Commentary

ICYMI, the Era of Impact is Upon Us

There’s been more disagreement than goodwill to all in the final weeks of the year.

As we begin to bid farewell to 2021, events continue to highlight the fact that we are entering the era of implementation and impact, a decade in which decisions and choices on sustainability can no longer be avoided.

Nowhere was this more evident than in Brussels, as the European Union persevered with the construction of its green deal. This week saw the timetable for the social and brown taxonomies slide, as an inevitable consequence of an ongoing row over the inclusion of gas and nuclear energy in the green taxonomy, which will almost certainly re-ignite next week.

Having recently failed to set a deadline for phasing-out fossil fuel subsidies, and all but given up on introducing supply chain due diligence laws to protect human rights and the environment, the European Commission faced further flack as it unveiled multiple measures to accelerate its net-zero transition. Ranging across buildings energy efficiency, carbon removals, methane emissions and shifting the gas market to sustainable fuels, the package tackled critical, practical issues of transition, inevitably disappointing some, enraging others, and dividing heads of government.

There was barely less harmony on how best to implement a sustainable future in the private sector. Bloomberg captured a lot of attention for a hatchet job on the ESG ratings business of MSCI. Just as Bloomberg declared its business links with the index and data provider, we should declare that MSCI supported our recent Countdown to COP26 programme. We should also declare our slight bafflement at the angle of attack, i.e. that MSCI’s ratings focus on the impact of ESG factors on company value, rather than the impact of company activities on the environment or society.

This approach certainly has its shortcomings. Indeed, ESG Investor has reported on the growing calls for sustainability disclosures and metrics to be based on double materiality rather than enterprise value for most of 2021. But Bloomberg’s claim that most portfolio managers don’t understand this distinction seems over-done (although the prospect of greater transparency on data scores and ratings through regulation is welcome). Moreover, MSCI’s approach is shared not only with other ratings providers, but also the new International Sustainability Standards Board. And the Task Force for Climate-related Financial Disclosures. Mike’s going to be furious when he finds out.

Bloomberg’s reporters are right of course to note that it’s real-world impact that matters when it comes to managing ESG risks and opportunities. The data, skills and resources available to asset owners are not yet perfect, and may never be, but judgements must be made on the information we do have. With even smaller firms now counting their emissions, stewardship efforts broadening their scope, and asset managers being increasingly held to account for their voting records, there’s enough evidence to suggest the era of impact will succeed.

Best wishes from all at ESG Investor for a green Christmas and a sustainable new year.

 

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