Why the ESG bandwagon must embrace adaptation

March 2, 2021 by  
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Why the ESG bandwagon must embrace adaptation Peter A. Soyka Tue, 03/02/2021 – 02:00 With the explosive growth of environmental, social and governance (ESG) investing in recent years, it appears that we may be at or approaching an inflection point. As ESG investing becomes ever more prominent, it may be timely to ask whether, as currently practiced, it considers all issues of material importance to investors. In this commentary, we suggest that current ESG research, analysis and investing practices pay insufficient attention to one of most important issues of our time: how people, societies and companies will adapt to a changing climate, and what that portends for stock and corporate bond investments. The elephant in the room To their credit, the sponsors of several prominent initiatives to promote climate-related disclosure (such as CDP) expressly request information on organizational risks and plans to address them. Accordingly, there is at least some expectation that such disclosures would describe alternatives to business-as-usual conditions and how the reporting entity might respond to them. Perusing a typical annual report or 10-K will show, however, that even today most corporate planning and forward-looking disclosures reflect the assumption of stable business conditions. (Entities issuing securities — stocks or bonds — in the U.S. that may be purchased by the public must provide regular disclosure of important operating and financial information at defined intervals. These requirements include the issuance of an annual report and accompanying audited summary of key financial information [Form 10-K], as well as quarterly financial reports [Form 10-Q].) It’s time for ESG to consider how people, societies and companies will adapt to a changing climate, and what that portends for stock and corporate bond investments. This state of corporate reporting and disclosure poses a problem for investors. Science and recent events tell us that environmental, societal and economic conditions will look very different in 20 years than they have in historical memory. Among the increasingly likely effects predicted by climate scientists and analysts are the following: “managed retreat” — abandonment of major portions the coastline and other low-lying areas in the United States and countries around the globe; potentially severe impacts on water availability, agricultural production, human health, productivity and other fundamental support systems and processes underlying viable societies; vast numbers of climate refugees, including in advanced economies; and failed nation-states. In the face of these threats, it is clear that greenhouse gas (GHG) mitigation is necessary (to minimize future climate changes), but not sufficient. Now, and increasingly as these effects compound, adaptation to climate impacts must receive at least commensurate attention, promotion, support and funding to that dedicated to climate change mitigation efforts. (Indeed, this fact has been acknowledged in the 2016 Paris climate agreement.) Profound changes in climate and severe weather are locked in for the next several centuries and will comprise “the new normal.” Given this increasingly clear reality, mitigation is necessary to keep us from moving too far out into uncharted and very dangerous territory. Equally important though, is how well we will adapt to the inevitable changes. The practice of ESG must adapt If one accepts that climate change adaptation is vital, the next questions are how to make it happen and where to start. Fortunately, some productive steps have been taken, such as the guidance issued by the Task Force on Climate-Related Financial Disclosure (TCFD) regarding scenario planning. Attention to scenario planning as recommended by the TCFD can facilitate greater focus on the adaptation and resilience challenges faced by organizations and, in turn, inclusion as ESG factors. Careful planning and investment decisions that take account of climate impacts and include infrastructure that will better withstand these impacts needs to become standard business practice. Facility-siting decisions should further account for climate vulnerabilities and the adaptation steps that local governments are taking to address them. Similarly, a rapidly changing climate requires some rethinking of corporate sourcing. Many organizations will be negatively affected when previously reliable supplies of materials, energy, workers, components, sub-assemblies and other vital inputs are disrupted. Procurement and distribution systems will need to extensively integrate predicted climate impacts and more agile methods as supply chains become increasingly susceptible to climate change impacts. Thus, adaptation of the supply chain to increase resilience represents an important ESG consideration. Moreover, as the current worldwide COVID-19 pandemic has amply demonstrated, many companies already have over-extended their supply chains and have eliminated redundancies to the point at which they have become insecure and subject to failure, or not resilient enough to withstand additional shocks to the system. The number and scale of looming climate change impacts likely will appear with an uneven spatial distribution, so it will be essential for larger, multi-site organizations (multinational corporations) to evaluate and strengthen existing stakeholder relationships and perhaps form new ones. This, too, is a form of adaptation worthy of ESG consideration. These networks and collaborations will be particularly important in the context of the local communities housing company plants, distribution centers, headquarters, major offices and other facilities. Partnerships with other businesses and governments to encourage collective adaptation actions where they leverage complementary capabilities and are cost-effective also will be essential. At a more general level, the challenges posed by the need for climate change adaptation provide corporate and other organizations with an opportunity to examine important aspects of their current orientation and operations through strategic planning. Performed thoughtfully, such strategic planning efforts can yield a revised or clarified vision and mission; actions indicated through a business, portfolio or asset review; a realigned organizational structure; and an updated understanding of indicated management steps to address business and financial risks. Companies that accept and play this role effectively will prosper in the years ahead, while those that do not will experience increasingly limited prospects and eventual failure. To spur this necessary transition and, as always, provide asset owners with reliable positive risk-adjusted returns, professional investors must demand that corporate issuers provide evidence that they are actively managing their own adaptation to the new world that we are creating. This commentary is part of a series on emerging issues from Adaptation Leader. Pull Quote It’s time for ESG to consider how people, societies and companies will adapt to a changing climate, and what that portends for stock and corporate bond investments. Topics Reporting ESG GreenFin Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off Shutterstock

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What business can learn from the human costs of COVID-19

