General ESG News
Nearly all of the 27 million companies in the United States are private companies and comprise of more than 40% of the US economy. Private companies are more flexible from a governance perspective and are less bound by the quarterly pursuit of financial returns.
Private companies can act on three fronts, leadership, measurement, and cultural change, to transform their ESG commitments into real impacts. The bottom line is, creating sustainable businesses requires an empowered point person. Sustainability ethos must also permeate corporate culture, every decision needs to be viewed through a sustainability filter to keep businesses accountable.
According to the BDO Middle Market CFO Outlook Survey, supply chain disruptions rank as the number one business risk, 64% of CFOs believe in their business case for ESG, and more CFOs are planning to pursue M&A this year than any other year. CFO's are doubling down on talent retention and note that collaboration is one of the top innovative strategies this year. The report also explores six individual sector expectations for 2022: energy, healthcare, life sciences, manufacturing, retail, and technology.
The report discusses growth expectations and strategies, top threats and how to mitigate them, addressing supply chain vulnerabilities, and setting ESG goals while shifting stakeholder capitalism.
Corporate Compliance Insight: How ESG Alignment Can Spur Employee Retention and Attract Future Talent
More employees are wanting to work for employers who are conscious of the impact their business has on customers, employees, and communities. They want to work for companies that embrace and commit to ESG issues.
The 2021 Deloitte Millennial and Gen Z survey found that only 47% of people surveyed believe that businesses have a positive impact on society, a 19% decline from 2017.
The SEC introduced a mandate about human capital disclosure requirements in August of 2020. This mandate is expected to impact many parts of an employees experience including recruiting and talent management, benefits, compensation, pay, and workforce management.
IR Magazine: Sustainability Matters – ESG Key Themes For 2022
A new report from RBC Capital Markets found three key themes that they believe will define progress on ESG matters in 2022. The themes are as follows:
Pathways to net zero
A coming of age for carbon markets
Advancing diversity and inclusion through the sustainable debt market.
Harvard Business Review: Does Your Company Need a Chief ESG Officer?
The HBR analyzed senior executives from more than 1,400 US public companies in 2020 and 2021 and developed three questions CEOs should be asking before creating a chief ESG officer position.
Do your stakeholders care about ESG? Appointing a chief ESG officer signals to stakeholders that your company takes ESG issues seriously.
What role does ESG play in your strategy? The analysis revealed that chief ESG officers are present in companies that make concentrated efforts to incorporate ESG into their entire business strategy.
Would a chief ESG officer be complimentary? If your company is faced with complex ESG demands and existing C-Suite positions are not addressing your ESG needs, it might be worth considering adding a chief ESG officer.
Kelly Gibson, Chair of the Securities and Exchange Commission's ESG Taskforce, says the taskforce will concentrate on delivering enforcement actions for greenwashing. She noted that they will be looking closely at disclosures that issuers make within their public filings and elsewhere, statements versus actions of investment advisors with respect to stated investment strategies, and the ways investments are labeled.
A survey by As You Sow, shared with the SEC earlier this year, led a study that found language in many funds lacked clarity when disclosing why they held stakes in companies involved in areas typically considered as not ESG-friendly. Companies must approach these actions with a abundant level of thought and vetting before sharing information with investors.
Yahoo!: The Globalization of ESG Data
The EU sustainable finance disclosure regulation reporting rules will apply to European companies as well as non EU financial service companies that have 500 or more employees who work in the EU. Many multinational corporations will have to add new elements to their ESG reporting systems.
By evolving and progressing rules on investment disclosures, investment managers will be forced to ask ESG related questions of companies that are not in their own region.
When moving to new locations, companies can use CSRHub to understand how to best align their ESG goals with companies that are already established in the region. CSRHub covers 45,000 different companies; its big data algorithm combines millions of data points on ESG performance from hundreds of sources to produce consensus scores on all aspects of corporate social responsibility and sustainability.
Business Chief: Chief Purpose Officer Will Be The Next Major C-Level Role
Deloitte research has found that purpose driven companies witness higher market shares and grow three times faster on average than their competitors. Corporate purpose has become a strategic imperative that businesses must address and act on. Nearly three quarters of leaders say their role is highly impacted by their companies purpose priorities.
