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::response - Sustainability & CSR Advice
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Buzzes   50 of 12,321 results

@
SE

(https://blog.lgim.com/categories/esg-and-long-term-themes/is-now-a-good-time-to-invest-in-renewable-energy/)

Timing any market is notoriously difficult. Does this apply to green infrastructure?

After several years of outperformance, renewable energy indices have been suffering since mid-2023. This is largely due to the macroeconomic environment, with increased interest rates weighing on valuations.

Increased wind equipment costs, supply chain issues and project cancellations have also weighed on sentiment, particularly in the offshore wind segment, making some investors question the attractiveness of renewable energy assets.

In this update, we’ll look beyond the current headwinds to assess the longer-term outlook for the sector.

RFI Foundation: Banks in the GCC region are tackling climate transition risk, but it remains a ‘work-in-progress’

Standard & Poor’s Ratings has this week addressed frequently asked questions about climate transition risk facing banks in the Gulf Cooperation Council (GCC) countries, describing banks’ efforts in measuring the risk to date as a ‘work-in-progress’. S&P evaluated the risks facing the banks it rates primarily thorough the three channels of credit, liquidity, and legal risk.

S&P identified 12% of banks’ financing going to transition-exposed sectors in the region. It also highlighted the relatively low direct exposures to hydrocarbons, saying it “may be surprisingly low, given the importance of hydrocarbons in GCC economies, but it is worth noting that large national oil companies typically self-finance via joint ventures or access international capital markets.”

This was one of the points noted in the RFI Foundation’s financed emissions reports on markets in the GCC. The method we used to estimate banks’ Scope 3 emissions takes this into account by matching domestic emissions with domestic financial institutions. This measurement incorporates only those emissions from activities domestically, which excludes Scope 3 emissions from use of exported commodities and leads to estimates that are more relevant when considering domestic financial assets.

On the topic of financed emissions, like those covered by RFI Foundation’s financed emissions database, S&P highlighted that “banks’ difficulties with measuring scope 3 emissions come up regularly in our discussions”. This is understandable because emissions measurement is an almost universal challenge for banks globally. Data collection often improves based on efforts to require it for large, listed companies through stock exchanges, and by bank regulators through their regular supervisory channels including stress testing.

The data collection and validation process is one that develops over time, and like most emerging and developing countries, the GCC countries have only more recently embarked on these types of processes, with all regional exchanges signing up to the Sustainable Stock Exchanges initiative during the past decade. Climate disclosure and stress testing for banks has been a more recent phenomenon in developed countries where the underlying data are more accessible, and has only become elevated as a priority in GCC countries in recent years as the understanding of the financial impacts of climate-related risks has grown.

This context was the motivating factor for the way RFI undertook its financed emissions work, which is catalogued in an open-access database with five years of data covering banks and financial markets in the six GCC countries and five other markets. There are several dimensions of ‘financed emissions’ that matter for different stakeholders.

The regulatory view is guided by the importance of maintaining financial stability and resilience to climate-related shocks. It is focused on how individual banks are managing their climate-related financial risk exposures within their overall risk management strategies. Regulators are also concerned about the consequence of market-wide climate-related risk exposure and the aggregate impact of a climate-related shock and banks’ response to it on financial stability overall.

This view is not necessarily shared by investors, who are primarily focused on comparing the near-term, climate-related risks they are exposed to in the shares, bonds and sukuk of one bank compared to another peer bank or one in another market. One of the main differences is the time scale over which data quality improvements are expected to occur and how data gaps should be filled.

A hypothetical investor may want to prioritize access to high-quality, comparable data for all banks as soon as possible, which has been embedded into sustainability reporting frameworks such as the IFRS Foundation’s S2 climate disclosure standard, with some form of assurance to ensure quality and especially comparability.

A regulator may share the investor’s appreciation for banks providing the highest quality of data to investors and other stakeholders, but the availability of data alone may not be enough of a priority if it detracts from the ability of the bank to understand the climate-related risks its financing portfolio contains and to manage or mitigate as the risks materialize over time. In addition, governments are often concerned both about the financial impact of climate-related risk and the potential consequences for financial stability, but also about the impact of the energy transition on the wider economy.

Research conducted for the International Labour Organization (ILO) and Islamic Development Bank (IsDB) that was released at COP identified significantly divergent outcomes for employment across the MENA region depending on how policies were selected to achieve or exceed countries’ climate NDCs. The macroeconomic estimates they presented found that substantial economic growth and millions of jobs could be created through strong industrial and climate policies.

The financial sector plays a key role in financing the types of scenarios envisaged by the ILO and IsDB, and will need substantial new capabilities beyond what they have now. Among those capabilities will be many that focus on understanding, measuring and disclosing climate risks to investors in a form that is consistent with international reporting standards, but improving carbon accounting skills is just one part of what banks will be asked to do.

They will have to balance the commitments they need to make in improving their data collection and reporting of climate data with the need to build climate strategy into their overall business and risk management strategies. While this is happening, they will need to orient their activities in the near-term before the climate data that investors seek are available.

‘Order of magnitude’ estimates such as those developed by the RFI Foundation will play a key role in evaluating climate risks and interlinkages within the financial sector. Because they are developed from the top-down, they don’t need as much data to provide useful insights for banks, regulators and policymakers. Over time, they may be overtaken by bottom-up data and regulatory-led or mandated scenario analysis. When speed is the name of the game, as it is with climate change, it is better to act today with the data we have than waiting to act tomorrow with improved data.

