General ESG News
Larry Fink’s 2022 letter to CEOs highlights the themes he considers imperative to drive durable and long-term returns.
A high-level overview of the key points in his letter is as follows:
Stakeholder capitalism is good business.
The COVID-19 pandemic has underlined the importance of corporate purpose.
Effective engagement with key stakeholders is critical.
Two key areas of investor concern:
Human capital management
The transition to a low carbon future
Investors expect companies to explain how they plan to navigate the transition.
There is considerable risk for companies that fail to adapt.
Research the link between stakeholder engagement and firm values.
Despite a record amount of concern about climate change, there cannot be behavior changes at scale without high engagement from governments and corporations.
The latest Healthy & Sustainable Living study surveyed about 30,000 people in 31 markets about their attitudes, opinions, and behaviors in response to sustainability.
63% globally across 17 countries say that climate change is “very serious.”
65% say depletion of natural resources and water pollution is “very serious.”
36% say they have been “greatly” affected by climate change and 34% say the same about air pollution.
73% of consumers globally agree that we need to reduce consumption
52% say they feel guilty about their own negative impact
Only 22% of consumers say they have made major changes to become more environmentally friendly.
Many of these participants say they are looking at “governments and companies to create an enabling social infrastructure for behavior change at scale.” 47% say that a lack of government support is among the greatest barrier to create a more sustainable life for themselves and almost half of people surveyed say that support from companies is a large barrier as well.
The business landscape has changed since the onset of the COVID-19 pandemic, and the best way for HR leaders to ensure trust is a part of their company culture is by being transparent. Finding ways to have two-way conversations with employees can help build this trust.
Many successful companies with positive cultures have an “open-book” approach, and feedback (both positive and negative) from teams is encourages. This creates an atmosphere conducive to collaboration.
Tools like anonymous employee surveys are useful for gaining insight into more sensitive topics.
Employees who trust their organizations are better engaged and stand behind its decisions; this trust permeates all areas of business, including client and customer relations, thereby building better business practices and ultimately, success.
NY Times: Will Climate Action Happen Now?
“Immediate action can have a larger impact, yet future action will not be irrelevant,” scientists say. How much worse climate problems will become is based on how aggressively the world acts to slow and mitigate the effects of climate change.
Nat Keohane, the President of the Center for Climate and Energy Solutions pushes back against the ‘last, best chance’ perspective as it is essential for us to realize “addressing climate change is simultaneously urgent and a long game... we need to accelerate the transition to a low-carbon economy, and it is going to take decades.” Decades we do not necessarily have.
In the US, the Republican Party has opposed most major efforts to combat change, and so have the last two Republican presidents. If the US is to act on climate change it will need to be through Democratic bill passed along partisan lines. Recently, President Biden has said he now wants to split his Build Back Better legislative agenda into two pieces to give the climate agenda a better chance.
A recent survey found that 66% of U.S. consumers believe an organization has the responsibility to demonstrate its ESG performance, and investors want to see how organizations will commit to their proposed sustainability initiatives.
Businesses need to ensure their sustainability strategy is unique and aligned not only with their values, but with their customers’ values.
Technology, including climate tech solutions, is expected to play a pivotal role in things like energy, water, and waste management.
Board-level buy-in is crucial for ESG success and creating a corporate-level ESG agenda will keep the organization on track to reach its sustainability goals.
Auditors need to be increasingly aware of ESG-related issues, as well as the growing scrutiny from activists, regulators, and investors and the increased risk of litigation and reputational damage associated with ESG failures.
Auditors also play a significant role in maintaining trust in corporate settings, and they must determine how to reflect material ESG risks in accounts and decide if they provide an accurate view of the financial position of the company. If ESG disclosures are included in company financial statements, auditors will also be responsible for these.
Auditors will also need to be able to evaluate disclosures aligned with major ESG frameworks and meet forthcoming regulatory requirements.
Insurers will also need to adjust their underwriting to adapt to evolving ESG regulations, and things like poor ESG practice will be taken into account.
SH Legal: Why ESG matters in restructurings
While businesses can thrive with successful ESG strategies, ESG considerations can also play a role in the restructuring of distressed businesses.
ESG considerations are relevant in several decision-making processes and affect numerous stakeholders. They play a role in credit ratings, regulatory risks, litigation risks, sustainable finance growth, and more.
