Climate Risk Technical Bulletin, Academic Research, and Chief Impact Officers
Here are 5 ESG insights you might have missed this week:
Climate Risk Technical Bulletin-
SASB – Sustainability Accounting Standards Board publishes its updated Climate Risk Technical Bulletin, designed to help investors and other providers of financial capital better understand, measure, and manage their exposure to climate-related risks and opportunities.
The report includes:
A climate-focused view of the SASB Materiality Map
An industry-specific breakdown of financial impact channels
An overview of current climate disclosure practices
SASB's climate-related metrics and associated risks across 77 industries
Source: https://www.sasb.org/wp-content/uploads/2021/04/Climate-Risk-Technical-Bulletin2021-041221pm.pdf
Stock Price Reactions to ESG News: The Role of ESG Ratings and Disagreement-
Academic paper investigates whether ESG ratings predict future ESG news and the associated market reactions.
By analysing about 32.000 observations and using datasets from MSCI Inc., Sustainalytics, Refinitiv and Truvalue Labs, they document which ratings have forecasting power over future news in the presence of rating disagreement.
They find that the consensus rating predicts future news, but its predictive ability diminishes for firms with large disagreement between raters.
In the presence of high disagreement between raters, the relation between news and market reactions weakens while the rating with most predictive power predicts future stock returns. Overall, while rating disagreement hinders the incorporation of value relevant ESG news into prices, ratings predict future news and proxy for market expectations of future news.
Source: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3765217
Overselling Sustainability Reporting-
An article in Harvard Business Review by Timberland’s former COO argues we’re confusing output with impact.
For two decades progressive thinkers have argued that a more sustainable form of capitalism would arise if companies regularly measured and reported on their environmental, social, and governance (ESG) performance. But although such reporting has become widespread, and some firms are deriving benefits from it, environmental damage and social inequality are still growing.
The author outlines the problems with both sustainability reporting and sustainable investing, discusses nonstandard metrics, insufficient auditing, unreliable ESG ratings, and more. But real progress, he says, requires not just better measurement and reporting practices but also changes in regulations, investment incentives, and mindsets.
Source: https://hbr.org/2021/05/overselling-sustainability-reporting#
So You Say You’re Divesting From Fossil Fuels? Prove It-
New York City trumpeted a big plan to green its pension fund investments. We tried to find out how, and apparently the divestment details are … confidential
Divest from the bad, invest in the good. There is no question it’s happening now as never before. Investors around the world have committed to divest more than $11 trillion from fossil fuel companies, says 350.org.
Holding financial institutions accountable for divestment pledges is the hard part. Divesting is complex and multi-layered. Refusing to name names is not the only thing NYC is doing to shield its divestment strategy from public scrutiny. It took a Freedom of Information Act request from the non-profit Divest Now to make public a previously confidential series of divestment reports prepared for the city by asset management giant BlackRock.
Source: https://www.climateandcapitalmedia.com/so-you-say-youre-divesting-from-fossil-fuels-prove-it/
ESG Essentials: Clearing the Mist of Sustainable Investing-
From AXA IM, a framework for retail investors to evaluate ESG strategies and good data points on performance.
With investors increasingly focused on sustainability themes, investment managers need to apply proprietary frameworks to all strategies in an effort to close any ESG-related gaps. AXA proposes 10 metrics to help investors assess ESG integration in practice.
Notably, based on our market analysis in Q1 2020, stocks we consider to be ‘ESG Leaders’ outperformed those defined as ‘ESG Laggards’ by 16.8%. In fixed income, meanwhile, corporate bonds in the ESG Leaders category outperformed those in ESG Laggards by 5.2%. For both asset classes, the ESG Leaders’ basket also outperformed its parent benchmark index.
One more thing: From The Economist, a satirical portrayal of the newest addition to the C-suite- "A leaked memo from a chief impact officer"
Find the memo here- https://www.economist.com/business/2021/04/08/a-leaked-memo-from-a-chief-impact-officer
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