The Whole Picture - Edition 3, Issue 23
Happy New Year. The calendar comes to prominence at the beginning of each new year, to make sense of what’s upcoming with fresh eyes and perspectives. There are thematic ESG trends to look out for, investing concepts to understand, and new rules to consider. And beyond the year itself is renewing the long-term vision and commitment to responsible investing.
Editors: Jermaine Reyes , Carmen Simion , Melissa Chase
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From the Source??
For 2025, sustainability-aware investors should keep six major themes top of mind to navigate the new year: ESG regulations, transition investing, sustainable bonds, ESG funds, biodiversity and artificial intelligence. This report features the forward-looking insights from Morningstar Sustainalytics experts, including Hortense Bioy, CFA , Head of Sustainable Investing Research; Arthur Carabia , Director of Policy Research; Barbara Lambotte , Head of Sustainable Fixed Income Research; Noemi Pucci , Associate Analyst, Sustainable Investing Research; Gayaneh Shahbazian , Biodiversity Engagement Manager, Stewardship; and Kilian Theil , Head of R&D Labs. Readers of this report will learn about how:
This year, expect to hear the terms impact and double materiality more frequently. European regulators are already asking companies to report on ESG risks and companies will be further asked to share how their businesses impact the world around them. This is called double materiality.
Ron Bundy , President of Morningstar Sustainalytics & Morningstar Indexes, invited colleagues Hilary Wiek, CFA, CAIA , Senior Strategist for Sustainable Investing at PitchBook , Matthew Gray (马飞) , Associate Director of Stewardship at Sustainalytics, and Gabriel Presler , Head of Enterprise Sustainability at 晨星 , to discuss the issue in detail and unpack the implications of double materiality.
Sustainable investing continues to shape global capital markets. Despite a slowdown in recent years, sustainability-focused funds continue to grow as investors incorporate ESG factors into their analysis. To support investors, comprehensive sustainability-related reporting requirements and standards have been rolled out worldwide. These measures aim to foster transparency, accountability, and sustainability in financial and corporate sectors. This infographic gives a visual overview of the state of ESG and sustainability-related reporting requirements by region and highlights select rules and standards from around the world.
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Governance in Brief??
Investor Calls on Rio Tinto to Drop Dual-Listed Company Structure
Activist investor Palliser Capital has urged Rio Tinto to drop its dual-listed company structure and maintain a primary listing in Australia only. Currently, the company’s structure includes Rio Tinto Plc and Rio Tinto Limited, incorporated and listed in the UK and Australia, respectively. Under Palliser’s proposal, Rio Tinto’s shares would still trade in London, but as part of a secondary listing. The investor has claimed that the outdated, dual-listed company structure has destroyed USD 50 billion of shareholder value, mainly due to Rio Tinto’s inability to carry out stock-based mergers and acquisitions. Palliser Capital also pointed to Rio Tinto’s sub-optimal governance features generated by the current structure, including an inefficient voting process, and called for a simpler and clearer corporate governance structure, aligned with best-in class ESG practices.?
Sources: Business Wire | Rio Tinto | Yahoo Finance | The Guardian
US?Court Strikes Down Nasdaq’s Diversity Rule
A US appeals court has struck down a Nasdaq rule aimed at increasing diversity on the boards of the companies listed on the exchange. The rule was approved by the Securities and Exchange Commission in 2021, but the court now ruled that the SEC had lacked the authority to approve the regulations and therefore vacated them. According to Nasdaq’s diversity rules, companies listed on the exchange were required to meet minimum diversity targets or explain why they do not meet them. Specifically, companies’ boards were required to include at least one person who self-identified as a female and at least one person who self-identified as either from an underrepresented minority or as LGBTQ+. Additionally, companies would have had to report on board diversity annually. The court’s decision comes against a backdrop of an increasing number of companies downsizing their diversity initiatives.
Sources: Bloomberg Law | Reuters | AP | CNN | Yahoo Finance
Azoria Partners?to Launch Anti-Woke ETF
Startup asset manager Azoria Partners?will launch an “anti-woke” exchange-traded fund (ETF) in the first quarter of the year. The fund will exclude S&P 500 companies which commit to diversity, equity and inclusion (DEI) measures. Specifically, the Azoria 500 Meritocracy ETF will avoid investing in companies which use racial or gender quotas in making hiring or payment decisions, with Starbucks being among the targeted companies. Recently, several companies, including Walmart, Harley-Davidson and Lowe’s, have scaled back their DEI efforts on the background of conservative activists’ increased criticism of DEI and ESG policies.
Sources: Yahoo Finance | USA Today
What We’re Reading??
Why we care: Companies continue to link executive compensation to ESG performance, despite the recent pushback against ESG. This article provides helpful analysis of the focus areas and methods of integration of ESG metrics into performance measurement, across both the S&P 500 and the Russell 3000.
Why we care: This article discusses opportunities and challenges for the accounting profession through insights gleaned from the current state of ESG reporting in Germany. While the future of mandated sustainability reporting in the United States remains uncertain, the climate-related disclosure measures currently issued by the SEC and enacted in California are evidence of an overall trend.