“Internationally only a handful of pension funds have committed to achieving net-zero emissions by 2050 and have developed an approach to achieving that goal.
In July last year, the Governor of New York State Andrew Cuomo passed the Climate Leadership and Community Protection Act which sets out ambitious climate plans including net zero emissions by 2050.
The pension fund for the state’s workers, the $210 billion New York Common Retirement Fund has a long history of addressing climate change in its portfolio and has been ranked by the Asset Owners Discloure Project as third in the world, and number one in the US, in addressing climate change-related investment risks and opportunities. (Sweden’s AP4 and the French sovereign wealth fund, FRR were ranked first and second).
The state comptroller, Thomas DiNapoli who is the sole trustee of the pension fund, has made addressing climate change risks and opportunities a priority for the fund. Following the recommendations of a Decarbonisation Advisory Panel, set up by Cuomo and DiNapoli to advise the fund on a path forward, the fund’s 2019 climate action plan outlines action including identification and assessment, investment and divestment as well as engagement and advocacy.”
““Joker” star Joaquin Phoenix has linked with environmental activist group Extinction Rebellion and non-profit organization Amazon Watch for a short film sounding the alarm around deforestation and global wildfires.
‘Guardians of Life,’ which Variety reveals exclusively above, also stars Rosario Dawson, Matthew Modine, Oona Chaplin, Q’orianka Kilcher and musician Albert Hammond Jr of The Strokes – all of whom play a medical team racing to save an unseen patient dying of heart failure on the operating table.
Describing the two-minute film as a call to action, Phoenix said: ‘I did it to raise awareness about the meat and dairy industry’s effect on climate change. The fact is we are clear cutting and burning rainforests and seeing the negative effects of those actions worldwide.’”
“We are an international group of institutional investors delivering on a bold commitment to transition our investment portfolios to net-zero GHG emissions by 2050. Representing over US$ 4.5 trillion in assets under management, the United Nations-convened Net-Zero Asset Owner Alliance shows united investor action to align portfolios with a 1.5°C scenario, addressing Article 2.1c of the Paris Agreement.
This Alliance was initiated by Allianz, Caisse des Dépôts, La Caisse de dépôt et placement du Québec (CDPQ), Folksam Group, PensionDanmark, and SwissRe. Since then, Alecta, AMF, CalPERS, Nordea Life and Pension, Storebrand, and Zurich have joined as founding members. Aviva, AXA, CNP Assurances, Fonds de Réserve pour les Retraites (FRR), Generali, the Church of England, Munich Re and ERAFP have recently joined the growing group. Convened by UNEP’s Finance Initiative and the Principles for Responsible Investment, the Alliance is supported by WWF and is part of the Mission 2020 campaign, an initiative led by Christiana Figueres, former Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC).”
“There is lots of debate about what constitutes a green financial service or product, and what more generally greenness amounts to. Most parties to that debate have assumed that holding green investments is sufficient to be green.
That is not, unfortunately, sufficient. Simply investing in green doesn’t mean you’ve made the world greener.
At least two conditions need to hold for a green financial service or product to make a difference to the real economy transition to environmental sustainability. We should want these two conditions to hold for every green marketed financial product or service.
First, the activity the financial product or service is encouraging should be green and/or the activity it is discouraging should be brown.
There are various ways we can determine whether something is green or brown and there is a very active debate about how that can be done.
Second, the activity must also make a clear and measurable difference in one or more of the following ways:
A. reduce or increase the cost of capital for green or brown
B. reduce or increase liquidity for green or brown
C. provide or enable risk management of environmental-related physical and transition risks
D. encourage or enable company adoption of sustainable practices
E. support systemic change through spill-over effects”
“From fires to floods, the warming climate is reshaping the globe. In fact, the decade of the 2010s was the hottest ever recorded on Earth. And although activists and scientists have long been sounding the alarm, a new voice joined the chorus recently: investment firm BlackRock. William Brangham talks to BlackRock’s Brian Deese about how climate change is altering American business and finance.”
I will remember 2019 for many things, including the fact that both my parents died during the year; he aged 98, she 97. They saw vast changes during their unusually long lives. He learned to fly on rickety biplanes, then, little more than a decade after fighting in the Battle of Britain, was monitoring the fallout from nuclear bomb tests in the Pacific and later flying jets that would once have been inconceivable. Born into a radio world, they died enmeshed in the internet.
Even so, I believe the next couple of decades will see more change than they saw in nine. Let me explain. My forecast for the 2020s, which I have come to call “the exponential decade”, is that this will be a period where things move at a blistering pace and in directions that take many – perhaps most – of us by surprise.”
