create a multidimensional ESG analytics offering.

  • Quantitative investors can deploy the data to enhance alpha generation and risk management.

  • Discretionary investors can use the data to improve portfolio construction.

  • Corporate clients can monitor market perceptions of their own and competitor firms.

  • Regulators can use the data to more precisely direct investigations.

  • Analysts and researchers can explore relationships between ESG and economic performance. Governments are able to monitor media perceptions of their activities.

Responsible Investor: ESG scores: an outdated concept

  • ESG scores reflect the provider’s particular views on corporate environmental and social practices

  • The concept of ESG scores - aggregating hundreds of indicators from diverse and complex topics - is outdated, particularly when repackaged by the investment management industry as an investment signal.

  • The wide-ranging reliance of the investment management industry on aggregate ESG scores by third-party rating agencies limits this true price discovery.

  • The ongoing reliance on externally prepared ESG scores means that a large part of the investment management industry is failing to engage in the detail of corporate environmental and social practices, even when charging clients extra fees for ESG products.

  • Given that ESG scores are calculated according to the rating agency’s model, the scores derived naturally inherit the firm’s subjective biases having formed their own opinion on the relative importance of each indicator in the E, S, and G categories.

  • Considerable differences in corporate disclosure practices and the lack of common reporting standards make comparison of data across different sources highly problematic.

Green Biz: ESG reporting is becoming increasingly investor-grade — and siloed

  • For many companies, disclosure strategy has morphed to a kitchen-sink approach: putting every possible sought-after piece of content and data between the report’s front and back covers. The result: A single source of truth but an overwhelming, unwieldy document whose purpose often is poorly understood by internal audiences. Corporate reporters seem caught in a tug of war between satisfying the disclosure needs of the capital markets and defending the encyclopedic length of the publication to internal marketing departments

  • As reports pivot to become investor-first documents, companies will be well-served to balance them with engaging storytelling — with the operating word being "engaging." Effective reporters should approach their report almost as a content suite, a collection of elements that can satisfy the many audiences of the modern ESG report. That requires treating each stakeholder set as a unique audience group and respecting their distinctly different demands from companies

  • Investors should expect ESG reports to deliver data in a more meaningful way, including more widespread use of the TCFD and SASB frameworks to guide the disclosure. Raters and rankers should expect to find this year’s reports easier to access and searchable for their bots. And some companies should begin seeing the results of adopting a content strategy that prioritizes content delivery according to audience needs

Investment Trends

Financial Times: ESG demand prompts more than 250 European funds to change tack

  • Rising demand for “sustainable” investment prompted managers to change the strategy or investment profile of 253 European funds in 2020, helping to push regional assets invested in funds with an environmental, social or governance tilt to a record €1.1tn by the end of December, data from Morningstar show

  • Data suggest investors flocked to ESG funds last year with European sustainable funds enjoying a particularly strong 84 per cent quarter-on-quarter rise in inflows in the three months to the end of December, according to Morningstar

JD SUPRA: The Rise of ESG In Response to Investor Demand

  • Major institutional investors are clearly communicating their expectation that companies institute a proactive ESG program and

  • policies. An effective ESG program attracts additional capital and is a way to embrace fast-arriving millennial demand for ESG values

  • Institutional investors are increasing their commitment to “impact” investing, using sustainable and responsible criteria. Investment research firms have developed measurements to rank companies based on ESG factors. This rapidly growing approach will continue over the next few years.

  • Companies have to develop policies and controls designed to identify appropriate ESG criteria for their specific industry and their company. It is easy to get lost in a variety of issues under the ESG umbrella and a focused approach is critical

Green Biz: How ESG scores can affect the cost of credit

  • A growing number of U.S. companies are exploiting a new type of financial arrangement linked to the promise of strong performance on their ESG measures: better interest rates on business loans.

  • The better its ESG scores, the less interest it will pay on the borrowed money. The opposite is also true: If the company blows one or more of its ESG goals or slips in a rating, that loan will be more expensive. - sustainability-linked loan

  • “Certainly, there are the direct benefits that we get linking to our impact and scores,” Anes noted. “The most important part of this is that it brings heightened visibility and accountability.” Jose Anes, vice president and corporate treasurer of Bridgestone Americas

  • “Sustainability is a core competency, now more than ever, and we anticipate that the demand for loans such as these will only grow as consumers and investors demand full transparency around ESG from the companies they do business with,” said BBVA USA President and CEO Javier Rodriguez Soler

Bloomberg: ESG Funds Need to Shrink Their Carbon Footprint Faster

  • The days in which funds could afford to show only modest progress toward climate goals are fast coming to an end.