Distressed companies should assess how ESG considerations affect the attitudes of lenders, investors, and buyers, engage with experts about regulatory requirements, reform or even spin off “bad” ESG businesses, and work to gain access to sustainable funds and increase appeal to buyers.
Corporate Knights: 5 ways to not screw up the green transition
As each country with a fossil-fuel based economy works to decarbonize, they will need to do so while minimizing the disruption to citizens, keeping the following strategies in mind:
Subsidize what public wants (like electric vehicles)
Penalize what public does not want (like taxes based on vehicle size)
Invest in especially hard-hit regions and marginalized communities
Engage with high risk regions
Encourage, train, and compensate (making recovery packages accessible to those who need the funds)
Corporate Knights: Five ways corporations can close the ‘say-do’ gap on sustainability
To meet their recent climate pledges, G7 and BRICS countries would have needed to reduce their carbon emissions by 822 million tons in 2019; instead, reported emissions from these nations increased by 256 million tons. Experts list five strategies countries can adopt to deliver on the pledges they have made:
Think short-term (by measuring decarbonization progress even on a weekly basis)
Decarbonize supply chains
Keep teams accountable (i.e., linking executive and senior management compensation to climate targets)
Invest in climate solutions
Do not be scared of regulations.
Yahoo! Finance: ‘ESG Now Impacts All Access to Capital,’ Energy Consultant Says
“It’s not the end all be all, but [your capital] is heavily influenced by your ESG profile” states Daniel Romito, Director of ESG Strategy and Integration at Pickering Energy Partners.
Romito recommends energy companies be candid in their ESG disclosures about where there is room for improvement, transparency is key. He also stressed that one major remedy to attract capital and operate in this ESG landscape is to rely on quantifiable data.
The EU Sustainable Finance Disclosure Regulation (SFDR) has mandated tracking and monitoring of ESG related data to make the profile of funds in a company better understood by end-investors.
In the US Department of Treasury’s Financial Stability Oversight Council latest report, Janet L. Yellen, the Secretary of the Treasury, acknowledged “climate change is an emerging and increasing threat to Americas financial system that requires action.”
Moody’s | ESG Solutions: Risking Focus On Just Transition Will Raise Risks For Most Exposed Companies
If transitions are not implemented carefully, it has the potential to exacerbate existing societal challenges and disproportionately affect the most exposed communities. Highlighted topics from Moody’s ESG Solutions, ESG Measures and Climate Solutions, published December 6th, 2021, are as follows:
Globally, there is a lack of preparedness for the coming disruption to workforces, supply chains, communities, and consumers caused by the transition to net zero.
Responsible management of corporate reorganization is a global blind spot, with US companies lagging in terms of supporting at-risk workers to develop skills and build careers.
Companies in sectors with clear policy roadmaps and scalable technologies are ramping up green products and services which will enhance consumer choices.
High-emitting sectors are significantly exposed to physical climate hazards with notable implications for public health.
Moody’s | ESG Solutions: Corporate Emissions Target Failing To Keep Pace With 1.5°C Trajectory
The report examines their recently launched Temperature Alignment Data to understand whether the ambitious corporate emission targets match what is required to meet net zero by 2050. Highlighted topics from Moody’s ESG Solutions, Climate Solutions – Global, published December 8th, 2021, are as follows:
Companies target-setting relating to emissions is increasingly popular but is still a minority practice.
Targets are difficult to quantify, compare, and assess within a consistent framework.
The average implied temperature rise across the companies scored is 2.9°C.
Even among companies that have set target, the average implied increase in temperature is 2.1°C.
Company tendency to set targets varies in size and emissions intensity, among other factors.
Sector results vary widely, but every individual sector has an implied temperature increase of more than 2°C.
North Americas performance is dependent on ambition from large companies.
Diversity, Equity, and Inclusion
Brandon Hall Group is launching a survey to understand the human capital management strategies that employers use to realize the business benefits of DE&I. The new research initiative, titled Building a Culture that Embraces Diversity and Fosters Inclusion, builds on business and academic research that has shown the positive impact DEI has on business results. Participation in the new study is open to the public.
Recent research has shown that many organizations take a programmatic approach to DE&I rather than a strategic or comprehensive one that improves company culture over time.
