Blog Posts Tagged With ESG

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California Imposes Climate Risk Disclosure Requirements on the U.S.’s Two Largest Pension Funds

Citing concerns of climate change’s impact on the financial sector, California passed SB 964 last week requiring the country’s two biggest pension funds to publicly disclose and analyze their climate-related investment risks. Under the new law, The California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS) must review and report “climate related financial risks” that are “material” to the stability of their public market portfolios. Such “climate-related financial risks” include “intense storms, rising sea levels, higher global temperatures, economic damages from carbon emissions, and other financial and transition risks due to public policies to address climate change, shifting consumer attitudes, changing economics of traditional carbon-intense industries.” SB 964’s obligations, which will take effect on January 1, 2020 and continue every three years until 2035, also require the funds to report on their alignment to the Paris climate agreement, California climate policy goals, and any long-term climate-related financial risks.
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Investors Petition the SEC to Develop ESG Reporting Requirements

A group of investors representing more than $5 trillion in assets under management petitioned the U.S. Securities and Exchange Commission on October 1, 2018 to develop a comprehensive framework that would require public companies to disclose environmental, social and governance (ESG) aspects relating to their operations.  Petitioners include CalPERS, the New York State Comptroller and the U.N. Principles for Responsible Investment.  The 19-page petition, available here, cites increasing demands by certain investors for information to better understand the long-term performance and risk management strategies of public companies. The petition notes that the voluntary “sustainability reports” that some companies have produced in response to these demands are insufficient and instead, an SEC-mandated comprehensive framework for clearer, more consistent and more fulsome, reliable and decision-useful ESG disclosure (above and beyond existing SEC disclosure requirements) would meet this demand. 
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EPA and BLM Easing Methane Rules for the Oil and Natural Gas Industry

The Trump Administration took two actions this month in its efforts to reverse the Obama administration’s climate change agenda: the United States Environmental Protection Agency’s (EPA) proposed amendments to scale back the 2016 New Source Performance Standards for the oil and natural gas sectors, and the Bureau of Land Management’s final rule revising the 2016 Waste Prevention, Production Subject to Royalties, and Resource Conservation Rule. Both rules targeted by these actions aimed at reducing emissions of methane, a potent greenhouse gas which traps 87 times the heat of carbon dioxide. These actions follow other EPA efforts aimed at reversing the prior administration’s regulatory initiatives targeting climate change, including less stringent greenhouse gas rules applicable to vehicles and coal- and oil-fired power plants.
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UN Sustainable Development Goals – The Leading ESG Framework for Large Companies?

Davis Polk’s series on environmental, social and governance (“ESG”) developments continues with this article on the United Nations Sustainable Development Goals (“SDGs”), which aim to create a “world free of poverty, hunger, disease and want, where all life can thrive.” Approximately 40% of the world’s largest companies acknowledge the SDGs in their corporate reporting or in the CEO and/or Chair’s message. This article introduces the SDGs and describes their nuances, focusing on how companies can leverage the SDGs to improve their mandatory and voluntary ESG disclosure, guide interactions with investors and other key stakeholders, and reap the economic benefits the SDGs are expected to provide. 
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Senator Warren Introduces Bill to Mandate Disclosure of Climate Risk in SEC Filings

The Climate Risk Disclosure Act, introduced by Senator Warren, would require the SEC to issue rules for every public company to disclose:

  • Its direct and indirect greenhouse gas emissions
  • The total amount of fossil-fuel related assets that it owns or manages
  • How its valuation would be affected if climate change continues at its current pace or if policymakers successfully restrict greenhouse gas emissions to meet the Paris accord goal; and
  • Its risk management strategies related to the physical risks and transition risks posed by climate change

The SEC can tailor the rules to different industries, and impose additional requirements on companies in the fossil fuel industry.
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What Would a U.S. Supreme Court Confirmation of Judge Kavanaugh Mean for Environmental Regulation?

