ESG News Update: August 21, 2020
General ESG News:
Prior to COVID-19, the potential fallout from the upcoming climate crisis was too esoteric for many to grasp. Some organizations saw enacting sustainability best practices within their business as a "nice to have" rather than an essential element of their competitiveness, profitability and their future success.
The economic benefits of sustainability and the circular economy never have been more clear. According to the deVere Group, a leading independent financial advisory, ESG investments have come to be regarded as safe havens for 56 percent of investors. Similarly, research from the U.S. National Bureau of Economic Research (NBER) found that for the period from February through April, during the early stages of the COVID-19 public health emergency in the United States, investors "remain[ed] focused on sustainability during this major crisis suggest[ing] they view sustainability as a necessity rather than a luxury good."
Resilience and environmental, social and governance principles go hand in hand. If we can tackle COVID-19 together, we can take on global pollution, carbon emissions and landfill waste.
Socially responsible investing (SRI) entails screening investments to exclude businesses that conflict with the investor's values. Common SRI exclusions in modern times include fossil fuel producers and firearms manufacturers. SRI is the simplest (and often the least expensive) values-based investing approach.
Environmental, social and corporate governance (ESG) investing focuses on companies making an active effort to either limit their negative societal impact or deliver benefits to society (or both). The Sustainability Accounting Standards Board (SASB) aims to standardize the ways companies report on ESG criteria to better inform investors, including determining which ESG issues companies should prioritize based on sector and industry.
Impact investing is characterized by a direct connection between values-based priorities and the use of investors' capital. These funds not only report on financial performance, but they also try to generate and quantify a positive societal impact — for instance, number of schools built, measures of economic activity in a low-income community, or reduction of carbon footprint by X units.
Corporate Secretary: Board Oversight of ESG – NOW!
When considering board oversight of ESG, it’s worth remembering that while interest in oversight was gaining momentum before the pandemic, the rate of change recently accelerated. As one example, over 1,000 global organizations had declared themselves supporters of the Task Force on Climate-related Financial Disclosures (TCFD) as of February 2020, up from just 101 in June 2017.
When DFIN surveyed public companies in 2019 and again in 2020 across a variety of industries and market capitalizations, one striking finding was that in just one year’s time a dramatically higher number of companies had begun reporting on board oversight of ESG. In fact, when asked whether their boards provided ESG oversight, 73 percent of companies responded “yes” in 2020, relative to only 56 percent that said the same in 2019.
Increased board oversight of ESG issues is aligned with greater attention awarded to ESG issues by corporate management.
ESG Disclosures, Standards and Rankings:
White & Case: ESG Disclosure Trends in SEC Filings
So far in 2020, employee welfare, health and safety and business continuity issues have taken the spotlight in quarterly reports filed with the SEC. For example, in first quarter 10-Q filings, 38 out of 50 top companies by revenue in the Fortune 100 (or 76%) included disclosure on employee health and safety. Nearly all of these disclosures referenced COVID-19 and measures companies were taking to protect and promote employee welfare. Many companies also highlighted their business continuity planning in disclosures in light of potential COVID-related disruptions
Think Advisor: ESG Investing: Not Just for ‘Tree Huggers’ Anymore
The strategy “isn’t a granola proposition anymore.” It can reduce portfolio risk and reap “comparable, if not better returns over the long term,” argues Haleh Moddasser, a managing partner at Stearns Financial Group, in an interview with ThinkAdvisor.
The senior advisor maintains that ESG investing, also called sustainable investing, is clearly appropriate for women, who often have strong feelings about making the world a better place. However, most women ages 55 to 75 don’t even know about ESG, according to a survey of boomer women Moddasser conducted in 2019.
Financial Management: Institutional investors say COVID-19 pushed ESG to forefront
A growing number of investors in Europe say they are taking environmental, social, and governance (ESG) considerations into account in all or part of their portfolios, especially social impacts, as a result of the COVID-19 crisis, citing intentions to positively impact society and the environment, reduce risks, and meet stakeholder needs.
The survey of 96 institutional investors and 33 intermediary distributors in the UK, France, Germany, Italy, the Netherlands, and Nordic countries by BNP Paribas Asset Management found that almost a quarter of respondents (23%) reported a greater focus on ESG criteria in their investment decisions.
It seems that the Department of Labor (DOL) is doubling down on its ESG information request campaign, now looking to the practices behind investments in, and monitoring of, ESG-themed ERISA plan investments by Registered Investment Advisory (RIA) firms.
First reported by Financial Advisor and now independently confirmed by us, the information requests—not enforcement letters as has been reported—appear quite similar in tone and focus to those sent to plan sponsors in May. The letters—dated in late July—contain about a dozen specific, detailed requests for information that goes back a number of years—and indicate—as did the plan sponsor letters—a relatively short deadline for response.
Companies and Industries:
Boston Real Estate Times: ESG Presents Material Risk and Opportunity for Real Estate
Environmental, Social and Governance practices are no longer an emerging trend, but a critical component of real estate investment integrated into investment decision-making, according to a report from The Counselors of Real Estate. COVID-19 has further cemented this paradigm shift as risk management, resiliency, transparency, and social engagement—key components of ESG—take center stage.
According to the report, “2020-2021 Top Ten Issues Affecting Real Estate,” recent market forces and industry initiatives such as the Task Force on Climate-related Financial Disclosures (TCFD) are encouraging property owners to assess and publicly disclose climate risks to investors and other stakeholders.