547 Financial Institutions Have Announced Net Zero Targets

Investor Updates

U.S. & Canada Lead in Institutional AUM With Net Zero Commitments: Research conducted by The Climate Policy Initiative (CPI) found that at least 547 financial institutions representing $129 trillion in assets under management have announced net zero targets. This number includes 25 of the 30 largest global asset managers. Through 2021, 89% of targets were set by institutions in the UK, U.S., EU, or OECD countries, with the U.S. and Canada taking the lead on assets managed by institutions committed to net zero. However, research shows that only a fraction of institutions have set interim targets, and for those that have, only 39% of AUM are committed to be managed in line with net zero targets, according to a report from the Net Zero Asset Managers initiative.

Source: Climate Policy Initiative

Why Investors Need Better Information on Climate Risk: In an analysis by Bloomberg writer Michelle Ledger, she argues that while the SEC’s proposed climate disclosure rule may seem like a burden to companies, the increased information on the costs and risks is well worth the added work for investors. Especially as companies are already facing climate-related events that could and already do have a financial impact on their business, whether it be from higher costs of raw materials, increased vulnerability to extreme weather, or higher spend on transitioning to clean energy. While there will likely be lawsuits and delays for implementation, Ledger says the Supreme Court’s decision may not impact the course of the rule, citing the SEC’s role to improve disclosures for investors. Companies are reporting various metrics and disclosures for similar topics, and investors are looking to the SEC for some degree of standardization.

BlackRock Supported Fewer E&S Shareholder Proposals: This week, BlackRock revealed it voted for 24% of environmental and social shareholder proposals, noting there was a larger wave of “more prescriptive” shareholder proposals. Back in May, the firm did say it would support fewer proposals due to concerns over micromanagement and potential interference with financial performance. BlackRock mentioned a number of proposals that it did not support were specific to scope 3 emissions reduction targets. The WSJ reports that U.S. investors’ support for environmental and social shareholder proposals dropped to 27% this year from 36% in 2021.

EU Asset Managers Still Have Greater Focus on E&S in Proxy Voting Than U.S. Counterparts: Morningstar reviewed the policies of 25 active asset managers – 13 EU based and 12 U.S. based – analyzed the key environmental and social (E&S) themes, and categorized the asset managers from “Very High” to “Low” in terms of ESG focus. Key results are as follows:

• 9 of the 13 European asset managers analyzed in this study have a very high or high E&S focus based on their proxy voting policies
• 11 of the 12 U.S. asset managers have a medium or low focus
• The "big three" index managers—BlackRock, State Street, and Vanguard—all have a medium E&S focus

Among the environmental issues covered, climate, unsurprisingly, is the most common, but biodiversity and other connected topics, such as deforestation and water use, are gaining prominence. As for social issues, diversity, equity, and inclusion (DEI) is the most common topic, including issues from the board level to the workforce. Broader human capital management issues, human rights, and labor rights are also covered often.

Regulatory Updates

Congress Unveils Bill with Big Climate Change Mitigation Investments: Senator Majority Leader Chuck Schumer and Senator Joe Manchin announced new legislation called the “Inflation Reduction Act of 2022,” which provides $369 billion for climate and clean energy provisions, the most aggressive climate-focused action taken by Congress to date. The bill would position the U.S. cut carbon emissions nearly 40% by 2030. Read more details in the bill’s summary here.

ESG Ratings & Reporting

Corporate Controversies Are on the Rise: The number of ESG-related controversies flagged at companies are on the rise, per Bloomberg. Controversies are considered a corporate activity that can affect the company’s reputation and have negative financial, environmental, and social consequences. Such controversies are often leveraged by rating agencies and investors to make rating, investing, and voting decisions. Moody’s ESG Solutions found that the controversies are on the rise, about 6,000 ESG-related events were counted last year, up from less than 4,000 in 2020.

Companies Feeling the Heat

The Fed Sues Farms for Unfair Labor Practices: On July 25th the U.S. Justice Department filed a lawsuit against Cargill, Sanderson Farms, and Wayne Farms alleging that the companies, along with a data consulting company, engaged in a multi-year scheme involving the exchange of wage and benefit information to reduce competition for poultry processing employees. The suit was filed with a proposed consent decree which includes the payment of $84.8 million in restitution, the establishment of a federal monitor, and a provision that would allow investigators to access and inspect facilities and interview employees to ensure compliance. The terms of compliance measures would be for ten years.

More to Know...

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News Bites

• Positive ESG performance improves returns globally, research shows
• ESG Is Far More Than a Marketing Gimmick
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• Deep-Sea Mining Gains Critics as EV Boom Drives Minerals Demand
• Shopify Laying Off 1,000 Employees, CEO Says in Memo
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