By Pooja Malik
January 10, 2022
Source: Green Biz
Photo Source: Unsplash, Lukasz Szmigiel Negative news makes headlines, and there were definitely a lot of headlines after the “failed” COP26 summit. The oft-overlooked good news is that the U.S., EU and China have each committed to a net-zero goal. The specifics vary but these regions collectively represent half the world’s GDP and emissions and with this commitment, the world is well on its way to net zero. The icing on the cake has been Saudi Arabia’s commitment to reach net zero by 2060. At the same time, corporates all over the world have stepped up in a big way to support these efforts. In fact, they are being forced to step up as clients, activist investors and even employees (especially millennials) seek more accountability from companies and their boards. For example, pressure from institutional investors on the climate change issue led to the formation of the “Net Zero Asset Managers Initiative.” Formed only a year ago, in December 2020, it now has signatories representing $57 trillion in assets under management, which is almost half of all the assets being managed globally. Signatories to this initiative have committed to a goal of net-zero greenhouse gas (GHG) emissions by 2050, and also to manage client assets with this goal. And these signatories are in turn pressuring the companies they invest in to do more to tackle climate change. Enhanced disclosure and reporting are facilitating this move to net zero. “You manage what you measure.” Neither Congress, the SEC or the largest exchanges (NYSE/NASDAQ) mandate ESG disclosure requirements as yet. This is set to change soon if this committee report spurs further action. Nevertheless, corporate America is ahead of regulation. Ninety percent of S&P 500 firms put out sustainability reports in 2019. This is up from only 20% in 2011. And 65% of Russell 1000 companies published sustainability reports. Shareholder pressure is forcing higher disclosure. And disclosure is often a prerequisite to change.
Even technology firms that have been slow to embrace social goals like diversity and inclusion are showing a move toward sustainability initiatives. Microsoft has been a leader in this field and made a commitment in 2020 to slash its emissions. Their goal is to be carbon negative by 2030 and to eliminate all of their emissions since it was founded (in 1975) by 2050. In fact, they are taking on a thought leadership role in the industry by publishing their process and research on implementing this goal. Banks in the United States are another group taking leadership on this issue. For example, earlier this year JPMorgan announced a commitment of $2.5 trillion over the next 10 years towards climate action and sustainable development. Citibank has also announced a $1 trillion commitment by 2030. In contrast to the U.S., other developed nations like Australia and most EU nations have compulsory reporting requirements. Even emerging markets like India, Malaysia and Thailand have mandatory ESG disclosure, at least for the largest companies. Others like Singapore have mandatory requirements but provide flexibility with an option of a comply-or-explain clause.
Globally, stock exchanges have been another force for increased disclosure. For example, the Hong Stock Exchange now requires listed companies to provide mandatory disclosure on some ESG topics, in addition to a comply-or-explain section.
Earlier this year, the U.S. House of Representatives passed legislation requiring companies to disclose data on environmental, social and governance metrics. The bill, which has plenty of opposition, is now with the Senate. Even if the bill does not pass, the SEC could also independently impose reporting requirements. However, U.S. regulators need to move beyond reporting disclosures to have a real actionable impact. Clear, long-term policies can play a large role in setting the ESG agenda for the corporate world. For example, the U.K. has a set clear goal of banning sales of convention fossil fuel vehicles by 2030. This has led to car companies and their supply chains investing more in developing cleaner technologies. It is heartening to see corporate America step up and recognize its role in society, beyond generating shareholder value. Let’s hope the regulators can find a way to step up as well.
Does your company have a climate change plan? How is your company image? Why?
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