This momentum is noteworthy because sustainability-linked debt—which links the borrower’s achievement of predetermined sustainability performance targets to the financing rate—has the potential to scale sustainability beyond the less than 2% of global fixed income issuance that green bonds represent. More broadly, unlike green bonds, which fund projects with environmental and/or climate benefit, sustainability-linked debt is not contractually limited to a green use of proceeds. Sustainability-linked debt allows a range of issuers, including those with a high carbon footprint, to further dedicate themselves to their sustainability strategies. In addition, for companies with particularly sustainable strategies and business models, innovative general corporate purpose financing products that create financial incentives for the company to fulfill its sustainable business model are more scalable way to drive the sustainability of capital markets. Green bonds, first issued in 2007, hit a record $255 billion in issuance in 2019 according to Climate Bonds Initiative. Sustainability-linked debt—pioneered by Philipps in 2017 and already at $113 billion—should have a more rapid growth trajectory.”
“Companies with high ESG scores, on average, experienced lower costs of capital compared to companies with poor ESG scores in both developed and emerging markets during a four-year study period. The cost of equity and debt followed the same relationship.
Companies with lower ESG scores exhibited a stronger relationship to the cost of capital than did those with higher scores. In developed markets, companies with lower ESG scores, upon improving their MSCI ESG Rating, experienced reduced costs of capital.
Corporate management may wish to consider that strong management of financially relevant ESG risks has been aligned with investor interests.”
“There was a time when environmental, social and governance (ESG) issues were the niche concern of a select group of ethical, or socially responsible investors. That time has long gone and it is not hard to see why.
From the wildfires that have engulfed Australia to the Dieselgate scandal that continues to reverberate in the boardroom of VW and concerns about conditions in workplaces ranging from cobalt mines to iPhone factories and textiles producers; ESG issues have become increasingly central to economic performance and it is now widely acknowledged that they can have a material impact on company earnings and therefore investor returns.
At the turn of the century, ESG factors were thought to be so irrelevant to company performance that they were referred to as “non-financial issues” by City analysts. If they were considered at all, they were seen as an ethical issue and it was generally accepted that investors would sacrifice financial returns in order to invest according to their beliefs.”
“With the growing focus on social responsibility globally, many investment management companies are including environmental, social, and governance aspects in their decision-making, aided by emerging technologies such as AI and advanced analytics. Not only might this help build credibility with investors, it could also create opportunities for alpha.”
“Active ownership is exercised by shareholders when they use their ownership position to actively influence company policy and practice. It is becoming increasingly common to be an active owner in the domain of social and environmental sustainability, as is evidenced for example by the constantly growing number of signatories to the Principles for Responsible Investment. Active ownership can take many forms. Shareholders might engage in dialogue with corporate management in order to instigate improvements in corporate conduct; shareholders can file resolutions that are voted on at corporations’ annual general meetings or may choose to divest themselves of their shares in an entire sector; some may even file a lawsuit in an attempt to persuade a company to correct wrongdoing.
This raises questions about which strategies are most effective at achieving sought-after change, and what the factors might be that make the various strategies successful. This report summarises the key academic research from the past ten years on the topic of active ownership on environmental and social issues, and specifically on the efficiency and impact of the different strategies. The results can be used both to guide shareholders and to help form a future research agenda.”
Conscious Capitalism
“The rise of conscious capitalism” a video by Gillian Tett. “The Environment, Social and Governance (ESG) business space is reckoned to be worth more than $32tn. The FT’s Gillian Tett explains how companies have realised they cannot afford to ignore issues like climate change and income inequality.”
“The Alliance for Corporate Transparency project was initiated by Frank Bold and brings together leading civil society organisations and experts with the aim of analysing the corporate disclosure on sustainability issues by the 1000 largest companies operating in the EU and providing evidence-based recommendations for legislative changes.
The project is framed within the EU Non-Financial Reporting Directive, which came into effect in 2018 and requires large companies and financial corporations to disclose information necessary for understanding their impacts on society and environment, as well as sustainability-related financial risks. The Directive requires companies to provide information on their business model, policies and due diligence processes, principal risks, and key performance indicators relating, at a minimum, to environmental matters, employee and social matters, respect for human rights, and anti-corruption and bribery matters.
The project applied leading reporting frameworks and standards to this structure, and designed a research methodology allowing to assess quality of corporate disclosures against the principle requirements of the Directive (for further details about the methodology, please refer to page 25).
Following an initial research wave in 2018 focused on the disclosure of 105 companies from three sectors (ICT, Healthcare and Energy), in 2019 Frank Bold together with the project’s technical partner Sustentia updated the research methodology - based on the 2018 experience and through the integration of new standards such as the European Commission Guidelines for Reporting of Climate-Related Information - and assessed the reports of 1000 companies from main industrial sectors and EU countries.
The main conclusion of this research is that while there is a minority of companies providing comprehensive and reliable sustainability-related information, at large quality and comparability of companies’ sustainability reporting is not sufficient to understand their impacts, risks, or even their plans.”
