With Climate Week approaching, the recent trend among companies is to make sustainability commitments—but do they really matter? How are commitments tracked? What do regulators think? We dig into these questions with our ESG tools and demonstrate how investors can make these important evaluations in real-time.
Climate Week 2021 is just around the corner, starting September 20. Traditionally, this week has served as an opportunity to learn about climate action. Increasingly, it’s become a time when we expect companies to make sustainability commitments. But do these commitments matter? How can you track them? What do the regulators think? In this week's special edition of our ESG spotlight, we dig into these questions and demonstrate how you can use Amenity’s new ESG tools to evaluate companies in real-time!
On Wednesday July 28th, SEC Chairman Gary Gensler hinted at the approach the SEC might take with climate-related disclosures. Using an Olympic analogy, Gensler expressed the need for companies (similar to athletes) to be measured qualitatively and quantitatively on performance and to discern differences between their competitors. Just as athletes are judged by fans, companies are judged by investors. He also noted that just as Olympic events have changed over time, the information requisites of investors have evolved. The problem Chairman Gensler calls to attention is not a lack of disclosure, but a lack of meaningful insights on issues that are relevant to investors today. As we approach Climate Week 2021, it is important to discuss how SEC regulations will change the game, and what remains for companies to act on.
Climate change is a top priority for investors. It’s a systemic issue affecting all sectors of the economy and thus cannot be ignored. It’s clear that it is financially material. In 2020 alone, more than 22 climate-related events caused over $1 billion each in damage.
Investors with assets totaling $43 trillion are targeting “net zero” carbon alignment across their portfolios. Others are looking for high quality information on climate risks in order to fulfill their fiduciary duty to consider material information and to make informed investment decisions for long-term value creation.
However, this begs the question: do investors have the information they need? Right now there are disparate sources of information on sustainability and climate change coming from CSR reports and websites to earnings calls and SEC filings.
Information is not presented in a uniform way from company to company, and it is difficult for investors to make sense of it. For example, companies often focus on reporting greenhouse gas (GHG) emissions, but the reality is that GHG emissions are externalities (not currently priced) for 79% of the world’s capital markets.
Furthermore, SEC requirements would still only standardize disclosure, not require adaptation. Additional adaptation to climate change, on top of disclosure, will be what differentiates companies in this era.
Adaptation strategies—ensuring business continuity and preserving value in the face of extreme weather and ecosystem alterations—are more material today than mere disclosures on emissions. Arguably, adaptation strategies are more important to the business outlook. Yet these statements around strategy are company-specific and less easily standardized.
Moreover, long-term corporate commitments to achieve carbon reduction goals decades into the future are challenging for investors to observe and monitor. Holding companies accountable for sustained progress is critical for the energy transition that needs to take place to mitigate climate change.
At Amenity we use our new materiality framework to specifically isolate statements from companies around commitments, investments, milestones, and exposures when it comes to ESG.
The SEC is looking at the following areas for potential rulemaking to augment and update their 2010 guidance on climate change:
Currently at Amenity, we use NLP to analyze news, earnings calls, and SEC filings on ESG issues to help our clients find the most meaningful stories and developments. These issues, particularly around qualitative data and specific industry issues, are tracked and analyzed in our weekly ESG Insights. While SEC disclosure requirements may make sustainability information more transparent and easier to come by in the future, Amenity offers a dynamic, real-time approach to ESG investing with our suite of NLP solutions.
We can see here that during Climate Week in September and the following months, there is a large spike in commitment and investment statements. It is encouraging to see statements like these from companies and initial investments. But there is a much lower instance of companies discussing the milestones they achieve, which raises two questions. What is really important to investors? How useful are commitments around ESG if the market is unable to track the ensuing action?
Amenity’s NLP tool gives investors the ability to link commitments to action. The fact that the SEC is exploring disclosure requirements underscores the importance and priority investors are placing on the ability to access and compare ESG information on companies in order to make investment decisions.
However, companies need to do more than disclose information to set themselves up for the future. Climate Week 2021 will be a good indicator of how companies are positioning themselves to meet these challenges.
Founder of the Sustainability Accounting Standards Board (SASB) and one of the 20 most Influential People in Sustainable Investing (Barron’s, 2018), Dr. Rogers brought the essential principle of materiality to bear on sustainability issues industry by industry, establishing the link between transparency and performance to unlock financial value. With a particular focus on the interconnectedness of capital markets and social value, Rogers applies systems thinking and an entrepreneurial spirit to help corporations, investors, policymakers, philanthropists, students, and others as they look to address 21st century sustainability challenges with appropriately innovative market solutions.
Request an ESG demo today to find out how you can analyze earnings call transcripts and other financial documents with our text analytics platform. Spot outliers, identify critical insights, and understand key drivers.
Watch the first of our two webinars on Climate Week. In Climate Week 2021 Preview, we exposed who might be greenwashing, reviewed the positive narratives from the last 12 months, and discussed what you should watch out for in this year’s event. Our special guest was Jean Rogers, Founder of the Sustainability Accounting Standards Board (SASB) and one of the world’s leading ESG experts.
Amenity Analytics is the industry leader in providing insights from unstructured text by using Natural Language Processing (NLP) assisted by Artificial Intelligence (AI) and Machine Learning (ML). Amenity’s NLP system is a sector-agnostic, language-dependent tool for quantitative text analysis that is deployed across the financial services industry and beyond.
This communication does not represent investment advice. Transcript text provided by FACTSET and S&P Global Market Intelligence.
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