Wall Street’s top regulator, the U.S. Securities and Exchange Commission, is in the early stages of creating a number of new ESG-related disclosure rules, including on the issue of human capital management.   Human capital management refers to the way that companies manage their workforce. It includes things like a company’s approach to hiring, recruitment, pay and benefits, and the working conditions a company provides. Right now, public corporate disclosures on these topics are voluntary in the U.S. But many investors say that leads to insufficient and inconsistent data.  “I think it’s unfathomable that, in this day and age, the only metric that companies are currently required to disclose is the number of people that they employ — especially when we talk to every company and they tell us that their human capital is their most important asset,” says Aeisha Mastagni, a portfolio manager in the sustainable investment and strategies group at the California State Teachers' Retirement System, one of the largest public pension funds in the U.S. “And yet we as investors have no way to measure that, benchmark that, compare it to other companies in our portfolio.”  In this episode, we explore the changing state of human capital data disclosure in the U.S., why some investors want disclosures to become mandatory, and what to expect from the SEC.   We also talk to securities and governance lawyers at the Philadelphia-based law firm Dechert and with Bryan McGannon, director of policy and programs at US SIF: the forum for responsible and sustainable investment.

In mid-July 2021, the heaviest rainfall in a century triggered intense flash floods and inundated several towns in Germany, the Netherlands and Belgium, causing at least 188 deaths. The floods in Europe are a reminder that although emerging markets are likely to be hit hardest by a temperature rise, richer countries in the northern hemisphere are far from immune from the effects of severe weather.   In this episode, we talk with experts to understand the biggest climate risks facing Europe's biggest economies, analyzing physical risk data from S&P Global Trucost.   Guests on the episode include Irene Lauro, an economist with asset manager Schroders; and Swenja Surminski who leads adaptation research at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics. And we talk to Berenberg Bank analyst Michael Huttner about how the floods could impact insurance companies.

The podcast discusses the EU's proposed Corporate Sustainability Reporting Directive (CSRD). It explores the need for consistent ESG data, the expansion of reporting requirements, and the obligatory auditing of sustainability reports. The episode also covers the concept of double materiality, the impact on SMEs, and the potential effects of mandatory reporting standards on disclosure and data usability.

The EU has proposed a European Green Bond Standard as part of its strategy to drive investment into sustainable finance and achieve net zero carbon emissions by 2050. The new rules will also aim to protect investors from greenwashing, which is when an investment is made to sound greener than it is. Although they represent a tiny fraction of the overall debt market, green bonds — debt that finances environmentally friendly projects such as wind farms or solar power — have grown rapidly over the last eight years, from virtually nothing in 2012 to nearly $300 billion in 2020. The EU is counting on further growth in the market to meet the targets in its European Green Deal, designed to mobilize at least €1 trillion of sustainable investment over the next 10 years. The rules will be tougher than other existing green bond guidelines because issuers will have to prove their green bonds are financing projects in line with the EU's "green taxonomy," a dictionary of sustainable activities. In this episode, we speak to Climate Bonds Initiative CEO Sean Kidney, who was part of an advisory group that helped shape the new rules. Regulation has “been right from the beginning, a feature of the development of the market. Issuers have followed the regulations, and it's grown to be a very large successful market,” he tells us.   Listen to our episode on the EU's green taxonomy: https://open.spotify.com/episode/5b3qx805nauyVGvcJo9Wsr   Photo credit: Getty Images

The world’s biodiversity is in peril and its loss poses big financial risks to businesses and the global economy. More than half of the world's economic output — or about $44 trillion — is moderately or highly dependent on nature, according to the World Economic Forum. Moreover, the collapse of biodiverse ecosystems could hurt global GDP by $2.7 trillion annually by 2030, the World Bank warns in a new report. Until recently, biodiversity loss was rarely viewed as a substantial risk to corporations. But that is changing and a new task force has been formed to help companies and financial institutions better understand the scope of the risk. The Task Force on Nature-related Financial Disclosures, or TNFD, aims to create a voluntary framework that companies can use to assess their nature-related risks and opportunities. In this episode, we talk with Elizabeth Mrema, who is co-chair of the TNFD, about the goals of the task force, how she envisions them being implemented and how biodiversity is inherently linked to climate change.

