Spotlight on Sustainability: Your Monthly Sustainability Summary | June 2021

30 June, 2021

By Adrian Bishop

Financial Services
Marketing

G7 World leaders kick-start ‘green revolution’

The G7 leaders have agreed a ‘green revolution’ aimed at combating climate change and enhancing nature conservation.

With leaders from the US, UK, Canada, France, Germany, Italy and Japan all agreeing to net zero emissions by 2050, sustainability was high on the agenda at the conference in Cornwall, UK, in June.

Under the ‘clean and green growth’ initiative, the richest nations agreed to earmark $100 billion a year. It will be used to support developing countries in developing vital green infrastructure and shift from fossil fuels to renewable energy.

The G7 leaders decided to halve carbon emissions by 2030 compared with 2010 and to move away from a reliance on fossil fuels, including petrol and diesel vehicles.

A new ‘nature compact’ has been endorsed, which aims to stop and reverse biodiversity loss by 2030, while conserving and protecting at least 30% of land and oceans by 2030.

The leaders also agreed “to keep the 1.5-degree global warming threshold within reach”.

UK prime minister, Boris Johnson, says, the G7 needs to set an example. “We, as the rich nations of the Earth, need to build our credibility with those countries in asking them to make cuts in CO2 because this country which started the industrial revolution is responsible for a huge budget of carbon that is already in the atmosphere. We are now asking other countries to make a change.”

Meanwhile, G7 finance ministers weighed in to make climate change reporting compulsory for companies. This follows recommendations from the global Task Force on Climate-related Financial Disclosures (TCFD) which include that companies should state how climate change might affect sales and strategy.

As yet, no timing is stipulated, but it is hoped that will be achieved at the United Nations Climate Change Conference of the Parties (COP26) meeting in Glasgow on 1 November 2021.

The G7 Communique outlines the severity of the situation, a point that was emphasised by leading environmentalist David Attenborough who warns that the world is within 10 years of reaching dangerous tipping points. “The unprecedented and interdependent crises of climate change and biodiversity loss pose an existential threat to people, prosperity, security and nature.”

The G7 leaders also backed private sector climate-focused initiatives to develop a green finance market, including the Glasgow Finance Alliance for Net Zero (GFANZ), bring together net zero financial industry groups and the new Taskforce on Nature Related Financial Disclosures.

Sustainability specialist website, Edie.com has compiled a summary of what was and wasn’t agreed at the G7 meeting. (subscription)

Meanwhile, on seeing the latest progress reports from the UK Climate Change Committee, sustainable economy alliance, Aldersgate Group, has urged the UK government to publish its detailed net zero Strategy before the COP26 meeting.

Kevin Anthony, Associate Director, Thought Leadership Sales, iResearch Services, says, “The G7 meeting has come up with some strong commitments over climate change and conservation. But the growth in extreme weather events, rising sea temperatures and levels and changes in the behaviour and extent of many animal species signal that the world needs action – and fast. This means changes in the way industry and commerce behave and in our individual priorities and actions. We know what has to be done. Now is the time to take action.”

Accelerating the ‘S’ in ESG

How to improve global social standards – the ‘S’ in ESG – is the focus of a new report from the International Regulatory Strategy Group (IRSG) which is made up of leading UK-based figures from the financial and related professional services industry. Accelerating the S in ESG: a roadmap for global progress on social standards says the ‘S’ can be more difficult for investors to define and quantify than the ‘E’ and ‘G’ factors. It identifies key market trends and challenges and makes recommendations about how to achieve more socially sustainable investment, centred around a global approach to social principles and minimum standards.

The issue of Modern Slavery should be championed to drive momentum, says the report, launched online and published in conjunction with KPMG. It argues that socially sustainable finance has to be both external and internal as a firm’s policies and procedures, products and services, affect not only its employees but also broader society, working through customers, clients and suppliers.

