Why G7 backing TCFD is ‘enormously important’


Greetings from New York where I am currently in the throes of launching a new book, Anthro-Vision, (mostly) via zoom. It narrates how I started my career as a cultural anthropologist in Tajikistan — and while that background once seemed weird in finance, it later helped me foresee the 2008 financial crisis, techlash and the rise of the sustainability movement. Why? Anthropology is a discipline that champions empathy and lateral vision — or a desire to look at the world beyond the confines of economic models, corporate balance sheets and big data. Lateral vision is at the core of ESG, and I argue, what people need today to “build back better”.

The G7 finance ministers appear to agree: as we explain below, they have just thrown their support behind mandatory climate reporting for companies, in a way that essentially champions the concept of lateral vision — and stakeholderism. This news took many people by surprise. But check out our exclusive interview with Mary Schapiro, former head the US Securities and Exchange Commission, about the development. (Coincidentally, she too studied anthropology before she became a regulator.) Gillian Tett

No ‘wonderful paperweight’: G7 embraces TCFD

When Mary Schapiro started working on the Task Force on Climate-related Financial Disclosures (TCFD) five years ago, she worried that the project would languish as a “wonderful paperweight for people’s desks.”

But with the G7’s endorsement of mandatory TCFD reporting last weekend, the concern is no longer warranted.

Winning the G7’s backing is “enormously important” and a sign that the world is coming around to the fact that climate risk is an “existential problem”, Schapiro, the former head of the US SEC, told Moral Money.

“If you think about when TCFD started, five years ago, it was not well accepted that climate risk was financial risk,” she said. “It wasn’t well accepted that this was something that policymakers were going to embrace . . . [And] business certainly wasn’t there yet.”

The big questions for TCFD’s future include how soon will G7 and other governments start making disclosure mandatory. And if enacted, will companies be prepared to meet TCFD requirements?

Four jurisdictions have already said they will require TCFD disclosures — Hong Kong, the UK, New Zealand and Switzerland — and more are expected to join them by November’s COP26, the UN climate change conference in Glasgow.

© REUTERS

The TCFD is not without its critics, however.

Last Friday, ECB president Christine Lagarde said the TCFD reminded her of the “soft touch” regulation of the banking sector in the run-up to the financial crisis.

This is a sign of a growing split in the ESG accounting world, said Marjella Lecourt-Alma, chief executive of ESG data platform Datamaran.

The TCFD and the IFRS Foundation’s International Sustainability Standards Board, which also won the G7’s backing, are on one side. And the EU and European Financial Reporting Advisory Group (EFRAG), which are concerned the TCFD and IFRS are not emphasising social metrics and concepts such as “double materiality,” are on the other.

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Despite the schism, the good news is everyone is moving in the same direction — even if the EU is looking to move faster than the IFRS and G7.

Schapiro said she thought Lagarde’s comments may have been misinterpreted. “I think her criticism was that [TCFD] is a voluntary disclosure framework, not that it’s not a strong one,” she said.

“Having lived through the financial crisis as SEC chair, I totally understand that if you don’t have an enforcement mechanism . . . the robustness of that undertaking is going to be undermined by people not abiding by it. And that’s why the push towards mandatory is so critical here.”

(Billy Nauman and Patrick Temple-West)

UK Treasury joins greenwashing crackdown

The UK Treasury today unveiled a task force to root out greenwashing.

With hundreds of new sustainable investment funds coming on to market each year and sales to UK retail investors tripling from 2019 to 2020, the Treasury said consumers need to be more informed about these products. The UK defined greenwashing as “unsubstantiated or exaggerated claims that an investment is environmentally friendly”. The task force will be chaired by the Green Finance Institute, a London-based public-private partnership. The group’s other members will come from business, academia and NGOs with sustainability experience.

The Treasury’s announcement follows the Financial Conduct Authority’s increasing interest in greenwashing. The EU has also established anti-greenwashing principles as part of the bloc’s green taxonomy. And similar interest is catching on in the US, where the SEC recently announced a task force in the enforcement division to pursue questionable climate and ESG disclosures. (Patrick Temple-West)

Uyghur rights groups pressure asset managers on Zara parent

© REUTERS

The human rights crisis in Xinjiang has pitted Europe and the US against China — and clothing companies are caught in the middle. Now, asset managers are being pulled into the fray.

In 2019, China began sending Uyghurs from re-education facilities to factories where conditions pointed to forced labour. Many former detainees worked in apparel, footware and other textile businesses, according to a US government March 2021 report.

Xinjiang, the Uyghurs’ homeland, is China’s cotton country, comprising 20 per cent of the world’s cotton output.