Get the latest insights about responsible finance in OIC markets & Islamic finance from the RFI Foundation, C.I.C. Subscribe to RFI’s free email newsletter today!

(https://planet-tracker.org/wp-content/uploads/2024/02/Ripple-Effects.pdf)

Planet Tracker: Major Fashion Brands and Retailers Face Growing Water-Related Risks

Major fashion brands and retailers, including Adidas, Gap, H&M, Inditex, Levi Strauss, Nike, PVH Corp., Ralph Lauren and VF Corp are facing significant physical, regulatory and reputational water-related risks, a new report from Planet Tracker reveals. 

With water stress on the rise in key manufacturing regions, the report urges companies and investors to prioritise water risk management for long-term sustainability. 

While the direct operations of these companies may seem to have low water-related risks, the report suggests that indirect impacts could pose significant threats to their operations. 

Much of the apparel supply chain operates in areas of moderate to high water stress, with the situation projected to worsen in the medium-term, posing risks to sales and margins for brands and retailers.

Financial institutions should consider water-related risks in their investment decisions and engage with companies to disclose water usage and risks while supporting strategies to mitigate these risks, such as setting Science Based Targets for water.

View the Interactive dashboard

Download the Investor Engagement Sheet

Download the Water Impact Calculator

(https://www.morganstanley.com/ideas/sustainable-funds-performance-2023-full-year)

Morgan Stanley: Sustainable Funds Outperformed Peers in 2023 

Sustainable funds outperformed their traditional peers across all major asset classes and regions in 2023, according to a new “Sustainable Reality” report from the Morgan Stanley Institute for Sustainable Investing. Overall, sustainable funds generated median returns of 12.6%, almost 50% ahead of the 8.6% returns of traditional funds, with outperformance coming mostly in the first half of the year. Investor demand also remained strong with assets under management up 15% from 2022 levels, reaching $3.4 trillion; sustainable funds now account for 7.2% of total global AUM.

“2023 saw sustainable funds return to their long-term trend of outperforming their traditional peers,” says Jessica Alsford, Morgan Stanley’s Chief Sustainability Officer and CEO of the Institute for Sustainable Investing. “This comes on the heels of our survey of individual investors, which found that a majority look for both competitive financial returns and sustainability in their investment strategies. Our new analysis shows this can be possible.” 

Institute analysis of Morningstar data found that investing a hypothetical $100 into a sustainable fund in December 2018 would be up 35% if it had achieved the median return for each of the past five years. For traditional funds, that investment would be up 25%. 

(https://www.morganstanley.com/ideas/sustainable-investing-on-the-rise)

Individual investor interest in sustainability is on the rise, according to survey findings in a new “Sustainable Signals” report by the Morgan Stanley Institute for Sustainable Investing and Morgan Stanley Wealth Management.

More than three quarters (77%) of individual investors globally say they are interested in investing in companies or funds that aim to achieve market-rate financial returns while also considering positive social and/or environmental impact. In addition, more than half (57%) say their interest has increased in the last two years, while 54% say they anticipate boosting allocations to sustainable investments in the next year.

Investors cited that their growing interest in sustainable investing is due to factors including new climate science findings (53%) and the financial performance of sustainable investments (52%). A majority of investors also believe that companies should address environmental and social issues.

“Nearly 80% of individual investors believe that it is possible to balance market rate financial returns with a focus on sustainability,” says Jessica Alsford, Morgan Stanley’s Chief Sustainability Officer and CEO of the Institute for Sustainable Investing. “These investors express a desire for their investments to advance positive environmental and social impact, creating opportunities for finance professionals to meet these needs.”

When asked to pick their top sustainable investing theme, investors prioritized climate action with 15% ranking it first, followed by healthcare (13%), water solutions (11%) and circular economy (11%).

(https://www.allianzgi.com/en/insights/outlook-and-commentary/scaling-up-stewardship-the-chinese-way)

China has a distinctive corporate landscape. Most of the A-shares market by value is made up of state-owned enterprises and companies with a large single shareholder are common. Does this mean engaging with Chinese companies requires a customised approach?

Key takeaways
  • The Chinese regulatory environment for stewardship is generally supportive and as sustainable investments increase in China we expect more policy-level clarity to encourage further progress.
  • A customised stewardship approach combining engagement and proxy voting can enable minority shareholders to influence sustainability agendas typically dominated by management and significant shareholders.
  • Shareholder activism on sustainability proposals could gain traction in the future but requires collective efforts from both domestic and global institutional investors.

(https://documents.nuveen.com/Documents/global/Default.aspx?uniqueId=e6da6b45-3013-4aff-b07b-aa696f515c8a)

Significant growth in electrification is required in the United States to meet decarbonization goals.

According to the Department of Energy, the capacity of the existing U.S. grid will need to increase 57% by 2035.1 To support this additional electrification, annual capacity additions of 58–115 GW of clean energy generation (enough to power 43–86 million homes) will be required through 2050,2 underscoring the tremendous need for investment in electrification and associated supporting infrastructure, which is estimated to be $200B–$500B annually in the U.S. alone.

In a recent white paper, Don Dimitrievich examines the significant transformation the U.S. energy ecosystem is undergoing, and why credit can be an attractive strategy to capitalize on today’s infrastructure opportunity.