“The influence of the financial services sector on social outcomes and impact goes far beyond those activities that are explicitly identified as social impact investing: it incorporates, for example, financial inclusion and financial education; the use and security of data; fraud; the effects of miss-selling or the offer of products and services that do not meet particular customers’ needs; as well as procurement and supply chain practices.”

The focus on sustainable finance is now driving the creation of specific ESG products, the report says, “ESG focused markets are thriving and demand for new ESG-focused financial instruments has continued to increase. As stakeholder interest in the financial services sector’s contribution to the social dimension develops further, the need for a coherent policy framework that facilitates this will only increase.”

iResearch Services’ Editor, Rachael Kinsella, says, “The report and its online launch resulted in an interesting discussion around how the financial sector should build momentum around social standards and how those standards should be defined globally and backed by legislation. It is clear that within the financial services sector, firms have a clear responsibility to engage with and to promote the achievement of social outcomes as well as those that benefit wider environment and economies.”

The New Equation

No, not a new maths statement, but a US12billion (£8.6b/€10b) initiative from global professional services network, PwC, to build trust and promote sustainable outcomes. It will include major ESG initiatives. The New Equation strategy is a response to fundamental changes in the world, including technological disruption, climate change, fractured geopolitics, and COVID-19.

PwC plans to create more than 100,000 jobs, build new ESG Centres of Excellence, Leadership Institutes and accelerated deployment of emerging technologies. New Centres of Excellence will specialise in key ESG topics, including climate risk and supply chain. PwC will also create a global ESG Academy which will enable all PwC partners and staff to integrate the fundamentals of ESG into their work.

Professional services networks back GRI

Leading professional services companies KPMG and PwC are financially backing the Global Reporting Initiative (GRI) sustainability reporting standards. PwC has become the first listed donor to the GRI standards fund, according to environmental-analyst.com. Donors give at least €200,000 per year.

Nadja Picard, partner and global reporting leader of PwC, says, “PwC believes that the GRI standards will play a major role in the coming transformation to a more sustainable economy.”

KPMG has also offered to financially support the GRI for the development of a revised biodiversity standard for sustainability reporting. At least 2,000 organisations use its current GRI biodiversity standard.

Wim Bartels, global co-head of KPMG’s ‘IMPACT’ measurement, assurance and reporting division, says: “Biodiversity loss is one of the biggest ESG challenges and it can only be prevented if we all push for urgent and necessary changes. We are delighted to support GRI.”

Andrew Newby, Operations Director at iResearch Services, says, “GRI Standards is one of the insightful tools available to businesses to help them understand their impact on the environment, society and the economy. Among the many issues covered are financial reporting and tax. It is encouraging that the financial sector and professional advisors are working together to provide greater transparency and quality of reporting, as firms take steps collectively and individually to create more sustainable economies.”

More activist shareholder victories

In last month’s Sustainability Summary, we highlighted Three big wins for climate change activists in the oil sector and hailed it as a turning point. Now, comes news of Delta Air Lines Inc. shareholders requiring the company to disclose its climate lobbying activities. A majority of shareholders voted to require the board to issue a report in the next year describing how its lobbying activities align with the Paris climate agreement’s goal to limit average global warming to “well below 2 degrees Celsius,” and how the company plans to mitigate associated risks.

And an innovative new fund from Engine No. 1

We also reported how activist hedge fund Engine No. 1 got two independent Directors elected to the ExxonMobil board who want the company to adopt more clean energy policies. Now, it has created an impact-focused exchange-traded fund, (ETF) called VOTE with $100million backing from investors. Betterment, the largest independent digital investment advisor, is integrating the Engine No. 1 Transform 500 ETF into all its socially responsible investing strategies. VOTE will invest in a market-cap weighted index of the 500 largest U.S. stocks. Rather than excluding or re-weighting stocks, VOTE will seek to improve companies’ environmental and social impacts through:

Votes cast: Strategically hold companies and leadership teams accountable while focusing on environmental, social, and governance issues that create value.
Campaigns run: Actively work with companies to strengthen the investments they make in stakeholders to drive company performance.
Investors brought with us: Build a platform to better serve investors’ long-term interests, enabling them to be part of our mission.

