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Week in Impact: BP to Boohoo

Does BlackRock's watershed CEO letter suggest the finance industry is finally taking climate risk seriously?

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🛢️ BP reported a $16bn quarterly loss and cut its dividend in half: the first reduction since its 2010 oil spill. The firm also committed to a tenfold increase in low-carbon investment.

🔡 Alphabet issued $5.75bn in sustainability bonds, marking the largest sustainability or green bond by a company. Proceeds will support social and environmental initiatives.

🌱 The Institutional Group on Climate Change, a coalition of 70 global investors representing $16trn, designed a net-zero framework to help pension funds decarbonise.

🌈 The Global Investors for Sustainable Development released 64 recommendations for the public sector to support the financing of the SDGs and Paris Agreement.

💰 Global net inflows into sustainable strategies increased 72% to $71.1bn in Q2, driven by European funds, Morningstar data show.

😠 SSGA joined a chorus of investors lambasting a US rule that would require pension administrators to prove they're not sacrificing financial returns by investing in ESG.

🏛️ The EU invited reviews on the Renewable Energy and Energy Efficiency directives. Feedback will inform how energy policies contribute to the European Green Deal.

📩 In proposals submitted to the EU, France called for standards for ESG funds. The request follows efforts by Russia and Israel to tighten sustainable investment rules.

🔗 The pandemic exposed the fragility of global supply chains. Now banks are seeing a growing interest in what is still a nascent funding tool: sustainable supply-chain finance.

Company spotlight: BP

On Tuesday, BP (LSE:BP) halved its dividend—the first reduction since the Deepwater Horizon disaster of 2010—after reporting a US$16.8bn loss for the second quarter.

The announcement concludes a dismal reporting season for the oil majors, many of which have reported their worst losses in decades on the back of tanking oil prices. In a statement, CEO Bernard Looney claimed the outlook for prices and demand would remain "challenging and uncertain."

What really stood out, however, were Looney's ambitious plans for reinvention. On announcements that BP would cut oil and gas production by 40% and increase low-carbon investment tenfold by 2030, its share price jumped by more than 7%.

This comes less than a year after BP became mired in controversy over claims of greenwashing. Critics pointed out that the firm's first global campaign in ten years emphasised its role in the transition to cleaner energy, despite the fact renewables amounted to only 2.5% of its expenditure in 2019.

This week marks an opportunity for BP to turn those figures—and its image—around.

Story spotlight: Tears over Boohoo

“It should have been a vindication for the sustainable investment industry. Instead, it led to red faces.”

So begins Sarah O’Connor’s takedown of investors in fast fashion retailer Boohoo (LSE:BOO), which last month lost a third of its value after it emerged UK workers were paid £3.50 an hour during the pandemic. Over the last few weeks, O’Connor has been joined by many in wondering: how exactly did Boohoo end up included in so many sustainable funds?

Blame highly uncorrelated ESG ratings agencies, whose “pseudo-scientific scoring systems” yielded reassuring scores for Boohoo. MSCI, for instance, gave Boohoo an AA-rating only two months ago, citing “relatively strong policies and practices” as justification for its glowing score on ‘supply chain labour standards.’

The problem, concludes O’Connor, is that fund managers “rely far too much on what companies tell them.” An industry-wide reliance on subjective disclosures rather than objective fact is what leads to so little correlation among ratings agencies, which diverge “in the factors they assess, the data they choose, the detail they seek and the weights they assign.”

As we see it, the most accurate way to evaluate a company is by looking at the most significant consistent measure of its output: its products and services. Which is why it's the approach we've taken for our sustainability analytics.

Looked through that lens, Boohoo was never viable for inclusion in sustainable funds. As EdenTree fund manager Ketan Patel argued in the FT last week, sustainable investors shouldn’t be asking “why Boohoo,” but instead “why fast-fashion retailers,” given how difficult it is to make a £5 dress without cheap labour in the supply chain.

Investors would do well to begin paying attention to what companies do, rather than what they disclose.