ESG Weekly News Update: May 13, 2022
General ESG News
Inside Climate News: To Equitably Confront Climate Change, Cities Need to Include Public Health Agencies in Planning Adaptations
According to a recent study in PLOS Climate, cities must better involve their public health agencies when planning to prepare for climate change if they want their adaptations to equitably help their citizens’ physical and mental health.
Densely populated cities with vulnerable urban residents are on the front lines of climate change adaptation efforts that include decisions about housing, mobility, and employment. Growing populations and urbanization will increase vulnerabilities to climate-related threats, especially in lower-income countries.
Municipal public health services are crucial for cities to meet their goals for human health, especially related to heat, but a recently released PLOS study reveals that while almost all cities’ plans involve these goals, many did not involve their public health agencies in the plan.
Lexology: Why your ESG policy is more than just lip service
Directors have a duty to act with care and diligence, balancing potential benefits and risks. Directors of listed companies must also manage the companies’ business disclosures, and ESG provides a mechanism for these directors to obtain and disclose the necessary information to avoid penalties.
In Australia, the ASX Corporate Governance Council reporting standards focus on direct physical risks, but stakeholder demands go beyond this to include transition risks, climate change scenarios, and more.
The growing demand for sustainability disclosure has also led to a rise in accusations of greenwashing. Safeguarding against this will mean effectively linking ESG disclosures to financial reporting.
JD Supra: ESG Perspectives – A 360° view of key ESG issues and opportunities for corporates in 2022
Hogan Lovells has produced a pamphlet – available for download – in collaboration with Kekst CNC, Georgeson, and Cordano covering current legal, policy, investment, and communications-related ESG issues.
Issues covered by the leading advisors include best practices in ESG reporting, shareholder engagement, current geopolitical challenges, and more.
The Hill: To fight inflation, we must fight climate change
Climate change impacts prices across most sectors. As environmental events such as extreme weather, droughts, and hurricanes are occurring more frequently, climate change is increasingly affecting supply chains. Food, housing, transportation, and more are experiencing rising prices. Product substitutions can cushion increasing prices to avoid systemic inflation.
Some writers are concerned that persistent inflation may diminish economic growth. Reducing our dependency on fossil fuels and advancing technological innovation may secure long-term economic growth.
Forbes: Six Considerations For Building A Sustainable Business
Zeno’s 2020 Strength of Purpose Study found that individuals are four to six times more likely to trust, buy from, and protect companies with purpose.
Sarah Kauss, founder of S’well and a sustainability advocate and advisor shares six considerations to build a sustainable business:
Remember sustainability is more than corporate social responsibility.
Start from the top with the leadership to align goals and actions.
Be ready to invest.
Get started on strategies and do not let perfection get in the way.
Develop partnerships that extend impact.
Consider third-party certifications to help prove commitments.
GreenBiz: The growing role of sustainability in small business marketing
A 2017 Nielson survey found that 81% of respondents from all generations, genders, and backgrounds strongly feel that companies should be helping to improve the environment.
A 2019 Accenture survey stated that 83% of consumers think it is important for companies to design reusable or recyclable products. Around 72% claim they were buying more environmentally friendly products than they were five years ago, and 81% expected to buy more in the next five years.
As employees like to be proud of their employer companies, many job seekers prefer to work for a company with sustainable practices. In a 2016 Cone Communications study, 88% of employees find their job more fulfilling when they know they are making a positive environmental and social impact. 84% said that they would be more loyal to an environmentally responsible company, and almost 66% would not even consider employment with a company that does not have strong social responsibility values.
MIT Sloan: Why Morgan Stanley’s sustainability chief is optimistic … and realistic
At the 2022 MIT Energy Conference on March 31, Jason Jay, director of the MIT Sloan Sustainability Initiative, spoke with Audrey Choi, chief sustainability officer for Morgan Stanley and one of the first sustainability officers on Wall Street. Jay noted that when it comes to sustainability, finance is at the top of the “chain of influence” as capital fuels all sectors.
Key takeaways from their conversation include:
Millennials and young investors are leading the growing interest in sustainability. Choi is optimistic that companies are responding with an increasing number of realistic net-zero pledges.
The SEC’s proposed climate disclosure rules can light a fire under Wall Street and ignite changed behavior with transparency.
Cross-sector collaboration is key for companies to achieve sustainability goals.
The integration of ESG factors into investment decisions have financial upsides and competitive returns.
