We are at an important moment in need of urgent action. The Intergovernmental Panel on Climate Change’s latest report is being called a “code red for humanity” by the United Nations. Human activity is causing the climate to change and it must be addressed before it is too late. At the same time, calls for greater action on issues like Diversity, Equity, and Inclusion (DE&I) and environmental justice continue to grow. It’s not just about checking boxes anymore, there is a demand for results and accountability.
Source: United States Federal Reserve
The momentum around Environmental, Social, and Governance (ESG) commitments in the financial sector is accelerating and shows no signs of slowing down. In fact, there’s momentum behind standardizing these screens and better integrating them into company decision-making. ESG is going to shape the future of business, and issues like climate and DE&I will continue to have a seat in boardrooms.
When BlackRock CEO Larry Fink demanded action by telling “companies to disclose a plan for how their business model will be compatible with a net zero economy – that is, one where global warming is limited to well below 2 degrees C, consistent with a global aspiration of net zero greenhouse gas emissions by 2050”, he ushered in a new era of action on climate across the financial sector.
And Fink’s statement goes beyond just words—it’s leading to action. During the last proxy season, BlackRock Inc. rejected nearly four times more board directors at companies than the previous season because they failed to act on climate issues.
Yet another step forward for transparency and accountability is Nasdaq’s proposal to require diversity disclosures for company boards in its listing rules. The proposal was recently approved by the Securities and Exchange Commission. It has been reported that Nasdaq will “ask companies to explain why they don’t meet race and gender targets for company boards, which will differ depending on the company’s size and other factors. For most companies in the nation, the objective would be at least two ‘diverse’ board members: one female, plus one member of an underrepresented minority group or someone who identifies as LGBTQ.” Nasdaq has referred to this as “a comply-or-explain rule.”
While progress is to be applauded, some believe that ESG raters and data providers are unregulated, lack transparency, and may contain conflicts of interest. To address this, momentum continues to grow for clear and comprehensive ESG standardization.
The public sector is showing the same degree of focus on ESG and climate finance. Federal Reserve Chairman Jerome Powell acknowledged the serious threat of climate change when he said, “there is no doubt that climate change poses profound challenges for the global economy and certainly the financial system."
The U.S. Federal Reserve System has joined the Central Banks and Supervisors Network for Greening the Financial System, a group of central banks working to develop environment and climate risk management in the financial sector, and just last month, the Biden Administration committed to ensuring wealthy countries deliver a promised $100 billion a year in climate finance to help poorer nations adopt clean energy and address climate change.
As the conversation around ESG evolves, Off the Menu with Monica Trauzzi is asking experts the important questions about financial investment in climate, including carbon-free energy like nuclear, and other ESG issues. As Off the Menu guest Melanie Nakagawa, former head of climate initiative at Princeville Capital and current special assistant to the president and National Security Council senior director for climate and energy, said last year, “there is an opportunity here to invest for people, the planet, and make a profit from it.”
The time to act is now, and more is yet to come. Off the Menu guest Emilie Mazzacurati, Global Head of Moody's Climate Solutions at Moody's Corporation, noted, “there is a lot of work being done internally that is not yet reflected externally because those organizations like to have … all their ducks in a row before they come out with details.”
To hear more from experts in ESG and climate finance, click here to watch Off the Menu with Monica Trauzzi.
