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?
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:
Integrating Climate Risk into Corporate Governance
Since the introduction of the Taskforce on Climate-related Financial Disclosures (TCFD), there has been increased scrutiny of corporate climate governance and broader associated risks. Investors have increased their focus on climate risk, as governance mechanisms are likely to be impacted by transition and physical risk challenges[i].
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).
If the proxy vote is your voice, what are you saying?
To date, 2020 has marked record inflows to sustainable investments. Elevated globally by a health, social and financial crisis; investors and stakeholders alike are coming to understand the inherent risk of ignoring key environmental, social and governance factors. Current events coupled with new regulations and stakeholder pressure are creating the need for investors to demonstrate their commitment as responsible owners who view corporate accountability as a means to achieving greater long-term value.
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.
Tomorrow’s Board: Challenges in a Fast-Changing World
The world is changing faster than it ever has. As a result, companies are increasingly facing numerous and complex challenges with both immediate and long-term impacts. Today, companies are facing a health crisis, a social justice crisis and a fallout economic crisis. The ongoing COVID-19 pandemic and the social justice crisis, calling for the end of systemic racism, have reinforced the need for more diverse boards.
Sustainable Fund Labels: Diverse Definitions of Sustainability
Sustainable financial products are marked with an increasingly large list of tags, from green, sustainable, socially responsible to thematic ESG, water, carbon or impact funds, and not every investor might know how to make sense of these terms. Sustainable fund labels can be one way to signal to the market that the fund has a dedicated responsible investment strategy.
ESGarp Scores: In Search of Reasonably Priced, Low ESG Risk Stocks
The COVID-19 pandemic is likely to further amp up the market’s interest in ESG investment research. It’s not just that ESG funds and indices have generally outperformed their non-ESG counterparts since the COVID-19 sell-off began in mid-February.[i] It’s also that the pandemic itself has drawn attention to ESG issues ranging from biodiversity and habitat loss to employee relations and supply chain management.
Climate Action, Human Health and Responsible Investing
This year, we mark Earth Day under a pandemic. To date, casualties of the novel coronavirus include more than 170,000 deaths, ongoing disruptions to healthcare systems and a deep economic downturn. As we face the first global recession in a decade, Earth Day – the theme of which this year is climate action – serves as a reminder for investors to reflect on how their investment activities relate to social and environmental health concerns.
EU Sustainable Finance Action Plan: Final Taxonomy Report Published and Other Developments
The highly anticipated final report by the TEG (Technical Expert Group) on the EU Taxonomy was published in early March, followed by a stakeholder information session. You can read our blog post on last fall’s developments here.
German Corporate Governance Standards Overhauled
The legal and regulatory foundations of Germany’s corporate governance system are being overhauled in the form of far-reaching changes to the German Stock Corporations Act (AktG) and the German Corporate Governance Code (Kodex). As a result, institutional investors should expect enhanced transparency from German issuers, as well as stronger rights enabling them to effectively exercise their stewardship responsibilities. The reform reflects both the transposition of the EU Shareholder Rights Directive II (SRD II) into domestic law and a corresponding Kodex revamp, both aiming to incorporate governance features that are more typically associated with Anglophone jurisdictions.
Infographic - Creating Impact Through Thematic Investing
In this year’s edition of our 10 for series, we put an environmental, social and governance (ESG) lens on 10 investment themes that may offer investors an opportunity to create a positive social and environmental impact through the equity market. The trends we identify are driven by corporate initiatives to scale new technologies, improve social conditions, conserve ecosystems and mitigate climate change.
South Africa and ESG Risk
A Case Study On November 1, 2019 Moody’s cut its rating outlook for South Africa from “Baa3 stable” to “Baa3 negative,” putting the country’s bonds on the cusp of junk status after several harbingers of a potential downgrade.[i] Earlier this year, the World Bank and the International Monetary Fund cut their 2019 growth forecasts for South Africa to around 0.8%, while the Institute of International Finance warned that the country’s public debt could grow to 95% of Gross Domestic Product (GDP) by 2024.[ii] The other two big credit rating agencies (CRAs) – Fitch and S&P – downgraded South Africa’s credit rating to sub-investment grade back in 2017, citing a deterioration in the country’s public finances.[iii]