General ESG News
The New York Times: Will the Supreme Court Frustrate Efforts to Slow Climate Change?
In a case argued on February 28th, the Supreme Court seems poised to restrict the Environmental Protection Agency’s (EPA) legal authority to limit carbon pollution from power plants, further frustrating efforts to slow the pace of climate change.
The underlying question of this case is this: Is the E.P.A.’s regulatory authority over power plant emissions narrowly limited to requiring only negligible improvements at each source, which would produce minimal if any emission reductions? That is what coal companies and states bringing this case want. Or can the agency use a broader approach based on other things power plants can do to cut emissions? That is what the E.P.A. and many power companies want. Many also want states to be free to consider such measures when deciding how to best achieve federal emissions limits.
Business World: Can ESG Data And Insights Deliver Long-Term Value?
The 2021 EY Global Institutional Investor Survey is an annual survey that the EY Global Climate Change and Sustainability services team commissioned with the main objective of examining the views of institutional investors on the use of nonfinancial information in investment decision making. The survey notes three important themes:
The COVID-19 pandemic has been a powerful ESG catalyst.
There is a growing focus on the transition to a net zero economy and climate change is increasingly central to investment decision-making.
Better quality nonfinancial disclosures and clearer regulatory landscape, coupled with sophisticated data analytics capabilities, will enable ESG to realize its potential.
The Intergovernmental Panel on Climate Change says that humans and nature are being pushed beyond their abilities to adapt, stating over 40% of the world’s population are highly vulnerable to climate.
This report is the second of three reviews from the world’s foremost body of climate researchers and looks at the causes, impacts and solutions to climate change. It lays out a clearer indication of how a warmer world is affecting all the living things on Earth.
Extreme weather events linked to climate change like floods, droughts, and heatwaves are hitting humans much harder than previous assessments indicated. Between 2010 and 2020, fifteen times more people died from catastrophic environmental events in vulnerable regions than other parts of the world. The IPCC expects a billion more people to be at risk from coastal specific climate hazards in the next few decades. They also list a few more concerns including a growing distress for health and warming threats to species. Policymakers must put emphasis on climate resilient development which will help to build strength to cope with climate change in every society.
The desire of millennials to align their values with where they put their money is driving significant focus on investing with ESG in mind. The leading global sustainability framework organizations include CDP, Climate Disclosure Standards Board (CDSB), Global Reporting Initiative (GRI), and the Sustainability Accounting Standards Board (SASB). Integrating these frameworks into a company’s business operations will keep them accountable and show where there is room for improvement. Here are five ways to get started:
1. Choose a framework/regulating body.
2. Get support from leadership.
3. Create an ESG committee.
4. Develop measurable criteria and goals.
5. Document and communicate.
The worlds democracies have rallied around Ukraine in the face of Russian President Putin’s unprovoked invasion. Stepping back a bit, we can see some strategies they are employing reflect the ESG framework that investors and leaders have been using to grow the 21st century values-based economy.
Environment: Democratic leaders across the globe are defending Ukraine’s rights and freedoms. European countries at economic risk due to dependence on Russian oil and gas markets are expediting their transitions to clean energy. European leaders are reportedly announcing reduction in their use of Russian oil and gas.
Social: Ukrainian people are bravely stepping into the breach to protect their country. Thousands are taking to the streets to protest Putin’s violence attack on Ukraine, risking arrest and putting their own lives in danger. Global leaders are rallying together and ensuring the population has tools to fight for their land and freedom by sending food, money, ammunition, gear, and weapons. Neighboring countries are opening their borders and providing meals to those in need just across these borders; companies are rerouting supply chains to avoid Russia and refusing to allow Russian airlines into any of their airspaces.
Governance: Accountability is at the heart of the global response to Putin’s violent attack on Ukraine. The power of NATO countries remaining united against Putin is continuing to block his options. The sanctions announced cut Russians off from the global financial system and their access to global markets.
William Peterffy, son of Thomas Peterffy, has held a number of occupations in his lifetime so far, all avoiding working on Wall Street. Recently he joined his father's company Interactive Brokers Group Inc., and he decided to become the company's first director of ESG affairs.