Brookings: Emission reduction remains public’s preferred approach to climate change
The National Surveys on Energy and Environment (NSEE) took a survey in early 2022 following reports revealing that gas emissions were significantly higher in 2021 than 2020.
The NSEE survey revealed that of 3 different approaches to climate change:
42% preferred greenhouse gas reductions
13% preferred adapting to a warmer world
20% preferred promoting geoengineering and related efforts
10% of respondents noted that all three were equally important
This NSEE survey also revealed that Americans (69%-to-27%) agree that if we don’t act now climate change is going to cost a lot more.
Harvard Law: How to Identify Top ESG Priorities
This article is the first in a three-part series that offers guidance for corporate boards on how they can: 1) effectively identify and oversee top ESG issues, 2) focus and clarify efforts around establishing a select set of critical performance goals for material ESG issues, and 3) consider whether and how to integrate ESG metrics into incentive compensation programs.
A first step for responsible board oversight is to determine whether a company's current processes are equipped to systematically identify and evaluate ESG risks.
Company processes should also be evaluated to determine if they include a diverse range of perspectives, to allow the company to consider risks that may not already be considered salient risk.
Third-party consultants are often contracted to perform a complete review of an organization's ESG risks, as well as reach out to top shareholders and other stakeholders for their input.
Boards should encourage management to explore the upside potential of ESG trends through strategic offsites/meetings focused on defining and aligning the company’s strategic plan.
As the Ceres Roadmap 2030 notes, leading companies will recognize that the integration of sustainability into governance systems enables opportunity for improved performance, risk mitigation, cost reduction, increased revenue, and competitive differentiation.
USA Today: There's a 50-50 chance Earth will reach critical climate change mark within 5 years, report says
According to the World Meteorological Organization Secretary, “we are getting measurably closer to temporarily reaching the lower target of the Paris Agreement on Climate Change.”
There is a ~48% chance that the world will be able to achieve the 1.5 deg Celsius above pre-industrial numbers in 2026.
"For as long as we continue to emit greenhouse gases, temperatures will continue to rise."- Petteri Taalas.
The United Kingdom’s Meteorological Office notes that there is a 93% chance that we will set a record for the hottest year by the end of 2026 and a 93% chance that the five years from 2022 to 2026 will be the hottest on record.
Carbon capture solutions provider carbon clean announced Wednesday it has raised 150 million in a series C funding round discounts heavy industry decarbonization solutions.
Carbon Clean, founded in 2009, offer solutions for a hard-to-abate industries such as cement, steel, refinery, and energy from waste. The company has developed a fully modular technology, CycloneCC, which has a footprint 10 times smaller than conventional carbon capture.
Carbon Clean Chair and CEO, Aniruddha Sharma, said, “Making carbon capture technology accessible for hard-to-abate sectors is a huge opportunity. We will use this new funding to scale production of our breakthrough fully modular technology which will overcome the biggest challenges facing widespread adoption of CCUS - cost and scale.”
Scottish Legal: Fiona McKerrell: How ESG Credentials Are Gaining Relevance In Business Restructuring
ESG considerations may not be the predominant focus when restructuring a business, but they still have an important role to play in the restructuring strategy. Here are some of the key areas of east focus in corporate restructurings.
Stakeholder support
Access to funding
Value enhancement
Timelines and decision making
Understanding supply chains
Risk mitigation (includes litigation risk and risk to directors personally)
Money Marketing: ESG terminology at odds with sustainable investing
According to Nextwealth, “Investment providers use it (ESG) to describe an objective measure of risk, but advisers regard it as a label for sustainable investing. Using it for both is creating confusion.”
Nextwealth compiled a report that found that adviser confidence is low relating to sustainable investing.
Half of the 200 financial advisers surveyed for the report said they are very confident or confident in the steps of the advice process relating to sustainable investing.
The research also found that the environment dominates client concerns when it comes to sustainable investing.
Diversity, Equity, and Inclusion
MIT Sloan: How Organizations Can Balance Authenticity With Propriety
In recent years, there have been increasing concerns from HR teams and executives about employees being inappropriate or even rude in the name of ‘authenticity.’ There is a tricky balance between encouraging people to speak up and share their perspectives, building an inclusive organization that does not require individuals to conform to a certain personality type, while being careful to not encourage incivility and disrespect with authenticity as the justification.
This type of behavior can negatively impact company culture, and leaders are often left feeling helpless. Ways to combat this include:
Defining authenticity clearly
Providing training with real-life scenarios
Making psychological safety everyone’s responsibility.
