Behind the ESG headlines – September 16, 2022

With Climate Week NYC 2022 starting on September 19, a new research study in Science shows once again just how close humanity has pushed the planet to the point of no return.

We stand on the brink of five major tipping points:

• Collapse of the Greenland ice sheet
• Tropical coral reef die-off
• Collapse of the West Antarctic ice sheet
• Abrupt thaw of northern permafrost
• Collapse of key current in north Atlantic ocean

There is a sixth, unlisted tipping point. How much longer can we afford to have business and other leaders, including board directors, who are not informed and educated about the real dangers and risks of the climate crisis? Time is of the essence, so our new condensed ESG Lite program is a great place to start.

1. Time for fresh thinking. Goalkeepers, the Bill and Melinda Gates Foundation, has just published its report into the progress of the UN’s Sustainable Development Goals. And the news is not good: according to The Future of Progress, “the world is on track to achieve almost none of the goals”. Economic growth and any kind of poverty reduction are struggling in economic headwinds. Universal clean water and sanitation will not be achieved by 2030. And the gender gap shows no signs of narrowing. The report concludes by posing us all a question: “Will humanity show how it can accomplish what everyone previously thought impossible and innovate our way out of a deep hole?”
   
2. Lackadaisical climate policies. A new study by three Oxford University professors argues that current corporate governance practices are failing to keep big companies on track to meet their net-zero commitments. The solution, John Armour, Luca Enriques and Thom Wetzer argue, is to introduce “green pills”, a series of contractual mechanisms that will make climate commitments credible by developing real incentives for companies to meet climate targets. These green pills would also trigger stiff penalties if companies do not meet their targets for carbon emissions reductions. Shell is one of the major companies used as an example of this corporate and investor greenwashing. According to the study, Shell’s target of becoming a net-zero emissions energy business by 2050 is “at best an aspiration that may not even be consistent with Shell’s current plans, strategies, budgets and pricing assumptions.” 
   
3. Banking on ESG. JPMorgan, one of the American banking giants, has released a new ESG-focused tool for investors. The new product looks at double materiality in portfolios, so that investors do not just assess the ESG risks that portfolio companies must address, but also the ESG risks that such assets pose to the world. The European Union (EU) has already built double materiality into its regulations, but this is a welcome step forward for American markets. According to the Global Reporting Initiative, which is partnering with the International Sustainability Standards Board on ESG risk disclosure rules, businesses and investors should get ready for a business world where double materiality matters, and will be measured.
   
4. Singing the ESG blues. Being sad may actually have a positive impact on corporate sustainability efforts. A new study published on the Social Science Research Network has revealed that more people buy sustainable funds when they are down in the dumps. The study, which looked at sustainable equity mutual funds in 25 countries between 2018 and 2021, demonstrates how seasonally-related emotions help determine people’s preference for environmental, social and governance-oriented investments. Useful information to know, with the northern and southern hemispheres heading for the next six-month change. 
   
5. Calls for action. A recent YouGov survey in the UK found that more than 75% of the population wants to see new laws introduced that would compel companies to ensure their supply chains do no avoidable damage to the environment or exploit people. That surge of public opinion has been reinforced by a letter co-signed by 39 major investors asking for primary legislation to mandate companies to undertake mandatory human rights and environmental due diligence across their operations and value chains. Signatories included Brunel, one of the biggest local government pension schemes, CCLA and Close Brothers. The investors wrote: “Governments have a duty to protest against human rights abuses, including those of businesses, through effective regulatory measures, particularly where voluntary corporate measures continue to leave significant gaps in human rights protections throughout value chains.”

Mathew Loup is Competent Boards’ Director, Marketing & Communications. Follow Competent Boards on LinkedIn.