How & Why to Share Your Climate Story (Newsletter 7/16)
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Investor Demand Fuels ESG Hiring Spree
The number of ESG roles in the financial services sector has increased over 50% in the past year. Big banks including Citi, Deutsche Bank, Goldman Sachs, and JPMorgan have established teams that focus on sustainable finance, ESG, and climate change. BlackRock continues to hire at a faster pace since it committed to fully integrating ESG across all portfolios, while Deutsche Bank plans to launch an “ESG Centre of Excellence.” As many firms are placing a stronger emphasis on non-financial performance, the need for expertise in ESG-related areas has grown immensely and quickly, especially as asset managers do not want to sit on the sidelines while their peers reap the benefits of the heightened demand for ESG-related products.
UBS Outlines Its ESG Investment Process
Desmond Kuek, Divisional Vice Chairman and Head of the Sustainable Finance Committee described sustainable investment processes at UBS. In the due diligence process, the institution screens over 90,000 funds, looks at ESG ratings and sustainability profiles, and implements a proprietary ESG rating framework. With an emphasis on engagement, UBS investors actively influence companies to be more transparent about a transition to a low-carbon economy. When evaluating companies, they now look for UN SDG alignment and real economy outcomes as they have the capability to track portfolios towards key topics, including climate change, water, pollution, waste, people, products and services, and governance. UBS’ multi-asset, 100% sustainable investment portfolio, which has $20 billion in assets, considers ESG topics, impact investing, and exclusions in addition to traditional investment criteria.
Goldman Sachs Launches ESG All-Cap ETF
This week, Goldman Sachs launched the Goldman Sachs Future Planet Equity ETF (GSFP). The ETF is actively managed and invests in companies that are positioned to address environmental issues across clean energy, resource efficiency, sustainable consumption, the circular economy, and water sustainability. It is not based on an index and will focus on global companies spanning all market caps.
BlackRock Advocates for Scope 1 and 2 Disclosures
In BlackRock’s letter to the SEC, the institution recommends the SEC takes a phased approach to its potential requirements and issues mandatory disclosures that align with TCFD’s recommendations and sector-specific metrics, such as SASB’s metrics. If initial SEC requirements do not align with TCFD and ask for sector-specific metrics, BlackRock urges the SEC to encourage companies to continue providing disclosures aligned with these metrics. Furthermore, the institution suggests the SEC monitors global developments to consider a single global set of standards for sustainability disclosures.
State Street Study Supports Linking Compensation to Diversity
As part of its “10 Actions Against Racism and Inequality”, State Street has conducted a joint study with Russell Reynolds and Ford Foundation in order to gather best practices for promoting ethnic and racial diversity, equity, and inclusion. The study is based on interviews with 27 directors of S&P 500 and FTSE 100 companies and consultation with policy experts and academics. Key insights from the study include:
- Board oversight of racial equity is motivated by “reputation, strategy, financing, regulatory and compliance, and human capital.”
- Directors are searching for appropriate metrics to quantify DE&I progress and to ultimately link this progress to executive compensation.
- Directors are focusing on belonging and inclusion, workforce diversity, engagement with social issues, and succession planning and retention.
- There is not a large emphasis among directors on oversight of a company’s potential impacts on communities of color.
GE Announces Net-Zero Goal
At GE’s AGM, 98% of shareholders lent their support to a resolution asking GE to report on its Paris Agreement alignment and the Board recommended voting for this proposal. Following this impressive showing of support, GE released its 2020 Sustainability Report and announced its goal of becoming a net-zero company by 2050, including its Scope 3 emissions. In addition to this important commitment, GE’s sustainability report features UN SDG-aligned priorities and performance metrics as well as SASB, TCFD, and GRI indices.
Newmont’s Presents a Sustainability Update
Newmont presented a Climate Strategy and Sustainability Update webcast. The event on Newmont’s investor relations website included a link to the presentation used in the webcast alongside a link to the company’s 2020 sustainability reports. The CEO kicked off the call discussing the company’s ESG journey with a timeline dating back to 2001 industry initiatives, providing updates on performance against Newmont’s 2020 sustainability targets, and current targets with metrics bucketed by topic.
