Our bi-weekly spotlight explores key ESG-related market developments and their implications for corporates and investors.
ESG in the News
The Wall Street Journal reported that U.S. public companies added the most diverse slate of new directors to corporate boards on record. A study by the executive and board recruiting firm Spencer Stuart found an increase in diverse director hires across the S&P 500: 72 percent of new directors come from “historically underrepresented groups,” including 47 percent being underrepresented minorities and 43 percent women. Despite diversity gains for new arrivals, the study found that a little over three-quarters of existing S&P 500 board members were white and 70 percent were men.
- Teneo Takeaway: Changing the demographics of directors in the S&P 500 is a slow process—59 percent of companies added a new independent director this year, which is high relative to historic trends. However, companies are likely to continue to seek out new, diverse candidates going forward.
Nine major companies this week committed to using exclusively zero-emissions ships to transport their cargo by 2040. The announcement marks the most significant commitment yet to decarbonize ocean transport, which accounts for 90 percent of world trade and nearly 3 percent of global greenhouse gas emissions, according to the International Maritime Organization. Facilitated by the nonprofit Aspen Institute and supported by the Clean Air Task Force, the companies include Amazon, IKEA, Brooks Running, Frog Bikes, Inditex, Michelin, Patagonia, Tchibo and Unilever.
- Teneo Takeaway: The coalition’s push for cleaner shipping options that can compete with fossil fuels “as soon as possible” may give shipping companies greater confidence to invest in new technologies, ships, infrastructure, and fuel.
The Task Force on Climate-related Financial Disclosures (TCFD) released their annual 2021 Status Report. The report provides updates on key TCFD-related developments and initiatives supporting the TCFD. Additionally, the report includes key findings from an analysis of disclosures on the financial impact of climate-related risks and opportunities on companies’ businesses and strategies. According to the report, the number of companies disclosing plans in line with TCFD recommendations increased by 9 percent in 2020 – meaning that, for the first time, more than half of the companies reviewed disclosed such plans.
- Teneo Takeaway: The expanded use of third-party reporting frameworks, like the TCFD, is likely to continue due to pressure from institutional investors, who increasingly expect companies to publish data on a range of sustainability issues, and regulatory pressure, as governments recommend or, in some cases, require companies to report according to the TCFD framework. The UK last November became the first country to require TCFD disclosure.
Energy companies are selling fossil fuels bundled with carbon offsets and marketing the products as carbon neutral. The companies, including Royal Dutch Shell, TotalEnergies SE, Lundin Energy, and Occidental Petroleum say combining fossil fuel energy products with carbon offsets will guarantee that a certain amount of carbon emissions will be cut.
- Teneo Takeaway: Over the last several years, several energy companies have invested in carbon transition technologies, like carbon capture and renewables, as part of a “don’t let perfect be the enemy of the good” environmental strategy.
Mars Inc. promised to eliminate its net carbon emission by 2050. Notably, the company indicated its carbon calculations will include the carbon footprint of its whole supply chain, the use of its products and its direct operations. In an interview with FT Moral Money, Mars executive Barry Parkin argued that the company’s move to make the person running its entire global supply chain also its Chief Sustainability Officer “made clear its commitment to serious change.”
- Teneo Takeaway: Environmental due diligence in the supply chain has historically been difficult for companies, especially those that source ingredients or inputs from a wide range of suppliers in the developing world.
The San Francisco-based start-up Allbirds made headlines when the shoemaker announced plans to launch the first “sustainable initial public offering,” but the company recently walked back the claim. In an update to the company’s IPO prospectus, Allbirds removed several key references to the SPO framework. The number of references to “SPO framework” roughly halved, from 65 to 33.
- Teneo Takeaway: Investors, and stakeholders more broadly, are increasingly savvy when it comes to sniffing out greenwashing and environmental claims that seem too good to be true. While Allbirds’ shoes may be more environmentally friendly than peers, failing to live up to the requirements of the SPO framework could have exposed the company to significant reputational risks.
A new Labor Department proposal covering 401(k)s would make funds focused on environmental, social and/or government measures easier to buy, potentially reversing a rule passed under the prior administration. This proposal is backed by many Wall Street firms, which are also rolling out their own such offerings to meet growing consumer demand. According to Ali Khawar, acting assistant secretary in the Labor Department, “ESG factors can be financially material, and when they are, considering them will inevitably lead to better long-term risk-adjusted returns, protecting the retirement savings of America’s workers.”
- Teneo Takeaway: The Labor Department proposal would overturn a Trump administration rule that made it harder for retirement funds to enroll participants in ESG funds, arguing the institutional investors’ roles as fiduciaries were paramount.
Ahead of COP26 in Glasgow, private and public sector leaders are calling for the world to adopt a global carbon price. Ngozi Okonjo-Iweala, who is the director-general of the World Trade Organization, wrote that adopting a global carbon price is essential, as it would help streamline the 60-plus global carbon pricing plans that already exist and provide more consistency across borders to help meet the Paris Agreement targets.
- Teneo Takeaway: Perhaps in anticipation of a widespread regulatory regime for carbon, a number of companies—especially in emissions-intensive industries, like utilities or energy—already incorporate an internal carbon price into their capex planning and deployment.
They Said It: ESG Influnecers Speak Out
Sheikh Hasina, prime minister of Bangladesh, wrote in a recent opinion piece that “we need a global prosperity plan … [because] the inconvenient truth of our times is that while action on climate change has never been more urgent and achievable, governments are not cutting emissions fast enough to keep nations such as mine safe.”
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