Moonshot: 45% of new board members in Fortune 500 are women
The percentages of women board members in Fortune 500 companies have increased from 19% in 2015% to 29% in 2021. Last year, 45% of board members appointed were women. Additionally, 43% of all appointees in 2021 were first-time directors. There was mixed progress on racial and ethnic diversity.
In the last year, there was also an increase in the number of seats designated specifically for directors with sustainability and cybersecurity experience.
Going forward, boards will need to think more strategically and holistically to boost their resilience and prepare for future challenges.
Mumbrella: Why inclusive leadership is crucial in achieving our industry’s DE&I goals
An inclusive leader “actively works to engage every member of the business, recognizing that different management styles and structures are required to bring out the best performance in everyone.” Crucially, this must be underpinned by trust.
It is important to recognize that sometimes, diversity and inclusion can be polarizing and end up highlighting divisions if not managed effectively. The key is to create an inclusive process that does not marginalize any group or individual and that allows success to be determined by merit.
One key role for a leader is to focus on listening and elevating voices that may be on the margins of groups within the business and assessing the processes that are already in place. The elevation of diversity and inclusion in the media industry shows that the industry is accelerating in the right direction, but that there is still much work to do.
MSNBC: A note to employers: Black talent can tell if 'diversity' is just a buzzword
The Founder and CEO of Blavity, Morgan DeBaun compiled 4 top tips for hiring and retaining Black talent:
Know that Black talent can tell if diversity is just a buzzword.
People want a workplace that prioritizes good values, from mental well-being to inclusivity, and that is not a Black thing.
Show experienced Black talent that they can be comfortable bringing their whole selves to work.
It is tough to explain to someone who has not lived it, but you cannot just be when you are the only Black person in the room.
Give creatives, especially those earlier in their careers, the room to be creative.
The key is to set up guardrails like budget and goals and let them lead creatively.
Set clear metrics of success and celebrate publicly when your people achieve them.
Black talent wants to understand the goals to achieve success, and more importantly, they want to know you care about their whole career path and want to see them grow at your company.
Forbes: The CFO’s Role in Driving Diversity, Equity & Inclusion
Last Friday was international management accounting day which honors the vital role played by management accountants in business. This year, there are two macro trends with widespread implications for the profession: Talent crisis in accounting and finance and implementation of diversity, equity, and inclusion strategies as a way to combat the talent crisis.
40% of organizations are without a formal budget for DE&I. CFOs have a significant role to play in advocating for investment in DE&I and making their business case for it to senior leadership.
Here are three recommendations that finance leaders can take:
Advocate for formal DE&I have programs with dedicated budgets
Make the connection between DE&I and stakeholder value
Recognize how DE&I aids in retention and attraction of diverse job candidates
ESG Disclosures, Standards, Rankings, and Reporting
CFO Dive: With SEC’s proposed climate rules, CFOs should listen to investors
Business leaders are currently expressing concerns that the newly proposed SEC disclosure regulations will add to their preexisting burden of regulatory compliance. However, this ignores the business opportunity that can result from implementing the ESG data management capabilities that can help lay a foundation for a more “sustainable, efficient, and resilient enterprise.”
To capitalize on this opportunity, companies must listen to investor demands for ESG performance data and identify and address the gaps between what investors demand and what the companies are already doing and reporting.
WSJ: S&P Hits U.S. States With Politicized Credit Scores
In March of this year, S&P Global Ratings began applying an ESG rating system to the credit ratings of state and local governments. Many state officials have already written letters objecting to this new rating system and calling on S&P to withdraw the ESG indicators.
Critics note that some of the categories S&P analyzes are ambiguous and open-ended, including scores on “managing carbon” and “adverse publicity that results from reputation risk.” Critics also argue that the intent to ‘starve’ fossil fuels ignores the economic, national security, and even environmental benefits that can result from continuing to produce and export traditional energy.
At the most basic level, S&P assigns lower scores to states with both higher physical and transition risks. This adversely impacts states in regions with more natural disasters, as well as those with finances concentrated in any one industry.
Critics of the new rating system note that solving issues like climate change requires innovation, instituting of rigid ESG factors in the market and “mandating conformity.”