“While there has been significant progress in the measurement of an organization’s environmental and social performance, metrics to evaluate the impact of products once they come to market lag far behind. In this paper we provide a framework for systematic measurement of product impact in monetary terms and delve into the rationale for the framework’s seven elements. We then apply the whole framework to two competitor companies and elements of the framework across companies in different sectors of the economy to show the feasibility of measuring product impact and the actionability of the framework. Not only does this application demonstrate feasibility, it also indicates the value of impact-weighted financial statement analysis. We see our results as a first step, rather than a definitive answer, towards more systematic measurement of product impact in monetary terms that can then be reflected in financial statements with the purpose of creating impact-weighted financial accounts.
Keywords: social impact, impact measurement, ESG, product, financial statement analysis”
“As chief executives/leaders of global and national membership bodies, framework developers and standard setters, we recognise the relevance and importance of this issue to the accounting and finance profession and the communities they serve. We also recognise that in the true spirit of SDG 17, Partnerships for the Goals, achievement of the SDGs will only be possible through collaboration with other parties. That collaboration is demonstrated by our collective endorsement of the SDGD Recommendations.
We acknowledge that the role business has to play in achieving the SDGs is as critical as the role played by governments, non-governmental organizations and civil society. Globally, the private sector accounts for the vast majority of jobs, capital flows, and an average 60% of gross domestic product (GDP). The private sector needs to respond and engage by connecting business strategies with the SDGs, developing business-led solutions, and enhancing corporate sustainability.”
…
“As such, we welcome the SDGD Recommendations to help reporting organisations:
• develop their SDG Disclosures aligned with the other reporting frameworks that they use;
• enhance the credibility of their SDG Disclosures; and
• embed SDG considerations into their strategic business decisions to make sure we leave a better planet for future generations.”
“As 2020 kicks off a new decade, the climate crisis already has been dominating the headlines — with recent conversations in Davos, Microsoft’s unprecedented carbon-negative commitment, and other activities in the business community. Although a warming planet poses a business risk, there are opportunities for growth in sectors across the globe via innovations in environmental, social and governance (ESG); which promote resilience and mitigation. When we focus on creating a more sustainable future, new businesses and industries arise.
The evolving landscape is prompting investors and consumers alike to demand more transparency and disclosure around corporate sustainability initiatives; looking for significant, long-term impact. Yet, we continue to live in the ‘Wild West’ of ESG — businesses and nonprofits are constructing their own guidelines from various ratings agencies and reporting frameworks. But one thing is for sure; money talks.
Enter the Long-Term Stock Exchange (LTSE). Created by some of the brilliant minds who built the Sustainability Accounting Standards Board (SASB), this first-of-its-kind stock exchange promotes sustainable business and invests in companies focused on long-term value creation, while requiring the listed companies to report on their sustainability.”
“Recent months have seen institutional investors and other stakeholders, notably BlackRock and State Street, stressing the importance of comparable and decision-useful ESG disclosures by their portfolio companies. Such calls follow in the wake of growing interest among investors and other stakeholders in understanding and assessing the performance of companies based on ESG metrics. While the exact system by which companies will report on ESG issues remains to be determined by the market, it is clear that beginning in 2020, and in the years to follow, companies will be disclosing significant amounts of quantifiable information on a basis that will permit comparisons within and across industries. This information will be used by companies, investors, asset managers and other stakeholders in making real-world business decisions, including decisions relating to M&A.
The impact of the growth in ESG disclosures on M&A cannot be underestimated. In the near-term, ESG performance will be incorporated into company valuations and risk assessments, and acquirers and targets will be expected to factor in ESG performance when evaluating the impact of potential transactions. All aspects of M&A will be affected; a few are highlighted below:”
“Tax and ESG” by Deborah L. Paul and T. Eiko Stange. The opening paragraphs:
“Proponents of enhanced environmental, social and governance (“ESG”) disclosure have identified corporate income tax as a relevant metric. While it is premature to predict how ESG standards in this regard will evolve, a key area of focus is tax arbitrage, including profit-shifting among jurisdictions. Boards should be aware of the possibility of detailed country-by-country public disclosure intended to reveal scenarios involving high profits in jurisdictions with little economic activity and low profits in jurisdictions where a company has a significant presence.
Inspired by the Action Plan on Base Erosion and Profit Shifting of the Organisation for Economic Co-operation and Development, the standards put forth by the Global Reporting Initiative (“GRI”) in 2019 (GRI 207: Tax 2019) and the Consultation Draft of the World Economic Forum in 2020 would require (effective January 1, 2021, in the case of the GRI standards) public disclosure, by jurisdiction, of, among other things, third-party sales revenue, number of employees, profit or loss, corporate income tax paid on a cash basis and revenue from intercompany transactions. ESG initiatives also contemplate disclosure of a company’s tax policy or “approach” to tax, as well as governance and risk management processes relating to tax.
