With the ESG landscape evolving at a rapid pace, MLT Aikins is pleased to offer a curated list of timely and relevant ESG articles to help you stay current. Learn more about our ESG services.
Looking Ahead to Climate-Related Reporting Requirements in Canada
Securities regulators in Canada and the United States are developing climate-related disclosure requirements for reporting issuers and registrants. In this two-part blog series, we summarize some of the reporting requirements proposed in Canada as well as the international developments that may affect Canada’s disclosure rules. Read more from MLT Aikins in part 1 and part 2.
IFRS Foundation to Release Global Sustainability and Climate Reporting Standards in June 2023
The International Sustainability Standards Board (ISSB) of the IFRS Foundation will release two finalized disclosure standards for sustainability and climate-related reporting in June 2023, aiming to provide a globally consistent and transparent reporting system. The first exposure drafts for the two reporting standards underwent significant stakeholder consultation and revision following their release in March 2022. The IFRS has been working closely with IOSCO, the leading standards setter for securities regulators, and the IFRS Chair Erkki Liikanen. Chair Liikanen stated that business leaders should prepare now to begin reporting on sustainability issues in the near future and to be ready to report on both financial and sustainability reporting in 2024. Read more at ESG Today.
Mandatory Sustainability Reporting Requirements and Auditing: an Overview
The European Union (EU) will soon require all large companies, including foreign firms, operating within the EU to undergo sustainability reporting starting in 2024. The reports will initially undergo limited assurance, which will provide negative assurance that there is no evidence to suggest that management claims are incorrect. This will be followed by full audits within a few years, which will offer reasonable assurance that there are no material misstatements in the report. Read more at Bloomberg.
BDC Launches ESG Reporting Template for Canadian VC and Private Equity Funds
The Business Development Bank of Canada (BDC) has launched a new ESG reporting template to increase transparency and disclosure standards in the Canadian venture capital space. The template aims to help venture investors better understand non-financial risks such as data privacy, environmental and supply chain issues in their portfolios. BDC expects all of its portfolio general partners and their underlying companies to report ESG metrics annually. The launch of the new template follows BDC's release of a diversity, equity and inclusion (DEI) reporting template last year, which will be merged with the ESG template in 2024. Read more at ESG Today.
Shell Directors Sued by ClientEarth for Inadequate Climate Strategy
Environmental lawyers ClientEarth have moved forward with legal action against 11 Directors at Shell for the company’s climate strategy, which is considered inadequate to meet climate targets and puts the company at risk as the world transitions to clean energy. The case is the first of its kind in the world, seeking to hold corporate directors accountable for failing to prepare their company for the net zero transition.
ClientEarth, supported by a group of large pension funds and other institutional investors, is suing under the U.K. Companies Act and argues that the shift to low-carbon energy is inevitable as world governments work to end the climate crisis. The group is calling on the High Court to order Shell’s board to adopt a strategy to manage climate risk in compliance with the Dutch Court’s order to cut emissions by 45% by 2030. Read more at the Guardian.
Several U.S. states are pursuing lawsuits against Exxon Mobil, claiming the oil giant misled the public and committed fraud over its knowledge of the climate crisis. A research paper last week revealed that, from the 1970s, Exxon climate scientists accurately predicted rising global temperatures due to burning of fossil fuels with accuracy equal or superior to independent scientists. Despite this, the company’s executives spent decades downplaying or denying the impact of fossil fuels on the climate, effectively blocking action to curb the use of such fuels.
The findings are likely to bolster the legal cases against the company, which has deep pockets and has sought to have challenges dismissed or heard at the federal level rather than the state level. Some legal experts warn that the latest details of Exxon’s knowledge could spell trouble for the company. A former geochemist who worked for Exxon in the late 1970s claims that the company was “very much aware of the problem” of global heating. Read more at the Guardian.
McDonald’s HR Chief Faces Liability in Shareholder Lawsuit, Raising Concerns for Corporate Executives
A recent decision in a shareholder lawsuit against McDonald’s former human resources chief has put corporate executives on alert – they can be held personally liable for failing to oversee the biggest risks faced by their companies. This ruling follows a series of Delaware Court of Chancery decisions that have made clear that directors can be sued for serious compliance failures, and now extends the legal scrutiny to corporate officers as well.
The lawsuit centres on a period of turmoil at McDonald’s that led to the firing of former CEO Steve Easterbrook and alleged violations of fiduciary duties by the board of directors, Easterbrook and the former chief human resources officer, David Fairhurst. The ruling focuses on the claims against Fairhurst for failing to appropriately respond to systemic issues of sexual misconduct at the company and for being implicated in the problem. This first-of-its-kind ruling raises issues around oversight liability that will be the subject of future rulings. Read more at the Wall Street Journal.