Reuters: Britain to decide this year whether to regulate ESG raters
British government officials recognize greenwashing as a serious problem that needs to be addressed, likely with regulations on ESG ratings. Britain’s finance ministry will be working with the Financial Conduct Authority (FCA) and raters to understand ESG-related issues and possible regulations. The regulations would be focused on “ensuring proper practice, like declarations of conflicts of interest, for example...it's much more about transparency.”
The FCA previously stated that raters need tighter oversight. As investors demand more ESG-related data from companies, IOSCO, a global securities regulatory body, said last year that national watchdogs should consider regulating ESG raters.
In April, Britain became the first major economy to require climate-related company disclosures for over 1,300 companies as aligned with the Taskforce on Climate-related Financial Disclosures (TCFD). The new International Sustainability Standards Board is building on the TCFD and drafting what will likely be the world's first baseline sustainability disclosure standards for companies.
VentureBeat: Will your existing data infrastructure support ESG reporting?
Data is the most important factor to meet ESG standards, which must be organized and used properly to be effective. There are four ingredients to create a data infrastructure for ESG reporting:
Data integration for a complete view of all data
Data governance and quality
Location intelligence
Data enrichment.
GreenBiz: The secret life of ESG ratings
ESG ratings assess whether a company’s commitments, performance, business models, and structures align with its sustainability goals. Investors, customers, job seekers, and many others look to ESG ratings to gauge a company for various reasons. There are several rating agencies that score companies, but they all generally evaluate numerous companies on a wide range of ESG topics and then each company a letter grade or numerical score as the rating. These ratings are published on a number of platforms or websites listing or comparing companies.
Regulators across the globe have been scrutinizing the complex ratings process as there are many issues such as “lack of transparency around methodologies, around data sources, potential conflicts of interest...and the lack of confidence of investors in the functioning of this market.”
Many are still confused about the true meaning of the ratings. There is a common misunderstanding as people think a company’s ESG rating indicates whether a company is positively acting on today’s social and environmental challenges. The author emphasizes, “ESG ratings do not necessarily measure whether a highly rated company is an actual leader in reducing its impacts on people and the planet, or whether it is working to build a more just and sustainable world.” In fact, the ratings reflect risk or as Sustainalytics describes it, “a company’s exposure to industry-specific material ESG risks and how well a company is managing those risks.”
GreenBiz: How ESG ratings are built
Rating a company on its ESG performance and policies is a complicated and daunting task. The scores and data need to be assessed comparably and transparently against a consistent methodology with adjustments made for each sector to reflect the nature of a company’s business. Some large companies may be in multiple businesses and may need to assess them from multiple angles. Transparency also does not always equate to clarity as some ratings or public disclosures are not comprehendible.
The five most used rating agencies are ISS, Moody’s, MSCI, S&P Global, and Sustainalytics. The three major aspects of the rating process are:
Materiality: Determining which indicators are relevant for a given company and sector
Data harvesting: Gathering information about the company from various sources
Scoring: Weighting and evaluating the data to create a rating
Some oppose the ratings system because they think it is too focused on points and policies rather than performance. The ratings process has been described as a “black box” as “the whole process seems shrouded in mystery to many, they said, despite the raters’ uniformly touting their transparency. They do not seem to understand how raters get to their particular ratings but also on what it will take for a company to rate better next time.”
Another challenge is the inconsistency as sometimes a company’s rating may differ across the ratings firms.
Troutman: Recent SEC Complaint Signals Increased Enforcement Risk for Companies on ESG Disclosures
The SEC filed a complaint against Vale SA, indicating an increased risk of enforcement actions against companies suspected of misrepresented and omitted ESG disclosures.
According to Troutman, “The complaint alleges Vale misled investors by intentionally concealing risks that the tailings dam — used to store waste from the Vale’s iron ore mining operations — would collapse.”
The SEC’s complaint directly links Vale’s disclosure of environmental risks posed by the dam and its investors’ decision to purchase Vale’s U.S.-traded American Depository Receipts (ADRs).
When creating ESG disclosures companies should scrutinize and vet ESG disclosures the same as any other communications made to investors.
ESG Today: ISS ESG Launches Sustainable Investment Product Disclosure Solution
Institutional shareholder services (ISS) responsible investment arm, ISS ESG announced Monday the launch of its new Regulatory Sustainable Investment Solution, aimed at enabling investment managers and other financial market participants to meet emerging regulatory disclosure requirements for sustainable investment products, such as the EU's SFDR.
