The showdown continues: on one side we now see attorney generals in 19 states putting pressure on asset management firms that embrace “sustainable investment” or “ESG” policies that influence the various states’ public employee pension systems. The AGs claim that “an emerging trend of political initiatives [that address climate change] sacrifice their states’ pension plans from accessing “high quality” investments. (Read: the equities and fixed income securities of fossil fuel companies.)
Consider the influence of the public sector employee retirement systems in the capital markets: the almost 6,000 pension plans (of states, cities, municipalities, etc.) cover about 15 million workers and families and manage about $4.5 trillion in assets of various classes.
A comprehensive legislative proposal designed to address climate change challenges and threats to the U.S. posed by global warming was passed by the U.S. Senate on August 7. The bill, called the Inflation Reduction Act, is awaiting a vote in the House of Representatives and an expected signing into law by President Biden. The Inflation Reduction Act also contains provisions for additional spending on healthcare, infrastructure, job creation, and vocational training for workers.
Many companies are setting ambitious “Net Zero” GHG emissions goals to be reached by the Paris Climate Accord’s goal of 2050 (and some setting their goals even earlier). Are these widely-promoted goals realistic for the corporate sector to achieve in such a short timeframe?
No regulatory agency’s draft rule to address important issues can be expected to sail through and be warmly welcomed by all involved stakeholders. In March, the Securities and Exchange Commission released its draft rule for corporations to disclose climate-related information such as Greenhouse Gas Emissions (GHG). Some pushback by opponents of the rule is expected.
Remember the revisions to The Business Roundtable Statement on the Purpose of a Corporation (a mission statement) back in August 2019? The CEOs of the top 200 companies in the U.S. redefined “purpose” away from the 1997 statement that focused on “shareholder primacy” to a 21st Century focus on “all stakeholders, customers, employees, suppliers, communities and shareholders.”
Fitch Ratings, one of the “big three” credit risk rating agencies, is busy identifying “sector exposures to low-carbon transition risks,” with recently-assigned scores reflecting the rating agency’s view of the potential impact of climate change risk on creditworthiness on key sectors.
The Sixth Assessment Report (AR65) of the United Nations Intergovernmental Report on Climate Change (IPCC) is nearing publication later this year after being delayed for two years. These assessments, as presented in the final report, are a synthesis of the thousands of comments, findings, and perspectives from literally hundreds of experts involved in the preparation. These experts from around the world, from various disciplines and organizations are assembled in designated working groups with specific charters for their work.
The long-anticipated new rule for corporate climate change disclosures in registrations and certain periodic reports (such as 10-K filings) has been issued by the U.S. Securities & Exchange Commission. The 500+ page draft is now in the required 60-day public comment period, after which the SEC will consider the comments received and move toward the commissioners’ approval of the Final Rule before year-end 2022.
It is often not easy for western companies to live up to the principles of “good corporate citizenship” when they have operations in or are investing in countries without democratic governments. As the unprovoked military invasion of democratic Ukraine by the Russian Federation got underway, western companies doing business in Russia were quickly presented with serious challenges.