This spotlight explores key ESG-related market developments and their implications for corporates and investors.
Teneo launched the first publication in our ESG thought leadership series titled ’23 & ESG: The DNA of 2023 U.S. Sustainability Reports. For the 3rd year in a row, we analyzed 250 sustainability reports published this year by S&P 500 companies. As always, our aim is to help companies plan for the 2024 sustainability reporting season.
ESG in the News
The Taskforce for Nature-related Financial Disclosures (TNFD) published its final recommendations for nature-related risk management and disclosure, a key milestone in the relationship between nature, businesses and financial capital that “positions nature risk alongside financial, operational and climate risk.” TNFD also issued guidance to assist market participants begin integrated assessment and corporate reporting related to nature. The groups 14 recommended disclosures build on those of the Task Force on Climate-related Financial Disclosures (TCFD), are consistent with existing and emerging IFRS, ISSB and GRI reporting standards, and aligned with the requirements of the Kunming-Montreal Global Biodiversity Framework. Co-Chair of the TNFD David Craig said, “Nature loss is accelerating, and businesses today are inadequately accounting for nature-related dependencies, impacts, risks and opportunities. Nature-risk is sitting in company cash flows and capital portfolios today. The costs of inaction are mounting quickly.” TNFD has started encouraging voluntary market adoptions of the recommendations, which they will track on an annual status update report beginning in 2024.
- Teneo Takeaway: TNFD’s voluntary disclosures add to an evolving set of global ESG disclosure frameworks aimed at helping companies consider nature risks, and their material impact to businesses’ long-term performance.
The California state legislature and senate passed a landmark climate disclosure law that will require public and private businesses that operate in the state, and make more than $1 billion annually, to report their direct and indirect emissions – known as Scope 3 emissions. California Governor Gavin Newsom indicated that he would sign the bill. The law will impact major corporations from oil and gas companies to retail giants and goes beyond the SEC’s proposed climate disclosure rules by requiring both public and private companies to report Scope 3 emissions. Some major corporations have already voiced support for California’s emissions reporting, with Apple saying that Scope 3 emissions must be included in disclosures to “ensure accuracy and transparency.”
- Teneo Takeaway: This law is likely to face similar legal challenges as the pending SEC’s climate disclosure regulations. But only one of them must survive legal challenge for many U.S. companies to be forced to disclose emissions.
The Council of Institutional Investors (CII) – a nonprofit, nonpartisan association with combined assets under management of ~$4 trillion – joined a growing group of investors calling on the ISSB to prioritize researching human capital disclosures in its upcoming two-year work plan. CII highlighted that human capital is a critical intangible asset that is currently poorly reflected in company financial reports. The group suggested four key areas of disclosures: total number of employees; the breakdown of the numbers of full-time, part-time, and contingent workers; employee turnover rates; and further information about labor costs by requiring disclosure of the total cost of a company’s workforce. CII also encouraged ISSB to strictly pursue projects with significant relevance to investors that can be delivered “in a timely way.”
- Teneo Takeaway: As investors increasingly look for disclosures on intangible assets, such as human capital, companies can prepare for ensuing global standards by evaluating and creating clear, durable and inclusive organizational communications and culture.
The EU Commission announced the launch of a targeted consultation on its sustainable financial disclosure practices, including questions asking for feedback on introducing sustainability-related disclosure requirements for all financial products offered in the EU. The consultation is focused on the Sustainable Finance Disclosure Regulation (SFDR), which provides guidance on how financial market participants must communicate sustainability information to investors. The consultation will be accompanied by a series of workshops and will run until December 15.
- Teneo Takeaway: The launch of the consultation comes five years after the initial SFDR proposal and encourages stakeholders’ input, with the aim of meeting stakeholder needs and expectations.
They Said It: ESG Influencers Speak Out
At Forbes' recent annual Power Women Summit, Girls Who Code Founder Reshma Saujani impressed that affordable childcare is more important for American innovation than the development of AI. "I have felt the most intensity [on this issue] from CEOs. They realize we’re in a tight labor market, they’re starting to feel stability and they know that childcare is the number one thing they hear from employees about what’s causing friction in their ability to show up for work consistently. [...] AI is not as important as childcare is. [Leaders must] prioritize the things that are preventing us from having a fully participating workforce. And childcare is an economic issue, not a social issue."
