General ESG News Vox: Why we still don’t yet know how bad climate migration will get
The latest report from the IPCC examines the consequences of rising global temperatures on populations, incorporating more social science than previous installments of the report.
Climate migration is already happening, and since 2008, an average of more than 20 million people are displaced by extreme weather events per year. The future of climate migration is partly a function of how much global temperatures will continue to increase.
The new report analyzes migration forecasts in several regions and finds inconsistent effects around the world, with Africa having the largest scale of potential climate-induced migration. Climate change is also likely to trap people in some regions.
It is also important to note that migration is impacted by the economy, and there are still some gaps in our understanding of the factors that will influence migration. Climate migration has been framed as a potential security threat, which fuels media panic and other issues.
There are also discussions about other strategies for dealing with climate change that don't involve migrating from vulnerable regions, but questions about who should pay for such programs.
The New York Times: What the Ukraine War Means for the Future of Climate Change
Russia is highly dependent on its energy trade, with fossil fuels accounting for almost half of its exports and 28% of its federal budget in 2020. While the U.S. has banned imports of Russian oil and gas, the European Union has not, because it relies on Russia for about one-third of its oil and 40% of its natural gas. Germany is especially dependent on Russian fossil fuels.
The problem is two-fold: burning fossil fuels causes warming and climate change impacts, and Russia sells these resources and uses the money it makes to buy weapons. Ultimately, this is a fossil fuel war.
The war could spur climate action in that it can force regions to reduce their dependency on oil and gas, and the intersection of foreign policy and climate interests has given more momentum to decarbonization movements.
The U.S. is key to this transition in its production of the minerals and metals required for renewable energy technology. Russia also produces these materials, so other regions need to ensure they don't become dependent on Russia for their clean energy production.
Unfortunately, the war could also derail climate action, as fossil fuel executives take advantage of the crisis as an opportunity to fill the current void with more fossil fuels. Some countries may also be rethinking their priorities and diverting resources away from climate action toward defense. Political gridlock in the U.S. is also an obstacle to overcome before the world can move forward.
Supply Management: Procurement must look beyond net zero to avoid ‘graveyard of dinosaurs’
According to former Unilever boss and author Paul Polman, net zero policies are no longer enough, and companies must adopt a “net positive” approach to make a real impact.
Polman compares sustainability commitments to committing to do fewer bad things instead of shifting the mindset to “doing good.” He believes that companies that are positioning themselves on a net positive path will end up doing well, and those who aren’t will be left behind.
Polman argues that companies can profit from solving the world's problems instead of creating the world's problems, and the cost of inaction is higher than the cost of action.
The ‘E’ in ESG receives much attention and is boosted through things like the COP26 Conference and IPCC climate change reports, and companies have the opportunity to build on their environmental commitments by adding things like anti-corruption commitments to help them reach their environmental and social goals.
Challenges still exist in how to measure and rank ESG performance, and there are discrepancies in how ESG is defined and weighted by different organizations.
Adding anti-corruption and integrity measures, in particular, to environmental commitments can help bolster their effectiveness especially in the supply chain and global operations, but there are still some challenges with measuring progress on reducing corruption.
Insurance Journal: Most Middle-Market CFOs Believe ESG Strategy Will Improve Financial Growth
According to a new survey from BDO, about two-thirds of middle-market CFOs believe that implementing an ESG strategy will ultimately benefit financial performance. This is largely due to shifting expectations from stakeholders.
Meeting financial targets will remain a top priority, but the BDO research shows that integrating an ESG strategy is no longer optional. Nearly all CFOs surveyed said their business has at least one stated ESG objective for 2022.
Supply chains are noted as some of the most prominent areas for risk exposure, and there is significant uncertainty surrounding supply chains right now, so some businesses may be hesitant to make major changes until the uncertainty is resolved.
The Washington Post: ESG Principles Need To Apply To Countries First
ESG investors believe they can lower portfolio risk by investing in companies with robust ESG policies. But if ESG is a crucial part of company success then ESG related policies of home governments should be just as important. Governments have more influence over many ESG issues; if they do not care about the environment and its citizens then the policies of companies will not hold strong significance.
