ESG essentials… in the news last week

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Welcome back for our first essentials of the year! Here are some of the important stories from the world of ESG that caught our attention this week.

Social 2022: Finally at the forefront

The focus for investors in 2022 appears to be set on the ‘S’ in ESG; notably stewardship programmes and the role they have to play in reducing social harms. A number of newly formed initiatives will help improve accountability and transparency in social structures, raising the profile and addressing the problem of obtaining accurate and reliable  data insights into company performance on social issues. 

One such initiative, formed by the UN Principles of Responsible Investment (PRI), focuses on a new level of collaboration for investors to address human rights and social issues through stewardship activities.

Whilst globally investors’ stewardship priorities will differ, it seems we are in the early stages of building infrastructure to price companies’ people management impact and board and employee diversity, with the discussion of social themes expected to reach a new level of maturity in 2022.

Such an agenda is clearly linked with the ‘environmental’ aspect of ‘ESG’: enabling a just transition means accounting for the impact decarbonisation will have on workers and communities, and it is essential for regulators and policymakers to acknowledge and work towards solving both issues simultaneously, rather than prioritising one over the other.

Our client Stephanie Maier, Global Head of Sustainable and Impact Investment at GAM Investments, said that, “the need to address human issues will be felt more keenly among the investor community in the coming years. Addressing social challenges plays a huge role in meeting sustainability objectives, and the initiative will catalyse the ability to make progress on human rights”.

Read the full story here.

Carbon pricing: twists on the winding road to net zero

Carbon pricing is a practice that shifts the external cost of greenhouse gas (GHGs) emissions back to those who are responsible for emitting them. The idea that the climate crisis will not be solved without effective carbon pricing is widely recognised, with the case for incorporating the cost of GHGs into the price of goods and services seen as a driver of decarbonisation. 

Due to disjointed energy strategy and supply shocks, estimations of the power of carbon pricing, and the price of energy stocks themselves vary greatly. It is predicted that by 2030, coal-based utilities could end up losing as much as 90% of their value, while renewable specialists might double theirs.

An agenda for carbon pricing per tonne also fluctuates in ambition, with the FT’s Lex writers advocating for $100 a tonne by 2030, whilst analysis from central banks said a price of more than $160 within a decade will be needed to incentivise a transition to net zero by 2030. 

Carbon pricing clearly holds great potential as a tool to tackle the climate crisis, but whether it will be utilised to its greatest potential in time to affect change is yet to be seen. 

Read the full story here

Environment 2022: The Year of Delivery

Last year saw world leaders come together to form ambitious new targets for tackling climate change at COP26, with a clear agenda of ‘keeping 1.5C alive’. It is vital that momentum continues in 2022, enacting quantifiable change to curb climate change rather than obfuscating matters with further diplomacy. 

The notion of double materiality – that which makes it compulsory for companies to disclose their impact on the environment, or any other area of sustainability – is likely to be hotly contested. Such disclosure will be necessary for the allocation of private capital to sustainable investments. ​​

”Embedding double materiality is essential to making responsible investment and climate integration fit for the 21st century. Looking at just one half of the equation feels very antiquated” says Faith Ward, Chair of the Institutional Investors Group on Climate Change (IIGCC), another client.

In policy making and legislation, it is expected that double materiality will face barriers before being accepted as the norm. Interim Chief Executive of the International Corporate Governance Network, Eric Hespenheide, has played down differences between enterprise value and double materiality approaches, while Victor van Hoorn, Executive Director of Eurosif, the European Sustainable Investment Forum fears they could represent a more fundamental schism, reflecting different perspectives across business cultures. Such disputes will need to be resolved quickly if 2022 is to be the year of delivery, but there is no doubt that the scale of the challenge for policy makers is pretty enormous.

Read the full story here

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