This spotlight explores key ESG-related market developments and their implications for corporates and investors.
ESG in the News
On May 10, the Republican led House Committee on Oversight and Accountability held a hearing with state Attorneys General related to ESG investing. The hearing focused on Republican allegations that inclusion of ESG factors in investment decisions will force asset managers “to violate their fiduciary duties to their clients by signing ESG pledges,” among other concerns. Illinois state treasurer Michael Frerichs, a witness called by committee Democrats, suggested that the hearing was a “politically motivated attack on investors … ESG is about looking at a wider range of risks and value opportunities that can have a material financial impact on investment performance.” Investment managers remain largely aligned that incorporation of ESG factors is critical to fulfilling fiduciary obligations. Recently, CalPERS CEO Marcie Frost, head of America’s largest public pension system, said that she remains a strong proponent of ESG – although she expressed concern with proposed California legislation that would restrict CalPERS from investing in the 200 largest, publicly traded fossil fuel companies.
- Teneo Takeaway: As Washington D.C. prepares for the 2024 election cycle, we expect more politically motivated hearings and investigations on ESG investing – with some businesses likely caught between political exchanges from the left and right.
Generative AI tools are rapidly removing the barriers between complex ESG data and consumers’ search for swift and transparent information. Platforms like ChatIPCC, ClarityAI, GreenwatchAI, ClimateBert, and Climate TRACE have allowed stakeholders to track ESG business goals and detect greenwashing, environmental impact, and emissions with a simple search. The tools input public data from governments, businesses, and authoritative scientific sources and map ESG progress against a company’s stated goal or global targets – a process that used to require significant research and time. AI tools can also be leveraged by businesses to track their environmental impacts alongside existing and future regulatory standards – identifying potential greenwashing concerns ahead of any public scandals.
- Teneo Takeaway: While there are critical questions on AI, businesses will need more transparent information on sustainability and ESG commitments, with clear communication on any challenged progress towards achieving ESG goals.
The Sierra Club and Earthjustice are considering suing the SEC if the agency abandons or reduces plans for large companies to disclose Scope 3 emissions from their supply chain and other indirect sources. The U.S. regulator will likely face legal opposition from advocates both for and against Scope 3 emissions, depending on the final disclosure rules. The SEC told lawmakers that regulations usually take about 12 to 15 months to finalize after they are proposed – with June marking 15 months since the agency issued the proposal.
- Teneo Takeaway: Many companies are already planning for the proposed rule as though it is in force.
Over 3,000 U.S. companies may have to package and disclose data on their greenhouse-gas emissions, including Scope 3 emissions, to follow EU requirements passed in 2022. According to EU officials familiar with the matter, U.S. companies may get a waiver from the EU depending on the SEC adopting its own climate disclosure requirements. At a recent congressional hearing, SEC Chair Gary Gensler said he hoped the SEC’s final rules would “help us be recognized by Europe … rather than their more-restrictive rules” affecting U.S. companies. EU representatives have said if the SEC’s rules don’t include Scope 3 requirements, the EU will likely proceed with implementing its climate rules on select U.S. companies.
- Teneo Takeaway: While the SEC has not decided whether to include Scope 3 requirements, U.S. businesses with significant operations in Europe will likely need to disclose them regardless due to CSRD requirements.
Companies are expanding benefits to support employees going through pivotal health-related events, including pregnancy loss and menopause. In the UK, job ads citing menopause benefits have doubled since March 2022. At the same time, the government rejected suggestions earlier this year from the Women and Equalities Committee to establish a menopause leave trial. Although menopause leave has had a slower uptake in the U.S., nearly one-quarter of bereavement-leave policies now allow an employee to take time off for a miscarriage or failed IVF.
- Teneo Takeaway: Employers around the world are investing in strategies to tap into the full capacity of the labor market and promote long-term retention of female talent, attempting to counter the leaky pipeline for female leaders. Companies have continued to adopt new approaches despite the politicization of some of these benefits.
The International Sustainability Standards Board unveiled its plan to update SASB legacy standards for public comment on a 90-day comment period. ISSB released the exposure draft on April 19 titled, “Methodology for Enhancing the International Applicability of the SASB® Standards and SASB Standards Taxonomy Updates,” to allow stakeholders to consult on the methodology. The organization will not solicit opinions on line-by-line changes to the standards. ISSB will use the methodology to update metrics in the SASB standards that have not been amended once the board issues IFRS S-2, Climate-related Disclosures.
- Teneo Takeaway: Like many disclosure standards and EGS raters, SASB requirements will not remain static. Instead, they will evolve with the market and stakeholder expectations.
The IAASB announced that public consultation on its proposed new standard for sustainability assurance, the ISSA 5000, to open in the latter part of July or early August 2023 and extend into December 2023. The new standard will enable engagements of sustainability information prepared under multiple frameworks and be profession-agnostic, supporting its use by both professional accountant and non-professional accountant assurance practitioners in performing sustainability assurance engagements. IAASB Chair Tom Seidenstein said, “The IAASB has prioritized the development of a high-quality, global sustainability assurance standard … What will be critical now, as already encouraged by IOSCO, is for issuers, investors and other users, assurance providers, national standard setters, and others across the ecosystem to plan resources so that they can provide us their views during the consultation process.”
- Teneo Takeaway: When complete, ISSA 5000, will be an overarching standard suitable for both limited and reasonable assurance of sustainability information reported across any sustainability topics.
They Said It: ESG Influencers Speak Out
At the U.N. Chair of the Forum on Forests, Chair Zéphyrin Maniratanga said, “2023 is a very special year … Forests are not just the reservoirs of 80 per cent of terrestrial biodiversity but are also essential for achieving the targets of the Paris Agreement on climate change as a great means for carbon sequestration … the international community must tackle silos by addressing forests, biodiversity, land degradation and climate change in a holistic and integrated manner.”