Deloitte data has showed that nearly half of businesses now have a dedicated C-Suite leader overseeing purpose or sustainability at their company. This role is expected to grow as the pressure from inside and outside sources intensify.
Francine Katsoudas, Cisco’s Chief People, Policy, and Purpose Officer, states “a purpose officer can bring the company together to be clear around plans, how they communicate and how we hold ourselves accountable to progress.”
People Matters: Shifting Approaches Of Digital In Human Capital Management
With virtual working becoming a norm, multiple possibilities are emerging for companies to increase access to talent in more remote places. As digital technology transforms the recruitment landscape, it has become integral to the process of recruitment, retention, and performance.
Several companies have adapted to the challenges of the pandemic by offering virtual hiring and onboarding processes. This can make it easier for candidates to attend interviews and also helps the recruiter expedite the process.
In an ever-evolving world, real time monitoring mechanisms are beneficial. Millennials value real time feedback and recognition which can help in creating a continuous feedback mechanism. Analytics can also help HR functions work closely with management to analyze the root cause of nonperformance or substandard outcomes.
The HR Director: Younger Workers Prepared To Leave Their Jobs Over Lack Of ESG
Robert Half, a specialist in talent solutions consultancy, found that nearly two in five employees would look for a new role if they thought their organization was not doing enough on ESG issues. Businesses that fail to implement genuine ESG policies are at a greater risk of losing younger talent, with 47% of 18-to-34-year-olds saying they would look for a new role if they thought their employer was not committed.
“If you want to keep your best talent and attract new talent into the business don't rely on rhetoric ensure you have a clear demonstrable plan in place with tangible measurable actions,” says Matt Weston, Senior District Director at Robert Half.
In 2015, 193 countries in the United Nations pledged to achieve the 17 Sustainable Development Goals by 2030. The pandemic undoubtedly slowed the progress of the SDGS but has also provided a new way of thinking about them. UN Global Compact CEO and Executive Director, Sanda Ojiambo, outlines four main areas for businesses to focus on.
Build out a solid reporting framework
Look across your supply chain
Get SMEs on board
Keep businesses accountable
Ambienta partner and ESG Manager Stefano Bacci notes: “Sustainability is what we do. ESG is how we do it.” What the firm is doing can provide some guidance for other PE firms. As Bacci elaborates, “Sustainability is the impact driven by the products and services of our portfolio companies. ESG is about how we manage these companies in a responsible way.”
Ambienta is a smaller company, in the context of the private markets landscape, which means leading sustainability and ESG practices aren’t something only the very large firms with substantial resources can do. To illustrate this, Ambienta publishes an annual ESG and Environmental Impact Report which summarizes its performance on both ESG & sustainability
In their first private equity fund, Ambienta made their commitment to resource efficiency and pollution control crystal clear and binding in the rules of the fund. Bacci ”While growing Ambienta, we built an ecosystem around environmental investing: research and insight lead.”
Reducing the environmental impacts of food production will require a hefty investment, so who does that responsibility of this funding fall on?
In the context of agricultural emissions, a lot of the proposed changes needed to expedite the shift green food production lowers the costs paid by farmers. However, by and large many larger companies will prioritize the stakeholders desire for profit over the desire to go green
Consumers will have to pay for this green shift, in order to sell consumers on footing the bill effective communication is key, through linking farmers and consumers together
Though a large percentage of consumers note that they want brands to be more environmentally sustainable, a much smaller percentage of them are willing to bear the financial burden required. They may be swayed by the addition of “something else on top”, sustainability alone, is a tough selling point
There is work to be done in communication around sustainability and creating a story that is easily digestible and relatable to consumers. More detailed communication may be the key to building that credibility among the consumer base
JD Supra: ESG and health care: Where does it fit?
There is no immediate pressure for non-profit organizations to adopt ESG principles. At the time of the writing of this article, legislation has been introduced and passed by the U.S. House of Representatives to require ESG reporting for publicly traded companies. Which means that nonprofits are not far behind
ESG programs are well suited to own responsibility for various departments within a health care organization, including (but not limited to) human resources, supply chain, facilities, finance, communications, community outreach and DEI.