Recent events in Russia have made this clear. Its companies were a small but growing piece of the emerging market ESG funds in recent years, but since Russia's stock market has imploded in response to the Russian invasion of Ukraine, it is unclear what will happen in the future.
Institutional investors and CEOs should lead the way in adding health as a metric to establish H+ESG. Employee wellbeing improves stock performance. Healthy buildings with better indoor ventilation boost productivity. Protecting wellbeing is a private-sector responsibility.
Russia’s invasion of Ukraine along with the sanctions applied by the Western allies may result in spillover effects that can potentially impact all U.S. companies.
The most pressing governance impact will likely involve decisions on business relationships with Russia or Russian-based companies as well as humanitarian support for Ukraine and its people. The possible return to a Cold War environment will compel U.S. corporate boards to change their agendas and adapt to global trends and events.
Boards may consider the following new global risks: business in countries with authoritarian governments, supply chain disruptions, financial volatility, humanitarianism, external pressures, workforce culture, individual clientele, and the ultimate outcome of the conflict.
We need to accept and plan events from Covid as endemic and effectively prepare for the increasing cyber risks in digital infrastructure.
An organization can improve its security by establishing a more formal relationship between IT and risk management teams to have a defensive approach against unpredictable threats. Monitoring and data collection can also create visibility to predict and mitigate risks.
Bloomberg Green: Greenwashing is Increasingly Making ESG Moot
Greenwashing has morphed into “ESG-washing.” After Russia began invading Ukraine, Ukraine’s former finance minister, Natalie Jaresko, criticized ESG and companies involved with Russia despite professing commitments to ESG factors. Companies are not “walking the talk of socially responsible corporate behavior.”
NYU professors studied why companies retained high ESG scores despite heavy investing in Russia, a country known for corruption. The study concluded that there is no statistical relationship between companies’ ESG scores and their responses to the Russian invasion.
ESG advocates claim ESG is not about doing good but rather a tool to measure a company’s resilience against financially material ESG-related risks.
HSBC shareholders have withdrawn a resolution calling on the bank to close its fossil fuel policy loopholes after the bank engaged with the investors and updated its climate commitments. The bank has agreed to phase down financing of fossil fuels in line with limiting global temperature rise to 1.5° Celsius and will update the scope of its gas, oil, and thermal coal policies by the end of 2022.
The shareholder coalition sent a letter to HSBC CEO Neil Quinn and the chair of the board Mark Tucker setting out expectations for the bank to act on climate moving forward. Some of the expectations include: update definition of the Arctic in line with Arctic Monitoring and Assessment Program, cease financing for any new oil and gas projects, close loopholes in coal phaseout policy, publish a public set of core red lines and decarbonization expectations for the assessment of the transition plans for major oil and gas producer clients, and more.
The voluntary disclosure paradigm has not delivered the level and speed of change that capital markets could stimulate for a multitude of reasons, including, lack of consistency in reporting standards and structure, in comparability across voluntary reporting frameworks, and a heavy reliance on a narrative description of a firm's commitment to and progress on sustainability. The SEC says it plans to propose rules on mandating disclosures from public firms on climate and associated risks as early as March 21st.
Jene Rogers, SASB founder and now global head of ESG at Blackstone, stated “it is important for investors to remember that in the United States, we have an EPA, and their remit is environmental protection. The SEC remit is investor protection. The two are intertwined when it comes to climate risk.” There is a need from the SEC to have the EPA develop science-based targets and transition pathways by sector to meet a 1.5 degree Celsius scenario, and they need to do this by “evaluating the adequacy and materiality of climate disclosures companies make.”
The list of companies and their current involvement in Russia provided by Fortune provided courageous CEOs with the confidence to execute bold pronouncements. It also reinforced prospectively courageous CEOs with the peer affirmation they sought to help persuade their boards to join the stampede of responsible business leaders pulling out of Russia. The list is broken up into four categories: withdrawing all business, suspending operations, reducing activities, and economic collaboration. These classifications reveal clear patterns across sectors, calling attention to particularly courageous companies but also exposing pretenders.
