Investors today sent a strong signal regarding their growing concerns about climate risk with a majority vote at PPL Corp. in support of a shareholder proposal calling on the company to conduct two degree scenario analysis on its full portfolio of power generation assets and planned capital expenditures through 2040. The proposal calls on the company’s board and management to analyze the company’s business plans and practices against a range of scenarios including one where global temperature rise is limited to no more than 2 degrees Celsius, consistent with the global transition to a new clean energy economy.
“Investors understand that the transition to clean energy and a lower carbon economy is inevitable and well underway. We need to know what companies are doing to adapt and succeed in this new environment,” said New York State Comptroller Thomas DiNapoli who filed the resolution, which also was supported by CalPERS among others. “We need to know that the company has a comprehensive strategy, not just a piecemeal approach. We look forward to working with PPL to make progress.” The New York State Comptroller is also one of the lead filers of a similar resolution that will go to a vote at ExxonMobil on May 31.
Most institutions (80%) have an environmental, social and governance (ESG) component as part of their investment strategies, according to a survey of 475 global institutional investors in the United States, Europe and Asia Pacific, including some of the largest pension plans, endowments and foundations, commissioned by State Street Global Advisors.
More than two-thirds (68%) of respondents say integration of ESG has significantly improved returns. In addition, 69% say pursuing an ESG strategy has helped with managing volatility.ESG implementation is driven by a no-compromise approach: three-quarters have the same performance expectations for ESG as they do for other investments.
The depth of ESG exposure within portfolios remains low: only 17% of respondents have more than 50% of assets with exposure to ESG factors, and 44% have less than 25%. One-third of this group has between 25% and 50%.
There are some challenges that inhibit greater adoption of ESG investments. Benchmarking is seen as one of the greatest challenges, the survey finds.
Recent years have seen a surge of investor interest in integrating environmental, social and governance (ESG) information into financial analysis and investment decisionmaking.
Signs of this trend include continued growth in the volume of managed assets
that incorporate ESG research, increasingly sophisticated investor tools, more ESG information providers, more ESG information gathering frameworks, more indices incorporating ESG data, and the use of ESG factors across asset classes, including fixed income and alternatives. According to data collected by the Global Sustainable Investment Alliance, ESG investment strategies, broadly defined, currently account for USD 22.9tn in managed assets worldwide, up from USD 13.3tn in 2012.
The report outlines the “typology” of ESG investing with “six prevailing types” of approaches.
Within this dimension, the two key differentiators for distinguishing approaches to ESG integration are:
a) the degree to which functions and responsibilities related to ESG integration
are centralized in an organization, and
b) the extent to which a firm or investment team has processes in place to
The report also examines the scope of research and the difference between “top-down” (the development and execution of an investment thesis based on a general view (as opposed to a view derived from fundamental analysis) of how ESG factors may create investment risks and opportunities) and “bottom-up” (the integration of ESG factors into security-specific fundamental analysis in the context of security valuation and selection) applications.
During the discussion on the effects of climate change on investments, Butterfield said that Harvard’s natural resources portfolio will not likely invest in the fossil fuel industry in the future because those funds do not perform that well financially.“What I can tell you is, from my area, I could honestly say that I doubt—I can’t say never, because never say never—but I doubt that we would ever make a direct investment with fossil fuels,” he said. “But that’s more of an Investment Committee decision, and I cannot talk on their behalf.”Butterfield added that Harvard does indirectly invest in fossil fuels through outside funds. Members of the Harvard Corporation indicated in October that the University was moving away from investments in coal because they were not profitable.
President Trump views environmental and financial deregulation as main tools to stimulate economic growth and job creation. The EOs issued to date have focused upon Environmental Protection Agency (EPA) rules and the repeal or revision of the Dodd-Frank Act. CCSFR is governed by securities laws worldwide, and in the U.S., Securities & Exchange Commission (SEC) regulation, which implements and enforces the U.S. securities laws, is the controlling authority. CCSFR is not legally impacted by EPA rules or the Dodd-Frank Act. The SEC has not yet issued any final or proposed rules on CCSFR, but the “materiality” principle inherent throughout the SEC regime applies to all issuer SEC filings. The SEC issued an “Interpretative Release” on Climate Change Guidance in 2010, which identified four main areas of climate-related risk that issuers should consider, but this release does not have the force of law.
