Key Industries Commitment to ESG Guidelines

Trying to redress the contributory issues to Climate Change is analogous to trying to put out a forest fire; extinguish one and another starts.  However, it looks like the business world has woken up to the harsh reality of Climate Change, and  at COP26, in 2021, serious commitments were made by over 200 countries, to take proactive action to save the planet. However, the implementation processes of these commitments are convoluted, complexity varying considerably according to industry, country and wealth, however despite the many difficulties envisaged, a common goal was agreed on – to maintain a global temperature rise of 1.5C or less, and achieve Net-zero emissions by 2050.

ESG Incorporated

The conference also covered many ESG  issues such as resource conservation, water management, biodiversity and human rights, to name but a few of many interlinked issues. However, the most significant factors influencing  Climate Change are Carbon emissions and fossil fuels, and undertakings were made to transition to Net –Zero by  2050. This requires buy-in from Energy stakeholders, investors and consumers alike, and will be arduous and costly for all.

In alignment with The  Paris Rulebook,  global companies must now produce and maintain transparent ESG strategies and and publicly  accessible results, updated and monitored.

The Energy Sector

Energy producers are amongst the chief culprits of CO2 emissions and have acknowledged their culpability by undertaking to reduce carbon emissions and ultimately transition to renewable energy, whilst balancing efficiency, profitability and low emission rates. Indeed, they committed to reducing global carbon emissions by 2030 with a target of Net-Zero by 2050.

However, merely selling off high emission subsidiaries or investing in biofuel companies does not reduce emissions in the short term. In some cases, it can be merely passing the emissions further down the line, and the new technology designed to create biofuels may increase emissions in the medium term.

Sadly, the encouraging reduction in carbon emissions in 2020, as reported at COP26, was largely due to COVID pandemic restrictions. To remain on track, this decreased level must be maintained, and in a ‘normal’ world this will prove difficult – and costly.

The Financial Sector

The Financial sector has also pledged allegiance to Climate Change by increasing its ESG support to underdeveloped countries to $100 bn annually, as well as mandating the incorporation of ESG criteria into financial evaluations and ESG related investment funds. ESG investment has evolved from niche to mainstream to mandatory, effectively reshaping the financial industry. The AUM  invested in ESG related funds has increased tenfold from 2018 to 2020, and 25 – fold from 1995 to 2020, with predictions of exponential growth over the next two years.

Sustainability-linked loans and bonds also soared to $4 trillion, with issuance exceeding $1.6 trillion in 2021 alone. Bloomberg predicts that ESG AUM is on track to represent more than a third of  AUM  by 2025.

Commercial banks are introducing lower lending rates for environmental and societal initiatives, and the insurance sector is implementing ESG related investment strategies, whilst also having to cope with an increase in climate-induced natural disasters.

On a societal level, many companies and financial institutions in Europe are pursuing a ‘Women on Board’ policy, to ensure that at least 40%  of non-executive director posts are filled by women.

Digitalisation has now become the norm with electronic PDFs replacing paper.

Europe is the global sector leader in ESG investing, but since 2020, the US has seen 40% growth and is continuing to grow rapidly. During the Covid pandemic, the ESG funds fared better than traditional funds, demonstrating their stability in times of crisis, and encouraging a new wave of investors.

Pharmaceuticals 

Big Pharma, has been awarded a ‘most improved industry’  ESG rating in response to the COVID pandemic and its addressing of  ESG issues, such as diversity and inclusion, provision of health education and distribution of nonprofit medicines to underdeveloped countries.  Conversion to 100% renewable electricity and carbon-neutral car fleets by 2030 are also on their agenda.

They have also promoted good relations within their workforces and are pledging to promote gender equality and diversity at all levels, although the current payout to the CEO  of Moderna of $926 million flies in the face of their ‘affordability’ issues.

The pharma sector has also pledged millions to address ‘waste’ issues such as sustainable packaging and energy usage and is using its well-publicised response to ESG to reestablish public trust after a spate of high profile litigation suits.

The Future

Increased awareness of the implications of Climate Change is growing, led by fiercely passionate Millenials and Generation Z. Ecology is now embedded in the syllabi of schools across the world, and the visible  effects of climate change are visible to all.

Strict adherence to ESG criteria makes the  1.5 °C cap and Net-Zero emissions attainable, but, we must all be proactive  in ensuring that commitments are kept and ESG  criteria are met, and if we do , we may just get there!