(https://www.ceres.org/resources/reports/exploring-nature-impacts-and-dependencies-field-guide-eight-key-sectors)

This report equips investors with the insights they need to work with companies on managing the escalating risks of nature they face and on creating long-term value in a changing climate.  

This field guide gives an overview of how businesses across eight sectors, from chemicals to food, impact and depend on nature. 

  • Ceres developed Exploring Nature Impacts and Dependencies: A Field Guide to Eight Key Sectors on behalf of Nature Action 100, the first global investor engagement initiative to address the urgent crisis of nature and biodiversity loss around the world.  
  • The field guide includes eight individual factsheets on each sector.  
  • The factsheets explain the main industry activities associated with the sector and how each sectors’ activities depend on and impact nature.  

Since direct engagement with Nature Action 100 companies kicked off last year, more than 200 investors representing over $28.6 trillion in assets under management or advice, are engaging 100 market-leading companies to drive urgent and necessary actions on nature. 

(https://www.goldmansachs.com/intelligence/pages/obesity-drugs-are-among-breakthroughs-forecast-GDP.html)

Goldman Sachs: Obesity drugs are among health breakthroughs forecast to boost GDP 

A wave of healthcare innovation may significantly boost the potential of the US economy, according to Goldman Sachs Research.

The emergence of weight-loss medications, AI-powered drug discovery, genomic and regenerative medicine techniques such as gene and cell therapy, and advances in diagnostics for the detection of diseases such as Alzheimer’s amount to a “remarkable pace of healthcare innovation that could significantly improve health outcomes,” Goldman Sachs Research economists Joseph Briggs and Devesh Kodnani write in the team’s report. These developments could enable people to live better and longer lives.

While a healthier population is far and away the most important outcome of healthcare innovation, breakthroughs can also add up to big gains for the economy. On their own, new anti-obesity drugs could raise US GDP levels by 0.4% or more in the coming years, according to the report. More broadly speaking, the latest healthcare breakthroughs could lift GDP by 1.3%, equivalent to about $360 billion per year in today’s dollars.

Interest in healthcare innovation has soared in recent years. Venture capital fundraising in US healthcare concerns has more than doubled since 2019. That level of interest has been matched by corporate leaders in the healthcare industry, as evidenced by the 60% surge in innovation-related keywords on company calls during the most recent earnings season. Our equity analysts project that investment across the entire healthcare sector could increase by 34% in 2024 to nearly $900 billion.

(https://www.alliancebernstein.com/corporate/en/insights/investment-insights/investing-with-impact-how-municipal-bonds-are-leading-the-way.html)

Issues like water scarcity are felt most intensely at the local level. That makes it incumbent on municipal bond issuers to lead the response.

Municipal bond issuers are responsible for building and supporting the physical infrastructure and the public goods and services that enable citizens to participate more in an inclusive economy. That makes the roughly $4 trillion US municipal bond market fertile ground for impact investing. Challenges like supplying clean water and improving access to quality healthcare can both be tackled through environmentally, socially, and financially productive investments in communities and institutions.

Leading When Water Is Lacking

As we’ve seen over the past few years, access to water can’t be taken for granted. The country faces historic drought conditions in the West and other regions. For instance, the Rio Grande, a river that countless Southwestern US communities depend on, faces persistent drought and increased water demand.

These challenges disproportionately impact low-income communities. In one study, 14% of respondents said a $12 monthly increase in water bills would lead them to cut back spending on groceries and basic medical care.1 Long-term investments in projects that diversify water sources, combined with water conservation strategies, can go a long way toward improving drought resiliency and reducing the financial burden communities face.

Take El Paso Water, which provides water, wastewater, reclaimed water and drainage services to more than 678,000 residents of El Paso, Texas, and surrounding areas. El Paso’s median household income is 76% of the state’s median; its 18% poverty rate is 29% higher than the statewide rate.

(https://www.allianzgi.com/en/insights/outlook-and-commentary/addressing-groundwater-overuse)

Key takeaways
  • Every year since 1993, the United Nations (UN) has marked World Water Day on 22 March, bringing the significance of freshwater to the centre of public attention.
  • This year’s World Water Day theme “Leveraging Water for Peace”1 puts a dedicated focus on how scarce or polluted water, or unequal and limited access to this precious liquid, can spark conflict and how cooperating on water can create a positive ripple effect.
  • Safeguarding freshwater resources as a lifeline of our planet also implies preventing groundwater and aquifers from running dry.
  • Here, investments in sustainable solutions that focus on managing and restore natural water storage capabilities can help addressing actual and future water-related challenges.

 

(https://www.ice.com/insights/impact-bond-report-2023)

A shift in issuance from Europe to the Asia Pacific continues

Highlights

  • Annual impact bond1 issuance of US$811 billion was 2% lower than 2022, with slower activity toward year-end driven by ongoing challenging macroeconomic and geopolitical conditions
  • Europe and North America saw a 1% and 28% fall in issuance respectively, while Asia Pacific saw 7% growth year on year. This reflects a subtle shift of issuance activities from Europe to Asia Pacific over the past few years
  • In terms of use of proceeds, biodiversity projects are gaining popularity, with afforestation and forest management receiving particular attention

(https://www.man.com/maninstitute/long-story-short-sustainability-systematic-investing)

Man Institute: Long Story Short: Sustainability and Systematic Investing

For too long, sustainability has been focused on equities alone. In this episode of Long Story Short, the Man AHL team take a look at how sustainability can be integrated across commodities, government bonds and more.

