ESG In Pills - January 2023
Top story
The Fallacies of the 'Anti-ESG Movement'
Executives at BlackRock and State Street, two of the three largest asset managers in the world, appeared before a Texas state senate this month to testify on how ESG investing will affect state pensions. The third asset manager, Vanguard, was no longer required to attend thanks to its recent exit from the Net Zero Asset Managers (NZAM) initiative, which falls under the more comprehensive Glasgow Financial Alliance for Net Zero (GFANZ), and under which Vanguard had committed to reaching net-zero emissions across its portfolio by 2050.?Many believe Vanguard's decision to leave NZAM was due to political pressure in the US. Over the past few months, conservative lawmakers have responded to the growing movement?for ESG investing by introducing new legislation at the state level seeking to counter its impact.?An October analysis from Capital Monitor?reveals that anti-ESG bills passed are primarily?concentrated in Republican states.??
A new trend is sweeping conservative America. It is called?the 'Anti-ESG movement' or anti-'woke-capitalism' movement, and some define it as one of the most significant emerging barriers to corporate action on climate change. Anti-ESG proponents want to stop corporations from following ESG principles. They argue that companies are prioritising "left-wing" goals over the financial interests of businesses and their employees and should be prevented by law from doing so. The anti-ESG movement frames itself as a strictly economic enterprise. Its proponents insist it is not a political movement. They are simply trying to get politics?out of the financial system so people can make the most money possible. But the anti-ESG movement is, at its core, a lobbying effort created by climate deniers to make money for fossil fuel companies. Leading figures behind it include Steve Milloy and Tom Borelli. Millon is among the most prominent people “clouding the climate change debate,”?according to The Washington Post . He built a career on communication strategies to deny or downplay the risks of tobacco and fossil fuel pollution. Borelli is “one of the best-known of the science corrupters who worked for the tobacco industry,” according to?The Center for Media and Democracy . He now promotes climate denial .
The absurdity of the anti-ESG claims is why most financial ?and?corporate worlds ?do not agree with the anti-ESG movement. They know that ESG investing, mainly with climate change risk in mind, is not ideological . It is merely the wisest long-term financial decision.
However, the movement is gaining traction in the US and funds such as BlackRock have been attacked by Republicans due to offerings of ESG funds.?In recent months a handful of states, including Arizona, Arkansas, Florida, Louisiana, Missouri, South Carolina and Utah, have divested state assets from BlackRock's funds to around $4bn. Compared with BlackRock's total wealth under management of almost $8trn, the $4bn so far divested from Republican states is a drop in the ocean.
?More pressing for BlackRock and other major investors are the legal threats Republicans have levelled in recent months via open letters. This includes one letter penned by 19 Republican state attorneys general in August this year addressed to Larry Fink, which claims that in sanctioning fossil fuels in certain funds, BlackRock is breaching its fiduciary duties – investors’ legal duty to generate the best returns for their clients – using the “hard-earned money of our states’ citizens to circumvent the best possible return on investment” and “force the phase-out of fossil fuels”.?US Senator Tom Cotton of Arkansas?wrote ?a separate letter to BlackRock, claiming its policies to restrict fossil fuel financing and its membership of investor initiative the Climate Action 100+ amount to a “violation of antitrust laws”.[1] There is no record of anyone successfully suing investors for their climate actions on antitrust grounds. Yet the threat of antitrust allegations meant that earlier this year, the Race to Zero campaign, which provides accreditation to GFANZ, watered down its wording around members' coal commitments.
The anti-ESG movement is predicated on several contradictions and ironies, including the fact that BlackRock is once being bashed by climate activists for inaction on climate change while also being attacked by Republican politicians for being "too woke" in limiting brown investments. While BlackRock has spent years persuading consumers of its climate ambition to defend itself against Republicans' attacks, it was forced to concede it still has billions of dollars invested in fossil fuel assets. As but one example, less than a year ago, BlackRock led a $15.5b investment in a Saudi natural gas pipeline. Only 6% of BlackRock’s funds are dedicated to “sustainable investing strategies”. On the other hand, many BlackRock ESG funds (e.g. BlackRock US Carbon Readiness Transition Fund) include investments in traditional fossil fuel extraction companies such as ExxonMobil and Chevron. BlackRock also continues to vote against a majority of climate proxies (voting in favour less in 2022 than the prior year). This seems misaligned with its assertion that?“climate risk is financial risk.”