In 2021, DE&I initiatives became the single biggest budget priority for talent teams. Despite this growing interest, a deeper dive into workplace statistics shows that things like women’s participation in the workforce has dropped to an all-time low.
Addressing these shortcomings, as well as the lack of insights into diversity needs, means supporting teams with the appropriate financial and technical resources to strategize and monitor progress.
To achieve workplace equality, organizations need to understand where underrepresented talent is needed in their workforce, which means assessing each department and position level. There are also gaps in monitoring how different groups interact with their organization and job postings, and these gaps can be closed with the appropriate analytical and AI-driven tools.
The tech industry is growing at twice the rate of other sectors in the US economy. Technology trends should be developed by teams that represent all of humanity. Diversity within any industry means diversity of perspectives and thoughts which is imperative for growth. Predictions for the future are positive, with more diverse workforces at the center of many companies' growth plans.
Larger companies have the potential to make the most impact due to the sheer number of employees. Many companies, large and small, are actively trying to create and foster diverse work environments. Creating programs such as “Leading Allies Of...” can allow for more transparent and frequent conversations surrounding the topic of diversity between those within the program but also between colleagues that are not in the program.
Morning Brew: The takeaways from NRF’s 2022 big show
At the NRF 2022 Big Show, DE&I topped the agenda. Retail CEOs are working to better understand their teams, expand their diversity, and provide the compensation and professional development opportunities necessary to retain their talent.
Greenwashing was also a major topic at the show, especially related to marketing campaigns. The need for omnichannel retail was also addressed, with companies needing to “be wherever the customer expects [them] to be...and be there in a way that supports the brand.”
The “customer first” philosophy is even more pressing than ever, with brands looking for innovative ways to respond to their customers’ needs and enhance loyalty.
ESG Disclosures, Standards, Rankings, and Reporting
The recently launched Task Force on Nature-Related Financial Disclosures (TNFD) has announced a series of new knowledge partners supporting its work to develop a nature-related risk management framework.
New partners include CDP, GRI, International Union for Conservation of Nature (IUCN), SASB, the Science Based Targets Network, The World Business Council for Sustainable Development (WBCSD), WWF, and more.
TNFD also recently selected a group of financial services, corporate, and professional services senior executives as Taskforce members and the formation of working groups to develop the framework.
The new knowledge partners are already supporting the working groups’ efforts to build the “beta” version of the framework, set for release in March of 2022.
The climate-focused startup Sylvera announced that it has raised more than $32 million in funding from venture capital investors and angel investors.
The company describes its mission as becoming a “source of truth for carbon markets,” and in 2021 it launched a ratings platform to provide transparent and ongoing reliable assessments for the growing market of carbon offset projects.
Demand for carbon offset projects is expected to increase significantly in the coming years to aid in net-zero ambitions, but the market lacks a trusted and independent benchmark, which is an issue Sylvera aims to address.
The ability to invest a 401(k) into ESG-related funds depends on what companies offer in their retirement plans. Trump-era rules required fiduciaries to make these decisions based solely on the financial risk and return objectives of the plan participant.
A new rule proposed by the Department of Labor aims to make ESG funds more available to employees, and 401(k) experts hope it will go into effect in early 2022. This comes at a time when employees and investors are showing more interest in sustainable and socially responsible investing.
Offering retirement plans with options that align with sustainability-minded employees can help with recruitment and retention.
Morningstar: Why Sustainable Strategies Outperformed in 2021
In 2021, companies that scored the highest on ESG metrics saw some of the highest returns, despite the fact that the best-performing stocks across the market were oil, gas, and energy companies that do not make it past ESG screens. The strongest ESG companies tend to be large-cap, high-growth technology companies.
Additionally, six of the 10 U.S. sustainability indexes beat their benchmarks over the trailing three-year period (as did seven out of 10 over the five-year period).
Factors contributing to this success include heavy weights in mega-caps with better ESG metrics, as well as the exclusion of companies like Facebook and Amazon that leave gaps in portfolios for more large-cap ESG heavyweights.
The tech and consumer cyclical sectors had the most notable impact on sustainability portfolios in 2021, since these sectors have grown in recent years and changed the composition of sustainable stock groups.