How can sustainability be integrated into a modern, multi-asset portfolio? In this episode of Long Story Short, Otto van Hemert, Harry Moore and Ed Hoyle take a look at how sustainability can be integrated across commodities, government bonds and more.

Listen to podcast or read transcript here

@
Emy Fraai

(https://www.robeco.com/en-int/insights/2024/03/we-re-a-big-world-on-a-small-planet-the-role-of-sustainability-in-finance)

The world is consuming natural resources and polluting the environment beyond what the planet can reasonably manage. In the words of award-winning climate scientist, Johan Rockström, we are indeed ‘a big world on a small planet’.1 Sustainable finance can help forge a path to economic growth that is socially and environmentally fair for present and future generations.

Summary

  • The world is depleting natural resources at a dangerous pace
  • Population growth will exacerbate an already precarious position
  • Finance can help channel capital to companies generating sustainable profits and growth

(https://www.gmo.com/globalassets/articles/viewpoints/2024/gmo_sustainability-or-bust_3-24.pdf)

Workforces decline for the foreseeable future, resources get scarcer, climate damage escalates, and the squeezed environment becomes toxic to life...

Co-founder and Chief Investment Strategist Jeremy Grantham explores the current state of sustainability and natural limits, with reference to resource limitations, waste and toxicity, agricultural problems, population, and growth.

(https://reports.shell.com/sustainability-report/2023/_assets/downloads/shell-sustainability-report-2023.pdf)

Shell: Sustainability Report 2023 

Shell's latest report covers details of their sustainability activities including:

  • Achieving net-zero emissions 
  • Respecting nature 
  • Powering lives 
  • Sustainability in oil and gas activities 
  • Performance data

(https://www.henkel.com/resource/blob/1935232/ae7bc192da78ab3ea1be5c12f764d63d/data/2023-sustainability-report.pdf)

Henkel's latest report details their recent sustainability focused activities, including:

  • 2023 highlights at a glance 
  • Strategy - implementation and management 
  • Regenerative planet - climate, circular economy and natural resources 
  • Thriving communities - equity, education and wellbeing

(https://www.nestle.com/sites/default/files/2024-02/creating-shared-value-sustainability-report-2023-en.pdf)

Nestle's latest sustainability report covers key areas of their sustainability focused activities, these include:

  • Stakeholder engagement 
  • Water stewardship & responsible sourcing 
  • Advancing human rights 
  • Packaging and circularity
  • TCFD Index

AI in ESG? Nope. Just a bit of decent IR please (Blog)

Investors and analysts typically need three things from companies:

  • Sustainability / ESG DATA ... for any quants analysis that they undertake, passive funds that they manage or for regulatory compliance.
  • INFORMATION ... to help them contextualise that data within the the company's business operations, strategy, sustainability exposures, risks and opportunities and facilitate active investment decision-making
  • CONTACT with company management ... to build an understanding of how sustainability is embedded into business strategy and may affect valuation.  Also to demonstrate 'stewardship' activity

Everyone always focuses on the data requirement in isolation. This rather misses the point in three respects:

  • Data without context/information is (at best) meaningless and (at worst) misleading.
  • Information without explanation (contact) rarely results in accurate understanding
  • Action taken on the back of misunderstanding is rarely beneficial

Mindful of the fact that companies find communicating on sustainability to investors difficult, the SRI-Connect team visited the investor relations pages of the websites of 110 companies (across the globe and across sectors) to explore how many companies were meeting investors needs for INFORMATION and CONTACT as much as their needs for DATA. Specifically, we asked:

  • Does the company allocate specific sustainability communications responsibilities to a member of its IR team?
  • Does the company allow easy access to previous presentations on sustainability to investors and analysts?
  • Does the company publish a schedule of upcoming sustainable investor communications events?
  • Has the company made a specific effort to present sustainability data in a format that investors / analysts find helpful?
Glass half-full? Half-empty? Or  14.5% full?

On one hand, we found some really good practice to be positive about. Some companies are becoming much more proactive in their communications on sustainability to investors.

On the other hand, many companies across the world are missing some really easy tricks in their sustainable investor communications.

Out of 110 companies surveyed:

  • 16 companies identify - on their websites - the IRO responsible for communications with investors on sustainability
  • 33 company websites contain an archive of presentations given to investors on sustainability / ESG issues
  • 5 company websites announce the date of upcoming sustainable investor events
  • 44 company websites contain a dataset directed at sustainable investors (27 in .xls format, 17 in .pdf or other format)
Sustainable / ESG data requests are really annoying...

We get it. We really do! Many of the ESG / sustainability requests made by (or on behalf of) investors are really annoying. They appear (and sometimes are) irrelevant, overly-granular, ill-informed, disconnected, unrealistic, untimely, inefficient ... I could go on.

It is entirely understandable that companies find them hard to manage.

... but (most) companies really can't complain

However, until companies start communicating sustainability / ESG information using the same basic principles of transparency and direct communications that they deploy to other aspects of investor communications, it seems inevitable these inefficiencies and frustrations will continue.

A company who complains that ESG ratings misunderstand their business or aren't accurate but have not held an annual briefing for ESG ratings agency analysts would be as ridiculous as a company complaining about a financial 'sell' rating if they hadn't invited the relevant analyst to their latest 'strategy presentation'.

