𝗧𝗵𝗲 𝗳𝗼𝗹𝗹𝗼𝘄𝗶𝗻𝗴 𝗶𝘀 𝗮 𝘄𝗿𝗶𝘁𝗲-𝘂𝗽 𝗯𝘆 𝗜𝗻𝘁𝗲𝗴𝗿𝘂𝗺 𝗘𝗦𝗚 𝗮𝗻𝗮𝗹𝘆𝘀𝘁 𝗠𝗼𝗹𝗹𝘆 𝗙𝗿𝗮𝘇𝗲𝗿 𝗮𝗳𝘁𝗲𝗿 𝗵𝗮𝘃𝗶𝗻𝗴 𝗮𝘁𝘁𝗲𝗻𝗱𝗲𝗱 𝗣𝗼𝗿𝘁𝗳𝗼𝗹𝗶𝗼 𝗜𝗻𝘀𝘁𝗶𝘁𝘂𝘁𝗶𝗼𝗻𝗮𝗹’𝘀 𝗘𝗦𝗚 𝗖𝗹𝘂𝗯 𝗖𝗼𝗻𝗳𝗲𝗿𝗲𝗻𝗰𝗲 𝗼𝗻 𝟭𝟯 𝗦𝗲𝗽𝘁𝗲𝗺𝗯𝗲𝗿 𝟮𝟬𝟮𝟯. 𝗧𝗵𝗶𝘀 𝘄𝗮𝘀 𝗮𝗻 𝗲𝘃𝗲𝗻𝘁 𝗮𝘁𝘁𝗲𝗻𝗱𝗲𝗱 𝗯𝘆 𝗺𝗮𝗻𝘆 𝗹𝗲𝗮𝗱𝗶𝗻𝗴 𝗳𝗶𝗴𝘂𝗿𝗲𝘀 𝗶𝗻 𝘁𝗵𝗲 𝗨𝗞 & 𝗘𝗨 𝗔𝘀𝘀𝗲𝘁 𝗢𝘄𝗻𝗲𝗿 𝗰𝗼𝗺𝗺𝘂𝗻𝗶𝘁𝘆, 𝘄𝗵𝗲𝗿𝗲 𝗶𝗻𝘀𝘁𝗶𝘁𝘂𝘁𝗶𝗼𝗻𝗮𝗹 𝗶𝗻𝘃𝗲𝘀𝘁𝗼𝗿𝘀 𝗲𝗻𝗴𝗮𝗴𝗲𝗱 𝗼𝗻 𝗵𝗼𝘄 𝘁𝗼 𝗿𝗲𝗱𝘂𝗰𝗲 𝘁𝗵𝗲 𝘄𝗼𝗿𝗹𝗱’𝘀 𝗿𝗲𝗹𝗶𝗮𝗻𝗰𝗲 𝗼𝗻 𝗳𝗼𝘀𝘀𝗶𝗹 𝗳𝘂𝗲𝗹𝘀, 𝗽𝗿𝗼𝘁𝗲𝗰𝘁 𝘁𝗵𝗲 𝗲𝗰𝗼𝘀𝘆𝘀𝘁𝗲𝗺, 𝗮𝗻𝗱 𝗽𝗿𝗼𝗺𝗼𝘁𝗲 𝗴𝗿𝗲𝗮𝘁𝗲𝗿 𝗲𝗾𝘂𝗮𝗹𝗶𝘁𝘆.
“𝙃𝙤𝙬 𝙘𝙖𝙣 𝙥𝙚𝙤𝙥𝙡𝙚 𝙩𝙧𝙪𝙨𝙩 𝙀𝙎𝙂 𝙧𝙖𝙩𝙞𝙣𝙜𝙨 𝙩𝙝𝙚𝙮 𝙙𝙤𝙣’𝙩 𝙪𝙣𝙙𝙚𝙧𝙨𝙩𝙖𝙣𝙙?”
During the event, our CEO Shai participated in a panel discussion focused on the question of whether investors can place trust in ESG ratings and take them seriously.
One of the many questions he raised was why are people taking ESG ratings which they don’t understandseriously?
Investors need to see the underlying data behind these ratings to explain the scores. Transparency around methodology and reason for score should therefore be a key priority for EGS ratings providers.
𝙉𝙚𝙩 𝙯𝙚𝙧𝙤, 𝘽𝙞𝙤𝙙𝙞𝙫𝙚𝙧𝙨𝙞𝙩𝙮 & 𝙩𝙝𝙚 ‘𝙎’ 𝙞𝙣 𝙀𝙎𝙂
The other three panel discussions also provided many invaluable insights, including but not limited to:
♳ On the discussion of transition assets and the net zero pathway, it was emphasised that public markets are not going to be able to solve the issue on their own, emphasising the need for clear, uniform regulation to drive progress in this area.
♴ There is no silver bullet when it comes to measuring biodiversity loss; but we do not need perfection in data to start trying to reverse biodiversity loss.
♵ While in environmental issues we can think about ‘offsets’ to counter poor behaviour in one area, this cannot be the same for social issues. Providing a universal living wage for your employees does not negate the poor treatment of a company’s tier 2 supplier workforce.
𝘼𝙘𝙩𝙞𝙤𝙣 𝙥𝙤𝙞𝙣𝙩𝙨 𝙛𝙤𝙧 𝙩𝙝𝙚 𝙛𝙪𝙩𝙪𝙧𝙚
The conference revealed a path forward in ESG investing; transparency, collaboration, and holistic approaches. Imperfect data shouldn’t hinder action on pressing environmental and social challenges.
Asset owners and managers alike have the capacity and responsibility to shape a more sustainable and equitable future – act now!
𝗧𝗵𝗶𝘀 𝗮𝗿𝘁𝗶𝗰𝗹𝗲 𝘄𝗮𝘀 𝘄𝗿𝗶𝘁𝘁𝗲𝗻 𝗯𝘆 𝗜𝗻𝘁𝗲𝗴𝗿𝘂𝗺 𝗘𝗦𝗚 𝗮𝗻𝗮𝗹𝘆𝘀𝘁 𝗞𝗶𝘁 𝗠𝗮𝗿𝗸𝘀.
Although not the first topic that springs to mind, ESG is a significantly polarising topic between Democrats and Republicans.
This year it adopted a new symbol of partisanship: Biden’s rejection of a Republican proposal in March, which prevented pension fund managers from basing investment decisions on factors like climate change, was the first veto of his presidency.
The US Department of Labor ruling would make it easier for fund managers to consider ESG issues in investments and shareholders in decision making. Republicans believe ESG politicises investing by allowing managers to pursue ‘liberal’ causes, which would hurt financial performance.
The Dems have expanded the scope of ESG through large investment in green infrastructure from the Inflation Reduction Act, as well as the aforementioned DoL rule on pension plans (and other legislation).
However, across the House, the two front-runners for the 2024 Republican nomination, Trump and DeSantis, both vehemently oppose ESG; the former in a 2024 campaign video blasted ESG as Wall Street “radical-left garbage.”
In March, DeSantis formed an alliance with 18 US states to pushback against the DoL’s new rule allowing ESG-aligned funds in 401(k) plans. Florida’s Senate also approved a bill banning state and local governments from using ESG criteria when selling debt or investing public money in April. It also prohibits Florida municipalities from selling bonds related to ESG projects and bans seeking ESG ratings.
A Republican victory, even if the potency of any future legislation is diluted by Democrat defiance, would be a far cry for ESG compared to the Biden administration.
According to Morningstar, anti-ESG sentiment, coupled with rising interest rates, have resulted in a pullback of $US5.2bn from sustainable funds in Q1 of 2023, making it the third quarter of continuous withdrawal in a year.
ESG debt, according to Bloomberg, made up only 2.5% of US$248bn of bonds issued by US companies in Q1 of 2023, as opposed to 6.08% of US$209bn of bonds issued in Q1 2022.
Owing partly to this backlash, it’s likely that greeniums could diminish on US ESG debt, as demand for ESG bonds may decrease significantly.
