LPs and GPs, Regulating 'Black Box' Ratings, Stewardship, and Climate Adaptation
Here are 5 ESG insights you might have missed this week:
ILPA ESG Assessment Framework-
From Institutional Limited Partners Association (ILPA), a resource for limited partners looking to build a tool to evaluate and understand the various stages of ESG integration that peers are observing among general partners in the market today.
The framework is designed to help LPs evaluate and benchmark GP responses to due diligence efforts, inform goal-setting conversations with GPs and measure ESG integration progress over time.
The Framework categorizes activities and processes across four buckets: Not Present, Developing, Intermediate, and Advanced. As ESG conversations continue to evolve, many best practices are still being developed. We expect LPs will adapt this Framework as appropriate.
Source: http://ilpa.org/esg_framework/
Regulators To Unlock 'Black Box' Of ESG Corporate Ratings-
ESG raters and data providers are largely unregulated, lack transparency in their methods, offer uneven coverage and harbour potential conflicts of interest, said the International Organization of Securities Commissions (IOSCO), which groups market regulators from the United States, Europe and Asia.
Asset managers running ESG focused funds increasingly rely on about 160 raters globally to help pick stocks and bonds, raising investor protection questions, IOSCO said. Users, however, generally do not conduct any formal verification of the ratings, calling the process a "black box".
IOSCO's consultation paper recommends that regulators consider formally regulating the sector, echoing similar moves with credit rating agencies (CRAs) in the aftermath of the global financial crisis over a decade ago when similar concerns were aired.
Source: https://www.reuters.com/business/sustainable-business/regulators-unlock-black-box-esg-corporate-ratings-2021-07-26/ & https://www.iosco.org/library/pubdocs/pdf/IOSCOPD681.pdf
Lazard's Review of Shareholder Activism – H1 2021-
Investor support for E&S-related shareholder proposals reached new highs: 14% of all proposals passed in H1 2021, up from a three-year average of ~6%, as proposals at companies such as Chevron and DuPont secured broad-based backing.
H1 was distinguished by several high-profile activist successes at global mega-cap companies, including ExxonMobil (Engine No.1), Danone (Bluebell and Artisan Partners) and Toshiba (Effissimo, Farallon, et al.)
94 new campaigns were initiated globally in H1 2021, in line with H1 2020 levels. U.S. share of H1 global activity (59% of all campaigns) remains elevated relative to 2020 levels (44% of all campaigns) and in line with historical levels. Activity in Europe slowed following a record-setting end to 2020; the region’s 21 new campaigns included Elliott’s agitation at GlaxoSmithKline and Bluebell’s campaigns at Danone and Vivendi.
Source: https://www.lazard.com/perspective/lazards-quarterly-review-of-shareholder-activism-h1-2021/
Scoring ETF Providers on ESG, Stewardship: Sage Surveys The Industry-
This year’s survey shows positive trends among ETF issuers in regards to voting practices; diversity, equity, and inclusion (DEI); and the structure of stewardship teams.
The survey included responses from 17 ETF providers, together totaling a collective $24 trillion in assets under management, of which their ETF assets represented $3.7 trillion. That represents roughly 56% of the total U.S. ETF market, and 86% of the U.S. ESG ETF market.
The biggest gain was seen in disclosures and transparency, with 71% of respondents receiving a passing grade this year, compared to 36% last year. Another bright point was in diversity and inclusion. 88% of respondents had a perfect A score, and more than 94% of ETF providers had independently stated DEI policies.
The Private Sector Starts To Invest In Climate Adaptation-
Overlooked no more- Companies and investors hope to avert losses to climate catastrophes.
There is reason to think that investing in climate adaptation can pay off handsomely, if only because not making such investments can cost companies. A study in 2019 by BlackRock, an asset manager, argued that property will be especially badly hit by the impacts of climate change. Beyond the immediate damage from storms and floods, it pointed to costlier or reduced insurance coverage, pricier energy, costs of installing backup generators and other emergency systems, and falling property prices in vulnerable areas.
In hurricane-prone Florida a study of insurance data found that new buildings adhering to a stricter building code suffered far less damage, yielding $3.50 in benefits for every dollar in extra compliance costs. A recent report by the Global Commission on Adaptation (GCA), an NGO of worthies that include Bill Gates, identified $1.8trn in investments that could deliver net benefits of $7.1trn by 2030.
Source (Registration required): https://www.economist.com/finance-and-economics/2021/07/24/the-private-sector-starts-to-invest-in-climate-adaptation
One more thing: From Visual Capitalist- Visualizing China’s Energy Transition in 5 Charts
Find the charts here: https://www.visualcapitalist.com/chinas-energy-transition-in-5-charts/
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