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ESG Weekly News Update: January 21, 2022

General ESG News JD Supra: The Cycle of ESG and Compliance

  • Until recently, ESG was considered a public relations function, but it is increasingly being recognized as a set of compliance issues with material consequences for failures. The author notes that, “What started out as goals than an organization would voluntarily announce became expectations and commitments to which external stakeholders would hold them.”

  • Now, while ESG teams and compliance teams are still often separate, they are collaborative and work with the relevant subject matter experts to address ESG risks.

  • The next phase in the evolution of ESG and compliance will see many aspects of ESG becoming required by law, and the trend of litigation aimed at companies associated with ESG issues will likely continue.

CNBC: The No. 1 ESG issue for Americans isn’t climate change. It’s workers

  • While a large portion of the public and investors associate ESG primarily with climate change and environmental concerns, Just Capital’s 2022 annual polling shows that treatment of workers is the top issue for Americans.

  • Uber ranked 41st in the 2022 JUST 100 list of America’s top ESG companies, but Just Capital denied the companies its JUST 100 seal due to ongoing concerns about gig economy workers.

  • The issue of “contingent” workers is a growing concern and continues to attract scrutiny. Alphabet, which topped the JUST 100 list, employed more contingent workers than company staff in 2018.

Harvard Business Review: How Social Enterprises Can Help Corporations Meet Their ESG Goals

  • When COVID-19 hit, a group of 85 foundations, corporations, and other organizations formed the World Economic Forum’s COVID Response Alliance for Social Entrepreneurs. The alliance has revealed that social procurement strategies can offer beneficial outcomes for both corporations and social enterprises.

  • However, it is still the case that few corporations use procurement funding to support ESG goals, largely due to outdated misconceptions about how and where social enterprises operate.

  • A Deloitte survey has revealed that the main challenges social enterprises experience when doing business with corporations relate to payment and delivery terms, which are easily fixed with increased corporate flexibility. If more corporations are willing to be flexible with their payment terms to do business with social enterprises, they will see progress toward their ESG goals.

Financial Times: From Profit to Purpose: Business Schools Grapple With How to Teach ESG

  • At the University of Pretoria’s Gordon Institute of Business Science, the interim dean, Morris Mthombeni, says in the past there was a focus on driving competitiveness but now the focus is on responsible management education.

  • Many schools are signing up for the Principles for Responsible Management Education (PREME) initiative that aims to promote the teaching of sustainability in business. This would provide students with a greater skillset to be able to balance economic growth and climate change.

  • More concise ESG frameworks will provide institutions with a better understanding of what exactly needs to be taught to students and how their teachings can be implemented in the business world.

Financial Times: Pursuit of Social Purpose Sends Business Schools Back To Their Roots

  • Companies should be positioning social purpose and profit on the same playing field. Business schools are taking this shift into consideration as they reframe their courses to better demonstrate the link between sustainability and profitability.

  • Learning to make a decent profit, decently, be professionally responsible and value ethics, understand how to market oneself in this ever-evolving field to then gain the deserved pay, and pushing to make ESG related courses part of the core curriculums are just some of the ways in which students can push themselves and their schools to become holistically better.

Green Biz: 10 Essential ESG New Year’s Resolutions for Board Directors

  • Based on trends and responses from the Global Risks Perception Survey, here are ten resolutions for board members to consider this year: 1. Show you care 2. Love your vocal critics 3. Create trust, not destroy it 4. See the big picture 5. Use the future to help shape the present 6. Know what you do not know 7. Trust your data 8. Be transparent 9. Be competent and courageous 10. Become a steward of the future

Sustainability Magazine: New Data Shows Climate Anxiety Drive Gen Z Work Decisions

  • Multiple studies around the world show people of Gen Z are prepared to sacrifice earnings for mental health, social justice, and the wellbeing of the planet.

  • Investing in strong targets that connect with the personal values of employees of today and especially the employees of tomorrow is imperative to the successful future of the workforce.

MarTech Series: Corporate World’s Embrace of ESG Yields Strong 201 for Benchmark Digital Partners, Promises Continued Growth in 2022

  • Recent survey from EY found that 73% of Chief Financial Officers say it is now more important than ever for organizations to demonstrate performance against ESG goals.

  • In 2021, Benchmark Digital Partners launched a digital ecosystem, Benchmark ESG Director, designed to help end-users simplify their ESG management, disclosure, initiatives and other values.

