SASB chief downplays drama, unveils what’s ahead for 2020
Divisions between the ESG arbiters are overblown, the new CEO of the Sustainability Accounting Standards Board said, arguing that the various groups can complement each other’s work.
On the sidelines of a SASB conference in New York, SASB’s chief Janine Guillot rebuffed concerns about tensions between the standard setters that Moral Money wrote about last month.
SASB, the Taskforce on Climate-related Disclosures (TCFD), the Global Reporting Initiative (GRI) and other disclosure groups have fundamentally different roles, Ms Guillot asserted.
“SASB tends to nest underneath most other principles-level frameworks because we are operating at an additional level of granularity,” she said. “GRI is the right tool for the concept of broader stakeholder impact and then SASB is the tool to supplement that through the lens of a smaller number of financially material issues.”
Looking ahead to 2020, a SASB priority will be to continue to get companies to adopt its reporting standards globally, especially large companies in developed markets, Ms Guillot added.
In 2018, SASB debuted specific reporting guidelines for 77 industries and more companies are now reporting this information. On November 21, for example, Regions Financial, an Alabama-based bank, published its inaugural SASB report.
The Business Roundtable’s landmark shift earlier this year to stakeholder accountability should “definitely” help SASB’s cause, Ms Guillot said.
In the New Year, SASB will be closely following the regulatory action in Europe such as the EU’s taxonomy on sustainability issues.
“You definitely need to watch that,” she said. (Patrick Temple-West)
UN summit seeks hope amid grim emissions numbers
Climate activist Greta Thunberg may have just arrived, but the 2019 United Nations Framework Convention on Climate Change (better known as COP25) is already in full swing in Madrid. Secretary-general António Guterres kicked things off on Monday with an appropriately Greta-esque warning: “If we do not urgently change our way of life we jeopardise life itself.” And the latest numbers show he is right to worry.
Despite all of the promises that have been made since 2015 when the Paris accord came into effect, global emissions are still expected to grow 0.6 per cent this year, the FT’s Camilla Hodgson and Mehreen Khan report.
An optimist might point out that this represents progress: emissions grew by 2.1 per cent last year and 1.5 per cent in 2017. But the reality is the world is moving in the wrong direction.
Emissions this year are 4 per cent higher than in 2015 when the Paris pact was agreed and — barring a significant change in climate policy — are on pace to grow 1 per cent in 2020, according to Glen Peters, research director at the Center for International Climate and Environmental Research in Oslo.
Still there may be cause for hope. Mr Guterres has made it a priority to mobilise private capital to turn the tide against climate change and the UN announced this week he would have major support in the new year from Bank of England governor Mark Carney.
There have also been positive signs from the business community this week. Hedge fund TCI said that it would start voting against the boards of companies that do not disclose climate information. Even Repsol, the Spanish oil and gas company, announced a plan to go net-zero carbon, taking an eye-popping €4.8bn non-cash, post-tax impairment charge that takes into account writedowns on exploration and production assets in the fourth quarter.
A group of key US business leaders including Apple’s Tim Cook, Bank of America’s Brian Moynihan and Disney’s Bob Iger also redoubled their efforts to change Donald Trump’s mind about withdrawing from Paris.
Yet the chances of a White House U-turn are slim. These CEOs signed a similar plea in 2017 to little effect. It is clear that a strongly worded letter will not be enough to change what needs to be changed — as Mr Guterres pointed out, the individual efforts of companies count for little when governments such as the US, China and Japan continue on their current path.
“Without the full engagement of the big emitters our efforts will be completely undermined,” Mr Guterres said. “Do we really want to be remembered as the generation that buried its head in the sand, that fiddled while the planet burned?” (Billy Nauman)
Grit in the oyster
Many companies and investors say they try to “do well by doing good”. As a reminder that many still fall short, here’s a little grit in the ESG oyster.
So what happens if Mr Guterres’ efforts fail and the world exceeds 1.5 or 2 degrees of warming? With the stakes as high as they are, it may be taboo in some circles to even ask such a question.
But risk-oriented investors do not have the luxury of sitting back and hoping for the best, and Trucost — an affiliate of rating agency S&P Global — set out to tackle the query head-on.
What they found is striking.
Under a “moderate” warming scenario, Trucost found more than 40 per cent of the companies in the S&P Global 1200 are at high risk of the physical effects of climate change such as flooding, drought, hurricanes or wildfires. Looking solely at the S&P 500, that number jumps to nearly 60 per cent.
Because physical climate risks are very location-specific and so many companies have a global footprint, Trucost had to dig deep into supply chains of 15,000 companies (which represent 99 per cent of global markets) to do its analysis. Its data scientists looked into 500,000 corporate-owned assets across the world (such as individual mines, offices or factories) to see how they were exposed.
“There’s a lot of focus on transition risk . . . what should a strong climate policy look like?” said Richard Mattison, chief executive of Trucost. “What is really less well understood is . . . if we are unsuccessful in having a strong climate policy, what is the consequence of that?”
It may be a depressing exercise, but with emissions continuing to rise, investors would do well to pay attention and plan for the worst. (Billy Nauman)
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Chart of the week
CEOs still arguing that short-termist investors stand in the way of them putting other stakeholders on a par with their shareholders should consult a new study out today from Edelman.