According to Thomas O'Neill, founder and director of the think tank Universal Owner, there are two critical elements behind the anti-ESG movement's motivation for these attacks – the first political, the second financial. On the political front, O'Neill argues that while?climate denial is “no longer as much of a politically palatable message ?as it was a few years ago”, Republicans have “moved on to decrying ESG as a way of?talking about their climate denial and expressing their interest in protecting the fossil fuel industry at all costs”.?
The financial ties between the anti-ESG movement's Republicans and the fossil fuel industry are only starting to be investigated. The New York Times has published a handful of investigations on this issue since the summer. For example, in August 2022, the paper revealed?extensive lobbying ?of Republican state treasurers that have boycotted major investors due to their ESG efforts. It shows how the State Financial Officers Foundation, which worked alongside the American Petroleum Institute and other conservative groups with ties to the fossil fuel industry, extensively lobbied state treasurers including Riley Moore, the Republican treasurer of West Virginia, who was behind the boycott of banks including Goldman Sachs, JPMorgan and Wells Fargo.?
Some have pointed out there might be another reason behind Vanguard’s exit from NZAM. While its entrance was significant due to its size and being the group's first asset manager, Vanguard was widely perceived as a laggard on climate ambition, having only committed?4% of its total assets under management to a 50% reduction in emissions from its portfolio by 2030. Vanguard was such a laggard that some even suggested its exit could be a mutually agreed decision with GFANZ. Kyra Bell-Pasht, net-zero advisor at the Investors for Paris Compliance network, says GFANZ faces a question: is it better to have “a smaller net-zero alliance that is actually taking meaningful action, or a larger one rife with greenwashing?”.
Fortunately, financial institutions are starting instead to turn away from politics and focus on what is best for their business and customers, which involves taking climate change seriously. UK bank HSBC’s?recent decision ?to stop financing new oil and gas fields is a sign that financial institutions are pressing ahead with?limiting their exposure to fossil fuels.?According to?McKinsey, the "wholesale shift toward institutions and projects that emit minimal GHGs may create the largest reallocation of capital in history", with revenue opportunities between $9t and $12t per year across 11 high potential revenue pools.
?It may be more sophisticated today, but the anti-ESG movement is the same as it ever was: a political effort to delay climate action led by fossil fuel industry propagandists. Witold Henisz, the director of the Wharton School’s ESG program,?put it best : “Climate risk is investment risk. There is no credible other side, only an ideological opposition cynically seeking a wedge issue for upcoming political campaigns.”
Chart of the month
Environment
Amazon’s Plastic Problem
According to an ocean advocacy organisation, Oceana report, Amazon's plastic footprint ?increased by nearly a fifth (18%) between 2020 and 2021. In total, the online retail giant allegedly created 321 million kilograms of?packaging waste - mainly in the form of protective packaging used in parcels. This waste could circle the earth more than 800 times if laid out. While Amazon claimed to be using science-based targets to control its plastic production, the science is precise: the type of?plastic?used by Amazon for its packaging is a threat to the oceans. Recycling is one of the most popular ways of addressing the issue - but it is a profoundly problematic solution. A 2022 report by the Organisation for Economic Co-operation and Development (OECD) found that just 9% of plastic is successfully recycled. Much of this unrecycled?plastic ends up in the sea . By extrapolating on a 2020 study, Oceana estimates that more than 11 million kilograms of Amazon’s waste will eventually wash into the ocean. Customers and shareholders are calling for the company to act. In response to Oceana's claims, Amazon outlined several initiatives to reduce plastic use. These include smaller packages and a commitment to make device packaging 100% renewable by 2023. However, Oceana says more is needed - pointing out that reducing packaging weight does not necessarily require a reduction in plastic. The organisation has called on Amazon to commit to reducing its?plastic packaging?by a third before 2030. It also urged the company to publicly report its plastic packaging footprint and its products' climate impact. It is not just organisations putting pressure on the company - Amazon is also under fire from its shareholders. At its Annual General Meeting (AGM) in May 2022, the holders of nearly 49% of Amazon’s shares voted in favour of a resolution asking the company to be transparent and address its growing?plastic packaging problem.