Neither President Trump nor his Cabinet or agency officials have mentioned CCSFR, even in the context of the 2015 Paris Climate Agreement, and the substantive linkage between CCSFR and economic growth/job creation is attenuated at best. The new SEC Chair appointee, Jay Clayton (Senate confirmation pending), in his March 2017 nomination hearing testimony to the Senate Committee on Banking, Housing and Urban Affairs, supported the 2010 SEC Climate Change Guidance in response to a direct query from Senator Jack Reed: “public companies should be very mindful of that guidance as they are crafting their disclosure.”
Lucy P. Marcus writes:
US President Donald Trump may seem like a dream come true for business. A businessman himself – as he so often reminds us – Trump is eager to please companies with extensive deregulation. But, if companies aren’t careful, they will come to regret what they wished for.
Just as Trump governs by id, he wants to allow business leaders to manage their companies the same way. It is certainly tempting for some. Indeed, companies are lining up to take advantage of rollbacks of data privacy, environmental rules, worker protections, banking regulations, consumer rights, and rules regarding conflict minerals. Many are keen to see how far they can push an administration that, so far, seems willing to agree to just about anything.
But, contrary to Trump’s rhetoric, this approach is not really pro-business. By pursuing radical deregulation, the Trump administration is practically begging businesses to harm consumers, the environment, and, in the long run, themselves. Indeed, as the consequences of companies’ actions are exposed, public trust in those businesses – not to mention in the government that was supposed to regulate them – will be decimated. Boards of directors’ risk committees should be sounding the alarm.
The expectation on business to act responsibly, tackle social and environmental problems, and deliver positive societal impact is only increasing. It’s a tough ask. The sheer complexity of the sustainability issues business has to wrestle with is astounding. No single person or company can do this alone but, if you want to last, you can’t just sweep them under the carpet and walk away. So to make a real difference, we need to align the core business strategy [commercially and financially] to macro social needs and come together [internally and externally] to co-create alliances towards the same goal. If we are to deliver social purpose and impact, and gain trust we need to drive positive social transformation and improve company’s reputation. That’s what Ethical Corporation’s Responsible Business Summit will deliver on. We’re doing things differently and we really want to move your business towards the genuine impact you are looking for. Our agenda topics will help you to overcome obstacles and uncover the potential for responsible strategies and opportunities to drive social purpose, profit and change with quantified impact and empirical justification.
General Electric CEO Jeff Immelt says President Donald Trump’s imagination is at work if he doesn’t believe in climate change science or the Paris agreement that President Barack Obama signed onto before leaving office.And Immelt is calling on other companies to step up to fill the void that the administration is leaving behind.
“Companies must be resilient and learn to adjust to political volatility all over the world,” Immelt wrote Wednesday in an internal company blog post obtained by POLITICO. “Companies must have their own ‘foreign policy’ and create technology and solutions that address local needs for our customers and society.”
In Sunday’s New York Times, Gretchen Morganson writes about the importance — and opportunities — of shareholder initiatives and engagement on the environment and other issues. She quotes VEA Vice Chair Nell Minow:
Say that the new leaders at the Securities and Exchange Commission and the Environmental Protection Agency relax their agencies’ oversight, as anticipated. That would mean shareholder votes in favor of holding executives accountable on executive pay, climate change issues and other governance matters are especially important.
“There’s never been a better time to address these issues, whether as an institutional investor or an individual,” said Nell Minow, vice chairwoman at ValueEdge Advisors, a firm that guides institutional shareholders on how to reduce risk in their portfolios. “If you are worried that your company is lobbying to weaken environmental rules, for example, then it’s really a fabulous opportunity for you to join in with the institutions and other economic forces making it clear to companies that they can’t get away with it.”
Norway’s second largest pension fund has decided to withdraw investments from companies linked to the controversial Dakota access pipeline project, which is backed by Donald Trump. Pension fund for the public sector KLP has announced that it will sell shares worth £55m from four companies, which own part of the project and are building the pipeline “due to an unacceptable risk of contributing to serious or systematic human rights violations”. The Sami Parliament in Norway, which represents the indigenous Sami people, convinced the pension fund to divest in an act of international solidarity between indigenous people, according to the Guardian.