Welcome to Moral Money. Today we have:
Corporate climate concerns return to the fore
Companies’ climate rhetoric does not match their political spending
Consumers still willing to pay up for sustainable products
Japanese banks burnt by US pipeline ruling
The ‘E’ in ESG returns to the top of corporate agendas
Before the pandemic, it seemed like hardly a day went by without some company trumpeting a new plan to fight climate change or cut its carbon footprint. That momentum (predictably) slowed down as Covid-19 swept across the US and Europe and social issues became the topic du jour for environmental, social and governance investors.
But now, a flurry of climate announcements have again started filling our inboxes, showing companies still feel the pressure to clean up their operations and images.
This week, Morgan Stanley joined up with the Partnership for Carbon Accounting Financials to help establish a framework for reporting “financed emissions” — a move that will eventually lead to the bank disclosing how much its loans and investments contribute to climate change.
We also saw a big announcement from Danone, Maersk, Mercedes-Benz, Microsoft, Natura, Nike, Starbucks, Wipro and Unilever — which are teaming up with the Environmental Defense Fund and BSR, a non-profit formerly known as Business for Social Responsibility, to create an “open source” road map to show companies how they can achieve net zero emissions.
A net zero commitment is “only meaningful if there’s a workable plan”, said Fred Krupp, president of the Environmental Defense Fund. And while the pandemic may have been a temporary setback for climate initiatives, the recent turmoil has ultimately highlighted the fact that companies will only retain their social licence to operate if they “meet stakeholder demands for leadership”, he said.
Brad Smith, president of Microsoft, told Moral Money that the Covid-19 crisis has made it clear that companies need to “solve more than one problem at a time”.
“We were asking ourselves — and some employees were asking us — ‘does it really make sense to keep moving forward with this work in the middle of a pandemic?’ And I remarked . . . ‘We still need to save the darn planet!’” he said. “None of that has become any less urgent.”
On top of that, UBS launched a new sustainable finance hub and BNP Paribas began offering checking accounts through its US subsidiary Bank of the West that donate a portion of revenue to Protect Our Winters, a climate focused non-profit.
None of these announcements will make a notable difference in climate change overnight, but it would be a mistake to wave them off as meaningless. If other big banks follow Morgan Stanley’s lead, it could help turbocharge the push for financial institutions to stop funding the worst carbon emitters. And if Microsoft and its compatriots produce an easy-to-follow plan, it could go a long way towards speeding up the corporate transition to a low-carbon economy.
At the very least, it is more clear than ever that the “E” in ESG is far from dead; on the contrary there is likely to be a torrent of other announcements emanating in the coming weeks. (Billy Nauman)
US companies undermine Paris commitments with political spending
After the Trump administration withdrew from the Paris climate accords, hundreds of companies affirmed their commitment to the deal. But a new report shows that some of those same companies for years funded efforts to thwart clean energy regulations.
Alphabet, ExxonMobil and Microsoft gave hundreds of thousands of dollars in 2014 to a group representing Republican attorneys-general who then successfully stopped the Obama administration’s climate plan at the Supreme Court, said the Center for Political Accountability, which tracks corporate spending on politics. The report analysed corporate contributions to Democratic and Republican 527 organisations, which can raise unlimited funds.
“There is a real conflict between the companies’ rhetoric and the impact of their spending,” CPA’s president Bruce Freed said to Moral Money. “That is known as hypocrisy.”
Companies are not paying close attention to how 527 groups are spending corporate contributions, Mr Freed said. “They are not doing the due diligence and asking: how will our money be used?”
Microsoft acknowledged that no organisation it gives to fully shares its viewpoint, but said its donations to political organisations are not big enough to swing elections. Other companies did not respond to a request for comment about the report.
Altria, Comcast and other companies also gave millions of dollars to the Republican attorneys-general in 2018 — just before they launched a court fight to further dismantle Obamacare, according to the report.
Democratic 527 groups take corporate cash too, but less than their Republican counterparts. For example, manufacturer 3M revealed in a 2019 disclosure that it gave $202,000 to Republican-aligned 527 groups and $100,000 to Democratic ones.
One of the most successful shareholder advocacy campaigns during the 2020 proxy season was to force companies to disclose more information about their political spending. As more cash flows into ESG funds this year, pressure is growing on companies to detail their efforts to influence government action. (Patrick Temple-West)
‘Sustainable’ brands sustain their premium in a crisis
Since the start of the pandemic there has been a question hanging over brands that tout their environmental and social virtues: would consumers continue to pay up for premium-priced “sustainable” products as the economy shook?
