In this week’s edition of Economy and Society:
- GFANZ announces restructuring
- Banks exit net-zero alliance
- Study finds ESG funds hold companies tied to slave labor
- Costco board votes against DEI reporting requirements
- Calculating sustainability’s return on investment
Around the world
GFANZ announces restructuring
What’s the story?
The Glasgow Financial Alliance for Net-Zero (GFANZ) has announced restructuring plans, including an initiative to expand participation to all financial institutions seeking guidance on climate-related plans and goals. Previously, the group limited participation to institutions that joined one of its subsidiary initiatives (such as the Net-Zero Banking Alliance) and signed a net zero commitment.
Why does it matter?
GFANZ is the United Nations-backed umbrella organization for many industry-specific climate alliances—including the Net-Zero Banking Alliance (NZBA)—which have faced recent high-profile exits. GFANZ and its members have also faced congressional anti-trust investigations over climate commitments in recent years. The changes may allow recent departures (including those mentioned later in this newsletter) to continue participating.
What’s the background?
For more on GFANZ and Congress, see here.
Read more
According to ESG Today:
GFANZ is led by co-chairs former Bank of England and Bank of Canada Governor Mark Carney, and Bloomberg LP founder Michael Bloomberg, and Vice Chair Mary Schapiro, formerly Chair of the U.S. SEC.
Membership in the coalitions typically involves a commitment to a net zero goal, such as the NZAM commitment to set targets for assets under management to be aligned with net zero emissions by 2050, and the NZBA commitment to transition greenhouse gas emissions in lending and investment portfolios to align with pathways to net zero by 2050. …
Among the key changes announced by GFANZ is a shift from participation in the group through one of the net zero coalitions, instead opening it up to “any financial institution working to mobilize capital and lower the barriers to financing energy transition.” In addition to widening the scope of direct participation, the change effectively eliminates a need for participants to have a net zero finance or investment commitment in place.
On Wall Street and in the private sector
Banks exit net-zero alliance
What’s the story?
Three major banks announced over the last several days that they are leaving the Net-Zero Banking Alliance. Morgan Stanley, Citigroup, and Bank of America indicated they would exit the group.
Why does it matter?
The announcements follow similar actions from Goldman Sachs and Wells Fargo last month. They are part of a broader trend of American financial services corporations leaving global climate change organizations. The announcements in recent months have followed arguments from Republican officials that global climate commitments could violate anti-trust laws.
Read more
According to Bloomberg:
Morgan Stanley is leaving the Net-Zero Banking Alliance, the lender said on Thursday. Citigroup Inc. and Bank of America Corp. said earlier this week that they were doing the same.
The defections are playing out against a tense political backdrop in the US, as the country’s biggest financial firms find themselves the targets of Republican campaigns that have characterized net zero groups as climate cartels. …
Other banks that have recently quit NZBA include Goldman Sachs Group Inc. and Wells Fargo & Co. All said they remain committed to their own net zero emissions goals and to helping clients reduce their carbon footprints.
Study finds ESG funds hold companies tied to slave labor
What’s the story?
A recent Ignites Asia study argued several ESG funds, including funds operated by BlackRock, are exposed to electric vehicle and solar companies with possible slave labor ties in China’s Xinjiang province.
Why does it matter?
ESG critics have previously argued some asset managers do not conduct proper due diligence on Chinese companies while unfairly holding American and European corporations to higher standards. The report’s findings may prompt managers to reconsider the balance of environmental and social factors in their portfolios.
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According to The Financial Times:
Environmental, social and governance funds run by global managers have at least $1.4bn allocated to 14 electric vehicle and solar companies linked to forced labour in Xinjiang, according to an analysis by Ignites Asia. …
Most of this sustainable investment, totalling US$1.1bn, has been invested in Contemporary Amperex Technology, the world’s biggest EV and energy storage battery manufacturer, according to Morningstar data analysed by Ignites Asia. …
The largest investors were BlackRock, Nordea and Ninety One, with $148mn, $93mn and $86mn respectively.
Costco board votes against DEI reporting requirements
What’s the story?
The Costco board of directors unanimously advised shareholders to vote against a proposal asking the company to report on the financial costs of maintaining its diversity, equity, and inclusion (DEI) policies. The National Center for Public Policy Research’s Free Enterprise Project submitted the proposal.
Why does it matter?
Several corporations—including Walmart, John Deere, and Tractor Supply—announced moves away from DEI efforts (related to the social component of ESG) in the last year. The Costco board’s position breaks the trend and doubles down on such policies.
Read more
According to CNN:
Costco is battling an anti-DEI wave with a stern rebuke to activist shareholders looking to end the warehouse retailer’s diversity ambitions.
Walmart, John Deere, Tractor Supply and other companies are changing or walking away from diversity, equity and inclusion (DEI) policies. But Costco believes DEI helps its “treasure hunt” shopping atmosphere, and it is standing behind its efforts. …
Costco, which pays some of the highest wages in retail and is considered a progressive employer, is backing DEI at a moment when such initiatives are under attack from right-wing activists, legal groups, conservative customers and President-elect Donald Trump’s incoming administration.
In the spotlight
Calculating sustainability’s return on investment
What’s the story?
The Harvard Law School Forum on Corporate Governance published an article by Matteo Tonello from The Conference Board about how and why corporations should calculate the return on investment for their sustainability policies and projects. Tonello argues many corporations have not sufficiently calculated the return on investment for such initiatives.
Why does it matter?
Tonello’s claims may support the anti-ESG argument that sustainability efforts are not fiduciarily responsible and do not serve the best interests of shareholders.
Read more
According to Tonello:
As sustainability becomes more integrated across the organization, directly attributing a payback—such as financial returns or cost savings from sustainable initiatives—can be complex. Therefore, before calculating sustainability ROI, companies should clearly define their scope and objectives and unpack the concept by examining the entire value chain, not just internal operations. This means breaking down tangible costs such as energy, waste, and resource use, as well as intangible factors such as brand reputation, employee satisfaction, and the ability to attract top talent. …
Sustainability ROI brings rigor to evaluating a company’s sustainability efforts by quantifying their impacts in financial terms. It has become a business imperative to show investors and other stakeholders that sustainability is a component of corporate strategy and contributes to the long-term success of a company, while also securing buy-in from internal decision-makers such as the chief financial officer (CFO), the CEO, and the board of directors. …
Despite its importance, determining the ROI of sustainability initiatives remains a nascent practice. Data from The Conference Board show that 41% of polled executives either believe their companies are underperforming or are uncertain when it comes to assessing the ROI of their sustainability investments, while only 17% express similar concerns about measuring traditional ROI.