𝗪𝗵𝗮𝘁 𝗱𝗼𝗲𝘀 𝘁𝗵𝗶𝘀 𝗺𝗲𝗮𝗻 𝗳𝗼𝗿 𝗘𝗦𝗚 𝗶𝗻 𝟮𝟬𝟮𝟰?
In 2024, the House and one-third of the 100-seat Senate will be up for election.
Currently, Republicans have a slim majority in the House, while the Democrats have a slim majority in the Senate. A clear majority in both the houses after the elections will give greater clarity on the future of ESG in the US.
However, if the narrow majority margins in the two houses persist after the elections, ESG will continue to be the centre of a big political divide.
"Let's talk about why you need high quality & transparent ESG data"
Every week, we speak to a new fund manager or private equity investor. They vary in size, AUM and purpose, and the level of ESG integration within their reporting systems they can boast can be significant or minimal.
Recently, a lot of these investors seem to say the same thing:
"We do not have the budget for better ESG data right now."
The majority of these investment firms seem to accept the idea that implementing good ESG data is costly - and it is no surprise why.
The existing large legacy ESG ratings and data providers offer exorbitant subscription fees and lock you in for years at a time.
These prices have only continued to rise despite difficult market conditions.
Their data is often opaque and their scores are built upon unclear methodologies - which only serves to increase the cost to you of implementing these systems. Investment analysts are required to do more work to unpack any ratings or leave themselves vulnerable to 'greenwashing' claims.
"But good ESG data does not need to be expensive."
When we tell these same managers the cost of our entirely transparent, customisable and yet still comprehensive ESG ratings and data solution, they are usually surprised. Their suspicion grows when we tell them that we do not need them to sign on for years, we just offer a rolling quarterly subscription.
💭 "Are you really able to offer all of this for so little?"
💭 "Is the quality of your data really as good as you say?"
💭 "Is your company even able to survive with these low costs?"
The simple answer to all of the above is yes - the reason why, is also relatively simple. It is because we are an AI-powered ESG data provider.
How does AI save you costs exactly?
We are the only ESG data provider able to provide you with this level of speed and precision, built upon our innovative data-centric AI methodologies - this is what makes us stand out from the rest:
➡️ Quality and Accuracy.
Our systems' focus on transparency and 'explainability' means the ESG scores you see are always up to date and trustworthy - you can export all data we pick up and verify its quality for yourself.
➡️ Better and broader Benchmarking.
The thousands of data sources we are able to pull from ensures that the level of benchmarking we provide is industry leading.
➡️ Ability to scale up at a low cost.
Our unique 'Human-in-the-loop' approach effectively blends Artificial and Human Intelligence - meaning that we only need a small team of ESG experts overseeing the rating process of every company.
These systems mean that we can continue to expand our coverage and improve data quality while saving on the costs usually anticipated with this level of growth - and we can then share these savings with you.
𝗔 𝗴𝗹𝗼𝗯𝗮𝗹 𝘀𝗲𝘁 𝗼𝗳 𝗘𝗦𝗚 𝗱𝗶𝘀𝗰𝗹𝗼𝘀𝘂𝗿𝗲 𝘀𝘁𝗮𝗻𝗱𝗮𝗿𝗱𝘀 𝗵𝗮𝘀 𝗲𝗺𝗲𝗿𝗴𝗲𝗱.
It will be known as the IFRS Sustainability Disclosure Standards (https://www.ifrs.org/issued-standards/ifrs-sustainability-standards-navigator/).
The Standards will be managed by the International Sustainability Standards Board, but they are the intellectual property of the IFRS Foundation, and will sit alongside the IFRS International Accounting Standards.
The G7 Finance Ministers have already endorsed them (when the draft standards were released). The UK financial regulator has already said these standards will form the core of its 'Sustainable Disclosure Regulation', and several of the largest accountancy firms are already building assurance practices around these standards.
So whilst some prefer the broader GRI Standards, and the EU wants to advance its EFRAG Sustainability Reporting Standards, we think it is clear that the battle to become the global benchmark has now been won by ISSB.
𝗪𝗵𝗮𝘁 𝗱𝗼 𝘁𝗵𝗲𝘀𝗲 𝗻𝗲𝘄 𝗜𝗙𝗥𝗦 𝗦𝘁𝗮𝗻𝗱𝗮𝗿𝗱𝘀 𝗹𝗼𝗼𝗸 𝗹𝗶𝗸𝗲?
Well, they are not really new;
➡️ The 'IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information' will apply the SASB Standards that have been in the market for many years.
➡️ The only addition will be the 'IFRS S2 Climate-related disclosures', based on the FSB Task Force on Climate-related Financial Disclosures (TCFD) recommendations.
Integrum ESG is pleased to announce that it is a founding member of the European Association of Sustainability Rating Agencies (EASRA). The EASRA stands for transparency, rigor, independence and the promotion of double materiality.
The association aims to become the representative body of a new breed of sustainable finance service providers, with a view to enhancing the functioning of ESG rating provision and its contribution to a more sustainable European economy.
EASRA founding members are 𝗖𝗼𝘃𝗮𝗹𝗲𝗻𝗰𝗲 (𝗖𝗛), 𝗘𝘁𝗵𝗶𝗙𝗶𝗻𝗮𝗻𝗰𝗲 (𝗙𝗥, 𝗚𝗘, 𝗦𝗣), 𝗜𝗻𝗿𝗮𝘁𝗲 (𝗖𝗛) and 𝗜𝗻𝘁𝗲𝗴𝗿𝘂𝗺 𝗘𝗦𝗚 (𝗨𝗞) and other leading independent players are expected to join in the coming weeks.
Emmanuel de La Ville, founder of EthiFinance and EASRA Acting Chairman said:
"We are proud of setting up this association. European ESG rating providers need a forum to exchange views, share best practices and align themselves where possible on an evolving regulatory agenda. All stakeholders should benefit from this new organization at a time when sustainable finance is facing considerable challenges and opportunities. We look forward to welcoming additional ESG rating services providers in the membership and to engaging with all interested stakeholders in due course."
Earlier this year FTSE Russell published their annual global asset owner survey, focusing on their attitudes, priorities and decisions being made on sustainable investment.
One of the key readings taken from this survey was that over half of asset owner participants believe that the primary obstacle to increased sustainable investment adoption is concerns about availability of ESG data and the use of estimated data.
We have written about the issue with guesstimated data before.
Some large ESG ratings firms have padded their systems with estimates and averages in order to provide larger (and more expensive) coverage and more 'comprehensive' data solutions.
However, there are many issues with this approach - three key problems being:
𝟭. 𝙎𝙝𝙤𝙧𝙩-𝙩𝙚𝙧𝙢𝙞𝙨𝙢 𝙞𝙨 𝙖 𝙗𝙧𝙚𝙖𝙘𝙝 𝙤𝙛 𝙛𝙞𝙙𝙪𝙘𝙞𝙖𝙧𝙮 𝙙𝙪𝙩𝙮.
Many investors blindly trust these large legacy brands and their ESG ratings; in fact some asset owners demand that their asset managers use one of them.
However, it should be noted that relying on the estimated ESG data provided by these firms could constitute a breach of fiduciary duty.
That is to say, relying on data you can not validate or interrogate in order to satisfy a short-term reporting or regulatory requirement is not acting in the best interest of the investors that these funds truly serve.
𝟮. 𝙏𝙝𝙚 𝙬𝙤𝙧𝙙 '𝙚𝙨𝙩𝙞𝙢𝙖𝙩𝙚𝙙' 𝙨𝙪𝙜𝙜𝙚𝙨𝙩𝙨 𝙖𝙣 𝙖𝙣𝙖𝙡𝙮𝙨𝙩 𝙢𝙞𝙜𝙝𝙩 𝙝𝙖𝙫𝙚 𝙨𝙩𝙪𝙙𝙞𝙚𝙙 𝙩𝙝𝙖𝙩 𝙘𝙤𝙢𝙥𝙖𝙣𝙮 𝙖𝙣𝙙 𝙞𝙩𝙨 𝙞𝙣𝙙𝙪𝙨𝙩𝙧𝙮 𝙖𝙣𝙙 𝙢𝙖𝙙𝙚 𝙖𝙣 𝙞𝙣𝙛𝙤𝙧𝙢𝙚𝙙 𝙘𝙤𝙢𝙥𝙖𝙣𝙮-𝙨𝙥𝙚𝙘𝙞𝙛𝙞𝙘 𝙚𝙨𝙩𝙞𝙢𝙖𝙩𝙚.