Over the next several weeks, the U.S. Senate will consider President Trump’s nominee, Judge Brett Kavanaugh, to fill the currently vacant seat on the U.S. Supreme Court.  Because Judge Kavanaugh is being considered to replace Justice Kennedy, who was often the swing vote in environmental decisions, a Kavanaugh confirmation could significantly affect the trajectory of environmental law.  This memo will discuss how Judge Kavanaugh’s views, and in particular his stance on deference to administrative agencies such as the U.S. Environmental Protection Agency, will likely tip the balance in environmental cases in a more conservative direction if he is confirmed. Read the Full Memo >
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FSB’s Task Force for Climate Disclosure to Release Updated List of Supporters

The Task Force on Climate-related Financial Disclosures (“TCFD”), an entity formed by the Financial Sustainability Board (“FSB”) focused on how climate change impacts the finances of global corporations, will publish its latest list of supporters on September 26, 2018.  The current list of over 300 supporters, includes major financial institutions, corporations, central banks and national governments, and is available here.  Corporations have been cautious in the past to sign on as supporters, but in an August 8, 2018 webinar, the TCFD stated that there is no current monetary or other commitment attendant to becoming a supporter, and no formal timeline to start disclosing against the TCFD’s disclosure principles.  
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Two Recent Climate Change Disclosure Initiatives Affecting Banks and Greenhouse Gas Emitting Companies

Sixteen banks from four continents commit to furthering the Financial Stability Board’s Task Force on Climate-Related Financial Disclosure push for improved climate risk disclosure.  In addition, Climate Action 100+ invigorates its push on 161 large companies with either high greenhouse gas emissions or the potential to impact clean energy to improve their climate change disclosures and governance.  More details as follows:

16 Banks From Four Continents Commit to TCFD Pilot Project

Sixteen banks (Australia and New Zealand Banking Group (ANZ), Barclays, Banco Bilbao Vizcaya Argentaria (BBVA), BNP Paribas, Bradesco, Citi, DNB, Itaú Unibanco, National Australia Bank, Rabobank, Royal Bank of Canada, Santander, Société Générale, Standard Chartered, TD Bank Group and UBS) have joined a United Nations Environment Programme – Finance Initiative pilot project to help banks disclose their climate related financial risks in line with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (“TCFD”).
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New Coalition Condemns Lack of Retail Investor Influence and Criticizes Current Investor Focus

The Main Street Investors Coalition wants retail investors to have more influence in combating the rise of passive investors.  Retail investors own about 30% of stock issued by U.S. companies, where holdings are dominated by major institutional investors.

The group includes the National Association of Manufacturers, the American Council for Capital Formation, the Equity Dealers of America, the Savings and Retirement Foundation and the Small Business and Entrepreneurship Council and is led by George David Banks, who recently served in the White House as a special assistant to the current administration on both the National Economic Council and National Security Council.
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FSB Task Force Releases Tool to Propel Climate Change Scenario Disclosure

The Financial Stability Board’s Task Force on Climate-Related Financial Disclosure (“TCFD”), an industry-led group formed at the request of the G20, and the Climate Disclosure Standards Board (“CDSB”) announced today at TCFD’s first U.S. Scenario Analysis Conference the launch of the TCFD Knowledge Hub (“Hub”). The Hub is an online platform with peer-to-peer resources to assist organizations in implementing TCFD’s recommendations to public companies on the use of scenario analysis to disclose climate-related risks and opportunities. Our prior posts describing TCFD’s recommendations can be found here and here. The Hub can be accessed at tcfdhub.org. Over 250 organizations have expressed their support for TCFD as of April 2018.
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Are the Reports that the DOL Guidance Will Lead to the Demise of ESG-Focused Plans Greatly Exaggerated?

Last week the U.S. Department of Labor (DOL) issued a bulletin (the Bulletin) on its prior interpretations related to considerations of ESG factors by ERISA plan fiduciaries.  Since then there has been some speculation that perhaps the positions outlined in the Bulletin would act as a speed bump to the increasing focus by investors on ESG matters at public companies.

As background, ERISA requires plan fiduciaries to act solely in the interest of plan participants and beneficiaries for the exclusive purpose of providing benefits to such persons and to discharge their fiduciary duties with the care, skill, prudence and diligence a prudent person would use under similar circumstances. 
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What You Should Know About Engaging with BlackRock on Human Capital Management

BlackRock has recently elaborated on what companies can expect when engaging with them on human capital management (HCM) matters, which BlackRock defines as including “employee development, diversity and a commitment to equal employment opportunity, health and safety, labor relations, and supply chain labor-standards, amongst other things.”

