ESG News Update: August 14, 2020
General ESG News:
Bloomberg: Long-Term Investors Now Hold Sway Over ESG
Long term investors- those who have perpetually flagged the kind of systemic and workforce issues that now face companies everywhere- are having an outsized influence during this global crisis.
Part of that is the surge in interest in ESG investing. UBS this week said it saw flows to ESG funds and pandemic bonds of more than $71 billion in the second quarter, bringing industry ESG assets under management to $1 trillion for the first time. Citing Morningstar data, the firm found that 56% of sustainable funds outperformed their peers in the second quarter. Sustainable investors will likely keep the wind at their backs as governments push green stimulus, the Swiss bank's analysts said.
In a review of the 2020 proxy season this week, Morgan Stanley analysts found environmental proposals have declined 64% since 2016, as companies have been more inclined to preemptively address shareholder environmental requests rather than risk a proposal. Social proposals, however, have increased steadily over the past four years. Both kinds of proposals saw increasing support,
The events of 2020 have had the unforeseen effect of bringing ESG concerns to the forefront for many companies, especially those in the energy and mining sectors. More banks are scrutinizing investments and loans in greenhouse gas emission-intensive projects, and more energy companies are announcing lower greenhouse gas intensity and emissions targets. But all companies manufacturing, selling and extracting goods and providing services are affected, including tech companies’ approach to their services and products.
Financial Advisor Magazine: The 'S Factor' Comes To The Fore With ESG Investing
Socially conscious actions have always mattered to some extent, but in today’s environment they matter even more, not only to employees, customers and communities but also to shareholders. Yes, investors care primarily about returns, but they increasingly want to see that companies are making business decisions based on what is right versus what is easy or most economical. As such, corporations are being challenged to demonstrate and put into action policies and practices that truly benefit all stakeholders.
Addressing a wider range of often competing stakeholder interests is a challenging task that requires more than words to achieve. It requires corporations to routinely address the complex impacts their decisions and actions have on diverse stakeholder interests. While the interests of employees, communities and shareholders may sometimes compete with each other, addressing those interests isn’t a zero-sum game.
As corporate communications leaders plan for 2021, it is clear that the new normal involves less reliance on earned media and a strengthened ability to reach key stakeholders directly with content demonstrating leadership on social, environmental and governance (ESG) issues.
“Brands that communicated about their COVID-19 response, diversity and inclusion, climate change and other social impact topics experienced record engagement in 2020, and that trend is expected to continue into the new year,” said Dave Armon, CEO of 3BL Media.
The new era of innovation under a stressed global economy, and amid calls to boost corporate diversity, will require startups to focus on advancing environmental sustainability, reorient around social impact and adopt stronger corporate governance. Early-stage ventures that fail to embrace ESG initiatives risk prosperity and even survival.
Startups must be aware of employee and consumer activism and act accordingly. For founders and executives, in particular, that means going beyond merely acknowledging the importance of ESG to defining and articulating what it means for a specific company’s purpose. In practice, startups should begin incorporating ESG actions and messaging into corporate operations, sharing consistent communications from boardroom agendas to social media posts. At the same time, startups should begin acting on social impact and equity, environment and sustainability pledges authentically, backing them up with corporately aligned policies and practices.
ESG Disclosures, Standards and Rankings:
On July 12, 2020, SASB and GRI announced an initiative aimed at creating basic ESG reporting standards and clarifying the methodology used to grade companies’ ESG reporting. The goal for SASB and GRI is to provide both guidelines and examples of how to use their respective standards together to achieve a clearer and stronger ESG report.
This coordinated effort between SASB, a U.S. nonprofit that developed a voluntary reporting framework comprised of industry-specific sustainability accounting standards, and GRI, an international nonprofit that created the first international guidelines for sustainability reporting in 2000, is an important step towards the development of a uniform reporting scheme applicable across U.S. and non-U.S. companies.
Our recent research suggests that environmental (E) and social (S) issues were more industry-specific and tended to show up in financial measures over a longer timeframe than governance (G) issues.
Our results highlight a trade-off for investors in creating an aggregate ESG score: the weighting scheme that achieved the strongest significance in the short term (one-year correlation to key financial variables) showed the worst stock price performance over the long term (cumulative stock price returns over 13 years).