  • Jordan Waldrep, the Dallas-based chief investment officer of TrueMark Investments, delved into by analyzing the holdings of the largest environmental, social and governance funds

  • The greenhouse-gas intensity of the iShares fund, known by its ticker symbol ESGU, declined by about 25% over the past year, Waldrep said. While not bad, the drop could have been significantly more given that the GHG intensity of the S&P 500 would plummet 36% by replacing 55 of the index's worst corporate emitters, he said.

  • The most common metric is measuring a company’s greenhouse-gas emissions relative to its total revenue.

  • Researchers at Morningstar Inc. said $347 billion flowed into ESG funds globally in 2020 and more than 700 new funds were created.

  • BloombergNEF published a note with this headline: “Expect a New, Healthy Skepticism About ESG Funds in 2021.” It said the surge in buying of ESG funds “will bring more scrutiny about the sustainability credentials” attributed to these investment products.

ESG Today: LSEG Becomes the First Global Exchange to Commit to Net Zero, Launches Transition Bond Segment

  • London Stock Exchange Group plc (LSEG) announced today a series of climate initiatives, including becoming the first global exchange group to commit to net zero through the Business Ambition for 1.5°, and joining the United Nations Climate Change ‘Race to Zero’. The group also announced the launch of a dedicated Transition Bond Segment.

  • LSEG has set a series of climate commitments, which have been approved by the Science Based Targets initiative (SBTi)

  • LSEG has also set a target of engaging with all key suppliers, accounting for 57% of Scope 3 emissions, to set science-based targets by 2025

  • New Transition Bond Segment, the first to be launched by a global exchange, will display debt instruments from issuers who have a corporate strategy or transition framework that is aligned to the Paris Agreement

ESG Today: BCI Increases Focus on Diversity, Climate Action & Compensation in Proxy Voting

  • BCI (British Columbia Investment Management Corporation) will increase its focus on advocating for board diversity, addressing climate change risk, and reviewing executive compensation in the context of COVID-19 and its impact on human capital.

  • BCI’s proxy voting guidelines include a new diversity and inclusion target for women directors to comprise at least 30% of companies’ boards of directors, and climate-related initiatives including supporting more prescriptive shareholder proposals on climate change, and escalating the targeting of directors for weak responses to climate change risk.

  • BCI will also focus its proxy voting efforts on executive compensation, ensuring the alignment of pay and performance, with a plan to escalate votes against company directors for poor compensation practices as part of a more holistic review of compensation considering the impact of the COVID-19 pandemic.

JD SUPRA: New Tactics and ESG Themes Take Shareholder Activism in New Directions

  • Today, even well-performing companies may find themselves targets of activist campaigns on environmental and social issues, as new funds have been formed to specialize in these areas. Moreover, established activists have established new types of investment vehicles that could strengthen their hands. Preparing for the possibility of an activist campaign should therefore be on the board agenda at most public companies

  • A number of major activist firms have begun acting more like private equity firms, pursuing outright acquisitions or negotiating for large stakes in companies for extended periods (private investments in public entities, or PIPEs). In 2020, three of the best-known names in activism, Pershing Square, Starboard Value and Third Point, formed SPACs (special purpose acquisition companies), shell companies that raised capital to buy businesses. One of the most influential established activist firms, Elliott Management, formed a buyout fund in 2019.

  • Over the last few years, as activism has become more accepted, some long-only asset managers, including money managers, have supported activist campaigns where they thought it would increase the value of their investments. Usually, this has been behind the scenes, but some traditional asset managers have now openly adopted activist tactics

  • Given the evolution of activism, it is vital for boards to ensure that their companies have strategies to address activist pressure

JD SUPRA: Environmental Disclosure Issues Loom Large as Investors Pressure Companies to Address Climate Risks

  • Though the Securities and Exchange Commission (“SEC”) has yet to formally require these disclosures, and the question of whether these issues are within the scope of existing federal securities laws remains a dubious proposition, early signs point to this area of law becoming an increasingly litigious one in the coming years. This should prove especially true in coastal regions already experiencing changes with the potential to harm businesses’ operational capacity

  • Early signs point to a need for additional legislative and policy efforts before the courts can be considered a reliable avenue for stakeholder-litigants to recover

ISS Insights: ISS ESG Releases Annual Global Outlook Report Volatile Transitions – Navigating ESG in 2021

  • ISS ESG, the responsible investment arm of Institutional Shareholder Services Inc. (ISS), today released its annual global outlook report, Volatile Transitions – Navigating ESG in 2021, to kick off its ESG Themes and Trends 2021 thought-leadership series. Drawing on comprehensive ISS ESG data, analyst commentary, and qualitative research from the ISS ESG global database, the new report provides a year-long resource and roadmap for investors in global markets seeking to navigate the potentialities of diverse global and regional ESG issues and their impacts across various investment markets

  • The report further highlights how ESG investors are in a prime position to utilize their reputations to garner greater mainstream buy-in towards sustainable business practice. As such, 2021 offers responsible investors an opportunity to truly live up to their potential, aiding in the delivery of a socially and environmentally sustainable global recovery

Companies and Industries

ESG Today: The Climate Pledge Adds IBM, Johnson Controls, 18 Other Companies to Net Zero by 2040 Initiative

  • The Climate Pledge announced today that an additional 20 new companies, including IBM and Johnson Controls, have signed on to the initiative, committing to reach net zero carbon by 2040

  • The new signatories span a range of industries and sectors from energy to agricultural and financial services.

