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Issue #84: A weekly update on responsible investment.
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\\ Weekly Insights \\
This week there has been a lot of discussion around if ESG disclosures should be mandatory for companies in public companies. Why so much chatter? For one, the SEC’s public comment period (you can read replies here) expired on June 15th and a lot of stakeholders had something to say.
What are organisations saying? Microsoft, Alphabet and a lot of other major tech companies have pushed back against calls to include disclosures on environmental, social and governance issues in key US regulatory filings. They say:
ESG information should not be included in a type of filing known as a 10k, which most public groups must submit each year. Including ESG information in these filings would open a company up to potential legal risks since such data are subject to more uncertainty than the detailed financials and risk disclosures that are currently required.
It is a bit surprising as many of the companies who became signatories to a letter in response to proposed SEC regulation are widely viewed as sustainability leaders. Here is a snippet of Microsoft’s reply:
The battle between asset managers and regulators versus companies:
Meanwhile, other interest groups had differing opinions sharing such as Ceres, a Boston-based coalition of more than 500 investors, environmental organisations and public-interest groups sharing: “The current state of climate change disclosure does not meet our needs.” Other investors argued that stronger human capital reporting, especially quantitative metrics rather than just qualitative narrative, is associated with higher returns on invested talent and higher operating margins and better risk-adjusted returns.
The SEC now must work through these comments to come to the right middle ground of disclosure.
\\ Nossa News \\
Understanding the Sustainable Finance Disclosure Regulation (SFDR)
The Sustainable Finance Disclosure Regulation (SFDR) is an EU initiative that requires financial market participants operating in the EU, to disclose the various sustainability risks associated with their investments and products, as well as to disclose their policies relating to these risks. The SFDR came into force on March 10, 2021 as part of the European Commission’s (EC) Sustainable Finance Action Plan.
Read our article.
We had fun speaking at FinTech Alliance’s webinar on Building Trust in ESG!
\\ People to watch in ESG \\
- Navindu Katugampola Katagampola, Head of Sustainable Investing at Morgan Stanley Investment Management Fixed Income & Liquidity, has led groundbreaking #greenbond and #sustainablebond deals, including a €7 billion deal for the Republic of France which was the largest single issuance of green bonds at the time.
- Rob Fisher, partner at KPMG, was recently appointed US leader of KPMG IMPACT, the firm’s ESG solutions initiative. He works to bring holistic #ESG solutions to the firm and its global network.
- Matthew Arnold is the Managing Director and Global Head of Sustainable Finance at JPMorgan Chase & Co. Chase. Part of his team’s job includes advising JPMorgan and its clients on ESG and sustainability strategy.
- Bonnie Wongtrakool, CFA is the Global Head of ESG Investments and Portfolio Manager at Western Asset Management. Wongtrakool leads ESG initiatives at the firm, including ESG research and ESG product strategy development.
- Dan Grandage is the Head of ESG, Private Markets & Real Estate at Aberdeen Standard Investments. Grandage is on the real estate division’s global management team, and works to integrate ESG into the company’s business management and investments.
\\ ESG jobs \\
With so many ESG jobs popping up, we are trying out a new section!
- Sustainability and ESG Manager — Barclays
- Social Responsibility Analytics Coordinator — Disney
- Sustainable Investing Analyst — J.P. Morgan Private Bank
- Director of ESG Research — Invesco
- ESG Specialist — Vanguard
- ESG Analyst Intern — FAIRR Initiative
- Plus, PwC says they will hire 100,000 over 5 years in an ESG push.
\\ Top Stories \\
Companies Spent Big on ESG Investments, Hoping for Long-Term Payoff
Companies are racking up hefty bills as they invest in new facilities and products to reduce emissions or meet other targets, hoping for a payoff down the road. Businesses increasingly are coming under pressure from investors, lawmakers and regulators who demand more details on their spending plans and the progress they are making to achieve their environmental, social and governance goals. As a result, car manufacturers such as General Motors Co. and Ford Motor Co. are boosting investments in electric vehicles to reduce emissions, while utilities including Xcel Energy Inc. and CenterPoint Energy Inc. are producing more renewable power. But, those investments present challenges for chief financial officers overseeing companies’ capital spending plans. Many of them are entering unknown territory by allocating funds to projects that carry big price tags, cover long time horizons and yield returns that are sometimes hard to quantify, executives said.