COP15: A Biodiversity Win
Negotiators from nearly 200 countries?agreed to a landmark framework for protecting and restoring nature at the December UN's COP15 biodiversity conference. The Kunming-Montreal Global Biodiversity Framework (GBF) aims to address biodiversity loss, restore ecosystems and protect indigenous rights. The plan includes concrete measures to halt and reverse nature loss, including putting 30% of the planet and 30% of degraded ecosystems under protection by 2030. It also contains proposals to increase finance to developing countries – a central sticking point during talks. In the corporate world, however, companies still have a long way to go in their commitment to preserving biodiversity and ecosystems. An analysis of new data from the S&P Global Corporate Sustainability Assessment shows that only a small share of companies globally have set targets to protect biodiversity or address deforestation.?This trend holds true even for regions where governments have set ambitious biodiversity goals, such as in the European Union. The EU in 2020 launched a?biodiversity strategy ?that aims to complete?100 target actions by 2030, such as turning at least 30% of its land and sea area into legally protected areas, restoring degraded and carbon-rich ecosystems and enabling at least €20 billion per year in biodiversity-related financing. Only 29.5% of the largest companies in the S&P Europe 350 index have set biodiversity targets. An even smaller portion of the major companies in the S&P Global indices covering Asia-Pacific and the US have set nature-related targets. Meanwhile, investors and regulators are paying more attention to how companies disclose their dependencies and impacts on nature. Economists have shown that nature underpins much of the global economy: about $44 trillion of global economic value generation, which was over half of global GDP in 2019, is moderately or highly dependent on natural assets and their ecosystem services such as pollination,?according to the World Economic Forum .?
Europe’s Carbon Cap
The idea of putting a price on emissions at the border has been floated in the EU over the past two decades, but only in 2021 that the European Commission put forward a draft regulation. At stake was the EU’s ability to contribute to global efforts to fight climate change, and achieve its target to?cut net greenhouse gas emissions by 55% by 2030 ?compared with 1990 levels. The measure approved this month aims at raising the overall target to cut emissions in the sectors covered by the European Emissions Trading System to 62% by 2030 – a significant increase on the current 43% target. This effectively means that goods imported into the EU from a high-polluting country will face a levy based on its emissions footprint at the border. The proceeds will primarily go into the EU's budget. The reformed scheme provides a clear signal to European industry that it pays off to invest in green technologies. The reformed EU carbon market now covers almost all the sectors of the economy, after a decision was made to extend the scheme to maritime emissions and waste incineration. According to Pascal Canfin, a French lawmaker who chairs the Parliament's environment committee, "the carbon price will be around €100" after the reform, up from €80-85. "No other continent in the world has such an ambitious carbon price," he said. The EU is creating a separate carbon market for buildings and road transport. This second ETS will start applying as of 2027 and will be accompanied by an €87-billion social climate fund to compensate households for the extra costs this will create. According to the statement, the EU will establish a Social Climate Fund to support vulnerable families, micro-enterprises and transport users to cope with the price impacts of an emissions trading system for buildings, road transport and fuels for other sectors. The European Parliament and the European Council still need to adopt the provisional deal formally.
