On Trend: CFO’s Speak ESG
In the past, CFO’s have been known to resist ESG language, and even resist ESG as a value driving thesis. That seems to have changed. In the fourth quarter of 2020, the term ESG was mentioned 205 times by global CFOs during investor calls, as compared to 84 in the same period in 2019 and 34 in 2018. In the US, S&P 500 earnings calls between Oct-Dec 2020 mentioned ESG or sustainability 20 times, compared to only six times in 2017.
Why? Because having and communicating ESG targets attracts new investors while lowering borrowing costs and expenses. It seems that CFOs like this kind of thing and they really like to share these results with investors. To put it straight: “It helps broaden our investor base,” said Schneider Electric CFO Hilary Maxson. “It…makes it easier for institutional equity investors to find Schneider and also to invest....” Here’s the Wall Street Journal’s take on it.
The definitive study: ESG Drives $$$ (Rockefeller Asset Management)
For those who still need more proof, another mega study of 1,141 peer-reviewed papers and 27 other meta-reviews of another ~1,400 studies published between 2015-2020, (basically a lot of qualified brains) concludes that ESG strategies do indeed deliver better financial performance. Findings include:
Frothy Carbon Credits?
In today’s world of speculative trading, carbon may be the new play to watch. Hedge funds are threatening a smooth cap and trade transition in the EU by bidding up the cost of the carbon credits (permits) needed by energy-using facilities (emitters). EU emitters need these permits to meet cap and trade regulation, whereby they submit permits to cancel out their excess GHG emissions. This incents the switch to lesser-polluting technologies rather than continually paying for permits.
A smooth increase in carbon futures is critical to a successful cap-and-trade system, as the EU ramps up to carbon neutrality by 2050. Record prices are causing more hedge funds to dive in, driving carbon benchmark futures to hit 40 euros ($US 49/metric ton) for the first time ever, gaining 16% last week alone. Hedge funds are betting carbon will rise much faster, to as high as 100 euros this year or next. In response, the EU is considering measures to curb the speculatory hedge fund buying. Move over Bitcoin, you may have company in the ‘artificial commodity’ category.
S&P Global Gauntlet: Net Zero 2040; reduce 25% by '25
Not satisfied with a mere 2050 net zero target, S&P Global* throws down the gauntlet this week, by setting its net zero clock to 2040 and committing to a Science Based Targets (SBTi) 25% reduction in emissions by 2025. These ambitious targets are consistent with reductions needed to keep warming to 1.5°C, which is the most ambitious scenario available in the SBTi process. We bow to S&P Global, for leading by example and having the gumption to set moonshot interim targets!
*S&P Global provides credit ratings, benchmarks and analytics for global capital and commodity markets; divisions include S&P Global Ratings, S&P Global Market Intelligence, S&P Dow Jones Indices and S&P Global Platts.
It’s the Supply Chain, Stupid (so says some very smart people)
For years now, global companies have been dialing down on the GHG emissions in their operations (aka Scope 1 and Scope 2). Currently, the World Economic Forum’s new rallying call is to tackle supply chain emissions (Scope 3). In their hot-off-the-press report, ‘Net Zero Challenge: The Supply Chain Opportunity’, co-authored with the Boston Consulting Group, they make a compelling argument as to why: “Addressing supply-chain emissions enables many customer-facing companies to impact a volume of emissions several times higher than they could if they were to focus on decarbonizing their own direct operations and power consumption alone – and achieving a net-zero supply chain is possible with very limited additional costs.” World Economic Forum and Boston Consulting Group, Jan. 2021
Some other Scope 3 myth-busting data points..
Eight supply chains generate more than 50% of global emissions!
For the Birds: Task Force on Nature Related Financial Disclosure (TNFD)
Just when you thought you were on top of your ESG acronym game, having mastered how to say 'Task Force on Climate Related Financial Disclosure' outloud, and spell the acronym in the intuitively wrong, but factually correct way, along comes another one to mess you up!
The Task Force on Nature Related Financial Disclosure (TNFD) is in early days, having launched on September 30, 2020 at the UN Biodiversity Summit, where the UN Secretary General said: “the new Task Force on Nature-Related Financial Disclosures will help financial institutions to shift finance from destructive activities and toward nature-based solutions.” Fear not, you have a bit of time to get this rolling off your tongue–maybe a year before you start seeing it everywhere and 2023 for take-up by your financial institutions.
To read more and get ahead of the significant impact this will have on corporate reporting and access to capital, go here for the TNFD website, which also lists the heavy-hitter financial institutions in the 'Informal Working Group'. For those who want to dig in further, go here for the just released report “Unearthing investor action on biodiversity” prepared by the esteemed Responsible Investor, in partnership with Credit Suisse.
**8 GHG-heavy supply chains: food, construction, fashion, fast-moving consumer goods, electronics, automotive, professional services and freight.