For health care organizations assessing where ESG fits among and around existing efforts, they often realize that they already have an ESG program without the ESG label. These organizations, already bound by community benefit standards flowing from their tax-exempt status, provide free care, assess and address community health needs and offer various community outreach programs, among many other efforts
Harvard Law: 2021 Trends in Shareholder Activism
The emphasis that institutional investors place on ESG has clearly been an accelerant for activism. A small and newly formed investment firm, Engine No. 1, launched its campaign seeking four board seats in order to push ExxonMobil to reduce its carbon footprint and improve its climate-related disclosures
The growing potential for ESG activism also can be partly attributed to the current regulatory landscape in which policymakers have engaged in an unprecedented amount of ESG rulemaking
The activists haven't identified a clear blueprint for the successful expansion of ESG activism into other industries. Oil, gas and energy companies are the most obvious targets of environmentally focused activism campaigns
a new app called Iconik recently launched with the goal of crowdsourcing shareholder activism by allowing users to collectively vote their shares. One of Iconik’s first campaigns is directed at JPMorgan Chase, which has been the subject of calls to stop lending to fossil-fuel companies
There's a growing belief that large sums of money are pouring into ESG funds covered with greenwashing features and exaggerated credentials to attract investors cash. With such concern, the International Regulatory Strategy Group (IRSG) expects that rating agencies offer a high level of integrity for investors with products across fixed income and equity.
IRGS understands that regulation on ESG is currently desirable and can provide more transparency around the fundamentals of ESG and reducing potential conduct risks.
Different regulatory watchdogs around Europe are studying models of voluntary “best practice” guidance for ESG or even a global framework to ensure ESG ratings is standardized. A global approach is required to avoid fragmentation in rules which would bump up compliance costs.
Leigh Day published on its website a letter regarding a lawsuit against Dyson in relation to forced labour practices in Malaysia at a third-party manufacturing facility. Under the 2015 Regulatory framework, the Statutory Guidance states that civil society will hold companies to account. This is enforcement in action of the UK Modern Slavery Act and it should be understood in the context of evolving ESG legal risks for companies.
Workers were transported from Nepal and Bangladesh in appalling conditions and forced to work 18-hours day with below living wages. For Leigh Day, through their actions, Dyson and its subsidiaries “assumed” a care of these workers and this principle was acknowledge by the Supreme Court in the Vedanta case, in which Zambia-based claimants leveraged a settlement against the UK parent of a Zambian mining subsidiary that had caused severe environmental damage.
There are two major pillars of ESG risks involved in this case. The first is that civil society can use negligence to hold the company accountable. The second is, regulatory bodies will evolve to provide an even playing field and clear compliance structure to cover modern slavery in the supply chain. The lesson learned from Dyson’s predicament is that companies need to assess risks, not simply tick boxes. By doing so, suppliers can be effectively diverted from the business operation and larger risk counterparties managed via stronger contractual provisions.
Diversity, Equity, and Inclusion
According to a survey by LinkedIn Talent Solutions, about one in four job seekers in 2021 said DEI is the most important area of investment to improve company culture.
A SHRM survey, the Culture Effect: Why a Positive Workplace Culture Is the New Currency, stressed Black workers feel their organizations culture made their work-life balance more difficult. Paying minority workers equally and providing reasonable pathways to promotions will empower these individuals to share their experiences and create a greater sense of belonging among employees.
Sirmara Campbell, Chief Human Resources Officer at The LaSalle Network, states “culture is what retains employees during the down times” and provides three tips for improving a company's overall culture: focus on career development, enhance communication, establish a clear set of values.
The HR Director: Diversity Is Not Just About Hitting Targets
Businesses should be questioning every element of their current strategy and be looking for areas of improvement. Proactive companies have begun to implement I&D strategies, looking at inclusion first and diversity second. Businesses that take time to measure the impact of their strategies will be most effective in promoting genuine DEI across the organization.
