Economy and Society: Yellin announces US role to address climate change through financial structures

ESG developments this week

In Washington, D.C.

Yellin announces US role to address climate change through financial structures 

Two weeks ago, Treasury Secretary and former Fed Chair Janet Yellen told a virtual meeting of G7 finance ministers and central bankers that the United States intends to play a significant role in addressing perceived climate change concerns through its financial structures. According to The Hill:

“She expressed strong support for G7 efforts to tackle climate change, highlighting that her colleagues should expect the Treasury Department’s engagement on this issue to change dramatically relative to the last four years,” the department said in a statement.

“The Secretary noted ‘we understand the crucial role that the United States must play in the global climate effort.’”

Yellen’s pledge to global allies marks a notable turning point in the U.S. government’s approach to fighting climate change, a major priority for the Biden administration.”

The Wall Street Journal also recently reported that Secretary Yellen intends to create a new hub for climate change action and regulation within the Treasury Department and that former Obama administration Treasury official, Sarah Bloom Raskin, is a candidate to lead the effort: 

“Treasury Secretary Janet Yellen plans to wield the department’s broad powers to tackle potential risks to the financial system posed by climate change while pushing tax incentives to reduce carbon emissions.

Ms. Yellen is looking to a veteran of the Obama administration, Sarah Bloom Raskin, as the leading candidate for a new senior position that would head a new Treasury climate “hub,” according to people familiar with the matter. A former deputy Treasury secretary who once worked alongside Ms. Yellen on the Federal Reserve Board, Ms. Raskin has warned in interviews and speeches that U.S. regulators must do more to strengthen the financial system’s resilience to climate risks.”

In the States

Hawaiian State House bill would require public pension systems to implement ESG investment policies

On February 14, Tina Wildberger, the state representative for Hawaii House District 11 (covering the South Maui communities of Kihei, Wailea and Makena), contributed a piece to the Honolulu Civil Beat, in which she described the perceived overlap between the local environment and investment and detailed the legislation she introduced to address potential burgeoning issues. HB1205 (and its Senate companion bill, SB801) would require the Hawaii Employees’ Retirement System and all other public pension systems in the state to, in its words, “develop, publish, and implement socially responsible investment policies” and “submit an annual report to the legislature on disclosing its investments in accord with environmental, social, and governance investing and socially responsible investment policies.”

On Wall Street and in the private sector   

Anheuser-Busch enters largest-ever ESG-related debt facility 

Late last week, Anheuser-Busch InBev SA/NV, the brewers of Budweiser, among other beers and adult beverages, announced that it has signed a deal to participate in the world’s largest-ever ESG-related debt facility. The revolving-debt loanwhich will total $10.1 billionwill be tied to the company’s performance on ESG factors. The poorer the company performs against its benchmarks, the more it will pay in interest for the loan. Conversely, the better it performs, the lower its servicing costs will be, as Bloomberg reported on Thursday, February 18:

“The new revolving credit facility replaces an earlier financing line and ties interest margins to meeting goals on water efficiency, recycled packaging, renewable energy use and emissions, the company said on Thursday.

AB InBev’s new deal nearly doubles the global tally of environmental, social and governance loans for this year, which at $12 billion was already 71% ahead of the same period in 2020. Annual sales have surpassed $100 billion since 2019.”

S&P Global adds further ESG-related scores for companies 

Late last week, S&P Global announced that it had created two new levels of ESG-related data that will govern companies’ ESG scores. In a press release, the company noted:

“An additional 400 data points have been made available for each company, based on their applicability and relevance to informing a company’s overall scoring assessment. The additional data points will help markets better understand companies’ environmental and social impact as well as its governance standards….

The additional data points will provide clients with a better understanding of companies’ environmental reporting disclosures, biodiversity commitments, its direct and indirect CO2 and greenhouse emissions, waste/hazardous disposal, energy consumption and water usage.

For the Social dimension it will now be possible to determine whether companies in their social reporting activities disclose safety policies, human rights commitments, code of ethics and whether social reporting disclosures have been independently audited.

The new data sets will also provide greater insights on the Governance & Economic dimensions and help obtain better understanding of companies’ codes of conduct and policies addressing anti-crime, corruption & bribery, governance of the board and executive compensation, ownership, diversity, materiality disclosures, risk and supply chain management, and tax strategy and reporting.” 

ESG goes private

As anticipated by comments made earlier this month by BlackRock CEO Larry Fink, ESG-focused efforts appear increasingly targeted at privately owned businesses, in addition to publicly-traded corporations. On February 16, Reuters reported on a recent survey showing that private companies are less concerned about modernizing their ESG performance than are their publicly-held counterparts:

“Family-owned businesses are falling behind on setting environmental and social standards, with just over a third having set a sustainability strategy, a survey published by PwC on Tuesday found.

While family-owned companies – particularly in Europe and the United States – looked to charitable giving and helping employees during the COVID-19 pandemic, most put sustainability on the back burner, the consulting firm’s survey of 2,801 family business owners showed.

Without the investor pressure that listed companies face to conform to and set environmental, social and governance (ESG) standards, family businesses have implemented what PwC described as an “increasingly out-of-date conception of how businesses should respond to society”….

…more than three-quarters of the U.S.-based family businesses and 60% of those in Britain placed greater emphasis on direct societal contributions, mainly through charity, over a strategic approach to ESG matters.”

In the spotlight

Mondelēz International launches impact investment platform aimed at climate change 

Late last week, Mondelēz International, the Chicago-based snack-food king spun off from Kraft Foods a decade ago—and makers of products including Chips Ahoy!, Oreo, Ritz, and  Jell-Oannounced that it will create a new platform by which the company will maintain what it describes as its “commitment to deliver a positive impact on people and planet” and “incubate, finance and build partnerships in the impact investment space.” The new venture, called Sustainable Futures, will, according to the company:

“[Seek] to co-invest in projects addressing climate change, as well as making seed investments into social ventures that aim to improve livelihoods and build healthy communities. Through the platform, Mondelēz International intends to invest in projects that protect forests, reduce carbon emissions or increase resilience in landscapes from which it sources raw materials.

The first social ventures will initially include support for an NGO in India that will set up a sustainable, women-owned social enterprise to up-cycle multi-layered plastic packaging into board for multiple uses, and a venture with INMED Aquaponics Social Enterprise (ASE) in South Africa, supporting agro-entrepreneurs in climate-smart food production.”

The announcement by Mondelēz comes six days after Mondelēzalong with Nestle, Mars, and Hersheywas named as a defendant in a lawsuit filed by International Rights Advocates alleging the widespread use of child slave labor on cocoa farms in West Africa. Mondelēz commented: “Forced labour and child labor have no place in the cocoa supply chain.”

Notable quotes

“In the U.S. last year, investors pumped $47 billion into investment strategies that take ESG features into account, as well as financial metrics, according to Goldman Sachs. That’s almost double the amount of the previous five years combined.”