Our bi-weekly spotlight explores key ESG-related market developments and their implications for corporates and investors.
ESG in the News
Environmental groups have recommended to the SEC that it include disclosures on the voluntary carbon market in its forthcoming climate rule. The New York State Comptroller and a nonprofit investor group, Ceres, echoed the demands for more substantive disclosure on carbon offsets, the market for which remains extremely opaque. In a letter to the US regulator, several nonprofits argued for mandatory disclosure about issuers’ use of offsets, and that failing to do so poses “material risk to investors and the financial system.” According to a recent analysis by the Columbia Center on Sustainable Investment, two-thirds of companies across seven industries jointly representing 64% of global emissions rely on offsets, not emissions reductions, to reach net zero.
- Teneo Takeaway: The voluntary carbon market is expected to reach $1.7B this year and continue to grow as more companies look to offset emissions as part of their carbon reduction plans. Voluntary carbon credits aren’t regulated, and the types of credits vary widely, making it difficult for investors to judge the quality of those offsets.
The world’s largest asset manager announced it will increase its offerings to guide clients to transition to a net zero world. In a letter to clients, BlackRock highlighted that, while government policies and over $4T of investments have created an environment for innovation and change across carbon-intensive industries, the speed and shape of the transition remains deeply uncertain – and likely will take decades. BlackRock aims to help clients navigate uncertainty by understanding precisely how the forces of decarbonization – energy prices, evolving technology, and government policy, among others – will impact portfolios. Investors may find success by identifying carbon-intensive companies that are “positioning themselves to lead decarbonization within their industries.” The letter emphasized that the markets are only beginning to price in the effects of the climate transition, “creating a significant opportunity for our clients.”
- Teneo Takeaway: BlackRock continues to pursue a pragmatic environmental strategy, advocating for and investing in innovative energy companies as part of the transition to a net zero economy.
According to a new Capital Monitor report, few of the world’s largest asset managers tie executive remuneration to performance on ESG initiatives. The report ranked the top 100 asset managers in terms of their transparency on ESG-linked transparency targets. The study found just 11 of the top 100 asset managers globally have publicly disclosed linking executive bonus pay to ESG targets, though nearly half failed to publicly disclose any executive pay data.
- Teneo Takeaway: Some of these asset managers – especially those in the US and Asia – are playing catch-up on ESG best practices. With the more widespread adoption of industry initiatives, like the TCFD and UN PRI, a greater number of asset managers is likely to start incorporating ESG performance into executive remuneration.
The UN-supported Principles for Responsible Investment – an investor network controlling a total of $120 trillion in assets – recently stated in a draft position paper that the general prototype disclosure standard issued by the International Sustainability Standards Board should require corporates to provide more details on their materiality assessments. The ISSB’s general prototype sets requirements for disclosures on sustainability-related matters in corporates’ financial reports to provide comparable and decision-useful information to investors. The PRI recommended that firms should report the results of their internal materiality assessment – to explain why specific data was included and to ensure the data’s verifiability, completeness, neutrality, and consistency.
- Teneo Takeaway: There’s a lot of confusion about the definition of “materiality” within the ESG context, whether the word carries the same meaning as it does in the accounting context, or whether it can be used interchangeably with “ESG Priorities.”
Glass Lewis has launched ESG scores and data on a dedicated ESG Profile page, which will provide a snapshot of key topics collected near a public company’s annual general meeting date and give institutional investors the timeliest data of its kind in the marketplace. These insights will help investors achieve even more informed voting and engagement decisions. The timely score summary includes a Board Accountability Score, an ESG Transparency Score, an ESG Targets and Alignments Score, as well as a Climate Risk Mitigation Score for specific companies.
- Teneo Takeaway: Takeaway: Glass Lewis now joins its closest competitor, Institutional Shareholder Services (ISS), with an ESG rating offering for institutional investors. The proxy advisor has not indicated whether limited scoring information will be available to the general public, or whether the scores and methodologies will only be available to clients.
Following the $137M jury award in a high-profile discrimination case, the California Department of Fair Employment and Housing filed a lawsuit against the electric-vehicle maker Tesla, alleging racial discrimination and harassment. The agency said that conditions at the plant were so intolerable that many Black employees were forced to quit. Tesla has not commented publicly, but prior to the filing the company called the lawsuit “misguided.” In similar cases, Tesla has denied all wrongdoing and pointed to various policies implemented in recent years to prevent racist conduct.
- Teneo Takeaway: The legal fallout of these allegations may precipitate greater disclosure of Tesla’s human capital management initiatives. This week, the New York State Common Retirement Fund – one of the largest public pension plans in the country – filed a shareholder proposal to ask Tesla to disclose details about its diversity training programs.
They Said It: ESG Influencers Speak Out
In Tariq Fancy’s Financial Timesopinion piece, the former chief investment officer for sustainable investing at BlackRock wrote: “Existing models of stakeholder capitalism require people who have done business in certain ways their entire careers to embrace ‘social purpose’, even though they remain incentivised to do the opposite … why don’t we move to a model based on mandatory compliance? In competitive sports, when a game turns dirty, we ask expert referees to enforce the rules. By switching to a model of stakeholder capitalism that is based on mandatory compliance and enforced by impartial referees, we increase its chances of success by applying a simple, common-sense aphorism: trust, but verify.”
Looking Ahead: Upcoming ESG Events
- ABI Annual Conference ABI, (London) – 22 February
- IGCC 2022 Summit, Investor Group on Climate Change (Sydney) – 28 February-1 March
- 9th Annual World Ocean Summit Virtual Week, The Economist (Virtual) – 1-4 March
- Climate Capital Live, Financial Times (London) – 8-10 March
- Technology for Change Week, The Economist, (Virtual) – 8-11 March
- Global Sustainable Business Summit, Bloomberg (London) – 31 March
- Asia Energy Transition Conference, S&P Global (Virtual) – 30-31 March
