Investors and consumers alike are demanding more information about business-related climate risks and whether companies are spending significant amounts on decarbonization – and this trend is likely to accelerate due to Covid-19. What is the best approach to investing and disclosing and how should companies implement these approaches?
These were the key points of discussion in edie's latest webinar, which included experts from ING, Tideway, BlackRock Investment Stewardship and UL (sponsoring).
The one-hour session, which took place on Wednesday, July 29, and is now available on demand, brought the investor community together with leading representatives of sustainability to discuss the role of green finance and climate-related financial data disclosure in curing the corona virus Investigate pandemic.
The green financial sector had grown exponentially before the pandemic. At least from June 2019 $ 30.7 trillion (£ 23.8 billion) was held in investments that were specifically labeled as 'sustainable' or 'green' – and which increased by more than a third in three years. While the majority of companies are reducing their overall investment due to Covid-19, the social impact of the pandemic has sparked a new wave of interest in ESG and a growing desire to eliminate greenwashing in the area.
Similar trends could already be observed when disclosing the climate. The Task Force on Climate-Related Financial Information (TCFD) exceeded 1,000 support organizations in February, while CDP saw an eight-fold increase in companies requesting environmental information from suppliers within a decade.
Given the pandemic that continues to put pressure on companies to disclose their climate and natural risks and go beyond incremental targets and investments in low-carbon technologies, the webinar offered best practice advice for companies of all sizes and sectors that are one step ahead the curve and contribute to a really green recovery.
Here is a sketch of the five most important pieces of advice given by the speakers.
1) Know your frameworks
When it comes to climate-related objectives and disclosures, there are a variety of framework conditions under which companies can report accordingly. Jobs they want to disclose through, often hoping to outperform a benchmark; and resources that can be used to provide information about the objective.
In setting the goal, Chris Cattermole, head of UL's ESG advisory and global solutions, stressed the importance of scientifically sound goals, as the Paris Agreement is an "aggressive and clear path" that most investors take. He noted that while net zero targets could attract a lot of media attention, they would not deserve investor favor without proof that they were aimed at 1.5 ° C.
Jessica McDougall, VP of BlackRock Investment Stewardship, and Leonie Schreve, Global Head of Sustainable Finance at ING, agreed and found that working with companies in sectors where 1.5C paths had not yet been developed was in the Is usually a more complex process.
With regard to reporting and disclosure frameworks, UL's cattermole emphasized the importance of the TCFD recommendations and the requirements of the Climate Disclosure Standards Board (CDSB). Following the former will help investors fully understand the climate risks and opportunities, while the latter provide a more comprehensive picture of materiality.
Both TCFD and CDSB will help companies when the EU green finance taxonomy comes into force and when the Sustainability Accounting Standards Board (SASB) deepens its work with the Global Reporting Initiative (GRI), which will ultimately lead to SASB will practice as the new standard for best performance, explained Cattermole.
He concluded: "With every framework, you have to think practically about how it will be supported. What data is needed? What else do you have to report to them?"
2) Understand that disclosure is not the end of the journey
BlackRock made headlines earlier this summer with the release of its first quarterly voting report. The report found that in the first half of 2020, voting measures were taken against 53 companies for climatic reasons, and another 191 were "monitored" for possible voting measures.
When asked to explain BlackRock's process of working with backward companies, McDougall said that the 53 companies "highlighted climate risk in a variety of different documents … as essential to their business, but in the past year or year Having implemented no risk mitigating factors had been very reluctant to discuss realigning their portfolios to transition to a low-carbon economy. "
In other words, one-off disclosure is not enough for investors. You want to see the company use data and science to inform its objectives, processes and decisions about capital allocation and business models.
3) Prepare to ask investors how to achieve their climate goals
Building on the above point, McDougall, Schreve and Cattermole highlighted the fact that investors will no longer be impressed by high goals if companies don't allocate enough capital and change processes to achieve them.
McDougall spoke about companies for which the SBTi has not yet created a 1.5 C path: “We are trying to understand the rigor of the goals that companies set. If they are not scientifically sound, are they aimed at Paris? If not, why not? What does the company see as a short-term and long-term limit? “McDougall also said investors are excited to see if companies allocate capital in a way that matches their PR for sustainability. For example, many large oil and gas companies with strict climate targets spent more than 95% of their investment costs on projects in 2018 that could undermine their delivery.
Investors are likely to be compassionate for companies and sectors that have difficulty imagining how to adapt to the Paris Agreement due to a lack of technological solutions or political support – but ultimately need continuous, honest communication, the speakers conclude.
McDougall said BlackRock will only vote against companies if there are "obstacles" to an "ongoing dialogue". Shreve said that while ING is separating from sectors like coal that will ultimately never target Paris, some companies are shifting because they are being given "leeway" by their investors and currently by politics – which will eliminate in the future will be decades.
4) Narrow your focus to avoid greenwashing
In the Q&A portion of the webinar, speakers were asked how the investor community is using the United Nations Sustainable Development Goals (SDGs), as more than 10,000 organizations have expressed their support for the framework and many consumers want it Money is invested in an SDG. aligned.
ING's Schreve said that SDG-focused information and goals are not required for the bank to support a business, but that they are considered and viewed as positive. UL's cattermole said he saw many investors who chose this approach because the framework was not designed specifically for investors or companies, so quantifying progress in many areas remains a challenge.
Schreve and Tideway's head of sustainability, Darren White, agreed that the SDG-focused strategies that are most suitable for investors are those that focus on the company's main goals, rather than setting out the 169 goals and objectives 231 indicators to be achieved. Tideway focuses in particular on SDGs 6, clean water and sanitation, and 11, sustainable cities and towns, and has embedded these goals in its green commitment.
"A lot of companies seem to be saying that they can solve everything, and if you really look at the details, you see that there isn't too much substance behind it," White said, adding that investors can find companies that have an impact in their area ". "Much more credible".
5) Show potential rewards and risks
When it comes to climate and natural hazards, the numbers are amazing. The WEF claims that $ 44 billion – more than half of global GDP – is at risk from natural loss. The WWF estimates that £ 8 trillion will be wiped from the global economy by 2050 when the planet warms up and natural resources deteriorate.
The speakers agreed that it is important for companies to correctly quantify this risk – in physical, transitional and reputational form – in order not only to communicate properly with investors, but also internal motivation for the transition of their business models and cooperation with to build policy makers. As has been said many times, you cannot manage what you cannot measure.
However, the speakers also stressed the importance of shaping the transition to a low-carbon circular economy. Investors will be excited to see what value your company can draw from the market for alternative proteins, for example. the markets for renewable energy or energy flexibility; Repair, refill and resell models; Electric vehicles or alternative fuels.
"We believe that when communicating with investors, companies should think about climate change as a source of value or a competitive advantage," said Cattermole, noting that every company will be required to go beyond the requirements of existing frameworks and imagine a future in which Your sustainability strategy is based on transformation, not incremental improvements.
"It is important to consider how you will incorporate some of the non-financial data into your product development, energy efficiency, etc. considerations to get to this value creation angle," he added, going back to the importance of disclosure as a starting point.
You can watch the webinar here on request.
This digital conference for sustainable investments
edie starts its first tailor-made sustainability conference on green finance. Experts from ING, BlackRock, BNP Paribas and others discuss investments and the green recovery on the Digital conference for sustainable investments from September 7-8, 2020.
The two-day digital event offers a variety of panel discussions, outbreaks and in-depth dives on important green finance topics as well as the opportunity to network virtually with delegates.
For more information, sponsorship requests and registration, Click here.