Welcome to Training The Street’s Environmental, Social, and Governance (ESG) and Sustainability Hub, a space dedicated to exploring ESG practices, aligned to Sustainable Finance initiatives. As the global landscape evolves, businesses, investors, and communities are increasingly recognizing the impact of ESG factors on sustainability, responsible governance, long-term success, and value.
Navigating the ESG and Sustainability Hub:
Understanding ESG and Sustainability Fundamentals:
ESG and Sustainability Defined
ESG and sustainability are intertwined concepts that guide businesses and organizations toward responsible practices, ethical behavior, and long-term resilience.
ESG represents a framework that evaluates a company’s performance and impact in three key areas:
Sustainability goes beyond ESG, encapsulating the broader goal of meeting the needs of the present without compromising the ability of future generations to meet their own needs. It encompasses environmental stewardship, social responsibility, and economic viability, striving for a harmonious balance between these pillars.
In essence, ESG and sustainability together form a comprehensive approach that encourages businesses to operate ethically, consider the broader impact of their actions, and contribute positively to the well-being of the planet and its inhabitants.
The Regulatory Landscape
| Name | Acronym | Origin | Overview |
|---|---|---|---|
| Sustainability Disclosure Requirements | SDR | UK – Financial Conduct Authority | The UK SDR aims to provide investors with more comprehensive, consistent and comparable sustainability information from issuers and investment managers. Under the SFDR, financial products will be labelled based on intentionality and on the level of sustainable investments. |
| Streamlined Energy and Carbon Reporting | SECR | UK – Government | From financial years beginning on or after 1 April 2019, large UK companies will be required to report publicly on their energy use and carbon emissions within their Director’s Report. |
| The Sustainable Finance Disclosure Regulation | SFDR | European Parliament | The Sustainable Finance Disclosure Regulation (SFDR) imposes mandatory ESG disclosure obligations for asset managers and other financial markets participants effective from March 2021. |
| The EU Taxonomy | European Parliament | This is a classification system that defines criteria for economic activities that are aligned with a net zero trajectory by 2050. The aim of the taxonomy is to prevent greenwashing and help investors make informed sustainable investment decisions. | |
| The Corporate Sustainability Reporting Directive | CSRD | European Parliament | This is a European Directive which introduces a new requirement for large companies to disclose information regarding the sustainability of their operations. Disclosures are classified into general and topic-specific. |
| The Corporate Sustainability Due Diligence Directive | CSDDD | European Parliament | The CSDDD imposes due diligence obligations on large companies with regard to their actual and potential adverse impacts on human rights and the environment. The CSDDD affects EU companies with more than 250 employees and a net worldwide turnover of more than Euro 40m and non-EU companies that generate a net turnover of more than Euro 150m if at least 40m was generated in the EU. |
| The SEC Climate Reporting Proposals | United States of America | In March 2022, the SEC released its proposed climate rules – The Enhancement and Standardization of Climate-Related Disclosures for Investors. Proposal comment period ended June 17, 2022. In October 2022, the SEC reopened the comment period for this proposal due to a technical error. The latest date for finalizing the reporting proposals is Spring 2024. |
Standards and Frameworks:
| Name | Acronym | Origin | Applications |
|---|---|---|---|
| The European Sustainability Reporting Standards | ESRS | European Financial Reporting Advisory Group (EFRAG) | The ESRS are standards that define the rules of the Corporate Sustainability Reporting Directive. The ESRS set out detailed reporting requirements for companies. There are two cross-cutting standards which provides guidance on general reporting concepts and ten topical standards that sit across ESG factors. |
| The International Sustainability Standards Board | ISSB | International Financial Reporting Standards (IFRS) | The ISSB was formed on the back of COP 26 in Glasgow. The ISSB has four key objectives: 1. To develop standards for a global baseline of sustainability disclosures. 2. To meet the information needs of investors. 3. To enable companies to provide comprehensive sustainability information to global capital markets. 4. to facilitate interoperability with disclosures that are jurisdiction-specific and/or aimed at broader stakeholder groups. |
| UK Sustainability Disclosure Standards | UK SDS | UK Government | The UK SDS will set out corporate disclosures on the sustainability-related risks and opportunities that companies face. Published by the Department for Business and Trade (DBT), UK SDS will be based on IFRS Sustainability Disclosure Standards. |