... but it can all be fixed ...!

The encouraging aspect here is how easily (and cheaply) fixable it all is.  If companies simply deploy the same practices to sustainable investor communications (target, prioritise, webcast, roadshow, feedback) that they apply other investor relations, they can massively expand their reach into sustainable / ESG investors while significantly reducing the time that it takes.

Free support to get you started

Sector benchmarking reports on the IR practices discussed above and six other metrics on how companies use their IR webpages to support direct investor communications on sustainability are available for free to all listed companies from relevant sectors. Just contact me directly and I'll be delighted to send you a comparison of your practice in this regard vs that of your sector peers.

(NB: We don't plan to publish these benchmarks beyond peer companies in each sector. We're not in the 'name and shame' business or the 'name and fame' business. We're just in the business of improving the efficiency of communications so that we can all start to focus on what matters ... how to allocate capital effectively in a world of sustainability transitions)

(https://klementoninvesting.substack.com/p/pricing-climate-risk?utm_source=post-email-title&publication_id=10802&post_id=140956712&utm_campaign=email-post-title&isFreemail=true&r=2u2apu&triedRedirect=true&utm_medium=email)

"I have been writing about the outperformance of ‘green’ stocks vs. ‘brown’ stocks a long time ago and by now this green-minus-brown return difference has become widely accepted and is being used by major asset managers. What is interesting, though, is that the focus of this return premium seems to have shifted from regulatory risks to physical risks in the past decade.

Thomas Dangl and his collaborators did something interesting. They used large language models to measure the news reports and company-specific exposure to climate change related events. Crucially, the language processing allowed them to differentiate between actual physical risks like hurricanes, wildfires, floods, etc., and the risks from regulatory changes and possible climate action as a result of the COP meetings, etc."

@
Emy Fraai

(https://www.robeco.com/en-int/insights/2024/03/how-companies-can-help-reduce-the-gender-drain?cmp=na_3_418)

From 1970-2000, women’s workforce participation added 13.5% (USD 2.0 trillion) to the US economy.1 Flexible work and access to affordable childcare could help push their contributions even higher. Companies with supportive benefits are helping boost gender equality and shareholder value.

(https://carbontracker.org/oil-and-gas-companies-are-way-off-track-from-paris-agreement-goals-finds-new-combined-alignment-scorecard/)

Carbon Tracker: Oil & gas companies way off-track from Paris Agreement goals

Oil and gas companies are way off-track from Paris Agreement goals, finds new combined alignment scorecard

To further empower investors and regulators, a new assessment scorecard is being released today to enable investors to judge whether oil and gas companies are aligned with the Paris Agreement. The scorecard is a part of a new report from financial think tank Carbon Tracker and the first attempt to incorporate five key alignment metrics.

Paris Maligned II: Climate alignment assessments reveal oil & gas company transition risk examines the 25 largest listed oil and gas companies and evaluates the extent to which they are aligned with Paris-climate goals, based on Carbon Tracker’s most recent assessments of five key metrics: Investment Options, Recent Project Sanctions, Production Plans, Emission Targets,  and Executive Remuneration. It also highlights how the degree of alignment can be used to assess the extent to which companies are exposed to an accelerating energy transition where oil and gas demand weakens.

(https://business.edf.org/insights/an-investor-guide-to-the-sec-rule-on-climate-related-disclosures/)

EDF: An Investor Guide to the SEC Rule on Climate-Related Disclosures 

On March 6, 2024, the Securities and Exchange Commission (SEC) issued a final rule for “The Enhancement and Standardization of Climate-Related Disclosures for Investors.” The rule builds on the SEC’s initial interpretative guidance on climate risk disclosure in 2010, and will provide investors with comparable, specific and decision-useful information about companies' environmental risks and strategies. The final rule follows release of a proposed rule in March 2022 and a subsequent comment period in which over 24,000 letters were filed by investors, businesses and other stakeholders, with most of those supportive of the proposal.  

The final rule requires affected companies to disclose certain types of climate-related information, bringing climate risk disclosure on par with other financial reporting requirements for publicly traded companies. In so doing, the rule mirrors similar reporting requirements in other jurisdictions including the European Union, United Kingdom, and Japan. Newly required disclosures will be phased in over several years and will replace inconsistent, voluntary reporting of climate risk exposure with clear and consistent requirements. The rule marks a major step forward in enhancing investors’ capacity to manage portfolio-wide climate risks, protecting the overall health of the financial system.

(https://www.lombardodier.com/contents/corporate-news/investment-insights/2024/march/eight-key-risks-for-investors-in.html?utm_source=newsletter&utm_medium=email&utm_campaign=our-weekly-investment-round-up-e&utm_campaign=20240318-our-weekly-investment-round-up-e&utm_medium=email&utm_source=newsletter)

With global equity markets hovering around new all-time highs, investors are questioning what could go wrong in 2024. Lombard Odier examine eight key risks, with the caveat that big disruptions often come from overlooked or hard-to-model areas.