Diversity, Equity, & Inclusion
The impacts of the climate crisis are not distributed equally; women, particularly women of color, are disproportionately bearing the consequences.
When investing in climate solutions, investors should be paying attention to race, gender, and ethnicity when it comes to who is deploying capital and to whom it is being deployed.
There are already a number of funds in public markets with criteria that focus on movements related to race and gender, and there are organizations cropping up to help allocators and fund managers to improve their ‘diversity lenses’ in their investment process.
Diversity produces better business decisions and outcomes. Over the past few years, the ratio of women in private equity funds in North America, Europe, and Asia has increased, but there is still an underrepresentation of females in leadership on corporate boards.
Gender is only one aspect of diversity. People’s various backgrounds bring together diverse skills, capacities and perspectives against challenges.
Clients are more frequently asking companies to have certain ratios of diversity for projects.
Companies should be thinking about not only diversity but also inclusiveness to respect and accept people’s characters, thoughts, appearances, etc.
ESG Disclosures, Standards, Rankings, and Reporting Institutional Investor: ESG Has Arrived – But Frustration Over Inconsistent Standards Continues to Grow
According to a recent GaiaLens survey, only 23% of investors are satisfied with the ESG index providers and the frameworks they're using. There are concerns about the lack of standardization about ESG disclosure and investing rules. 28% of survey respondents said their problems with current issue reporting frameworks are due to a lack of clarity, transparency, and robust methodologies used by the providers.
Others note that there is an imbalance in the amount of attention paid to environmental elements, and index providers have largely ignored social and governance factors.
The survey also found that asset owners are slower to adopt ESG principles than asset managers, especially when it comes to evaluating their own progress. Slower rates of adoption are also attributed to skepticism about the ability of ESG funds and indexes to generate returns.
In principle, an ESG rating system seems simple, but there are currently dozens of organizations that produce and use ESG ratings in different ways. Some investors and fund managers use ‘screens’ to exclude companies from consideration due to their poor ESG ratings, but there is confusion about what these ratings actually measure.
Unlike credit ratings, ESG ratings can vary wildly between providers, and ratings providers are mostly unregulated, which opens them up to significant litigation risk.
The Task Force on Nature Related Financial Disclosures (TNFD) announced Tuesday the release of its first beta version of its disclosure framework aimed at enabling and guiding organizations to report on evolving nature related risks. Co-chair David Craig stated, “with climate change in nature related impacts and risks increasing, it is essential companies incorporate natural assets into their strategic planning and risk management if they're going to succeed.”
The draft frameworks key components are comprised of foundational guidance encompassing science-based concepts and definitions, disclosure recommendations, and guidance for companies and financial institutions. The framework has also partnered with several leading international sustainability focused standard-setting, corporate reporting, and sustainable finance organizations, and is aligned with the sustainability standards currently under development by the International Sustainability Standards Board (ISSB).
The TNFD aims to release the next beta version of the framework in June, followed by updated versions in October 2022 in February 2023, with the final framework release anticipated in September 2023.
ESG Clarity: First Draft Of TNFD Framework Released
ESG Clarity asked three commentators to outline the key developments in ESG regulation over the past few months and what direction it is headed in this year.
Europe and UK: taxonomies are taking shape for E and S
This report looks at how we can address serious social issues more meaningfully in investments. It covers areas including modern-day slavery, labor rights, diversity, and employee mental health.
US: The SEC's forthcoming climate risk disclosures
The focus of the SEC, consistent with its mandate of protecting the interests of investors, includes monitoring advertised claims on ESG approaches and investing guidelines, and measurement and climate change risk. It is expected the SEC first ESG regulation will focus on climate change and disclosures surrounding climate related risks.
APAC: transitioning ‘factory Asia’ to clean, green, and inclusive growth
The number of new ESG regulations or amendments in the region has doubled since 2016. The regulations can be grouped into three broad categories: enhancing corporate disclosure, labels are minimum criteria for sustainable investments, and taxonomies or classifying the activities that are green or sustainable.