For industries and markets where talent is limited or constrained, BlackRock believes corporate strategies must address topics such as “how [companies] are establishing themselves as the employer of choice for the workers on whom they depend.” In these types of business environments, strong HCM can be viewed as a competitive advantage and a contributing factor to a company’s business continuity and success.
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Corporate Sustainability Disclosure is Not the Primary Driver of MSCI ESG Ratings

The topic of corporate ESG disclosure is among the ESG trends to watch in 2018, according to a recent report from MSCI.

Companies are increasingly providing voluntary information about their sustainability practices, and since MSCI ESG Research is among one of largest groups that review and rate corporate ESG disclosures and practices, grading companies from AAA to CCC, MSCI is “one of the world’s largest consumers” of corporate sustainability disclosure.

As the report explains, companies are providing more information given that investors are overwhelmingly supportive of efforts by various standard setters to encourage disclosure, with an alphabet soup of requests and choices that companies can follow, including CDP, GRI, SASB, IIRC and FSB. 
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SASB Releases ESG Disclosure Standards: Public Companies and Private Equity Industry Take Note

The Sustainability Accounting Standards Board (SASB) released this Monday its draft standards for Environmental, Social and Governance (ESG) disclosure, launching a 90-day public comment period which ends on December 31, 2017. These standards set forth ESG topics covering 11 different sectors and 79 industries for public companies to disclose annually.

The draft standards, over four years in the making, were created by SASB working groups open to the public, including registrants, investors and service providers to public companies. The 90-day public comment period provides registrants and other stakeholders another opportunity to shape these disclosure frameworks before they are finalized. This opportunity is important as certain observers expect these standards will have some meaningful uptake.
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Financial Stability Board Task Force Releases Final Climate-Related Financial Risk Disclosure Recommendations

The Financial Stability Board’s Task Force on Climate-Related Financial Disclosure (“TCFD”), an industry-led group formed at the request of the G20, released yesterday its Final Recommendations Report for “voluntary” climate-related financial disclosure. The TCFD’s mandate is to ensure sufficient climate risk disclosure is available to avoid catastrophic financial market disruption due to climate change impacts.

Why Important?  While a variety of climate change disclosure frameworks already exist, such as those of SASB, GRI and CDP, as noted in our previous post summarizing the TCFD’s December 2016 draft recommendations, these recommendations are particularly relevant because of the FSB’s status as an international body founded by the G7 which coordinates national financial authorities and international standard-setting bodies, including the U.S.
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Financial Stability Board’s Task Force Releases Climate Risk Disclosure Recommendations

The FSB’s Task Force on Climate-Related Financial Disclosure (Task Force) released on Wednesday its Recommendations Report for voluntary climate change disclosure. The Task Force is an industry-led group formed in 2015 by the FSB at the request of the G20. Its goal is to ensure sufficient climate risk disclosure is available to enable informed financial decisions to help avert climate change-based financial market disruption.

The Task Force recommendations, based in part on certain existing disclosure frameworks, call for four categories of disclosure: (i) governance of climate risk; (ii) climate risk management; (iii) climate risk metrics and targets; and (iv) impacts of climate risk on business strategy and planning (strategy).
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SEC Sustainability Disclosure Search Tool Released This Week

Ceres, an environmental nonprofit organization, released this week an SEC Sustainability Disclosure Search Tool. This tool, available here, is the next step in Ceres’s campaign for increased, and more transparent and comparable, climate change and other sustainability disclosure. (See prior blog posts on this topic available here, here, and here.

The search tool allows registered users to access summary reports which reproduce the climate change, carbon asset risk, hydraulic fracking and water disclosure filed with the SEC by 5,300 public companies, spanning various industries (such as Banks & Financial Services, Mining and Oil & Gas) and indices (S&P 500, Russell 3000 and FT Global 500).
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ESG (Environmental, Social and Governance) in Focus by Stock Exchanges and in Investment Decisions

A global trade association of 64 stock exchanges, the World Federation of Exchanges (WFG), has recommended that its member exchanges voluntarily incorporate a set of 34 ESG factors into listed company disclosure standards.

The WFG, which includes the NYSE and NASDAQ, highlights 34 key performance indicators that the group believes demonstrate the best sustainability practices, such as energy consumption, water management, CEO pay ratio, gender diversity, human rights, child and forced labor, temporary worker rate, corruption and anti-bribery, tax transparency, supplier code of conduct and codes of ethics. The purpose and methodology is explained here and the full list of indicators is set forth here.
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Recent Developments in Climate Change Regulation

In recent years, there has been an increasing amount of attention paid to climate change, both in the media and on the part of “green groups” such as Sierra Club, and regulators in the U.S. and other countries have proposed or finalized rules intended to limit greenhouse gases such as carbon dioxide, methane and ozone-depleting substances. These regulations affect various industries, including coal and oil and gas, as well as industries reliant upon them, such as the power generation and auto industries.

