ESG Top 5: More NZBA departures, and 2025 outlooks for boards / investors / sustainable procurement

Only a bit of news flow this week, so watch for interesting longer-term reads and 2025 outlooks that might get the synapses firing for two minutes or more…

-Brian Matt, CFA, Head of ESG Advisory, NYSE

[email protected]

1 - Major US banks depart NZBA, GFANZ changes approach

In a typically slow news period, Wells Fargo (12/23, here), followed by Citi and Bank of America (1/2, here and Morgan Stanley, here) announced their departures from the Net Zero Banking Alliance, a part of the Glasgow Financial Alliance for Net Zero set up as part of COP26. That said, following the links above, you’ll see the responses from each bank citing their continued commitments around climate separate from the NZBA, and two bank CEOs remain members of a GFANZ Principals Group that helps set strategy for the organization (here). On December 31, GFANZ released a one-paragraph statement noting that “going forward [GFANZ] will allow any financial institution working to mobilize capital and lower the barriers to financing energy transition to participate.” For companies, this may simply mean you’ll have to keep track of the climate commitments of your financial counterparties individually instead of at central group websites, but you’ll likely continue to see climate evaluated in their decision-making processes going forward.

2 - Asset managers publish sustainable investing 2025 outlooks

This is also the time of year for 2025 outlooks that go out along with annual wrap-ups for the clients of major asset managers - watch for themes around investors looking for transition-related opportunities and evaluating risks associated with AI and resilience:

-Schroders covers thematic topics its analysts are reviewing that might align with your story (Item #5).

-Clearbridge’s team reminds that energy efficiency has avoided more emissions than renewable energy deployment, and will continue as companies attack costs (Allianz echoes this, item #1).

-TCW looks at the impact of expanded data center power demand sourced to AI, while American Century reviews the water impact of such.

-T. Rowe’s and HSBC’s broader investment outlooks include detail on investments in energy transition and physical risk evaluation, respectively.

Note that we’ll be sharing the updated voting guidelines for major investors here as they’re released in early 2025.

3 - Sustainable procurement groups add resources, requirements for 2025

A late-December release of climate-related recommendations for consumer companies to build into supplier agreements (from Consumer Goods Forum here, via Trellis wrap here) is a good reason to give an update on recent progress in supplier engagement across many types of industries:

-This WMB / CDP report notes that 41% of all CDP disclosers confirm engaging suppliers on climate, up from 39% in the prior year (on an increasing denominator).

-Earlier in the year we spotted this WorldCC survey of the most common clauses built into purchase contracts (37% of the supplier community have included carbon footprint reduction targets, 56% DEI commitments).

-You’ll find leaders in sustainable procurement and their stories from sources like the Chartered Institute of Procurement & Supply (2024 “Pioneers” here) as well as the Sustainable Procurement Pledge (here).

-A handy database of supplier sustainability standards from over 1,500 companies courtesy of Greenplaces is here).

4 - Double materiality, cybersecurity / AI remain net adds for board agendas in 2025

Keeping track of the beginning-of-year outlooks in the governance world could be its own full-time job ?- here’s a few takes that stood out to us, with recurring themes being the impact of moving to mandatory disclosures (CSRD, CA) as well as responsible AI.

-KPMG’s Page 8 includes a set of oversight questions spurred by the spread in prevalence of double materiality and audit committees’ review of mandatory disclosures, as well as how management communicates material / strategic sustainability issues.

-Aon’s topics for compensation committees here (including ESG metrics in comp plans), BDO’s outlook for nom/gov committees here with a focus on director education.

-Item #4 from NACD gets to the importance of board time allocation - “boards can make a deliberate effort to ensure that the calendar is not predominantly focused on the past and on compliance.”

5 - CFA Institute shows usage of carbon data at portfolio level, Scope 3 struggles

The last send of the year from the CFA Institute Research and Policy Center to its investor members focused on two papers on how to evaluate portfolio emissions - and we found them interesting from an investee perspective as well (enough to give them our first 2025 thinkpiece slot). The first piece shows Man Group UK’s approach to reviewing the carbon data provided by investees; data vendors are increasingly able to provide actual as opposed to estimated data (~80% of the firm’s investment universe is covered, Page 9 is the firm’s universe by sector for emissions coverage), but it still sees disagreements between vendors and a wide range of outliers that it has to address. Further, it finds scope 3 data as difficult to use except in trend form (Page 19) given the wide range of reporting standards and double counting.

Finally, for those that drop everything into LLMs these days, this paper summary (CFA members, full paper here) from quant investor Acadian Asset Management shows a method used to review the text used around company climate targets to infer the level of certainty a company has in meeting the target, and shows how, in its view, analysts can use these tools to speed their review of portfolio companies.

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