Our bi-weekly spotlight explores key ESG-related market developments and their implications for corporates and investors.
ESG in the News
Teneo has published a new thought leadership brief, “Communicating Your Company’s ESG Strategy in 2023: Five Tactical Considerations.” The brief discusses the challenges facing U.S. companies over communicating their ESG strategies in the middle of an intense “anti-ESG” political campaign. To help companies navigate this landscape, the brief includes 5 key considerations when communicating strategies within 2023 ESG reports, websites, press releases, social media, proxy statements and annual reports.
The Securities and Exchange Commission is considering easing a controversial climate risk disclosure rule after receiving nearly 15,000 public comments. The SEC’s proposed “Enhancement and Standardization of Climate Related Disclosures for Investors” would bolster disclosure rules and require publicly traded companies to disclose to investors how their operations impact the climate and contribute to carbon emissions. After significant pushback from some investors and companies, the SEC will review the financial reporting aspect of the proposed rule, issued last April, preparing the revised proposal for likely legal attacks from Republicans and some investors. SEC Chairman Gary Gensler said it was customary to “review all that, think through the economics, think through the legal authorities that commenters have raised. It’s quite customary to make adjustments.” Gensler denied that the rule modifications are tied to increased political attacks on ESG investing.
- Teneo Takeaway: While the SEC may decide to ease certain aspects of its proposed rule, the European regulatory regime appears to be maintaining its focus on mandating robust climate disclosure, including the disclosure of Paris-aligned climate plans and scope 3 emissions.
Morgan Stanley announced the launch of an ETF platform with six Calvert ETFs, offering investors access to four indexed ESG strategies and two active ESG strategies across a range of asset classes. Despite increased Republican opposition to ESG, including the launch of a Republican anti-ESG Working Group, the New York-based investment bank has allocated $20 million of seed capital to each of the six Calvert funds. The investments come as net inflows to ESG-labeled ETFs fell from $36 billion in 2021 to $2.9 billion in 2022. John Streur, Calvert’s chairman, said in spite of the political environment, “we’re feeling good” about demand for the new products: “ESG is all we do and we believe we have a better investment strategy than anyone else in the marketplace.”
- Teneo Takeaway: Anthony Rochte, Morgan Stanley global head of ETFs, noted that the decision was made looking five to 10 years down the line and to expect more ESG offerings from the bank soon. Ultimately, if left alone, the markets will continue to determine how much big investors focus on ESG.
Putnam Investments launched Putnam Sustainable Retirement Funds, a target-date series for the retirement savings marketplace. The service invests in actively managed ESG focused ETFs managed by Putnam. President and CEO of Putnam Investments Robert Reynolds said, “Putnam is pleased to continue our commitment to delivering differentiated active management strategies by adding Putnam Sustainable Retirement Funds to our line-up of investment products for plan sponsors and their participants.”
- Teneo Takeaway: Irrespective of the politically-motivated anti-ESG movement, large investors will continue to launch ESG-focused funds as long as they believe that there is a market for them.
CDP, a non-for-profit charity than helps run the global disclosure systems for investors and governments, released a report on organizational climate transition plans. The report found that out of over 18,600 organizations surveyed, 4,100 disclosed that they had already developed a 1.5°C-aligned climate transition plan. 6,250 organizations reported that they plan on developing a climate transition plan within two years. CFP said that overall, there was an increase in value placed on organizations disclosing and developing transition plans, driven by the SEC’s proposed climate disclosure regulation, the release of the European Union Sustainability Reporting Standards, and the publication of the International Sustainability Standards Board’s (ISSB) Exposure Drafts.
- Teneo Takeaway: The move towards bolstered policy regulation has increased the pressure on organizations and financial institutions to improve and outline their low-carbon climate transition plans.
They Said It: ESG Influencers Speak Out
In a NYT piece on ESG and fiduciary obligations, senior fellow at the Sabin Center for Climate Change Law at Columbia Cynthia Hanawalt said, “There is a cognitive dissonance between political narratives and people’s practical obligations … If there is reason to believe that companies are vulnerable to climate risk or the impact of some other E.S.G. factor, fiduciaries are obligated to consider those factors.”
Looking Ahead: Upcoming ESG Events