ISS Offers Free Scores (Newsletter 3/4/22)

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Global Affairs

How Russia’s Attack on Ukraine Impacts ESG Fund Performance

Last week, Russia’s invasion of Ukraine turned the world on high alert. One week in and the duration of the conflict is unknown. Oil prices reached 7-year highs, putting into question how severely stock prices will be affected. Historically, fossil fuels and defense companies tend to perform well during war, which is not a promising sign for ESG fund managers who have outperformed the S&P 500 in recent years. Many ESG funds use exclusionary or negative screening and do not invest in firearms and weaponry or fossil fuels. As global markets react to the war unraveling in Ukraine, ESG funds are likely to take a hit.

Regulatory News

SEC Continuing to Send Climate Risk-related Letters

As the SEC works to propose new climate-related disclosure requirements, it is asking companies about their significant risk related to climate change as well as why they provide greater climate change-related information in CSR reports than regulatory filings. In recent months, Charles Schwab, Cisco, Target, and Under Armour have been among the companies to receive letters about their climate risks, with the specific questions asked varying by company. Under Armour was asked to explain the differences between the level of climate-related disclosures in SEC filings and its CSR Report, which it attributed to the information not rising to the SEC’s materiality rules. On the other hand, Target was asked to outline why its carbon offsets purchases will not significantly affect its business.

UN Drafting Treaty to Tackle Plastics Pollution Throughout the Lifecycle

The UN Environment Assembly this week has agreed to draft a legally binding treaty that would cover the full lifecycle of plastics, despite pushes by big oil to reach a more limited agreement. With the scope agreed upon by nearly 200 countries, the UN Environment Programme will work with a negotiating committee to draft a treaty, with the timeframe for finalization being the end of 2024.

Investor Updates

BlackRock Releases Engagement Priorities

BlackRock outlined its engagement priorities for 2022, and the categories covered include:

  • Board Quality and Effectiveness
  • Strategy, Purpose, and Financial Resilience
  • Incentives Aligned with Value Creation
  • Climate and Natural Capital
  • Company Impacts on People

While the primary categories are the same as last year, there are two differences to note. BlackRock now encourages companies to report Scope 1 and 2 emissions and to align their business models with a below 2˚C temperature change. Previously, it had requested Scope 3 emissions, but has since walked the request back pointing to complexity of the data, regulatory uncertainty, and the companies’ lack of control of the data. The institution also went deeper into “Company Impacts on People” category. BlackRock is looking for more transparency on how a company’s human rights strategy aligns with the overall business model of the company. For more insights on the KPIs BlackRock is tying to each category, continue reading here.

AIG Commits to Net Zero Emissions Across its Underwriting and Investment Portfolios by 2050

AIG has committed to achieving net zero emissions across its global underwriting and investment portfolios by 2050 using science-based targets. Last year, AIG committed to achieving net zero emissions in their operations by 2050. A notable feature of the recent pledge is the prohibition of underwriting and investing in new coal-fired power plants, coal mines, and oil sands. It further prohibits investing in or providing insurance cover for energy exploration in the arctic.

Engine No. 1 Launches Energy Transition Themed ETF

Engine No. 1, the activist investment firm infamous for nominating three directors to ExxonMobil’s Board, has launched a new actively managed green energy ETF (Ticker: NETZ). The ETF is designed to invest in companies that will drive and benefit from the green energy transition. While many of the ETF’s holdings are in electric vehicles and renewable energy companies, a sizable portion of the ETF’s holdings are in oil and gas companies. The firm states that it holds companies in sectors that generate substantial amounts of emissions with the intent to engage with managers and boards to hasten their decarbonization efforts.

Proxy Season Briefing

Norway’s Sovereign Wealth Fund to Vote Against Apple Pay Plan

Norway’s sovereign wealth fund, the largest in the world, will vote against Apple’s executive renumeration plan. The fund holds over 1% of Apple’s shares, making it the eighth largest shareholder. The move comes after proxy advisory firm ISS urged shareholders to vote against the plan, citing the magnitude and transparency of executive incentives.

Company Spotlight

AWS (Finally) Shares Emissions Data with Companies that Use the Cloud

Amazon Web Services announced a new carbon tracking tool for users to estimate their emissions based on the share of green electricity powering the data centers they are using. AWS’s decision to share more data illustrates how companies are paying closer attention to emissions from goods and services they buy. For an AWS customer, data-center emissions fall under Scope 3 emissions. Scope 3 emissions are often the most difficult to calculate, making AWS’ tool essential for measuring a customer’s total carbon footprint.

Ford Splits EV and ICE Business Structures

On Wednesday, Ford said it would restructure its electric vehicle (EV) and internal combustion engine (ICE) units into two separate businesses – the Ford Model e division (EVs) and the Ford Blue division (ICEs). Ford has previously emphasized its focus on investing in EVs moving forward, expecting EVs to account for a third of global sales, producing roughly 2 million vehicles annually, by 2026. Within the announcement, Ford also reaffirmed its commitments to be carbon neutral by 2050, and to use 100% local renewable electricity in all manufacturing operations by 2035.

Source: Ford 

ESG Ratings & Reporting

ISS Issues Free Access to ESG Corporate and Fund Ratings

ISS ESG has launched the ISS ESG Gateway, an online portal that provides access to top-line scores for the Governance QualityScore, SDG Impact Rating, and a company’s ESG Corporate Rating. “Prime” status for ESG Corporate Rating assessed companies will be noted along with the distribution of ESG Corporate Ratings for the company’s industry. Access is free and content will be updated on the 1st of each month. Coverage at launch is 6,100-plus global companies. In addition, the ISS ESG Gateway will provide ratings for approximately 30,000 funds.

More to Know…

CDP finds only one-third of corporate emissions targets are considered credible.

Speaking of CDP, here are the 6 Changes to the 2022 Climate Change Questionnaire you need to know before reporting.

The Supreme Court debated the scope of the E.P.A.’s power to regulate environmental matters that have significant economic or societal implications.

Sweden’s SEB said it would allow some funds to buy shares weapons makers and defense companies, backtracking on an ESG position it took last year.

Macy’s announced its Social Purpose Platform: Mission Every One, sharing the retailer’s sustainability strategy and goals under 3 pillars of people, communities, planet.

News Bites