In reality, although their precise methodology is typically opaque, the estimated value is just an average, calculated from that company's regional and sectoral peer group. That's why we call it a 'guesstimate'.
The example we give to investors is that it is like hiring an analyst after you were reassured that they got 70% in their final mathematics exam. You then learn that actually, they never showed up for that exam and this score was in fact a class average. Which leads onto the next key point:
𝟯. 𝙄𝙩 𝙞𝙨 𝙣𝙤𝙩 𝙘𝙡𝙚𝙖𝙧 𝙬𝙝𝙖𝙩 𝙘𝙤𝙢𝙥𝙖𝙣𝙮 𝙙𝙖𝙩𝙚 𝙞𝙨 𝙛𝙖𝙘𝙩𝙪𝙖𝙡 𝙖𝙣𝙙 𝙬𝙝𝙖𝙩 𝙞𝙨 𝙚𝙨𝙩𝙞𝙢𝙖𝙩𝙚𝙙.
Depending on the third party data provider you may be subscribed to, you can sometimes click through some of the data they have collected - for example, a company's CO2 emissions number.
But you won't know whether it is an actual value disclosed by the company, or a value estimated by the many analysts working for that ratings firm.
No estimated data - no black boxes.
Here at Integrum ESG, we have always committed to never using estimated data and only providing a 'glass box' to our investor clients.
Our affordable, customisable and transparent ESG solution was built by investors with over 20 years of experience in equity research - therefore we understand the real dangers of using opaque data which is only updated once every so often.
𝗧𝗵𝗶𝘀 𝗮𝗿𝘁𝗶𝗰𝗹𝗲 𝘄𝗮𝘀 𝘄𝗿𝗶𝘁𝘁𝗲𝗻 𝗯𝘆 𝗜𝗻𝘁𝗲𝗴𝗿𝘂𝗺 𝗘𝗦𝗚 𝗮𝗻𝗮𝗹𝘆𝘀𝘁 𝗠𝗼𝗹𝗹𝘆 𝗙𝗿𝗮𝘇𝗲𝗿.
Last month, my colleague Hazel Cranmer wrote a post on the issues of companies relying solely on carbon ‘offsetting’ to reach decarbonisation goals.
She argued carbon offsets fail to make genuine carbon reductions, and that we should instead invest in ‘carbon insetting’; avoiding emissions at the source “rather than being forced to clean them up”.
As the carbon market heads into turmoil following the recent announcement from Zimbabwe (https://www.bloomberg.com/news/articles/2023-05-18/global-carbon-market-in-turmoil-after-zimbabwe-grabs-offset-money?leadSource=uverify%20wall), offset schemes have become more unreliable in achieving carbon neutral status.
It has become apparent that this sentiment is widely shared, with both the EU parliament and UK’s advertising watchdog proposing bans last week on adverts making ‘carbon neutral’ product claims using offsets. (https://www.theguardian.com/environment/2023/may/15/uk-advertising-watchdog-to-crack-down-on-carbon-offsetting-claims-aoe & https://us10.campaign-archive.com/?e=6cd1763d23&u=f89d68518db6e2585b0808206&id=35b50e16fc) .
The crackdown comes as no surprise, given the seemingly endless cases of companies being exposed for greenwashing.
Examples include the TotalEnergies lawsuit, who claimed their Thermoplus heating oil was carbon neutral through compensating for emissions via offsetting schemes in India and Peru, and the banning of Lufthansa’s recent campaign declaring their green efforts (carbon offsets) were ‘protecting the world’s future’.
𝗛𝗼𝘄 𝗺𝗶𝗴𝗵𝘁 𝘁𝗵𝗲𝘀𝗲 𝗽𝗿𝗼𝗽𝗼𝘀𝗮𝗹𝘀 𝗮𝗳𝗳𝗲𝗰𝘁 𝘁𝗵𝗲 𝘀𝘂𝘀𝘁𝗮𝗶𝗻𝗮𝗯𝗶𝗹𝗶𝘁𝘆 𝗹𝗮𝗻𝗱𝘀𝗰𝗮𝗽𝗲?
I believe we will see two changes:
1. More accurate sustainable purchasing decisions
Despite growing success in exposing dubious green claims, it is likely that many other companies make similar statements but evade consequences. The recent proposals should hopefully discourage such behaviour, prompting companies to either verify their claims or refrain from making them altogether. We should then, in theory, be able to trust what companies are advertising to us and make more accurate decisions on what we buy based on sustainability grounds.
2. A shift towards carbon ‘insetting’
Apprehension of lawsuits could push companies towards more credible initiatives to substantiate their green claims. In essence, the crackdown should serve as a catalyst for companies to shift their reliance on feeble offsetting schemes and embrace more robust approaches in reducing the carbon footprint of their offerings.
𝗜𝘀 𝘁𝗵𝗲𝗿𝗲 𝗮𝗻𝘆 𝘂𝘀𝗲 𝗳𝗼𝗿 𝗰𝗮𝗿𝗯𝗼𝗻 𝗼𝗳𝗳𝘀𝗲𝘁 𝘀𝗰𝗵𝗲𝗺𝗲𝘀 𝗶𝗻 𝘀𝘂𝘀𝘁𝗮𝗶𝗻𝗮𝗯𝗶𝗹𝗶𝘁𝘆 𝘀𝘁𝗿𝗮𝘁𝗲𝗴𝗶𝗲𝘀?
We at Integrum ESG do not include carbon offsets in calculating the carbon footprint of companies (as per GHG Protocol guidelines).
However, investments in offsetting schemes should not be discouraged entirely. Not only do they contribute to the pool of climate finance needed to reach international climate goals, but they also demonstrate a company’s dedication to global climate mitigation beyond their value chain; a policy valued by ESG ratings providers and investors.
But what do you think?
𝗘𝗦𝗚 𝗥𝗲𝗱 𝗦𝗽𝗶𝗸𝗲𝘀 📈
𝗨𝗻𝗶𝗼𝗻 𝗱𝗶𝘀𝗽𝘂𝘁𝗲𝘀, '𝗣𝗼𝘀𝘁𝗮𝗹 𝗱𝗲𝘀𝗲𝗿𝘁𝘀' & 𝗥𝗲𝗴𝘂𝗹𝗮𝘁𝗼𝗿𝘆 𝗮𝗰𝘁𝗶𝗼𝗻
𝗪𝗵𝗮𝘁 𝗱𝗶𝗱 𝘄𝗲 𝘀𝗲𝗲?
Our Real-time ESG Tracker picked up growth in negative sentiment for Royal Mail (IDS.L), flagging numerous stories across the past week which correlated with falling share value.
Our systems immediately sent out an alert to our clients with Royal Mail in their portfolio.
𝗪𝗵𝗮𝘁 𝗱𝗶𝗱 𝘄𝗲 𝗹𝗲𝗮𝗿𝗻?
In what seems to be a worrying trend for Royal Mail, with the company only earlier this year having threatened to declare insolvency, both investor and consumer confidence continues to be challenged - we were able to capture each different story early and flagged it to our clients.
𝗪𝗵𝗮𝘁 𝗼𝘂𝗿 𝗥𝗲𝗮𝗹-𝗧𝗶𝗺𝗲 𝗘𝗦𝗚 𝗧𝗿𝗮𝗰𝗸𝗲𝗿 𝘀𝗮𝘄
We have summarised the main stories which we captured across wider media and Twitter for you below:
🗓️ 𝗧𝘂𝗲𝘀𝗱𝗮𝘆 𝟵𝘁𝗵 𝗠𝗮𝘆
Reports begin to filter through that Royal Mail CEO, Simon Thompson, is set to announce his departure from the company as a step to finally resolve a long running dispute with the Communication Workers Union (CWU).