Lynn Martin, the newly appointed president of the New York Stock Exchange, discusses the three “core beliefs” that guide her and that she believes can be useful for driving businesses forward:
Every company is a technology company, and in the current digital age, adoption of new technologies is moving at a rapid place. Businesses need to position themselves to support companies and their evolving technology needs.
ESG will only grow in importance, fueled especially by investor demand.
Our capital markets are without equal, and the U.S. markets have been able to sustain a level of activity during the COVID-19 pandemic that reflects the work that has been done to make U.S. capital markets the most transparent and liquid in the world.
This week, BlackRock CEO Larry Fink published his annual Letter to CEOs, and this year’s letter recognizes that the COVID-19 pandemic has “turbocharged” the move to stakeholder capitalism. Fink also notes that the main ESG opportunity at this time is the move away from a fossil-fuel dependent economy.
Fink’s letter addresses the “great resignation” of 2021 and the need for businesses to forge strong bonds with their employees, and the letter affirms proxy voting as a shareholder right.
JPMorgan’s news sustainability-focused growth private equity investment team will invest in growth-stage companies that are driving resource efficiency and climate adaptation solutions across a range of industries.
The team will be part of JPMorgan Private Capital and will be led by Co-Managing Partners Tanya Barnes and Osei Van Horne, who come from Blackstone Group and Wells Fargo, respectively.
The Institutional Shareholder Services (ISS) ESG unit highlights the disparity between countries and plethora of differing sustainable investment rules across the globe.
The Sustainability Disclosure Requirements (SDR) roadmap is expected to transform the asset management industry.
ESG investors are facing new challenges as tighter regulations lead to greenflation. The definition of greenflation is the upward cost or upward pressure on costs for going green.
Asset managers support Europe's Sustainable Finance Disclosure Regulation (SFDR) but there are concerns about the impacts on smaller businesses.
Industries are calling for clear, concise labeling and consumer education to ensure the success of the SDRs.
Many investors are lacking confidence around the outcome of the UNs Conference on Climate Change (COP26) in late 2021.
Managing ESG issues and considerations at an early stage has become increasingly important for the growth of venture capital firms. Work culture along with diversity, equity, and inclusion practices are other topics many VC firms need to address and change.
More traditional ESG incorporation methods tailored to VC firms could be utilized as companies grow through funding rounds.
OilPrice.com: New ESG Wave Hits Wall With Disinterested Investors
Some trends show management being disinterested in or too interested in issues pertaining to ESG.
Energy is one of the top-performing industries on the stock market in the US and that is because of the oil price rally. Many within the industry are trying to look at ESG as a way to secure long-term profitability even if they might encounter negative profits initially.
The global ESG Bonds report examines market trends such as growth rate, market size and segmentation, regional split, trend analysis, and the general ESG situation.
Some aspects of the research included in the report are as follows: a profitability index, geographic distribution of the ESG Bond market, a SWOT analysis, cost-benefit analysis, and detailed information on hazards and opportunities.
The research also covers issues such as market revenue, industry threats, market dynamics, growth pace, and distribution networks and studies.
Pensions & Investments: BlackRock President Has High Praise For New York ETF Rule
The New York State Department of Financial Services published a new regulation in December that allows shares of an ETF to be treated as bonds for the purpose of domestic insurers risk-based capital report provided the ETF meets certain criteria. This regulation will be in effect until January 1st, 2027.
BlackRock is “very excited about the fact that insurers now will use more ETFs to represent their bond portfolios.”
GlobeSt.com: Investors Emphasize ESG As They Bid For Properties
Many investors are changing the way they think about bids for new properties. Factors like improving resilience, reducing carbon emissions, and enhancing employee wellbeing are among the leading topics that are now being considered when making decisions.
The international exchange organization Deutsche Borse announced the launch of its ESG Visibility Hub on Thursday. The hub would allow issuers of the Frankfurt Stock Exchange to publish their ESG data on the exchange’s website.
Investors and interested market participants will be able to access information on individual sustainability aspects on the website. Issuers will also be able to provide ESG rating, key figures, and other sustainability reports. The platform aims to increase investors' visibility into a wide variety of companies.
ESG has been a huge topic for investors around the world, but much of the discussion in the retirement industry has been either product focused or abstract and intangible.
One way to think about ESG is that it offers a potential competitive advantage over other advisors; it does not have to be solely about beliefs/values. Additionally, some advisors are holding off on having ESG discussions due to the challenging regulatory environment.