Social
Tesco Tinder
Tesco's new surplus marketplace – affectionately known as 'Tesco Tinder' – will help suppliers cut production costs and reduce waste. The marketplace will allow suppliers to advertise stock for sale, post requests for things they need and agree to sales between each other. They can also set alerts for when items they need are posted. The opportunity for the Tesco Exchange platform was initially highlighted by Tesco and WWF's?recent report about on-farm food loss, ?which found that in the UK alone, more than three million tonnes of food waste perishes before even leaving the farm. Tesco quality director Sarah Bradbury said, “Excess stock or waste for one supplier could be a valuable commodity to another. By linking different farmers, producers and manufacturers together, our suppliers can find new ways to trim their bills, reduce waste, and keep delivering great value for our customers.” Developed by sustainability consultancy Anthesis, technical director Dr Julian Parfitt described Tesco Exchange as a “great example of an initiative that the food industry needs to embrace and support” if it was to “directly address commitments on food waste, the circular economy, and move towards more sustainable and resilient supply chains”. The move is the latest in an?ongoing programme led by Tesco to help suppliers tackle waste . Working directly with global suppliers has helped to reduce food loss and waste by 78,000 tonnes collectively. Now, more than 3,500 Tesco suppliers looking to sell or donate excess stock or products can use the new Tesco Exchange, where they will be matched with other suppliers who can better use the excess.
Apple Ends Concealment Clauses
In November 2021, a former software engineer for Apple, Cher Scarlett, broke her non-disclosure agreement by showing the media that the company had made her severance package contingent on withdrawing a work complaint to the National Labor Relations Board and agreeing not to "encourage" other complaints against Apple. Scarlett's allegation appeared to contradict Apple's claim to the Securities and Exchange Commission (SEC) that it "supports the rights of its employees and contractors to speak freely" about workplace issues, and treasurers from eight US states called on the SEC to investigate. Nia Capital, alongside the Minderoo Foundation, led a petition supported by more than 50 per cent of shareholders in a vote last March to support her call for Apple to investigate. Nia argued that other tech companies, such as Pinterest, had suffered negative backlash when workers broke their non-disclosure agreements and spoke up against racism. For Pinterest, this led to a $23mn settlement and a $50mn pledge to promote diversity. Her petition followed allegations that the company had retaliated against employees complaining of discrimination. This led to the 'Apple Together' online movement, with hundreds of employees collecting and sharing their stories. As a result, Apple published its first human rights policy committing to "freedom of information and expression". Kristin Hull, chief executive of Nia Capital, said Apple's concession represented a victory for activists. Many hope this has a knock-on effect on all companies still using concealment clauses to hide discriminatory workplaces.
Landmark Challenge to Sexual Abuse Lost
A court in?Spain?has acquitted a manager accused of sexual advances and using the threat of dismissal to demand sex, in a blow to a landmark legal challenge that sought to cast a spotlight on sexual abuse in the country’s meat processing industry. The court absolved the accused of all charges, noting no "direct witnesses or references to the facts presented". The decision also absolved the subcontracted company, where the accused had worked, of any liability. One of the two women, Casta?é, has worked in the meat industry since she was 11 years old. She said she decided to go public after realising she was not the only one being harassed. She has alleged that other female employees – most of whom are migrants – are reluctant to speak out over fears of retaliation. In the meat industry, many women work in very harsh conditions. Historically, there have been many situations of sexual harassment. In a?2021 sectoral brief, ?the International Labour Organization said that the use of subcontracting in the meat processing sector, a common practice in Spain, risked leaving workers vulnerable to exploitative working conditions including sexual harassment and abuse by line managers. One of the few attempts to quantify harassment in the industry comes from Iowa in the US, where, in 2009, a non-profit carried out an informal survey of 100 women working at meatpacking plants. An?analysis ?of their responses suggested 41% had experienced unwanted touching, while 30% had received sexual propositions. In 2018, poultry supplier Koch Foods?paid $3.75m ?(￡3.12m) to settle a class employment discrimination lawsuit after the US Equal Employment Opportunity Commission alleged that supervisors “touched and/or made sexually suggestive comments” to female Hispanic employees at a chicken processing plant in Mississippi. Now, for the first time, the problem is being discussed.
Governance?