Investment Trends Bloomberg Law: Executive Pay Tied to ESG Goals Grows as Investors Demand Action
As corporate behavior is reviewed more closely, companies are tying executive pay to ESG goals. Companies are calculating proportions of executive pay by factoring in ESG goals although past calculations were tied to financial metrics. Institutional investors view executive pay as a means to handle ESG concerns but goals must first be set.
Chipotle Mexican Grill Inc. tied its executives’ pay to environmental and diversity goals valued up to 15% of annual incentive bonuses. Last year, McDonald’s Corp. announced that it would tie 15% of executives’ bonuses to meeting goals on diversity. Chevron and other oil and gas companies have tied executive compensation to greenhouse gas emission reductions.
The SEC is currently seeking public comment on proposed rules that would require disclosures from companies to investors on how executive compensation compares to financial performance. Some investors desire more transparency from companies on ESG metrics in relation to executive performance. Shareholders demand ESG action beyond disclosures.
Investors increased the pressure on corporate climate lobbying with a new 14-point action plan for companies. The Global Standard on Responsible Climate Lobbying compels companies to engage in responsible climate lobbying, disclose any support given to trade groups lobbying for the companies, and actively respond if the lobbying conflicts with the global climate goals from the Paris Agreement.
Also discussed by Yahoo: Shareholders Escalate Campaign Pressing Companies to ‘Walk their Talk’ on Climate Lobbying
Institutional Investor: With ESG on the Rise, Asset Managers Target the Murky Underbelly of Supply Chains
Firms like AllianceBernstein and BNY Mellon have joined the fight against modern slavery — but like other ESG initiatives, it’s not easy.
Since the U.K. launched the landmark Modern Slavery Act in 2015, global asset managers like Abrdn, BNY Mellon, and Lazard have pledged to remove modern slavery — a term that includes human trafficking, forced labor, debt bondage, and forced and early marriage — from their operations and supply chains.
This requires a certain degree of honesty and dedication from the management side.
“Many developed market consumer companies are dominant in their supply chains, making them well placed to monitor adverse impacts and effect change,” MSCI said in a statement to II.
The nonprofit got over 300 retailers to pledge not to source cotton from Uzbekistan until the systematic forced labor issue is properly addressed.
In Australia and the U.K., modern slavery has become part of the legal vocabulary.
The Global Treasurer: Threat of divestment due to poor supplier relations puts ESG firmly in CFOs office
Institutional investors are leading the push for ESG performance and disclosure by companies due to a causal link between ESG and financial performance. However, some shareholders have warned that companies may be putting too much emphasis on sustainability at the expense of profit. Others argue that the two objectives should not be placed in opposition to each other.
The social aspect of ESG has been somewhat overlooked and is expected to play a bigger role, especially when considering supply chains.
Companies will be held increasingly accountable for their treatment of suppliers as poor treatment comes to light due to new technologies and attention from investors.
Green Biz: Every VC needs an education in ESG
Venture capitalists (VCs) are still working on fully understanding ESG. VCs need to evaluate ESG more closely as public markets shift to value and expect IPO-focused companies to implement sound ESG practices.
VentureESG is a nonprofit consisting of 275 VC funds and limited partners, mostly from Europe. Its mission is to equip venture capitalists with knowledge and resources to help integrate ESG principles into their portfolios and prevent “ESG-washing.”
ESG Clarity: Net Zero: How to Navigate the Transition Risks
Ninety One, an asset management business, has committed to ensuring that portfolios achieve zero emissions by 2050. Managers that have committed to the Net Zero Asset Managers Initiative (NZAMI) are also required to set a 2030 commitment.
The vast majority of companies do not yet have a clear plan on how they're going to get to net zero by 2050. In order to assess transition plans, Ninety One has developed a framework that scores them on three key principles:
Is the target ambitious enough?
Is there a budget for the transition?
Can you monitor progress at least annually?
Net zero offers both a threat and opportunity to high carbon intensity emerging markets. The market has already started to price in transition risks, and it is expected that this will accelerate going forward. It is imperative that emerging markets execute on their decarbonization commitments.
