ESG Weekly News Update: February 9, 2021
General ESG News
Environment and Energy Leader: ESG Issues Shoot to Prominence This Year as 2020 Disruptors Linger
Environmental, social and governance (ESG) issues will gain prominence in 2021 as a litany of disrupters from 2020 linger, according to a new report from S&P Global Ratings
Of particular interest for companies that choose to report on their ESG initiatives and progress is the fact that S&P Global expects the world of sustainability reporting to begin to move slowly toward more standardization.
In "Sustainability In 2021: A Bird's-Eye View Of The Top Five ESG Topics," published today, we highlight five topics we believe will dominate the ESG space in 2021: The continuing impact of the COVID-19 pandemic; Growing momentum for global climate action; The fight for equality; The expansion of the sustainable debt market and better standardization for sustainability metrics; and Greater emphasis on the biodiversity crisis.
Other hot topics that will likely garner some attention in 2021 include shifting consumer preferences and greater demand for sustainable products and services. Further shifts in the energy sector, from the future of oil to the role of hydrogen, will also play out in 2021.
The most recent development in Accenture’s sustainability drive is an extension of an existing alliance with Salesforce. As part of this, Salesforce is delivering its Sustainability Cloud offering, built on Salesforce Customer 360, which the firm pitches as providing a 360-degree view of an enterprise’s environmental impact to provide for easier management of carbon footprints, as well as enabling transparent reporting of "investor-grade climate data"
Accenture will offer integration services to tie Sustainability Cloud into corporate business strategies, operating models, technologies and core processes and systems with industry-specific requirements, alongside developing sustainability insights
This has the potential to be a powerful tie-up and one that might set a good example for more vendors to follow
The CSR Journal: 2021 – The Year of Responsible Businesses
Moving forward, 2021 will be recognized as the year when ESG will not only be a mandate but will merge with the DNA of businesses.
2021 will be all about leveraging advanced technologies such as IoT and AI to put in place next-gen ESG frameworks and create sustainable models that can deliver performance irrespective of social and environmental disruptions like COVID-19
In 2021, it will be critical to ensure that funds for social impact are utilized in a manner that drives perceivable change and transparency in reporting measurable aspects of development. By incorporating impact investing in the social sector, companies can operate logically and far more efficiently to support tangible and sustainable development.
Financial and social inclusion will be among the main driving factors in 2021 for stimulating the overall economic progress of developing nations. One of the best ways for facilitating financial inclusion will be creating awareness and access through digital programs. These programs will be widely used for creating awareness and access to digital banking, financial aid and social security among tools for socially backward and geographically distanced communities.
Financial Times: Too many boardrooms are climate incompetent
A survey of boardrooms had found that just 7 per cent of board members were “climate competent”, meaning they knew enough about climate change to understand how it could affect their business
When its researchers combed through the biographies of 1,188 board members at the 100 largest US companies, guess how many directors they found had specific climate expertise? Three. That’s 0.2 per cent of the total, just 6 per cent of whom had broader environmental experience
The study also shows that companies most exposed to broader environmental, social and governance risks often lack directors with ESG expertise
Harvard Business Review: Reimagining the Balanced Scorecard for the ESG Era
In August 2019, the U.S. Business Roundtable, the leading gathering for Fortune 500 CEOs, stated that “each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
According to the New York University Center for Sustainable Business, virtually every product category saw consumer preference shift towards more sustainable products. 50% of CPG sales growth between 2013 and 2018 went to the 17% of products that advertised sustainable attributes, such as FairTrade sourcing.
With increased consumer advocates’ demands for transparency and accountability, companies must shift from short-term purchasing decisions, driven mainly by price, into deeper, long-lasting relationships with pricing that promotes poverty alleviation among their primary producers; sustainable, carbon-neutral production and distribution processes; and safe and ethical employment practices.
Companies that make such connections and co-create ecosystems that encompass the full range of potential stakeholders can produce transformational outcomes for those previously left behind by economic growth.
ESG Disclosures, Standards, Rankings, and Reporting:
Leading credit ratings, benchmarks and analytics provider S&P Global announced today a broad set of climate initiatives, ranging from emissions reduction commitments to reporting and disclosure to advocacy. Included in today’s announcement is a target for the company to achieve net zero emissions by 2040.
