Let’s talk about board priorities… ESG is on the agenda

Issue #73: A weekly update on responsible investment. Forwarded by a friend? Subscribe here.

We are still in a difficult time as boards need to both manage economic recovery alongside an expanding set of expectations from their shareholders, regulators and other stakeholders. This week, I would like to feature a specific piece of work done by Harvard Law called: “Board Priorities for 2021 Abound Amid Slow Economic Recovery.”

The article explores at a high level which topics boards are expected to address this proxy season. It emphasizes:

• Demonstrating corporate purpose in delivering value to stakeholders
• Assessing sustainability risks
• Human capital management beyond diversity and pay equity, including SEC Regulation S-K
• Enhanced transparency into a company’s ESG activities
• Continuing effects of COVID-19 on business strategy and liquidity
• Board composition and refreshment
• Expanded disclosure of board oversight for risk management
• Changes to compensation in response to COVID-19 impacts
• Planning ahead for virtual meetings
• Regulatory focus on executive perquisites
• Financial & social pressure
• A reimagined workplace
• Evolving regulatory demands
• Increased scrutiny on E, S and G activities

The article continues to dig into some additional areas where boards expect to be doubling down in the year. TL:DR — a lot of ties to a whole spectrum of ESG topics which companies need to be prepared for!

Anyone else saying this? Pension & Investments said: “More companies are committing to transparency and action on climate change and other ESG issues but shareholders are expected to push for more specific action in the 2021 proxy season.”

Climate: Climate change remains a priority but slightly less than last year. There are 78 climate related proposals (87 last year) with climate lobbying disclosure is emerging as a new concern.

Workplace Diversity: Proposals related to workplace diversity have doubled.

Still getting started on ESG?
Check out this conversation with London Business School professor Alex Edmans with Yale Professor Nicholas Barberis, Harvard Professor Neil Shephard and Duke Professor Campbell R. Harvey, along with practitioners from across Man Group to discuss the basics.

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Think you would be a great fit for the Nossa Data team? Learn about our open roles via visiting our careers page.

Subscriber Feature:

Demystifying the UK ESG Investing Ecosystem
Maanch has published a report looking to the UK as a leader in Sustainable Finance. It says: “As of the end of 2019, 38% of assets under management incorporate ESG factors into their investment selection processes (up from 26% a year before). Exclusion policies are applied to 19% of total assets under management (AUM).”
Read their report.

Companies making statements:

• NASA Joins White house National Climate Task Force: Read the press release.
• Imperfect Foods commits to be a net zero carbon company by 2030. Learn about the online grocer’s commitment.

Top Stories

How do companies stack up to the UN SDGs?

Visual Capitalist.

ESG’s dirty secret
The recent success of ESG products can also be partly explained by the sheer amount of money flowing into the market: the value of shares goes up because people are buying them, not necessarily because of a company’s financial performance. And investors have been buying a lot of ESG stocks. Even after their recent correction, shares in one of the most popular, Tesla (US:TSLA), are up fivefold in the past 12 months, leaving the electric carmaker trading on a mind-boggling valuation of 109 times 2022 earnings. Beyond Meat (US:BYND), another vanguard of the green business movement, is up 71 per cent over the same period — never mind that the plant-based food producer is still loss-making. Collectively, the 50 most popular ESG stocks trade at a 33 per cent premium to the wider market, according to research published by Bank of America (BofA) in January.

Investors Chronicle and another critique in The Independent.

Digital Financing Is the Answer to Slow ESG Progress
More and more suppliers are being asked by their buyers to embed sustainability into their business models. This has been noted by CDP, an environmental disclosure organization, which reports a 24% increase in the number of companies asking suppliers to report environmental data over the past year. Companies such as Walmart Inc., sports-apparel maker Puma SE and tire manufacturer Bridgestone are taking this one step further and creating incentives that motivate their supply chains to enhance ESG performance. Most of these programs, however, are still in the early stages and not yet widespread.
Supply Chain Brain.

Acting chief says climate, ESG are ‘front and center for the SEC,’ ahead of new disclosure push
Human capital, human rights, climate change — these issues are fundamental to our markets, and investors want to and can help drive sustainable solutions on these issues,” Acting Chair Allison Herren Lee said. “We see that unmistakably in shifts in capital toward ESG investing, we see it in investor demands for disclosure on these issues, we see it increasingly reflected on corporate proxy ballots, and we see it in corporate recognition that consumers and investors alike are watching corporate responses to these issues more closely than ever.”
Market Watch.

Half of FTSE 100 companies link executive pay to ESG targets
Almost half of FTSE 100 companies have linked executive pay to environment, social or governance (ESG) targets as investors step up demands for companies to adopt these non-financial goals in the upcoming annual general meeting season. Just over a third have an ESG measure in their bonus plans, with an average weighting of 15 per cent of this payout linked to meeting these goals. About one in five in the FTSE 100 include such targets in their long-term incentive plans (LTIPs).
Financial Times.

