The United Nations (UN) sounded major, loud alarm bells again this week over the climate crisis. Its environment agency reported that there is no credible pathway to staying at 1.5C on current actions for the international community. And its climate agency said that current government plans will lead to a temperature rise of between 2.1C to 2.9C, which would have catastrophic effects around the world.
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Sidestepping the ‘S’ and ‘G’ in ESG: The recent KPMG 2022 Survey of Sustainability Reporting showed that although 96% of the top 250 companies report on sustainability or ESG and 80% set carbon reduction targets, only 49% acknowledge social injustice and poor governance as business risks. In doing so, they failed to report on social issues such as modern slavery, diversity, equity and inclusion, labour practices and governance risks such as corruption, bribery, and anti-competitive behaviour. The survey analyzed financial, sustainability and ESG reports, and websites from 5,800 companies across 58 countries and territories.
Financial performance over ESG: A survey of the world’s 100 largest publicly listed companies reveals that while boards of directors are increasingly aware of ESG challenges, ESG concerns still rank far lower than financial metrics in their decision-making. The Sustainability Board Report 2022 shows that although 80% of boards have a relevant ESG committee and 45% of the directors serve on committees assessed to be ESG-aware, many boards still focus on financial performance above ESG concerns, making shareholder value creation the top decision-driver for CEOs. ESG ranked sixth in CEOs’ decision-making metrics, behind financial bottom-line, growth, talent management, innovation, and health and safety, according to the survey of 1,260 directors. The report recommends moving ESG to the core of board activities, educating boards on key sustainability issues, increasing board age and gender diversity and challenging boards to break the status-quo with a new mindset to doing business.
Boards under the magnifying glass: The annual Global Benchmark Policy Survey has revealed growing scrutiny of boards of directors and senior management on environmental action by both investors and non-investors. The survey, by advisory firm Institutional Shareholder Services, found that a significant majority of both investors (79%) and non-investors (57%) consider it a material governance failure if a company with a high climate footprint does not adequately disclose its climate-related governance, strategy, risks, and emissions targets. As many as 79% of shareholders also believe board directors should be removed if the company fails to align its reporting with the Task Force on Climate-Related Financial Disclosures (TCFD). The survey recorded responses from 205 investors and investor-affiliated organizations and 212 non-investors worldwide and is expected to inform policy changes for the upcoming 2023 proxy season.
Greenwashing crackdown: The UK’s financial regulator this week proposed a series of new rules in the latest clampdown on greenwashing to prevent businesses from making exaggerated or unjustified environmental claims. The Financial Conduct Authority (FCA) will now restrict use of terms like “green” and “ESG” in investment product labels and require a higher burden of proof by companies to back their ESG claims. The new rules include:
- Three categories for sustainable investment product labels, including one for products that become more sustainable over time, to help consumers choose the right product for them.
- Disclosures to help consumers understand the key sustainability features of an investment product.
- More comprehensive disclosures for certain consumers such as institutional or retail investors.
- Requirements for distributors such as investment platforms to ensure the labels and disclosures are accessible and clear to consumers.
“Greenwashing misleads consumers and erodes trust in all ESG products. Consumers must be confident when products claim to be sustainable that they actually are. Our proposed rules will help consumers and firms build trust,” Sacha Sadan, director of ESG at FCA said in a news release.
Biodiversity loss and business impact: In an open letter published by the Business for Nature coalition this week, more than 330 companies and finance institutions from 56 countries called for mandatory biodiversity impact disclosures by all large businesses. Prominent signatories included IKEA, Tata Steel, BNP Paribas, Danone, H&M, Nestlé, Salesforce and Unilever. You can view the full list of signatories and sign the petition here. Elsewhere, the Living Planet Report 2022 by the World Wildlife Fund (WWF) sounded the alarm on biodiversity loss, revealing a staggering 69% decline on average in wildlife populations globally since 1970. The study, which analyzed almost 32,000 populations of 5,230 species around the world, showed the biggest decline in Latin America and the Caribbean, where 94% of monitored wildlife has been lost between 1970 and 2018.
Maria Shamim is a research analyst at Competent Boards. Follow Competent Boards on LinkedIn.Back To News & Views