A values-based approach is very difficult to implement in a retirement pan; a better question and implementation approach would be to try to prepare for rapidly evolving ESG priorities and future-proof fiduciary responsibilities as much as possible.
Advisors can demonstrate their value by supporting plan committees and helping to determine what ESG considerations would work best for their specific plans.
In May, President Biden issued an executive order that, in part, directs the Financial Stability Oversight Council to find ways to assess climate-related financial risk.
Head of ESG for the Americas at Deutsche Bank, Emily Kreps, says stakeholders are scrutinizing banks’ investments to determine whether they align with societal values on how to address these ESG issues.
Banks are beginning to reframe the investment and lending decision-making processes through the lens of ESG.
Companies & Industries
Insurances News Net: Corporate Reputation A Top Motivator For ESG Interest, Survey Shows
U.S. insurers have long considered ESG risks in underwriting, but many have only recently started to evaluate their investments using ESG criteria. Concerns about return on ESG investment and unaligned reporting standards have led to slow commitments in the U.S.
According to a recent Conning survey, concern about corporate reputation is the leading driver influencing insurers’ commitments to incorporating ESG into their investment strategies. Survey respondents also indicate that the lack of unified reporting standards is a major obstacle.
Top priorities for insurers (compared against ESG concerns) are inflation, market volatility, risk-based capital factor changes, and the impact of monetary and fiscal policy.
Canadian Forest Industries: FSC Canada reflects on forest management priorities in 2022
The COP26 summit in Glasgow saw more than 100 countries sign the “Declaration on Forests and Land Use” to end and reverse deforestation by 2030.
In 2022 and beyond, Forest Stewardship Council (FSC) Canada’s priorities are woodland caribou, Indigenous people’s rights, workers’ rights, gender equity, and landscape management and conservation. The organization also aims to demonstrate the impact of responsible forest management, providing a clear value proposition to its market partners.
FSC Canada is also working to connect more Canadian consumers with FSC-certified products.
Corporate Knights: Fossil fuel expansion will be the litmus test for banks’ net-zero promises
Following ambitious commitments made at COP26, civil society organizations want to hold banks accountable for realigning their operations with a path toward decarbonization by 2050.
Under the Glasgow Financial Alliance for Net Zero (GFANZ), banks have committed not only to decarbonize, but to provide a transparent short-term strategy that ensures they meet the 2050 target. There is skepticism about whether big North American banks can meet their climate-related goals by divesting in fossil fuels.
Advocacy groups are calling on banks to adopt policies that will allow them to cut the carbon emissions of companies they finance by half by 2030. Banks face risks from both the physical and transitional risks of climate change, and these impacts are now material to investors as well. Banks “fail investors” when they finance worsening climate practices.
Arabesque, ABG Real Estate Group, and construction company Goldbeck are working together to expedite key ESG concepts in the construction and real estate sectors and to establish criteria for sustainable investments.
ABG has also acquired a minority stake in Arabesque and will be represented on the Advisory Board of Arabesque Holding.
The NZAOA’s updated guidance introduces a goal to achieve an absolute portfolio emissions reduction of 49% to 65% by 2030, and it expands the list of asset classes covered by the targets. It also sets targets for company engagement, emissions reductions for high-emitting sectors, and targets for financing economic activities and climate solutions.
The new protocol establishes a series of expectations for asset managers, including public commitments to align portfolios to net-zero by 2050 goals and guidelines for proxy voting.
International Tax Review: ESG Tax Transparency: The Global Journey
In 2019, Business Roundtable (BRT) released a statement on the purpose of a corporation that was signed by 181 CEOs of American firms who committed to lead their companies for the benefit of all their stakeholders.
Tax has begun to appear in the realm of ESG as well. BRT states responsible tax must also focus on supporting communities, not just finance and tax departments.
This article, part one of two, focuses on the public, business, and government attitudes towards ESG tax matters and how they have evolved. The subtopics focused on include public expectation then and now, exploring tax transparency, qualitative disclosures, quantitative disclosures, and government action.
Vanguard is proposing to change the screening criteria on five products in its passive ESG range.
