All Things Sustainable

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

What do Chipotle, an air conditioning company and one of the world’s largest activist investors have in common? They’re all tackling the challenge of how to incentivize executives to advance corporate sustainability goals. In this episode, we talk with Chipotle Head of Sustainability Caitlin Leibert about the company's plan to tie 10% of annual executive incentive bonuses to sustainability goals. Linking executive compensation to ESG goals is a way for companies to "put your money where your mouth is,” Caitlin says. But European activist investor Cevian Capital believes that many companies could make their ESG-linked incentives more robust and transparent, says Harlan Zimmerman, a senior partner at the firm. We also hear from Marcia Avedon, Trane Technologies’ Chief Human Resources, Marketing and Communications Officer, about how the air conditioner and heating company is looking to incentivize all its employees to act on its sustainability targets. "We are weaving sustainability...into everything we do as a company," Marcia says. Photo credit: Getty Images

As more companies look to adopt ESG-friendly strategies, they sometimes run up against the challenge of finding the financial justification for doing so. Furthermore, opponents of ESG initiatives often question whether such efforts cost companies more money than it brings them. This is the heart of the debate over ESG – are companies sacrificing financial returns as they move to become more socially and environmentally responsible? A number of studies have found that companies with strong ESG practices tend to perform better. But it can be difficult to measure the financial impact of less tangible factors. For example, what’s the payoff of cutting your company’s emissions? What is the financial impact of expanding your paid sick leave? In this episode, we'll explore a methodology developed by the Center for Sustainable Business at the New York University’s Stern School of Business that helps companies put a price on things like employee retention, avoided costs, and improved insurance rates. The methodology is called the Return on Sustainable Investment, or ROSI. From the center's director Tensie Whelan, we'll hear how the methodology has helped companies understand the financial benefits of their ESG programs. And we'll talk with Kate Chisholm, the Chief Sustainability Officer at Capital Power, a publicly-traded independent power producer in Canada, that used the ROSI tool to assess its decarbonization strategy and decided to retire its coal-fired power plant fleet in 2023 as a result. ROSI "helps you put numbers where intuition was the best thing you could do before," Kate said. Photo credit: Getty Images

The European Union’s new Sustainable Finance Disclosure Regulation, or SFDR, is expected to drastically change the scope of sustainable investing by providing greater transparency and increasing disclosure. And this is a particularly big deal for the private equity world, which has historically relied on self-regulation. Broadly speaking, private equity refers to investments in or ownership of private companies, and in this episode, we ask how SFDR is impacting the private equity industry. We hear from Sophie Flak, managing partner in charge of ESG at French investment firm Eurazeo. Sophie was a member of an EU expert group that put in place some recommendations on SFDR. She says that the industry has a long way to go on ESG, and this new regulation will help drive progress and transparency. "But the road is a bumpy one,” she adds. We also talk to Andy Pitts-Tucker, who works closely with private equity firms in his role as managing director of APEX ESG Ratings. He expects that SFDR will require “a significant leap” for a majority of the industry. “ESG is quite new to a lot of people in the private market world,” Andy says. SFDR comes from the EU, but has a reach that extends far beyond Europe. Andy says international regulators are watching closely and learning. “It’s a game-changer,” he tells us. “What we’re certainly going to see is regulators around the globe adopting their own policies.” Photo credit: Getty Images

We’ve seen an explosion of companies setting net zero targets in 2021. That prompted us to ask: What comes next? After you set a decarbonization goal, how do you go about meeting it and measuring progress? To answer these questions, we talked to some of the world’s largest companies — Walmart, AT&T, Duke Energy and State Street Global Advisors — in a recent S&P Global webinar. This episode of the podcast highlights some of the key takeaways we heard from those executives. Walmart Chief Sustainability Officer Kathleen McLaughlin tells us how the retail giant is working with thousands of suppliers to achieve zero emissions by 2040. AT&T Chief Sustainability Officer Charlene Lake talks about how the telecommunications giant is working up and down its supply chain to pursue its science-based target of reducing emissions. Duke Energy Chief Sustainability Officer Katherine Neebe explains how the utility, which has most of its emissions occur in the production of electric generation, is seeking the most reliable and affordable path to net zero. And we hear from Carlo Funk, the lead ESG Investment Strategist at State Street Global Advisors covering Europe, the Middle East and Africa regions. Carlo unpacks how the asset manager is engaging with companies to lower its portfolio emissions. Photo credit: Getty Images