Once data has been analyzed, business owners can implement processes and tools that will help maintain inclusion and promote diversity based on ability and talent, not backgrounds. Meaningful mentoring can improve the representation of minority groups at management level immensely.
The Unmistakables is a consulting agency in London that helps create evidence-based insight into D&I for organizations. The agency conducted a study in 2021 that found the people that D&I is meant to support are likely the ones that feel most excluded from the conversation.
“Productivity and profitability drive innovation and creativity, which leads to better problem solving skills and exponentially improving results - why would anyone step over that?” Cherie Caldwell, DE&I champion at Salesloft, struggles to understand.
Here are a few ways organizations can improve their DEI strategies according to Caldwell:
Have employee check-in systems
Have DEI facilitators
Create a safe space for employees to speak openly
Dismantling decades of environmental injustice that disproportionately affects poor people and communities of color is the mission of a growing number of organizations. Building lasting solutions for environmental justice is a multifaceted and complex undertaking. Greenbiz.org will launch its first two programs this year - workforce development and community building.
Green.org helps to create new narratives for the BIPOC sustainability community and works for racial equity and cultivating cultures of inclusivity in companies and beyond. The WK Kellogg Foundation research reported in 2018 that the US stands to realize an $8 trillion gain in GDP by closing the racial equality gap.
Diversity & Inclusion (D&I) are meant for marginalized people, but some say it does not represent them. A study from 2021 by The Unmistakables found that those people D&I is meant to help the most, are likely the ones feeling most excluded from the conversation. The inclusion of Equity, (DE&I) involves increasing justice and fairness within the procedures and processes of institutions and systems.
The connection between business results and D&I is not clear for most individuals. PWC surveyed business leaders from 47 countries and found that employees were unaware of efforts to create a more inclusive culture.
One effort that can provide reliable results is asking for insights into how the business can improve and what matters to them. Underrepresented staff can only voice their concerns and points of view if there is a safe environment to either report discriminatory incidents or to have individuals held accountable.
A movement without experts cannot accomplish meaningful changes. With that in mind, The Center to Combat Human Trafficking understands that it is necessary to take steps to foster and facilitate an increase diverse of voices in all programs and initiatives. Black people and latinx represented 40% and 24% respectively of victims in a review of trafficking statistics. Listening to these voices can allow anti-trafficking movement to make better informed and more impactful decisions.
A new partnership was created with Polaris, through which the first ever US National Survivor Study. Important to mention: the study was fully developed by survivors. The study will document the effects of human trafficking from survivors’ perspective and uplif their voices on how to best combat injustices.
ESG Disclosures, Standards, Rankings, and Reporting
The World Economic Forum estimates that more than half of the world’s economic output is at least moderately or highly dependent on nature. This means, if natural systems collapse, so will the world’s economic and financial systems. There's an increasing realization in the finance sector that biodiversity loss is as much of a systemic risk as climate change.
In terms of integrating nature concerns into the financial market infrastructure, Andrew Mitchell, founder of Global Canopy and vice chair of TNFD’s stewardship council, said more has happened in the last three years than the previous forty. A big focus of ESG has shifted to CSG as sustainability conversations tend to focus on reducing carbon emissions with little attention paid to water, forests, oceans, and other nature considerations.
A key change required to address biodiversity risk effectively is the inclusion of nature impact considerations in investment decisions. The tool to achieve this is called “double materiality.” Double materiality means looking at the impact of an investment on the portfolio and on the environment. Without integration of biodiversity concerns into climate risk frameworks, net zero transition plans could have many unintended consequences in nature. The lack of synchronized standards also poses a big challenge to market participants. Additionally, the TNFD will be releasing a beta version of its framework in March of 2022, aimed at creating a more uniform set of standards.
A regulatory research body said Monday that Britain should regulate sustainable ratings on companies to improve transparency, reduce the risk of greenwashing, and protect investors. The International Regulatory Strategy Group (IRSG) said in a report that the use of ratings is growing investors need confidence that the market is operating with a high degree of integrity.
Britain's Financial Conduct Authority consulted last year on whether there would be a voluntary best practice guidance for ESG raters or binding regulation. The EU securities watchdog ESMA is also studying the sector ahead of potentially regulation a ESG.
