Where theory and practice meet: Sustaining and impactful, and especially for governance fiduciaries.
Christopher K. Merker, Sustainable Finance Professor at Marquette University and Director at RW Baird, and Mike Underhill, CIO at Capital Innovations, discuss the latest trends in ESG and alternative investments on this webinar this week (2/24/21) hosted by ADISA, the Alternative & Direct Investment Securities Association.
https://www.adisa.org/education/adisa-2021-webinar-series
The materiality definition adopted by the Task Force on Climate-related Financial Disclosures (TCFD) is insufficient in serving the battle against climate change, Eric Usher, the Head of UN Environment Programme Finance Initiative (UNEP FI), said today.
Speaking at the Climate Risk and Green Finance Regulatory Forum, Usher explained that the TCFD was established initially by the Financial Stability Board (FSB) with the aim of ensuring financial stability, rather than climate stability.
This “exclusive focus” on systemic risk to the finance sector resulted in a “short-term outside-in approach to materiality” that would not drive real-world change, Usher suggested.
“What we need to add is inside-out leadership, focusing on the impact of financing [on] the targeted outside dimension, which aligns financing and financial portfolios with societal objectives, such as keeping the climate within 1.5 degrees of warming,” he said.
https://texasceomagazine.com/sustainability-who-gets-to-decide/
In September of 2020, the Big Four accounting firms announced a new reporting framework for environmental, social, and governance (ESG) standards. The announcement captured attention because it marked a joint initiative between the four largest accounting firms, which is not an everyday occurrence.
When the World Economic Forum’s International Business Council (IBC) championed this reporting framework—in hopes that the more than 100 global companies populating the IBC would adopt the standards for 2021—the reporting framework gained momentum. However fast (or slow) this new ESG reporting framework is ultimately adopted, it will most likely impact how companies report their sustainability performance and could be a key component of the World Economic Forum’s “Great Reset” initiative.
Reporting standards like ESG and others raise important and fundamental questions about the nature of sustainability. Do reporting standards help achieve improved sustainability and increased innovation, or do they thwart sustainability and stifle innovation by creating uniformity and ease for those reporting and reviewing? How do we know what “good” sustainability performance is? Is it possible for a company or a nation to effectively measure progress toward sustainability? Are the best intentions of companies moving us toward a more sustainable world, or could they be a catalyst moving us further away from such a world? How will we know?
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3773879
Ethical-factor investing shall be defined as using ethics, such as an enterprise’s policies regarding social/economic/health/environmental justice, sustainability, climate change, or corporate governance, as a factor to determine whether to acquire, dispose of, or how to exercise ownership rights in an equity or debt interest in a business enterprise.
Ethical-factor investing includes, but is not limited to the ESG, sustainable, socially responsible, impact, and faith-based investing. Ethical-factor investing may. but need not, be intended to enhance the investor’s financial performance. Ethical-factor investing also may, but need not, be intended to enhance an enterprise’s ethical behavior, i.e., to be socially beneficial.
The Trump administration discouraged ethical-factor investing. Nevertheless, such investing is becoming increasingly popular among Americans, American mutual funds, and American retirement plans.
The article introduces the current types of ethical investing, their history, their financial and ethical performance, and their pre-Biblical progenitors. All those issues are discussed more extensively in a longer referenced article.
This article suggests how the Biden Administration may encourage ethical-factor investing by ERISA retirement plan fiduciaries. This may be done with revised ERISA regulations and other interpretative documents. No ERISA amendments would be needed. ERISA permits such investing if it does not adversely affect the expected financial performance of such plans’ investment portfolios or investment choices. Finally, such plans investors, including plan participants and beneficiaries, may thereby generate their preferred benefits for society. Such benefits are, like desired financial benefits, most likely to be achieved if such investors are explicit about their preferred benefits and they regularly monitor the performance of their investments.