Peterffy has referred to this new role as his new life direction to help fix the “ruthless financial system from within.”
The largest wealth transfer in human history will be happening in the next generation between 2021 and 2045, and many of these inheritors are trying to find ways to feel less conflicted about the amount of money they will inherit that was earned in ways that do not align with their values. Peterffy hopes to promote a change in investing, capitalism, and how money is used as a force for “healing” instead of “separation.”
The IPCC has published its “Working Group II report, Climate Change 2022: Impacts, Adaptation and Vulnerability” That assesses the impacts of climate change on people, ecosystems, and biodiversity, and reviews the capacity to adapt to climate change.
The report indicates that more than 3 billion people around the world are highly vulnerable to climate change, and millions are already exposed to food and water insecurity, particularly in developing regions.
The report finds that even reaching global warming targets of 1.5 degrees Celsius would result in multiple climate hazards that are unavoidable, and warns that exceeding this level would cause severe and possibly irreversible impacts ranging from economic damage and biodiversity loss to loss of life.
The report notes that some progress has been made on adaptation planning but it also highlights widening gaps between the level of action taken and that needed to adequately deal with the risks. One of the key areas recommended for action is a focus on safeguarding and strengthening nature, given the ability for natural systems to help reduce climate risks and improve livelihoods.
Diversity, Equity, and Inclusion
Financial Planning: 10 Stories About Race, Diversity and Inclusion from Black History Month 2022
Dawn Harris, director of diversity and inclusion for the CFP Boards Center for Financial Planning, says the momentum and awareness she feels surrounding matters of race and inequality in the financial services is at an all-time high.
Harris and her team are committed to change. This article lists ten additional articles that highlight topics that point out areas that need improvement and hold decision-makers accountable.
Utilize employee resource groups (ERGs): These voluntary associations unite team members with commonalities including race, gender identity, religion or ethnicity. ERGs can help businesses better serve their wide range of consumers. don’t expect your ERGs to contribute to DE&I efforts for free—their valuable counsel deserves supplemental income
Spread DE&I everywhere: If leaders are going to get involved in Black History Month activities or establish paid time off for Juneteenth, they need to ensure this applies to all employees, including those in factories and retail sites, which statistically comprise more Black and brown individuals.
Align corporate DE&I policies with marketing: Brands can't celebrate Pride if they don't have a public stance on anti-trans bills. Brands need to come off the fence and align what comes out of CEOs’ mouths with their marketing.
Pay attention to Hispanic consumers: While brands are rightly putting their focus on supporting Black History Month and Black communities, they should also be catering to the needs and pain points of Latinx consumers.
Mark June 2022 on your calendar: it’s possible the Supreme Court will repeal Roe v. Wade. If that happens, how will brands respond? There is virtually no gray area when it comes to transphobia, homophobia or racism—consumers have largely reached a consensus that all of the above are fundamentally wrong.
Palladium Equity Partners is a minority owned middle market buyout firm where more than 3/4 of the firm's team is considered a minority and/or female. Additionally, 70% of the firm's partners are considered a minority and/or female and one out of every two portfolio company board members is either a minority and/or female. Palladium maintains metrics to help deliver on DE&I objectives and has adapted an economic measure of inequality across countries.
MaC Venture Capital invests in visionary female, black, and Hispanic founders working to build a diverse and inclusive future. Marlon Nichols works with the MaC team and takes part in the black venture capital consortium that trains interns from HBCUs for careers in venture capital.
Allen and Overy abides by a set of principles based on impact, accountability, and openness. It's global board of directors drives the DE&I program across the firm. It supports industry initiatives and alliances related to diversity and engages in partner-led discussions about the topic.
ESG Disclosures, Standards, Rankings, and Reporting
New data from the CDP indicates that just 1% of companies that submit climate change related data to the organization provide investors with the information they need to assess whether the company has a realistic strategy for the global transition to a low-carbon economy.
This finding underscores the gap between companies announcing their ambitious climate change plans and their lagging follow-up in detailed planning.
The worst performing sectors for disclosure across the globe were transport and apparel, both of which had less than 0.3% of companies disclosing against all key indicators identified by the CDP.