Yasmin Dahya Bilger, Head of ETFs at Engine No. 1, says, “There shouldn’t be a trade-off between positive impact and financial performance. VOTE will be a unique solution to this long-time concern, enabling index investors the ability to generate long-term value while bringing action to the most critical environmental, social, and governance issues facing these companies.”

Yogesh Shah, CEO, iResearch Services says, “For a small hedge fund, Engine No. 1 has had a big impact – and is looking to increase its influence with the new VOTE exchange-traded fund. It aims to influence company behaviour from within by investing in 500 top US public stocks and then proposing and voting on environmental, social, and governance issues that create value. ‘Too many sustainable funds exclude companies that need to change rather than changing them,’ Engine No. 1 says. Given its success with Exxon, Engine No. 1 has a point.”

LGIM divests from four companies for climate change concerns

Legal & General Investment Management (LGIM) is divesting from four companies due to climate change concerns. A further nine companies remain on its exclusion list, LGIM says in its 2021 Climate Impact Pledge, which “renews pressure on companies to provide climate accountability and achieve net zero emissions.”

The action has brought about positive results, with 22% of companies on LGIM’s priority list setting a net zero target. This year, LGIM will divest its holdings in Industrial and Commercial Bank of China, AIG, PPL Corporation and China Mengniu Dairy for unsatisfactory responses to engagement and/or breaches of ‘red lines’ around coal involvement, carbon disclosures or deforestation.

These companies are in addition to China Construction Bank, MetLife, Japan Post, KEPCO, ExxonMobil, Rosneft, Sysco, Hormel and Loblaw, all of which remain on LGIM’s existing exclusion list and who have yet to take the substantive actions required to warrant reinstatement. US food retailer, Kroger is being reinstated in relevant portfolios following improvements in its deforestation policies and disclosure and efforts to promote plant-based products, which have a lower climate impact.

LGIM produces ‘a traffic light system’ of climate ratings for around 1000 large companies. It has further expanded its voting sanctions for companies that do not meet minimum standards, such as having board members with responsibility for climate issues, comprehensive carbon disclosures and greenhouse gas reduction programmes. During the 2021 proxy season, LGIM has subjected 130 companies to voting sanctions, with the banking, insurance, real estate and technology and telecoms sectors the most highly sanctioned through a vote.

Michelle Scrimgeour, Chief Executive Officer, Legal & General Investment Management and co-chair of the UK Government’s COP26 Business Leaders Group, says, “Climate change is one of the most critical sustainability issues we face and we fully support efforts to align the global financial system with a pathway well below 2°C.

We have made a strong commitment to push forward this agenda across the different parts of the investment chain, from our engagement with companies and policymakers through to our own investment process and LGIM’s own commitment to net zero.

Participating in forums like the COP26 Business Leaders Group, ahead of the pivotal climate conference in Glasgow later this year, has emphasised the necessity of coordinated action to address climate risk and steer society towards a sustainable future.

Progress cannot be made by acting in isolation and we, as investors, have a real role to play in the responsible allocation of capital and acting as stewards to our investee companies to encourage greater progress to meet our overall sustainability goals.”

Gurpreet Purewal, Vice President of Sales – Thought Leadership at iResearch Services, says, “In the coming months, we expect to see many more investment companies announcing they are realigning their holdings with a greater emphasis on sustainability. This change, brought about by increasing shareholder, investor – and soon, regulatory – pressures, is happening rapidly. But bear in mind that shareholders still expect sustainable investments to reach and exceed their profit targets.”

How can the UK lead the climate agenda?

UK business chiefs have discussed how the UK can lead the global climate agenda in partnership with business. The two-day Confederation of British Industry (CBI) Road to Net Zero online conference from 14-15 June heard there were huge opportunities for the UK as a whole – from leading the way in the development and manufacturing of battery technology to making the UK a global player for offshore wind.

