ESG Weekly News Update: October 22, 2021
General ESG News
The Washington Post: Finance Can Save the Planet. It Just Needs Better Data.
As the chief allocators of capital, fund managers have been pushed to the forefront of the ESG debate, and they are being increasingly expected to evaluate the non-financial credentials of their investments. This is where robust data becomes key.
As appetite grows for improved data (in response to government pressure and/or commercial demand), the company with the best number-crunching capabilities is poised to make a significant amount of money.
As the value of these metrics increases, so will the resources and personnel dedicated to gathering and evaluating data.
The best way to avoid allegations of greenwashing is to improve the data on which asset allocation decisions are made.
Chief Executive: KPMG CEO Knopp: ‘CEO’ Will Soon Be Synonymous With ‘ESG’
KPMG’s CEO Outlook found that more than 75% of CEOs surveyed are prioritizing the social component of their ESG programs, and 76% are looking to lock in the sustainability and climate change gains they have made over the past 18 months.
Many CEO’s are committed to the ‘E’ in ESG, and many are making significant progress in ‘S’ issues. Additionally, the ‘G’ pillar is always front-of-mind with CEOs. Ultimately, the success of an ESG application will depend on authenticity and how well the strategy is tailored to the organization.
ETF Trends: Not Woke or Greenwashing: ESG is Just Solid Risk Management
ESG is more easily understood and accepted today than ever before. But there are still confusions about ESG that stems from the fact that there are several ways to incorporate ESG factors into the investment process. But, at the heart of all ESG approaches is risk management. Companies must get on board with these practices because they are becoming more interwoven into the investment ecosystem. The companies that don’t adapt will be left behind.
WVTF: With Biden’s climate plan in jeopardy, can America lead on climate change?
NPR’s co-host of All Things Considered, Ari Shapiro, sits down with environmental policy expert Leah Stokes to discuss Congress replacing the Clean Electricity Performance Program as the President and global leaders are gathering in Scotland for the global climate summit. Stokes discusses the importance of the program and how the U.S. must be a leader in climate change mitigation. Historically, the U.S. has been the largest emitter of carbon pollution and is number 2 right now in terms of current carbon pollution. The President must take bold action to implement climate change policies to make up for the pollution cuts that the Clean Electricity Performance Program was going to deliver.
Environment + Energy Leader: How to Operationalize an ESG Strategy for Financial and Environmental Sustainability: New eBook
Environment + Energy Leader has released a new eBook called “From EHS to ESG: How Do I Get There (And Why Should I Care?)” which discusses how sustainability professionals can navigate the shifting ESG landscape.
According to the eBook, EHS teams are being presented with the responsibility of creating comprehensive ESG programs with accurate reporting that will satisfy a variety of stakeholders.
These teams must shift their mindset to consider EHS as just one part of a holistic ESG program.
Implementing a digital ecosystem that connects people, processes and systems across the organization is a great way to begin building a comprehensive ESG program.
Inforney: Jacobs Launches Education Program for Young Climate Change-Makers
Jacobs sets its sights on future climate change-makers with its new Climate Change Education Program, the Butterfly Effect. This seven-year program will work with children under 12-years old for eight weeks each year for seven years to teach them about climate change and the sustainability impact of their choices.
The program will initially be rolled out in the U.K. and cover eight themes aligned with the United Nations Sustainable Development Goals: Water, Plastics, Waste, Carbon, Biodiversity, Food, Human Rights and Lives, and Jobs of the Future.
The Butterfly Effect program will engage parents.
ESG Disclosures, Standards, Rankings, and Reporting
Business Insurance: Beazley to establish Lloyd’s syndicate pegged to ESG metrics
Beazley PLC has received initial approval from Lloyd’s of London to establish a syndicate that will offer additional capacity to businesses that meet ESG rating metrics.
Syndicate 4321 will be led by Will Roscoe, head of the market facilities division.
The syndicate has been set up under the Lloyd’s syndicate-in-a-box framework and will operate as a consortium arrangement led by Beazley Lloyd’s syndicates 623 and 2623.
Law 360: ESG Disclosure Mandate Faces Hurdles Regardless Of Path
H.R. 1187 faces an uphill battle in the U.S. Senate. SEC Chair Gary Gensler suggests that the commission may undertake rule making around ESG disclosures without a congressional mandate.
H.R. 1187 includes 11 titles that address various areas of corporate disclosures.
Title 1, the ESG Disclosure Simplification Act, requires the SEC to engage in rule making to define exact ESG disclosure standards.
