Our bi-weekly spotlight explores key ESG-related market developments and their implications for corporates and investors.
ESG in the News
The SEC will propose rules mandating disclosure from publicly traded companies about climate change and associated risks in a meeting on March 21. The rules will likely require companies to report more standardized information on their greenhouse gas emissions and climate risks. The proposal aims to address SEC Chairman Gary Gensler’s concern that “investors are looking for consistent, comparable, and decision-useful disclosures so they can put their money in companies that fit their needs…companies and investors alike would benefit from clear rules of the road.” If a majority of SEC commissioners vote to advance the proposal, the agency will likely accept comments from the public for at least 60 days before finalizing the rule.
- Teneo Takeaway: Reporting emissions is not new for most companies, but the lack of standardization in reporting has been a source of irritation for investors. Since 2009, high-emissions industries – industrials, utilities, materials, and energy – have been required to report greenhouse gas emissions more than 25K metric tons per year (by facility) to the EPA, and as of last year, more than half of S&P 500 companies self-published emissions data through the CDP or their own sustainability reports.
The Taskforce on Nature-related Financial Disclosures (TNFD) has released the first beta version of a nature-related risk-management and disclosure framework, with 3 further iterations planned before the final release intended for September 2023. TNFD launched in June 2021 and now has 34 members working with the co-chairs to develop the actual TNFD framework. The draft incorporates three components: foundational guidance, including key concepts and definitions; disclosure recommendations aligned to the Task Force on Climate-related Financial Disclosures (TCFD); and a ‘how to’ guidance for nature-related risk and opportunity analysis.
- Teneo Takeaway: The current draft asks companies to disclose risks and opportunities related to biodiversity but does not yet specify exactly what biodiversity-related information should be used to assess companies’ progress. Market participants will be looking for straightforward and location-specific metrics that are both in line with the TCFD and future ISSB standards.
Over 60 companies signed an ad in the Dallas Morning News on March 11 labeling discriminatory a new order from Texas Governor Greg Abbott to investigate medical treatments for transgender adolescents as possible child abuse. Simultaneously, Disney CEO Bob Chapek issued an internal apology for not acting sooner against Florida’s Parental Rights in Education Bill (coined the “Don’t Say Gay” Bill by critics), and announced a pause on political donations in the state until further review. Disney has faced internal and external pressure to speak out on the controversial legislation.
- Teneo Takeaway: Corporate pressure has had mixed success at promoting change in controversial state legislation and there runs a risk that corporations could face significant pressure to relocate business operations or take other action. How companies address these issues can have business, brand, and reputation implications.
The U.S. Equal Employment Opportunity Commission (EEOC) said that it is exploring ways to collect non-binary gender data from employers, consistent with federal law. This is the first time the EEOC has signaled interest in gathering this information from employers; it did release guidance in 2019 on how employers can disclose this data on annual reports, if desired.
- Teneo Takeaway: Although the agency can’t require employers to collect non-binary gender data at this time, companies are once again getting ahead of regulation by including this data in workforce demographic disclosures. Companies that prioritize gender fluidity point to this as a limitation of the EEO-1 report as the gold standard for DE&I disclosure.
The Biden administration marked Equal Pay Day (March 15) by announcing a proposed regulation that would prevent federal agencies from using a job applicant’s prior salary history in the hiring process. President Biden will also sign an executive order that directs the Federal Acquisition Regulatory Council to consider increasing pay equity and transparency for federal contractors.
- Teneo Takeaway: Federal regulations banning the use of prior salary history combats the cycle of potentially discriminatory pay and reflects similar efforts already undertaken by many companies. We continue to see investor interest in detailed pay disparity disclosures, with several shareholder proposals in recent years requesting reports on median global gender and racial pay gaps.
In a letter to Texas officials, BlackRock stated its support for the fossil fuel industry saying, “we will continue to invest in and support fossil fuel companies, including Texas fossil fuel companies.” The statement follows passage of legislation in Texas that could prevent financial companies from holding stakes in state pension funds if they boycott fossil fuels. Texas Lt. Governor Dan Patrick has called on state regulators to put BlackRock first on the list, citing the company’s statements in support of “net zero” targets. BlackRock wrote that “we have not and will not boycott energy companies,” and cited its holdings in Texas-based companies like Exxon Mobil and ConocoPhillips.
- Teneo Takeaway: While Larry Fink, in his annual letter earlier this year, advocated for a more pragmatic approach to ESG investing, BlackRock continues to push environmental policies – like net zero targets – on energy companies. With the price of gas near historic levels, both oil companies and government officials in oil-producing states may push back against some ESG policies.
TotalEnergies is the target of a test case on “greenwashing” in advertising that may have implications for how companies communicate their climate plans. Nonprofits bringing the case argue the advertising behind the rebrand from Total to TotalEnergies breached European consumer protection law because it misled the public about the company’s commitment to be “carbon neutral” by 2050, given the company’s planned investments in future fossil fuel projects. The case, expected to be ruled upon in 2023, seeks to set a standard for the definition of net zero in ordinary understanding. CDP reported in February that the number of companies disclosing potential substantive climate litigation risks has almost quadrupled since 2018.
- Teneo Takeaway: The company may face other legal action over its continued business operations in Russia, which represents 24 percent of the company’s proven reserves.
The Idaho House and Senate are considering legislation that will identify and prohibit its government entities from investing in companies that choose environmental-friendly paths, follow particular social policies, or take actions they consider as “counter to the values of Idaho.” The House resolution would require the Federalism Committee to draft legislation “that protects the State of Idaho and its citizens from the use of ESG standards.” Meanwhile, opponents have argued this would allow political beliefs to override sound investing.
- Teneo Takeaway: Idaho joins a growing number of states (Alaska, North Dakota, Oklahoma, and Texas) that discourage or prohibit state entities from investing according to ESG criteria.
They Said It: ESG Influencers Speak Out
In a Bloombergarticle about how the Russia-Ukraine war is casting a shadow over the future of ESG, Philippe Zaouati, CEO of Mirova, the $30 billion sustainable-investing unit affiliated with Natixis Investment Managers, said, “Ukraine is one of the most important ESG issues we’ve ever had. It’s a vital issue for energy and human rights, and questions whether we still want to live in a democracy or not.”
Looking Ahead: Upcoming ESG Events
- Global Sustainable Business Summit, Bloomberg (London) – 31 March
- Asia Energy Transition Conference, S&P Global (Virtual) – 30-31 March
- Bloomberg Green Summit, Bloomberg (Virtual) – 27-28 April
- 7th Annual Global Conference on Energy Efficiency, IEA (Sønderborg) 7-9 June
- Global Energy Transition 2022, Reuters (New York) – 14-15 June