On the disclosure and reporting front, the company has become one of the first to introduce a Carbon Adjusted Earnings Per Share metric into its financial reporting, providing transparency into the cost of carbon emissions from company operations and integrating climate change considerations in the decision-making process.
BlackRock, the world’s largest asset manager, and ESG data science company RepRisk announced today that access to RepRisk’s ESG risk data on thousands of private companies will be offered to clients of BlackRock’s end-to-end technology platform for alternative investments, eFront.
RepRisk is a data science company, that uses a combination of machine learning and human intelligence to offer quantitative risk analytics and proprietary metrics for more than 165,000 public and private companies and over 40,000+ infrastructure projects, covering every global sector and market. The RepRisk ESG data covers a broad range of issues, including human rights, labor practices, corruption and the environment.
ESG Channel: International Companies to Adopt a New ESG Standard
About 60 large international companies, including Bank of America, Mastercard, and KPMG, announced they will adopt a new reporting framework on environmental, social, and governance principles in partnerships with the World Economic Forum.
The ESG standards, or ‘Stakeholder Capitalism Metrics’, will measure a company’s performance on factors like how the company is impacting the environment, how it manages relationships with its employees, and how the company runs internally
If the new standards become more widely adopted, some see this becoming standard procedure for major companies to report their ESG metrics, similar to how a company regularly reports on its financial metrics.
Triple Pundit: Is One Set of ESG Standards Coming Soon?
The announcement at this week’s World Economic Forum (WEF) that sixty-one global companies, which together generate revenue totaling $4.3 trillion and employ 7 million people, have agreed to implement WEF’s common environmental, social and governance (ESG) metrics for stakeholder capitalism is further proof that the aspiration for a single set of ESG standards for business reporting is moving fast.
Probably the biggest push to this momentum arises from the rising voice of investors that ESG issues are increasingly relevant to them, but that they can barely use corporate sustainability reporting as it is undertaken today.
The second major factor lies in the frustration amongst companies themselves, suffering from reporting fatigue but also sharing the vision of many stakeholders that progress is too slow to enable societal and environmental challenges to be met in time.
European Union rules are needed for ratings on whether investments are sustainable and climate-friendly to avoid investors being deceived by “greenwashing”, the bloc’s securities watchdog said on Friday
The European Securities and Markets Authority (ESMA) said it had written to urge the bloc’s executive European Commission to bring in new rules to regulate ratings on the environmental, social and governance (ESG) aspects of companies
Corporate Secretary: Companies sign up for new ESG stakeholder metrics
The 61 signatories, revealed at the World Economic Forum’s Davos conference, will start using ‘stakeholder capitalism metrics’ as an initiative intended to speed up convergence among the main private ESG standard-setters and to bring greater comparability and consistency to ESG disclosures.
The metrics are based on other voluntary standards and consist of a set of 21 core – and 34 expanded – disclosures focusing on four areas: people, planet, prosperity and principles of governance.
This week’s announcement comes amid progress by reporting and standard-setting organizations toward a more unified approach to sustainability disclosure
Competitive Enterprise Institute: CEOs Join Davos Wonks to Launch New Corporate ESG Disclosures
This new framework of “21 core and 34 expanded” metrics will now guide the disclosures of supporting firms like Bank of America, Fidelity, Heineken, McKinsey, Nestlé, PayPal, and Unilever. The big four accounting companies (Deloitte, EY, KPMG, and PwC) are reportedly also on board
These new metrics are being described (again, by Felix Salmon of Axios) as “common standards … that will allow investors to compare their progress against each other on an apples-to-apples basis.” One interesting thing about the metrics is that they’re not specific goals to achieve—they don’t call for firms to reduce their carbon dioxide emissions by 5 percent a year, but to publish numbers on “metric tonnes of carbon dioxide equivalent (tCO2e) GHG Protocol Scope 1 and Scope 2 emissions.”
Moody’s Investor Services outlines its expectations for ESG issues to continue increasing in importance in 2021 in the actions of policymakers, regulators, investors and corporate decisionmakers.
Moody’s also notes the emergence of sustainability standards and reporting requirements and the effect these have on improving transparency around material ESG issues.