Selecting an ESG framework will depend on your reporting purpose, goals, and property type. There are many different frameworks to support various types of organizations
First you choose your desired ESG Framework, next you begin asset level data collection in order to set the appropriate ESG goals
There is currently no standardization of ESG reporting frameworks, however the environmental goals for all these frameworks are generally the same: to lower greenhouse gas emissions, improve sustainability, and provide better transparency into the property.
In the early stages, it’s important to set goals that are cost effective, easy to implement, and will have an immediate impact on your ESG score.
For long-term ESG goals with focus on ROI, it should be noted that energy reduction for the long term may require capital-intensive items and calculating payback periods for new equipment
Investment Trends S&P Global: Engagement Beats Divestment for ESG Outcomes – Vanguard Executive
John Galloway, Global Head of Investment Stewardship with Vanguard Group, stresses that active involvement and engagement with companies in their portfolio will lead to better returns in terms of investor protection. He and his team are responsible for the stewardship activities for the firm's equity indexed funds.
He articulates one of the greatest challenges for ESG investing in 2022 is encouraging portfolio companies to provide both quantitative and qualitative disclosures of their strategy. For Vanguard, it isn't about adopting an ESG approach as much as applying their longstanding approach on investment stewardship to emerging issues.
Universities such as Stanford University and Oberlin College are using ESG and Green Bonds to fund projects throughout their campuses. By doing so, these colleges and universities are developing and implementing ESG related projects while borrowing at a lower interest rate. These institutions would be able to supplement donor and federal funds received with this additional funding source.
The International Capital Market Association published “Social Bond Principles” and “Green Bond Principles” to answer questions regarding the differences in qualifications and criteria of ESG bonds and Green bonds. Guidance for both sets of principles are based on use of proceeds, process for project evaluation and selection, management of proceeds, and reporting.
Prior to marketing either bond, an issuer will post the framework that they used to make the determination as to why the financing qualifies for either type of bond. They may also continue to report on the impact of either bond depending on the issuer and investor to ensure transparency.
According to risk analytics firm Verisk Maplecroft, lending money to governments with questionable human rights records can hurt investors returns and ethics. Findings also suggest that ESG risks are increasingly feeding into sovereign bond pricing independently of credit rating scores and other factors.
Many investors have doubted the materiality of the social aspect in ESG because traditional assessments of social risk don't show independent statistical relationships with bonding. Verisk Maplecroft launched its own sovereign ESG ratings as well as an additional set of income adjusted scores that aim to address the problem of country wide ESG scores being correlated to the nation's wealth.
Fund Selector Asia: Global ESG Bonds Annual Issuance to Triple By 2025
Many argue that it is inevitable that more money will need to come from bond investors as ESG investing has been mostly focused on the equity markets with around $4 trillion of capital required globally each year just to contain the threat of climate change. ESG bonds are likely to become bigger features of emerging world sovereign and corporate debt markets. For investors, this transformation opens up many new opportunities and challenges.
Green bonds represent 55% of the global ESG bond markets. China is the world's third largest green bond market after France and Germany. ESG bonds can be costly to analyze and require more scrutiny than their conventional counterparts.
ESG investors are more focused on companies transitioning to clean energy than they are on pure-play green companies, according to the results of a survey conducted by Jefferies LLC, with 56% interest in the former and only 6% in the latter.
Suggesting that more capital may be going into green transitioning “greening” companies such as oil, mining, steel, and other carbon-intensive sectors, as opposed to pure-plays.
Financer Worldwide: Q&A: ESG and climate risk management
Financial Worldwide discussed climate risk management with leading executives from consulting industries to understand the evolving threats and challenges to companies. For Taillefer (BDO Canada), one of the major concerns is the increasing stakeholder demands for ESG transparency. With reporting frameworks being developed across the globe, with their own set of disclosures, companies are neither reporting on the same metrics nor are they making the same disclosure.