Title 4, the Climate Risk Disclosure Act
Directs the SEC to promulgate climate-related risk disclosure rules for industries: finance, insurance and nonrenewable energy. It also requires the SEC to promulgate rules for "any other sector determined appropriate by the Commission."
Specific disclosure requirements: the identification, evaluation and risk management strategies relating to climate change risks; the actions the issuer is taking to mitigate climate-related risks; and a description of how climate risk is incorporated into the issuer's overall risk management strategy.
Mondaq: Environment Social and Governance -- The Importance of Full Disclosure
Publicly traded companies must complete a comprehensive disclosure about their environmental and labor practices to avoid being accused of providing misleading information. Luiz Felipe Amaral Calabró discusses Brazilian legal and international disclosure requirements that companies must abide by in order to avoid being accused of “greenwashing”, “social washing” or “governance-washing”. Evidence of companies manipulating information, or “greenwashing”, has severe legal and reputational consequences. Companies must diligently follow full disclosure practices to avoid disclosure of misleading information.
ESG Today: Sustainalytics ESG Research and Ratings Added to Bloomberg Terminal
Bloomberg is now offering Sustainalytics’ ESG Research and Ratings via the Bloomberg Terminal. Sustainalytics’ Controversies Research reports and data on thousands of companies are also available on the terminal, adding to Bloomberg’s suite of ESG tools for its website users.
ESG Today: UK Launches Sustainability Disclosure Requirements for Businesses and Investors
The UK’s new report, “Greening Finance: A Roadmap to Sustainable Investing,” outlines the country’s strategy for implementing new Sustainability Disclosure Requirements (SDR).
The UK has also made a commitment to mandating economy-wide disclosures in line with TCFD recommendations, directing regulators to embed climate considerations in their actions, completing its inaugural Green Gilt issuance, and more.
The roadmap aims to streamline the country’s existing climate reporting requirements and to extend these requirements further. The roadmap also provides more details on the establishment of a UK Green Taxonomy for defining the criteria for environmentally sustainable economic activities.
Investment Trends
Financial Express: Inflation concerns, rising crude oil prices hint at mounting risk for US stock markets, says Chris Wood
In the U.S., headline CPI inflation rose from 5.3% on-year basis in August to 5.4% on-year in September.
Chris Wood, the global head (equity strategy) at Jefferies, says that, “If the trigger for the anticipated sell-off is to be rising inflation concerns and related Fed tightening concerns, a further major rise in the oil price continues to have the potential to aggravate the current inflation scare dramatically, with the major investment issue being whether energy stocks will continue to lag the commodities as a result of what could be termed the ESG effect.”
The S&P Energy Index has lagged the Brent Crude Oil price since the beginning of 2021.
JD Supra: DOL Proposes Another Round of ESG Investing Rules for Plan Fiduciaries
Summary provided: The U.S. Department of Labor (DOL) released Proposed Regulations for plan fiduciaries on the role Environmental, Social, and Governance (ESG) considerations should play in investment decisions. The Proposed Regulations include: language intended to counteract the negative perception of the use of climate change and other ESG factors in investment decisions caused by the 2020 ESG regulations; clarify that a fiduciary’s duty of prudence may often require an evaluation of the economic effects of climate change and other ESG factors; and provide examples of how ESG concerns may be material to the fiduciary’s risk-return analysis involved in selecting plan investments.
ESG Today: PRI Forecast Tells Investors to Prepare for Major Shift in Global Climate Policy
PRI released a new forecast indicating that an acceleration in climate policy is likely over the next few years due to pressure from investors, businesses, and civil society.
The report also predicts greater policy-driven emissions reductions than what other forecasts have predicted.
PRI aims to publish an investor-focused update next month with tools and datasets for investors to take advantage of opportunities in new sectors.
ESG Today: BlackRock Backs TPI as it Plans Launch of Climate Transition Data Center for Investors
The Transition Pathway Initiative (TPI) has launched the TPI Global Climate Transition Centre, which aims to provide investors with data on the net zero alignment of thousands of global companies. It also aims to support investors aligning their portfolios with net zero targets
BlackRock has announced that it will join TPI as a supporter, and other TPI supporters now include more than 110 funds.
The new center will be based at the London School of Economics and Political Science’s Grantham Research Institute on Climate Change and the Environment.