  • “Companies [must] understand that commitment to ESG is not just a matter of compliance, but should improve their bottom lines” - Donavan Hornsby, the Corporate Development & Strategy Officer at Benchmark.

ESG Today: Guest Post – Stools Need Three Legs: Measuring ESG Results, Not Just Emissions Reductions

  • The emergence of carbon accounting solutions for corporations has been crucial in helping businesses identify and address their climate-related impacts and risks, but this is just a single component of a holistic sustainability strategy.

  • A comprehensive accounting system would help organizations balance ESG priorities and stakeholder demands, and cloud-based accounting systems can help solve this issue and generate investment-grade ESG data.

  • Comprehensive ESG accounting systems can also help secure internal buy-in and create an integrated “ESG culture.”

Diversity, Equity, and Inclusion Sustainability: Using the power we hold to increase diversity

  • In the modern world, diversity is both expected and is becoming recognized as making good business sense. With consumer power holding weight alongside the legal system, companies are proving that they are dedicated to preserving diversity at all levels of the workplace.

  • Unfortunately, diversity is not globally acknowledged as a business strength, and some countries lack human resources departments to protect existing and potential employees from discrimination.

  • The UN Sustainable Development Goals (SDGs) 5, 8, and 10 all deal with promoting diversity and equality. The year 2021 was filled with cultural moments in diversity, and ESG-related concerns are being built into business and investment decision-making processes.

  • Diversity is a strength across sectors, but enforcement is a challenge, especially throughout the value chain. Increasing transparency and asking difficult questions are two good starting points toward reducing inequality in the workplace and beyond.

Channel Futures: DE&I Is an Essential Element in Recruiting Success

  • As workers’ priorities have shifted since the onset of the COVID-19 pandemic, so much recruiters’ and companies’. A recent report from Jobvite find that 78% of recruiters’ priorities shifted in 2021, and 40% are working with increased recruiting budgets.

  • Candidates are asking potential employees about their DE&I initiatives and many are turning down both interviews and job opportunities if they are unsatisfied with the answers.

  • 20% of companies surveyed said they had no plans for improving diversity despite a drastic increase in job seekers’ inquiries about diversity initiatives from 2020 to 2021. 61% of organizations surveyed said they are currently putting more emphasis on diversity.

National Retail Federation: The Realities of Implementing DE&I Learnings Within Your Organization

  • The four panelists, a mix of CEOs and Chief Inclusion Officers, for the DE&I Stage and Showcase Program at NRF 2022 agree there is a need for clear metrics for DE&I efforts, ongoing opportunities for learning, and representation at all levels of a company.

  • They also stressed the need for open conversations about inclusion, unconscious bias, equity, equality, and belonging. Jonathan Mayes, SVP and Chief Diversity and Inclusion Officer at Albertsons Companies noted there needs to be diversity in people and diversity in thought.

HR Dive: Employers Must Prioritize Equity to Thrive in 2022, Sources Say

  • Those that thrive in 2022 will align with policies and behaviors that curb inequitable outcomes

  • Female leaders in DEI and workforce management shared their predictions:

  • Companies will prioritize equal footing for all employees.

  • Data will reveal equity gaps between work arrangements and compensation.

  • Workers will reject the grand of “hustle culture.”

  • DEI efforts will expand to include those outside the walls of the organization.

  • Increasingly, diversity will be reflected on boards of directors.

  • Neurodiversity is diversity.

  • By legislation or goodwill, we’re close to equal pay.

Market Screener: Alight Survey: Diversity, Equity, and Inclusion Key to Employers’ Financial Wellbeing Programs

  • 7 in 10 employers are creating financial wellbeing strategies, another 17% say their strategy has been fully executed.

  • 83% intend to include DEI in retirement and financial wellbeing programs.

  • 57% of employees are satisfied with the participation rates of their defined contribution plans.

  • There is rapid growth in the percentage of employers offering specific tools to help with topics like budgeting, debt management, and financial planning.

ESG Disclosures, Standards, Rankings, and Reporting The National Law Review: Greenwashing and the SEC: the 2022 ESG Target

  • Companies of all types will be forced to pay greater attention to the advertising, marketing, drafting, and disclosing of ESG statements moving forward as the SEC leads the charge of investigating and penalizing those that are greenwashing.

