Recent market trends put engagement and voting front and centre for responsible investors
From a market perspective, engagement and voting on governance issues have been used as levers for influence for a long time. On the other hand, environmental and social issues were historically addressed from a values-based perspective or primarily for fact-finding purposes. Today, many responsible investors leverage corporate dialogue as a tool to influence and drive meaningful change and impact
North American Material Risk Engagement Trends: ESG Reporting Frameworks, Emission Reduction Targets and Beyond
There are many factors that rating agencies consider within its overall assessment. For example, ESG rating companies tend to look for at least three years of ESG metrics to determine company trends and long-term ESG targets, goals, and strategies to manage and reduce ESG risks at least five years ahead. Read on to learn about how Sustainalytics' Material Risk Engagement program promotes and protects long-term value by engaging with high-risk companies on financially-material ESG issues. (A North American Snapshot)
ESG Risks of Aging Pipelines for U.S. Energy Infrastructure Investors
Pipelines play a critical role in the U.S energy infrastructure transporting natural gas, crude oil, natural gas liquids, petroleum, and petrochemical products. While these pipelines play a vital role in supporting the U.S economy, investors are increasingly scrutinizing pipeline operators' long-term economic profitability and sustainability practices. A closer look into the status of pipelines reveals a particular issue that investors need to consider.
Delays, Questions and Confusion: Updates on the EU’s Sustainable Finance Disclosure Regulation
In this blog, we look at the delay of the level 2 regulation, some aspects of the Q&A, and the ongoing confusion and divergence around SFDR. We pay special attention to the potential impact of the Principle Adverse Impact indicators, an element of SFDR.
EU Taxonomy Developments and the EU’s Renewed Sustainable Finance Strategy
On July 6th, the European Commission published its Strategy for Financing the Transition to a Sustainable Economy, the successor of the EU’s Sustainable Finance Action Plan, which launched in 2018. The strategy focuses on transforming the financial system and financing transition plans, building on the 2018 Action Plan, which centered on developing the EU Taxonomy, putting in place disclosure regimes, and developing tools for the market to develop sustainable investment solutions and prevent greenwashing.
Using Systems Thinking to Avoid ESG Investing Blind Spots
For investors looking to enhance ESG risk management and the long-term impact of sustainability efforts, a systemic approach can help identify interventions that will most effectively mitigate the risk of negative outcomes or divert the chain of events towards a more sustainable trajectory. Typically, this involves moving from single-issue or company-specific tactics to progressively integrate system-level considerations in ESG strategies. Targeting systemic change through active ownership is one way to acknowledge and start unravelling the dynamic web of global challenges.
Royal Dutch Shell Court Order Shifts Paradigm for Corporate ESG Accountability
On 26 May 2021, the Court of The Hague orders Royal Dutch Shell (RDS) to reduce CO2 emissions to a net 45% by the end of 2030 compared to 2019 through the Group Policy of the Shell Group. The order of a national (Dutch) court demands that a global company (RDS) fulfills its obligations under the Paris Climate Agreement, although RDS was not a party in that agreement, and there is no legal equivalent in The Netherlands. What are the broader consequences of this order, also globally and for other companies and potentially also other jurisdictions?
New Draft Disclosure Rules Change Timelines and Scope of EU Taxonomy
In recent months, a lot has been said and written about the EU Taxonomy, the green classification system of economic activities that aims to drive capital flows to sustainable investments supporting the EU’s policy goals on climate and the environment. Political, corporate, and civil society lobbying reached its peak when the EU published draft rules last December, which deviated substantially from expert recommendations. However, the latest draft delegated act with rules on Taxonomy reporting published by the European Commission on May 7th has received far less attention even though some of the proposed changes affect the practical implementation timelines as well as the scope and ambition of the regulation.
Bringing Investors and Companies Together to Address the Climate Change Crisis
As Earth Day is around the corner on the 22nd of April, the Biden Administration is to convene a global climate summit. Following a historical precedent for several such events, since its inception in 1970, including signing the landmark Paris Agreement . We have seen positive developments since the Paris Agreement; societal actions to address some of the root causes of climate change have yet to suppress the negative trends . Historically, active ownership on climate change has focused on direct emissions from highly exposed sectors, such as fossil fuel and utility companies. However, the more complicated, less direct aspects of climate change have seen limited progress. Tackling such issues will see a strong need for collaboration from both countries and other key sectors, in particular, banking and finance. Banks are key to support this transformation; facilitating economic activity for positive change throughout the entire value chain is key.
A Reflection of Water Reporting Around the World
On World Water Day, we reflect on global companies’ dedicated attention to this most vital resource. Water risks are related to nine of the top ten worst global risks in the Global Risk Report published by the World Economic Forum, with risks likely to increase due to climate change. As global water resources contend with increased stress, companies are expected to face growing scrutiny of their water use due to the significant impacts that it can have on resource security and the health of ecosystems. This scrutiny may manifest in business risk, including limits placed on water withdrawal, increasing costs and heightened regulations.
