With the number of corporate net-zero pledges currently topping 1,500, the Canada Pension Plan Investment Board’s announcement of net-zero commitment across its portfolio by 2050, and the SEC poised to release its long-awaited climate risk disclosure rule any day, the role of investors in shepherding the transition to a low-carbon economy is increasing. As is the level of scrutiny it comes under.
Now more than ever, capital market participants are urged to contribute to an economic system that ensures 21st-century capital markets remain open, vibrant, and sustainable, and operate in the long-term interests of both shareholders and society. Working with HMI’s asset manager forum over the last few years, we have observed continued progress among asset managers in integrating environmental, social, and governance (ESG) factors across asset classes and increased focus on ESG as a value driver for long-term performance.
Covering the core developments in measurement, materiality and quantifying the return on
investment (ROI) of ESG.
In this briefing note, we explore key expectations for boards of directors in relation to ESG issues as defined
by leading ESG standards bodies and frameworks and the world’s largest institutional investors.
A Review of the United Nations Guiding Principles on Business and Human Rights and the “Protect, Respect and Remedy” Framework
For over 70 years, the United Nations has been working to protect human rights. In an increasingly globalized world and with the growing influence of businesses, human rights abuses continue to be a significant issue. Thus, the United Nations have established approaches to prevent and address the human rights impacts of businesses.
As part of the broader energy sector, global oil and gas companies play an important role in society and their
operations they have a substantial influence on the future of our planet and our collective wellbeing.
Inequality remains one of the most significant issues of our time, not only within society as whole, but also within business. Although progress in solving the lack of diversity in the workplace is being made, it is extremely slow, and years of inclusion efforts have proven to be insufficient.
During the COVID-19 outbreak, company responses have been scrutinized with a strong focus on employee health and safety. In light of investors and other stakeholders placing more emphasis on the “S” in ESG, we explored whether initiatives with a purpose to improve the social issues of “Employee Health & Safety” and/or “Labor Practices” responded to the pandemic and what kind of content they provided. We analyzed the responses of initiatives included in the Business Leadership in Society Database.
Could ESG scores have predicted the Wirecard scandal? Moral Money analyzed Wirecard’s ESG scores and found that the company received an average score by several data providers that missed the red flag. Consequently, some ESG ETFs held Wirecard stock. An outlier is DWS’s ESG fund, which saw the red flag in April and sold its stake in Wirecard.
The ability of companies to react to external and internal pressures and the role of boards in relation to socioeconomic issues has been increasingly scrutinized. A recent survey of more than 300 directors conducted by the National Association of Corporate Directors (NACD) reveals which governance challenges are likely to dominate directors’ attention. According to the results (see graph on the right), the biggest governance challenges will be: 1) Shaping a realistic post-crisis strategy, 2) Ensuring the ongoing health and safety of employees and 3) Getting up to speed on all the emerging risk dimensions of the crisis. In addition, the survey identifies the highest impact trends going forward, including 1) The changing way in which work gets done, 2) Reduced Global Demand, and 3) Acceleration of digital transformation.