  • In March of 2021, the SEC formed the ESG Task Force and within that, its Division of Enforcement. The task force was created for the sole purpose of investigating ESG related violations and will put a large focus on investment and investor statements.

  • Companies must integrate long-term, frequent compliance checks to ensure that in this ever-evolving corporate practice, they are putting forth accurate ESG statements.

ESG Today: Major North American Banks Collaborate to Develop Climate Risk Management Standards

  • Under the Risk Management Association (RMA), a group of 19 banks in North America, including Bank of America, KeyBank, Wells Fargo, and more have launched the RMA Climate Risk Consortium, aiming to develop climate risk management standards for banks.

  • The coalition is also engaging with regulators and policy makers to help inform ongoing climate-specific policy considerations.

Investment Trends Pensions & Investments: Low correlation between ESG in fund titles and their rating, says study

  • A recent study of 94 ESG-labeled mutual funds and ETFs from a team at University of California San Diego found that there is a “relatively low correlation” between language patterns in the funds’ prospectuses and their ESG ratings.

  • In fact, 60 of the 94 funds with “ESG” in their names had earned a grade of “D” or “F” for one or more ESG criteria.

  • These findings call for future data analysis to support ESG investment products, as well as a standardized and enforced glossary of ESG terminology.

ESG Channel: ESG Investing: Why the Human Element Matters More Than Ever

  • In a recent paper from State Street, over 60 of the biggest companies in the firm’s portfolios were surveyed about their human capital management practices. Companies reported an increasing focus on the human element and racial equities since the onset of the COVID-19 pandemic.

  • State Street anticipates that the focus on human capital management will continue to grow and will require relevant KPIs/metrics. Currently, companies are not very transparent about their workforce’s composition and scale, which can obscure risks to investors.

  • Turnover rate is also being increasingly scrutinized, given the current labor market.

Yahoo!: The Crucial ESG Topics to Focus On Right Now

  • The Global Sustainable Investment Review reported investments in sustainability-focused assets grew to $35.5 trillion globally, a 15% increase from 2018.

  • ESG by the Numbers

  • 85% of investors considered ESG factors in their 2020 investments.

  • 95% of all assets will incorporate ESG factors by 2030.

  • There was a 303% growth in media mentions of ESG data, ratings, or scores in 2020.

  • The Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI), and the Task Force on Climate-related Financial Disclosures (TCFD) are all coming together under the Value Reporting Foundation to create consistent ESG disclosure frameworks.

  • The best way to prioritize which ESG topic a company should tackle first is by conducting a materiality assessment.

Bloomberg: The Future of The ESG Craze

  • Cathrine De Coninck-Lopez, Global Head of ESG at Invesco, predicts increased transparency, net zero initiatives, and engagement with data scalability and comparability as the ESG topics that will be the focus of 2022.

  • Many investors are looking forward to the standardized methodology that the International Sustainability Standards Board (ISSB) will provide.

Institutional Asset Manager: Pandemic Prompts Major Shift in Asset Allocation, Investment Risk Exposures and ESG Practices

  • The 2022 finance Insurer Investment Survey highlights changes in risk profiles and ESG approaches. 61% of respondents expect to enter unfamiliar asset classes within the period of the pandemic and beyond, 74% expect an increase in portfolio illiquidity, and 59% plan to increase ESG headcounts.

  • Three in five insurers (59%) will add dedicated ESG staff throughout the next 18 months. One third of insurers want to be ahead of the curve on sustainable investing. One third of insurers have made net-zero commitments at the company level.

Nasdaq: ESG Investing: Why The Human Element Matters More Than Ever

  • State Street Global Advisors believes that a greater sustained focus on employee satisfaction and growth will make businesses more successful.

  • With the pandemic, a tight labor market, and the ‘Great Resignation’ employers are doing more to retain talent. Many are hoping that this shift is a sustainable, long-term shift, not a short-term fix.

  • Human capital management must become a measurable metric so companies can relay information out to the public and potential employees about what the company is doing for its people. Human capital is a material risk and opportunity for companies in any industry.

ESG Today: Dow Jones Launches Sustainability Data, ESG Scores for Investors

  • Dow Jones has launched its sustainability data, including scores that aim to help investors and asset managers understand company ESG performance and impact when making investment decisions.

  • The new data set includes ESG scores and sentiment for more than 6,000 companies rated across 26 sustainability categories. The scoring model is aligned with the SASB standards and uses a news-driven methodology.

