Institutional investors like pension funds and private equity are now rating companies using an ESG (Environmental, Social, Governance) scorecard. This has significant implications on raising capital and corporate credit ratings.
As it relates to the environmental part of ESGs, the Wall Street Journal recently reported, “Executives are getting peppered with questions about Scope 3 emissions on earnings calls, a sign that analysts and investors are drilling into the detail of corporate promises to reduce the carbon footprint of their supply chains.” Scope 3 emissions is part of the three Scopes within the Greenhouse Gas (GHG) Protocol, which sets the “global standardized frameworks to measure and manage GHG emissions” across an organization’s operations. As of 2016, 92% of all Fortune 500 companies that reported to the CDP used the Protocol in some manner.
Furthermore, the Center for American Progress has also warned “whether and how a company is responsible for greenhouse gas emissions can have significant effects on its profitability, risk profile, and long-term resilience.”
At the highest level, in a January 22, 2022 letter to CEOs, Larry Fink, CEO of BlackRock, the world’s largest asset manager, said, “As stewards of our clients’ capital, we ask businesses to demonstrate how they’re going to deliver on their responsibility to shareholders, including through sound environmental, social, and governance practices and policies.”
BlackRock’s corporate stewardship team will now monitor corporate progress against ESG goals throughout the year. Fink says, as part of their focus on sustainability, “we are asking companies to set short-, medium-, and long-term targets for greenhouse gas reductions.”
A price on ignoring ESG issues
BlackRock is not alone. Mercer, the world’s largest outsourced asset manager, ranks investments using four ESG ratings categories, from ESGp4, a company making a limited effort to address ESG issues, to ESGp1, where the company is a leader.
What this means is that financial markets are attaching a price to ignoring ESG issues. Companies that pay little or no heed to environmental sustainability will find financial costs higher and, in some cases, difficulties in raising capital or credit.
Those with robust ESG programs, including environmental sustainability programs, will increasingly enjoy a discount on their cost of capital and will be more attractive to shareholder investment.
Rooted in UN sustainable development goals
Globally, adopting ESG goals and incorporating them into organizational and investment policies and procedures are part of the United Nations Principles of Responsible Investment. Companies and institutions around the world have signed onto the 6 Principles because doing so helps investors better align with the “broader objectives of society,” which the United Nations considers are the 17 Sustainable Development Goals (SDGs) adopted by all UN member states in 2015. Therefore, by adopting and reporting on ESG goals and progress, companies may also contribute to the achievement of the global UN SDGs.
pointA has adopted three of the UN SDGs and its programs and services are aligned to these goals. To better support companies in improving their ESG ratings, we are now offering a Commuting-Related Emissions Reporting service to:
- Measure the GHG emissions from employee commuting and business travel, regardless of mode and includes implications on remote work that are aligned with the GHG Protocol.
- Recommend mitigation actions to reduce GHG emissions, including programming and services that pointA can implement.
- Track progress of emissions reductions over time.
As an expert in sustainable commuting with over 20 years of experience working with companies to reduce their GHG emissions from employee commuting, this new reporting service will offer companies an independently verified report that can be measured year-over-year for reporting to investors and other stakeholders. Furthermore, we can offer tangible solutions to help reduce emissions and implement them across your organization.
A focus on sustainability is simply good business – opening better access to capital and credit, to retaining and recruiting more engaged employees, and to bettering your reception amongst customers and stakeholders.
To learn more about how you can sign up for this service, please visit: www.pointa.ca/emissions-reporting
Special thanks to Jonathan Spencer, pointA past Chair, for his contributions to this post.