This spotlight explores key ESG-related market developments and their implications for corporates and investors.
ESG in the News
The Taskforce on Nature-related Financial Disclosures announced that 320 organizations from over 46 countries will start making nature-related disclosures, with some to begin with their annual corporate reporting in 2024 or 2025. The commitments, announced at the World Economic Forum (WEF) Annual Meeting in Davos, Switzerland, come from major global corporations across geographies and industries, representing ~$4 trillion in market capitalization. In September, the TNFD published its final recommendations for nature-related risk management and disclosure, which are anticipated to be used to help shape the development of future sustainability disclosure standards. David Craig, Co-Chair of the TNFD said the commitments were a “milestone moment … as climate-related sustainability reporting goes mainstream through the new International Sustainability Standards Board (ISSB) standards and regulation in a growing number of countries, this is a clear signal that investors, lenders, insurers and companies are recognizing that their business models and portfolios are highly dependent on both nature and climate and need to be treated as both strategic risks and investment opportunities.”
- Teneo Takeaway: The commitments from organizations managing over $14 trillion AUM underscores an understanding from the corporate and investment community that nature-related risks are material to long-term strategy and investments. Early U.S. companies committing to the TNFD include Bank of America, International Paper and Newmont Mining.
Ahead of New Hampshire’s Republican primary on January 23, state legislators introduced a bill that would classify “knowingly” investing state or taxpayer funds using ESG criteria as a felony offense. The proposal would require executive branch agencies to review their investments and pursue any necessary steps to ensure that no funds or state-controlled investments are invested with firms that invest in funds with “any regard whatsoever based on ESG criteria.” Lawmakers cite the fiduciary obligation of New Hampshire’s retirement fund managers and executive branch agencies, arguing that investment goals should be to “obtain the highest return on investment for New Hampshire’s taxpayers and retirees.” Ultimately, the law limits the capacity of investment managers to make autonomous decisions in the interest of securing returns for their funds. Notably, the New Hampshire Retirement System said the bill’s “proposed investment restrictions could potentially reduce investment returns.”
- Teneo Takeaway: The disconnect over ESG investing largely resides over the question of whether accounting for environmental and social risks is material to investment outcomes. Most investment managers continue to recognize that climate and social risks can potentially have a material impact on long-term returns – something pension funds are ironically keenly focused on.
In a public corporate accountability letter, the Congressional Black Caucus (CBC) urged companies to reaffirm their commitments to DE&I and provide an update on progress-to-date. Recent communication from the CBC has offered additional guidance to Fortune 500 companies regarding the specific data they seek. Responses are due by the end of the month and the CBC has indicated that refusing to respond will be “an indication of the company’s lack of support on the subject and will be shared publicly.”
- Teneo Takeaway: This marks one of the first instances of pro-DE&I groups intensifying pressure on companies to uphold their past commitments and appears in response to the uptick in anti-DE&I activity (e.g., Republican AGs letter to corporates, reverse discrimination lawsuits, and #DemolishDEI trending on Twitter / X). Companies should brace for heightened scrutiny of their DE&I programs and be prepared to justify shifts in their approach to stakeholders on either side.
The European Parliament overwhelmingly voted to adopt a new anti-greenwashing law banning several commercial practices, including the use of unproven generic product claims such as “environmentally friendly,” or “climate neutral.” The new rules aim to make product labelling clear and accountable – with sustainability labels now based on official certification schemes or established by public authorities. The agreement follows a recent study by the European Commission that found more than half of the green claims by companies in the EU were vague or misleading, and 40% were completely unsubstantiated. The legislation now moves to the EU council, which once approved will be published in the EU’s Official Journal, where member states will have two years to integrate the rules into national law.
- Teneo Takeaway: The EU Commission has also proposed a “Directive on Green Claims,” which would introduce a new set of rules requiring companies to substantiate and verify environmental claims and labels.
Separately, the European Commission approved a €2.9 billion French tax credit scheme to boost investment in green industries, including solar panels, batteries, wind turbines and heat pumps, as well as the key components for producing this equipment and critical minerals required for their production. In March 2023, the Commission adopted a Temporary Crisis and Transition Framework to foster support measures in key sectors for the transition to a net-zero economy, in line with Europe’s Green Deal Industrial Plan. The European Green Deal aims to ensure Europe remains at the industrial lead in the net-zero technology sector, like the U.S. Inflation Reduction Act and the Bipartisan Infrastructure Law.
- Teneo Takeaway: The €2.9 billion tax credit highlights the global competition for securing key resources, including critical rare-earth minerals, to meet net-zero commitments and competition to capitalize on new job and industry opportunities from the energy transition.
California Governor Gavin Newsom introduced his 2024-2025 state budget proposal that left out funding for the state’s biggest new climate disclosure laws for companies doing business in the state. California’s Climate Corporate Data Accountability Act (SB 253), which requires large companies to disclose their carbon emissions, and Climate-Related Financial Risk Act (SB 261), which requires companies to report on their climate-related financial risks, needed only ~$9 million to begin implementation. Overall, the budget cut $2.9B in climate change spending, including postponing $600 million in spending for programs to help motorists replace gas vehicles with hybrid and zero-emission ones until 2027-2028. Gov. Newsom said that California’s $38 billion deficit justified holding back funding to implement new laws across the board.
- Teneo Takeaway: Both SB 253 and SB 261 require reporting entities to start disclosing relevant data in 2026. Regardless of whether the California laws will meet their implementation deadlines, businesses should take a comprehensive global assessment of upcoming climate disclosure rules, including the EU’s CSRD.
They Said It: ESG Influencers Speak Out
At the World Economic Forum in Davos, Switzerland, U.S. Special Climate Envoy John Kerry said, “The climate crisis, just air quality alone, we lose about 7 million people a year … 2023 [was] the single most disruptive year in history since we’ve measured climate impacts. Fires, massive rainstorms, greater intensity of storms, the heat which people can’t live in, massive numbers of refugees … there’s only one cause of this crisis, the unmitigated burning of fossil fuel … all of us have to embrace this transition … this is a transition, there will be ups and downs, there will be bumps in the road.”