The new solution will help users meet SFDR reporting obligations for Article 8 and 9 labeled products and will also cover emerging requirements from other jurisdictions. It also enables users to carry out company level analysis, screen relevant sectors, and determine companies' involvement in controversies, with assessments tailored to users selected sustainable finance themes and disclosure needs.
Forbes: The CFO’s Role in Driving Diversity, Equity & Inclusion
Last Friday was international management accounting day which honors the vital role played by management accountants in business. This year, there are two macro trends with widespread implications for the profession: Talent crisis in accounting and finance and implementation of diversity, equity, and inclusion strategies as a way to combat the talent crisis.
40% of organizations are without a formal budget for DE&I. CFOs have a significant role to play in advocating for investment in DE&I and making their business case for it to senior leadership.
Here are three recommendations that finance leaders can take:
Advocate for formal DE&I have programs with dedicated budgets
Make the connection between DE&I and stakeholder value
Recognize how DE&I aids in retention and attraction of diverse job candidates
National Law Review: SEC Issues Proposal for Enhanced and Standardized Climate Related Disclosure
On March 21st, 2022, the SEC issued proposed rule and form changes that, if adopted, would require registrants to include certain climate related disclosure and registration statements and periodic reports.
Among other things, the SEC's proposal would require disclosure of the following information:
A registrant oversight and governance of climate related risks and related risk management processes
The climate related risks that have had or may have a material impact on a registrant business and financial statements over the short-, medium-, or long-term, including both physical risks and transitional risks
How climate related risks have affected or may affect a registrant strategy, business model, and outlook
The impact of climate related events and transition activities on specific line items of a registrant financial statements in on estimates and assumptions used to prepare the financial statements
Registrants direct and indirect greenhouse gas emissions including Scope 1, Scope 2, and Scope 3 emissions
Registrants’ climate related targets or goals
ESG Today: New Emissions Disclosure Standard for Private Equity Released
Climate-focused private equity consortium initiative Climate International released a new report introducing a standard for accounting and reporting greenhouse gas (GHG) emissions for the private equity sector.
The report recommends an approach to collecting, calculating, and reporting of carbon footprint data that can be directly applied to GPs' operations and investment activities. They do this by applying the principles of emissions accounting standards provider the GHG Protocol and financial institution-focused emissions measurement and reporting organization is the Partnership for Carbon Accounting Financials (PCAF)`s Global GHG Accounting and Reporting Standard.
Key topics covered by the report include calculation of Scope 1, 2 and 3 GHG emissions for GPs and for each portfolio company, including identifying emissions sources, data collection for the various emissions scopes, assessing relevance and materiality of value chain emissions, and calculation methodologies; accounting, attributing, and calculating financed emissions, and reporting and metrics for disclosing emissions data publicly and to stakeholders.
Investment Trends
ESG Today: BNP Paribas AM Launches Fund Targeting Sustainable Urbanization Opportunities in Asia
BNP Paribas has launched the BNP Paribas Sustainable Asian Cities Bond fund, which aims to provide investors with multi-decade growth opportunities from sustainable urbanization in Asia.
The fund provides exposure to both thematic and regional strategies, and it will invest in sustainable-labeled bonds that finance aspects of sustainable cities, as well as in bonds from issuers contributing to aspects of sustainable cities.
ESG Today: Goldman Sachs, Citi, Fidelity Among New Firms Joining Sustainable Trading Initiative
The following eleven companies became new members of Sustainable Trading: Capital Group, Cboe Europe, Citi, Cowen, Fidelity International, Fidelity Management & Research Company, Goldman Sachs Asset Management, Goodbody, Northern Trust, Verne Global and Wellington Management.
Sustainable Trading is an ESG-focused financial markets industry network that was founded in February 2022. The network now consists of 40 organizations that participate in working groups, which discuss various ESG topics and challenges.
ESG Today: BlackRock to Back Fewer Climate Proposals This Year As Quality Of Resolutions Declines
Black Rock expects to support fewer climate related shareholder proposals during the upcoming 2022 proxy voting season compared to last year, as the firm says that many proposals have become overly prescriptive or constraining, and do not align with long term value creation goals. In the 2021 proxy season, BlackRock stated that it supported 47% of environmental and social shareholder proposals.
BlackRock Investment Stewardship (BIS) wrote “the nature of certain shareholder proposals coming to vote in 2022 means we are likely to support proportionately fewer this proxy season than in 2021, as we do not consider them to be consistent with our client's long term financial interests.”