Challenges remain, but they can only be tackled through the effective collaboration of business, government, and consumers. A big challenge for both business and government is to enhance the attractiveness of net zero, so consumer behaviour changes. “We’ve got to find a way to make it cost-effective for people to make this transition,” said Ed Miliband, Shadow Business, Energy, and Industrial Strategy (BEIS) Minister. “Because I think if we say to people, ‘well, look, now you can go green, but only if you can afford it.’ We are not going to take people with us on this journey. “It’s about carrots rather than sticks,” he says. “We are in the decisive decade and there’s nothing more important that we can do internationally than the power of example, because if we show that it can be done and it can be done in a way that takes individuals, consumers and workers with you, I think that can have tremendous power around the world.”

Closing the event, singer, songwriter and social activist, Annie Lennox, stressed the importance of collective action from all sides. “It is incumbent upon us all to create change. And the business communities have the potential to make this happen.”

The Responsible Company website held a webinar with a similar theme, The Race to Net Zero, on 24 June. It discussed effective collaborative partnerships, a company case study and an investor view on how to decarbonise infrastructure assets.

However, UK energy provider e.on says the government must “level-up low carbon efforts” or it will miss its 2050 carbon goals if it continues on its current trajectory. In a new report called Accelerating the move towards a net zero future, e.on says the government must clarify policies, introduce stricter and more urgent regulation, and win the hearts and minds of consumers and businesses. “The next decade will be critical if we are to meet that 2050 target.

The decisions we take in the years between now and 2030 will determine whether we are able to gain sufficient momentum to achieve success. Crucially, there will have to be a greater focus on what efforts homeowners and businesses need to make now. Together, they represent nearly a third of our emissions and reducing them cannot be done just by setting targets or changing legislation.

There needs to be a greater effort into greening our cities, where some of the biggest challenges – and opportunities – lie.” it goes on to say, “If you ask people whether they want a cleaner, more sustainable future, the answer will invariably be ‘yes’. In that regard, we are, as a nation, together in a shared purpose. What most people don’t know is, at our current pace, we haven’t got a hope unless Government catalyses faster tangible change.”

And what about the UK hydrogen sector?

The UK Hydrogen production target should be “bigger and bolder”, the State of The Hydrogen Nation 2021 has found. More than three-quarters (78%) of businesses and trade bodies taking part in the annual survey say the 5GW production target set by the government could be more ambitious. And 61% are not confident that its forthcoming Hydrogen Strategy will create a “world-leading hydrogen market”. Hydrogen is set to play an essential role in the world’s low-carbon economy and is set to be worth US$2.5trillion by 2050.

Carbon price floor ‘can cut emissions by 23%’

To hit climate change goals, carbon dioxide (CO2) and other greenhouse gases must be cut over the next decade by between a quarter and a half. The best way to achieve this is to create an international carbon price floor arrangement, says this new IMF blog table option is to have two or three different price levels in the agreement. If the Paris Agreement pledges were reinforced with a three-tier price floor among just six participants (Canada, China, European Union, India, United Kingdom, United States) with prices of $75, $50, and $25 for advanced, high, and low-income emerging markets, respectively. In addition to current policies, this could help achieve a 23% reduction in global emissions below baseline by 2030 – enough to bring emissions in line with keeping global warming below 2°C. “We need coordinated action now—and it should be centred on an international carbon price floor,” the authors conclude.

IMF Managing Director Kristalina Georgieva discusses the international carbon price floors proposal in this live event.

US energy group launches template for greenhouse gas reporting

The influential American Petroleum Institute (API) has launched a template for greenhouse gas (GHG) reporting. It will bring about more consistency in oil and gas company reporting. API’s template standardizes the names of indicators, units of measure and the detailed definitions for reporting boundaries. API’s 600 members produce, process and distribute the majority of the nation’s energy.