Moody’s report expects an increased focus on board diversity initiatives, and for these efforts to extend beyond gender diversity, addressing racial inequality and underrepresented minorities.
One other key trend anticipated by the report is the convergence of energy and emissions targets in the US, EU and China, following the recent introduction of 2030 emissions goals the EU and China, and the Biden administration’s plans for a 2025 target to be put to Congress this year as a first step to a net-zero 2050 goal.
Institutional Investor: What Happens When a Company Gets an A From One ESG Rate and an F From Another?
Stewart Investors, use services such as ISS and RepRisk to monitor companies it owns. Stewart recently published a paper arguing that ESG ratings can end up hurting efforts by sustainable investors to engage with companies and get them to make meaningful changes.
“We are concerned that highly standardized ESG reports promote a box-ticking analysis of ESG credentials or worse yet, an excuse for inaction,” the letter stated. “That these ESG scores are then often used to construct indexes used by passive funds is a further concern. This is because it can encourage the gaming of ESG reporting without the scrutiny and encouragement provided by engagement from active managers.”
According to Nadler, “investors don’t want ratings agencies or companies to make value judgements, like gun companies are bad. They want us to say this gun company is rated BB.” The concern from a credit rating standpoint, he said, is that over the next decade, more mass shootings could be tied to gun manufacturers.
EFT Trends: So Good They Added a ‘G’: The ESG and ESGG ETFs
“Assets invested in ESG (Environmental, Social, and Governance) ETFs and ETPs reached a new milestone of US$187 billion at the end of 2020. Assets invested in ESG ETFs and ETPs increased by 206% in 2020,”according to ETFGI, a London-based ETF research firm.
In 2020, funds with exposure to less environmental, social, and governance risks outperformed those that did not account for ESG principles.
Around 46% of funds rated ‘High’ or exhibiting low ESG risk generated higher returns compared to their benchmark, while only 30% of funds rated ‘Low’ or showing high ESG risk did the same.
Larry Fink, who identified Climate as the 'defining factor of companies prospects’ last year has now asked ‘companies to disclose a plan to ensure that the businesses are compatible with the net-zero economy’
Fink has asked the companies to disclose their strategy to limit global warming. To ensure accountability of the plans, the BlackRock boss has sought a review by the board of directors of each of the companies
The only major change that BlackRock could bring is to actually vote against company resolutions which are not climate compliant. BlackRock could ensure support for climate compliance in a board meeting and among shareholders. BlackRock’s size brings another possibility. Fink can simply vote against directors/executives of firms that do not pay heed to the issue of global warming
In 2020, amidst the pandemic, BlackRock voted against 69 companies for climate-related reasons. Another 191 firms have been put ‘On Watch’
In four out of five years, portfolios with low ESG-related risks (as measured by this particular metric) produced significantly higher excess returns for U.S. large cap and global equity portfolios. The material exception is 2016. In 2016, low ESG-related risk portfolios produced significantly lower excess returns for these same equity universes
To further assess when ESG factors play a role in investment decisions, we asked managers when should ESG factors dominate investment decisions (outside of investment guideline considerations). Results show that the financial materiality of ESG factors is a focal point for the decision-making process. Some 63% of the survey respondents claim to incorporate specific ESG considerations when the materiality is high, versus 55% from the previous year
Ultimately, there is a growing consensus among the investment management industry that integrating ESG factors into an investment practice is value-adding
Proactive and transparent environmental, social and governance (ESG) reporting and data play a critical role in raising the capital that companies need in order to lead on this transformative sustainability journey
In order for companies to raise the capital they need to transition to more sustainable business practices they need investors, and investors need clear ESG reports and performance data to help them compare, select and monitor their investments. Investors want to make their investment decisions based on credible ESG data, which requires issuers to take a structured and documented approach to their sustainability strategy, and effectively communicate that
Investment Executive: The impact of enhanced ESG disclosure on access to capital, valuations
Improved disclosure and enhanced transparency on significant environmental, social and governance (ESG) issues will increasingly affect access to capital and valuations in high-risk sectors, says Moody’s Investors Service.
“A growing landscape of sustainability standards and disclosure requirements, that exposes financial flows to greater scrutiny and oversight, is expected to start having more influence on investment decisions at all levels, from banks to asset managers to consumers,” the rating agency said.