Share price for IDS.L had a high of 250.20 🔻 to a low of 244.47. 📈
🗓️ 𝗪𝗲𝗱𝗻𝗲𝘀𝗱𝗮𝘆 𝟭𝟬𝘁𝗵 𝗠𝗮𝘆
The story regarding the soon-to-be resignation of the Royal Mail CEO begins to spread throughout wider media.
Outsourcing firm and government contractor Capita, whose systems are used to administer pensions for the Royal Mail amongst other organisations, reveal it will take a hit of around £20m from a recent cyber attack that saw some customer, supplier and colleague data accessed by hackers.
Share price for IDS.L had a high of 246.62 🔻 to a low of 232.8. 📈
🗓️ 𝗙𝗿𝗶𝗱𝗮𝘆 𝟭𝟭𝘁𝗵 𝗠𝗮𝘆
Reports that Royal Mail reportedly failing to frequently deliver post were causing dozens of areas to become “postal deserts” - with some areas receiving letters as little as once a fortnight.
Share price for IDS.L had a high of 236 🔻 to a low of 229.2. 📈
🗓️ 𝗠𝗼𝗻𝗱𝗮𝘆 𝟭𝟱𝘁𝗵 𝗠𝗮𝘆
It is widely reported that the UK regulator Ofcom has launched an investigation into Royal Mail’s failure to meet its delivery targets in the past year - and will fine the company if it cannot reasonably explain why it missed the targets.
Share price for IDS.L had a high of 229.13 🔻 to a low of 224.9. 📈
𝗧𝗵𝗶𝘀 𝗮𝗿𝘁𝗶𝗰𝗹𝗲 𝘄𝗮𝘀 𝘄𝗿𝗶𝘁𝘁𝗲𝗻 𝗯𝘆 𝗜𝗻𝘁𝗲𝗴𝗿𝘂𝗺 𝗘𝗦𝗚 𝗮𝗻𝗮𝗹𝘆𝘀𝘁 𝗝𝗮𝗰𝗸 𝗠𝗼𝗿𝗽𝗵𝗲𝘁.
When CEOs of large public companies are receiving large wages and bonuses, should these bonuses be rewarded when there is a reduction in company value? Why should shareholders reward poor performance, and therefore reinforce misalignment?
A recent example of this is seen when Uber's CEO Dara Khosrowshahi, was rewarded with a 146.9% increase on his $2 million bonus (on top of his $24 million compensation package) in 2022 due to a vague ‘better-than-baseline company performance’ even though the company stock had fallen by 40% (https://www.cmswire.com/leadership/what-the-heck-is-happening-at-uber/).
Alignment and executive pay
One of the most important governance metrics (with the highest number of sub-metrics captured under this metric by Integrum ESG) is Remuneration Alignment, which evaluates executive pay alignment with company shareholders’ interests.
A long-standing issue exists (particularly in large public companies with many shareholders), where separation of ownership (shareholders) and control (managers/executives) leads to a loss of alignment with the owners’ interests, often now called ‘the agency problem’.
Executive pay in large public companies can be a controversial topic due to leviathan compensation packages, which are used to combat the agency problem, keeping interests aligned with performance-related remuneration goals and long-term incentives that are of importance to the company, usually containing key performance indicators (KPIs).
Many KPIs are increasingly focused on ESG targets such as aiming for net zero by 2050, in line with the Paris Agreement.
Will things change?
Ultimately, the responsibility of executive pay and alignment is down to the Remuneration Committee on the board.
The U.S. Securities and Exchange Commission adopted a Pay Versus Performance disclosure rule in August last year. This makes it mandatory for US companies to disclose the relationship between executive compensation actually paid compared to the financial performance of the company.
It is clear that remuneration alignment is building in importance for regulators and shareholders alike, particularly when considering the desired transparency they expect from corporates and fund managers.
𝗘𝗦𝗚 𝗥𝗲𝗱 𝗦𝗽𝗶𝗸𝗲𝘀 📈
𝗖𝗘𝗢𝘀, 𝗕𝗼𝗻𝘂𝘀𝗲𝘀 & "𝗣𝗶𝘁𝘆 𝗖𝗶𝘁𝘆"
𝗪𝗵𝗮𝘁 𝗱𝗶𝗱 𝘄𝗲 𝘀𝗲𝗲?
Our Real-time ESG Tracker picked up a significant negative red spike for MillerKnoll (MLKN), starting by flagging one of the first tweets made about the controversy.
Our systems immediately sent out an alert to our clients with MillerKnoll in their portfolio.
𝗪𝗵𝗮𝘁 𝗱𝗶𝗱 𝘄𝗲 𝗹𝗲𝗮𝗿𝗻?
MillerKnoll CEO, Andi Owen, came under fire after a video was released of her scolding her employees for complaining about not receiving bonuses - advising them to "leave pity city" and focus on making money for the company.
This was even though she herself had made almost $1.2 million in bonuses in the previous year, as part of a pay package worth nearly $5 million.
These comments had ramifications on public sentiment and their share price.
𝗪𝗵𝗮𝘁 𝗼𝘂𝗿 𝗥𝗲𝗮𝗹-𝗧𝗶𝗺𝗲 𝗘𝗦𝗚 𝗧𝗿𝗮𝗰𝗸𝗲𝗿 𝘀𝗮𝘄 🚩
The video was first leaked on Twitter on Friday 14th April just past midnight (GMT).
Our Real-Time ESG Tracker then immediately caught this tweet and all further tweets and articles relating to it.
The number of stories peaked on the 19th April, being reported on via many mainstream media sources and forcing the CEO to come out and apologise.
Since that initial story, the share price of MillerKnoll has continued to fall and has brought the issue of executive pay and bonuses back into the limelight.
𝗧𝗵𝗶𝘀 𝗮𝗿𝘁𝗶𝗰𝗹𝗲 𝘄𝗮𝘀 𝘄𝗿𝗶𝘁𝘁𝗲𝗻 𝗯𝘆 𝗜𝗻𝘁𝗲𝗴𝗿𝘂𝗺 𝗘𝗦𝗚 𝗖𝗘𝗢 𝗦𝗵𝗮𝗶 𝗛𝗶𝗹𝗹.
The EU regulators (ESA) have just proposed a set of revisions to the SFDR (Sustainable Finance Disclosure Requirement).
The consultation closes July and 2 law firms we have spoken to estimate any changes would come into legal effect in Jan 2024.
𝗛𝗲𝗿𝗲'𝘀 𝗮 𝘀𝘂𝗺𝗺𝗮𝗿𝘆 𝗼𝗳 𝘁𝗵𝗲 𝟱 𝗸𝗲𝘆 𝗽𝗼𝗶𝗻𝘁𝘀 𝗳𝗿𝗼𝗺 𝘁𝗵𝗲 𝟭𝟱𝟴-𝗽𝗮𝗴𝗲 𝗰𝗼𝗻𝘀𝘂𝗹𝘁𝗮𝘁𝗶𝗼𝗻 𝗽𝗮𝗽𝗲𝗿:
1️⃣ The number of mandatory PAIs (indicators that funds making sustainable investments will have to report to) will be increased from 14 to 18.
The new 4 are 'Social' indicators, relating to the companies the fund invests in:
🚩 Revenue earned in countries which don't co-operate with the EU on tax
🚩 Involvement in production of tobacco
🚩 Whether the company tries to block trade unions
🚩 % of staff earning less than an adequate wage
2️⃣ If the fund has an emissions reduction objective, it must publish quantified details.
3️⃣ More disclosure will be required on a fund's EU Taxonomy alignment (bringing SFDR and the Taxonomy closer together).
4️⃣ The requirement for a company to 'do no significant harm' to certain EU environmental and social objectives - if it is to classify as a 'sustainable investment' - will be more precisely defined (with quantified 'thresholds' to limit fund managers' discretion).
5️⃣ The regulatory disclosures that fund managers have to publish (Annexes II-V) will have a summary dashboard at the front, designed for non-professionals to understand.
