Bitesize ESG Intelligence - 01 April

Bitesize ESG Intelligence - 01 April | Brunswick Group

The current and rising themes in the ESG space

Net Zero declarations not supported by company decarbonisation plans
Treatment of workers are impacting corporate bottom lines
ESG issues reach the C-Suite and Boardroom

Despite a rush of Net Zero pledges, “painful progress” made

Investor pressure on companies to reveal credible plans for decarbonisation continues to build as nearly 30% of global investor assets – $32 trillion – have now aligned to the Net Zero Asset Managers Initiative, which supports investing aligned with net zero emissions by 2050 or sooner.
Meanwhile, Climate Action 100+, a group of global investors with $54 trillion in assets driving the busines transition on climate, released a report which found that the world’s largest greenhouse gas emitting companies do not fully disclose how they will achieve their Net Zero commitments. The research revealed a lack of short and medium-related targets. None of the companies on CA 100+’s engagement list have committed to aligning future capital expenditure with the Paris Agreement’s goal of limiting temperature rise to 1.5°C.
Media coverage excoriated company Net Zero pledges as “distant and hollow”.

Social issues come under the spotlight as treatment of workers impact investment prospects

Concern over treatment of workers shaved $1.3 billion off the IPO valuation of Deliveroo – London’s unicorn food-delivery start-up - after several large investors shunned the listing over the company’s treatment of workers. The company relies heavily on its self-employed staff who are not entitled to a minimum wage, holiday or sick pay. Investors including Legal and General and Aviva Investors felt the policies were not aligned with their responsible investing practices and considered them a source of investment risk.
Citing the International Labour Organisation’s estimate that 25 million people globally are trapped into forced labour, the British government launched a consultation to understand how pension funds account for social issues in their investment decision making. The pensions minister said it was critical that companies consider the whole supply chain providing goods and services the world relies on.
Researchers at Stanford University have noticed a surge in employee activism and found that workers are pressuring employers to advocate on behalf of social, environmental, or political issues not necessarily directly related to the company’s core business, including issues of environmental sustainability, human rights violations, gun control and free speech.

ESG reaches the C-Suite

At a first-ever global climate summit for Board directors, supported by the World Economic Forum and the Climate Governance Initiative, heavy hitters from former US Vice-President Al Gore to HSBC Group Chairman Mark Tucker addressed non-executive directors from around the world. They underscored the need for boards to understand the climate emergency as part of their strategic oversight of companies. Diva Moriani, Independent Director at Moncler Group remarked, “The tension between economic objectives and climate objectives needs to be recognised.”
Discussions about tying ESG goals to executive compensation are on the rise. Roberto Marques, CEO and Executive Chair of Natura & Co. stated: “We firmly believe in setting bold targets then linking compensation to them, holding executives and the board itself accountable.”
This week the CEOs of Canada’s six largest banks announced they will link executive compensation to ESG factors. The Canadian lenders said pressure to incentivise ESG initiatives such as reducing emissions and diversifying workforces came from internal stakeholders as well as large institutional shareholders.
According to Sustainalytics, only 9% of the 2,684 companies in the FTSE All World Index have tied executive pay to ESG.

Governments follow a “green path” to economic recovery from Covid-19 by including Net Zero and sustainable finance measures in their fiscal plans

The UK Chancellor Rishi Sunak announced plans “to finance the green industrial revolution” as part of the response to fix public finances after the pandemic, heralding a potential blueprint for other governments. Sunak announced the creation of a UK Infrastructure Bank that will contribute at least £40 billion of investments in public and private projects – with a focus on the offshore wind industry. Sunak intends “to position the City as the global leader for voluntary, high quality carbon offset markets.” This comes as companies and governments that have committed to Net Zero pledges face increasing scrutiny. In the run-up to COP 26, expect to see significant improvements and growth in the markets for carbon pricing and offsetting as a means of achieving Net Zero pledges.

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