CDP has published a new report assessing the state of corporate climate transition plans and related disclosures. The report found that there are significant gaps in current corporate disclosure regarding climate strategies, and only about one-third of the companies assessed have credible emissions reduction targets.
According to CDP, key elements of a credible climate transition plan include one that supports a strategy for the transitions with 5- to 10-year science-based targets and long-term science-based targets, contains quantifiable and regularly tracked KPIs, is integrated into the company’s mainstream filings, is guided by accountability principles, and contains key governance and risk management elements.
They report also found that the industries with the highest rates of climate transition plan and disclosure were the financial services, power, and fossil fuel sectors.
Of the primary climate transition plan disclosure elements, disclosure rates for targets were by far the lowest. The strongest performing elements were disclosures related to financial planning and governance.
ISS has announced its new ESG Gateway, which is a free online portal providing public access to companies’ corporate and fund ESG ratings and scores. The Gateway will provide ratings and scores for more than 6,100 companies around the world, as well as ratings for about 30,000 funds across 45 jurisdictions.
ZNews Africa: ESG Bonds Market Predictable to Grow by 2028
An Orbis Research study on the global ESG Bonds market provides a wealth of information on key market dynamics as well as the market structure. The report centers around top players like AllianceBerstein, Dimensional Fund Advisors, Boston Trust, BlackRock, Aberdeen and Calvert, among many others.
The report provides analysis of the challenges confronting the leading players and their investment interests, influential factors such as technological advancements, and key reasons for increasing demand for products and services boosting the global ESG Bonds market growth.
BNN Bloomberg: Consider ESG Risks Upfront For Better Returns: Ser Global’s Martha Tredgett (Video)
Martha Tredgett is a managing partner at Sera Global. In this video she explains why it is crucial for investors to factor in ESG risks to companies and their portfolios. ESG compliance is increasingly being legislated, thus integrating ESG risks into portfolios will deliver better returns in the long run.
Apollo Global Management plans to deploy $100B to progress their efforts with decarbonization. This money will go towards a new platform devoted to energy transition and the decarbonization of industrial sectors by 2030. “[energy transition] is a theme, not a sector; it permeates so much of what we all do” said Olivia Wassenaar, lead of the firms sustainable investing initiative. This new platform aligns with Apollos forward-looking goal of enhanced due diligence.
TPG announced $5.4B is to be invested in its Rise Climate Fund.
Blackstone launched a sustainable resources credit platform focused on investing in and lending to renewable energy companies and others supporting the transition.
The Carlyle Group established Copia Power, a sustainable infrastructure platform focused on developing, owning, and operating environmentally sustainable infrastructure.
There's evidence of a premium for green bonds, also known as a “greenium,” and there is also a similar advantage for social bond issuances. Social bonds received a yield discount of around 12 basis points at issuance according to recent research; this is being referred to as a social premium or “socium.”
The World Banking Alliance published a report assessing 180 companies across oil and gas, electric utilities, and auto, and found that most high-emitting companies are not taking action to move toward a just transition.
ESG Today: AIG Commits to Net Zero Investment Portfolio
AIG has announced a series of new sustainability commitments, including goals to achieve net 0 greenhouse gas emissions across its underwriting and investment portfolios globally by 2050, and plans to reduce exposure in its underwriting business to coal and oil sands.
AIG has also committed to achieving 100% renewable energy for its operations by 2030, and it will use a science-based emissions reduction target aligned with the goals of the Paris Agreement.
The firm has committed to no longer investing in or providing insurance for the construction of any new coal-fired power plants, thermal coal mines, or oil sands, and it will no longer invest in or under right new operation insurance risks for the same projects. AIG also aims to phaseout underwriting and end new investments in clients that derive 30% or more of their revenue from coal-fired power, thermal coal mines, or oil sands.
National Law Review: ESG: Practical Points For Where Market Practice and Legal Trends Collide
ESG Managers should anticipate the SEC will expect firms’ compliance and legal arms to play more meaningful roles in confirming that such disclosures are accurate.
The FCA in the UK is developing its own ESG legislative framework, and these frameworks give regulators authority to analyze disclosures for potential greenwashing and use applicable enforcement tools where necessary.