  • According to Down Jones, the creation of the scoring methodology was led by the Wall Street Journal editorial team.

ESG Today: Invesco Builds Out Sustainable Investment Offerings in Canada with 8 New ESG ETFs

  • Invesco’s launch of 8 new ESG ETFs mark the first step in the firms revitalization of its WTF business in Canada. Invesco listened to and integrated their clients desire for more diversified profiles and an expanded number of ESG offerings.

ESG Today: Blackstone Sees Opportunity to Invest $100 Billion in Energy Transition

  • As part of its strategy to capitalize on investment opportunities in decarbonization, Blackstone Credit has launched its new Sustainable Resources Platform to invest and lend to renewable energy companies (and those supporting the global clean energy transition).

  • The platform will be led by Robert Horn, Global Head of the Sustainable Resources Group for Blackstone Credit.

  • Specific investment areas will include residential solar and home efficiency, renewable electricity generation and storage, decarbonized transportation, sustainability linked loans, green financing, energy infrastructure investments, as well as products, services, technologies, and natural resources that enable the energy transition.

Companies & Industries

IR Magazine: ESG in the energy sector: Investors more concerned than corporates about challenges

  • New research from Womble Bond Dickinson reveals that investors in the energy sector place greater weight on challenges related to the energy transition than do corporate executives. Despite the ESG spotlight under which the industry sits, its ESG mindset is described as being “in the early days.”

  • Energy executives surveyed are generally optimistic about their place in the global energy transition, and investor views match this, but investors show more concern about specific issues. Executives already focus on pollution and carbon neutrality, and many believe their companies to be prepared for carbon and methane reductions. Investors generally agree.

  • On the other hand, investors are generally more concerned about stranded assets, the availability of federal incentives, intellectual property challenges, and the complexity of the infrastructure required for the energy transition.

CNBC: ‘Green’ fuels will cost the consumer – but we need to think long term, Maersk CEO says

  • According to the International Energy Agency, international shipping was responsible for about 2% of all global energy-related carbon emissions in 2020. Soren Skou, CEO of Moller-Maersk, admitted that shifting toward cleaner fuels will come at a cost, but it is necessary for long-term sustainability.

  • Skou believes that price increases for consumers will be manageable and worth it over a “20-year horizon.” However, these prices will impact everything from fuel to food to consumer goods.

  • Other industries like aviation are also attempting to find more sustainable ways to power operations, including zero-carbon propulsion systems for aircraft.

Bloomberg: Bankers Making ESG Headlines Fail Deforestation Bar, Study Finds

  • The UK-based Global Canopy has revealed that many global banks and fund managers have directed trillions of dollars toward businesses most exposed to deforestation (especially tropical deforestation), threatening to undermine commitments to cut greenhouse gas emissions, as well as commitments made during COP26 to end deforestation.

  • Climate activists argue that commitments to net-zero emissions cannot be reached unless deforestation is addressed. Despite growing public concern, the rate of deforestation actually rose to a 15-year high in 2021.

  • The Forest 500 ranking has found that only 26% of companies and 21% of financial institutions analyzed recognize that deforestation poses any risk to their business activities or reputation, and similar percentages have any types of policies addressing deforestation risks in their portfolios or supply chains.

Sustainable Brands: How to Fuel a Sustainable Future for Packaging

  • Companies are paying more attention to packaging than ever before. This can partially be attributed to improved consumer understanding.

  • The biggest challenge for companies to make this shift in packaging is moving from a linear model to a circular model of operation. Performing a life cycle analysis on a product can aid companies in deciding how they wish to move forward with this circular model in mind.

  • Dow is building the world's first net-zero emissions integrated ethylene cracker and derivatives site and will be able to supply 3.2 million metric tons of certified low-to-zero-carbon polyethylene and ethylene derivatives for customers around the world.

  • Closed Loop Partners invest in sustainable manufacturing technologies and recycling.

  • TemperPack manufactures plant and fiber based, insulated packing solutions for cold chain shipments, perishable food, and pharmaceuticals.

Bloomberg: A Shortage of ESG Skills Is Hurting Canada’s Financial Firms

  • A recent Deloitte survey found that two-thirds of financial firms in Canada are impacted by the lack of relevant ESG skills needed to support investing and lending activities.