  • The new companies joining the Climate Pledge include ACCIONA, Colis Prive, Cranswick plc, Daabon, FREE NOW, Generation Investment Management, Green Britain Group, Hotelbeds, IBM, Iceland Foods, Interface, Johnson Controls, MiiR, Ørsted, Prosegur Cash, Prosegur Compañia de Seguridad, Slalom, S4Capital, UPM, and Vanderlande.

Bloomberg Green: Goldman Says ESG Finance to Become ‘Core Part’ of Strategy

  • The New York-based lender, Goldman Sachs Group Inc., plans to issue more environmental, social, and governance bonds on a regular basis as part of its plans to deploy $750 billion in sustainable financing, investing and advisory activity by 2030, according to Carey Halio, chief executive officer of Goldman Sachs Bank USA

  • Goldman said its sustainability bond was well received by investors from the U.S., Europe and Canada, in addition to other countries, including new investors. The order book reached well north of $3 billion at the peak, with more than half of the deal going to ESG accounts

  • Financial firms globally have raised about $25.5 billion pf ESG-linked debt this year, making the sector the biggest issuer of sustainable bonds after governments, according to data compiled by Bloomberg

CEO Magazine: 10 of the world’s most sustainable companies

  • Corporate Knights, the online platform which is reportedly powered by 100 per cent renewable electricity from Canada, ranked the most sustainable companies with revenue in excess of US$1 billion based on climate commitments, carbon footprint and gender diversity

  • “The Corporate Knights Global 100 Index is considered a benchmark for corporate sustainability every year,” Kering stated. “The Global 100 companies represent the top one percent in the world on sustainability performance.”

Government Policy National Review: A Preview of ESG Regulation under the Biden Administration

  • The Biden Administration plans expanded attention and regulation in the ESG space regarding environmental, social and governance issues at American businesses

  • As has been widely reported, President Biden has nominated Gary Gensler to be the next chairman of the Securities and Exchange Commission. Assuming the Senate confirms Gensler as SEC chairman, we expect the SEC to take up the issue of ESG reporting again

  • Jay Clayton, largely sidestepped the issue of mandating additional ESG reporting, preferring to rely on existing SEC disclosure standards that require the disclosure of various types of material information

  • The Biden administration will encourage ESG investing – investments that, for example, assess criteria like risks associated with climate change.

ESG Today: US DOE Announces $100 Million for Clean Energy Solutions, Supporting Biden Climate Agenda

  • The U.S. Department of Energy (DOE) announced today up to $100 million in funding for transformative clean energy technology research and development,

  • The DOE also announced that it will participate in the White House’s newly established National Climate Task Force’s Climate Innovation Working Group.

  • funding will be made available via the DOE’s Advanced Research Projects Agency-Energy’s (ARPA-E) OPEN 2021 initiative, aiming to foster innovative clean energy technologies in order to address climate change.

  • The DOE will participate in federal government-wide efforts to foster affordable, game-changing technologies that can help the country achieve the President’s goal of net zero economy-wide emissions by 2050

Green Biz: Joe Biden can be the president for a sustainable private sector

  • To accomplish this ambitious agenda, we believe the time is right for the president to establish a White House Office of Sustainable Finance and Business. It would create a focal point to engage the private sector to contribute to current and future priorities and to further accelerate the private sector’s focus on sustainability

  • The magnitude of the challenges facing the United States requires that the new administration leverage all sectors of society. Biden needs the private sector to help move this important work forward. This new office would significantly strengthen the administration’s government-wide approach to tackling urgent social and environmental issues

  • A White House office also will allow sustainable investors and companies to partner with the administration to achieve a more sustainable and equitable economy. By highlighting the critical role of the private sector, Biden can further drive alignment of investment capital and corporate actions with his administration’s policy priorities

Yahoo Finance: Best’s Commentary: Rejoining Paris Agreement Likely to Spur US (Re)Insurers’ ESG Adoption

  • A new Best’s Commentary, "Rejoining Paris Agreement Spurs US (Re)insurers’ ESG Adoption", sets out some of the potential short-to-medium term impacts on the (re)insurance industry as a result of the United States rejoining the Paris Agreement, including reputational challenges, as well as the threats and opportunities presented by the transition from a high to low-carbon economy.

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