Wall Street Journal.
Mars CFO talks sustainability in manufacturing?
Hear first hand how one company thinks about ESG. The article says: “Solving sustainability issues in manufacturing is a collaborative effort, and that’s something Mars Inc. has set its sights on, says CFO Claus Aagaard.” Aagaard goes on to share: “We asked our top 200 suppliers, do you have a science-based target and a plan to drive a massive reduction on your carbon footprint? Twenty out of those top 200 said yes.”
Heavyweight investors demand more disclosure of environmental risks
Amazon, Facebook, Tesla and Berkshire Hathaway are failing to report data on climate change to their shareholders, according to a coalition of heavyweight investors, which is demanding that 1,320 companies should make clearer disclosures about environmental risks. Environmental disclosure standards are showing signs of improvement as a result of pressure from large investors. The campaign co-ordinated last year by CDP led to 206 companies responding to disclosure requests by investors, up from 97 in 2019. Demands for improved disclosures have also been directed to 122 Chinese companies including ecommerce group Alibaba, Kweichow Moutai, the distiller and Meituan Dianping, China’s biggest food delivery app.
FTSE Russell threatens to expel 208 ESG offenders from FTSE4Good
More than 200 companies are in danger of being thrown out of a family of FTSE Russell stock indices for failing to meet more stringent environmental standards. The 208 companies represent 13.5 per cent of the 1,546 stocks in the FTSE 4Good index series — designed to measure the performance of businesses with strong environmental, social and governance (ESG) practices — which is tracked by a range of exchange traded funds and investors such as the Japanese Government Pension Investment Fund, the world’s largest pension fund. FTSE Russell has given the companies 12 months to meet its tighter climate-performance standards or face deletion from the indices.
Simple, practical & market-led: stakeholders visions for TNFD?
On 10 June, the official global launch event for the Taskforce on Nature-related Financial Disclosures (TNFD) took place. “The financial system is not fully aware of the risk biodiversity loss poses to business,” said TNFD Co-Chair David Craig, CEO of Refinitiv and Group Leader of Data and Analytics Division at London Stock Exchange Group, who leads the TNFD together with Elizabeth Mrema, Executive Secretary of the United Nations Convention on Biological Diversity, in his opening remarks at the TNFD launch event. “This is both an incredible crisis and an incredible opportunity to drive change. The biodiversity finance gap today is equivalent to the GDP of Switzerland.” TNFD.
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\\ Paper Feature \\
ESG & Long-Term Disclosures: The State of Play in Biopharma
KKS Advisors and the CEO Investor Forum / June 2021: Anuj A. Shah, Brian Tomlinson, Michael Rosen, Emilie Kehl, Lukas Rossi
How much forward-looking information do public companies disclose, including on ESG themes? Do they provide targets and KPIs on themes key to long-term value creation?
In this paper, we analyze the accessibility, quantity, and time frame of forward-looking information disclosed by the 25 constituents in the S&P 500 Pharmaceuticals, Biotechnology & Life Sciences GICS industry classifications.
The paper assesses four key disclosure channels (annual reports/10-K, stand-alone sustainability reports, proxy statements, and investor day transcripts) and find that forward-looking information is dispersed, and locating it is complex and time-consuming.
Why bio-pharma? Few industries have received more scrutiny and attention in the past year than Biopharma. It is an industry that has demonstrated an extraordinary capacity to both heal and harm. Most recently, we have felt a collective dependence on the Biopharma industry’s innovation infrastructure to rapidly develop and produce COVID-19 vaccines at scale.
ESG and Biopharma: Given even greater salience by COVID-19, Biopharma faces a unique set of ESG issues: pricing and access, product governance, and business ethics among them. Long-term we predict system-level issues like rising antimicrobial resistance will appear on institutional investors’ lists of high priority engagement topics; this ties further into broader public policy concerns of structural under-investment in antibiotic development.
Themes and Underlying Issues to Guide a Long-term Effective Plan
\\ Leading Across ESG \\
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