Insights

Give us data, not disclosures

EU sustainable inflows set new records, climate pledges (and policy) come under fire, and UN talks hit a wall. Plus, we wade into the US ESG disclosure debate. 

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💸 More than half of the money that flowed into European funds last year went into sustainable products, according to the Association of the Luxembourg Fund Industry. That amounts to a record $1.4 trillion.

🗣️ PwC plans to increase global headcount by 100,000 in five years as part of a $12bn investment into ESG. While signs of such demand are encouraging, will the push simply create an army of advisers with inadequate expertise and insight?

💬 Pre-COP26 UN climate talks wrapped up last week. Carbon Brief takes a look at the key takeaways, while the FT reports progress hit a wall over tensions about how to finance the Paris agreement. Technical glitches didn't help, adds the BBC.

🎈 Climate change is central banks’ new inflation puzzle. Are you team Andrew Bailey (gradual climate policy = higher energy and materials costs = more inflation) or team Larry Fink (aggressive climate policy = higher prices = more inflation)?

😡 Amazon, Facebook, Tesla and Berkshire Hathaway are failing to report data on climate change, says the CDP's coalition of heavyweight investors, which is demanding 1,320 companies make clearer disclosures about environmental risks.

🤐 We're on it, just don't ask us how: Top tech groups, including Microsoft and Alphabet, have resisted calls to include ESG disclosures in US regulatory filings. The pushback puts them on course for a clash with asset managers.

📣 While the US debates what to do about ESG reporting, the hunt for meaningful data continues across the pond. UK pension schemes launched an initiative to identify which social factors matter most and how corporates should disclose.

🌱 The trouble with climate pledges (looking at you, net zero by 2050) is they set faraway goals with no accountability. Many companies won’t be around in 2050. Their CEOs and boards certainly won't. What's the solution?

Util updates

🗞️ ‘Buzzword bingo’ and other ways companies are gaming ESG: Writing for ImpactAlpha, Patrick Wood Uribe digs into the duplicitous dance playing out between investors and companies in sustainable finance—and the solution.

Give us data, not disclosure

US companies, get ready: the SEC's ESG disclosure framework is here.

Two weeks after G7 finance ministers pledged to make climate-related financial disclosures mandatory, US lawmakers last week approved legislation requiring standardised ESG reporting.

The US House of Representatives passed the ESG Disclosure and Simplification Act on Wednesday. Under the bill, the SEC will create definitions of ESG metrics and “their connection to the long-term business strategy," as well as mandating standardised ESG disclosures.

Perhaps unsurprisingly, as investors apply pressure on companies via coalitions such as CDP and Ceres, they have been met with resistance. More surprisingly? The companies bearing most public scrutiny for their resistance are to be found in the (traditionally ESG-friendly) tech sector.

Earlier this month, Amazon and Facebook signed a letter to the SEC stating they support “regular and consistent reporting of climate-related matters" but urging the regulator to allow ESG data to be published separately from main financial reports. More recently, Alphabet and Microsoft asked that ESG information not be included in 10K filings.

In both cases, the companies in question expressed concern about potential legal risks, due to the fact that extra-financial data is subject to more uncertainty than traditional financial and risk data.

As it happens, we agree.

Disclosure is important and relevant—if there’s substance behind it. The problem is, if current ESG metrics are so nebulous and uncertain as to create legal risk, the implication is there’s very little substance therein.

And disclosures aside, tech companies are net positive against most social and environmental metrics.

Take SSGA's SPDR NYSE Technology ETF (XNTK), profiled above. The fund tracks the NYSE Technology Index, which is comprised of 35 leading US-listed technology-related companies: the same companies at the heart of last week’s dialogue.

We assess companies and portfolios as an aggregation of what they do, or produce, rather than what they say, or disclose. Like Amazon and Facebook, Alphabet and Microsoft, we don’t think disclosures are the be all, end all—or even, with regards to current benchmarks, fit for purpose.

Perhaps that will change, with the right framework, eventually. But in the meantime, what could possibly be more reflective of a company’s material risk and impact than the revenues that support its existence?