For Adrian Walker (Hogan Lovells), the best way to approach climate change risk mitigations is to think in terms of upside opportunities and revenue, not risks and costs. There has been a sea change in focus level over the past few years. From liability to environmental damage, to consumers and investors pressure, and even shareholders' activism. A strong ESG brand can offer opportunities and sales, as products and services are aligned with consumer values.
How to address climate risks? This was the question raised by Paul A. Davis (Latham & Watkins LLP). He agrees with Larry Fink (Blackrock) that all companies will be impacted by the transition to a net-zero economy. Some multinational companies, particularly in climate-sensitive sectors are developing resources to manage and mitigate these risks, while many companies of multiple sizes have taken very limited steps.
A new class of services focused on energy transition and decarbonization was launched by Apollo, the global alternative investment manager. It primarily targets investments across asset classes, and will advance Apollo’s equity, hybrid and yield businesses.
To strengthen the task, Olivia Wassenaar will lead as Head of Sustainable Investing. She sees significant opportunities across the sustainability spectrum to provide strong returns to investors.
Recent investments from Apollo include a $150 million equity commitment to energy storage solutions-focused technology and the acquisition of Commercial Property Assessed Clean Energy (C-Pace). In addition to the launch, the company outlined a series of sustainability-focused commitments, including pledge to reduce median carbon intensity by 15% over the projected hold period for new control investments.
Companies & Industries Business Standard: Companies Must Pursue Innovation, Focus on Becoming Sustainable: Wipro CEO
Wipro CEO, Thierry Delaporte, stresses the importance of accelerating efforts to innovate and reinvent companies approach talent. He noted the client experience is now going beyond technical aspects of a solution to social and environmental aspects as well. Companies can no longer exist just for profit, they must invest in new approaches while becoming more sustainable and responsible.
Wipro is positioning itself as a value orchestrator to its clients, valuing the opportunity to create relationships with startups and other partners to grow and foster the culture of this new ecosystem.
According to the SAP Insights study, Business Reimagined: Sustainability as Strategy for Growth, more than one third of surveyed organizations believe environmental issues are financially relevant to their outcomes now or within the next five years, while 75% expect them to be a top concern in the next decade.
Mid-sized companies represent more than 90% of the world's businesses and have a combined CO2 footprint that exceeds that of large enterprises. These midsized companies can make a significant impact in reducing their carbon footprint when producing and distributing their raw materials and finished goods. It is much harder for these mid-sized companies to effectively embed sustainability into their processes and IT systems as they do not have the resources or funding to do so.
Businesses must be ready and willing to prove their achievements using transparent data and reporting. It is critical that business to business customers proactively tie their supplier decisions to environmental stewardship.
Fast Company: The Cup of Coffee That Sparked A Movement
The first building block in a responsibly sourced supply chain is traceability. Keurig Green Mountain recognized that in order to deliver meaningful impact and strengthen their supply chain. To do so, it would need to be able to track all beans back to communities and households that produce them.
Andreas Nicolaides, Director at Great Lakes Coffee Uganda, saw a partner that understood the potential of small farms, and the importance of maintaining an ongoing collaboration with farmers that went beyond educating them about the benefits of producing higher quality coffee.
KDP's direct investment in farmers and local partners enabled Great Lakes Coffee Uganda to develop new tools, track volume quality, and incorporate full transparency into each step of the coffee process. KDP continues to build on its responsible sourcing commitment and has initiated a three year pilot program in Uganda designed to significantly improve the income of small coffee growers.
What do your contracts say about you?
Your contract says a lot about you and you should be conscious of what conclusions about you can be drawn from your contracts
Who reads your contracts?
People are learning to effectively identify unfair and exploitative contractual stipulations before they put pen to paper.
Contracts that are fair and ethical not only serve those with whom you do business but also serve you in the long run. Contacts are ads that communicate that you take care of your partners, encouraging new partnerships to form. Social responsibility is a huge part of a company’s brand, inextricable from any aspect of the business, even its contracts.
Using your contracts to tell stories about your business and its values will encourage partnership and trust between everyone involved.