March 1, 2021 by  
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What business can learn from the human costs of COVID-19 Elsa Wenzel Mon, 03/01/2021 – 02:00 As the pandemic has killed half a million Americans, too often “essential” workers have felt expendable. Facing far less risk, people with the luxury of working from home nevertheless have faced new stressors on their mental health, including blurred work-life boundaries, social isolation and ceaseless caregiving. Channeling lessons gleaned from the corporate response over the past year, sustainability leaders at the GreenBiz 21 virtual event in February explored what went wrong and right within corporate supply chains and management practices — and how this knowledge might be applied to avoid future mistakes and improve business resilience. Let’s start with what some of went wrong.  Roughly in order: Line cooks, farm laborers, delivery and logistics personnel, followed by facilities and manufacturing workers, had the highest spikes in death rates compared with pre-COVID-19 time periods, according to research by the University of California at San Francisco . Latino and Black workers suffered disproportionately. That held true in Arkansas, where poultry plant virus outbreaks epitomized the hazards for vulnerable, elbow-to-elbow workers. In that state, during the coronavirus’s early U.S. months, Latinx and Marshallese people suffered 400 percent greater rates of infection compared with the white population, said Mireya Reith, founding executive director of Arkansas United.  The advocacy group for immigrant workers did not receive information about the pandemic in Spanish or data about the impacts on the communities it serves until at least six weeks into the crisis, she added. It really seems to come down to maintaining people’s dignity, to recognize that people are under abnormal stress, and sharing the best information that we have quickly. Reith received a midnight email in June from the Marshall Islands Consul General Eldon Alik, who pled for help because so many Marshallese poultry plant workers were dying. Reith forwarded the message to corporate leaders and appealed to the state to direct resources toward improving safety practices, testing and vaccines for immigrant workers. Even with such bridge-building attempts, by August at least 35 Arkansas poultry plants experienced COVID-19 outbreaks. Thankfully, by December the infection and death rates among the nonprofit’s constituents finally had become proportionate to that of the general population, said Reith, who credited the creative work of public-private partnerships. Even so, that same month employees walked out of one chicken-processing plant demanding better social distancing measures, losing some of their pay and bonuses. “We should warn that we are seeing some of the same things that happened at the start of the outbreak happening once again, and maybe questioning whether lessons truly have been learned,” Reith said. Speed and dignity On the other hand, what could go right? Several states away in Georgia, early last year the leaders at paper office supply maker Norcom couldn’t decide how to handle the coronavirus threat. They did agree to prioritize speed. They also sought to reassure every worker that it wasn’t necessary to choose between their financial security or their health and privacy, said Chad Coggin, director of manufacturing, supply chain and continuous improvement. No positions were cut; instead, Norcom continued with existing improvement plans, creating new roles and a career-pathing system. “The good news for us is that we had to make rapid change — but that creating rapid change to try to adapt to the changing information, the updates, the uncertainty, the volatility, doesn’t have to require a military-like heat of war kind of devotion,” Coggin said. “It really seems to come down to maintaining people’s dignity, to recognize that people are under abnormal stress, and sharing the best information that we have quickly.” The company established temperature screenings, leaflets and six-foot physical distancing markers along its 50 to 300 foot-long production lines. In addition, an “error-proofing” approach attempted to make up for the limits of individuals’ sense of self-preservation. Norcom reconfigured workspaces and expanded break areas, and it modified tasks, cross-training employees. Two-way radios and amplifiers helped workers hear one another without leaning close together on the noisy plant floor. Ultimately, some occasional positive tests did not lead to viral spread within the company, Coggin said. Our efforts at work could reduce our team members’ overall risks in and out of work. He also credited a single number for guiding the positive aspects of Norcom’s COVID practices: 35 percent. That’s the percentage of waking hours that an employee spends at work over the course of a week. Coggin and others opted not to focus on the negative risk of spending eight hours together with potential virus carriers. “Instead, we started thinking of it as a 35 percent window where we might create a safer environment than we experienced just going about our normal day on the outside of work,” he said. “So in other words, our efforts at work could reduce our team members’ overall risks in and out of work. We saw it as helping in a much larger sense than just keeping the operation going.” Managing human capital How can people be central to sustainability conversations? How can companies care for workers? Those questions have risen to the top of the list for more companies in recent years, thanks to the pandemic and he #MeToo and Black Lives Matter movements. “Of course, COVID is changing everything we do in the way of the workplace and the return to work, and the health and safety as we return to work,” added Mike Wallace, partner at Environmental Resources Management (ERM) in Portland, Oregon. “Now as we do a materiality assessment, we’re seeing health and safety and HR and the general counsel and investor relations, all coming together to build a real kind of cohesive sustainability team,” he said of a trend surfacing in ERM’s consultancy work with companies. Dow Chief Sustainability Officer and Vice President of Environmental Health and Safety Mary Draves said the company is recognizing the intersections among environmental and human concerns, and the risks related to them. Last year, Dow brought EH&S functions out of manufacturing and under her leadership. Hearts and minds Eliminating or reducing worker injuries is part of a “total worker health strategy” at Dow that has been especially relevant during the coronavirus crisis, an “aperture moment” for the company that spun out from DuPont in 2019, Draves said. Acknowledging psychological health, even how it fits into the worker injury rate, has become more of a focus — and a pillar of Dow’s license to operate in a community, she added.  “Think about the power of someone on the shop floor — when they take an issue to their supervisor that their voice is heard, and it’s acted upon — that it makes in your performance,” Draves said. For Jyoti Chopra of MGM Resorts International, the human toll of the coronavirus has been devastating. Lives in the company were lost, and two-thirds of the workforce was furloughed. Fully remote work was a huge cultural shift. The chief people, inclusion and sustainability officer described regular employee surveys to take their emotional pulse and share it with company leaders. COVID is changing everything we do in the way of the workplace. “Where we’re seeing people struggle is around the boundaries,” she said of the blurring of professional and personal time for remote workers. Ad-hoc virtual forums help people connect beyond their immediate working team, and employee blogs, a hotline, and a new fitness app target stress reduction. “Just being in the moment, understanding the dynamics and offering strategic resources can go a long way to support your teams and your people,” Chopra said. Keeping in touch While the pandemic forced leaders at a variety of companies to focus on worker well-being in new ways, remote teams embraced digital communication. Prior to COVID, Dow had created internal communities for areas such as circular economy, life-cycle assessments and valuing nature. Without the in-person water cooler for impromptu interactions, those virtual groups helped to elevate expertise across the organization and help employees eager to accelerate their learning. For Chopra, real-time communication was key early in the pandemic, as information changed by the day or even the hour. Resorts, casinos, bars and every other company facility shut down in a matter of days. One of her first steps was to set up a WhatsApp group for her team. Connecting virtually helped in March to mobilize teams to handle food, passing out hundreds of thousands of tons of food to families in need in the Las Vegas area. “I’m particularly proud of the sense of humanity that rose above it all and came together,” she said. Katrina Shum, North America sustainability officer at Lush Cosmetics, described an ongoing effort to genuinely listen to individuals and understand what they were facing at home. That came as the family-operated global soap and lotion maker attended to health orders, safety protocols, benefits and local rules for its offices, 250 shops and seven manufacturing facilities. During initial COVID shutdowns, the company had daily calls across teams, which eventually became less frequent. Virtual managers’ meetings tackled such issues as digital detoxification and overall wellness with tactical, everyday tools. Lush also added “take them as you need them” time-off days for wellness. The leading indicators As companies slowly emerge from COVID and more people return to work in person, which ratings, rankings and internal work can help leadership? Rating agencies typically look at lagging indicators, such as the number of fatalities, accidents or cases of medical treatment, noted Malcolm Staves, corporate health and safety director at L’Oreal. “What really matters, though, is how efficient and effective and agile your system is in how you respond to a crisis like COVID, how you respond to a situation at work. And for that, you need leading indicators.” For example, L’Oreal encourages workers to report safety improvement opportunities that may prevent accidents. It gets about 75,000 of these reports a year, driving employee engagement and leadership growth, Staves said. However, the phrase “human capital” can be insensitive given that corporate accounting systems treat people, receiving wages and benefits, as a liability, Wallace of ERM noted. What if people were treated as assets instead? The year-old Capitals Coalition is driving such a view, seeking to unite initiatives to help businesses better value natural, social and human capital. Its director, Natalie Nicholles, held up Unilever as a positive example for its goal, shared in January, to pay all in its supply chain a living wage by 2030, from offices to factories to farm fields. Yet in general, the lack of depth about ESG factors leaves much to be desired in business, because companies have not had to report on human capital within financial frameworks, experts agreed. New Securities and Exchange Commission requirements demand companies to disclose human capital resources and objectives that are material to a business, but they don’t define what human capital means. “As a society, we all want companies to be investing in people and nature, and as a way of creating long-term value, not only to the business, because that means profits, but value for stakeholders,” Nicholles said. “And that is a trend that COVID has just absolutely accelerated.” Pull Quote It really seems to come down to maintaining people’s dignity, to recognize that people are under abnormal stress, and sharing the best information that we have quickly. Our efforts at work could reduce our team members’ overall risks in and out of work. COVID is changing everything we do in the way of the workplace. Topics Leadership GreenBiz 21 COVID-19 Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off Social distancing markers on a floor. Shutterstock Cryptographer Close Authorship

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What business can learn from the human costs of COVID-19