Companies and Industries Forbes: Company ESG Initiatives Will Further Put Airline Business Travel At Risk
Changing commuting patterns by allowing work-from-home structures and reducing airline travel is a major (and easy) way that companies are supporting their internal ESG and emissions reduction goals.
Companies are reducing their travel budgets, and some are even setting goals to reduce business travel emissions by a certain percentage per employee.
In this new anti-flying trend, airlines can help themselves by making their business more sustainable (e.g., using renewable fuels) and setting their own targets towards sustainability. The airline industry has already made a bold goal of agreeing to be net zero by 2050, despite the fact that it can lose business due to the sustainable choices they and others are making.
This new trend is related to the pandemic in that business is learned how much work can be done remotely, and worldwide carbon emissions fell by 7% in the first year of the pandemic, largely because airplane travel dropped more than 90%.
The combination of long-term value creation, stakeholder pressures, and moral duty create a compelling argument for manufacturers to lean into ESG and accelerate their efforts. First, manufacturers need to determine exactly what ESG means in the context of their industry and their business.
The process must then start with a materiality assessment of the E, S, and G factors and the development of a strategy to improve performance and track and communicate progress.
Communication helps build trust and engagement with stakeholders, but what manufacturers say must be aligned with what they do, and their intent must be aligned with stakeholder values.
The most recent IPCC report gave a dismal warning: either dramatically reduce emissions immediately or experience unprecedented threats to ecosystems, economies, and communities. The food system is not just under threat from climate change, the food sector also contributes to a third of greenhouse gas globally.
Benchmark data from Food Emissions 50, an investor initiative engaging 50 of the top carbon emitting food companies in North America on climate action, found that over half of the companies that are moving forward with goals, and claim they will help curb the effect of climate change, have not disclosed or set greenhouse gas reduction targets that cover the full scope of their emissions.
Detailed disclosure is a critical part of climate action plans as incomplete disclosures can lead to opaque commitments. For targets to be credible, companies need to share how they established an emissions baseline and developed emissions reduction targets. Investors will not have confidence in the companies that don't disclose full scope emissions.
The Global Reporting Initiative (GRI) announced Tuesday the launch of a new disclosure standard for the coal sector aimed at guiding companies to communicate their impacts on economy, environment, and people. According to the International Energy Agency, coal fired electricity generation accounts for approximately 30% of global CO2 emissions.
Judy Kuszewski, Chair of the Global Sustainability Standards Board, said “to reach the ambition in the Paris agreement, an urgent transition away from coal must be a part of the solution. From minimizing waste corruption free operations, GRI 12 guides companies to deliver comprehensive incomparable reporting.”
The new standard aims to enable coal companies to report on issues including their response to climate change mitigation demands, including plans to transition away from coal mining, social impacts ranging from human rights to employee and community safety and well-being, and measures to manage environmental and biodiversity impacts. Measuring and reducing emissions from mining operations is one piece, all social issues such as working conditions and labor rights are another, but both are equally important.
Scotiabank announced Tuesday a new series of sustainable finance and climate commitments, including a goal to mobilize $350 billion in capital for climate related finance by 2030.
The goals were announced along with the publication of the banks 2021 ESG report, which includes its inaugural Net-Zero Pathways Report.
Scotiabank has committed to align operational and attributable emissions from their portfolios with pathways to net zero by 2050. Brian Porter, President and CEO, said, “how we choose to bank impacts the world around us, particularly in relation to ESG issues. We remain steadfast in our commitment to drive positive change in communities where we bank in and around the world, which includes addressing climate change and supporting the transition to a low carbon economy.”
The European Central Bank (ECB) announced Monday the publication of its “Supervisory assessment of institutions climate related and environmental risks disclosures,” a new report assessing the progress of European banks on disclosing climate and environmental risks.
According to the report, approximately three quarters of banks failed to disclose how their climate and environmental risks have a material impact on their risk portfolio profile. Nearly 60% of banks do not describe how transition or physical risks could affect their strategy. Additionally, only 15% disclosed scope 3 financed emissions, which typically account for the vast majority of banks climate footprints. Although roughly 70% of banks now provide information about climate and environmental risk governance and board oversight, compared to approximately 50% before.