𝗙𝗼𝗿 𝗮𝗻 𝗔𝗿𝘁𝗶𝗰𝗹𝗲 𝟴 𝗳𝘂𝗻𝗱, 𝗶𝘁 𝘄𝗶𝗹𝗹 𝗰𝗼𝗻𝘁𝗮𝗶𝗻 𝟱 𝗸𝗲𝘆 𝗯𝗼𝘅𝗲𝘀:
🚩 What 'environmental and social characteristics' are promoted by the fund (max 250 characters)
🚩 What % of the fund's investments are sustainable
🚩 What % of the fund's investments are Taxonomy-aligned
🚩 Does the fund consider the PAIs
🚩 If the fund supports an emissions reduction target, what is the total % reduction targeted, and by what year
𝗪𝗵𝗮𝘁 𝗰𝗼𝗻𝗰𝗹𝘂𝘀𝗶𝗼𝗻𝘀 𝘀𝗵𝗼𝘂𝗹𝗱 𝘄𝗲 𝗱𝗿𝗮𝘄 𝗳𝗿𝗼𝗺 𝘁𝗵𝗲𝘀𝗲 𝗻𝗲𝘄 𝗽𝗿𝗼𝗽𝗼𝘀𝗮𝗹𝘀?
💭 The SFDR compliance headache is not going away:
The EU seems determined to keep 'raising the bar' for any fund marketing itself as 'sustainable'.
💭 Investors' need for agile software that can keep up with increasing disclosure requirements is going to increase.
💭 Our argument about 𝐀𝐫𝐭𝐢𝐜𝐥𝐞 𝟴+ (linked here) gets stronger:
If a fund wants to be labelled Article 8 without reporting to the PAI, it will have to publish a front page 'dashboard' every quarter, that says "This product did not make sustainable investments" and then "This product did not consider the most significant negative impacts of its investments on the environment and society" (the regulator wants this wording to replace 'PAIs', to make it clearer).
Which will surely make any investor think "𝘵𝘩𝘪𝘴 𝘧𝘶𝘯𝘥 𝘮𝘪𝘨𝘩𝘵 𝘩𝘢𝘷𝘦 𝘢𝘯 𝘈𝘳𝘵𝘪𝘤𝘭𝘦 8 𝘭𝘢𝘣𝘦𝘭, 𝘣𝘶𝘵 𝘪𝘵 𝘪𝘴 𝘯𝘰𝘵 𝘪𝘯 𝘢𝘯𝘺 𝘮𝘦𝘢𝘯𝘪𝘯𝘨𝘧𝘶𝘭 𝘸𝘢𝘺 𝘢 𝘴𝘶𝘴𝘵𝘢𝘪𝘯𝘢𝘣𝘭𝘦 𝘧𝘶𝘯𝘥".
The ESG Data Converge Initiative (EDCI) was created to provide GPs & LPs with a set of universal ESG data points for all of their PortCos.
Using Integrum ESG’s innovative Direct Entry Model, any GP can easily collect the data needed from their PortCos to submit to the EDCI.
Just send a link to your PortCo - when they have submitted the data, you can see it in the ‘EDCI’ tab on our Dashboard.
All mandatory 11 metrics will be listed and any scores will be colour coded to alert you to any data point which may require your attention.
You can then export all of this information and send it directly to the EDCI.
𝗧𝗵𝗶𝘀 𝗮𝗿𝘁𝗶𝗰𝗹𝗲 𝘄𝗮𝘀 𝘄𝗿𝗶𝘁𝘁𝗲𝗻 𝗯𝘆 𝗜𝗻𝘁𝗲𝗴𝗿𝘂𝗺 𝗘𝗦𝗚 𝗮𝗻𝗮𝗹𝘆𝘀𝘁 𝗛𝗮𝘇𝗲𝗹 𝗖𝗿𝗮𝗻𝗺𝗲𝗿.
Carbon offsetting has been a hot topic in sustainability discussion circles for years and is viewed by many as a vital, if not the sole, option for some companies meeting their net-zero targets. Unless they plan on a complete product shift, Oil and Gas companies will almost entirely rely on offsetting. But how effective is it, and is it our only path forward?
Carbon offsetting is a process of compensating CO2 emissions by investing in external initiatives that actively reduce or remove GHG emissions. In practice, this looks like companies investing in reforestation or renewable energy projects, or simply buying trade-able carbon credits.
The calculated negative emissions associated with these projects (e.g. the carbon captured by newly planted trees) is presented as negating the positive carbon emissions resulting from a company’s business activities.
While offsetting projects can create genuine sustainable outcomes, they are not without criticism. They are seen by many as an attractive quick fix to achieve a clean conscience and present an illusion of sustainable practices to consumers and investors.
Disney, Shell and Gucci have all been caught up in recent backlash following a Guardian investigation into the leading carbon offsets certifier, Verra. The research concluded that more than 90% of their rainforest offset credits were worthless “phantom credits” failing to make “genuine” carbon reductions. Ultimately, it opens all Verra users up to greenwashing allegations.
At Integrum ESG, we follow guidance from the GHG Protocol and do not include Carbon offset figures when evaluating a company’s carbon footprint or when we compare their performance to their sector peers. We do this to effectively communicate the real climate change and reputational risk associated with these emissions and potential carbon inefficiencies in their business activities. Not only that, but climate commentators predict legal scrutiny and regulation to hit the $2bn voluntary carbon market in the near future.
Newly coined carbon ‘insetting’ challenges a reliance on offsetting. It advocates a proactive approach to tackling carbon emissions within a company’s supply chain. Ultimately, it aims to avoid producing emissions at the source rather than being forced to clean them up.
While it is a new buzzword, it’s not a new concept and many companies have already embraced ‘insetting’ initiatives. Examples we’ve found at Integrum ESG include Nestle’s commitment to sustainable farming practises resulting in improvements in biodiversity while reducing water consumption and GHG emissions.
Decarbonisation of a company’s supply chain is clearly the more demanding path to net-zero but it is overwhelmingly the preferred course of action.
Ultimately, carbon offsets should be used as a supplement to cross the net-zero finish line rather than the instrument we rely on to take us the whole way.
𝗘𝗦𝗚 𝗥𝗲𝗱 𝗦𝗽𝗶𝗸𝗲𝘀 📈
𝗚𝗼𝗼𝗴𝗹𝗲 𝘀𝘂𝘀𝗽𝗲𝗻𝗱𝘀 𝗣𝗶𝗻𝗱𝘂𝗼𝗱𝘂𝗼 𝘀𝗵𝗼𝗽𝗽𝗶𝗻𝗴 𝗮𝗽𝗽
𝗪𝗵𝗮𝘁 𝗱𝗶𝗱 𝘄𝗲 𝘀𝗲𝗲?
Our proprietary Real-Time ESG tracker picked up a significant negative red spike for Pinduoduo(PDD), which has continued to rise throughout the day.
Our systems immediately sent out an alert to our clients with Pinduoduo in their portfolio.
𝗪𝗵𝗮𝘁 𝗱𝗶𝗱 𝘄𝗲 𝗹𝗲𝗮𝗿𝗻?
Google has suspended Pinduoduo, one of China’s most popular e-commerce platforms, from its Play Store.
It has been suggested that versions of the app were found to include malware, exploiting zero-day exploits to hack users.
While this accusation has been rejected by a spokesperson of the Chinese company, the app has been suspended from the Play Store while an investigation continues and users of the app have been warned and prompted to uninstall.
𝗧𝗵𝗶𝘀 𝗮𝗿𝘁𝗶𝗰𝗹𝗲 𝘄𝗮𝘀 𝘄𝗿𝗶𝘁𝘁𝗲𝗻 𝗯𝘆 𝗜𝗻𝘁𝗲𝗴𝗿𝘂𝗺 𝗘𝗦𝗚 𝗮𝗻𝗮𝗹𝘆𝘀𝘁 𝗞𝗶𝘁 𝗠𝗮𝗿𝗸𝘀.
Signed into law in August 2022, the Inflation Reduction Act (IRA) has been hailed as “the most significant climate legislation in U.S. history” according to the US Environmental Protection Agency (https://www.epa.gov/green-power-markets/inflation-reduction-act).