UN Pension Fund leading by example

The US$85billion (£61billion/€71billion) UN Joint Staff Pension Fund (UNJSPF) is looking to be an inspiration for the industry by this year cutting investments related to Greenhouse Gas Emissions by 29% compared to 2019 levels and by 40% in four years. This will mainly be achieved through divestment. Toru Shindo, Chief Investment Officer, of the Office of Investment Management (OIM) of the UNJSPF says, “We will be engaging companies with climate-related objectives prioritizing the largest polluters of OIM’s portfolio. We want to ensure companies’ strategies, activities and actions are aligned with the goal set in the Paris Agreement.” It aims to reach net zero by 2050.

Rolls-Royce shows path to Net Zero

Another top organisation targeting net zero carbon emissions by 2050 is Rolls-Royce. It aims to ensure new products are compatible with net zero by 2030 and its whole business by 2050. It has launched a Pathway to Power Net Zero Economy, which states that by 2023, all in-production civil aero engines to be proven compatible with 100% sustainable aviation fuels.

Net zero is the only path forward

Are net zero commitments by businesses always worthwhile? Not those that use carbon offsetting bioenergy and other initiatives to make the situation seem better than it is, argue greenbiz founder, Jim Makowerstatements. In Challenging the greenwash, Stewart Investors says, “We have a strong preference for sincere and achievable targets. As ESG financial products proliferate, investors must approach fund providers, as we approach companies, with a focus on substance over appearance.”

Did you see the media coverage of iResearch Services’ study, which revealed that greenwashing is rife within the financial services industry? Here is the story from business specialist, City AM

Look out for the in-depth report on these sustainability in financial services findings from iResearch Services. Pre-order your copy at sustainability@iresearchservices.com

New $1bilion platform to fight climate change and energy poverty

The IKEA Foundation and the Rockefeller Foundation are setting up a $1billlion platform to combat climate change and energy poverty for 1 billion people. The platform aims to cut one billion tons of greenhouse gas emissions and provide distributed renewable energy (DRE) to one billion people. This is renewable energy generated from local mini-grid and off-grid solutions. It aims to deliver clean and reliable power to the 800 million people worldwide who lack electricity, and a further 2.8 billion who have unreliable access. It will be run as a public charity to rapidly channel development funds to life-changing projects on the ground. Each organisation will provide matching funds.

Per Heggenes, CEO of the IKEA Foundation, explains.“Our collective ambition is to create a platform that supports renewable energy programmes which can deliver greenhouse gas reductions fast and efficiently and accelerate the energy transition. We need to replace polluting sources of energy with renewable ones, provide access to energy to communities and unlock further funding for sustainable models. Ultimately, we aim to unite countries and communities in urgent action to tackle the climate crisis, reduce one billion tons of greenhouse gas emissions and, by doing so, we hope to positively impact the lives of one billion people.”

Meanwhile, furnishing brand IKEA has launched an initiative for its direct suppliers to use 100% renewable electricity. IKEA will provide local solutions to purchase renewable electricity from the grid. The scheme will be introduced in 2021 for direct suppliers in Poland, China and India, followed by a gradual global roll-out.

Siemens emphasises sustainability in new growth strategy

Sustainability is a key focus of a new growth strategy from top multinational industrial manufacturer, Siemens. It also announced a new DEGREE, ESG framework, including the aim of achieving a carbon-neutral supply chain by 2050. Siemens aims to uniquely combine the real and digital worlds to achieve high growth and increase annual growth from 4-5% to 5-7%. Roland Busch, President and CEO of Siemens AG, says “Digitalization, automation and sustainability are growth engines for our business.” Judith Wiese, Chief Human Resources Officer, Chief Sustainability Officer and member of the Managing Board of Siemens AG, adds, “Sustainability is in our very DNA. It’s not an option. It’s a business imperative.”