Think Advisor: Bloomberg Launches Its Own ESG Scores
In yet another sign of the growing popularity of sustainable investing, Bloomberg is launching proprietary ESG scores.
The initial offering includes environmental and social, or ES, scores for 252 oil and gas companies, and governance (board composition) scores for more than 4,300 companies in multiple industries. The scores are available to Bloomberg terminal users.
Investor’s Corner, BNP Paribas: Building a new investment paradigm
“It was a whole new world,” says Thibaut Heurtebize, responsible for ESG research in the Quant Research Group. QRG was quickly called in to help the Sustainability Centre develop an ESG scoring model to rate all companies and countries fairly. The model, which must be neutral as regards a company’s size, location or industrial sector, necessarily depends on large amounts of data. He adds, “That’s where quantitative research comes in.”
“We want to devise our own models to clearly link our ESG strategy and our investment ratings for each company or country,” he explains. “This way we can explain to clients why we engage with one company differently from another company, and we can explain to each company, or country, how they can improve their score.”
Before fund managers can consider whether it is appropriate to integrate ESG factors into their investment strategy, it is important to define what ESG factors specifically mean to them and the industries in which they invest.
Many managers fully appreciate that these goals can be complementary and are often synergistic. Just as consumers use their purchasing power to reward companies who embrace ESG practices of the companies that produce the products they buy (from environmentally friendly packaging to gender parity and from sustainable manufacturing practices to assurances against use of child labor), many limited partners are beginning to demand that fund managers use their money in ways that provide a social, as well as financial, return. Further, these demands are echoed by employees who strike to bolster demands for social and environmental change.
July just saw yet another record monthly increase in asset under management of nearly USD4 billion into ESG ETFs in the US, doubling the AUM to nearly USD34 billion in the first seven months this year, according to Purview Investment’s ESG ETF database.
This 100 per cent growth rate in asset gathering makes ESG products among the fastest growing segments, compared to a 5.8 per cent increase for the overall ETF industry.
Visual Capitalist: New Waves: The ESG Megatrend Meets Green Bonds
The accelerating demand for sustainable investments may seem like old news, but green bonds offer a new avenue. Green bonds raise money for climate and environmental projects, and are issued by governments, corporations, and financial institutions.
Multilateral development banks, which include the European Investment Bank and the World Bank, initially brought them to market in 2007, though they had a slow start. However, in 2019, new issues of green bonds topped $258 billion worldwide—jumping 51% in one year.
Sydney Morning Herald: The six-letter acronym making ethical investing mainstream
A six-letter acronym is transforming ethical investing in superannuation from a niche, token strategy into the mainstream.
ESG ETF: environmental, social and governance exchange-traded funds.
The rise of ESG ETFs looks likely to democratise ethical investing and could lead to a landscape where super funds' default options embed ESG filters.
Companies and Industries:
Treasury & Risk: Are U.S. Execs out of Touch on Corporate Social Purpose?
“When we looked at it by country, there was a pretty big disconnect between how directors inside the U.S. felt versus those in every other part of the world,” says Dottie Schindlinger, executive director of the Diligent Institute.
For instance, 63 percent of directors outside the United States strongly agree that we are experiencing a “fundamental change in capitalism, from a primary focus on shareholder return towards a system in which corporations must have a societal purpose and serve all stakeholders.” But only 33 percent of the U.S.-based directors strongly agree with that statement, according to the survey, which was conducted June 16 and involved 406 directors and corporate leaders.
The apparent disconnect is likely rooted, at least in part, in the fact that other regions of the world, including the European Union (EU) and the Asia-Pacific region, have “experienced a bit more evolution of regulation around ESG disclosures,” Schindlinger says. She noted that businesses in those regions might already be creating second versions of their annual reports focused on sustainability practices.
North American companies’ use of environmental, social and governance (ESG) measures in executive compensation programs is set to expand over the next three years, according to a survey by Willis Towers Watson (NASDAQ: WLTW), a leading global advisory, broking and solutions company. The survey also found companies have mostly left their executive incentive pay plans intact, amid the pandemic.
Just over a quarter of survey respondents (27%) currently include ESG metrics in their executive incentive plans either as a separate performance measure, a modifier or both. Another 2% plan to include ESG measures in their plans next year, while an additional 27% are considering adding them over the next three years.