US credit rating agencies are facing exam scrutiny over how they compile environmental, social and corporate governance (ESG) ratings for companies. The focus of the Securities and Exchange Commission share with the market on its annual report is the impact of the pandemic, cryptocurrencies and cybersecurity as rating concerns.
The report highlights several compliance deficiencies in ESG practices of the investment industry. The SEC mentioned potential concerns of cross-selling operations where credit agencies provide unregulated services (new research products) and expect them to put protection in place to avoid conflicts of interest.
Fund managers and investors groups have offered their opinion regarding guidelines for ESG claims in formats that make it possible to compare performances. In addition to that, rating agencies have pointed out that the SEC is increasing scrutiny over ESG practices before it has new rules in place.
SEC will not ban special reports if firms don’t issue content in ways that imply or certify statistical ratings in non-regulated content.
Carbon credit developer Bluesource and renewable gas marketing and environmental commodities company Element Markets announced Thursday that they are merging to form the largest marketer and originator of carbon and environmental credits in North America.
Element Markets will bring its position in low carbon fuels and greenhouse gas markets and Bluesource will provide expertise in nature-based solutions, project development, and advisory services. As demand for carbon offset projects increase more companies will need resources like those that Element Markets and Bluesource can provide.
There is growing recognition that ESG considerations play a decisive role in every step of the M&A process. A survey in December of 2020 revealed that 83% of business leaders believe that ESG factors will be increasingly critical to M&A decision making over the next year to two years.
Lindsay Patrick, Managing Director and Head of Strategic Initiatives and ESG at RBC Capital Markets lists four areas companies should consider when looking for new opportunities.
Post merger integration
Packaging Gateway: ESG in Packaging: Macroeconomic Trends
Packaging companies must increase initiatives for sustainable packaging for consumers. Below are key macroeconomic trends impacting ESG performance.
ESG and activist shareholders: Activist investors buy significant stakes in public companies and use their voting rights to apply pressure to management.
Generation hashtag: Generation hashtag makes up 1/4 of the world's population and its influence will only increase as its members enter the workforce. Ecofriendly packaging is one of the most influential features for environmentally conscious customers.
Mergers and acquisitions (M&A): Many packaging firms are looking to acquire companies that are compatible with circular economies.
Government Policy Morgan Lewis: DOL Seeks Input on Climate Change’s Impact On Retirement Security
The US Department of Labor recently announced that it's looking into the impact of climate change on retirement security and what actions the agency should take to protect retirement savings from risk. The DOL put out a request for information on February 11th with two primary questions: “How should the Employee Benefits Security Administration (EBSA) act to ‘protect the life savings and pensions of US workers and families from threats of climate related financial risk’” and “What are the most significant climate related financial risks to retirement savings and why?”
The DOL may use this information to shape the interpretation of ERISA’s fiduciary duties and the extent to which non-financial factors may be considered as part of an ERISA fiduciary’s investment decisions.
Until the private sector is required to take regulative and measurable climate action, the Paris Agreement goals will remain out of reach. Companies that voluntarily commit to setting a science-based target reduce their average annual Scope 1 and Scope 2 emissions by 6.4% over the past five years. This is more than the annual 4.2% reduction required under the SBTi's criteria to meet 1.5 degrees Celsius align warming scenarios.
Voluntary programs can't arbitrate the toughest issues such as natural resource and carbon output allocations, these are the decisions of governments and politics. These programs slow down when they hit the barrier of increased cost or decrease profit. Governments can incentivize long term investments into sustainable business practices through well-crafted policies that require action in the private sector. This can help to remove competitive disadvantages and push this sector forward as governments are the only regulating body that can ensure a fair and equitable transition.
The European Commission announced Wednesday the adoption of a proposal for a Directive on corporate sustainability due diligence including rules requiring large businesses to assess and address adverse human rights and environmental impacts in their value chains. The rules will initially apply to companies over 500 employees and more than $150 million in revenue and will extend in two years to companies with over 250 employees and $40 million in revenue.
The rules will require companies to integrate due diligence into policies and require company directors to spell out duties and oversee implementation of due diligence to integrate into corporate strategy. The proposal will be presented to the European Parliament and the Council for approval and member states will have two years to transpose the directive into national law.