The main intention of the IRA is to catalyse investment in clean energy: the act itself includes $370b of energy-related spending; two of the main beneficiaries of this will be clean energy and electric vehicle (EV) companies.
The funds are to be delivered through tax incentives, grants, and loan guarantees. According to McKinsey, US solar, wind, heat pumps and EV industry all stand to gain from production and investment tax credits of $30 billion for manufacturing (https://www.mckinsey.com/industries/public-and-social-sector/our-insights/the-inflation-reduction-act-heres-whats-in-it).
We looked into 4 companies that are starting to benefit from the IRA:
𝗧𝗲𝘀𝗹𝗮 - On 22nd February, Tesla announced a shift in cell production from Germany to the US after considering incentives available through the IRA, making it one of the first firms to declare a strategy shift prompted by the law. 
𝗠𝗲𝗿𝗰𝗲𝗱𝗲𝘀-𝗕𝗲𝗻𝘇 𝗚𝗿𝗼𝘂𝗽 - Mercedes are now in the process of building 10,000 fast-charging points in North America from 2023, targeting 2,500 charging points at 400 locations across most U.S. states and Canada by 2027. 
𝗟𝗶𝗻𝗱𝗲 - According to a recent Reuters report, Linde has estimated the total investment opportunity for the company in the United States alone could exceed $30 billion over the next decade. 
𝗙𝗶𝗿𝘀𝘁 𝗦𝗼𝗹𝗮𝗿 - The company has recently announced a big expansion, planning to invest up to $1.2 billion in scaling production of American-made photovoltaic (PV) solar modules. The investment is forecast to expand the company’s ability to produce American-made solar modules for the US solar market to over 10 gigawatts (GW) by 2025. 
𝗧𝗵𝗲 𝗿𝗲𝗮𝗰𝘁𝗶𝗼𝗻 𝗳𝗿𝗼𝗺 𝘁𝗵𝗲 𝗘𝗨 𝗮𝗰𝗿𝗼𝘀𝘀 𝘁𝗵𝗲 𝗽𝗼𝗻𝗱 𝗵𝗮𝘀 𝗯𝗲𝗲𝗻 𝗹𝗲𝘀𝘀 𝗲𝗻𝘁𝗵𝘂𝘀𝗶𝗮𝘀𝘁𝗶𝗰.
European officials have complained that the IRA; which – amongst other things - limits tax credits to EVs assembled in the United States, and violates U.S. commitments not to subsidise domestic industries or discriminate against foreign ones.
There are genuine fears that it could lure businesses away from the bloc with generous tax breaks - and there is no smoke without fire.
The CEO of Enel in December publicly claimed the IRA is more efficient than EU aid to support domestic production of energy sector components.
The response by the European Commission has been to unveil its Green Deal Industrial plan, signifying a potential relaxation of state aid towards clean tech, although this is struggling to get ubiquitous support among all member states. The EU has warned against a subsidy race but has welcomed the commission’s response to the IRA.
This is a post made by our CEO Shai Hill on LinkedIn on 10th March 2023.
The large legacy ESG ratings brands use a vast amount of estimated data.
That's how they are able to cover >10,000 companies, including emerging market companies that don't actually publish any ESG data.
There are 3 problems here:
- 𝗧𝗵𝗲𝘆 𝗱𝗼𝗻'𝘁 𝗺𝗮𝗸𝗲 𝗰𝗹𝗲𝗮𝗿 𝘄𝗵𝗮𝘁 𝗰𝗼𝗺𝗽𝗮𝗻𝘆 𝗱𝗮𝘁𝗮 𝗶𝘀 𝗮𝗰𝘁𝘂𝗮𝗹 𝗮𝗻𝗱 𝘄𝗵𝗮𝘁 𝗶𝘀 𝗲𝘀𝘁𝗶𝗺𝗮𝘁𝗲𝗱.
Depending on your subscription, you can sometimes click through to a CO2 emissions number, but you won't know whether it is an actual value disclosed by the company, or a value estimated by that ratings firm.
- 𝗧𝗵𝗲 𝘄𝗼𝗿𝗱 '𝗲𝘀𝘁𝗶𝗺𝗮𝘁𝗲𝗱' 𝘀𝘂𝗴𝗴𝗲𝘀𝘁𝘀 𝗮𝗻 𝗮𝗻𝗮𝗹𝘆𝘀𝘁 𝗺𝗶𝗴𝗵𝘁 𝗵𝗮𝘃𝗲 𝘀𝘁𝘂𝗱𝗶𝗲𝗱 𝘁𝗵𝗮𝘁 𝗰𝗼𝗺𝗽𝗮𝗻𝘆 𝗮𝗻𝗱 𝗶𝘁𝘀 𝗶𝗻𝗱𝘂𝘀𝘁𝗿𝘆 𝗮𝗻𝗱 𝗺𝗮𝗱𝗲 𝗮𝗻 𝗶𝗻𝗳𝗼𝗿𝗺𝗲𝗱 𝗰𝗼𝗺𝗽𝗮𝗻𝘆-𝘀𝗽𝗲𝗰𝗶𝗳𝗶𝗰 𝗲𝘀𝘁𝗶𝗺𝗮𝘁𝗲.
In reality, although their precise methodology is typically opaque, the estimated value is just an average, calculated from that company's regional and sectoral peer group. That's why we call it a 'guesstimate'.
As I warn investors, it's like hiring an analyst after you were reassured that they got 70% in their final mathematics exam. You then learn that actually, they never showed up for that exam and this score was in fact a class average.
You can surely appreciate that if they had sat the exam, their score might have been very different from 70%.
3. 𝗔 𝘀𝗲𝗿𝗶𝗼𝘂𝘀 𝗽𝘂𝘀𝗵𝗯𝗮𝗰𝗸 𝗺𝗶𝗴𝗵𝘁 𝗯𝗲 𝗯𝗲𝗴𝗶𝗻𝗻𝗶𝗻𝗴 𝗳𝗿𝗼𝗺 𝗮𝘀𝘀𝗲𝘁 𝗼𝘄𝗻𝗲𝗿𝘀.
These are the institutions who ultimately own the capital that asset management firms invest (on their behalf).
Many asset owners trust the large legacy brands in ESG ratings; in fact some demand that their asset managers use one of them.
But many never realised how many of the 'reassuring' grades they review each quarter are based on guesstimated data.
Within the UK, some asset owners (public pension fund trustees) are even receiving advice that relying on estimated ESG data might constitute a breach of fiduciary duty.
What do we think?
We only use company-disclosed data behind any fundamental analysis we do - and if the company hasn't disclosed data that a recognised framework like the SASB Standards would expect to be disclosed, we make that clear and mark the company down for it.
Many of you might disagree that this is the best approach. But if you are going to use estimated data - you should at least know it's estimated data.
𝗕𝘂𝘁 𝘄𝗵𝗮𝘁 𝗱𝗼 𝘆𝗼𝘂 𝘁𝗵𝗶𝗻𝗸? When reviewing ESG data and scores for a company, do you see estimated ESG data as necessary gap filling?
Scope 3 emissions make up a large portion of total emissions, yet are under-reported.
For context, approximately 85% of the largest 2,000 companies we cover disclose their GHG emissions, but of these companies only around 60% disclose a breakdown which also includes scope 3.
Even when reported, there are issues with how complete the scope 3 disclosure is, with some companies only disclosing on a few of the 15 GHG protocol categories.
Many LPs and investors doubt the value of scope 3, and the two main criticisms arose during the ‘27 years to Net Zero, are we on track?’ panel at the PEI Responsible Investment Forum last week:
(1) Scope 3 calculations are crude estimates at best – there is no such thing as measured scope 3.
(2) The double, triple, quadruple accounting problem at the fund level. The example given at the conference was a good one; jet fuel emissions.
These could be counted in the scope 1 of the airline operating the flight, the scope 3 of any company whose employees are taking the flight for business, or the scope 3 of the company who refined the jet fuel.
The SEC recently signalled they were scaling back their ambitious disclosure requirements on scope 3 , however some disclosure will be required under the new IFRS S2 standards . So, there is mixed opinion from standard setters/regulators.