ESG Today: BlackRock: Emerging ESG Datasets and Insights Open Up New Avenues for Investment Outperformance
BlackRock’s new research paper “Seeking outperformance through sustainable insights” outlines how sustainability data can help investors identify sustainable business practices and models, ultimately leading to investment outperformance.
According to BlackRock, the transition to a net zero emissions economy by 2050 will have major impacts on asset prices and investment returns.
The proliferation of ESG data in recent years has created new opportunities for evaluating companies, but it has also led to challenges in determining the materiality of data points in regard to financial performance.
ESG Today: Arabesque Launches SFDR Reporting Solution for Investors
Arabesque’s new SFDR Data Solution aims to help investors meet the new SFDR disclosure requirements. Data collection and analysis are expected to be some of the major challenges to meeting SFDR requirements.
Arabesque’s new solution uses proprietary raw data and metrics from its S-Ray platform to map the data across the 47 SFDR indicators.
Companies and Industries
WEF: The energy transition needs metals. But it needs social awareness too.
The transition to a low-carbon future will be mineral-intensive and put heightened social and environmental stress on communities and regions where energy transition metals (ETMs) are located.
Mining sector companies must assess and manage their social ESG risks to prepare for additional scrutiny from investors, shareholders, regulators, and societies at large.
In the future, mining companies may have to report on the impact of individual operations as part of more stringent ESG data reporting.
Bloomberg: Shunning Fossil Fuels Too Soon May Prove Catastrophic
Growth in renewable sources of energy fails to even meet the growth in overall global energy demand.
The IEA says that with current policies and timetables in place, investment in oil and gas needs to be hundreds of billions of dollars higher every year just to meet likely demand.
The current surge in natural gas prices is just the start. Higher prices will bring forth some extra investment, but it seems unlikely to be enough. It may come in areas such as coal that are cheaper, but more polluting.
Higher energy prices will hit the poor and the poorest countries the hardest.
Bakersfield: New Moody's ESG Solutions Tool Helps Meet EU Taxonomy Requirements
The EU Taxonomy provides a first-of-its-kind classification system for identifying 100 environmentally sustainable activities, and is a tool to help ensure that Europe can meet its climate commitments under the Paris Agreement.
Moody’s EU Taxonomy Alignment Screening provides users with key components of the regulation: Substantial Contribution, Do No Significant Harm and Minimum Social Safeguards.
Arabesque provides company ESG profiles for Glass Lewis' Proxy Paper research reports, enabling clients to gain the latest ESG data and insights on over 8,000 companies worldwide, and access to climate and regulatory data solutions. Arabesque's capabilities draw on more than four million ESG data points daily from over 30,000 sources for performance metrics on sustainability, including corporate net-zero alignment.
The announcement comes as investor interest in ESG information continues to surge, with approximately one third of all assets under management now integrating sustainability considerations, and a fifth of the world's 2,000 largest public companies pledging to meet net-zero targets ahead of the COP26 UN Climate Change Conference.
JD Supra: ESG: threat or opportunity? How can the insurance sector tackle ESG effectively?
Research from the FTI Consulting Resilience Barometer 2021 shows that most asset management and insurance companies are aware of the threats and opportunities arising from today’s ESG trends.
Many companies are still looking for a clear, holistic and proactive strategy for addressing these risks and opportunities.
Some current approaches to ESG reporting have been reactive or perceived as “greenwashing.”
How can companies strengthen their overall ESG positioning? Here are a few steps:
Proactively embed ESG at all levels of the organization
Make sustainability everyone’s responsibility
Collaborate and engage across the industry
Commit to measurable actions
Work on collecting the data
According to Ernst and Young’s latest report on the mining sector, global mining executives rank environment, social and governance (ESG), decarbonization and license to operate (LTO) as the top three risks facing their business over the next 12 months.
According to the survey, 25% of respondents view environmental and social issues as the number one risk to their business, which has prompted miners to begin integrating ESG factors across corporate strategies, decision-making and stakeholder reporting.
Deloitte Digital has launched Ethos aimed at helping business leaders develop programs around the areas of racial and gender equity, sustainability, climate change, and social welfare.
Ethos’s main capabilities include cultural research, brand purpose strategy, sustainable design, and more.
ESG Today: Ceres Launches Guide for Investors to Assess and Engage on Company Climate Commitments
Ceres has launched its “Investor Guide to Corporate Greenhouse Gas Commitments” to help investors assess companies’ climate goals and initiatives to help accelerate climate action.
As regulatory pressure increases for companies to address their environmental impacts, companies have been accelerating their emissions reductions commitments, though recent research notes that many of these companies are not on track to meet their targets.