| International Standard on Sustainability Assurance | ISSA | The International Auditing and Assurance Standards Board (IAASB) | The IAASB is currently working on a project to develop an overarching standard for assurance on sustainability reporting. The exposure draft of the standards were issued for review and comment in June 2023. Final approval is expected September 2024. |
| Global Reporting Initiative | GRI | Global Reporting Initiative | The GRI is an international independent standards organization that helps businesses, governments and other organizations understand and communicate their impacts on ESG factors. The GRI’s voluntary sustainability reporting framework provides the world’s most widely used sustainability reporting standards. |
| The Carbon Disclosure Project | CDP | The Carbon Disclosure Project | CDP was established as the ‘Carbon Disclosure Project’ in 2000, asking companies to disclose their climate impact. Since then, they have broadened the scope of environmental disclosure, to incorporate deforestation and water security. In 2021 they launched a new strategy that expanded their horizons further still to cover all planetary boundaries. Their ambition continues to grow, expanding to new areas such as biodiversity, plastics and oceans, and recognising the interconnectedness of nature and earth’s systems. |
| The Task Force on Climate-related Financial Disclosures | TCFD | Financial Stability Board (FSB) - Note: Concurrent with the release of its 2023 status report on October 12, 2023, the TCFD has fulfilled its remit and disbanded. The FSB has asked the IFRS Foundation to take over the monitoring of the progress of companies’ climate-related disclosures. | To help identify the information needed by investors, lenders, and insurance underwriters to appropriately assess and price climate-related risks and opportunities, the Financial Stability Board established an industry-led task force: the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD recommendations on climate-related financial disclosures are widely adoptable and applicable to organizations across sectors and jurisdictions. The recommendations are structured around four thematic areas that represent core elements of how organizations operate: governance, strategy, risk management, and metrics and targets. |
ESG for Asset Owners, Asset Managers and Issuers
Asset Owners
ESG has become increasingly important for asset owners such as pension funds, endowments, and sovereign wealth funds. Integrating ESG factors into investment decisions is seen to promote sustainable and responsible investing while managing risks and enhancing long-term returns.
Asset Managers
For asset managers, integrating ESG considerations into their investment processes is becoming increasingly important. Clients, regulators, and stakeholders are placing greater emphasis on sustainable and responsible investing.
Key considerations include:
Issuers
For issuers, which can refer to companies, governments, or other entities issuing financial securities, integrating Environmental, Social, and Governance (ESG) considerations is increasingly important. Investors, stakeholders, and regulatory bodies are placing greater emphasis on sustainability and responsible business practices.
By addressing these ESG considerations, issuers can enhance their reputation, attract responsible investors, and contribute to a more sustainable and resilient global economy. ESG integration can also help manage risks and capitalize on opportunities associated with evolving societal and environmental challenges.
ESG by Asset Class and Industry
Equities
ESG considerations in equities refer to the integration of sustainability and responsible business practices into the evaluation and selection of individual stocks. Investors are increasingly recognizing that companies with strong ESG performance may be better positioned for long-term success and can contribute to positive societal and environmental outcomes.
By incorporating these ESG considerations into equity investment strategies, investors aim to create portfolios that align with their values, manage risks, and contribute to a more sustainable and responsible global economy.
Fixed Income
ESG considerations in fixed income, also known as sustainable or green bonds, involve integrating Environmental, Social, and Governance factors into the evaluation and selection of fixed-income securities.
ESG considerations in fixed income investments encompass several crucial points. Firstly, investors should assess the purpose of bonds, particularly identifying those designated for environmentally or socially responsible projects, ensuring alignment with ESG principles.
Secondly, integrating ESG factors into credit analysis is essential for evaluating the long-term creditworthiness of issuers and understanding potential risks and opportunities.
Thirdly, a commitment to impact reporting ensures transparency in how funds raised through fixed-income instruments contribute to positive environmental or social outcomes.
Fourthly, engaging with issuers through dialogues and exercising voting rights can influence corporate behavior and governance, fostering a commitment to sustainable practices.