The European Union, China and the U.S. are all stepping up their efforts to develop low-carbon economies, the report noted.
“The alignment of the major economic blocs on decarbonization will further sharpen the credit implications of the energy transition,” Moody’s said.
Pensions and Investments: ESG risks top the list of near-term concerns for finance executives
Risks related to climate change and social issues will intensify the most in the next two years, finance executives predicted in a survey, and firms will have to find ways to cope.
More than half of the 57 firms surveyed were banks while the rest were in insurers, money managers and other financial-services providers.
"For financial firms, it's harder to adapt to changes in the ESG environment because it's not only about their own carbon footprint or other impact, they also have to look at their clients' footprint, social impact," said J.H. Caldwell, head of the financial services risk advisory group at Deloitte.
Looking at the potential impact of regulatory and supervisory changes in the next two years, risk managers predicted cybersecurity rules are most concerning, with ESG coming in fourth. That probably indicates regulators are closer to coming up with stronger rules on cybersecurity than on environmental issues, especially in the U.S., said Mr. Caldwell.
Companies and Industries
The evolution of environmental, social and corporate governance (ESG) was front and centre on the last day of the Royal Institution of Chartered Surveyors (RICS) conference.
O’Grady noted thinking about the ethical implications materials and practices all the way down the supply chain means there will be more time spent in the tender stage before entering a contract, but it could help raise standards for workers and the environment around the globe.
“A lot of our customers are demanding things like LEED, but we have to be careful that this policy that’s meant to do good doesn’t get weaponized to stop important projects,” said Pineda. “Oftentimes with benchmarking this is something to consider and be aware of. We don’t want it used to create unnecessary obstacles.
Pensions and Investments: River and Mercantile adds head of ESG
Roger Lewis was named head of environmental, social and governance at River and Mercantile Group. Mr. Lewis will be responsible for overseeing the group's environmental, social and governance strategy and integrating it into investment processes.
CEO James Barham said in a news release Monday. "ESG has been a key part of our investment thinking for many years as has our clients' interest and awareness of the importance of sustainable investing. This appointment will enable us to enhance our commitments and continue to deliver exciting ESG investment opportunities to both current and future clients."
Rome News Tribune: Moody’s ESG Solutions Group Appoints Global Head of ESG Measures
Moody’s announced today that it has appointed Sabine Lochmann as Global Head of Moody’s ESG Measures. Ms. Lochmann will lead the ESG measures business within Moody’s ESG Solutions Group, which was formed in September 2020 to serve the growing global demand for ESG and climate analytics
“Our customers are increasingly seeking ESG information as a key input for strategic planning, investment decisions, and risk analysis. Moody’s is committed to meeting market needs by providing trusted data, insights and standards that help decision makers act with confidence,” said Andrea Blackman, Global Head of Moody’s ESG Solutions.
“Sabine’s extensive expertise will be key to the continued development of Moody’s ESG solutions suite and support our mission to advance clarity, knowledge and fairness in an interconnected world,” said Ms. Blackman.
The Biden administration will start walking back a controversial Department of Labor rule that would curb the use of ESG, or environmental, social, and governance, funds in 401(k) retirement plans, though it may take as long as 18 months to undo it completely
It will take at least 18 months to revise the rule completely so that ESG investment criteria are formally considered pecuniary, or for the language regarding pecuniary and non-pecuniary distinctions to be removed
Joe Biden’s administration is going to usher in an era of serious momentum for responsible and sustainable investing
President Joe Biden has picked Gary Gensler to head the Securities and Exchange Commission (SEC), the US financial regulator
Should the SEC push ahead with beefing-up green investment rules, as is expected, it will close the transatlantic gap that has emerged in recent years as the European watchdogs pushed ahead with increased stricter ESG investing and disclosure regulations
Pensions and Investments: SEC creates new role for climate, ESG issues
Satyam Khanna was named senior policy adviser at the SEC in a new position addressing climate and ESG issues, acting Chairwoman Allison Herren Lee said Monday
In the position, Mr. Khanna will advise the Securities and Exchange Commission on ESG issues "and advance related new initiatives across its offices and divisions," including reviewing the agency's regulations, Ms. Lee said in a statement. She called climate risk and other ESG matters "issues of great significance to investors and the capital markets."