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?
Unwritten Risks – The True Costs of Mispriced Climate Change
Research shows that Property & Casualty insurance underwriters are not accurately pricing climate risks, and US government policy and program decisions are proving to be unsustainable. In our most recent blog, Justin Cheng talks about the resulting premium pricing corrections in the wake of intensifying extreme weather events. With this trend, a significant number of US homeowners are unable to obtain property insurance while taxpayers take on the increased cost of climate risk.
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:
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.
Prioritizing Patient Care and Staff Safety in a Pandemic
Medical facilities, including hospitals and long-term care facilities, are under tremendous pressure to provide quality healthcare for patients while ensuring patient and staff safety amidst the COVID-19 pandemic. By using Sustainalytics’ ESG Risk Rating to understand better the risks faced by companies, and the current state of preparedness within the medical facility subindustry, investors can identify the most relevant points to address when engaging with companies and analyzing potential ESG impacts in their portfolios.
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).
The Real Price of Food
Today, October 16, is World Food Day, a campaign created in 1981 to raise awareness of hunger and poverty. With an estimated nine percent of the global population reported as undernourished in 2019, hunger and poverty remain a reality for millions of people with the situation being exacerbated by the COVID-19 pandemic.,
Untangling the Complex Threads of Modern Slavery
October 7 is World Cotton Day–an annual event created in 2019 after four cotton-producing countries (Benin, Burkina Faso, Chad and Mali) applied to the UN for special recognition of the crop. Cotton has much to celebrate–it is the primary source of livelihoods and revenue for up to a billion people. That said, the positive benefits do not extend to everyone in the value chain, as significant human rights challenges have persisted in many countries. Change, however, may be upon us. Cotton could be set to face major dislocations driven by responses to human rights violations, with significant implications for investors.
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].
The Future of Human Capital: Rising on the Agenda
This has been a year of unprecedented uncertainty and upheaval. It has also cemented the materiality of human capital and the importance of examining preparedness for future workplace challenges. Human capital management is a broad ESG issue that captures important and current matters, such as skills development, diversity and inclusion, and employee engagement. It is growing in its importance due to the dynamic and uncertain management landscape. Notwithstanding the shock of the pandemic and the strengthening drive for racial equality, technology, demographics, and globalization are already driving structural change in labour markets.
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.
Antitrust in the Digital Age
On July 27th, the chief executives of four (Alphabet, Amazon, Apple and Facebook) of the world’s most prominent technology companies will appear before the US Congress as part of an ongoing antitrust investigation into their market power.[i] This is the latest in a series of developments that includes federal and state-level investigations in the US into the market practices of these companies. Back in 2018, as part of Sustainalytics publication, ESG Risks on the Horizon, our team had noted that the antitrust related scrutiny of major technology companies is likely to persist given the market concentration these companies had established within the digital economy. While there is significant uncertainty as to the ultimate regulatory response, given the outsized position of these four companies in the S&P 500 and sustainability indices, this type of regulatory and market scrutiny is an area that is important for investors to examine in terms of long-term risks to the enterprise value of these companies.
The Shift to Remote Work: Examining the Risk Landscape
This blog post is the first in a two-part series. In our initial article, we will explore cybersecurity and remote work during the COVID-19 pandemic and its role in expanding an enterprise’s attack surface. In our next blog post, we will examine privacy issues related to COVID-19 contact-tracing.
Cruising Post-COVID-19: Lessons and Challenges for the Cruise Ship Industry
In this blog, we assess the impacts of COVID-19 on the cruise ship industry by taking a closer look at the four biggest cruise companies and their COVID-19-related controversies since February 2020. We also gauge their management of product governance and human capital issues, with the aim of informing investors of each company’s preparedness to address relevant risks as well as challenges and potential hurdles in the industry’s post-pandemic operations.
Beer, Wine & Spirits in the Era of COVID-19
Companies operating in the Beer, Wine and Spirits subindustry have suffered from knock-on effects of COVID-19 lockdown measures, as governments across the globe have moved to close hotels, bars and restaurants, and ban large events and gatherings, such as festivals and sports events. Given that these venues are an important source of revenue for alcohol companies, investors within this space may benefit from a closer look at how firms have adapted to the rapidly changing market conditions.
Coronavirus: Are We Protecting the Most Vulnerable?
As the COVID-19 pandemic swept across the globe at the start of 2020, frontline medical care became a top priority in stopping the virus. Contrary to the improvement in case management at hospitals, the number of cases in long term care homes (LTCH) rose sharply. With the situation evolving by the hour at times, the number of infections and deaths rose exponentially in the US.