ESG in 2021: The State of Play

February 25, 2021 by  
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ESG in 2021: The State of Play Date/Time: March 18, 2021 (1-2PM ET / 10-11AM PT) The world of environmental, social and governance metrics and ratings has entered a new and dynamic phase. Suddenly, nearly every publicly held company — and many privately held firms — are examining their policies and programs through the lens of investors’ rising interest in ESG metrics. For their part, investors are learning that corporate environmental and social activities are no longer a nice-to-do activity — they are core to well-managed and profitable companies. As a result, ESG has moved from the margins to the mainstream. What are the implications for today’s sustainability and finance professionals? How can they serve the interests of investor relations departments, risk professionals and other internal stakeholders who have become part of the ESG ecosystem inside companies?  In this one-hour webcast, you’ll hear the state of play from two industry insiders. Among the things you’ll learn: What are the key ESG metrics investors are examining? What are the opportunities for sustainability professionals to play a leadership role in their company’s ESG strategy? How will the Biden administration affect the trajectory of ESG transparency and disclosure? What are the rising ESG issues that investors are considering in assessing companies? Moderator: Joel Makower, Chairman & Executive Editor, GreenBiz Speakers: Thomas Kamei, Executive Director, Investment Management, Morgan Stanley Tessie Petion, Head, ESG Engagement, Amazon If you can’t tune in live, please register and we will email you a link to access the archived webcast footage and resources, available to you on-demand after the webcast. taylor flores Thu, 02/25/2021 – 11:53 Joel Makower Chairman & Executive Editor GreenBiz Group @makower Thomas Kamei Executive Director, Investment Management Morgan Stanley Tessie Petion Head, ESG Engagement Amazon gbz_webcast_date Thu, 03/18/2021 – 10:00 – Thu, 03/18/2021 – 11:00

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ESG in 2021: The State of Play

How climate change can be addressed through executive compensation

February 8, 2021 by  
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How climate change can be addressed through executive compensation Nidia Martínez Mon, 02/08/2021 – 00:44 Environmental, social and governance (ESG) issues are increasingly becoming incorporated across all aspects of organizations, including business strategies, operations and product/service offerings. Recent global research of boards of directors by Willis Towers Watson found that 70 to 80 percent of respondents have identified ESG priorities and developed ESG implementation plans. However, only 48 percent have fully incorporated ESG into their businesses, indicating that organizations are at different stages in their ESG journeys. While the most cited reason for taking ESG actions is that they see it as the right thing to do, over three-quarters (78 percent) of respondents indicate that they believe ESG is a key contributor to strong financial performance. Although many organizations have adopted ESG principles, executives and boards could do more to meet the demands of institutional investors, customers, employees and other stakeholders especially in regard to climate change risk. Some 41 percent of respondents ranked the environment — including climate change — as their leading ESG priority; and 43 percent anticipated it will remain No. 1 in three years. A particularly effective way to advance ESG principles is through redefining responsible leadership. And one of the most useful tools in prompting leaders to address climate change and make their organizations more sustainable is through compensation and incentive programs, and the incorporation of new climate-action metrics into such programs. Rising demand for sustainable solutions The drive to make companies more climate resilient and sustainable started with institutional investors, long aware of climate risk. Consumer awareness, likewise, has grown significantly as climate change becomes more apparent in their daily lives amid news stories about extreme weather, such as wildfires. Many consumers are more conscious than ever when choosing brands whose policies meet their own interests. For some, this attitude carries over as a factor in the companies they choose to work for, further encouraging organizations to incorporate climate action and sustainability, among other ESG criteria, to help attract and engage the best talent. Only 48% of CEOs are implementing sustainability into their operations. Despite this backdrop, many boards have not incorporated climate awareness into their organizations yet. Analysis of company public disclosures conducted by Willis Towers Watson shows that while about 11 percent of the top 350 European companies have CO2 emissions linked to their incentive plans, only 2 percent of US S&P 500 companies have it. As we look forward, nearly four out of five (78 percent) survey respondents plan to change their use of ESG priorities in executive incentive plans over the next three years, with 40 percent looking to introduce ESG measures into long-term incentive plans and nearly one-third looking to increase the prominence of environmental measures. Executives acknowledge need for climate action Despite the lack of environmental and climate metrics in executive compensation and rewards programs, executives acknowledge the need to address climate risk. According to a 2019 survey by the United Nations (UN) and Accenture , 71 percent of CEOs believe that — with increased commitment and action — business can play a critical role in contributing to the UN’s Sustainable Development Goals. Yet only 48 percent of CEOs are implementing sustainability into their operations, consistent with the findings from Willis Towers Watson’s research as noted earlier. Our research found that the most common challenges cited when incorporating ESG metrics into executive compensation plans include setting targets (52 percent), identifying (48 percent) and defining (47 percent) performance metrics, and establishing time periods to affect meaningful change (35 percent). Given these responses, it is fair to assume that the lack of standardized climate change metrics is holding back the wider adoption of including climate action in executive compensation. Furthermore, every business has a measurable carbon footprint. Therefore, boards can make reducing that footprint — with the ultimate goal of reaching carbon neutrality — a metric for their organizations and incorporate it into executive compensation. As every industry is different, the metrics to incentivize climate action need to be customized by sector, as highlighted through the industry-specific standards provided by the Sustainability Accountability Standards Board or other climate change disclosure frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD). As organizations refine their climate change strategies and disclosures, they can start to consider the linkages to their executive compensation programs. Multiple ways to link executive pay to climate action As indicated by our research, more boards will be linking relevant climate action measures to executive incentive plans over the next few years. There are a few ways to make the connection, ranging from underpins to modifiers to short-term incentive (STI) plans to key performance indicators (KPIs) within long-term incentive (LTI) plans to standalone hyper-long-term incentive plans. An underpin (or minimum funding threshold) is most appropriate in the case of a company with meaningfully high CO2 emissions that newly introduces climate sustainability metrics. It should include a threshold or basic level of CO2 emissions required for some payout under other incentive plan metrics to occur. An individual performance rating modifier can be tailored to an individual’s role and improve line-of-sight for more qualitative or strategic climate change objectives, but it may not promote collaboration by participants to achieve a common material goal. Plan modifiers are standalone metrics that consider the “how” and the “what.” A modifier allows for the entire STI or LTI award payout to be increased or decreased by a certain percentage. If the underlying target is met, then no modification would be made and the underlying STI or LTI award would be made based on the other metrics. KPIs provide a direct measure that reinforces the importance of climate change and usually are easily communicated, quantifiable objectives. A more highly weighted metric requires clear linkages to funded metrics, but the KPI needs to have a material weighting to demonstrate its importance to plan participants and external stakeholders. KPIs in LTI plans introduce standalone climate change metrics that are most appropriate if there is a longer time horizon to produce measurable results (such as carbon emission reductions). A drawback, however, is the length of performance period may dilute momentum to achieve sustainability results, the key drivers of LTI plan performance, and could de-emphasize financial/market performance. Standalone incentive plans are separate from other incentive plans, with the sole purpose of measuring sustainability performance and reducing climate risk (such as a hyper-long term that aligns with the sustainability strategy). Such plans encourage participants to take a longer-term view of performance, but they may be difficult to communicate or viewed as duplicative of other incentives. Because most CO2 emission reduction targets tend to have longer-term horizons, the typical annual and three-year incentives may not be directly aligned with these goals. Nonetheless, even short-term incentives can have a significant impact in terms of corporate culture. But to encourage longer-term decision making (for example, a target period of 10 years) often associated with large capital investments, and to emphasize its prominence, companies could introduce a separate, hyper-long-term incentive plan focused solely on CO2 emission reductions. Modern incentive plans are based on time as a constant (such as one- or three-year performance periods) and performance as a variable (achievement of threshold, target, stretch goals). However, a hyper-LTI could allow a different variation, in that the performance goal could be treated as constant (CO2 emission reduction of 50 percent) and time could be treated as the variable. Thus, encouraging early achievement of goals via incentive upside, and conversely punishing delayed achievement of CO2 reduction targets with an incentive downside. Climate-related measures can provide a return on investment through reduced energy consumption and waste in addition to the goodwill of stakeholders such as investors, customers and employees. Implementing such incentive arrangements may not be straightforward. Companies will need to consider whether and how best to rebalance other components of pay, how to deal with disclosures of mega-LTI grants, and ensure that targets are sufficiently stretched so that proxy advisers do not perceive these plans to have soft targets as way of boosting executive pay. Large institutional investors have supported proposals for long-term alignment between CO2 emissions and incentives, provided that the quantum and opportunity are properly calibrated, and mechanics are carefully laid out. To convince skeptics, focus on the bottom line For boards and management that are a little more suspect of climate sustainability, consider that climate-related measures can provide a return on investment through reduced energy consumption and waste in addition to the goodwill of stakeholders such as investors, customers and employees. As the World Economic Forum’s January 2019 publication on effective climate governance for boards sets out, monetary incentives for senior management teams should be tied to long-term organizational goals that contribute to resilience and prosperity over time. There is little to prevent linking climate-risk and opportunity-related factors to compensation if they are material to an organization’s long-term sustainability, value creation and risk mitigation. Executive compensation always has been an effective tool to foster innovation. Now we must marshal its power to encourage the march toward a climate resilient future. Pull Quote Only 48% of CEOs are implementing sustainability into their operations. Climate-related measures can provide a return on investment through reduced energy consumption and waste in addition to the goodwill of stakeholders such as investors, customers and employees. Contributors Ryan Resch Topics Leadership Finance & Investing Risk & Resilience WEForum Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off Illustration of a deal being closed. Shutterstock kentoh Close Authorship