ESG Today: Blackrock Raises Over $800 Million For Impact Fund Investing in US Communities of Color
BlackRock announced Wednesday it has raised over $800 million for the Black Ro Impact Opportunities Fund, which invests in businesses and project owned, led by, or serving people of color, with a focus on Black, Latinx, and Native American communities in the U.S. The fund seeks to invest in undercapitalized businesses in communities.
BlackRock said that the fund has attracted a broad investor base encompassing corporations, pension funds, insurers, endowments, foundations, and family offices.
Harvard Law: Assessing ESG-Labeled Bonds
Today's fixed income market presents unique opportunities for responsible investing in the form of environmental, social, and governance labeled bonds. Investors are drawn to ESG labeled bonds because they can deliver a measurable and meaningful social or environmental impact.
There is a need for globally accepted standards for what constitutes an ESG-labeled bond. It is imperative that investors have candid conversations with issuers, bankers, and other stakeholders to raise the hard questions that will ensure a bond is well structured and likely to accomplish its stated goals.
Companies and Industries
PR Newswire: Cobalt the most at risk material of 2022
The Critical Materials Risk Index 2022 puts cobalt as the most at-risk critical material in the world due to its supply risk (since it is extracted mostly as a by-product), its concentrated production in the DRC and China, and its consolidation in just a handful of producers. However, cobalt has a high economic importance score due to its role in lithium-ion batteries and other applications.
Other at-risk critical materials noted are heavy rare earth elements, niobium, magnesium, aluminum, graphite, chromium, light rare earth elements, and more.
Bloomberg Law: Nuclear Power’s Climate Credentials, Footprint Spark ESG Debate
Nuclear power is an emissions-free energy source, but this conflicts with concerns about safety and waste. The industry is at a crucial point as investors need to decide whether nuclear power will be considered a durable climate solution or a short-term technology that will be phased out in favor of other renewables.
Nuclear skeptics argue that renewable energies like wind and solar can scale up with fewer concerns than nuclear power. They point to uranium mining, waste, and other environmental impacts associated with nuclear power that make it not a “green” energy solution or a responsible investment.
Other experts note that there are inconsistent definitions about what counts as “green,” and no matter how we choose to define it, there will be tradeoffs. Currently, sustainable investment standards and green bond programs all address nuclear in different ways.
In Canada, a nuclear operator earned a “medium green” rating, and this designation helped the operator design its green financing framework.
Finextra: The Future of Regulation: Time for ESG consolidation and cooperation
The International Sustainability Standards Board (ISSB) established at COP26 in Glasgow stirred mixed opinions. Rick Lacaille, the global head of ESG at State Street, thinks the ISSB will create credibility with investors, but mandatory disclosures may slow down ISSB’s development. Others believe the ISSB is a good start to establish consistent, comparable, and effective international disclosure standards and guide investors. They recognize the colossal “magnitude and urgency of improving ESG reporting, disclosure, and more importantly the actions directed,” which require an all-in approach.
The entire financial system should ensure that the private sector can help finance the new energy and other investments needed to replace the current carbon-centric energy and industrial base. It is also important to maintain active client engagement as banks may be able to more effectively educate them, influence their business management, and overall help them build more sustainable business models.
Sam Donoghue, senior consultant in the Climate Transition Practice at P2 Consulting, said, “In that same way that profit/loss is a factor in every decision made by a bank, and regulation has to be adhered to, so should ESG principles. This would involve a bank-wide education initiative, to ensure all parts of the bank are measured and report on a ‘climate change budget’ just like a financial budget, or an adherence to regulatory protocol.” To meet ESG goals, banks should prioritize improving their understanding, comprehension, and ongoing trend analysis in the ESG space.
Financier Worldwide: Boardroom leaders in the know are focused on ESG now more than ever
When boardroom leaders focus on ESG issues they can potentially improve their brand reputation, improve shareholder satisfaction, and recruit and retain top talent.
According to Financier Worldwide, “Boardroom leaders should also look for ways to ensure that the company is taking an intentional, proactive and long-term approach to the development of comprehensive ESG strategies.”
Below are five key actions for boardroom leaders to ensure that ESG is being given the necessary focus and attention required to minimize risk and maximize performance and value:
Prioritize addressing ESG at the board level.
Incorporate ESG considerations into all board discussions.
Set specific ESG goals and implement ways to hold the board accountable for these goals.
Identify, monitor and report regularly on ESG risks.
Consider the benefit of tying executive compensation to ESG performance.