Indonesian Islanders Sue Swiss Cement Giant Holcim for Climate Change Impacts
Four residents of the Indonesian island of Pulau Pari have launched a legal case against Swiss cement company Holcim over its role in climate change. The residents aim to hold Holcim accountable for its pollution and are seeking compensation for “climate damages.” They argue that the island’s 1,500 residents are at significant risk of losing their livelihoods due to rising sea levels and flooding and that Holcim should pay 0.42% of the costs of damage already incurred and new flood protection measures.
The case mirrors a landmark lawsuit brought by a Peruvian farmer against RWE over the German energy supplier’s contribution to climate change. Climate litigation is on the rise as individuals and activists seek to hold polluters to account or force greater emissions reductions. Read more at the Financial Times.
Canada Invests in Carbon Capture and Storage Technology to Combat Climate Change and Boost Economy
The Canadian government is investing in new technologies to tackle climate change and support economic growth. The Minister of Natural Resources has opened an intake for expressions of interest in carbon capture, utilization and storage (CCUS) research, development and demonstration (RD&D) projects and related science activities. These initiatives aim to prevent emissions from heavy industries while creating jobs and supporting a competitive economy. Read more on the opportunity and application process in this blog from MLT Aikins.
The government is investing $319 million in RD&D projects through Budget 2021 to advance the commercial viability of CCUS technologies. These funds will support various organizations, including businesses, non-profits and academic institutions. Additionally, the government’s 2030 Emission Reduction Plan and Budget 2022 aim to develop a carbon management strategy for Canada and offer a $2.6 billion refundable investment tax credit over five years to incentivize CCUS technology adoption. The intake for expressions of interest will remain open until April 17, 2023. Read more at the Government of Canada.
Global Investor Commission on Mining 2030 Launched to Address Systemic Risks in Mining Industry
The Global Investor Commission on Mining 2030 was launched at the London Stock Exchange to address the challenges faced by the mining sector and its role in providing minerals for the low carbon transition. The Commission aims to bring about sector-wide reforms by 2030 with the support of investors, banks, insurers and mineral demand side companies. The Commission will focus on identifying gaps in global best practice standards for social and environmental systemic risks and provide practical steps and investments to secure the future of the mining industry. The Commission will also draw lessons from recent investor collaborations following the Brumadinho disaster in Brazil. The World Bank forecasts a 500% increase in demand for metals and minerals by 2050, which the Commission will work to ensure is met responsibly without harm to communities and the environment. Read more here.
Few Companies Have Credible Climate Transition Plans According to Latest CDP Review
The Climate Disclosure Project (CDP) has released the latest results of its review of corporate submissions, revealing that fewer than 0.4% of companies submitting climate-related data have credible climate transition plans. Of the 18,600 companies that provided CDP with data, only 81 companies – down from 135 last year – disclosed information against 21 key indicators that CDP considers necessary for a credible plan. Read more at Reuters.
U.S. Government Investigates Amazon for Misleading Lenders Over Workplace Safety Record
The U.S. government is investigating whether Amazon misled its lenders about its workplace safety records, using the Financial Institutions Reform, Recovery and Enforcement Act. The Act allows for civil cases to be brought over wrongdoing that impacts banks, and the Manhattan U.S. Attorney’s Office has deployed the act in tandem with the Labor Department’s workplace safety investigation. The Labor Department recently cited Amazon for not adequately reporting injuries and exposing workers to ergonomic or equipment hazards at three of its facilities. An Amazon unit has challenged a subpoena in federal court in Seattle, calling the legal theory behind the investigation “extremely tenuous” and “unprecedented.” Read more at the Wall Street Journal.
Global Witness Accuses Shell of Misleading Investors on Renewable Energy Investment
Climate and environmental advocacy group Global Witness has accused energy company Shell of misleading investors about its investment in renewable energy sources. According to Global Witness, by including some gas-related investments in its spending on renewables, Shell is inflating its overall investment in renewable energy. The group claims that Shell only spends 1.5% of its overall expenditure on wind and solar power generation, despite claiming to spend 12% of its annual expenditure on “Renewables and Energy Solutions.” Global Witness has called on the SEC to investigate and impose fines if necessary. Read more at ESG Today.
Brazilian Meat Giant JBS Accused of Failing to Meet “Green” Bond Emissions Targets
Environmental group Mighty Earth is demanding that the Securities and Exchange Commission (SEC) imposes penalties on Brazilian food giant JBS for failing to reach its emissions targets. Mighty Earth claims that JBS is already in breach of the emissions targets laid out when it sold $3.2 billion worth of “green bonds” in 2021. The bonds are linked to the company’s sustainability goals and would penalize the firm if its greenhouse gas emissions goals are not met. However, JBS claims it is investing $7 billion in sustainability and plans to spend over $1 billion over the next decade to reduce its greenhouse emissions intensity by 30%. It is also working with European nutrition firm DSM to reduce methane emissions from its cattle herds. The SEC is expected to unveil new rules on climate-related disclosures in April. Read more at the Washington Post.