The PR company surveyed more than 600 investors in the US, UK, Canada, Germany, Japan and the Netherlands and found that a striking 84 per cent agreed that companies should balance shareholders’ needs with those of their customers, employees, suppliers and communities. Some 71 per cent said that overemphasising shareholder returns exposed a company to consumer or employee activism.
More than 60 per cent said they were investing more in companies that excel on ESG standards, 52 per cent said that linking executive pay to ESG targets boosts their trust in a company, and a remarkable 86 per cent said they would accept lower returns to invest in a company that addressed sustainability or impact investing considerations.
So far, so encouraging for foes of shareholder primacy. But this chart offers a note of caution: while many investors say ESG issues generate value, far more say that growth, risk and innovation are the primary drivers. (Andrew Edgecliffe-Johnson)
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Want to find out how investors can embrace the Sustainable Development Goals more effectively? Tomorrow, the Financial Times will host an all-day conference in New York to discuss the critical role that global capital markets will play in securing the funding needed to meet the ambitious targets set out in the UNs’ Sustainable Development Goals (SDGs), which aim to end poverty by 2030.
The event will discuss the incentives, measurement tools and structural changes that need to happen to enable capital markets to think about risk in a systemic way and unleash substantial funding flows from individual and institutional investors. The event — FT Investing for Good USA — will be organised in partnership with FT Moral Money. Find out more here.
It’s safe to say any time Martin Wolf writes something, you should probably read it. This week’s piece is no exception. His latest article is the long-awaited follow-up to his September analysis diagnosing the ills of the system. In the first piece, Mr Wolf explained “we need a dynamic capitalist economy that gives everybody a justified belief that they can share in the benefits”. Now he has provided a blueprint of how that might take shape. (FT)
Christopher Hohn sent shockwaves through the market with his TCI hedge fund’s vow to punish directors who did not take sufficient action on climate change. The message did not fall on deaf ears, either. Almost immediately, companies snapped to attention, pledging to take action to avoid his wrath. (FT)
Moral Money’s Billy Nauman took a trip to Miami to examine how the political climate is shifting on climate change in Republican-dominated Florida. When the ocean is at your doorstep, it becomes hard to deny that something must be done. (FT)
Japan’s GPIF, the world’s largest pension fund, fired a shot across the bow of short sellers worldwide with its determination that securities lending is incompatible with its long-term investing approach. The news was well received by Elon Musk, but less so by our Lex and Alphaville columnists. As Jamie Powell noted: “We’re a little more anxious about the GPIF’s poor pensioners. We all know rates are cripplingly low in Japan, so there’s little yield to be had from traditional fixed-income instruments such as government or corporate bonds. That leaves alternative sources of income at a premium — which is why it’s an odd decision to halt stock lending.” (FT)
Tips from Tamami
Nikkei’s Tamami Shimizuishi keeps an eye on Asia to help you stay up to date on stories you may have missed from the eastern hemisphere.
As Moral Money reported earlier this year, the “SDG” pin — a circular badge that represents the UN's Sustainable Development Goals — has been one of the most popular fashion items among Japan’s corporate leaders.
But you may wonder if seeing the rainbow-coloured badge on nearly all of the CEO's collars means anything to you as a global investor. New research recently published by Nikkei sheds some light on the question.
Nikkei analysed 637 big Japanese corporations, including 601 publicly traded companies and its findings are astonishing: approximately 60 per cent of companies in Japan have incorporated SDGs into their medium-to-long-term strategy. One in three respondents said they used SDGs as a guide to create new business opportunities.
“Climate action”— SDG No. 13 — is the most addressed issue among the 17 goals, supported by more than half of the Japanese companies. Forty-three per cent of the companies already started assessing climate risk on their financial performance, and nearly half of them said either they have already released or will release the analysis.
According to Nikkei's research, companies that perform well on the SDG management ranking tend to record high profit margin and perform well on the stock market, too.
To highlight this, Nikkei combined its original survey data with other research on corporate governance scores and financial results, to create an SDG management ranking. Three companies made it to the top group: beverage and beer giant Kirin, electronics maker Konica Minolta, and printer and copier maker Ricoh.
It is clear that corporate Japan intends to keep moving forward, as well. Nearly 70 per cent of respondents said they needed to improve the understanding of the SDGs from top to bottom inside their company. You may see more SDG pins on Japanese salarymen’s chests in the future.
Moral Money special edition: Darren Walker (FT)
China: Border tax will damage global climate change efforts (Al Jazeera)
Green finance: credit check. (FT Lex)
When extreme weather threat needs a stilted response. (FT)
Lagarde’s green push in monetary policy would be huge step (FT)
‘A 5-Year Setback for Technology’. Bill Gates Says His Axed Nuclear Reactor in China Is a Trade War Warning (Fortune)
Hedge Funds Push Deeper Into ESG as More Products Come Online (FundFire)
Brazil Seeks to Revive $138 Billion Carbon Market (Bloomberg)
Tech paves way for transparency in supply chains (FT)
Managing Climate Change (FT Special Reports)