Arguments cited in support of greater engagement include that aggressive tax planning can create corporate governance risk, lead to material fines, damage corporate and brand reputation and, alone or in combination with competition among jurisdictions to attract businesses through tax incentives or holidays, deprive governments of funding needed to provide services to communities. Indeed, enhanced corporate income tax disclosure could itself lead to changes in tax laws, perhaps as a result of governments gaining insight into tax practices or public reactions to ESG disclosures. The public reaction to corporate “inversions” cannot be discounted as a factor that led to increasingly strict Internal Revenue Service rules relating to such transactions.”
“Recently, the World Economic Forum (“WEF”) released a Consultation Draft of proposed common standards for corporate disclosure of environmental, social, and governance (“ESG”) factors. The draft proposal highlights the need for a common framework from which to evaluate corporate actions and their impact on ESG factors. While it is unclear precisely which of the proposed standards will ultimately prevail, it is clear that we are poised to enter a new era of corporate governance and disclosure, and that there is an increasingly acute need to better understand how these standards may affect all aspects of corporate regulation, including antitrust.
It is not immediately apparent whether the adoption of these new standards will directly impact antitrust regulation of mergers, acquisitions or joint ventures, but there are some intriguing possibilities. Fundamentally, antitrust analysis is underpinned by the economic assumption that corporations are motivated by profit maximization. This bedrock principle drives the analysis of whether any given transaction will create or change incentives to raise price or reduce output, innovation, or quality in a way that is harmful to consumers.”
“The view that it is not only possible to do well by doing good, but that doing good is critical to doing well in the long run, has come to the fore in the investment community. Environmental, social and governance (ESG) issues are, as State Street says, “a matter of value, not values.” In his much-publicized letter to CEOs, BlackRock founder Larry Fink augured “a profound reassessment of risk and asset values,” noting “climate risk is investment risk.” The statement can be generalized: ESG risk is credit risk. Recognizing this reality, investors have increasingly demanded from companies ESG disclosure alongside traditional financial metrics, with profound implications for corporate credit.
Over time, we expect companies to find their cost of capital more directly tied to their ESG risk, which firms are lining up to help investors evaluate. All of the major credit ratings agencies have signed onto the Principles for Responsible Investment statement that ESG factors can weigh on default probability, and consider such factors in their ratings. Some also offer stand-alone ESG products, as do independent specialist firms. As an indicator of the growing demand for ESG data and analysis, both Moody’s and S&P made strategic acquisitions in the ESG-data space in 2019. Morningstar took a 40 percent stake in Sustainalytics in 2017.”
“The ever-evolving challenges facing corporate boards prompt periodic updates to a snapshot of what is expected from the board of directors of a major public company—not just the legal rules, or the principles published by institutional investors and various corporate and investor associations, but also the aspirational “best practices” that have come to have equivalent influence on board and company behavior. A very significant June decision by the Delaware Supreme Court interpreting the Caremark doctrine that limits director liability for an oversight failure to “utter failure to attempt to assure a reasonable information and reporting system exists” prompts this update. Our memo discussing the decision is available here. The Court said to “satisfy their duty of loyalty,” “directors must make a good faith effort to implement an oversight system and then monitor it” themselves. Without more, the existence of management-level compliance programs is not enough for the directors to avoid Caremark exposure. Today, boards are expected to:
Recognize the heightened focus of investors on “purpose” and “culture” and an expanded notion of stakeholder interests that includes employees, customers, communities, the economy and society as a whole and work with management to develop metrics to enable the corporation to demonstrate their value;
Be aware that ESG and sustainability have become major, mainstream governance topics that encompass a wide range of issues, such as climate change and other environmental risks, systemic financial stability, worker wages, training, retraining, healthcare and retirement, supply chain labor standards and consumer and product safety;”
“We are increasingly asked for advice about directors’ responsibilities in light of the rise in support of stakeholder governance, ESG, and corporate sustainability. These topics are at the top of the corporate governance agenda as a result of recent high-profile developments, including: (1) the Business Roundtable’s adoption of stakeholder purpose, (2) the World Economic Forum’s renewed strong endorsement of ESG and sustainability, (3) BlackRock’s decision to consider sustainability in its investment and voting decisions, (4) the SEC’s growing focus on disclosure of significant risks, and (5) the increase in direct and derivative litigation against directors.
Absent an apparent reason not to, directors may depend and rely on management’s presentation of information and advice regarding ESG, sustainability, and stakeholder-facing issues.
Decisions related to these issues made with due care by unconflicted directors are fully protected by the Business Judgment Rule.”