The guide includes a background on climate commitments, as well as a series of initiatives investors can take to promote climate action.
Government Policy
Banking Journal: The Evolving Regulatory Landscape of ESG
Biden Administration
Executive Order on Climate-Related Financial Risk signed by President Biden on May 20. It includes:
Securities and Exchange Commission
Feb 2010 Commission Guidance Regarding Disclosure Related to Climate Change
In March the SEC communicated its 2021 examination priorities
April, “the Climate and ESG Task Force will develop initiatives to proactively identify ESG-related misconduct.” Banks might want to refer to a risk alert.
Gensler “asked SEC staff to develop a mandatory climate risk disclosure rule proposal for the commission’s consideration by the end of the year.”
Office of the Comptroller of the Currency
NYSE’s ESG guidance aims at helping companies to tell the ESG story and make further progress on their ESG journey.
Nasdaq’s ESG Reporting Guide 2.0serves as an ESG support resource to companies.
In December 2020, Nasdaq filed proposed rule changes with SEC to adopt listing rules related to board diversity that were approved by SECon August 6. The approved rule changes include: one woman, one LGBTQ + or minority.
Still unknowns
The committee “will further build the Federal Reserve’s capacity to understand the potential implications of climate change for financial institutions, infrastructure, and markets,” the Fed noted in a press release.
White House last week issued a 40-page report titled “A Roadmap to Build a Climate-Resilient Economy.”
Roll Call: ESG advocates urge policy to catch up to science, investors as UN climate talks approach
ESG investing advocates are putting pressure on global leaders to pursue climate mitigation and disclosure policies ahead of the 26th U.N. Climate Conference of the Parties, or COP26.
“One of the enlightened moments in COP26 should be and will be when the investor sector steps up and says, ‘We believe that climate change presents an extraordinary number of risks and an extraordinary number of opportunities that we would like to be addressing, and regulatory certainty is what we seek,’” said Paula DiPerna, special adviser to CDP.
In a letter to Biden and other world leaders, investors wrote, “[O]ur ability to properly allocate the trillions of dollars needed to support the net-zero transition is limited by the ambition gap between current government commitments and the emission reductions needed to limit global average temperature rise to 1.5-degrees Celsius.”
Nasdaq: USDA Releases Climate Change Plans as Federal Government Faces Warming World
The USDA released their climate change preparation plans on October 7th after all federal agencies were issued directions in January by President Biden to prepare plans for climate change that identify climate-related risks to their operations and mitigation strategies for those risks.
The USDA deemed three climate-related risks to be the most critical to their operations: decreased agricultural productivity from changing temperature and weather; threats to water systems that include quantity and quality brought on by changes to the water cycle; and the disproportionate impact that climate change will have on vulnerable communities
USDA mitigation strategies including helping to build resiliency with conservation practices, promoting the “adoption and application of climate-smart adaptation strategies,” which include green technologies, making climate data more readily available to stakeholders, helping to support the research and development of new technologies and practices that are “climate-smart,” and other best practices that will help to educate and disseminate information.
ESG Today: Biden Releases Government-Wide Strategy to Address Financial and Economic Climate Risk
The Biden Administration’s new “Roadmap to Build a Climate-Resistant Economy” highlights the actions being taken by agencies and regulators to develop climate risk disclosure, integrate climate strategies into their activities, improve the resilience of supply chains, and more.
The report also notes the SEC’s ongoing development of mandatory climate-related disclosure guidelines, as well as actions being taken to protect personal savings and investments.
The Administration said that it will include an assessment of the Federal Government’s climate risk exposure and impacts on the long-term budget outlook in next year’s 2023 President’ Budget.
The U.S. Department of Labor (DOL) recently published a proposed regulation -- “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights.”
Similar to the 2020 ESG Rule, the Proposed Rule states that a thorough analysis of an investment requires a fiduciary to consider the projected return of the plan's portfolio relative to the plan's funding objectives. However, the Proposed Rule adds that such an analysis "may often" necessitate consideration of the economic effects of climate change and other ESG factors.
The Proposed Rule is also more permissive in allowing the use of collateral (i.e., non-economic) ESG factors as a "tie-breaker” in investment decisions, and it does not require that the use of collateral factors as a tie-breaker be documented.
Depending on the comments the DOL receives, the final rule could provide even more specific guidance on when it would be appropriate or recommended for plans to invest in ESG-themed funds.