Hundreds of companies around the world have made ambitious promises to purchase only wind, solar and other types of clean electricity to power their operations. But many of these corporations aren’t buying actual physical electricity from renewable sources. Instead, they are snapping up incredibly cheap instruments known as unbundled renewable energy certificates, or RECs, which allows them to make “100% renewable power” claims while continuing to emit greenhouse gases as before. The practice is also problematic because it does little to encourage the establishment of new wind or solar farms —not a good outcome in the broader fight against climate change.   In this episode, we talk to Max Scher, head of clean energy and carbon programs at software giant Salesforce, which used to buy RECs but no longer does so.   “My general fear here is that if we are hyper-focused on… purchasing RECs, we’re going to miss the hard work, the important work, on reducing energy consumption, thinking about siting of facilities on cleaner grids” and other real-world steps to lower the carbon footprint of corporations,” Max tells us.  We also hear from an analyst at Lazard Asset Management, and from Matthew Brander, a carbon accounting expert at the University of Edinburgh who cautions that buying RECS instead of actual renewable power can be “a very low-cost easy way of making it appear to have reduced emissions.” Photo credit: Getty images

As countries across the world set out plans to bring their emissions to net zero by 2050, financial institutions are increasingly setting their own carbon neutrality goals. Limiting global warming to 2°C by 2050 will require $3 trillion annually in investment, according to an estimate by the Intergovernmental Panel on Climate Change, and banks will play an integral part in channeling that financing. To find out what banks are doing to get to their lending portfolios to net zero, we talk to Amit Puri, global head of environmental and social risk management at U.K.-based Standard Chartered, about the bank’s net zero ambitions. “We are really trying to figure out on a sector-by-sector basis, on a geography basis, where are we today, where is the baseline, and therefore what do we need to do to reduce emissions in line with the commitment that we have made?” Amit says. We also hear from executives at Natixis about a tool the French investment bank created to make its lending portfolio more sustainable. That approach “should help us to drive the entire portfolio of the bank toward a net zero balance sheet,” says Karen Degouve, head of sustainable business development at Natixis.   To learn more about our ESG Thought Leadership, visit the new S&P Global Sustainable1 website.   Photo credit: Getty Images

Major oil and gas companies are beginning to set aggressive decarbonization targets, but the path ahead for them is riddled with challenges. The latest episode of S&P Global's ESG Insider podcast takes a deep dive into what net-zero goals mean for those energy companies.   We'll hear from Ed Daniels, an executive vice president and the head of strategy at Royal Dutch Shell plc, about the company's plan for achieving net zero across its direct and indirect emissions. We also talk with Natasha Landell-Mills, the head of stewardship at Sarasin & Partners, a U.K.-based asset manager with more than £15 billion under management, about why the firm recently divested from Shell after years of engagement. And Simon Redmond, a senior director at S&P Global Ratings, explains the rating agency's decision to bump down the credit ratings of some companies in the oil sector, including Shell.   Photo source: Getty Images

Heading into the 2021 proxy season, investors are increasingly focused on equity issues, climate change, and the broader role of companies in society. Shareholders filed at least 435 ESG-related shareholder proposals for the 2021 proxy season, according to the respected Proxy Preview report.   In this episode, we explore three emerging shareholder proposals.   One asks companies to give investors a “Say on climate,” a variation on “Say on pay” resolutions that gained traction after the 2008 financial crisis. To learn more, we talk with Chris Hohn, a British billionaire hedge fund manager and philanthropist behind the “Say on climate” resolution.   We also hear from Tejal Patel, corporate governance director at CtW Investment Group, which is behind a resolution asking companies to perform racial equity audits.   "Even the most well-meaning board might be missing certain ways that their policies affect communities of color," Tejal says. Financial institutions, in particular, need to look for those blind spots "because they play such a critical role in our economy and in our society."   And we look at a proposal that asks companies to become "public benefit corporations" to further advance stakeholder capitalism. Stakeholder capitalism posits that companies are responsible for their role in society in addition to making money for shareholders, and the idea has gained traction in recent years. To read S&P Global's 2021 proxy report, click here.  Photo credit: Getty Images