ESG developments this week
Economy and Society is Ballotpedia’s weekly review of ESG stories that characterize the growing intersection between business and politics.
Around the world
Canadian government announces plans for climate disclosure rules
Canada’s government plans to create new climate disclosure requirements for large companies, according to ESG Today. The government said it will encourage smaller businesses to follow the new rules but will not require their compliance. Definitions and the specific scope of the rule have not yet been announced:
Canada’s process to move towards mandatory climate-related disclosures began in 2021, with a directive from Prime Minister Justin Trudeau to cabinet ministers to move towards a system of reporting based on the Task Force on Climate-related Financial Disclosures (TCFD), and in 2022, the government announced that financial regulator OSFI will require federally regulated financial institutions to publish climate disclosures aligned with the TCFD framework beginning in 2024. In its November 2023 Fall Economic Statement, the government announced a further commitment to expand mandatory climate disclosures. Last year, the TCFD announced that its responsibilities were being transferred to the IFRS Foundation’s International Sustainability Standards Board (ISSB).
Under its new plan, the government said that it will bring forward amendments to the Canada Business Corporations Act that will require the new climate-related financial disclosures, and that it will launch a regulatory process to determine the substance of the disclosure requirements, as well as the size of companies to be covered by the new requirements. …
While the government has yet to determine the substance of the new disclosures, the Canadian Sustainability Standards Board (CSSB) earlier this year released new proposed standards for companies to report sustainability and climate-related information, based on the ISSB sustainability disclosure standards.
In the states
Alabama auditor argues ESG hurts agriculture
Alabama State Auditor Andrew Sorrell (R) argued in an op-ed published Oct. 13 that ESG threatens farmers—especially those in his state. Sorrell said environmental regulations and corporate policies will increase farming costs and damage large agricultural industries:
[I]t is the Environmental component of ESG that is so dangerous to Alabama agriculture because government climate-control policies contained in the Paris Climate Accords and the Inflation Reduction Act will force huge increases in costs on our farmers—increases that will be passed along to consumers at the grocery store. In fact, the Buckeye Institute put out a report in February that outlines how farmers will see their operational costs rise by 34% because of net-zero ESG policies. They estimated that would increase the grocery bill for a family of four by $1300/year, including 70% increases in the price of beef, 39% in chicken, and 36% for eggs.
Texas Agricultural Commissioner Sid Miller joined 11 other state agriculture leaders to co-sign a letter that addressed this very issue, stating: “Imposing costly ESG requirements on America’s Farmers and ranchers will have a devastating impact on U.S. agriculture and world food security.” In Alabama, this won’t just hurt farmers, it’ll affect poultry and egg industry and the forestry industry as well. …
The truth is Alabama agriculture can’t afford ESG mandates. We need Alabama elected officials at all levels of government to fight back on these ESG proposals. To begin with, we must protect Alabama farmers from being de-banked for not committing to net-zero emissions by 2050. We must defeat any efforts to impose a “meat tax,” as other countries such as Denmark and Sweden have already debated to reduce meat consumption. We must also resist any effort to force our farmers to use electric equipment.
On Wall Street and in the private sector
Investor interest in ESG drops for fourth year
A new Association of Investment Companies survey shows the percentage of investors interested in considering ESG factors fell for the fourth straight year and now stands at less than 50%. Respondents cited concerns that ESG investments would underperform other sectors:
Passion for ESG investing seems to be cooling, as fewer investors now say they consider ESG when investing.
The Association of Investment Companies’ annual ESG tracker found the percentage of investors and advisers considering ESG this year was 48 per cent, having fallen from 53 per cent in 2023, 60 per cent in 2022, and 66 per cent in 2021.
Performance proved a particular concern, with a mere 17 per cent of the 400 investors and 202 intermediaries asked saying ESG investing was likely to improve performance, down from 22 per cent last year. One investor told the AIC they wanted to do good but it had to be a “balance between that and getting returns”.
Fewer attendees expected at COP 29 conference
The 2024 Conference of the Parties (COP 29) climate change summit may have fewer attendees than in 2023, according to The Sunday Times. The article cites commentators who argue the decline may indicate a broader drop in support for ESG:
After a golden period for “environmental, social and governance” (ESG) investing, the cost of living crisis, the war in Ukraine and a resulting surge in populist politics have left green investment flagging.
Some say that the real-life Cop conference taking place next month in Baku, Azerbaijan, is symbolic of the apathy. Where “Cop28” last year in Dubai saw as many as 70,000 attendees, this year’s Cop29 is expected to host perhaps only 40,000 to 50,000, according to a spokesman. “A case,” one delegate says wryly, “of good Cop, bad Cop.”
Not only that, but the heft of the corporate attendees looks set to be diminished. In previous years, the chief executives of the biggest companies in the world have been in attendance. This time, they are sending their subordinates, or nobody at all.
In the spotlight
Asset managers may consider ESG in non-ESG funds
Bloomberg senior investment columnist Merryn Somerset Webb argued in an Oct. 8 piece that a recent study (which this newsletter covered on Oct. 1) shows that asset managers overuse ESG and mislead clients seeking more traditional investments:
[M]ost of the managers surveyed had changed their behavior — not because they believed in it but more because they were forced to. Among traditional managers, 61% said they had been made to give up portfolio diversification and to avoid stocks they thought might outperform. But — and this is a very big but — the majority of both sustainable and traditional managers said that it wasn’t as a result of wanting to affect the cost of capital for firms, about having a positive impact on society or even about constraints specific to their fund — but as a result of “firm-wide ES policies.”
There are lots of caveats to these results – and the averages disguise significant variations. But the essence seems to be this: Most fund managers, however their fund is labeled, don’t consider E and S to be a top performance driver, and they “do not put significant weight on ES objectives beyond what is required to improve financial returns.”
But look at the last bit of the survey – even traditional fund managers are already constrained by the “firmwide ESG policies” pushed on them by increasingly vast ESG departments. It isn’t in the label, sustainable or otherwise, where the real constraints lie, as the fund managers told Edman and Gosling’s survey; it is in their employers’ policies, which affect all funds. Look at it like that and it is obvious that rather than there being too little sustainable investing, there is too much. And if that is really the case, perhaps the FCA should be less worried by funds calling themselves sustainable but about apparently traditional funds caring too much about it. If you don’t explicitly ask for a sustainable fund, perhaps you shouldn’t end up with one.