Key takeaways

  • Geopolitics, threats to tech sector returns, more persistent inflation, credit events and public debt sustainability are some of the major risks for investors in 2024
  • They expect tense geopolitics, but localised conflicts and hence contained financial market risks. The risk of an inflationary rebound in the US is low but rising. Tech stocks’ outperformance should moderate in time
  • Strong investor demand for yield and easing financial conditions should help keep credit risks contained. Commercial real estate exposures look manageable systemically for banks and insurers, but are harder to assess at asset managers
  • They judge known market risks to be either low or medium, supporting the current risk-on backdrop and our decision to keep portfolio risk exposures at strategic levels.

(https://breckinridge-fs.s3.amazonaws.com/files/uploads/2023-esg-engagementreport-2.pdf?mkt_tok=MjAwLU9ZSy00NzMAAAGR8Q22iCBotqx0fFbnOzpLkQN1jIyeb7n-b1NJ8QBLAPdva9b1FD9ag7qIwLFcHpT3RJ9bXmZ5n0gasU_Eg1_hDkmJ-wLAioZvrt2zenL2)

Breckinridge Capital Advisors' latest Issuer Engagement Report details their recent engagement activities, these cover their nearly 130 different engagements, also detailing:

  • Environmental Discussions - Energy Transition, water consumption and sustainability
  • Social Discussions - Community broadband and supply chain management
  • Governance Discussions - Data privacy and employee relationships

(https://www.unepfi.org/wordpress/wp-content/uploads/2024/02/Target-setting-manual.pdf)

Banks, investors and insurers are increasingly looking to assess and disclose impacts and dependencies on nature and implement impact management approaches that allow for the setting of meaningful targets to measure progress. As part of this effort, there is a need to understand what key risks and impacts look like in the ocean. 

The manual enables institutions to set targets that align with the Guidance and support the transition to a Sustainable Blue Economy, in line with the objectives of the Kunming-Montreal Global Biodiversity Framework and the Paris Agreement. 

(https://www.wwf.sg/wp-content/uploads/2024/01/Empowering-Key-Development-Finance-Institutions-in-Asia-to-Accelerate-the-Decarbonization-of-the-Energy-Sector-2023.pdf)

This report is part of the Asia Sustainable Finance Initiative (ASFI) - a multi-stakeholder forum, incubated by WWF-Singapore that aims to harness and amplify the power of the finance sector to create low-carbon, climate-resilient and nature-positive economies that deliver on the UN Sustainable Development Goals (SDGs), the Paris Agreement and the Global Biodiversity Framework (GBF).

(https://www.iea.org/reports/global-methane-tracker-2024#overview)

Methane is responsible for around 30% of the rise in global temperatures since the Industrial Revolution, and rapid and sustained reductions in methane emissions are key to limiting near-term global warming and improving air quality.

The energy sector – including oil, natural gas, coal and bioenergy – accounts for over a third of methane emissions from human activity. The IEA’s Global Methane Tracker is an indispensable tool in the fight to bring down emissions from across the energy sector.

This year’s update provides our latest estimates of emissions from across the sector – drawing on the more recent data and readings from satellites and ground-based measurements – and the costs and opportunities to reduce these emissions.

It also tracks current pledges and policies to drive down methane emissions and progress towards these goals. For the first time the Tracker includes the investments needed to deliver emissions reductions and the potential revenue from these measures. 

(https://business.edf.org/insights/financing-methane-abatement/)

An emerging role for finance in the energy transition is through the use of "sustainable finance instruments" - where capital is explicitly intended to fund an organization's sustainability projects and goals (think green bonds, sustainability-linked bonds, blended finance, etc.).

We break down the wonky world of sustainable debt in our latest primer, where we analyze its features, trends, and 17 case studies (featuring Eni, Enbridge, Shell, BapCo, the blue bond, the rhino bond, and more!). This presentation and accompanying report by EDF and Rennaisouk introduce the major sustainable finance instruments and examine case studies of recent transactions across a range of instrument structures and goals – setting the stage for future work on the instruments that can best finance methane abatement at NOCs.

Eliminating methane from fossil fuels is among the most cost-effective and near-term solutions to slowing climate change, but its financing remains limited. To date, less than $1bn from external sources of finance has been targeted at fossil fuel methane abatement, despite the IEA estimating last week that $45bn is still required in just low- and middle-income countries by 2030.

This is a golden opportunity: using high-integrity sustainable finance to drive both positive, real-world outcomes and financial performance. Leadership from issuers, facilitators and investors is needed to build and scale high-integrity financial mechanisms attuned to the requirements for methane abatement at resource-constrained NOCs.

@
Emy Fraai

(https://www.robeco.com/en-int/insights/2024/03/pfas-20-new-waves-of-regulation-will-hit-more-than-just-chemicals)

Regulatory ramp-up and class-action lawsuits open a new phase, new tools, and new investments in the fight against forever chemicals.

Summary

  • PFAS exposure linked to serious health issues
  • The cost and scope of PFAS litigation and regulation expected to increase
  • Testing, treatment, and destruction solutions poised for high growth

  • Rising and unsustainable resource consumption making it imperative for companies to adopt circular economy plans
  • We take stock of global circular economy plans and identify barriers and enablers to adopting circular business models
  • Our analysis of two resource-intensive sectors gives policymakers and companies insights into enabling circularity

Clients of HSBC Global Research can access the full report via the HSBC Global Research website or by contacting Wai-Shin Chan

Circularity is not new, but the need for corporates to act has never appeared clearer. According to the 2024 Circularity Gap Report, materials consumed globally since 2018 roughly equal the total amount consumed during the entire 20th century.