Scope 4 (measuring avoided emissions)  is of growing interest to LPs who take climate investing very seriously; climate funds should invest in companies with technologies/approaches that will reduce global emissions significantly, with the acknowledgement that those companies are often in ‘unattractive’ industries like Steel, or Cement.
Calculating their Scope 4 will reveal their positive impact - but again, estimations will play a large role in their quantification.
Read our Head of Research Hannah Bennett's thoughts here.
Effective today, Integrum ESG’s industry-leading data, scoring, and benchmarking is integrating with the preeminent ESG advisory services of Malk Partners.
More and more, top-tier private market clients tell us they want ESG data and analysis that is accurate, framework-aligned, and comparable. The partnership will deliver exactly that, through a software-and-services pairing aimed at supercharging the ESG performance of portfolio companies.
“We are very excited to be working with Malk, which has been a first mover and leader in the ESG advisory space since its founding in 2009,” said Shai Hill, CEO and Founder of Integrum ESG. “By combining Malk’s preeminent advisory services with our industry-leading repository of public and private company ESG data, we can become even more valuable to our private market clients.”
“Our clients have been very clear. They want the best ESG data available – by which they mean, ESG data that is seamlessly and accurately captured, intuitively displayed, scored in a customizable way, benchmarked against industry peers, and consistent with widely-respected ESG frameworks. In Integrum ESG, we have found the innovative partner that best aligns to our clients’ needs,” said Max Hong, CEO of Malk Partners.
Above all else, client satisfaction is our highest priority, and we are excited about the ways Malk’s field-leading advisory services will complement Integrum ESG’s unmatched data capabilities.
We now look forward to serving top-tier private market investors together.
We recently created a post on LinkedIn explaining how regulators in the EU, UK and US are investigating ESG funds as there have been growing concerns that asset managers are promising more than they can deliver in an effort to sell their products.
There are fears that to meet the growing demand for ESG products many asset managers have simply rebranded their existing products rather than trying to create new ones, which has created concerns around greenwashing.
A recent analysis by PwC showed that of 1,061 Article 9 funds -- whereby a product needs to have sustainability as its “objective” -- showed that only 286 were new. The rest were reclassifications of existing funds.
A probe of Article 9 products by Swedish authorities last month found “many cases” in which managers failed to provide necessary information, and as a result the Stockholm based regulator has warned that it will act to stamp out false ESG claims.
Furthermore - the EC has recently announced guidelines suggesting that the hurdle for an Art 9 fund should be 100% which has prompted firms like Amundi and Blackrock to remove Article 9 labels from some of its funds.
This has prompted the team here at Integrum ESG to use our 'Screener Tool' to create an Article 9 fund where every company meets the 12 specific sustainability objectives that a company must support if it is to be compatible with an Article 9.
We are happy to have been recognised as the "Best Global AI-Powered ESG Data Provider" by Corporate Vision Magazine in their annual Artificial Intelligence Awards.
This recognises the incredible work done by the Integrum ESG Machine Learning team.
Their contribution cannot be understated - creating and refining our cutting edge models so that they are able to capture, verify and display granular and relevant ESG data with unrivalled rapidity.
NOTE: This table has been updated as of 29 September 2022, following the news of easyJet switching from a strategy of carbon offsetting to emission reductions.
Below is a list of the top 9 airline companies with the biggest difference between their Awareness Score and their Performance Score - i.e, they have policies and targets in place but they are still the worst performing airlines relative to their peers in the airline industry in terms of CO2e emissions.
The below table shows the countries which are worst at managing risks from climate change.
The Climate Change Risk metric includes two sub-metrics:
1. Vulnerability vs readiness for a changing climate whichlooks at a country's propensity to be impacted by climate change hazards vs its ability to make effective use of investments for adaptation.
2. Demographic Pressures which considers pressures upon the state deriving from the population itself or the environment around (including pressures stemming from extreme weather events).
This metric is scored from 0-4 with 4 being the highest score awarded.
The below table shows the companies within the Chemical sector that do not have a policy in place to protect the environment.
The table below shows, from highest to lowest, the top 10 companies which have seen the largest year on year increase of CO2 emissions.
Question related to Regulation (EU) 2019/2088 of the European Parliament (Sustainable Finance Disclosure Regulation 2019/2088)
Published by the European Commission 14/07/2021:
The “comply or explain mechanism”
The underlying objective of Article 4 of Regulation 2019/2088 is to encourage financial market participants to pursue more sustainable investment strategies in terms of reducing negative externalities on sustainability caused by their investments. The compliance with disclosure requirements under Article 4 should incentivise the interest in investing in activities that do not harm environment or social justice, curb greenhouse gas emissions of their investments, stimulate investee companies to transition away from unsustainable activities and improve their environmental impacts or and even induce portfolio adjustments and divest from investments in activities that are harmful to sustainability. Article 4 also encourages financial advisers to pay more attention to how the consideration of negative externalities is integrated in their investment or insurance advice.
This is why the “comply or explain mechanism” under Article 4(1) of Regulation 2019/2088 distinguishes between ‘principal adverse impacts’ and ‘adverse impacts’.
Whilst the “comply mechanism” under point (a) of paragraph 1 encompasses the consideration of principal adverse impacts of investment decisions, financial market participants that decide not to apply the “comply mechanism”, must under point (b) of that paragraph that establishes “explain mechanism”, provide clear reasons for why they do not consider ‘adverse impacts’ of investment decisions on sustainability factors. Under point (b), by way of example, financial market participants must provide clear reasons for why they do not consider degradation of the environment or social injustice caused by their investments.
The aim of Article 4(3) and (4) of Regulation 2019/2088 is to introduce a more stringent “disclosure mechanism” and reduce a hypothetical incidence of application of “explain mechanism”.
New regulation comes into force in January 2023, called “SFDR” (Sustainable Finance Disclosure Regulation) - setting out rules for asset managers to classify and report on sustainability and ESG factors in investments.
This regulation applies to all investment managers and advisors (a) in the EU, (b) should they have EU-based shareholders, and/or (c) if they are marketing within the EU.
Moreover, the FCA regulator in the UK opened a consultation on its own version, called “SDR”, in November 2021. So even if you plan to market your fund in the UK, and not the EU, you are going to have to meet the requirements.
We have summarised how these new rules could apply to YOU and what steps you should take to best prepare yourself - in a comprehensive but digestible guide below.
Below is a list of the top 10 companies (with remuneration reports) with the largest 'limit on long-term bonuses as a percentage of base salary (%) ' - i.e. the potential size of a CEO bonus ~~can be~~ in comparison to their salary.
The universe is companies that disclose salary and bonus % AND have a remuneration report showing the numbers
The companies not on this list may have larger bonus sizes in absolute values, this table focuses on potential bonus as % of salary
Of the 314 companies we have under full coverage in the sub-sectors of: Commercial Banks, Asset Management & Custody Activities, Insurance, Investment Banking & Brokerage - i.e. the financial subsectors where "Integrating social & environmental concerns into planning & design" is material we have found that the below 9 companies do not clearly disclose sufficient policies for the metric "Integrating social & environmental concerns into planning & design". In the case of these sub-sectors, this could refer to integrating ESG or sustainable finance strategies into their products, for example.
The below list shows the ESG scores of the top 10 and worst 10 extractives & minerals processing companies.
The below table shows the companies within the processed food sub-sector and their awareness scores for auditing their suppliers' labour code of conduct. Most score a 3 out of a possible highest score of 4 as our scoring logic gives a score of 3 for companies with a policy in place for conducting labour audits of suppliers and for disclosing numbers, but does not give detailed percentages or set itself a target.
Only one company has scored a maximum score of 4 as they have also set themselves a target for conducting labour audits of suppliers.
The table below ranks each sub-sector from highest to lowest on how they manage labour relations.
Chile have issued a new USD$2bn 20-year sustainability-linked bond (SLB), the first Sovereign to do so. Unlike green bonds, the proceeds of SLBs are not segregated for use towards specific green or sustainable projects, but instead the payout to investors depends on whether the issuer meets agreed-upon KPIs. The KPIs attached to Chile's SLB are related to their annual greenhouse gas emissions and renewable energy generation.
