ESG & Sustainability

ESG+ Newsletter – 10th June 2021

Your weekly updates on ESG and more

The ‘E’ is in the spotlight this week. Pressure on Governments to address the growing urgency around climate breakdown grows, as hundreds of investors petition to make climate risk disclosure requirements in alignment with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations mandatory. Also in this week’s edition of ESG+, the fashion industry’s supply chain and carbon targets face fresh scrutiny, a new initiative designed to measure the impact that financial institutions and corporations are having on the natural world is revealed, and World Oceans Day marks the significance the need to create sustainable solutions for their preservation.

Pressure on governments to act on climate heats up

The failure in keeping greenhouse gas emissions in check will result in an 8.5% GDP loss for G7 countries by 2050, warns research by Oxfam and the Swiss Re Institute. According to the study, if the Earth’s temperature increases by 2.6oC, the world’s richest economies risk being hit twice as much as they were by the COVID-19 pandemic, with countries such as India, Australia and South Korea being significantly more impacted by extreme weather conditions such as storms, floods, and droughts. These events will result in lost productivity caused by the rise in average temperatures, from higher costs of transitioning to a low-carbon economy, and from the loss of value of assets such as fossil fuel deposits or coal reserves. Results also suggest that economies will be significantly damaged, even if the current pledges and targets on climate change are fulfilled. Ahead of the G7 meeting this weekend in Cornwall and COP26, planned for November in Glasgow, the alarming forecast provides additional grounds for coordinated global policy action, which appears to be the only option that governments have.

Indeed, the pressure ramped up earlier today, when a group of 457 investors managing more than $41 trillion have signed a joint statement to urge governments to accelerate their actions to limit the rising global temperature. The investor group, which is the largest collective of assets under management to sign on to a global investor statement also called on policy makers to implement mandatory climate risk disclosure requirements in alignment with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations to facilitate shareholder oversight on how companies are assessing and managing the climate risks and opportunities.

Carbon emissions remain a core issue for the fashion industry

The growing scrutiny on the fashion industry has pushed many apparel companies to enhance their efforts to minimise their environmental impact. According to the FT-Statista list of Europe’s Climate leaders, a Financial Times listing compiled by research company Statista which tracks progress in reducing greenhouse gas emissions, 10 apparel companies are among the 300 companies that achieved the greatest cut in Scope 1 and Scope 2 emissions. While this progress shows movement in the right direction, there is still a long way to go for the industry as considerable environmental concerns remain regarding the climate impact of their supply chains. In particular, Scope 3 emissions produced by factories, fabric mills and farms within the supply chain that are not owned by fashion brands, account for up to 80% of the industry’s emissions and are 25 times as intensive as Scope 1 and 2. The issue is notable because the measurement of such carbon emissions are excluded by the vast majority of companies in their total emissions calculation. As the awareness of the problem rises, brands such as H&M and Superdry are leading the way by extending their greenhouse emissions reporting to include their supply chain.

Manchester United add ‘Fan Advisory Board’

Manchester United appears to be following in the footsteps of London rivals Chelsea, with the club’s Co-Chairman Joel Glazer revealing that the club intends to form a ‘Fan Advisory Board’ to “consult with the club’s senior leadership and owners”. Chelsea announced in early May that, from the start of July, there will be supporters present at the Club’s Board meetings and the decision by both clubs is a direct response to their involvement in the European Super League which collapsed shortly after its launch; together with the recognition of the importance of stakeholders – in this case, fans – to a club’s license to operate. As we outlined in a previous newsletter that covered the Chelsea announcement, no FTSE 100 company has opted to appoint an employee representative to their Board as part of their compliance with the 2018 UK Corporate Governance Code. However, the decision by both football clubs only further serves to underline how important it is to bring stakeholder voice into the Board room – and more importantly, act upon it. We can see the importance of this voice in comments made by Capita Chief Jon Lewis who highlighted the different perspective that worker representatives have brought to their Board discussions.