- Slide 8 shares Newmont’s internal sustainability structure from the board to corporate and site teams and illustrates the breakdown of its short-term incentive plan tied to ESG performance.
- Slide 13 provides a strong long-term plan on how Newmont will achieve its climate change goals.
- Slide 20 is a great example of ratings and recognition from widely used external rating agencies and organizations.
Ratings & Frameworks
Moody’s Releases ESG Score Predictor for SMEs
Moody’s new tool increases transparency on small- and medium-sized enterprises (SMEs) ESG risk by providing predicted ESG scores for millions of private and public SMEs globally. ESG Score Predictor utilizes a model created from Moody’s large-cap proprietary ESG scoring methodology. It provides institutions with data for portfolio and risk management and enables companies to oversee ESG risk across international supply chains. The tool currently has scores for over 100,000 SMEs.
MSCI Launches Net-Zero Tracker
MSCI’s new Net-Zero Tracker, which will be updated quarterly, shows the collective climate-change progress across 9,300 globally listed public companies, based on the MSCI ACWI Investable Market Index, in accordance with the Paris Agreement. The report will provide progress on temperature alignment and highlight industry leaders and laggards. In the report launched earlier this week, Procter & Gamble and Booking Holdings were called out for their improved emissions reporting in the last 12 months, while PBF Energy was named in the top 10 largest emitters that had not reported greenhouse gas emissions as of May 31, 2021.
Featured Article: No One Gets a Pass on Climate Change: How to Start Sharing Your Story Now
News about climate change is everywhere. Stretching from record-breaking heatwaves to corporate commitments toward lowering carbon footprints and international summits on how countries can address this border-defying megatrend. Therefore, you can bet that your customers are paying close attention. Long-term large investors are keen to look deeper at climate issues, too. They want to understand what companies are doing that could adversely affect their portfolios in the years and decades ahead. As institutions work to manage the risk climate change poses to their portfolios, companies of all sizes will be under increased pressure to disclose emission reduction targets and to mitigate their own climate risk.
The vast majority of the largest companies in the world already have ambitious emissions reduction targets based on years of compiled emissions data. In addition, many are creating robust strategies to integrate climate change into their operations and that of their value chain. And some are actively developing technologies and processes that will shift companies to a carbon-neutral footprint. As companies make strides in their targets and strategies, investor pressure will quickly turn to smaller companies.
BlackRock is one of the most vocal on pressuring portfolio companies of all sizes to understand their climate risks, but they are hardly alone. Virtually every large asset manager and institutional investor, from State Street and Vanguard to JPMorgan and Morgan Stanley, has started engaging with companies that lag on disclosing how they manage these risks.
The US Securities and Exchange Commission (SEC) is stepping up climate change related ESG disclosure requirements, too. A public comment period recently ended with expected decisions in the latter half of 2021. Also, the European Union (EU) is developing strict ESG disclosure requirements, again with climate change risk being a top priority. And other global regulatory bodies in places like the UK and India are paying more attention to corporate climate risk disclosures with each passing day.
No matter your size or industry, you do not get a pass when it comes to climate change. The risks of climate change must be integrated into your business model and sooner rather than later. Or you will face backlash from consumers, the Street, and regulators alike.
For the 5 steps to jump-starting your climate change strategy, click here to continue reading.
- Sustainability Disclosures: What Is Material?
- ESG Bond Sales Sprint to $1 Trillion as Investors Force Change
- Measurable Impact: Asset Managers on the Challenges and Opportunities of ESG Investment
- Oatly accused of overstating revenue and greenwashing by activist short Spruce Point
- AllianzGI Expands Exclusion Policy to Include Coal Restrictions
- Achieving the SDGs: The Role of Corporates to Deliver Measurable Contributions