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Behind the coming ESG disclosure explosion

January 28, 2021 by  
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Behind the coming ESG disclosure explosion Jean Haggerty Thu, 01/28/2021 – 01:00 This analysis of ESG and sustainable finance issues originally appeared in GreenFin Weekly, our free email newsletter. Sign up here . As we begin another year of what’s being referred to in climate circles as the “decade to deliver,” it is being defined by ESG, driven by shareholders and aided by new disclosure requirements on climate risk and human capital management.  “The bottom line is that businesses now actively compete for capital based on ESG performance, and that competition needs to be open, fair and transparent,” Allison Herren Lee, acting chair of the Securities and Exchange Commissioner, said .  A lot of the information that investors want is not included in company financial filings or sustainability reports, which in the U.S. currently rely on voluntary ESG reporting standards and frameworks, said Anne Simpson, managing investment director for board governance and sustainability at the California Public Employees’ Retirement System (CalPERS), the largest U.S. pension fund. As a general matter, U.S. companies would be wise to take note of ESG developments in Europe. European Union legislation on sustainability reporting and disclosures far exceeds what the U.S. has in place, and European Central Bank regulations on ESG are in the process of being implemented.  With a little help from my — shareholders?  Companies need to take stock of what investors are telling them and devoting their time and energy to enhancing their ESG reporting, said Hannah Orowitz, senior managing director at Georgeson, which provides strategic shareholder services to corporations and shareholder groups. This needs to be done before completing a sustainability report and keeping in mind that ESG factors directly influence investors’ proxy voting decisions. Every company needs a climate transition plan based on Climate Action 100+ benchmarks , added Andrew Behar, CEO of the shareholder advocacy nonprofit As You Sow.  Several officials expect a pivotal 2021 shareholder season. According to Tomas Otterström, KPMG’s partner and head of responsible investment and sustainability services in Finland and Sweden, climate change, biodiversity and diversity/inclusion issues appear to be this year’s top proxy issues globally. In the U.S., racial equity, political spending and policy influence activity influence also will factor highly.  The bottom line is that businesses now actively compete for capital based on ESG performance, and that competition needs to be open, fair and transparent. As U.S. companies become more willing to make substantial changes to their policies and practices, the expectation is that fewer engagements will need to be escalated to shareholder resolutions. “The companies that listen and follow shareholders’ advice are reducing risk and will outperform over time — that’s why companies are becoming more receptive” to addressing ESG issues, Behar said.  “Companies need to realize that shareholders that engage them and escalate to file resolutions are their best friends. We are showing them ways to reduce risk, improve brand recognition, attract the best and the brightest and generally be more competitive … Shareholder advocacy is like a McKinsey for free.” Already, some companies, such as Union Pacific Railroad and the online travel provider Bookings Holdings, are being asked to put their carbon transition plans to a vote at their 2021 annual general meetings, according to Rob Berridge, director of shareholder engagement at Ceres.  The regs are coming Often, ESG investment strategies end up more closely aligning the objectives of a company with those of its long-term institutional investors. Essentially, three forms of capital are long-term drivers of value and sources of risk — financial, physical and human capital. To properly access risks requires complete, accurate and reliable information. “That starts with public company disclosure and financial firm reporting and extends into our oversight of various fiduciaries and others. Investors also need this information so they can protect their investments and drive capital toward meeting their goals of a sustainable economy,” SEC commissioner Lee told the Institute on Securities Regulation Conference in November.  All indications are that mandatory climate risk disclosure requirements for public companies are on the way. The Biden administration’s decision to rejoin the Paris Agreement cements this view. For countries to meet their Paris targets, they’ll need companies to transition toward net-zero goals and to measure progress using standardized, auditable and reliable corporate data.  Going global But measure how? The proposal by the International Financial Reporting Standards (IFRS) Foundation to create a new sustainable standards board is the leading pathway to making climate disclosure mandatory, Mark Carney , former governor of the Bank of England and current United Nations Special Envoy for Climate Action and Finance, said in a comment letter .  Others that commented on the IFRS Foundation’s consultation overwhelmingly supported the formation of a sustainability standards board. In their comments, many also highlighted the extent of the IFRS’s reach; the organization’s financial reporting standards are mandatory in 144 countries. Carbon Tracker Initiative pointed out that putting a sustainability standards board under the same umbrella as the International Accounting Standards Board, housed within IFRS, would help integrate sustainability and financial reporting.  There’s no shortage of prep work on how a sustainability standards board might operate. For example, there’s the paper by five leading NGOs on how their voluntary frameworks, standards and platforms could be used together, and another seminal white paper on converging the various ESG reporting standards. Companies need to realize that shareholders that engage them and escalate to file resolutions are their best friends. U.S. companies’ reporting on sustainability has been coalescing around the Task Force on Climate-related Financial Disclosures (TCFD) and Sustainability Accounting Standard Board’s (SASB) reporting frameworks.  According to Steven Nichols, head of ESG capital markets for the Americas at BofA Securities, the investment banking arm of Bank of America, many companies are setting annual goals and measuring their progress on ESG metrics such as those related to climate risk. A new Conference Board report on corporate disclosure and performance data across North America, Europe and Asia-Pacific found that major corporations last year increased their sustainability disclosures in key areas, including climate-risk reporting, human rights and water stress exposure.  Eyeing Europe Under European Central Bank guidelines , which at this stage are non-binding, European banks must get their climate risk disclosures together this year. The ECB will be reviewing banks’ practices next year, with a view to conducting stress tests on climate risk next year.  At French investment bank Natixis, credit decision-makers already use two sets of indicators — one that looks at the environmental impact of a transaction and another that estimates the profitability of that transaction after taking into account material environmental impacts.  Natixis’ internal capital allocation tool, the Green Weighting Factor, already is changing origination. “A few years ago, environmental issues were not discussed in the credit process. Today, it’s a systematic part of the decision,” Karen Degouve, head of sustainable business development at Natixis, said.  Perhaps its greatest impact so far, however, has been the effect on the level of strategic dialogue the bank is having with clients, she added. Because the tool has been used internally only since September 2019, it is too early to say if it is changing client behavior, too. Pull Quote The bottom line is that businesses now actively compete for capital based on ESG performance, and that competition needs to be open, fair and transparent. Companies need to realize that shareholders that engage them and escalate to file resolutions are their best friends. Topics Finance & Investing Reporting GreenFin ESG Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off GreenBiz photocollage

