Our bi-weekly spotlight explores key ESG-related market developments and their implications for corporates and investors.
ESG in the News
In 2023, U.S. and global regulators are set to build on the busiest year yet in climate and sustainability rulemaking, focusing on standards and clearer market guardrails. The Securities and Exchange Commission plans to implement a long-awaited climate disclosure proposal and has fined several firms over their ESG claims. The European Union has begun to roll out sustainability rules for asset managers and this month aims to release 200 pages of guidance to help market participants use its green taxonomy. The International Sustainability Standards Board will move fast to complete two standards in the next few months centered around climate disclosure and corporate reporting on biodiversity and other topics. Many European nations will likely choose to adopt the ISSB’s standards as regulation, making them binding on companies operating in those areas.
- Teneo Takeaway: The convergence of the “Big 3” ESG disclosures rules – SEC, ISSB and EU – in 2023 will not likely impact company 2023 ESG reports yet. But looking ahead to 2024 reporting and beyond, companies will likely get greater clarity into the ESG disclosure expectations of regulators later this year. And a 4th ESG disclosure regime – the Taskforce for Nature-related Financial Disclosure – is also set to launch this year.
At COP15, a group of institutional investors announced the formation of Nature Action 100, a new global engagement initiative which focuses on mobilizing investors for urgent action on the nature-related risks and dependencies in the companies they own. The group aims to drive corporate action on tackling biodiversity loss and will complement the UN’s Global Biodiversity Framework. As part of the initiative, the Nature Action 100 will identify a list of 100 focus companies for investor engagement and identify corporate actions that “need to be undertaken to protect and restore nature.”
- Teneo Takeaway: Nature Action 100 recognizes the operational, regulatory, litigation, and reputational risks to businesses posed by depleted natural capital and plans to propose potential next steps for companies to reduce their investors’ risk to these issues. So far, none of the large U.S. investors have signed up to this initiative as pushback from the GOP specifically on ESG groups such as this one may quell big investor interest – at least in the short-term.
BlackRock released its Investment Stewardship 2023 Policies Summary, which outlined the firm’s efforts to deliver long-term durable financial returns on behalf of its clients. The report highlights five enduring engagement priorities: board quality and effectiveness; strategy, purpose and financial resilience; incentives aligned with value creation; climate and natural capital; and company impacts on people. The report also included two modified policies focused on ‘nature-related factors’ and ‘sustainability reporting’ – both encourage companies to consider reporting on material sustainability risks and opportunities in their business models, including natural capital. Amid elevated backlash to BlackRock’s ESG policies, the report reiterated the firm’s commitment to the BlackRock Voting Choice program, which now has clients representing 25% of the $1.8T in eligible assets enrolled in the service.
- Teneo Takeaway: The report reiterates BlackRock’s commitment to ESG, stakeholder capitalism, and proxy voting. Despite attacks on the firm’s inclusion of ESG factors in investing and stewardship, the asset manager collectively had positive retail flows in nine of 11 months and ended up with $144B in net new money at the end of November 2022, according to Morningstar data.
While global sales of corporate bonds with ESG targets dropped by 22% in 2022, researchers at Barclays expect a major rebound in 2023. Barclays Head of ESG FICC Research Charlotte Edwards said, “We expect green bond issuance to continue to dominate the market thanks to strong demand and a long list of green projects that need funding as companies put decarbonisation plans into action.” Barclay’s credited the slowdown in ESG bonds to a broader slowdown in corporate bond issues, as companies faced higher borrowing costs due to monetary tightening.
- Teneo Takeaway: Green bonds continue to be used in the market as a tool for companies and banks to help fund the energy transition.
They Said It: ESG Influencers Speak Out
In a report on Nuveen’s investment stewardship published last month, CEO Jose Minaya said, “The fact that we’ve seen growing regulation and political discord on ESG is, to us, a sign of progress … Markets grow when a necessity for greater consistency and clarity becomes evident, and in 2022 we saw new technology and innovative business approaches surface to address emerging realities, as well as systemic social and environmental issues such as financial inclusion and climate change.”
Looking Ahead: Upcoming ESG Events