According to New York University’s Stern Center for Sustainable Business and IRI, the data provider, the answer is yes: products sold on their sustainability have improved their share of the US market by 0.6 percentage points to 16.8 per cent in dollar terms so far this year.
“Consumers recognise that they can influence brands to ‘do the right thing,’ and in these days of Covid-19, #BlackLivesMatter and climate change, doing the right thing has never been more important,” said Tensie Whelan, the Stern Center’s founding director, who sees this as a trend with staying power.
NYU Stern and IRI previously found that sustainability-marketed products drove almost 55 per cent of the growth in consumer packaged goods between 2015 and 2019, growing over seven times faster than products that make no such claims despite commanding an average price premium of 39 per cent.
Their latest study shows wealthy, educated millennials are the most likely to buy “sustainable” brands, especially in the northeastern US. The likes of Mississippi, Alabama and Texas have further to go. (Andrew Edgecliffe-Johnson)
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Chart of the week
The perils of fashion supply chains, labour issues and supply chain finances have been put on full display during the coronavirus pandemic. And Boohoo has become a poster child for labour and supply chain issues. The FT recently reported that production transparency has been a “longstanding problem” for Boohoo, in comparison to other global brands such as Adidas and H&M.
Tips from Tamami
Nikkei’s Tamami Shimizuishi keeps an eye on Asia to help you stay up to date on stories you may have missed from the eastern hemisphere.
Earlier this month, a judge’s decision to shut the Dakota Access Pipeline during an environmental review, siding with local tribes and green activists, stunned the US oil and gas industry — and banks in Japan.
Two of Japan’s three big financial groups, Mitsubishi UFJ Financial Group (MUFG) and Mizuho, served as lead banks on the project — alongside Citi and TD, according to environmental group Rainforest Action Network. Asked about the impact of the court decision, MUFG and Mizuho declined to comment.
While the legal fight is ongoing, ESG-minded investors have been walking away from the controversial project for years.
Eric Pedersen, head of responsible investment at Nordea Asset Management, said that the group had excluded the companies behind the Dakota Access Pipeline from its investment portfolio for almost three years due to “their lack of willingness to engage on the issues raised by holders of land rights in the area, notably representatives of the Standing Rock Sioux”.
BNP Paribas also divested from the project about three years ago. Mark Lewis, global head of sustainability research at BNP Paribas Asset Management, said the decision was the right call, especially considering the post-Covid-19 pandemic reality that “solar and wind are the only energy sources to grow in demand in 2020, according to the International Energy Agency”.
The real financial damage to the Japanese banks remains to be seen, but Hana Heineken, senior campaigner of Rainforest Action Network, warned of the reputational risk. Both MUFG and Mizuho committed to support the Task Force on Climate-related Financial Disclosures (TCFD).
“[The banks] have responsibility to make sure the project was socially, environmentally and legally sound, and they failed,” said Ms Heineken. She added: “MUFG and Mizuho should heed an important lesson from the recent court order to shut down [the Dakota Access Pipeline]”.
EU recovery deal has good and bad news for climate
The EU’s historic recovery deal announced on Tuesday slashed a climate transition fund to help poorer countries reduce their carbon emissions from €30bn to €10bn, the FT’s Brussels team reported. But overall, 30 per cent of the €750bn recovery fund will be spent on climate investment, up from 25 per cent in a previous draft of the deal.
That 30 per cent “must come from the general programmes like the national recovery plans, where how greening will be measured is totally undefined yet,” said Bas Eickhout, a Dutch Green MEP. “The EU summit missed a huge opportunity.”
Doing the right thing
For the summer reading list
In his new book, The Social License for Financial Markets, David Rouch, partner at UK law firm Freshfields Bruckhaus Deringer, lays out an interesting argument that there is a “fracture between the financial world and the rest of society” that needs to be mended for the world to achieve a more sustainable future. “We’ve been taken hostage by a series of flawed narratives — in particular that we are all rational and out for our own gain,” he told Moral Money. The reality, he argues, is a lot more complex and some regulations meant to rein in the cut-throat tendencies of finance end up doing more harm than good.
Was June a tipping point for the switch to green? (FT)
Crisis offers a chance to rewrite accounting to include impact (FT)
Australia faces legal challenge over bonds’ climate risks (FT)
Investors line up for the post-pandemic green recovery (FT)
Big US investors urge regulators to treat climate as systemic risk (FT)
Japan takes a welcome step away from coal (FT)
How to give it: five eco initiatives to help protect the planet (How to Spend It)
Fund groups urge UK to back EU green finance rules (FTfm)
BNP Paribas Bets on Climate Guilt (WSJ)
Former SSGA ESG Head Resurfaces at Liberty Mutual (FundFire)