This accelerated resource consumption can be traced to three ecosystems served by seven business sectors that while vital to human existence also contribute the most to material use and GHG emissions.

But there are solutions. Renewable energy and energy efficiency can help to reduce 55% of global emissions while enacting circular economy (CE) policies can address the remaining 45%, according to the 2024 Circularity Gap Report.

 

(http://www.planet-tracker.org/the-nature-scorecard/)

Planet Tracker: The Nature Scorecard

As initiatives emerge to assist and encourage corporates to make nature-related disclosures, financial institutions can begin to identify management teams at the forefront of understanding and revealing nature dependencies, impacts, risks and opportunities.

Planet Tracker has created a Nature Scorecard which examines corporates involved in nature-related frameworks and initiatives, whether they were handpicked by investors or have voluntarily joined initiatives such as being an early adopter of the Taskforce on Nature-related Financial Disclosures (TNFD) or submitted nature targets to the  Science Based Targets Network (SBTN).

The Planet Tracker Scorecard presently comprises 373 companies, ranked by the number of nature initiatives and frameworks of which they are a member, on both a voluntary and involuntary basis.

Companies can no longer claim they lack guidance on nature reporting while the financial institutions which have engagement roles in the Nature Action 100 and PRI Spring Initiative should start pressuring for results.

The ‘biocrastination’ needs to stop.

(https://www.edentreeim.com/docs/default-source/engagement/edentree-q4-ri-activity-report.pdf?sfvrsn=cf08ee13_1)

EdenTree's Responsible Investment Activity Report for the three months to 31st December 2023 with news of our responsible investment research, engagement and governance activities across our managed Funds and strategies. 

(https://www.edentreeim.com/docs/default-source/governance/ri-credentials/c01068-edentree_uk-stewardship-code-2023_v6_online.pdf?sfvrsn=8e48bf41_1)

EdenTree's annual UK Stewardship Code Report details their recent activities across the 12 defined stewardship principles.

This report constitutes EdenTree's disclosure under the UK Stewardship Code and should be read in conjunction with their other disclosures and reports which are all published on their website.

(https://www.rlam.com/uk/institutional-investors/our-views/2024/responsibility-matters-podcast--engaging-with-clp-holdings--energy-and-just-transition/)

To highlight stewardship and responsible investing in action RLAM look at a case study – CLP Holdings, a Hong Kong based utility company with overseas investments. By 2040, they are targeting an 85% reduction in emissions through the closure of coal plants in Hong Kong and overseas.

Demonstrating RLAM's stewardship practices at Royal London Asset Management, Bixuan Xu, Fund Manager in the Global Equities team and Simonetta Spavieri, Senior Engagement Analyst in the Responsible Investment team, discuss how they have been working together and engaging with CLP Holdings since 2021.

They look at why this is such an encouraging company to engage with from both a climate and emission reduction perspective, and also ensuring they are working towards a just transition. They highlight why regular meetings and measurement are so important for responsible investing.

(https://www.rlam.com/uk/institutional-investors/our-views/2024/responsible-investment-research-biodiversity-net-gain/)

In recent years, the commercial real estate sector has been facing an expanding landscape of environmental regulatory requirements, with a growing focus on biodiversity.

Given a greater awareness of the risks of built spaces to nature, and a growing consumer demand for greener buildings with leading environmental credentials, the key implications of this shift may be an increasing linkage of property values and income streams to these environmental credentials, thus potentially creating a performance gap between landlords with leading practices and those who are lagging.

Three key questions capture the starting point for our research:

  1. How can responsible investors assess how prepared companies are for England's BNG implementation?
  2. How can we encourage a more ambitious approach among companies?
  3. What are the limitations of England’s BNG regulation in the broader context of ecological compensation and environmental goals? 

(https://www.teck.com/media/2023-Sustainability-Report.pdf)

Teck: 2023 Sustainability Report 

Teck have published their 2023 Sustainability report detailing 2023 sustainability achievements and key aspects of their sustainability activities and approach. 

2023 Sustainability achievements included: 

  • Conserved or restored an additional 37,900 hectares in 2023, for a total of almost 52,000 hectares conserved since we launched our Nature Positive goal in 2022.  
  • Provided over $32 million to support local communities and Indigenous Peoples for programs focusing on nature, climate, community wellness, education, and equity. 
  • Invested $388 million through procurement from Indigenous businesses. 

Other key aspects of the 2023 report include:

  • Environmental - Including air quality, biodiversity and closure
  • Social - Including human rights, relationships and communities 
  • Governance - Including business conduct and value chain management 
  • Engaging with communities of interest 
  • 2023 double materiality assessment

@
Emy Fraai

(https://www.robeco.com/en-int/insights/2024/03/si-dilemma-staying-the-course-on-climate-why-engagement-remains-vital)

Some large investors recently left the Climate Action 100+ (CA100+) initiative. Their reasons for leaving include concerns over requirements that the new phase of the initiative has brought. Phase Two of CA100+ sees the focus shift from asking companies to disclose their decarbonization strategies to actually implement them; this shift from rhetoric to action appears to be a key sticking point for these investors.