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Behind the coming ESG disclosure explosion

5 steps boards can take to be ESG-ready for 2021

January 21, 2021 by  
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5 steps boards can take to be ESG-ready for 2021 Pamela Gordon Thu, 01/21/2021 – 01:40 Amongst the many dramatic challenges global businesses faced in 2020, one that had been simmering for years bubbled up and promised to stay at a high boil in 2021 is ESG: Environment, Social, Governance.  Signs that ESG expectations were becoming more ubiquitous included the establishment of global ESG standards published by the World Economic Forum’s International Business Council in September and BlackRock’s call for a globally recognized framework for investors to understand individual company risks.  Despite years of progress by leading corporations toward ESG, corporate social responsibility (CSR), environmental health and safety (EHS) and sustainability goals, the reality is that board members overseeing these companies are still trying to discern how all of this applies to them. In fact, in PwC’s annual Corporate Directors survey , which includes responses from more than 600 public board directors, only half (51 percent) say their board fully understands ESG issues impacting the company. That same study shows, however, that in 2020, 45 percent of directors say that ESG issues are a regular part of the board’s agenda, which demonstrates an increase from 34 percent in 2019. Time for training How can boards (public and private) improve their efficacy in ESG oversight for long-term value? As ESG experts, Presidians and members of the Athena Alliance (community of female corporate board directors and executives), we set out to help boards to become ESG-ready .  To start, we uncovered board members’ keenest ESG-education needs by surveying sitting board members at public (39 percent) and private (61 percent) companies, generating annual revenues of less than $50 million to $3 billion. They look to ESG to realize the following areas of corporate success: Source: Presidio Graduate School survey, October through December 2020 Then, we developed an ESG training for board members, along with the following five recommendations for board members to get ESG-ready for 2021. 1. Understand why boards need to be ESG-ready In our survey, 47 percent of directors believe ESG is important for brand equity and reputation, 24 percent cited both customer and investor pressure, and 18 percent pointed to risk management and board pressure. One sitting board member said that ESG is “an inherent part of the business model.” Board oversight includes advising the management team on the company strategy, and ensuring improved long term value for all stakeholders. Directors must understand how ESG issues can affect that strategy, and be in a position to assess and address both challenges and opportunities. To get started, align the board on why they should care, in light of demands from stakeholders such as customers, employees, investors, communities and suppliers. Invite an ESG expert to convey how ESG is material to your particular company.  2. Add ESG to your next board meeting agenda When asked what level of importance their boards put on ESG, 76 percent of our survey respondents said “important” or “very important,” yet only 47 percent said their companies report on ESG, and 35 percent said their board provides ESG oversight. Compare that to the 45 percent stated by public companies in the PwC survey, and we are still looking at less than half of company boards addressing ESG even as investors and other business stakeholders demand it. Add ESG to your next board agenda, even if only to start the conversation with the management team. You may be pleasantly surprised to learn that somewhere in the organization people have been working on ESG initiatives and have been waiting for the conversation to reach the board. Risk and reputation are two of the most fundamental aspects of “duty of care” for sitting board directors. Corporate leaders who take a broader view of their long-term strategy, including how they will meet ESG demands, will be better positioned to address new risks and opportunities.  3. Select an ESG oversight structure that aligns with your company More than half (52 percent) of our survey respondents serve on the Nominating and Governance committees of their boards, with 20 percent stating they sit on a specialized ESG/EHS working group or committee. Some companies split the elements of ESG between committees, with “social” sitting with the compensation committee for example, as they typically manage diversity, equity and talent initiatives. Because ESG strategy should align with business strategy and focus on material risks and business drivers, the full board will want to understand the ESG messaging and how those risks are being mitigated. A recent article by the Harvard Law School Forum on Corporate Governance offers an excellent guide on how to address ESG and corporate governance within the board committees, noting most importantly, “Because ESG strategy should align with business strategy and focus on material risks and business drivers, the full board will want to understand the ESG messaging and how those risks are being mitigated.”  4. Arm yourself with expertise In the PwC survey, respondents agreed that ESG issues are playing a larger role in their board discussions, and should be included in determining the company strategy. In fact, 67 percent of directors said the company should include climate change, human rights and income equality in the company strategy, a 13-point increase over 2019. Interestingly, female directors were more likely (60 percent) to see the link between ESG and company strategy than their male counterparts (46 percent), and agreed in higher percentages (79 percent vs. 64 percent) that climate change and human rights issues should be part of forming the company strategy.  As your board recruits new directors or replaces sitting directors, consider adding a director with ESG expertise, supplemented with an independent ESG consultant for a broader and future view. 5. Get educated When asked from which aspects of ESG education their boards would most benefit from, respondents prioritized: 1) diversity, equity and inclusion, 2) ESG/CSR reporting, 3) products’ environmental footprint/impact, 4) company operations’ environmental footprint/impact and 5) climate and renewable energy. Most prefer a half-day training, with some wanting a customized training for their entire board and others wanting to join training comprising individual board members representing diverse companies. Having interviewed board members over the years for materiality assessments, PGS Consults analysts note that board directors acknowledge their limited understanding of ESG and are genuinely open to learning more. The COVID-19 lockdown in March created a dramatic shift in board member interest in ESG — from polite inquiry to a more urgent need to know. Pull Quote Because ESG strategy should align with business strategy and focus on material risks and business drivers, the full board will want to understand the ESG messaging and how those risks are being mitigated. Contributors Leilani Latimer Topics Corporate Strategy ESG Collective Insight Thinking in Systems Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off Shutterstock Freedomz Close Authorship

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Welcome to a new era of ESG and sustainable finance