Lastly, considering ESG indices and benchmarks provides a structured approach to selecting fixed-income investments aligned with established sustainability standards, facilitating performance comparisons and promoting responsible investing in the fixed-income space.
Private Equity
In private equity, incorporating ESG considerations is pivotal for responsible and sustainable investment practices.
Firstly, due diligence in assessing potential portfolio companies should include an evaluation of their ESG performance and risks, emphasizing transparency in reporting.
Secondly, engaging with portfolio companies to encourage the adoption of sustainable practices and ethical governance is crucial for long-term value creation.
Thirdly, active involvement in the selection of fund managers who prioritize ESG integration and demonstrate commitment to responsible investment strategies is essential.
Fourthly, aligning investment strategies with global ESG frameworks and standards ensures consistency and comparability in assessing performance.
Lastly, fostering collaboration and knowledge-sharing within the private equity industry on ESG best practices contributes to the development of a more sustainable and resilient investment landscape. Integrating these points into private equity strategies promotes responsible investing and aligns portfolios with both financial and ESG objectives.
Real Estate
In real estate investing, incorporating ESG considerations is pivotal for both responsible investment practices and long-term value creation.
Firstly, evaluating the environmental impact involves assessing energy efficiency, green building certifications, and sustainable design features to mitigate ecological footprints.
Secondly, social considerations encompass community impact, fair housing practices, and amenities that contribute positively to the well-being of occupants and the local community. Governance aspects involve scrutinizing the management practices, ethical conduct, and transparency of property ownership.
Third-party certifications and adherence to industry best practices, such as GRESB (Global ESG Benchmark for Real Assets), can provide benchmarks for assessing ESG performance.
Additionally, engaging in stakeholder dialogue and transparent reporting practices contribute to accountability and responsiveness to evolving ESG expectations. By integrating these considerations, real estate investors can not only manage risks associated with environmental and social issues but also enhance the overall sustainability and resilience of their investment portfolios.
M&A
In Mergers and Acquisitions (M&A), considering ESG factors is essential for mitigating risks, maximizing long-term value, and ensuring responsible business practices.
Firstly, due diligence processes should thoroughly evaluate the target company’s ESG performance, identifying potential risks and opportunities. Social considerations encompass assessing the company’s relationships with employees, customers, and communities. Governance aspects involve scrutinizing the target’s management structure, adherence to ethical business practices, and overall corporate governance framework.
Integrating ESG considerations into deal structuring and negotiation helps align business strategies with sustainable practices.
Additionally, engaging in transparent communication with stakeholders and incorporating post-merger integration plans that prioritize ESG initiatives contribute to fostering a positive impact on both financial and non-financial aspects of the combined entity. By addressing these points, M&A transactions can promote responsible investing and contribute to the creation of enduring value.
ESG Case Studies
ESG and Sustainability Reporting Case Studies provides an insight into current reporting practices by some of the leading companies.
Microsoft
Microsoft is a multinational technology corporation known for developing, licensing, and selling a wide range of software, hardware, and services, with flagship products such as the Windows operating system and the Microsoft Office suite. Read Article.
This is the Environmental Sustainability Report for Microsoft. It includes Microsoft’s Sustainability work in the areas of Carbon, Water, Waste and Ecosystems; Customer Sustainability and Global Sustainability.
Apple
Apple is a multinational technology company renowned for designing and producing consumer electronics, software, and services, including iconic products such as the iPhone, MacBook, and iPad. Read Article.
This is the ESG Report for Apple. A very comprehensive report that includes an explanation of Apple’s supporting activities to achieve the United Nations Sustainable Development Goals.
Starbucks
Starbucks is a global coffeehouse chain known for its specialty coffee drinks, offering a diverse menu and a distinctive café experience. Read Article.
This is a Global Environmental and Social Impact Report for Starbuck. It highlights, their activities focussed on People Planet and Governance.
British Petroleum (BP)
BP is a multinational energy company engaged in exploration, production, refining, and marketing of oil and gas products worldwide. Read Article.
This is a Sustainability Report for BP. It provides a good insight into reporting against net zero targets.
National Grid
National Grid is a British multinational electricity and gas utility company responsible for the transmission and distribution of energy, managing the grid infrastructure in the United Kingdom and the north-eastern United States.  Read Article.