HSBC offers sustainable loans in US

HSBC Bank USA is offering Sustainability-Linked Loans (SLL) that will enable U.S businesses to tie their borrowing to activities that support a more sustainable world. SLLs are available in a variety of corporate loans and credit facilities, with terms linked to pre-determined sustainability performance targets (SPTs). It structures SLLs in accordance with the Sustainability Linked Loan Principles, set by the independent Loan Market Associations. These state that SPTs are to be meaningful and ambitious for the business, and performance is verified and reported regularly. Examples of SPTs include greenhouse gas emissions reduction, use of renewable energy, diversion of waste from landfills and reduced water use, as well as social and diversity metrics like increased workforce diversity. Kelly Fisher, US Head of Corporate Sustainability, HSBC, says, “Offering SLLs is part our commitment to not only play our part in, but lead the global transition to net zero as a provider of responsible banking services.”

But European supermarkets lead the way with sustainability

The UK Co-op Supermarket’s pledge to halve the cost of plant-based food is one example of how European stores are leading sustainability, says the greenbiz.com website. In Belgium, the Delhaize chain has an app that suggests healthy alternatives to shoppers. UK supermarkets Asda and Waitrose are both experiments with more unpackaged food. “There is less pressure from consumers in the U.S. for grocery stores to respond to sustainability, health and wellness issues than there is in Europe,” the article by a California-based food analyst, suggests. But the situation may be changing, as Ahold Delhaize is rolling out the Guiding Stars nutrition rating system in the States.

Fidelity Investments launches five ESG funds

Investment management specialist Fidelity has launched five actively managed ESG funds focused on the environment, climate change, gender diversity and sustainability. The two equity mutual funds, one bond mutual fund and two equity exchange-traded funds (ETFs) means the firm now offers 11 ESGs and ETFs.

Linklaters agrees carbon cuts targets

Leading London-based law firm Linklaters has announced significant 2030 carbon reduction targets, to cut its ‘Scope 1&2’ emissions (primarily energy) by 70% and ‘Scope 3’ emissions (primarily purchased goods/services and travel) by 50%. The new targets are grounded in climate science and approved by the Science Based Targets initiative. Matt Sparkes, Global Head of Sustainability at Linklaters and Co-Chair of the Legal Sustainability Alliance, says, “Responsibility and sustainability are at the heart of how we operate as a business and it is important that we are accountable to this commitment.”

PRI notches up 4,000 signatories

The United Nations-backed Principles for Responsible Investment (PRI), described as the world’s leading proponent of responsible investment, now has 4,000 signatories with the addition of China’s Taikang Insurance Group. Together, they represent more than half of the world’s institutional assets with more than $110 trillion assets under management. Members agree to follow and promote six principles covering incorporation of ESG issues into investment and ownership practices, seeking appropriate disclosures, reporting on progress and more.

PRI took six years to reach 1,000 signatories, but less than one year to add the last 1,000. In 2020/21, three of its four fastest-growing regions were emerging markets: China, Latin America and CEE & CIS. In April, PRI published its three-year strategy, to focus on inclusivity and accountability, driving ESG outcomes, prioritising climate mitigation and human rights and sustainability in financial policy. In 2022, it will have a new CEO, after Fiona Reynolds stepped down for family reasons.

The famous Blue Peter Badge goes green

UK readers may have fond memories of the BBC TV children’s show Blue Peter and their children may still tune in. Blue Peter is mobilising its ‘Green Army’ to help tackle carbon emissions and climate change. “Climate Heroes’ can earn a Green Badge, by undertaking a two-week pledge to change small things in their lives related to Power, Plastic and Plants, which will make a big difference to the environment. Groups and schools taking part can similarly earn a Supersize Green Badge.

This simple idea shows how green initiatives are flourishing. Maybe financial companies can create their own reward systems for sustainable changes made by staff.

ESG Events

The Global ESG Summit about Unlocking Public and Private Finance for the Poor, which brought -together ESG experts, fund managers, asset owners and data specialists across the globe to help educate and inform investors. took place at the end of May, but you can still view separate on-demand recordings of the Asia, UK/Europe and USA editions.

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