January 21, 2021 by  
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Welcome to a new era of ESG and sustainable finance Joel Makower Thu, 01/21/2021 – 01:30 Adapted from the premiere issue of GreenFin Weekly, a free e-newsletter focusing on trends in ESG and sustainable finance. Subscribe using this sign-up page . What a moment to launch a newsletter on ESG and sustainable finance. The topic has become front and center in sustainability and finance circles and, suddenly, in Washington, D.C. A vast ecosystem is in play. Investors have awakened to the notion that how companies manage environmental and social issues is nearly as key to their risk profile and profitability as are financial fundamentals. Banks and insurers are factoring climate risk and social issues into their products and portfolios, accelerating a shift that’s been gearing up for years. Companies are warming to a world of deeper transparency and disclosure demands by investors, lenders, customers and others, and are trying to keep up with the dynamic world of standards and frameworks with which they’re being asked to comply. Oh, and it’s the dawn of a new U.S. presidential administration that sees virtue in assertive action on a range of social and environmental issues. We’re entering a new era, one in which companies are less able to hide behind their pronouncements and good intentions. We’re entering a new era, one in which companies are less able to hide behind their pronouncements and good intentions. Accountability is the new watchword. Action, not announcements, is the currency. The arrival of Team Biden itself promises to be a game changer. By the time you read this, we already may have learned about some of the incoming president’s first moves in this arena. Suffice to say that the new administration’s ambitions are significant — and the expectations could not be higher. After years of spinning wheels and grinding gears, there’s renewed hope for moving forward. All of this is bringing new players to the table — those inside organizations whose remit up to now hadn’t included such things as climate risk and human rights. Those in finance, investor relations, government affairs and risk management are grappling with new kinds of disclosure, increased investor scrutiny, new regulatory regimes and stepped-up activist pressures (not to mention media enquiries) around a host of nonfinancial issues. Investors, for their part, are similarly finding themselves swimming in uncharted waters. Even job seekers are starting to scrutinize the ESG data of prospective employers. We’ve been covering many of these topics for years on GreenBiz.com. Now, we’re stepping things up, elevating ESG and sustainable finance across our portfolio, starting with this newsletter and the GreenFin 21 conference in April as well as through webcasts, podcasts and many other things we do. Each week, a member of GreenBiz’s stable of journalists will take the helm of GreenBiz Weekly on a rotating basis, offering a fresh perspective on ESG and sustainable finance, and point to key stories from across the Web. We won’t cover everything — just the important things. Here are just a few storylines we’ll be following in this newsletter: The convergence of standards: This is No. 1 with a bullet. The mélange — some would call it a morass — of ESG standards and frameworks has been a problem for years. Now, various efforts to align these disparate approaches aim to create harmony from this chaos. But even these harmonization efforts are competing with one another. Which one(s) will win out? It’s an open field. The secret life of ESG data: How it’s compiled and deployed isn’t always clear. As such data is used for everything from assessing creditworthiness to determining where the next generation of talent wants to work, understanding the data itself — how it is compiled and used — will be critical. It’s time to bring ESG out of the black box. The growth of sustainability-linked finance: Another year, another record in the issuance of green bonds, climate bonds, sustainability bonds and others, as well as sustainability-linked loans. But issuing such bonds can be fraught with complexity. How are companies managing? We’ll take you behind the scenes. Investor expectations on DEI: As diversity, equity and inclusion issues have grown inside companies, investors are struggling to understand how to assess company actions. Black Lives Matter, #MeToo and other social movements are seen as both risks and opportunities for companies, and large institutional shareholders are starting to weigh in. Nature on the balance sheet: Biodiversity is an emerging area of investor interest and concern and is being integrated into ESG disclosures. What should companies be doing to prepare? The role of boards: Getting boards of directors on board with ESG issues is no small thing, and many boards aren’t prepared to provide adequate guidance and oversight. What are the competencies boards need to have? What are some key policies boards are adopting? That’s just a taste. As I said, it’s a fast-growing, ever-changing field. There’s no shortage of topics — and we’re just getting started. We look forward to joining you on this journey each week as we uncover and analyze new topics, interesting people, insightful reports, emerging trends and other useful resources to help you and your team move forward. To subscribe to GreenFin Weekly, published Wednesdays, click here . Pull Quote We’re entering a new era, one in which companies are less able to hide behind their pronouncements and good intentions. Topics Finance & Investing ESG GreenFin Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off Shutterstock

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Supporting democracy becomes the measure of leadership

January 18, 2021 by  
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Supporting democracy becomes the measure of leadership Terry F. Yosie Mon, 01/18/2021 – 02:00 The aftershocks of the Jan. 6 insurrection to block Congressional certification of the U.S. Presidential election will reverberate for many years. In the short run, there may be additional efforts to violently disrupt President-elect Biden’s inauguration Jan. 20, in addition to domestic terrorism activities aimed at state and local governments and other institutions. Such concerns have re-focused public expectations that leadership across all major institutions, public and private, must take sustained actions to support democracy. The Jan. 6 insurrection has transformed the nation’s political conversation and moved the support for democratic values to the top tier of advocacy. It has subsumed and reset the context for other key national priorities such as responding to the pandemic, climate change, economic renewal and social justice. At the very core of democracy are the values of transparency, due process and good governance, respect for human rights and the ability to participate freely in the political system. At the very core of democracy are the values of transparency, due process and good governance, respect for human rights and the ability to participate freely in the political system. Not coincidentally, these same values enable enactment of core elements of the sustainability agenda for environmental protection, economic development and social responsibility. The accelerating debate over how best to protect and strengthen democracy bears close watching as a major barometer for the success of policies to advance sustainability. Political donations that undermine democracy Companies that make political donations, and institutions and individuals that receive them, are presently engaged in a frantic scramble to identify whether these funds are connected to groups associated with white nationalism, violence and sedition, or disruption of the election process. Numerous embarrassing examples already have emerged from leading U.S. institutions. They include: Comcast, JP Morgan Chase, Microsoft and PepsiCo made contributions to the Rule of Law Defense Fund (RLDF), the fundraising arm of the Republican Attorneys General Association (RAGA), which raised about $18 million in 2020. The RLDF actively participated in attempting to prevent the certification of the U.S. Presidential election, including the use of robocalls encouraging people across the country to assemble in Washington, D.C., on Jan. 6 to march on the Capitol. The RAGA executive director subsequently has resigned. A large number of U.S. corporations provided political donations to two-thirds of the Republican caucus in the House of Representations that sought to block certification of the Presidential election. Individual companies are belatedly recognizing that individuals on the rapidly expanding “sedition” list prepared by law enforcement authorities received their donations. Carnegie Mellon University, which for many years has accepted funds from the Richard Mellon Scaife Foundation (a major funding source for many anti-environmental and right-wing political causes), established a fellow position at its Institute for Politics and Strategy for Richard Grenell, a senior Trump Administration official, who aggressively and publicly lobbied to overturn the U.S. election results. Good governance in donation practices In the midst of this political firestorm, a growing number of organizations, chiefly corporations, are examining whether their donations support anti-democratic politicians. Their practices include: Suspending immediately all corporate and employee contributions to any member of Congress who voted in objection to the certification of the Presidential election. Leading companies such as healthcare provider Blue Cross/Blue Shield, Commerce Bank, Dow Chemical and Marriott International have publicly announced this decision. Dow has further committed to suspending its political donations for the next election cycle (two years for a member of the House, six years for a senator). Reviewing the bylaws and governing policies of political action committees (the unit within a company that is legally authorized to collect and distribute political donations) to evaluate their consistency with a firm’s values and determine the criteria under which currently suspended political contributions can be reinstated or permanently revoked. This outcome will depend, in part, upon whether suspended political recipients re-affirm or reverse their position on electoral certification. Determining whether any recipients of political donations are identified on a law enforcement “seditionist list” subject to potential criminal or other penalties. To their chagrin, some American-based companies have determined a match between their donation recipients (as compiled by the U.S. Federal Election Commission that tracks political contributions) and individuals placed on the federal government’s sedition list. In the short run, these decisions will financially disadvantage Republican elected officials, as 139 members of Congress and eight senators from their party voted against certifying the presidential election results — even after the insurrection had occurred. Beyond these financial decisions are public statements by a limited number of business leaders who have called for the resignation of President Donald Trump. Most prominent has been Jay Timmons, president of the National Association of Manufacturers. The insurrection “was a clear and present danger to our democracy … and we couldn’t stand for that,” he said. No other prominent business association has echoed Timmons’ declaration. Longer-term reforms Conventional behavior for financing the U.S. political system will await the inauguration of Joe Biden as the 46th president and assume that momentous policy debates in the U.S. Congress over curbing the COVID-19 pandemic, reviving the economy, investing in infrastructure that decarbonizes the economy and reforming immigration practices will slide the public’s current focus on political donations to the periphery. Several initiatives to manage the advocacy process can be implemented to raise the bar in support of democracy. They include: Redefining the criteria for advocacy donations so they are aligned with a company’s central values and promote pro-democratic policy objectives. Such criteria should be approved by the board of directors and should apply to both direct company contributions and allocations provided through a foundation. Expanding the transparency of political donations so they are approved through the corporate governance process and are included as part of the annual financial audit. The list of external recipients should be made accessible through a public website. Identifying and publicizing universities, think tanks and individuals that receive funding to generate studies, organize seminars or establish fellowships to research and publish on issues related to democracy, labor, regulatory or sustainability issues. Integrating the pro-climate change and sustainability efforts of asset managers, investors and non-governmental organizations directly with pro-democracy advocacy. Organizations such as Climate Action 100+ are well-positioned to add support of democracy to their current suite of environment, social and governance (ESG) priorities. Mobilizing a coalition of lawyers, thought leaders and political representatives to overturn the Supreme Court’s Citizens United decision. This 2010 edict opened the floodgates for a dramatic expansion of money to influence political campaigns and regulatory policy decisions by prohibiting government from restricting independent expenditures for political communication and enabling donors to shield their identities. The adverse consequences of this decision continue through the ever-increasing amount of contributions to candidates and causes, much of it unaccounted for, anti-environmental and anti-democratic. Offsetting the discouraging news of political insurrection and the corruption of democracy is the hopeful indicator of expanded voter participation. Most Americans have a growing recognition of the fragile state of their country and are committed to a course of peaceful collaboration to address a growing list of problems. This is reflected in higher rates of voter participation in both the 2018 mid-term and 2020 Presidential elections. While encouraging, two election cycles do not represent a longer-term trend. Expanding pro-democracy advocacy can provide a rising tide for a number of economic, environmental and social justice proposals that lead to a more equitable and just society. Such is the means to grow a continuing pro-democracy majority while marginalizing extremist points of view. Pull Quote At the very core of democracy are the values of transparency, due process and good governance, respect for human rights and the ability to participate freely in the political system. Topics Policy & Politics Featured Column Values Proposition Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off Shutterstock