10 for 2021: Investing in the Circular Economy
This report aims to support investors interested in gauging environmental, social and governance (ESG) risks and opportunities in the global food value chain. We survey key subindustries – from agrochemicals, agriculture and aquaculture to packaged food, food retail and restaurants – in search of solutions that may support the principles of the circular economy (CE). These principles include minimizing waste and pollution, extending the use-phase of products and ecosystem regeneration. Some of the key insights found in the report are:
Is Natural Gas a Cleaner Energy Solution?
While Oil and Gas (O&G) operations are responsible for roughly 15 percent of global energy-related GHG emissions, some energy companies have pledged the role of natural gas (NG) as a transitional fuel. At the same time, NG energy use is increasing globally, and shale-gas extraction is booming at an unprecedented rate. One factor that is often overlooked is the methane emissions across the NG value chain.
How Climate Gentrification is Increasing Real Estate Costs and Socio-economic Disparities
Climate gentrification is an emerging concept describing how land with greater resiliency against intensifying physical impacts of climate change becomes more desirable and valuable. It catalyzes fast and visible socio-economic transformation in communities.
Sustainable Finance Disclosure Regulation: An Industry Game-changer
In recent months, the Sustainable Finance Disclosure Regulation (SFDR) has been sparking almost as much debate as the EU Taxonomy – both cornerstone regulations of the EU Sustainable Finance Action Plan. With the SFDR set to redefine ESG disclosures and make a significant impact on financial market participants in Europe, the short timeline and ambiguity on several vital details are creating confusion and concern in the industry. The risk of organizations not being able to comply in time is still present, despite the announced delay in timelines for the technical standards, as is the risk of high financial and operational costs for the industry.
A Pipeline for Strategic ESG Risk Mitigation
Given the ESG impacts often associated pipeline projects, it is reasonable to say that pipelines have been a source of controversy in North America and around the world. In 2020 alone, several major pipeline projects face high levels of public and community-based opposition; with consequences including widespread protests (as was the case for TC Energy’s Coastal GasLink project at the beginning of this year) and large-scale regulatory and legal challenges (as seen currently with the Dakota Access Pipeline).
ESG at a Reasonable Price in China
Over the last decade, portfolio managers worldwide have been increasingly convinced that incorporating environmental, social, and governance (ESG) criteria into investment decisions could provide better risk-adjusted returns. As a result, responsible investing, has moved from a niche activity to the mainstream. As more capital shifts to ESG products, there have been discussions regarding the risk of an ESG bubble as stocks with good ESG scores have enjoyed price appreciation and sometimes go beyond fundamentals[i].
Building Back Better for the Next Normal
‘Build back better’ has become the new mantra for post-COVID-19 hopes and ambitions. As people, companies and governments are coming to terms with the crisis and starting to consider the post-pandemic world, many are realizing that going back to how things were is neither possible nor desirable. Just like disruptive technologies throughout modern history have swept away what humanity thought was the best or only solution and replaced it with something superior, the disruption brought on by COVID-19 has also opened the door for making and accepting some long-overdue changes. To truly leverage the opportunity to correct the destructive course on many fronts, responses to the pandemic must involve going beyond adapting to the new normal and focus on shaping what we want the next normal to be. Investors can play an important role in this transition by aligning their strategy and active ownership with progressive long-term objectives.
Regulatory Standards and COVID-19: Is Oil and Gas Being Given a Hall Pass on ESG?
Globally, oil and gas companies are weathering a storm like no other in their history. Although volatility seems to have settled somewhat since the early months of 2020 (when the Russia-Saudi Arabia oil price war experienced its most heated moments yet), cost-cutting and debt borrowing continues to plague the industry as the vast majority of COVID-19 related restrictions remain in place worldwide.
How China’s Electric Vehicle (EV) Policies have shaped the EV market
As CO2 emissions are inherent to Internal Combustion Engine Vehicles (ICEVs), Electric Vehicles (EVs) are widely considered to be the logical alternative towards realizing zero emissions. With the continuation of ongoing technological refinement and years’ of heavy investment, EV manufacturers have significantly upgraded the performance of their products and improved economies of scale making EV production more economically feasible allowing for EVs to become a more widely considered consumer choice. Improving economies of scale, in both the EV manufacturing and the recycling of decommissioned batteries along with the grid’s transition towards renewable energy will make the positive impacts of EVs increasingly undeniable.
The Race to Net Zero: Decarbonization Commitments in the Oil & Gas Industry
Recent reports concerning record decreases in global greenhouse gas (GHG) emissions due to the COVID-19 pandemic have spurred hope for a “green shift” in our global economy, post-pandemic. The importance of this shift cannot be understated, given that capital investments made within the next five-to-ten years will determine the world’s carbon pathway to 2050 and beyond.