Frank Elderson, ECB Vice Chair of the Supervisory Board, states, “the consequences of non-compliance with minimum transparency standards are only going to increase for banks, as legal and reputational risks are starting to materialize for banks which fail to step up the quality of their disclosures.”
Government Policy National Law Review: SEC ESG Decision Set for March 21st
On March 21st, 2022, the Securities and Exchange Commission (SEC) will vote on a proposed rule for climate related disclosure statements for all SEC-registered companies. Companies of all types will pay extremely close attention to the results of the SEC ESG decision and vote next week given the scrutiny that companies will face for non-compliance.
The underlying compliance program for minimizing SEC violation or greenwashing allegation risks is critical for all players putting forth ESG related statements. These compliance checks will be ongoing and constant to ensure that with ever evolving corporate practices, a focus interest by the SEC on ESG, and increasing attention by the legal world on greenwashing claims, are all kept in check.
Global Compliance News: United States: Bipartisan Slave-Free Business Certification Act reintroduced in Congress
There is an increasing number of proposed legislation and regulation in the EU and US about companies’ supply chains and forced labor. Companies should consider developing or evaluating their operations, supply chains, and responsible sourcing compliance programs to not only ensure compliance but also avoid potential legal action by shareholders or other stakeholders.
The Slave-Free Business Certification Act of 2022 has been reintroduced to Congress, which would require compliance and disclosure from companies with annual, worldwide gross receipts greater than $500 million to conduct supply chain audits each year. After each audit, companies must submit reports on the findings and preventative policies to the U.S. Department of Labor. If the audit results in any detection of forced labor in the supply chain, the company may face fines and penalties.
The bill has been referred to the Senate Committee on Health, Education, Labor, and Pensions, but there has not yet been any scheduling for a committee hearing or a markup of the bill.
Wall Street Journal: If You Play With Antitrust Fire, You Might Get Burned
Arizona’s Attorney General, Mark Brnovich, initiated an antitrust investigation into investment funds focused on ESG goals, arguing the investment funds are financing a coordinated political agenda.
Although ESG funds are politicized, antitrust enforcement is not a remedy, and antitrust regulation should not be further overstretched to this area.
US Senators sent a bipartisan letter to the Biden administration asking President Biden to invoke the Defense Production Act to accelerate the production of battery materials for power electric vehicles. The senators made this request to address national security threats and boost America’s mineral supply chains to ensure sustainable metal extraction with responsible mining and sourcing.
As the U.S. Department of Labor continues to focus on how ESG factors may impact retirement security under the Employee Retirement Income Security Act (ERISA), retirement investment stakeholders may expect to address significant changes. The DOL recently released an information request on whether to further regulate climate change and retirement savings.
ESG factors must be material economic and retirement-focused investment criteria.
In fall 2021, the DOL proposed a rule called “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” to help ERISA fiduciaries make investment decisions and consider ESG factors without violating ERISA’s fiduciary duties.
In-house, decision-making ERISA fiduciaries, investment consultants, asset managers, and other service providers are all stakeholders that may be affected by DOL’s decisions in this area.
E&E News: Cobalt poses human rights test for Biden on clean energy
Human rights groups are concerned about alleged abuses related to cobalt mining in the Democratic Republic of the Congo (DRC); this region produces about 70% of the world’s cobalt, and about 80% of cobalt processing occurs in China before the metal is incorporated into lithium-ion batteries.
Unfortunately, the U.S. is effectively “stuck” sourcing from the DRC until engineers can figure out how to make cobalt-free batteries, but they are not working particularly hard on this innovation.
There are arguments that while the labor conditions in the DRC are harsh, including low pay, long hours, and unsafe conditions, they do not meet the criteria of forced labor and have therefore not been subject to corrective action or bans.
The Biden administration has recently made statements about prioritizing the need to responsibly source metals for the energy transition, but has not made any indications of specific action like it did when it banned the import of solar panels and related parts from certain Chinese regions due to forced labor concerns.
Human rights advocates are also not pushing strongly for moving away from DRC cobalt production. Experts argue that the DRC needs oversight and funding to “do it right;” the region doesn’t need everyone to “run away.”