This spotlight explores key ESG-related market developments and their implications for corporates and investors.
ESG in the News
A group of 23 venture capital firms across the U.S. and Europe announced the formation of the Venture Climate Alliance, an organization that will define, facilitate and realize net-zero aligned pathways for early-stage investment – building momentum in the VC industry to combat climate change. VCA members have committed to supporting a rapid, global transition to net zero or negative carbon emissions by 2050 or sooner. The members pledged to inventory their direct Scope 1-3 carbon footprint and reach net zero or negative emissions for their own firm’s operations by 2030 or sooner. Additionally, the VC firms will encourage and assist their portfolio companies in setting their own targets to achieve net zero alignment by 2050 or sooner.
- Teneo Takeaway: As public markets, asset managers and policymakers implement 2050 decarbonization goals, the earliest stages of business building will likely benefit from forming clear, transparent and actionable climate-related risk and emissions disclosure plans.
Republican efforts to push anti-ESG bills though statehouses have faced increasing pressure from businesses and pension funds looking to evaluate climate risks and fulfill their fiduciary obligations. After a flurry of State laws – including last week’s Kansas law that bans officials from using ESG factors in investing public funds – business leaders, legislators and public officials have expressed concern that the financial implications could hurt state pensions funds and restrict the flexibility of investment managers. Ultimately, business leaders are concerned that the laws will interfere with executives’ obligations to shareholders.
- Teneo Takeaway: Increasingly, anti-ESG initiatives are being framed by their opponents as “anti-business” – perhaps splitting the Republican Party that has historically been more aligned with “pro-business” initiatives.
Leaders from the Equal Employment Opportunity Commission and other federal agencies announced plans to enforce existing civil rights laws against generative artificial intelligence systems. Experts and regulators have voiced concerns that AI tools will exacerbate bias for years, yet efforts to regulate AI has taken on greater urgency in the last few months after the announcement of Chat GPT4 and other advancements. AI is increasingly being leveraged across organizations to make decisions about hiring, lending, housing, communicating and other services.
- Teneo Takeaway: The U.S. government is beginning to make more moves, drafting policies and laws to tackle risks associated with AI. Recent actions suggest a swifter increase in the number of countries that will enact regulations different from the U.S. approach. That approach varies from the E.U.’s, which aims to classify and regulate different tools according to their perceived level of risk.
CDP, a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts, announced that its environmental disclosure system has opened for reporting on plastics. Investors with ~$130 trillion in assets have requested that companies disclose plastic-related impacts, particularly related to the plastic production and use of plastic polymers, durable plastics and plastics packaging. CDP’s global director for water security, Cate Lamb, said: "To be able to act effectively, companies must develop a robust understanding of how they contribute to the plastic pollution crisis and formulate equitable and just transition plans to address this. In turn, investors and policymakers need access to relevant, comprehensive and comparable data across the global economy on which to make better decisions.”
- Teneo Takeaway: While disclosures will be voluntary, investors will likely become increasingly engaged with regulation of plastics and plastic waste disclosure as regulation is implemented to support global ambitions to try and halt the flow of plastic pollution into the environment.
The Financial Stability Board, an international body that monitors and makes recommendations about the global financial system, issued a report that reviews compensation practices around climate-related objectives and how the stated goal of financial institutions is incorporated into their compensation frameworks. Generally, Climate-related metrics tend to be included in the non-financial measure of financial institutions’ balanced scorecards rather than as a financial measure, and are often part of an ESG category, which incorporates broader ESG factors such as diversity and inclusion. The report aims to identify challenges and provide early insights to assist ongoing initiatives of regulators and financial institutions.
- Teneo Takeaway: As incorporation of climate-related metrics evolves further, continuous revision and adaptation of metrics is needed to effectively align compensation with risk taking.
They Said It: ESG Influencers Speak Out
Ahead of COP25, U.S. Special Presidential Envoy for Climate John Kerry discussed global climate ambitions, saying “It’s pretty basic economics. The fact is that there is incredible job opportunity, the creation of new jobs in the investments that need to be made in order to deal with the climate crisis. Let me give you an example. The Bureau of Labor Statistics of the United States says there are three jobs that will grow more than 50 percent over the next year. Number one is wind turbine technician. Number two is nurse practitioner; we know why that's happening. And number three, a solar panel installer. It's happening now. The market is already moving. It's moving away from coal. It's moving to renewables to alternative sustainable energy.”
Looking Ahead: Upcoming ESG Events
- Milken Institute Global Conference, Milken (Los Angeles, CA) – April 20 - May 3