SupplyChainBrain: Sustainability Is the Pathway to Supply Chain Resilience
According to SupplyChainBrain, below are three steps executives can take toward achieving supply chains that are more efficient, resilient, and mindful of ESG criteria.:
Define your appetite for responsible sourcing. A robust sustainable supply chain program requires top-level organizational commitment.
Build partnerships that drive change. Process checks are foundational and should not be seen as the destination.
Shift cost focus to overall price of ownership. Supply chain and procurement executives are often under immense pressure to lower costs.
NY Times: Redefining ‘Sustainable Fashion’
In 2018 the UN Climate Change Body (U.N.F.C.C.C.) Unveiled the Fashion Industry Charter for Climate Action, with its science-based targets for the fashion industry, including reaching net zero carbon emissions by 2050.
There are other organizations such as the Fashion Pact, created in 2019 by Emmanuel Macron and Francois Henri Pinault, and the Fashion Taskforce, chaired by the former YOOX Net-a-Porter Chief Executive Federico Marchetti, which is part of the Sustainable Markets Initiative created by Prince Charles. The group has also issued a “Regenerative Fashion Manifesto” which helps to create a regenerative farm for silk, cotton, and cashmere.
The term “responsible fashion” refers to a world in which all players, from the consumer to the CEO, the manufacturer, and the farmer, take responsibility for their part in the supply chain and the creative process, and for the choices they make.
Real estate and infrastructure investment focused ESG data provider GRESB announced the launch of the GRESB Transition Risk Report and GRESB TCFD Alignment Report, two new products aimed at enabling asset managers to address climate related risk and reporting challenges.
The GRESB Transition Risk Report allows asset managers to analyze which of their portfolio assets are most exposed to climate related transition risks. The GRESB TCFD Alignment Report aims to help asset managers meet the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations. The report enables users to identify TCFD gaps and determines areas for improved disclosure, among other things.
ESG Today: State Street GA Unveils Portfolio Decarbonization Goals
State Street Global Advisors (SSGA), one of the world's largest investment managers, announced a series of new portfolio decarbonization focused interim goals, forming part of the firm's net zero investment commitment.
The new goals include targets for net zero portfolio coverage, engagement, and financed emission reductions. The firm's new engagement goal is to reach 90% of financed emissions aligned with the net zero pathway or subject of engagement and stewardship actions by 2030. SSGA also set a target to reduce financed Scope 1 and Scope 2 emissions intensity by 50% at the portfolio level by 2030.
SSGA President and CEO, Cyrus Taraporevala, said, “We must do our part to hold ourselves accountable for progress. Last April we joined the Net Zero Asset Managers Initiative to ensure a portfolio reach net zero greenhouse gas emissions by 2050 or sooner and set interim targets for 2030.”
Executing a sourcing and procurement strategy that incorporated inclusive sourcing practices helped to drive higher supply chain competitiveness, generate cost savings, unlock innovation, and strengthen brand loyalty.
Implementing supplier diversity early earlier can lead to a higher probability of building a more diverse and inclusive corporate culture.
PE firms implementing supplier diversity efforts that include robust tier two programs could truly have a multiplier effect to make supplier diversity programs pervasive across the corporate landscape.
One of the key objectives of supplier diversity programs is to increase spending with diverse suppliers.
Government Policy
Harvard Law School Forum on Corporate Governance: SEC Examination Division Focuses on ESG Investing
The SEC’s Division of Examinations (Division) released its 2022 examination priorities on March 30, 2022, focusing on five significant areas, including ESG investing. The Division noted, “there is a risk that [ESG-related] disclosures regarding portfolio management practices could involve materially false and misleading statements or omissions, which can result in misinformed investors.” The Division is concerned about non-standardized terminology, variations in ESG considerations when making decisions, and potentially insufficient compliance policies.
The Division plans to pay particular attention to whether funds are:
Accurately disclosing their ESG investing approaches;
Voting client securities in compliance with proxy voting policies and procedures and whether the votes align with their ESG-related disclosures and mandates; and
Overstating or misrepresenting the ESG factors considered or incorporated into portfolio selection.
The SEC has a comprehensive approach to examining ESG investing with the purpose to monitor and ensure firms are not engaged in misleading stakeholders through greenwashing. The authors advise firms to evaluate their business activities and strengthen their ESG compliance policies, procedures, and practices to identify potential risks. They also provide practical, actionable tips.