On the Integrum ESG Sovereign Dashboard, compared to its Latin America & Caribbean peers, Chile ranks no1 on overall ESG and sits within the top 3 on Social and Governance. However, the country is 7th on Environmental issues, due to factors such as water stress, waste and % of power coming from renewable sources
Last week the influential ratings firm Morningstar stripped its 'Sustainable' label off c1,600 funds (1 in 4), and said there will be more downgrades to come.
A huge number of these funds had already declared themselves to be Article 8 (an SFDR categorisation that means ESG has been integrated into the investment process). Morningstar however has criticised these funds that “place themselves into Article 8…say they consider ESG factors in the investment process…but don’t integrate them in a determinative way for their investment selection”.
To qualify as Article 8, a fund must not just establish and declare certain ESG policies, it must assess each holding in the fund according to 14 ‘Principal Adverse Indicators’. It's a detailed process, and the vast majority of self-declared Article 8 funds are not doing this at all.
Morningstar is just a ratings firm - but there are 2 far more concerning developments:
Regulators have had enough of these exaggerated claims.
The EU markets watchdog, ESMA, said it will create a legal definition of “greenwashing” and classify it as a type of mis-selling. When a financial regulator creates a new definition, it is invariably because they intend to weaponize it.
The FCA said back in July that many ESG funds “often contain claims that do not bear scrutiny”. This was perhaps an early warning, and penalties will follow.
The SEC is investigating DWS for possible false ESG claims on some of its funds. This shows that even in markets where sustainability is not being promoted, nor is it clearly defined, regulators are already willing to pursue unsubstantiated ESG claims as a form of mis-selling.
Investors may start to sue.
- Consider this warning from the partnership at Baker McKenzie in Los Angeles, that if people have lost money, “you’ll see plaintiffs step in. You’re hearing the rumblings. It’s not happened that much yet. But it will.”
- Simmons & Simmons in London cites cases brought by shareholders against operating companies, on ESG grounds, and the FT quotes its partner Robert Allen’s warning “you can definitely see how (a case against fund managers) can follow on”.
- North Wall Capital, which funds legal class actions, offers the alarming quote “it is certainly coming”.
What might this mean? It means that a $10bn fund, that has underperformed its benchmark by 2%, and whose advertised claims that it is ‘sustainable’ are later deemed to be misleading, could face a $200m class action claim from its investors.
Might a clear legal standard of ‘sustainable’ emerge? The law firm Bates Wells believes that the 2015 Paris Climate Accord will be the legal standard – and the recent court ruling against Shell in The Hague set this as a legal precedent. How many investment funds are using a tool like THIS to evidence that their investments are consistent with a global warming scenario ‘well below 2 degrees’ (which is the objective of the Paris Climate Accord)?
So, ESG regulatory risks and legal liabilities may be mounting for fund management firms. The easiest way for any fund management firm to mitigate these risks is to state clearly that environmental and social objectives are not promoted by the fund, nor is ESG analysis systematically integrated into the investment process. Then all these mis-selling risks fall away.
It just seems that, fearful of losing investors, very few fund management firms want to do this.
The alternative is for these firms to build, or subscribe to, data tools that will map their funds to the Paris Accord, assess them against the 14 SFDR Adverse Indicators, and enable them to explain the key ESG risks in every existing investment.
How can Integrum ESG help meet these challenges?
- Fund managers are often relying on ESG ratings they cannot understand. When a regulator or investor asks "why are you comfortable with the ESG performance of this company?" they will struggle to answer, because the ESG score that has reassured them is a set of black boxes. The Integrum ESG dashboard presents glass boxes, with the reason for every score, for every metric, and the underlying data that explains and supports the ESG rating.
- Applying a Cambridge University model, the Integrum ESG dashboard calculates the extent to which your fund is aligned to the Paris Climate Accord - and surfaces the data that supports this calculation, company by company.
- The latest Integrum ESG dashboard feature, soon to be deployed, will provide the evidence of why, or why not, your fund can be classified as Article 8. It will map and assess the alignment of every uploaded fund to the SFDR Principal Adverse Indicators, and the EU Taxonomy Objectives.
Do you want to learn more about how Integrum ESG can help you meet these challenges? If so, CLICK HERE.
Recently we posted a poll on LinkedIn (which you can see HERE) which discussed how the plant-based meat market will develop and the main reasons why there has been a drop in the sales of plant-based meat in 2021.
One of the main reasons for this drop in sales is that consumers have now started to realise that many plant-based meats are highly processed, additive-laden and not very healthy.
This has prompted the team here at Integrum ESG to take a look at Processed Food companies that are best at managing health risks to customers.
See below for a list of the 14 companies that rank highest out of the highest possible score of 4.
Below is a list of countries that are best at managing the risks associated with climate change. Each scores 3.75 out of a maximum score of 4
The Climate change risk metric has 2 sub-metrics. The qualitative "Vulnerability vs readiness for a changing climate", and the quantitative "Demographic pressures".
The first sub-metric in particular (vulnerability vs readiness) assesses how the country is managing the risk from climate change, so for example, seeing the small island state of Mauritius on this list might be surprising, but they are deemed to have a high readiness to adapt to risks they are facing from climate change.
Last week The World Economic Forum released 'The Global Risks Report 2022', and of their 10 most severe risks on a global scale over the next 10 years, 5 were environmental risks.
These 5 risks are climate action failure, extreme weather, biodiversity loss, human environmental damage and natural resource crises.
The list below is the top 20 companies who score highest on managing business risk from climate change.
The below tables shows which 14 automobile companies score highest on the governance metric 'Risk Management'.
The list below shows the 12 companies with the highest Governance score. Integrum ESG licences the Minerva framework to assess corporate governance. Minerva are stewardship experts and their framework assesses corporate governance using 9 metrics and 39 sub-metrics.
In the table below, we show the 5 countries which rank highest and lowest on the Freedom of the Press Index. This 2021 data is an annual ranking of countries (the greater the index score, the worse the situation is regarding press freedom) published by Reporters Without Borders and is one of the 31 datapoints we track for every Sovereign in our ESG database.
In the table below, we show the 5 countries where unemployment is lowest and highest. This 2020 data is sourced from the International Labour Organization, and is one of the 31 datapoints we track for every Sovereign in our ESG database.
Below is a list of the companies with the sharpest deterioration in ESG sentiment from the past seven days. Our A.I. powered sentiment tracker trawls through ~850,000 global news sources, in 92 languages, and assigns a neutral, negative or positive sentiment score to ESG relevant comments.
The companies below are experiencing an acute deterioration in ESG sentiment for different specific reasons, such as ransomware attacks, undisclosed CEO perks and even a US Senator calling for an investigation into price fixing in their sector.
With the recent 'rise in child obesity' article published by the BBC (data taken from the NHS), we have highlighted the UK Food & Beverage companies that are most focused on managing health risks to customers. You might be surprised by some of the names below.
The UK companies below (with a score of 3) state that their procedures related to managing customer health risks either align with a third-party standard, or are audited. The companies with a score of 4 also have a target in place, for supporting customer health.
How do companies improve their ESG rating? It might be by reducing carbon emissions, it might be by adopting new employee policies. But it is very often achieved by better disclosure on ESG issues.
Below is a list of the top improvers when it comes to (uncustomised) ESG score improvements.
We are now seeing a clear trend of improving ESG disclosure in the US – and thus it is no surprise that all but 2 of this list are US companies.
Using the SASB framework, we assess certain sectors for employee turnover - as an indicator of how good a company's labour practices are.
Rather than focus on the negative, we thought we would list below the 10 companies with the lowest staff turnover:
The list below shows the 10 companies who pay their accountants the most, relative to the cost of auditing from the accountants.
For example, Volkswagen paid EY €19m in audit fees, but it paid EY €33m in non-audit fees (€21m for tax advisory, €7m for advice on new legal standards, and €5m for 'other assurance services').
The Top 10 companies with the biggest YoY GHG Emission reductions
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