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What I learned about water in 2020

December 30, 2020 by  
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What I learned about water in 2020 Will Sarni Wed, 12/30/2020 – 01:30 Last year around this time, I focused on digital technology solutions for water with this essay, ” 2019: The Year Analog Solutions Died .” I stand by this perspective, as the COVID-19 pandemic has accelerated interest and adoption of digital technologies across the water value chain. However, I wanted to share six new learnings from this pandemic year related to digital transformation along with other observations about the topic of water.   1. Digital transformation is about people: The digital transformation of water was well underway pre-pandemic and accelerated quickly during the past nine months. What was once anticipated to be a multiyear transformation occurred rapidly, with both the utility and industrial sectors scrambling to identify digital technologies and integrate them into their operations to adjust to remote workforces. Two aspects of the digital transformation took on more prominence: the critical importance of the workforce and the role of earth observation science (EOS) technologies. First, the critical importance of people in digital transformation cannot be underestimated. Transformation will stall or fail if there is no alignment between business strategy and culture, and there is a lack of investment in the workforce. The insights on digital transformation from 2019 papers and research came to the forefront (” IWA Digital Transformation ” and ” The Technology Fallacy “). The key takeaways are that successful investments in digital water technologies require a strategy, commitment by leadership, investment in the workforce and establishing and nurturing a culture of learning. The most important from my perspective is creating a culture of learning — it will contribute to attracting and retaining talent. We also witnessed the emergence of EOS technologies to provide real-time water quality, ecosystem health and flood prediction analytics from satellite data acquisition and analytics companies (such as Gybe , 52 Impact and Cloud to Street ). Digital technologies are connecting across the value chain of utilities and industries for a more real-time view of water quality, quantitative evaluations of ecosystems and flood prediction. 2. We need a “skunkworks” strategy for innovation: Innovation in water technology and business models is slow for several reasons. The competition is the status quo (the installed base). In general, organizations “try” to innovate from within, and water is a public health issue, so utilities can’t take risks. We don’t have the luxury of time to wait for innovative technologies and business models to scale. At this rate, we won’t achieve United Nations Sustainable Development Goal 6, which sets the goal of clean water and sanitation for all. What we need is a skunkworks mindset and strategy. If other industry sectors such as the aircraft and aerospace sectors can innovate quickly and at scale, so can the water sector. For those unfamiliar with the term, the relevant characteristics of a skunkworks project are outlined as a concentration of a few good people solving problems far in advance, at a fraction of the cost of other groups by applying the simple, most straightforward methods possible to develop new projects (paraphrased from Kelly Johnson ). 3. Water is not (just) the water industry: The issues and opportunities related to water are not just about the water industry. We need a more expansive view of the role of water in society and our environment. For example, water has economic, business, social and spiritual dimensions. The water industry sector mostly focuses on economic and business dimensions and rarely, if at all, on the social and spiritual dimensions. I would reframe the narrative to focus on humanity’s relationship with water (especially health and wellness, and natural ecosystems). Water doesn’t come from the tap or bottled water, so let’s protect watersheds and ecosystems. This message needs to be communicated simply and clearly to those outside the water sector. 4. Diversity is critical to solving wicked water problems: Society would benefit from greater diversity in solving water challenges as it is doubtful solutions exclusively will come from the usual suspects (myself included). We need vastly more diversity in age, gender, race, geography and from industry outsiders. Increasing diversity will not happen organically; we need to be proactive and work at it or we are destined to bring the same ideas to the party. As Ben Dukes, a friend and colleague, often says, “What got you here won’t get you there.” 5. Innovation in investing in water remains a challenge: Water technology entrepreneurs and startups continue to be challenged by traditional venture capital and private equity investment models. Water is not cleantech and requires more patient capital, which is in short supply. However, there are encouraging signs as initiatives such as Anheuser-Busch InBev’s 100+ Accelerator and Microsoft’s $1 billion Climate Innovation Fund invest in innovative water and sustainability solutions. The increased interest during 2020 in environmental, social and governance (ESG) performance has also focused more on innovative water solutions. 6. Water is not climate: The statement “If climate is the shark, water is the teeth” is misleading and not helpful. This year, climate change continued to gain traction within the private sector in the form of new commitments and investments from companies such as Amazon, Google and Nestle, among many others. This is certainly to be applauded. However, a cautionary word: Solving climate change will not solve the fundamental issues with water scarcity, poor quality and lack of access to safe drinking water, sanitation and hygiene. The potential and likely failure to achieve SDG 6 can be attributed to public policy failures sch as pricing, allocations and lack of funding. We can solve climate change and water and need to focus on both. There is no shortage of lessons learned from 2020. While it was a profoundly challenging year, we do have an opportunity to do better by critically examining what needs to change in the years ahead. This past year has framed my view of what the future may hold for 2021 as we build back better . I will share my thoughts on 2021 in my next Liquid Assets column. 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2020 was the year that…

