The Whole Picture | Edition 2, Issue 19

Most companies don’t yet have a credible climate transition plan . As a result, some companies are engaging in greenwashing . Fortunately, among responsible investors there’s been a trend towards greater emphasis on sustainability outcomes and impact , reflecting a broader interpretation of value beyond immediate financial returns. The various strategic options, tactics, and practical measures now available for incorporating ESG factors efficiently and cost-effectively are widely available, leaving the status quo virtually indefensible.

Editors: Jermaine Reyes , Carmen Simion , Melissa Chase

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From the Source

Article | Living Up to the SRI Label: Strategies for Addressing Companies from High Impact Climate Sectors

As the urgency to decarbonize the global economy rises, global standards are setting increasingly stringent criteria. Anticipating the risks of further climate regulations, many investors are working to decarbonize their portfolios and reduce the impact of their investments on global warming. One practical approach to reaching this goal is to concentrate efforts on the sectors that are emitting the highest levels of greenhouse gases (GHG). This approach is supported by several sustainable finance standards, most notably the French SRI label. In this article, Eva Heijkants , Manager, Client Relations explains how:

• Most companies don’t yet have a credible climate transition plan. Companies are categorized as significantly misaligned (74.7%), moderately misaligned (22.3%), highly misaligned (2.4%) or severely misaligned (0.5%).
• Strengthening engagement efforts with high impact climate sector companies, especially those categorized as moderately to significantly misaligned could be an effective approach to achieve sustainable investment thresholds, such as those required by the French SRI label.
• Most companies from high impact climate sectors are considered moderately (14.3%) or significantly (72.4%) misaligned, where they will likely require less effort to align their plans with the goals of the Paris Agreement.

Read the article .

Article | Clearing the Air With Canada’s Oil & Gas Sector: The Interplay and Actions of Stakeholders on Greenwashing

The practice of greenwashing – when companies share misleading or unsupported claims about the environmental benefits of their products, services, or activities – continues despite the potential risks to companies and stakeholders. From 2022 to 2023, the number of greenwashing cases worldwide rose by 21.1%. In Canada, greenwashing incidents in banking and finance increased by 70% in 2023, linked to funding activities in the fossil fuel and oil and gas sectors. This echoes greenwashing within the Canadian oil and gas sectors itself. In her article, Shane Tiley , Engagement Manager, Stewardship, explores greenwashing in Canada's oil and gas industry, analyzing perspectives from industry, NGOs, government, and investors. Findings include:

• Canadian O&G companies lag behind their peers in managing their GHG reduction programs – 44% of Canadian O&G companies have a weak GHG reduction program compared to only 18% and 9% of U.S. and EU based companies, respectively.
• Sixty-three percent of EU O&G companies and 52% of U.S. companies have a very strong program, whereas only 30% Canadian O&G company GHG reduction programs have been rated as very strong.
• While all companies must be careful with their statements to avoid greenwashing risks, they should not fear or refuse to publicly disclose climate-related information. Instead, companies should engage in real climate actions, avoid generic disclosures, seek third-party verification, and communicate transparently.

Read more .

Article | Getting to Impact: Integrating Double Materiality in Responsible Investment Strategies

Investor approaches are evolving to include not only ESG integration and risk, but also assessments of the impact of investment strategies. Co-authors Marta Mancheva , Engagement Manager, Stewardship and Shane Tiley , Engagement Manager, Stewardship, explore the key distinctions between financial, impact, and double materiality concepts and the related implications for issuers and investors. Key takeaways include:

• Double materiality assessments are key to adopting an impact perspective, as they can help uncover potential risks and opportunities that a finance-only focus may miss, as well as contribute to evaluating investments’ impacts on the environment and society.
• Immaterial sustainability issues may become material over time, so proactively integrating dynamic ESG issues in portfolio construction and security selection may help investors better anticipate and respond to future material issues.

Read the article .

Governance in Brief

UK Plans Law to Regulate ESG Rating Providers

The UK government is planning to introduce legislation next year regulating ESG ratings providers. The law, which is meant to enhance methodological transparency, would place the raters under the supervision of the UK Financial Conduct Authority. Currently, ESG rating providers in the UK are asked to comply with a voluntary code of conduct, which covers, inter alia, guidelines on managing conflicts of interest and improving methodology and process transparency. Earlier this year, the EU approved similar legislation regulating rating providers’ disclosure of their methodologies and sources of information.

Sources: ESG News | Reuters | ICMA | EU Council | EU Parliament

Barclays Scraps EU Era Bonus Cap for Bankers

Barclays has lifted the bonus cap for its senior bankers, who will now be able to receive payouts of up to 10 times their base salary. The cap had previously been imposed by the EU in 2014, limiting payouts to twice base salary in a bid to tamp down on excessive risk taking in the aftermath of the financial crisis. The removal of the cap had been overwhelmingly approved by shareholders at Barclays AGM earlier this year. In October 2023, the UK’s Prudential Regulation Authority and the Financial Conduct Authority announced they would remove the cap, allowing banks to set an “appropriate” ratio between the fixed and variable pay. Goldman Sachs and JPMorgan have also taken steps to lift their bonus limits after the changes to UK legislation.

Sources: Reuters | The Guardian | Bank of England

Shein Reported to Include Retail Investors in London IPO

Singapore-based e-commerce firm Shein is reportedly considering offering shares to retail investors alongside institutional investors at its potential IPO on the London Stock Exchange (LSE). The China-founded company was last valued at USD 66 billion in a funding round last year, and its IPO would be the largest in the LSE’s history. Shein is reported to have confidentially filed for the LSE listing in June, after also filing to go public in the U.S. in November last year. However, plans for an NYSE IPO have been held up by pushback from U.S. politicians expressing concern regarding the company’s Chinese operations and alleged use of slave labor.

Sources: City AM | Breaking the News | Business Times

Events

ESG Conference | Morningstar Sustainable Investing Summit 2024

Responsible investment stewardship requires that investors understand the long-term ESG risks under the surface of portfolios. The Morningstar Sustainable Investing Summit provides institutional investors with cutting-edge research, expert insights, and practitioner case studies that help navigate shifting markets and evolving regulations.

Register for the event .

What We’re Reading

85% of Financial Institutions Leverage ESG Ratings Amid Global Push for Regulatory Alignment, CDP Report | ESG News

Why we care: In 2023, 85% of financial institutions disclosed climate-related opportunities with potential financial or strategic impacts, with USD 4 trillion in combined assets recognizing improved ESG ratings as a significant driver of financial gains. For ESG ratings and data products to support sustainable finance effectively, regulations must be interoperable across borders.

ESG Controllers: The Newest Finance Hires | CFO Dive

Why we care: As companies prepare to comply with emerging sustainability reporting requirements, some finance teams are opening a new role to help handle the workload: the ESG controller. The role of the ESG controller is to introduce and establish a set of controls and a systematic approach into how a company accesses ESG-related data and prepares it for disclosure, making sure that it is done in a much more controlled, systematic manner than was typical when sustainability reporting was voluntary.