United’s Important Progress for Sustainable Aviation

On June 3, United Airlines announced an agreement with Boom Supersonic to introduce a fleet of supersonic, net-zero carbon aircraft. Dubbed the Overture, Boom will begin building the new aircraft this year and sell 15 aircraft to United to carry passengers by 2029. The aircraft is notable because it is optimised to run on 100% sustainable aviation fuel (SAF) and designed to travel twice as fast as current aircraft. This is a significant step for the aviation sector, an industry heavily scrutinized for its 2.4% annual contribution to global carbon emissions. Our FTI colleagues note that sustainable aviation is ripe for policy change in the EU through efforts like the Sustainable and Smart Mobility Strategy, although US policymakers have demonstrated far less ambition. The trend towards the electrification of transport is surely to increase, as a prior FTI analysis discussed recent announcements by electric vertical take-off and landing (eVTOL) companies Archer and Joby for their electric-taxi service offerings. Investors and travellers alike are prioritising sustainability efforts when making their decisions regarding the airline industry, so expect more announcements like United’s in the period ahead.

New TNFD initiative launched to tackle biodiversity disclosure

Currently, more than half of the world’s economic output – c. $44 trillion– is dependent on nature and this reliance has put the earth’s biodiversity in danger, with estimates highlighting that as many as 1 million species of plants and animals face extinction. This severe decline in wildlife populations has forced investors to look at how companies are disclosing their impact on nature. To support businesses in assessing their nature-related risks and opportunities, the Taskforce on Nature-related Financial Disclosures (TNFD) published ‘Nature in Scope’, a report which details a new initiative designed to measure the impact that financial institutions and corporations are having on the natural world. TNFD will assist companies in assessing their “emerging nature-related risks and opportunities” and will “deliver a framework for organisations to report and act on evolving nature-related risks.” TNFD has already received significant support from institutions, corporates and governments since its launch and received an endorsement from French President Emmanuel Macron and, notably from the Finance Ministers of the G7. As with most other things ESG-related, TNFD is not the only biodiversity disclosure framework, as a number of institutions and companies have backed funding the GRI Biodiversity Standard, which could support more organisations to address their role in biodiversity, and meet stakeholder expectations for transparency.

Protecting our oceans is vital to ESG

As June 8 was World Oceans Day, there is no better time recognise the significance of oceans and the need to create sustainable solutions for their preservation. Not only does the ocean cover more than 70% of our planet and hold 97% of our total water supply, it is also a key to our economy. The ocean generates $2.5 trillion of economic value annually and 40 million people are expected to be employed by ocean-based industries by 2030. Overfishing, plastic pollution, air pollution, whaling, drilling and mining, oil spills, and sewage and agriculture waste run off are all examples of human activities that have a negative impact on the ocean, which may be an exemplifier of the need for a just transition in balancing stakeholder needs. The importance of the ocean to both the global economy and planet health make it important to have solutions to protect against further damage, such as supporting businesses in their disclosures through initiatives like the recently launched Taskforce on Nature-related Disclosures outlined above. Another is for investors to drive change by investing in sustainable solutions related to the ocean. Overall, as momentum builds in ESG, it is important to recognise the significance of the oceans and extend the environmental focus beyond GHG emissions and climate impact.

In Case You Missed It

  • Accelerating the race to green the economy would raise the prospect of higher inflation and pose a major policy challenge for many countries, according to Larry Fink, BlackRock’s CEO. At the BIS Green Swan conference this week, Fink cited the example of airlines and said a mandate to go green quickly would result in higher ticket prices, which would prove too disruptive for the economy given the likelihood of “displaced jobs and deepening regional inequalities”.
  • The world’s 60 largest banks have provided $3.8tn to fossil fuel companies since 2016, when the Paris agreement came into effect, according to a report by the Rainforest Action Network. The report also found that banks are under increasing regulatory and commercial pressure to protect their balance sheets from the impacts of climate change and to contribute to the achievement of net-zero greenhouse gas emissions by 2050 or earlier.
  • The chief executive of the Principle of Responsible Investment (PRI), Fiona Reynolds, has stepped down from the role after nine years. Reynolds announced her resignation through an official statement on the PRI website and confirmed she will stay on until next year during the search for her successor.
  • Former UK Energy and Clean Growth Minister Claire O’Neill joins FTI Consulting as Senior Advisor. Ms O’Neill will advise clients on sustainability issues, particularly in the financial services sector, and on the implications and likely impact of the United Nations Climate Change Conference. She was a UK Member of Parliament from 2010-2019 and held several ministerial positions, including Minister of State for Energy and Clean Growth.

Chart of the Week

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