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Issue #111: A weekly update on responsible investment.
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\\ Weekly Insights \\
Earlier today, March 28th, the London Stock Exchange Group (LSEG) announced they are the first major exchange to publicly set out their plans to achieve net zero. Publishing a detailed transition plan, the firm shares some of its priorities:
- Accelerate the just transition to net-zero: Leveraging LSEG’s unique market position, capabilities, products and services to support a global reallocation of capital that shares the costs and benefits of reaching net-zero fairly between and within countries.
- Enable growth of the green economy: Deliver sustainable economic growth, more economic activity must focus on creating, scaling and delivering solutions to the world’s environmental and social challenges.
- Create inclusive economic opportunity: Empower economies, communities and individuals by championing inclusion and opening up economic opportunity.
How are they going to report on their target?
- LSEG Annual Report & Accounts
- Annual Sustainability Report
- CDP Climate Change disclosure
- TCFD Report
In fact, their recently published Sustainability Report goes into some of these areas further/general shows some best practice sustainability reporting.
- They show a summary of their ESG Ratings by multiple providers.
- They plot their most financially material business topics:
- They offer a summary of their TCFD report and approach within their sustainability report alongside an independent publication.
- They offer a quantitative metrics breakdown summary on key ESG figures at the end of their report.
For those looking to “Learn from the best” in terms of their ESG disclosure, LSEG certainly seems like one to watch.
\\ Top Stories \\
What type of ESG questions might a corporate receive in a credit agreement?
- Existence of ESG policies, audited or unaudited
- Adherence with certain ESG frameworks (most of which are international)
- Energy footprint (including waste, water, fuel)
- Carbon footprint
- HR policies
- Board composition
- Employee health & wellness programs
- Questions related to procurement and supply chain
- Community engagement
- Percentage of revenue attributable to specified industries
- Regular review and updates of programs, including employee education
Green Startups, Flush With Cash, Face Pressure to Make Climate Advances
About 1,200 privately held green startups raised a record $45 billion last year, roughly double the previous year’s total, according to PitchBook. Companies tied to sustainability raised just as much by going public on U.S. stock markets, giving the once-capital-starved industry a $90 billion war chest.
Wall Street Journal.
Russian ESG debt hits the wall
Russian borrowers have racked up some US$8.9bn at face value in international green, social and sustainability-linked bonds and loans since 2018, according to Refinitiv data. More has been closed in local currency ESG debt, amounting to around US$1.2bn-equivalent when it was issued. Unfortunately, there seem to be no established resolution mechanisms to hand. “The reality is there’s no formalised process and nobody’s really had to deal with this before,” said a head of ESG capital markets. He continued: “I defy anyone to predict accurately what’s going to happen here. Clearly, if I was a lender or a bondholder and I was holding some of these ESG-labelled instruments I’d be worried about getting my money and I’d be very sceptical as to whether I would get any other things that would normally be provided in connection with those ESG labels.”
The False Promise of ESG
Do ESG ratings really deliver on the promise? Are highly-ranked ESG businesses really more caring of the environment, more selective of the societies in which they operate, and more focused on countries with good corporate governance? In short, is ESG really good? The answer is no. Harvard Law digs into this question by assessing a certain group of companies: businesses with substantial operations in Russia.
When It Comes to ESG Investing, There’s No Going Back
When it comes to making smart investment decisions in the ESG space, education is everything. Constantly improving your understanding of ESG investment targets is critical — especially in a rapidly growing space where interest is hot, and transformation is rapid. Investors should use the following rules of thumb as a guide:
- Align your portfolio with your vision for the future. Think about the changes you want to see made in the world and identify companies that are helping to bring that transformation into reality.
- Review corporate reporting. Companies committed to ESG initiatives should be publishing regular sustainability reports that track progress against actionable goals.
- Leverage third-party sources to validate corporate reports, such as MSCI ESG Ratings, Sustainalytics ESG Ratings, Fortune’s “Best Companies to Work For” and Glassdoor.com.
- If you are unfamiliar with an investment target, don’t invest. If the company’s fundamentals are questionable, investors should take pause.
- Don’t put all your eggs in one basket. Instead, diversifying your portfolio can reduce risk.
- Properly determine your positions, to ensure you have enough funds to invest when good opportunities arise.
- Evaluate stocks — and the true impact of your investment — from a short- and long-term perspective.
ESG is not enough. It’s time to add an H
Imagine what we could accomplish if the same focus we now have on ESG gets added to include on public health. Using the ESG framework as a model, we could make protecting and promoting health every bit as essential as environmental, social, and governance principles for any business looking to win favor with customers, investors, and employees. Is it time to add an H to ESG?
* Want to make your ESG processes digital?
** Schedule a call to speak with Nossa Data
*** Email Team@nossadata.com
\\ Report & Paper Highlight \\
The Sounds of Silence — S&P Global
This research shows firms that share their data on diversity, equity, and inclusion (DEI) have taken further steps to address gender equity concerns.
- Participant firms (Corporate Sustainability Assessment (CSA) firms) compared to non-participant firms, in the S&P 500 had greater gender diversity in senior leadership. Large, publicly traded companies are subject to regulatory diversity requirements and to the public scrutiny of their diversity among executives. Consequently, these firms have a de facto diversity minimum. Participant firms go beyond the minimum requirement, particularly with 6% more women appointed in the less visible executive roles outside of the C-suite and board.
- Participant firms, compared to non-participant firms, are less likely to be defendants in a federal court decision. Despite a nearly even split between participant and non-participant firms, non-participant firms were defendants in 60% of all federal court case decisions and 64% of employer discrimination decisions from 2017–2021 where an S&P 500 index constituent was listed as a defendant.
\\ Leading Across ESG \\
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