Why should venture capital investors embed ESG?
Venture Capital (VC) fund managers have a unique opportunity to invest in and catalyse the solutions required to tackle the world’s biggest challenges, including climate change and inequality. And over the last 18 months we’ve seen the momentum to integrate ESG rapidly among VC investors: there are now pockets of VCs working together to develop frameworks for ESG integration, last year alone the CDC published a good practice note on Responsible Venture Capital and the Belfer Center produced a report on Responsible Investing in Tech and Venture Capital. Underpinning this momentum is a belief that better ESG management will, whilst creating returns for investors, drive the solutions to meet society’s challenges and will ultimately set early stage businesses up for long-term sustainable success.
PwC.

*Want to make your ESG processes digital, schedule a call to see a demo of Nossa Data’s software via emailing: team@nossadata.com

Weekly Feature

This week instead of an academic paper I wanted to share a snippet from a newsletter I follow called Climate Tech VC. In it the author, Sophie Purdom and Kimberly Zou reflect on the transition from Cleantech to Climate Tech.

From Cleantech to Climate Tech

“In the early 2000s, concern around rising energy prices tied with rising emissions led to a wave of venture investors piling into cleantech almost overnight. The VC crusaders who rode the internet wave applied the same investment formula to what they saw as a disruptive market opportunity in clean energy. They poured billions into nascent clean technologies like thin-film solar, batteries, and biofuels, and waited for the sky-high returns that had been promised of the industry. Then unforeseen forces, such as advances in fracking and China’s manufacturing prowess, drove energy and solar PV prices way down, causing high-flying cleantech startups to topple one by one. The cleantech bubble burst, leaving venture capitalists with massive write-downs and scar tissue that hasn’t quite seemed to heal until now.

But if cleantech 1.0 was about energy and efficiencies, climate tech is about everything and evolution. The new dawn of climate tech is about acknowledging our planet’s hurtling trajectory towards an unlivable future, and rewiring the way we do things to get to any reasonable place. Amongst the euphoria of climate technology investment and the chase for the next Tesla, reality holds true that the dividends of innovation are measured in decades not SPACs. Here, we offer some reflections on how climate tech has evolved, where we are today, and some ways we may guide the future while heeding past missteps:

What has always been true?

• Climate is tech — climate is not a siloed thesis or niche; software ate the world, data models will run it, and organizations will need resiliency in capital, talent and infrastructure.
• Climate is measurable — values-based investing is now value-based investing. Climate change is tangible economically and locally, and companies will have to control for its impacts across their organizations, markets, and interdependencies.
• Climate takes a village — the transformation of the entire economy takes all hands on deck of top talent from technology and research, policy and governance, to operations and investment in order to drive more durable transformation.

So, what’s different this time? How is Climate Tech different from Cleantech 1.0?

• Climate Tech today is broader than Cleantech yesterday, and encapsulates decarbonization and adaptation of all sectors (buildings, mobility, ag, industrials, retail, etc.) vs. solely efficiency and use in the energy sector. Where CT1.0 approached climate investing looking for a silver bullet solution to our energy needs, climate tech approaches the problem with a million paper cuts across industries, asset classes, and functions.
• Climate change is now tangible to the economy and our lives. The climate crisis is at our front door. Whether by flood, fire, or freeze, the effects of climate change are now personal and accelerating. The number of extreme weather disasters grew 5x over the last decade, costing the US alone over $890b.
• Fundamental technology advances have driven down the cost of renewables, meaning lower capital intensity for climate tech. Solar costs have dropped 90% in the last decade, and solar and wind are now often the cheapest form of power with batteries tracing down the cost curve in hot pursuit. The dream of CT1.0 was cheap renewable energy, and these renewable technology advances are perhaps the biggest difference of the past decade, enabling the adoption of other climate tech built atop electrification as a path to decarbonization.
• Rigorous (inter)national climate policy means that 70% of the global economy has now committed to net zero — most within the past 12 months. During CT1.0 any hope of global climate cooperation let alone the Paris Agreement was distant on the horizon, and the US was stuck in a series of gridlocked doldrums on climate policy. Now the Biden administration is stacked with staffers already taking swipes at the $1.7 trillion climate plan through departments as diverse as agriculture, treasury, and the interior.
• Demand from public markets and institutional investors for ESG has handily doubled the past 5 years, with record inflows marking each quarter. The bigger-than-ever pool, plus the supply-demand imbalance between public ESG capital vs. private ESG companies and tools like SPACs to bridge the gap, are enabling climate tech business to make the leap over CT1.0’s Valleys of Death.
• Corporate decarbonization commitments are an entirely new change lever of the past few months — let alone decade. Whether from investor pressure, consumer demand, supply chain necessity, or talent attraction and retention, the world’s biggest corporates are tripping over each other on the race to carbon neutral / negative, waving their pocketbooks at startups for green RFPs along the way. Mega tech cos like Google and Microsoft, which had massive electricity-fueled carbon footprints, are now legacy climate neutral orgs and actively derisking the frontier of climate tech as initial adopters of carbon negative technology purchases.”

What content do you want to see next week?
Nossa Data aims to curate content on responsible investment and ESG to support leaders around the world in staying informed. Keep us posted on the content that is most relevant for you to learn about by replying to this email. We will do our best to include it in a future issue.

Kind regards,

The Nossa Data Team

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Julianne Sloane
Co-founder of Nossa Data
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