In market terms, funds are being held accountable for ensuring that their ESG classifications are integrated into their investment making decisions.
In legal trends, shareholders, investors, governments, and other advocates are increasingly focusing on environmental wrongs and, in search of perceived deep pockets and favorable legal regimes, on parent companies.
Claimants in such actions rely on company-wide ESG policies, sustainability assessments and reports to argue that parent companies have assumed responsibility and so a duty of care for the policies of, and implementation by, their subsidiaries. In addition, claimants are increasingly asserting claims based on ‘supply chain’ misconduct
With the above legal and market trends in mind, fund managers must ensure that their ESG focus is more than a “badge” for marketing. At the same time, they must continually scrutinize their portfolios to ensure compliance with increasingly rigorous standards and expectations. Achieving strong returns within a strict investment mandate requires discipline and continual vigilance.
The ProxyPulse Report features voting trends covering 4,125 public company annual shareholder meetings held between January 1, and June 30, 2021. The report highlights voting trends over the past five proxy seasons:
Support for shareholder proposals has grown steadily over the past five years to 40% of the votes cast.
Retail investor support for environmental and social proposals at 18% in 2021 was half that of institutional investors at 40% and Retail support for political spending proposals declined from 23% in 2020 to 19% in 2021, while institutional support rose from 40% in 2020 to 45% in 2021.
23,009 directors stood for election in the 2021 proxy season. Average support levels remain high at 94% of the voted shares. However, 541 directors failed to attain majority support.
For the full year 2021, meetings held virtually rose to 2,377 up from 1,957 in 2020, and up from 326 in 2019. Companies have garnered increased investor attendance and decreased venue, security, and transportation costs of hosting in person meetings. And investors can easily attend, ask questions, vote, and also avoid the costs of attending meetings in person
Companies & Industries
Strategy & (PwC): ESG-Driven Innovation In The Chemical Industry
The EU projects that it will reach net zero by 2050 and aims to cut its emissions by half over the next decade. Pressure is being placed on the chemical industry as it accounts for a large scale of global emissions. About 50% of its total emissions are Scope Three. The International Energy Agency (IEA) notes the technologies for achieving 75% of the required emission cuts by 2050 are not commercially available today.
These challenges present the chemical industry with immense opportunities to position itself as a partner in sustainable transformations. Through interviews and other work with stakeholders in the industry, PwC found six distinct trends common to the most innovative companies in the chemical sector.
Innovating beyond regulatory requirements
Aligning ESG-driven innovation with the authentic identity of the business
Adopting a hybrid corporate-business unit operating model for innovation
Building an innovation ecosystem with external partners
Leveraging external funding opportunities
Adopting innovation impact metrics that include new concepts
Sustainalytics: What Is ESG And Why It’s Important For Risk Management
ESG refers to the examination of a company’s environmental, social, and governance practices, their impacts, and the company’s progress against benchmarks.
Integrating ESG factors into corporate decision-making is good risk management. Companies that neglect ESG issues is at an increased risk of experiencing an ESG-related incident or controversy in the near future, if not already. Research has found companies that experience high to severe ESG incidents lost 6% of their market capitalization on average. Companies are under immense pressure to set clear targets to reduce risks, measure progress effectively, and report transparently. ESG programs offer the opportunity to be good citizens while simultaneously doing what’s good for business.
WealthManagement.com: 5 Reasons to Incorporate ESG Into Employee Benefits
Today, one in four invested dollars takes ESG factors into account. Organizations that prioritize ESG as part of their benefit programs, retirement plan investment options, and overall workplace culture will stand out as employers of choice for the next generation. Here are five ways that ESG principles can help your employees and organization.
1. ESG plans can help improve employee engagement and retention.
2. ESG can also boost recruitment efforts.
3. ESG options can help boost retirement plan participation.
4. ESG helps participants save even more.
5. ESG can improve plan economies and yield cost savings.
In freight and logistics, ESG initiatives can be used to separate the leaders from the laggards. Economics and safety are already considered table stakes in the industry, and ESG impacts are starting to be considered the same way. Companies across the industry are making investments in sustainable technologies.