December 28, 2020 by  
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2020 was the year that… Joel Makower Mon, 12/28/2020 – 02:11 It was a very long year. True, just 366 days (it was a leap year, after all), each one, I’m told, containing only the standard 24 hours. But it was much, much longer than that. Remember 2019? Neither do I. To recall some of the key developments, as I have done each December for more than a decade, I’ve plumbed the nearly 1,300 stories, columns and analyses we’ve published on GreenBiz.com since the dawn of 2020 — a.k.a. the beforetime — accentuating the positive, seeking signs of progress and hope. We need such reminders to get us through these challenging times. Here, in no particular order, are five storylines that I found encouraging during the 12 months just ending. And, perhaps, to set us on a more bullish course for 2021. Here, in no particular order, are five storylines that I found encouraging during the 12 months just ending. (All links are to stories published on GreenBiz.com during 2020.) What would you add to the list? 1. Companies accelerated the route to sustainable mobility The rise of electric vehicles has been a perennial story for nearly a decade, but 2020 saw the pace of change accelerate. Indeed, in January, my colleague Katie Fehrenbacher predicted that 2020 would be a key year for EVs. She was right. Both the private and public sectors delivered big wins for the electrification of transportation. California’s governor signed a history-making executive order , banning sales of new gas-powered cars within 15 years. Britain upped the ante , with a similar ban but within a decade, helped by McDonald’s plan to install EV chargers at its UK drive-thru restaurants. On the supply side, General Motors and Volkswagen planned major EV rollouts. Ultimately, how fast these markets rev up depends on demand from fleet buyers. Amazon continued its aggressive EV buying plans , as did both Walmart and IKEA . One reason for all this: Batteries continue their journey down the price-experience curve, where increased demand lowers prices, further pumping up demand. New technologies are helping, many still in early stages . Some are specifically geared toward truck and bus fleets , an indication that the markets for medium- and heavy-duty EVs are about to kick into high gear . 2. Sustainable fashion became material Fashion is another long-simmering environmental story that has finally reached a boiling point. The issues are many, from the resources needed to grow cotton or produce synthetic fabrics, usually from petroleum feedstocks, to the waste that ends up in landfills, especially for inexpensive and trendy clothing items that often have a short useful life. In 2020, several new developments help put sustainability in fashion. For example, the nonprofit Textile Exchange  launched a Material Change Index , enabling manufacturers to integrate a preferred fiber and materials strategy into their products. It also  launched a Corporate Fiber and Materials Benchmark to help the fashion and textile industry take action on biodiversity. Circular models made the rounds, starting with the design department, where a lot of negative environmental and social impacts are baked into garments, usually unwittingly. Adidas and H&M Group  teamed up for a project to recycle old garments and fibers into new items for major brands. German sportswear company adidas committed to using only recycled polyester across its supply chain by 2024. Markets for secondhand clothing racked up sales, including recommerce , where companies sell their own reclaimed and refurbished goods back to customers. In the wings:  startups touting a new generation of textiles, production methods and business models, suggesting there are a lot more innovations in store. 3. Forestry took root on the balance sheet Saving and planting trees has been a cornerstone of environmental action pretty much since Day One. (Hence, the often-epithetic moniker “treehugger.”) And pressing companies to eliminate deforestation in their supply chains has long been an activist focus. Now, companies themselves are seeing the business benefits of proactive forestry policies. First, there’s risk mitigation — ensuring “a company’s ability to sell products into a global supply chain,” as a BlackRock executive put it . It’s not just the climate impacts of concern to investors. Deforestation and human rights abuses often go hand-in-hand — “there’s almost a direct correlation,” said another investor — an additional layer of risk for companies from neglecting forests and those who live and work there. And then there’s the opportunity for companies to offset their emissions, since trees are a natural climate solution that can help draw down greenhouse gases, especially firms adopting net-zero commitments (see below). Microsoft , JetBlue and Royal Dutch Shell are among those seeking to offset a portion of their carbon footprint by investing in forest protection and reforestation. Finally, there are the innovators — entrepreneurs who see gold in all that green. Silicon Valley venture capitalists are beginning to branch out into forestry-related startups — companies such as SilviaTerra and Pachama that provide enabling technologies to facilitate forestry projects. These entrepreneurs likely saw opportunity in the Trillion Trees initiative launched in early 2020. Of course, success requires stopping deforestation in the first place, especially in tropical rainforests. And that remains a problem. Half of the companies most reliant on key commodities that have a negative impact on forests — palm oil, soy, beef, leather, timber, and pulp and paper — don’t have a publicly stated policy on deforestation, according to one report . Still, some firms are making progress. Mars, for example, announced that its palm oil — used in food and pet care products — is now deforestation-free after shrinking the number of mills it works with from 1,500 to a few hundred, a clear-cut sign that progress is possible. 4. Food equity showed up on the menu For all the talk about Big Ag and Big Food, there’s a growing recognition of the smaller players in the food chain, from farmers and producers to those who prepare and serve meals. And, of course, the 821 million or so humans who face food insecurity, according to the United Nations. And that stat was from 2018, long before this year’s pandemic and global recession created millions more hungry bellies. With restaurants closed and other foodservice operations curtailed, one lingering question is what the world’s largest food companies are doing to help their suppliers and other partners. “Retailers and brands are recognizing that if they don’t step in to help their producers and distributors, the links holding together those supply chains may crack in ways that aren’t easily repaired,” my colleague Elsa Wenzel reported back in June. Collecting uneaten food or unsellable produce for distribution to those in need is one activity that accelerated during the pandemic . A newish concept, “upcycled food” — goods that “use ingredients that otherwise would not have gone to human consumption, are procured and produced using verifiable supply chains, and have a positive impact on the environment” — is being promoted by a nonprofit consortium called the Upcycled Food Association. Increased concern for farmers is also on the menu. Fair Trade certified crops continue to rise , ensuring a living wage for many smallholder farmers, and there’s growing interest in supporting Indigenous farmers , who have long practiced regenerative techniques. The Regenerative Organic Alliance developed a standard to support farmers who promote soil health. All this will require making capital and assistance available to growers around the world, including the data and analytics that increasingly are core to 21st-century farming. And to do this quickly, before the ravages of a changing climate create further hardships for both food producers and consumers around the world. 5. Net-zero commitments found infinite potential And finally, zero — perhaps a fitting coda to a year that boasts two of them in its name. What began just a couple years ago blossomed into a full-on movement as the number of net-zero commitments doubled in less than a year . The list of companies making such commitments cut across sectors and international borders, among them BP , Delta , Facebook , HSBC , Nestlé , Walmart , even Rolls Royce . Verizon, Indian IT services giant Infosys and British consumer goods brand Reckitt Benckiser became the first global companies to join Amazon’s Climate Pledge initiative , committing to reach “carbon neutrality” by 2040. Some went further. Microsoft said it would become “carbon negative” within a decade , with a stretch goal to remove all the carbon it has emitted since it was founded in 1975. The travel-intensive strategy firm BCG said it aspires to be “climate positive” by removing more carbon dioxide emissions from the atmosphere than it emits. But getting to zero — or neutral or positive or some other goal — is not without controversy. As one report noted , net-zero commitments vary widely in terms of their metrics and transparency, among other things. That is, no single standard governs the way net-zero is defined or measured, or how it should be communicated. As such, net-zero could soon be in the crosshairs of activists eager to point out corporate greenwash. Help could be on the way. In September, the Science Based Targets initiative unveiled plans to develop a global standard for corporate net-zero goals, including the role of carbon offsets, a practice whose massive expansion is itself problematic and controversial . How it gets resolved will be an enduring storyline for 2021 and beyond. There’s more Those were hardly the only 2020 storylines of note. There was a significant uptick of Wall Street interest in  environmental, social and governance (ESG) reporting … a surge of attention by companies to  environmental justice … the continued rise and empowerment of  corporate sustainability professionals . Oh, and the advent of a new U.S. presidential administration that  promises to reengage with business and the global community on addressing the climate crisis. That is to say, 2020 wasn’t all about the pandemic, recession and you-know-who. If that’s not enough, here — in alphabetical order by company — are a baker’s dozen other hopeful headlines from the past 12 months: How Apple aims to lead on environment and equity Bank of America CEO: Each public company needs to reach carbon zero BP announces net-zero by 2050 ambition Delta lifts off with $1 billion pledge to become carbon neutral Inside Eastman’s moonshot goal for endlessly circular plastics General Mills, Danone dig deeper into regenerative agriculture with incentives, funding HSBC invests in world’s first ‘reef credit’ system IKEA will buy back used furniture in stand against ‘excessive consumption’ Microsoft is building a ‘Planetary Computer’ to protect biodiversity Morgan Stanley will measure CO2 impact of loans and investments How Ocean Spray cranberries became America’s ‘100 percent sustainable’ crop Unilever unveils climate and nature fund worth more than $1 billion Walmart drives toward zero-emission goal for its entire fleet by 2040 I invite you to  follow me on Twitter , subscribe to my Monday morning newsletter,  GreenBuzz , and listen to  GreenBiz 350 , my weekly podcast, co-hosted with Heather Clancy. Pull Quote Here, in no particular order, are five storylines that I found encouraging during the 12 months just ending. Topics Leadership Featured Column Two Steps Forward Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off GreenBiz Group

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