Summary

  • Some investors leave Climate Action 100+ as it moves from commitments to action
  • Engagement shows progress and remains critical to accelerate the low-carbon transition
  • We're staying the course and encourage focus on both engagement and transition finance

(https://tribeimpactcapital.com/wp-content/uploads/2023/06/Sustainability-report-2023.pdf)

Tribe Impact Capital have published their annual Sustainability Report (previously called SDG Performance Report). This is their 5th annual report disclosing the performance and progress of business, operations and investments, towards sustainable development. The last few years have been full of challenges and opportunities. Against, a backdrop of an ongoing global pandemic, an energy crisis, and a war in Europe, notwithstanding escalating climate and nature crises, and rising inequality, the need for a new type of finance has never been clearer.

Tribe was established seven years ago, with a clear mission to move money to the businesses that were actively pursuing the deployment of solutions to the crises we face. The aim was also wanted to reconnect wealth holders to their wealth and enable and empower them to make the decision to invest in the things they care about.

The team’s full focus has been on driving capital towards the alignment of the United Nations Sustainable Development Goals (UN SDGs), and finding ways to better understand the outcomes and real world impact of the decisions. Regulation, data quality and impact management and monitoring regimes are playing catch up, which have presented a challenging environment. Tribe continues to try to find the right frameworks and committing to the science and evidence-backed principles. 

Within this year’s report there is much to reassure of progress over the year, notably the downward trajectory of many of Tribe's key climate metrics.

@
Emy Fraai

(https://www.robeco.com/en-int/insights/2024/03/navigating-the-climate-transition-with-climate-scenario-stress-testing)

Investors face a difficult challenge in building portfolios that can successfully manage climate change risks, opportunities and impacts. It requires forward-looking data and an ability to interpret it, so that clients can mitigate the risks – and monetize the returns – that the low-carbon transition will bring.

 

@
Emy Fraai

(https://www.robeco.com/en-int/insights/2024/03/staying-the-course-the-magnificent-appeal-of-thematic-investing)

They may be long-term trends that will ultimately direct the course of humanity, but investing in them isn’t always easy.

Summary

  • Thematic portfolios have had trouble trying to beat the Magnificent Seven
  • Important thing is to focus on outperformance over the business cycle
  • Structural trends like climate, digitalization and health will last for decades

(https://bit.ly/49YckZn)

WHEB: #BudgeUpDave! Meet the future of the investment industry

In February Claire Jervis, CFA took part in an investment competition for girls. Working with Future Asset she mentored two teams from Calderside Academy in Glasgow.
 
In this article she talks about the competition (spoiler alert: one of Claire's teams won!) and about inspiring young women to go into asset management. Claire also discusses the gender ratio of female CEOs, representation on Boards and how WHEB actively engage our investee companies on these issues.

(https://www.smurfitkappa.com/-/m/files/publications---global/sustainability-reports/smurfit_kappa_sustainable_development_report_2023.pdf?rev=66d2758a057640e0a9190bd56e70b8ee)

Smurfit Kappa's latest Sustainability Report - "Delivering a sustainable future" covers key areas of their activities including:

  • Highlights of 2023
  • Planet - climate change, forest, water and waste 
  • People - values, strategy, health, safety and wellbeing
  • Impactful business - sustainable and responsible sourcing 

  • Bengaluru City is currently facing one of the worst droughts in its history, heightened by low rainfall due to El Niño
  • With climate change likely to increase rainfall variability, conservation and restoration of lakes and wetlands are critical
  • In our view, investors should actively engage with companies to assess their exposure to growing water-related risks

Clients of HSBC Global Research can access the full report via the HSBC Global Research website or by contacting Wai-Shin Chan

Water woes: Bengaluru's current struggles with severe drought conditions are a stark reminder of the vulnerability of urban water systems to climate change. A year of failed rainfall due to El Niño has resulted in dwindling water reserves in the city. With the likelihood of an increase in future variability in precipitation patterns due to climate change, we believe it is imperative to strengthen urban water systems...

...A global issue: Water scarcity is a pressing risk confronting numerous cities worldwide. As per the WWF, the annual economic value of water and freshwater ecosystems is circa USD58trn, which is nearly 60% of global GDP...

... In HSBC's view, investors should engage with their portfolio companies on issues such as resource consumption, pollution control, and ecosystem impact. In this report, they list 12 engagement questions as a starting point to enable investors to evaluate the resilience and sustainability of various companies in the face of rising water-related challenges.

 

(https://www.astrazeneca.com/investor-relations/events.html)

AstraZeneca: Sustainability 2023 Highlights Summary Call, Virtual (22 Mar 2024)

Friday 22 March 2024, 14:00 GMT | 15:00 CET | 10:00 EST | 07:00 PST.

(https://www.barry-callebaut.com/system/files/2024-01/Forever%20Chocolate%20Progress%20Report%202022-23%20Barry%20Callebaut_0.pdf)

Making sustainable chocolate the norm

Barry Callebaut's latest report covers key details of their sustainability activities, including:

  • Key achievements in 2022/23
  • Prospering farmers 
  • Human rights 
  • Thriving nature
  • Sustainable ingredients

 

(https://www.britvic.com/media/krpdotmg/britvic-annual-report-and-accounts-2023.pdf#page=36)

Britvic's Annual Report covers Sustainable business in pages 34-53, the section details:

  • Healthier People, covering consumer health and wellbeing, community partnerships, employee health and wellbeing, and equity, diversity and inclusion
  • Healthier Planet, this section details, reimagining packaging, water stewardship, decarbonisation roadmap, and biodiversity

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Principles for Responsible Investment
 
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