More than 50 years ago, explorer Jacques Cousteau introduced millions of viewers to the marvels of the undersea world. In 2021, the ESG world is increasingly focused on biodiversity, and the oceans are a big part of that picture. Goods and services from the world's oceans and coasts are worth at least $2.5 trillion annually, while the overall value of the ocean as an asset is at least 10 times that amount, according to a 2015 estimate from the WWF. In this week’s episode, we interview Cousteau’s grandson, Philippe, the co-founder of a nonprofit called EarthEcho International that works on ocean health. “It’s important to start thinking about a restoration ethic and returning the oceans to abundance,” says Philippe. “For far too long, the environmental movement has been a movement of deprivation and doom and gloom. It has not been enough of a movement of opportunity and hope.” We also hear from Doug Heske, CEO of impact investing company Newday Impact that has teamed up with Philippe to promote ocean restoration, especially among younger investors. And we interview fund manager Paul Buchwitz from one of Germany’s largest asset managers, DWS, about how the company is aiming to ocean-related risks while tapping into new investment opportunities offered by ocean restoration projects. Photo credit: Getty Images

Investors are increasingly calling on companies to reflect climate-related risks in their financial results. In September 2020, global investor groups representing more than $103 trillion wrote an open letter asking companies and their auditors to include climate-related risks in financial reporting. Accounting standard setters and international auditing boards are also requesting that firms pay more attention to future climate risks when they produce their financial results. "There has been a big kind of anomaly there, almost a loophole, that climate has not been taken into account," David Pitt-Watson, executive fellow at Cambridge University’s Judge Business School, tells us. We also interview International Accounting Standards Board (IASB) Vice Chair Sue Lloyd about plans for a new international sustainability standards board. “I still talk to a lot of investors who are surprised that there isn't more information in the notes to the financial statements about the assumptions that have been used,” Sue says. And we speak to Veronica Poole of Deloitte for an auditor’s point of view. She says recent guidance the International Auditing and Assurance Standards Board (IAASB) issued on the topic of climate-related risk “is extremely valuable, and I think certainly should be looked at and used by auditors in their work as they challenge the assertions made by clients around the impact of climate change risks and opportunities on their business.”

On June 17, 2021, U.S. President Joe Biden signed legislation making Juneteenth a federal holiday. In this episode, we’re looking at how corporate America is changing its approach to diversity — and race in particular. June 19th, or Juneteenth, marks the official end of slavery in the U.S. in 1865. But the ugly systemic racism that slavery was built on endures. In 2020, the murder of George Floyd put that racism front and center for the world. And in response, many companies begin publicly addressing race and inequality. One way that change has manifested itself is recognition of Juneteenth. In 2020, many companies started observing the holiday — including our own parent company, S&P Global. We spoke to Tamara Vasquez, Global Head of Diversity, Equity and Inclusion at S&P Global, about the company’s decision to observe Juneteenth and her experience of the growing intersection of business and diversity. And we speak to Rodney Sampson, professor, angel investor and nonresident senior fellow at the Brookings Institution. Rodney is also Executive Chairman and CEO of Opportunity Hub, a platform he co-founded to build inclusive ecosystems for innovation, entrepreneurship and investment. “We have a theory that until there's capital at stake, whether it's investment capital or revenue, companies aren't really going to double click and actually become transformative in their investment as it relates to their racial equity or Diversity, Equity and Inclusion,” Rodney says. Further reading from S&P Global: How The Advancement Of Black Women Will Build A Better Economy For All Image credit: Getty Images

Regulators and supervisors around the world are increasingly concerned about the effects of climate change on financial stability. So they’re turning to climate stress tests to amass key data on financial institutions’ exposure to potential stranded assets and their ability to manage risk. Since the 2008 financial crisis, stress tests have become a critical tool for regulators to gauge how well banks can withstand hypothetical adverse scenarios, such as a sharp market downturn or an economic shock. Regulators can then determine, for example, whether banks need to hold more capital to protect themselves against risk. In a world first, the French central bank conducted a climate stress test on its financial sector. In this episode, we speak to Laurent Clerc, director for research and risk analysis at France’s Prudential Supervision and Resolution Authority, which conducted the tests in its role as the supervisory arm of the French central bank. “What is not necessarily perceived by institutions is the urgency,” Laurent tells us. “Delays in reshaping lending or delays in insurance policies might also delay the necessary transition.” Image credit: Getty Images

Last week the ESG world saw a major shakeup at one of the world’s largest oil majors. Specifically, at Exxon Mobil’s annual proxy meeting, shareholders voted to replace three board members with directors put forward by a small activist investor group — known as Engine No. 1. The group claimed Exxon was not moving fast enough to address climate change and that the board needed a fresh perspective to steer the company in the right direction. Shareholders have threatened for years to oust board members if companies don’t move fast enough on climate change. But last week, they carried through on that threat. To better understand the implications of the vote for both Exxon and other companies, we talked with Andrew Logan, senior director of oil and gas at Ceres, which works with investors to press companies to tackle climate change. "I think this will certainly get the attention of other boards in this sector and beyond," Andrew said. "Nothing focuses the minds of a corporate director like the possibility that they might lose their job." Image credit: Getty Images