Norway’s Sovereign Wealth Fund Threatens Company Directors on Climate, Human Rights and Diversity
The Norwegian sovereign wealth fund, the largest in the world, has warned company directors that they will vote against their re-election to the board if they do not improve their efforts to tackle the climate crisis, human rights abuses and boardroom diversity. The fund’s Chief Governance and Compliance Officer, Carine Smith Ihenacho, stated that the fund is preparing to vote against the re-election of at least 80 company boards for failing to set or meet environmental or social targets.
The Norwegian fund stated that only 17% of the more than 9,000 companies the fund invests in have set “clear science-based net zero targets,” and the fund is actively pushing the remaining 83% to set their targets. If the companies are unresponsive, the fund may vote against their boards or sell its stake in the companies. The fund is also taking a more active approach to tackling a company’s record on human rights, excessive executive pay, tax transparency and boardroom diversity. Read more at the Guardian.
Institutional Investors Boost Sustainable and Impact Investing by 81%
A Cambridge Associates survey of 144 investors revealed that sustainable and impact investing has increased by 81% over the past four years, with significant variations in investor type and region. The survey showed that 65% of the respondents actively engaged in sustainable and impact investing, compared with 61% in 2020 and 36% in 2018.
The first-time inclusion of family offices and high-net-worth individuals in the survey found that foundations and endowments had the highest rates of integration of sustainable and impact investing at 73% and 69%, respectively. Institutional investors outside the U.S. invest a higher percentage of their portfolios in sustainable and impact investments with one-third of respondents reporting over 50% of their portfolios are allocated to these investments. In contrast, over half of U.S. respondents reported less than 10% allocation. Climate change and resource efficiency were the most common focus areas for sustainable investing, with 77% of respondents investing in these themes. More than 90% of respondents implementing sustainable investing strategies reported that financial results were their measure of success, and 90% of all respondents plan to increase allocations over the next five years. Read more at Pensions & Investments.
Net Zero Asset Owner Alliance Bans Members from Using Carbon Removal Schemes Before 2030
The Net Zero Asset Owner Alliance (NZAOA), an investment group responsible for $11 trillion in assets and committed to fighting climate change, has banned its members from counting carbon removal projects toward their emissions reduction targets until 2030. The group wants its members to concentrate on reducing emissions from the companies they invest in rather than removing carbon that has already been emitted. The decision reflects concerns about the quality of some carbon removal schemes and criticism of companies that purchase carbon credits rather than reducing their own carbon footprints. The policy applies to both NZAOA members and the companies they invest in. However, the group still plans to support the development of a transparent market for carbon removal certificates in the future. The decision has not been universally accepted, with some investors believing that carbon offsets can still play a role in early conservation and nature projects. Read more at Reuters.
The Growing Trend of ESG Investments: Evidence of Positive Returns and Risk Reduction
A survey of registered voters by Penn State’s Center for the Business of Sustainability showed that the majority of people believe that companies should be held accountable for making a positive impact in the communities in which they operate.
A Deloitte survey of 300 senior executives from large publicly owned companies showed that virtually all respondents were likely to invest in ESG reporting technology and tools in the next year.
A survey of 550 Bloomberg Terminal users found that a majority support ESG as an integral part of running a business.
A report from As You Sow linked workplace diversity to financial outperformance.
A Honeywell survey showed that over 90% of companies planned to increase their environmental sustainability budget.
PwC’s Asset and Wealth Management Revolution report found that ESG-focused institutional investment was expected to grow 84% in the next four years to nearly $34 trillion.
Lastly, a report by Refinitiv and Sustainalytics showed that ESG investing led to higher returns and lower risk.
New Advertising Guidance on Carbon Neutral and Net Zero Claims Released by CAP and BCAP
In the U.K., the Committee of Advertising Practice (CAP) and the Broadcast Committee of Advertising Practice (BCAP) have published updates to their advertising guidance on misleading claims and social responsibility. CAP and BCAP advise advertisers to avoid unqualified carbon neutral and net zero claims, and to provide accurate information about the basis for these claims. Claims should be based on a verifiable strategy to achieve them and should comply with the usual standards of evidence for objective claims. The Advertising Standards Authority (ASA) will monitor the impact of the updated advertising guidance for up to six months and take proactive action on unqualified claims that breach existing rules. Read more from the ASA.
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