ESG essentials… in the news this week

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ESG labelling provides limited insights for investors, study says 

An analysis of 6,000 US funds by Util has concluded there is no such thing as a “good” or “bad” investment in terms of the UN’s Sustainable Development Goals. Instead, the picture is more complex, with the report calling for environmental, social and governance (ESG) factors to be unbundled to dentify leaders and laggards according to UN SDGs.

The “E”, “S” and “G” represent such different, even conflicting, objectives, the report argues  it’s time for the concept to be scrapped. An acronym or catchall concept obscures valuable information and misdirects flows. Without looking at the data inside Schrödinger’s box, it’s impossible to know and optimise your investment impact.

The report demonstrates that ESG is not a means to broadly deem funds as “good” or “bad”, only that certain investments have considered ESG data points more closely than others. Arguably, this is more the use of ESG data, rather than the data itself. Investors should use ESG data to inform better decisions, evaluating the risk of mismanagement, lack of climate mitigation or human rights violations could pose to an investment alongside numerous other factors rather than in isolation. 

Read the full article here.

The next article is in the same vein as that of the report written by Util. As debate continues in the sector around the purpose and function of ESG, ‘Impact Entrepeneur’ makes the case for ESG as a methodology. 

No such thing as “ESG Investing”

ESG analysis is an essential investment discipline that uses research into environmental, social and governmental considerations to assess how they will affect investment performance. There is, however, no such thing as ‘ESG Investing’.

As a result, ESG analysis enhances the insights provided by the more traditional, black-and-white financial analyses. It does not imply a value judgement. It is a means to accrue more data to understand what externalities might impact an investment. To ignore such factors is riskier than not accounting for them in the first place. By this logic, ESG is not a form of “woke” capitalism, simply an intelligent one.

Read the full article here.

Climate graph of the week 

Capital Monitor analysed the world’s top 10 lenders to the fossil fuel industry to understand their ratio or sustainable to fossil fuel financing. BNP Paribas lent $16.83 of sustainable finance for every $1 of fossil fuel lending at BNP Paribas, the highest of the top 10 fossil fuel backers. 

The analysis suggests demonstrated that banks with more robust approaches to fossil fuel lending tend to practise what they preach – at least according to what they define internally as sustainable finance. But until there are clearer accepted standards around the scope of such lending, investors will continue to be wary about what sustainable investment truly means. 

Read the full article here.

Climate is a supply chain problem that can’t be ignored 

The recent heatwaves and droughts have demonstrated the growing risk climate pose to shipping. This will affect supply chains globally, as they have little resilience to changing climatic conditions.

Most immediately, a third of the world’s coastal ports are in locations prone to tropical storms, where small changes in average storm intensity can translate into significant increases in port downtime. It is difficult to get individual stakeholders to address this since “the risk from climate is distributed across all aspects of the system” says Austin Becker, at Rhode Island university. 

Corporate supply chains should be encouraged to simplify their supply chains, with resilience coming at the expense of efficiency through dual-sourcing, geographic diversity and higher inventory, and require investment in disaster-proofed assets. This beats the “delay and pay” system we are currently working under. 

Read the full article here

Coca-Cola bottler introduces sustainability-linked finance package for suppliers

Global conglomerate Coca-Cola has created a sustainability-linked supply chain finance programme, operated by specialist food and agri-bank Rabobank. This will reward suppliers that make improvements on sustainability across the business and will feature sustainability-linked KPIs that, if met, will create discounts against the initial funding rate.

The programme is part of the company’s commitment to reach net-zero emissions by 2040 across Scope 1 (direct), Scope 2 (power-related) and Scope 3 (indirect) sources. This is a hugely positive story, pointing to the pragmatism of a major corporate seriously committing to its pledges and taking advance action to reach them. Such programmes will hopefully incentivise similarly large companies to act in this way, addressing their scope 3 emissions which, across supply chains globally, act as the bulk beneath the ice-burg. 

Read the full article here.

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