Two ETFs will have additional screening criteria added to their index methodology: Vanguard ESG Global All Cap UCITS ETF (V3AM) and Vanguard ESG Global Corporate Bond UCITS ETF (V3GP)
Three index funds will also see changes: Vanguard ESG Developed World All Cap Equity Index fund, UK counterpart and ESG Emerging Markets All Cap Equity Index fund
The changes will be in effect March 21st, in line with the rebalancing of the indices.
The Business Roundtable published two documents on Wednesday outlining how businesses should responsibly deploy artificial intelligence to avoid a wide variety of harm.
Their roadmap states and explains its ten core principles and notes its two key conclusions “there is no single approach or simple prescription for how to achieve Responsible AI. Rather, each company will activate these principles within the context of its own industry, use cases and workforce.”
They also lay out ten principles for government and categorize and expand on each principle.
S&P Global ESG Scores are informed by in-depth engagement with companies via the S&P Global Corporate Sustainability Standards (CSA).
The Story of ESG Scores & Data | February 10th, 2022, at 1-2pm EST / 10-11am PST
Grant Harrison, Green Finance & ESG Analyst at GreenBiz Group will be moderating the discussion surrounding the story of ESG data, sponsored by S&P Global. Speakers include Robert Dornau, Global Head of Corporate Engagement at S&P Global Sustainable1 and Sonay Aykan, Associate Director of ESG & Sustainability at Colgate-Palmolive.
There is growing legal and regulatory pressure on corporations to address the impacts their activities and supply chains have on ESG issues.
It is becoming increasingly likely that corporations will have more of a legal responsibility in relation to their supply chains. This could also mean an increase in the likelihood of penalties for failure to abide by certain mandates.
Non-EU companies that do business in the EU will have to adapt to the EU way of doing business and complying with standards.
Companies should assess their entire value chain and act on any ESG risks and identify inefficiencies.
The Street: Why The Next Decade Is Critical For The Recycling Industry - Video (3:24)
Charles Malan, Senior Analyst at VanEck, is focused on minerals and metals and the adaptive ability of supply chains.
Ammar James, Deputy Portfolio Manager and Analyst at VanEck, who is focused on agriculture, paper, and forests, states, “population increase has increased our food production by around 70%.”
TheStreet’s Investor Playbook: The Resource Transition, a free webinar that was recorded on December 22, 2021 (watch here), focuses on the impact these challenges pose to investors in this period of resource transition. Video highlights are provided at the bottom of this article.
Consultants in the financial industry have noticed a few trends influencing how their financial institutions are advancing their ESG reporting processes.
Common ESG reporting challenges that banks face includes ESG ownership, who or what should control the standardization of ESG reporting, and regulations on climate disclosures.
Blackstone Inc. has established the Sustainable Resources Credit Platform to focus on lending to companies that are expanding solar usage, providing renewable electricity generation and storage systems, and other businesses that are aiding in decarbonization.
The firm is aiming to push $100 billion over the next ten years into projects and companies aiding in the green transition.
Dow Jones launched its sustainability data to assist the global financial community in understanding the performance and impact of a company's ESG practices. The initial offering is for asset managers looking to make sustainable investment decisions and better engage purpose-driven investors.
The new data set covers five sustainability dimensions and 26 categories and is aligned with the Sustainability Accounting Standards Board (SASB).
Bloomberg Tax: Big Four Lobby SEC, Lawmakers On ESG Reporting, Audit Access
Sustainability reporting and challenges of audit oversight in China are among the issues the Big Four accounting firms lobbied the federal government in 2021.
The firms spent $8.61 million to sway congress and federal agents, including the SEC, on topics such as infrastructure and tax policy.
The Securities and Exchange Board of India is seeking to regulate ESG rating providers, mandate disclosures and compel companies to use only these accredited ESG raters.
They also proposed a subscriber-pay model.
Credit rating companies and research analysts with a minimum net worth of 100 million rupees may be eligible to apply for accreditation. They must offer at least one of the following:
ESG Impact Ratings.
ESG Corporate Risk Rating or ESG Financial Risk Rating.
Any other ESG related rating products, which may be specifically labeled.
Must prominently disclose rating scales.
JD Supra: ESG and SEC Enforcement in 2022 - Podcast (22:52)
Wiley’s Kevin Muhlendorf and Holly Wilson discuss what 2022 will bring for ESG issues and the SEC, including what to expect from the SEC’s ESG Task Force within the Division of Enforcement.