ESG Investing Conference

ESG Investing

ESG Data Is All Over the Place. How to Fix It, From 2 Who Are in the Know.  Barron’sESG Data Is All Over the Place. How to Fix It, From 2 Who Are in the Know.  Barron’sESG Data Is All Over the Place. How to Fix It, From 2 Who Are in the Know.  Barron’s

Impact Investing Conference

Impact Investing Forum 2022

https://impactinvestingconferences.com/

London. April 28-29, 2022.

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Text size Sustainable investing is all about addressing environmental concerns. Buradaki/Dreamstime Sustainable investment continues to attract more attention, and investors and corporations are more frustrated. According to the Global Sustainable Investment Alliance, there are more than $35 trillion in investments that take into account governance, environmental, and social concerns. This represents about a third global professional-managed money. However, it is not clear how these money managers use ESG data such as workplace safety or greenhouse gas emissions. There is no one standard for reporting data. There is no agency that audits or collects it. Companies are not required to report ESG data. Calvert Investment Management & Research compiles the Barron’s list of the most sustainable companies. It examines more than 230 key performance indicator data from six primary vendors and other industry-specific information. This method of reporting on and disseminating ESG data doesn’t work. This topic was discussed by Brian Moynihan (CEO of Bank of America) and Doug Peterson (CEO of S&P Global), on a panel hosted and moderated at Barron’s by Handshake, an ESG advisory company. Below is an edited excerpt of the conversation. Barron’s: At the moment, we have a variety of reporting standards. Many of them seem to be at odds with each other. How did we get to this point? What problem must we first tackle? Brian Moynihan says: First, remember why you’re doing it–to implement the [United Nations] Sustainable Development Goals. We want the private sector to publicly declare their progress so that all stakeholders can see it, not only their customers but also their employees and communities. It was a fairly informal process. Doug and his company, along with many other companies such as Bloomberg, Barron’s, and others, have developed [ESG reporting metrics, frameworks] over time. The problem is that you now have many, many metrics. Brian Moynihan is the CEO of Bank of America. Jason Alden/Bloomberg Doug Peterson – Organizations like ours, and others trying to analyze data, aren’t seeing it delivered consistently. Today, companies report information in their own ways. For example, 85% of companies in the S&P 500 have some kind of sustainability report. They provide information about their climate, water, and diversity inclusion, but only 15% of those companies include this information in their financial reports, or in their statutory reporting. Many of the information is self-reported. It is not standardized, making it difficult to use for financial markets. Can the needs of all stakeholders–investors, regulators, advocates, NGOs–all be satisfied with the same reporting standards? Peterson: Brian was the leader of a group at The International Business Council at World Economic Forum that defined 21 metrics last year. This gives you a solid foundation of consistent information. S&P Global now has Sustainable One. We’re collecting all the information we can and making it consistent so that we can use it for indices, ratings, research and information. It all starts with standard disclosure. Moynihan, International Business Council consists of 130 companies. These large companies are from different parts of the globe through the World Economic Forum. We said, “Let’s try to find a way to standardize this metrics across industries.” We asked the Big Four accounting companies to do the work and compile all the metrics for each of the pillars. We have now reached 100 companies that are willing to share the same metrics as we standardize them. Doug made a similar point earlier. There is no informality; this is in the annual report. Is global standardization achievable? Even international accounting standards can be difficult to enforce. Peterson: The International Financial Reporting Standards Foundation, or IFRS, has financial standards for accounting reporting. They are also starting to consider ESG reporting. There are more than 10,000 global companies that issue equity and debt, and they are part of the global supply chains. The standardization you achieve for those 10,000 companies will be followed by the rest. It all starts with the largest companies in the world agreeing to a single standard for reporting. Both of you have mentioned the need for collaboration between companies and governments. Brian, you urged President Trump not to withdraw the United States from the Paris Climate agreement. Bank of America was then signed. What is the role and responsibilities of business leaders? And what about the government’s role in setting standards for sustainability reporting? Moynihan says that business leaders have the responsibility to create a plan, execute it, and make it available for all parties, including investors, customers, employees, and society. To help our clients make the change, we will provide $1.5 trillion in SDG financing over the next ten years. We work with midsize companies and say that consumers or companies will require that you do this. The private sector will be the engine of the ecosystem’s growth. Hence, the five years since Paris have seen major private sector movements. We need governments to enable some of these movements. Standardizing metrics is one way they can do this. We spend more time actually making the metrics work and improving than we do debating how to measure it. Peterson: This is the best opportunity to have a public-private partnership. One example is the TCFD (the Task Force for Climate Related Financial Disclosure), which was led by the FSB (the Financial Stability Board) and the private sector to create standards and a framework for reporting on climate change. Here is where the two meet. As an example, I am leading a task force that supports the G-7 finance ministers with a way they can leverage their power in financial reporting and disclosure. The United States needs to make major infrastructure investments in its energy grid; in its power grid, in energy generation; and in our airports. We also need to create the infrastructure for electric cars. We need to make a complete shift in the United States, to rethink our infrastructure investments and infrastructure design to support renewable energy and a more sustainable future. Moynihan’s last comment is crucial because it is companies that will make net zero a commitment to clean energy. We invest a lot of money to create alternative energy. The metrics are: Company A declares that “This is how I will get to net zero.” Here’s my path. Investors can see it, employees can see it, customers and customers can all see it.” This is coupled with government infrastructure investment to drive the change. That’s the part that we have to connect together: The government’s infrastructure is crucial to allow the things to happen behind it. You’ll have all the demand but no one to fulfill it. Gentlemen, thank you very much. Write to Beverly Goodman at beverly.goodman@barrons.com

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ESG Investing Conference