EU Leads Against Fast Fashion
Currently, each person in the European Union discards about 11 kilograms of textiles annually, mainly clothing. Several studies indicate that clothing is worn only 7 to 10 times and then frequently discarded. The European Commission is developing a sustainable textile strategy to divert as many items as possible from store shelves and people's closets into recycling and reuse programs by 2030. The EU also plans to set a limit to "fast fashion" imports. According to the proposed plan, all textiles sold on the EU market by 2030 must be durable and recyclable. "Clothing should be made from eco-friendly fibres: these are recycled fibres, free of harmful compounds?and produced with environmental and social rights in mind," Vivian Loonela, the head of the European Commission's Estonian representation, told ERR. This includes reducing the flow of fast textile production chains into the EU. Another significant issue is the disposal of textile waste. Textile consumption is the third most negatively affected factor within the Union, after water and land use, and the fourth most detrimental factor on the environment and climate change at large. "It has been agreed that beginning from 2025, separate pickup of textile waste will be mandated everywhere in the European Union. Member states are now incorporating these guidelines into their legal frameworks. Textile waste is a quickly growing export item to non-European countries. Loonela said the Commission has proposed restrictions on that as well. If they are to be exported from the OECD, the world's richest economies, this should only be done if the destination country notifies the Commission that it is willing to accept the waste and can handle it responsibly. As Loonela argued, "It shouldn't be that clothing is piled up in the European Union and dumped somewhere in third countries." All these anticipated improvements could create platforms for clothing exchange and rent, for example.
领英推荐
?Shell v Nigeria
In 2008, farmers and fishermen in Nigeria,?together with Milieudefensie (Friends of the Earth Netherlands), initiated legal proceedings?against the headquarters of Shell in The Hague because of the oil pollution on their land.?The pollution took place between 2004 and 2007. The proceedings took so long that all the original claimants - Barizah Dooh, Chief Oguru, Elder Friday and Alali Efanga - have since died. However, the Nigeria case is unprecedented: for the first time in history, a corporate headquarters has been held responsible for the actions of its subsidiary in another country. Shell resisted the claim for many years, arguing from their headquarters in the Netherlands that the case should be heard in a Nigerian court. The Dutch Court disagreed. The court case against Shell shows that large-scale polluters worldwide can no longer get away with destructive practices. There are thousands of other villages in the Niger Delta in similar circumstances. As a result of oil pollution,?infant mortality in the Niger Delta is twice as high as in the rest of the?country. The court ordered Shell to reduce its global emissions by 45% by 2030. Logically speaking, Shell can no longer explore new oil and gas sources. Yet recent data shows that Shell is continuing large-scale investments in oil and gas, thus avoiding its responsibility and ignoring human rights. If we want to prevent the damage caused by climate change from increasing further, we should stop using fossil fuels. Shell is doing precisely the opposite.
Aggressive AGM Strategies
The CEO of the world’s largest sovereign wealth fund, Nicolai Tangen, says Norway's oil fund will start utilising more aggressive measures to ensure climate action. “Yes, we can be [more vocal] and I think we will be . . . we can vote more against the companies where we have different expectations about how they behave,” Tangen said in London, a day before the fund unveils its new mid-term strategy. The fund intends to use AGMs to vote against companies that fail to set a net zero emissions target, overpay their top leaders, or need more diverse boards. The CEO warned the directors and boards of companies without a target to reach net zero emissions that the fund would “absolutely” vote against them. His words serve as a warning to corporates worldwide as the oil fund, on average, owns 1.5 per cent of every listed company. On executive pay, he warned that the average top chief executive in the US is paid close to $15mn at a time of the cost of living crisis and defined it as 'unhealthy’. The fund believes executive pay should be more long-term and allied with shareholder interests rather than use incentive plans whose targets are often watered down such as during the Covid-19 pandemic. "We can be even more long term in how we invest because we have a 30 to 100-year timeframe, and I'm not sure we are using that to the full."
Events
GreenBiz Group
Feb. 14-16
Scottsdale, Arizona, USA
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IFRS
Feb. 16-17, 2023
Montreal, Canada
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PEI Events
March 20, 2023
Berlin, Germany
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Economist Impact
March 29-31, 2023
London and online
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Risk.net
June 7, 2023
London
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[1] Also known as competition laws, antitrust legislation ensures that institutions cannot make decisions behind closed doors that could distort market competition.