Clothing companies such as H&M have already been targeted by human rights investors to eliminate Xinjiang cotton from their supplier networks. Now, in a tactic that environmentalists and other activists have deployed during annual meetings season, Uyghur rights groups are targeting asset managers.

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In a letter today, Uyghur rights groups have urged BlackRock, Capital Group and Baillie Gifford to use their heft to pressure Inditex, the Spanish parent company of Zara, on its Xinjiang policies.

Inditex has failed to ensure the cotton in its supplier network is free from Uyghur forced labour, the groups said. And Inditex has refused to take tangible steps to fix the issue, they said, adding that the inaction raises reputational risks for the company.

The letter asks the largest holders of Inditex stock to consider this at the company’s next annual meeting in July.

“No one, no company in these industries can say they are ignorant of this issue because it has been widely reported,” said Zumretay Arkin, program manager at the World Uyghur Congress. She pointed to investor support for a shareholder petition at Apple last year as evidence that other asset managers take human rights risks seriously.

When other companies in the fashion industry “heard about the news of forced labour everyone started panicking and started to really look into their supply chains,” Arkin said. (Patrick Temple-West)

UN PRI head steps down

Fiona Reynolds, head of the UN Principles for Responsible Investment, will be stepping down at the end of the year and returning to her native Australia to be closer to family.

She does not, however, intend to leave the sustainable investing sector for good, she told Moral Money.

“[Australia] is not very good at some of these issues. I want to take all of the experience that I’ve gained globally back home,” she said. “I’m sure that there will be many people who don’t want to hear from me or won’t welcome me. But I think I can play a big role.”

As for the PRI, she sees a bright future and many new innovative social investing projects on the horizon.

“I think all the foundations are there,” she said. “The ship’s not going to turn around now.” (Billy Nauman)

Embedding ESG: a Moral Money Forum survey

Our next Moral Money Forum report will look at alternatives to traditional corporate structures, such as B Corps, public benefit corporations and enterprises à mission. We’ll be asking whether changing how companies incorporate could advance the shift to a more sustainable capitalism, and we’d love to know what your experience has been. Please share your thoughts via this survey.

Tips from Tamami

Nikkei’s Tamami Shimizuishi helps you stay up to date on stories you may have missed from the eastern hemisphere.

In Japan, since I was a child, news reports about the country’s annual shareholder meeting season have always been accompanied by one word, “shuchu-bi”, the day of concentration.

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Back in the 1990s, more than 90 per cent of listed companies held annual general meetings on the same day. The tradition began as a defence mechanism against corporate blackmailers who disrupted shareholder meetings and humiliated companies’ management.

The high concentration of meetings on one day remains a defence against ESG activists today, but with efforts to improve shareholder access to the meetings the situation is changing for the better.

This year’s “shuchu-bi” is June 29, when 27 per cent of listed companies will hold their annual meetings, according to a Tokyo Stock Exchange report. That may seem like a lot compared with the US or UK, but it is the lowest number of companies holding meetings on a given day since 1983.

A reason for the decline may be because companies prefer to meet on Fridays. Twenty-six per cent of companies chose to meet June 25 — making the day the second peak. But the change still reflects widespread understanding that annual meetings are important for engaging shareholders, the report says.

With the rise of shareholder activism and foreign investors, the outdated (and peculiar) tradition should be removed as soon as possible — before the custom itself becomes the target of their activism, or sustainable investors abandon the Japanese markets.

Chart of the day

New board director appointments by race and ethnicity

Following last year’s murder of George Floyd, companies scrambled to demonstrate a commitment to diversity. The result has been a surge in new black board members at Fortune 500 companies. The number of these new directors surged to 28 per cent last year, compared with just 10 per cent the year before, according to a report from Heidrick & Struggles.

Smart read

A new study finds that biopharma companies’ ESG disclosures are short on targets and prone to boilerplate descriptions. Its release was timed for Chief Executives for Corporate Purpose’s biopharma forum this week, where Andrew Edgecliffe-Johnson interviewed Moderna’s CEO, Stéphane Bancel

One striking line about inclusion stood out: Bancel said he slowed enrolment in its Covid-19 trial last year because his team had not recruited enough African Americans. It was, he said, one of the hardest decisions he made during the pandemic, but given minorities’ long distrust of trials that exclude them, failing to diversify the study would “fail society”. Hear more, starting at 2.17 minutes in the video here

Further Reading

  • Global investors pressure Asian utilities to cut emissions (FT)

  • Green companies must reach out to consumers lacking conviction (FT)

  • When it comes to inflation, the Fed must consider inequality (FT)

  • Miners’ troubles show need for climate ‘bad banks’ (FT)

  • One Oil Company’s Rocky Path to Renewable Energy (WSJ)



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