Council Post: Corporate America’s Response To ESG Initiatives

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Pooja Malik He is the founder and CEO of the public equity asset management firm Nipun Capital.

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Negative news makes headlines, and of course a lot of headlines followed the “failed” COP26 summit. The often overlooked good news is that the US, EU and China each have Committed net-zero goal. Specifics vary but these sectors collectively represent half of the world’s GDP and emissions and with this commitment, the world is on its way to net zero. The icing on the cake has been Saudi Arabia’s commitment to reach net zero by 2060.

Also, corporates across the world have stepped in in a big way to support these efforts. In fact, they are being forced to step in as customers, active investors and even employees (especially millennials) want more accountability from companies and their boards. For example, pressure from institutional investors on the issue of climate change led to the formation of the “Net Zero Asset Managers Initiative”. Formed only a year ago, in December 2020, it now has signatories representation of $57 trillion in assets under management, which is almost half of all assets being managed globally. Signatories to the initiative have committed to a goal of net-zero greenhouse gas (GHG) emissions by 2050, and manage customer assets with this goal. And these signatories are in turn pressuring the companies they invest in to do more to combat climate change.

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Enhanced disclosure and reporting are taking this step toward net zero. “You manage what you measure.” Neither Congress, nor the SEC or the largest exchanges (NYSE/NASDAQ) have mandated ESG disclosure requirements yet. This is set to change soon if this committee report good inspires further action. Still, Corporate America is ahead of regulation. Ninety-nine percent of the S&P 500 firms put out sustainability report in 2019. This is only up from 20% in 2011. And 65% of the Russell 1000 companies published sustainability reports. Shareholder pressure is forcing higher disclosures. And disclosure is often a prerequisite for change.

Even technology firms that have been slow to embrace social goals such as diversity and inclusion are showing a move towards sustainability initiatives. Microsoft has been a leader in this area and has committed to reducing its emissions in 2020. their Target It is to be carbon negative by 2030 and eliminate all its emissions since its inception (in 1975) by 2050. In fact, they are taking a thought leadership role in the industry by publishing their process and research on implementing this goal.

Banks in the United States are another leading group on this issue. For example, earlier this year JPMorgan announced commitment Amount of $2.5 trillion over the next 10 years towards climate action and sustainable development. Citibank has also announced a commitment of $1 trillion by 2030.

Unlike the US, other developed countries such as Australia and most EU countries have mandatory reporting requirements. Even in emerging markets such as India, Malaysia and Thailand, ESG disclosure is mandatory, at least for the largest companies. Other countries, such as Singapore, have mandatory requirements but offer flexibility with the option of a compliance-or-interpret clause.

Globally, stock exchanges have been another force for increased disclosure. For example, now the Hong Stock Exchange Is necessary Listed companies to provide mandatory disclosures on certain ESG subjects, in addition to the compliance or interpretation section.

Earlier this year, the US House of Representatives passed legislation requiring companies to disclose data on environmental, social and governance metrics. The bill, which is facing a lot of opposition, is now with the Senate. Even if the bill does not pass, the SEC can independently impose reporting requirements. However, US regulators need to move beyond reporting disclosures to have real actionable impact. Clear, long-term policies can play a big role in setting the ESG agenda for the corporate world. For example, the UK has a set clear Target Convention to ban the sale of fossil fuel vehicles by 2030. This has made car companies and their supply chains invest more in the development of clean technologies.

It is heartening to see Corporate America move forward and recognize its role in society, beyond just creating shareholder value. Let’s hope regulators can find a way to step in, too.


Businesshala Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. am i eligible?


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