This is a Business Report for National Grid and includes their approach to being a Responsible Business
Amazon
Amazon is a multinational technology and e-commerce company that provides a vast online marketplace, cloud computing services, and diverse digital streaming content. Read Article.
This is a Sustainability Report for Amazon. It includes detail insight into Amazon’s work on the Environment, Society and Governance.
General Motors
General Motors is a leading American automotive company, manufacturing and selling a diverse range of vehicles under various brands, with a history that spans over a century in the automotive industry. Read Article.
This is the Sustainability Report for General Motors. It includes detailed information on their approach to reducing carbon emissions, supporting supplier responsibility, and ensuring responsible governance.
Best Buy
Best Buy is a major American consumer electronics retailer offering a wide range of products, including appliances, computers, audiovisual equipment, and technology services, through its brick-and-mortar stores and online platform. Read Article.
This is the ESG Report for Best Buy. It includes a highlight of their application of SASB Sustainability Disclosure Topics and Accounting Metrics relevant to the Multiline and Speciality Retailers and Distributors industry.
Emerging ESG Themes
Sustainability impact measurement
This involves quantifying and assessing the tangible effects of a company’s environmental, social, and governance initiatives, providing a comprehensive view of its true contributions to sustainable practices and responsible business conduct.
Increased provisions and liabilities on Balance Sheets
As more mandatory ESG requirements come into effect, associated potential liabilities are likely to correspondingly increase, with companies facing additional pressure to more effectively integrate ESG into their practices and financial statements.
Circular Economy
This promotes sustainable resource management by emphasizing the reduction, reuse, and recycling of materials, fostering economic resilience, and minimizing environmental impact throughout the product lifecycle.
Climate Adaptation
This focuses on strategies and measures implemented by businesses to proactively respond to and mitigate the risks posed by climate change, ensuring long-term resilience and sustainability in the face of environmental challenges.
Cross-border Impact
Cross-border considerations will add pressure on companies to have greater visibility and produce greater transparency with respect to their value chains.
Impact Sourcing
This involves deliberately employing workers from disadvantaged or marginalized communities to provide high-quality business process services, fostering social inclusivity, and creating positive societal impact through responsible and ethical employment practices.
Responsible AI
This entails the ethical development and deployment of artificial intelligence technologies, emphasizing transparency, fairness, accountability, and the mitigation of biases to ensure that AI applications contribute positively to social, environmental, and governance objectives.
ESG Tools and Learning Resources
GRI (Global Reporting Initiative)
GRI provides a comprehensive set of sustainability reporting standards. Their website offers guidance, reports, and tools for understanding and implementing ESG reporting. Find out more.
SASB (Sustainability Accounting Standards Board)
SASB focuses on developing industry-specific sustainability accounting standards. Their resources include industry standards, implementation guides, and educational materials. Find out more.
Sustainability Disclosure Requirements
Sustainability Disclosure Requirements from the Financial Conduct Authority. Find out more.
UK Sustainability Disclosure Standards
Information on the UK government’s framework to create UK Sustainability Disclosure Standards (UK SDS) by assessing and endorsing the global corporate reporting baseline of IFRS Sustainability Disclosure Standards. Find out more.
Books on ESG and Sustainability
There are several books that provide in-depth insights into ESG and sustainability topics. Some recommended reads include “The SASB Handbook” by Jean Rogers, “The Sixth Wave” by James Bradfield Moody and Bianca Nogrady, and “The Green Swan” by the Bank for International Settlements.
How TTS Can Help
Sustainability and ESG Analysis Public Course
Learn the latest trends and insights for Sustainability and ESG-related disclosure and analysis.
The Sustainability and ESG Analysis course provides a great insight into the growing demand for Sustainability and ESG-related disclosure and analysis.
The course will define Sustainability and ESG-related issues, provide insight into Investor needs and use of Sustainability and ESG-related information, Corporate approach to integration and reporting of Sustainability and ESG-related issues.
The session will also provide an overview of the presentation and disclosure requirements of IFRS S1 General Requirements for Disclosure of Sustainability-Related Financial Information and IFRS S2 Climate-Related Disclosures.