Experts in the industry argue that it is important to separate environmental concerns from political positioning.
In recent years many businesses of all sizes have been adopting aggressive CSR and ESG strategies to create a sustainable and equitable world. This movement has put brands and corporations at the forefront of enacting change in society.
Blockchain-based startups and digital artwork and assets have been growing rapidly, and while these technologies have benefits for those who adopt them there are some costs. There are issues with algorithm security, energy intensity, carbon emissions, and more.
Decentralized finance projects emerged in 2021 attempting to bring sustainability to blockchain platforms, mitigating energy consumption with alternative technologies. For blockchain-based companies there are several ways to promote sustainability throughout the business: Recycling, conserving energy, and choosing to work with green partners.
Wealth Management: 5 Reasons to Incorporate ESG Into Employee Benefits
For plan sponsors and employers that want to remain competitive, meeting client demands for ESG value in investments is imperative. There are five key ways that ESG principles can help both employees and organizations:
1. ESG plans can help improve employee engagement and retention.
2. ESG can boost recruitment efforts.
3. ESG options can help boost retirement plan participation.
4. ESG helps participants save more.
5. ESG can help improve plan economies and yield cost savings.
Exxon Mobil recently made a series of announcements that included plans for billions of dollars in investments in emissions reductions business opportunities. The company aims to be a leader in the energy transition according to its CEO Darren Woods.
Last year the company established a Low Carbon Solutions business focusing on carbon capture and storage, hydrogen, and biofuels. Exxon also revealed plans for a hydrogen production plant and one of the world's largest carbon capture and storage projects in Texas.
These announcements align with the recent change in tone from Exxon over the past few months after it lost a high-profile proxy battle to activist investor Engine No. 1.
BlackRock has released its Engagement Priorities for 2022, which will focus on areas like climate, biodiversity, and human rights, as well as board quality and company strategy. The primary engagement categories are the same as last year, but BlackRock has added several sustainability-related factors for companies to consider, including the use of ESG factors in incentive pay.
Black Rock has been taking a more expansive approach to companies’ impacts on human rights, and it has identified risks Like poor working conditions, substandard wages, use of forced or child labor, community harm or displacement, and hostile or discriminatory workplaces.
While Black Rock does not explicitly promote including ESG criteria and incentive pay it does state that it believes that companies should account for the interests of stakeholders in compensation policies to recognize the nature of long-term value creation. It states that the board should determine whether or not to include sustainability criteria and incentive plans.
Goldman Sachs and Shell Ventures have led the way in raising strategic capital for GridPoint, whose energy management and optimization technology connects energy grids with the built environment and distributed energy resources, which helps to decarbonize commercial buildings.
According to GridPoint the investment proceeds will be used to continue the development of the company's data analysis, intelligent automation, and machine learning technology platform to accelerate the deployment of its solutions.
Cannabis companies have begun to make their own ESG pledges and although ESG messaging and disclosures can be good for business, they come with significant disclosure-based risks.
One can reasonably expect more ESG-related risk to cannabis D&Os going forward based on the combined impact of the cannabis industry's rapid growth and increasing ESG pressures on all companies.
As the public's emphasis on environmental issues intensifies, there should be a greater concern for litigation over environmental-related corporate goals and statements. The cannabis industry is well aware of the dangers of public backlash on sensitive issues involving land and water use, pesticides and runoff, sustainable packaging and the high energy requirements of cultivation lighting.
Companies should embrace ESG as an important cornerstone to the company's future risk management planning.
The growing focus on ESG initiatives will continue within the cannabis industry, and it is likely that cannabis companies will be held accountable for pledges made. Litigation involving environmental claims, diversity and inclusion, sexual harassment, cyber breaches and other governance issues are now being brought against cannabis companies, and future actions may name their executives as well.
The survey, which polled 200 senior leaders from 15 European countries and 25 industries found a tension between the advantages of ESG-driven corporate strategy to long-term, inclusive growth and leaders’ willingness to support this through corporate governance.
66% of leaders combined see the top two advantages to integrating ESG factors in their corporate strategy as first, long-term value through new ESG-driven products and services, and second, resilience to ESG risks. 83% of respondents said they would like mandatory reporting of ESG performance measures against global standards.
