By Ira Srivastava
1. Chief financial officers are feeling the pressure to act on sustainability. Chief financial officers (CFOs) are beholden to many stakeholders, such as the board, employees, regulatory bodies, shareholders, consumers, and others. An Accenture survey of 700 CFOs has found that 81% are being pressured by three or more stakeholder groups to step up on sustainability, typically regulatory bodies, board members, and shareholders. Over 90% of respondents felt that ESG would be a significant focus between now and 2030. Despite this, only 15% of companies surveyed had robust data collection and ESG management capacity, so more work needs to be done.
2. Sustainability drives long-term value creation. Morgan Stanley’s “Sustainable Signals: Understanding Corporates’ Sustainability Priorities and Challenges” report surveyed over 300 companies from North America, Europe, and Asia. Here are some key findings:
- 85% of respondents said that sustainability is primarily or partly an opportunity to create value for the company. Creating value was also the top ranked reason for why companies are implementing sustainability plans.
- 70% shared that the upfront investment required for sustainability strategies was the largest obstacle, and 84% said they needed shareholder support to be able to deliver on sustainability commitments.
- When asked whether they are impacted by climate change today, nearly 30% of North American companies responded that they were, while under 20% of APAC companies said the same. Privately owned companies were impacted by climate change more often than public companies.
- More than half of those surveyed said that integration of sustainability into overall business operations was increasing.
3. Insights on green investing from LSEG. The green economy is a complex, diverse, and global economy as almost every industry has green revenues. It reached a market cap of US$7.2 trillion in the first three months of 2024, recovering from a significant drop in 2022. The technology sector is the only industry that has outperformed the green economy in the last decade. Green bonds are also gaining momentum, with US$540 billion worth of bonds issued last year alone. A new aspect in the green economy is the impact of artificial intelligence and data centres, as they are expected to generate huge amounts of revenue. However, the environmental cost of these operations must be taken into consideration as well.
4. Litigation risk and ESG reporting. A research paper published in S&P Global Market Intelligence examines how litigation risks from shareholders impact the content and frequency of ESG reports. The authors used Morrison v. National Australia Bank, a U.S. Supreme Court ruling that lowered the cost of litigation for non-U.S. firms. After this court ruling was passed, the researchers found that non-U.S. listed firms used more optimistic language in ESG disclosures. They concluded that this was due to the fact that these non-U.S. firms felt that there would be a lower risk of litigation if their ESG reports sounded more positive. Finally, the likelihood of a company producing an ESG report dropped after the Morrison ruling due to the increased litigation risk. This can be counterintuitive as regulators seeking to increase ESG reporting may end up doing the opposite. Read the full paper here.
5. MSCI ESG Ratings and Cost of Capital. A new report published by MSCI explores “whether companies with higher resilience to financially material sustainability-related risks (as measured by MSCI ESG Ratings) did benefit from a lower cost of capital”. Here are some key findings:
- Organizations that are more resilient to sustainability risks are able to finance themselves at a lower price than those that are more vulnerable to such risks
- Sustainability risk management impacts overall risk profile which in turn affects how the company is able to raise capital
- MSCI ESG ratings were strongly correlated to financing costs in equity and debt markets
Ira Srivastava is Competent Boards’ Program Coordinator. Follow Competent Boards on LinkedIn.