In addition, certain countries, including the U.S., China, India and Brazil, have made public pronouncements of ambitious plans to reduce carbon emissions during the next few decades.
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BlackRock and Ceres Release Investor Guide on Environmental, Social and Governance Corporate Engagement

Late last week, BlackRock and Ceres released a detailed investor guide (the “Guide”) outlining various strategies and questions for engaging effectively with companies on environmental, social and governance (“ESG”) risks.

The Guide includes short articles from nearly 30 different institutional investors (including BlackRock, CalPERS, CalSTRS, T. Rowe Price and Breckinridge Capital Advisors) describing their priorities and strategies they use to engage with companies across different asset classes, both internationally and domestically, on ESG matters.

The Guide also includes sector-by-sector questions for investors and Wall Street analysts to ask, including during stock calls, with companies in the following nine industries: (i) Oil, Gas and Mining, (ii) Banking and Finance, (iii) Insurance, (iv) Information Technology, (v) Electric Utilities, (vi) Apparel and Retail, (vii) Transportation, (viii) Food and Beverage and (ix) Healthcare and Pharmaceuticals.
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Environmental Groups Warn Directors and Executives of Possible Personal Liability for Opposing Climate Change

Greenpeace International, WWF International and the Center for International Environmental Law sent letters to executives and directors of 32 major oil, gas and energy companies, warning them that they may ultimately face personal liability related to climate change issues.  

According to the NGOs, the targeted companies are “working to defeat action on climate change and clean energy by funding climate denial and disseminating false or misleading information on climate risks.” Beyond this general yet inflammatory allegation, there are no specific examples or references cited other than a list of news stories and other publications about corporate influence and “lobbying” activities.
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Global Stock Exchanges Considering Adopting Sustainability Disclosure Listing Requirements

A group of investors representing over $13 trillion in assets and led by Ceres’s Investor Network on Climate Risk recently submitted recommendations to various global stock exchanges for a uniform mandatory stock exchange standard on corporate environmental, social and governance (ESG) reporting. These recommendations follow Ceres’s April 2013 consultation paper on this topic. The investors recommend exchanges consider adopting, and capturing in a global listing rule, the following three company requirements:

  • First:  Listed companies are to disclose in their annual financial filings a “materiality” assessment where management will discuss its approach to determining what ESG issues are material to their companies.

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Ceres Continues Its Campaign to Improve Climate Change Disclosure in SEC Filings

Ceres, a leading sustainability nonprofit representing institutional investors with over $11 trillion in assets under management, is calling again on the SEC and registrants to do more to improve climate change disclosure in SEC filings. Dissatisfied with the SEC’s perceived lack of follow-through on its own February 2010 Climate Change Disclosure Guidance, Ceres released a report earlier this month, Cool Response: The SEC & Corporate Climate Change Reporting  – SEC Climate Guidance & S&P 500 Reporting – 2010 to 2013, directing the SEC to prioritize climate change disclosure by issuing more comment letters to companies with “inadequate” disclosure. Ceres cites the SEC’s three climate change comments from 2012 to 2013 out of the thousands it issued each year as evidence of the SEC’s poor enforcement of its 2010 disclosure guidance, which Ceres spent several years petitioning the SEC to adopt.
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Investor Group with $3 Trillion under Management Launches Latest Carbon Risk Initiative against Oil & Gas, Coal and Utility Companies Focused on the Value of Fossil Fuel Reserves

A coalition of over 70 international investors has sent letters to 45 of the world’s top oil & gas, coal and electric power companies requesting that the companies assess and disclose potential reduced demand for their products or services due to current and probable future greenhouse gas reduction policies and/or the physical impacts of climate change.  This campaign, the Carbon Asset Risk Initiative (or CARI) led by Ceres and the Carbon Tracker Initiative, is yet another institutional investor and not-for-profit campaign seeking to highlight risks inherent in carbon-intensive industries with the ultimate goal of moving toward renewable energy.  CARI’s main target appears to be oil & gas companies, particularly those with holdings in the carbon-intensive Canadian oil sands.
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