The majority (82%) of respondents feel they have made significant progress in putting in place the controls and risk management systems needed to address material ESG risks. The top two challenges holding businesses back from delivering against ESG according to respondents are externally, near-term economic uncertainty (85%) and internally, lack of commitment from the board (43%)
This analysis finds that if companies are to be successful in harnessing ESG-related opportunities, boards must strengthen their governance with a new board operating model, composition, and skills; innovative approaches to reward and remuneration; and effective ESG reporting and investor engagement.
The way analysts have looked at banks’ ESG risks to date suggests the industry may need to brush up on its knowledge of climate science and new regulations, according to the Scope report. Scope is a provider of credit and ESG ratings.
Bank analysts need to develop a deeper grasp of scientific concepts, ethical aspects, and understanding the dynamics of other industry sectors such as energy, power generation, manufacturing and utilities, he said.
Bank analysts will also need to familiarize themselves with frameworks such as the Network for Greening the Financial System and the Taskforce on Climate Related Financial Disclosures.
There has been an increased focus on climate change in recent years, but some misconceptions remain, which are outlined and addressed below:
1. Climate-change risk is too far down the road
a. Even short-horizon investments can be affected by long-term risk — via an impact on exit value. Similarly, with climate-change risk, markets may start to price in changes that won’t be realized during the current hold period. The world economy may not have reached net-zero, and the full extent of physical risks may not have occurred by the time an asset is sold, but that doesn’t mean that climate-change risks can be ignored in the short term.
2. Climate-change risk is only physical
a. An equally important consideration comes in the form of transition risk — or the risk of potential costs incurred to meet carbon-reduction requirements as part of the transition to a low-carbon economy. By some estimates, real estate accounts for up to one-third of global energy-related CO2 emissions; and so, as the global economy attempts to decarbonize, there will likely be significant cost implications for real estate investors.
3. Transition risk is all about tax
a. One avenue could be through capital expenditure, investing in energy-efficiency and carbon-intensity upgrades for the assets like new windows, more efficient HVAC systems or low-carbon fuel switching.
b. Another avenue could be through carbon offsets, which may form part of investors’ strategy for reducing assets’ net carbon footprint. Tenancy demand could also fall as organizations set and implement net-zero goals (particularly in less efficient assets), resulting in lost rents for landlords. For most assets, investors will face a variety of transition costs — not all of them related to regulation and tax
4. All physical hazards are climate-change risks
a. For a physical hazard to be a climate-change risk, it must be clear how the changing climate will affect the frequency and severity of the risk.
b. A geophysical hazard like earthquakes would typically not be considered a climate-change risk, as earthquakes are primarily a tectonic phenomenon and not directly linked to climate change.
5. Physical climate-change risks are already priced in
a. Climate change stands to fundamentally alter global weather patterns and introduce changes that are not currently priced in given the level of uncertainty involved. Physical climate-change risk is therefore all about the difference between current and future hazard exposure.
Peter Walsh from Benchmark Digital Partners contributed this guest post to ESG Today. he argues that public policy is the key driver of Europe's investors’ and business leaders’ commitments to environmental stewardship. Specifically, EU policy makers and member states have led efforts to bring credibility to corporate sustainability practices.
Double materiality standards are becoming common in Europe to produce verifiable ESG performance data. In the long-term companies should prepare to implement due diligence policies that align with the EU's overarching sustainable development goals including its commitment to climate neutrality by 2050.
European investors see regulatory intervention as the best remedy for greenwashing, but compliance with Europe's current ESG disclosure rules is proving to be a burden for companies.
The Corporate Sustainability Reporting Directive (CSRD) is set to take effect in 2023 and will expand the number of companies required to provide sustainability disclosures and codify the double materiality standard.
There are some concerns about the divergence between Britain’s and the EU’s ESG governance but the UK green taxonomy will align with the corresponding sustainability disclosure requirements in the EU. In all of Europe the region's governments intend for their disclosure rules to help them meet their national climate goals. European policy makers will also be improving oversight of corporate due diligence, specifically turning their attention to social aspects and companies’ supply chains.