Issue #63: A weekly update on responsible investment. Forwarded by a friend? Subscribe here.
I saw a number of articles this week emphasizing the momentum of sustainable finance and its must have nature for firms. Robert Eccles, a professor Oxford University explained in Forbes:
“Last year we witnessed the broad recognition in the investment, business, accounting, regulatory, and sustainability reporting communities that the time has come for mandated standards on sustainability reporting, just as we have for financial reporting.”
We used to debate if sustainability reporting was needed at all — that is no longer the question. He says the debate is now around what exact global mandated sustainability standards will we have.
I also saw an interesting post around the ‘must have’ nature of sustainable finance by venture capitalist Katherine Wilson from Illuminate Financial. She says:
“One of the concerns we had with Sustainable Finance when we started exploring this segment was that this was a ‘nice to’ and not a ‘need to’ have. Happily, this is not the case. We are clearly past the tipping point and this problem has become a ‘hair on fire’ and ‘must address’ for financial institutions to remain both compliant and competitive. Covid-19, Black Lives Matter and other events of 2020 have only further highlighted this need.
“Our main stewardship priorities for 2021 will be the systemic risks associated with climate change and a lack of racial and ethnic diversity.”
Considering racial and ethnic diversity, State Street is saying:
- “In 2021, we will vote against the Chair of the Nominating & Governance Committee at companies in the S&P 500 and FTSE 100 that do not disclose the racial and ethnic composition of their boards;
- In 2022, we will vote against the Chair of the Compensation Committee at companies in the S&P 500 that do not disclose their EEO-1 Survey responses; and
- In 2022, we will vote against the Chair of the Nominating & Governance Committee at companies in the S&P 500 and FTSE 100 that do not have at least 1 director from an underrepresented community on their boards.”
The sustainable finance hype is in full swing.
What we are writing:
Introduction to Financial Materiality
Financial materiality is growing in importance as thousands of publicly listed companies around the world are now measuring, managing and reporting on ESG issues (Ioannis loannou, 2011).This is a recent phenomenon with most companies having initiated their ESG strategies within the last decade.
Read the article.
Biodiversity, Supply Chain Rank Among Biggest ESG Themes in 2021
In response, corporations said they would become more socially conscious, adding to the momentum behind ESG. For instance, Bank of America Corp., Sephora USA Inc. and Nike Inc. were among the companies that have either earmarked funds, formed task forces to address racial inequality or pledged support for Black-owned businesses. “ESG was firmly put on the decision-making table in 2020 after being a strategy that was ‘nice to have,’” said Felix Boudreault, managing partner at Sustainable Market Strategies, an ESG research firm in Montreal. “It’s now a performance issue that senior executives must address, whether they believe in it or not.”
2021 — The Year of ESG
In the dark days of March and April, many observers felt the momentum that had been building around ESG over the past few years would surely fade in the face of these overwhelming challenges. Incredibly, the opposite occurred — ESG principles provided the strategic and cultural roadmap for global organizations to navigate, adapt and emerge from the pandemic with their businesses not only intact but thriving. The data around ESG investing is similarly conclusive — 2020’s extreme market volatility confirmed that investment strategies which incorporate ESG metrics have shown the ability to outperform in both up and down markets.
Kurt Harrison from Russell Reynolds Associates.
Why PepsiCo is a ‘poster child’ for ESG reporting
‘PepsiCo is a poster child for what people are trying to do’ in terms of ESG reporting. Learn about what Pepsi included in their latest sustainability report. For one, in June 2020, Pepsi, published its sustainability report in a new format: all-digital and embedded for the first time on the firm’s website. The idea is to allow for what the team calls ‘interactive storytelling, more robust and transparent reporting and the ability to cross-link information [across] the site.’
Global climate action needs trusted finance data
This is a crucial year for efforts to combat climate change. A number of countries are pledging to work towards achieving net-zero emissions. And the United Kingdom is making a determined effort to get the worlds of banking, other private finance and industry to commit to greening their processes and operations. But there’s been little progress in resolving disagreements over public climate-finance provision.
2020 Reflections: Stakeholder Capitalism, Sustainability Reporting, and the Climate Crisis
What is “stakeholder capitalism”, does it really exist and what are the barriers? The traditional model of shareholder dominance has evolved to maximise short-term profit and short-term share price. Stakeholder capitalism serves the needs of all stakeholders, considering not just enterprise value (reflected by profit and share price) but the wider societal value created by an organisation and the impacts, both positive and detrimental, on the environment, people and society, and economic development. So why is this proving so difficult?
Responsible investment strategies of Endowments
This week’s highlight I did not find as a published paper but is an excerpt from a Forbes article. The excerpt discusses work a student group did to compare the responsible investment
What are the difference between Harvard and it’s peers endowment compared to MIT and it’s peers?
“[A] team studied a selected set of 12 of Harvard’s peers (Brown, Cambridge, Columbia, Cornell, Dartmouth, Northwestern, Oxford, Princeton, Stanford, University of California, University of Pennsylvania, and Yale) and 12 of MIT’s peers (Caltech, Case Western Reserve, Georgia Tech, Harvey Mudd, Lehigh University, Olin College of Engineering, Rensselaer Polytechnic Institute, Rochester Institute of Technology, Rose Hulman Institute of Technology, Stevens Institute of Technology, and Virginia Tech).
While Harvard and Northwestern were the only two in their peer set to have become a signatory of the PRI, all of the rest except for Penn and Princeton disclosed explicit policies about ESG investing. In some cases, but not all, these concerned divestment from fossil fuels. The debate continues about whether divestment or engagement is the most effective way to create the necessary changes in this sector. (For an interesting example of the latter, see activist hedge fund Engine №1’s “Reenergize Exxon” campaign.) In contrast, not a single one of MIT’s peer set disclosed anything regarding a sustainable investing policy. If such policies exist, they are well hidden from a search by students who know their way around the Internet.
How to explain this difference? I really don’t know. Maybe it’s a “read” thing and the first set of schools is just better at words, so they can communicate more effectively. At the same time, since counting is pretty easy for engineers, you’d think that numbers from empirical research would be persuasive to them. Yes, I understand that university endowments are managed quite independently of the faculty and properly so. But that doesn’t explain why the endowments of these tech schools are behind their more literary peers when it comes to where the investment world is moving. Nor is it the reason Harvard is ranked slightly ahead of MIT this year.”
From Me to We: The Rise of the Purpose Led Brand
Companies are under the spotlight like never before as they struggle for competitive advantage in the context of this reality. Their customers aren’t just making decisions based on the stalwarts of product selection or price. They’re now assessing what a brand says. What it does. What it stands for. Accenture Strategy’s most recent global survey of nearly 30,000 consumers found that 62 percent of customers want companies to take a stand on current and broadly relevant issues like sustainability, transparency or fair employment practices.
What content do you want to see next week?
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The Nossa Data Team
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