  • Skills in high demand include risk management, quantitative and qualitative analysis, ESG auditing, and more, and the shortage is being felt across the Canadian finance landscape.

  • Ignoring the need for ESG expertise and skills can have an effect on companies’ capabilities for risk management, auditing, and disclosure, and the CEO of Toronto Finance International urges, “We can’t wait on this. We’ve got to do it today.”

The Star: Embracing Sustainability Transition In The Business World

  • Experts in the field from PwC, EY, KPMG and Deloitte answer questions on how green financing will impact the business world.

  • Some of the questions posed:

  • Should the financial sector embrace the concepts of sustainable finance wholeheartedly?

  • How prepared are Malaysian and regional financial institutions in doing so?

  • What happens if these financial institutions do not take the concept of green finance seriously?

  • How will sustainable finance-based lending impact the return on assets (ROA) or return on equity of financial institutions?

  • For those companies and projects that will need funding, do they have to ensure their businesses and projects are ESG certified?

  • What would be the result of organizations possibly greenwashing?

The Seattle Times: Giving Nuclear Power A Second Look To Fight Climate Change

  • A 2019 survey by Pew Research Center found that respondents are evenly divided on nuclear power, compared to 92% in favor of expanding solar power and 85% in favor of expanding wind power. There are 55 commercially operated plants in 28 states in the US.

  • Germany aims to close the rest of its six nuclear stations by the end of the year. They now have to decide how to go about decarbonization with nuclear power no longer an option.

  • Heather Hoff, who worked at California’s Diablo Canyon Power Plant, used to be anti-nuclear but change her stance. She was “struck by the fact that nuclear power does not emit carbon dioxide or other pollutants into the air that fossil fuels do.” Heather is one among many who are now coming around to the idea that nuclear power is not a fully negative option.

The Guardian: Dirty Greenwashing: Watchdog Targets Fashion Brands Over Misleading Claims

  • Many fashion brands have been under scrutiny for their misleading claims about their environmental credentials. The Competition and Markets Authority (CMA) Director of Consumer Protection, Cecilia Parker Aranha, states people are becoming more aware of the impacts fashion can have on the planet. Greenwashing in the fashion industry is very prevalent.

  • It is thought that the global fashion industry could account for a quarter of the world's carbon budget by 2050.

  • Textile-to-textile recycling solutions are needed. Recycling technology companies such as Worn Again, TreeToTextile, and Renewcell are helping to provide these solutions.

ESG Today: Investor Group Including Aviva, BlackRock, Macquarie Draft ESG Covenant Package for Infrastructure Finance

  • A group of major infrastructure lenders has developed an ESG Covenant Package meant to develop a unified approach toward ESG-related information and reporting requirements for infrastructure debt financing. The package is based on the EU Sustainable Finance Disclosure Regulation.

  • The initiative also aims to facilitate lenders’ compliance with growing ESG disclosure obligations and with their own net-zero obligations and investor demands.

Government Policy

The Hill: Climate change mitigation is creating a roadmap to a nationalized financial system

  • President Biden’s report from October 2021 on climate-related financial risks earned little press attention, but it was the first step in the administration’s plan to use the Dodd-Frank Act to nationalize and politicize the financial system in controlling risk.

  • Current climate change discussions in the financial sector distinguish between physical and transitional risks. However, regulatory concerns about the importance of “hypothetical” weather-related losses in the financial sector are misguided. Evidence suggests that extreme weather events pose little risk to banks’ solvency.

  • Under new rules, regulatory agencies will impose new rules that restrict financial institutions’ ability to finance greenhouse gas emissions-intensive activities.

  • New regulations would also involve higher capital requirements for investments that fund firms with high greenhouse gas emissions. Ultimately, this could lead to increases in the price of energy and energy-consuming consumer goods.

Roll Call: ESG investors urge regulators to create game plan for climate risk

  • Ceres has publicly disclosed its recommendations for the Federal Reserve, Federal Deposit Insurance Corporation, The Office of the Comptroller of the Currency, and the U.S. Treasury Department to address climate risks on banks and other financial institutions.

  • Ceres urged the federal government to issue supervision letters on climate risk to banks and holding companies to acknowledge that climate change poses real risks to the financial system.

  • Similarly, in December of 2021, a group of 11 Democratic senators sent a letter to top U.S. financial officials urging them to update the outdated supervisory expectations for management to consider climate-related risks.

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