Nossa Data
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Nossa Data

Can companies afford to backtrack on ESG?

A lot has changed for the world in a very short amount of time and companies around the world are being faced with tough choices about how to react.

The Financial Times ran a piece: ‘Big investors warn companies against backtrack on climate change.’ The article emphasizes that big investors are urging companies to maintain their focus on reducing carbon emissions, even with the economic fallout of coronavirus.

Michael Herskovich, head of corporate governance at BNP Paribas Asset Management, said the €440bn fund house continued to discuss climate change with the businesses it invests in.

“The environmental issues we are facing are not going away. For now the main focus is on coronavirus. But we are still discussing environmental and social issues. We hope [the Covid-19 pandemic] won’t change the approach of companies, that they won’t cut their focus on shifting towards a low-carbon economy.”

He added:

“We cannot afford to wait.”

How companies are treating their workforce is also of importance. JUST Capital’s Corporate Response Tracker has received over 100,000 site visits as investors around the world closely follow corporate response to coronavirus.

Daniela Barone Soares, CEO of SNOWBALL IM comments on Capital post-COVID 19 on LinkedIn.

“One of the things this pandemic has allowed us to see with greater clarity is that interconnectedness — and how we can’t dissociate our actions from consequences. Capital is, more often than not, the glue between action and reaction. Under-investment in health systems, in social resilience, and in basic infrastructure will be clearly shown in this pandemic.”

Subscriber Feature:

ESG & Stakeholder Capitalism: What is important for management is this: If the world’s largest institutional investors believe that a stakeholder-driven approach and proper ESG management is linked to the long-term wellbeing of a corporation, then boards have an inherent fiduciary duty to provide oversight of those matters. Russell Reynolds.

Webinar: COVID19 emergency funding for small businesses, social enterprises and charities by the Impact Investing Institute. Watch webinar.

Top stories:

How Business Should Change After the Coronavirus Crisis

When many businesses did not have sufficient reserves to pay the next month’s rent after less than a month of slowdown, and when many more furloughed or laid off thousands of workers for the same reason, it will be tempting to single out examples for shaming. But the finger-pointing will obscure a central question that must be answered if we want our economy to better endure unexpected shocks in the future: Are Americans well served by a corporate governance system that has encouraged all sectors of the economy to run their businesses on fumes?
New York Times.

Coronavirus crisis highlights need for stakeholder capitalism and sustainable investing

The old shareholder primacy model “is no longer fit for purpose,” says Martin Whittaker, CEO of JUST Capital. That’s because companies with a narrow focus on short-term profit maximization do so at the expense of long-term value creation, which ultimately imposes significant costs on shareholders and society. The result, already apparent prior to the pandemic, has been lower productivity and growing inequality, the latter worsened by holes in the social safety net. The very nature of the pandemic is forcing companies to focus on their stakeholders, especially their employees, but also their customers and communities.
Jon Hale on Medium

ESG Is Increasingly Important in Credit Ratings, Moody’s Says

Moody’s Investors Service is paying more attention to environmental and social issues when assessing companies’ risk as the financial impact becomes clearer. Climate and demographic change, as well as societal issues like income inequality, are increasingly highlighted. While ratings have always reflected views of ESG risks, the materiality of key environmental and social issues continues to increase.
Bloomberg.

Disney stops paying 100,000 workers to save $500 million a month

Walt Disney will stop paying more than 100,000 employees this week, nearly half of its workforce. Suspending pay for thousands of so-called cast members will save Disney up to $500m a month across its theme parks and hotels, which have been shut in Europe and the US for almost five weeks. The decision leaves Disney staff reliant on state benefits — public support that could run to hundreds of millions of dollars over coming months — even as the company protects executive bonus schemes and a $1.5bn dividend payment due in July. By contrast some big multinationals, including L’Oréal and Total in France, have vowed to forgo state aid in a show of solidarity with taxpayers.
Financial Times.

Quants Join Chase for ESG Trillions. No One Knows If It’ll Work

Welcome to the ethical gold rush in quantland, where systematic managers are morphing into evangelists for environmental, social and governance investing. Some quants say they’ve found trading signals in pockets of ESG, even if it’s still far from what they would call a factor, or a stock characteristic like how cheap companies look that predicts long-term outperformance. Some firms are developing proprietary ESG measures across the board and scraping news articles, social media and earnings reports for intel.
Bloomberg.

A look at standardization:

What if ESG sources become standardized?
ESG ratings agency MSCI has produced a graphic to show the full set of data that fits into an MSCI rating of International Paper (NYSE: IP), a US-based producer of paper products. By clicking on each of the tiles within a given category you can view additional details on the raw data underpinning the analysis, as well as the associated scored assessment that feeds directly into the MSCI ESG Rating.

Visit the graphic.

This graphic comes at a time when many are pressuring the ESG ratings agencies around a lack of data verification.

“There’s so much data and information out there, it’s really, truly a data war,” says Tim Williams, the director of education initiatives at the Money Management Institute, a trade association.

Morningstar, Bloomberg and MSCI are among the providers of ESG data and rankings. Each has recently attempted to address investors’ skepticism by seeking out more third-party verification. MSCI, for example, points to “alternative data sets” published by “sources outside of the company” that help “minimise reliance on voluntary disclosure”.

Paper Highlight of the Week:

Corporate Resilience and Response During COVID-19
State Street Associates and George Serafeim.

During a market collapse, it is strategically important for a company to be evaluated as resilient, thereby maintaining trust among investors. This study looks at whether during the 2020 COVID-19 induced market crash, investors differentiate across companies based on a firm’s human capital, supply chain and operating crisis response.

Using data derived from natural language processing of news around corporate responses to the coronavirus crisis, the study finds that companies with more positive sentiment exhibit higher institutional investor money flows and less negative returns than their competitors. This is especially true for companies with more salient responses.

Read full paper.

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