Using our Topics and Materiality features on our ESG Safeguard platform, we take a look at the most poignant trends we saw in 2020. Our Materiality feature tracks specific language around Commitments, Investments, Milestones, and Exposures that help provide context to how companies are approaching ESG issues.
This is the beginning of the end; of 2021 that is. As we sit back and enjoy a much deserved respite with our friends and family, we look back on the year that was in ESG. So readers, before you sign off for the year, take a few minutes to reflect on ESG in 2021 with us at Amenity.
ESG is no longer a novelty. According to Blackrock, flows of capital into sustainable assets have tripled in the past six years and show no signs of slowing down. It is the new business-as-usual and is inextricably linked to company strategy, behavior, and ultimately, market performance. Our ESG products at Amenity have also changed with the market over the past year to help our users analyze all of these issues in real-time. In addition to our ESG scoring, we have added analytics tools like Greenwashing and Materiality, as well as expanding our roster of covered document types. These tools help our users find what matters when it comes to company ESG strategy and focus.
The Environmental component of this review will be focused on the Carbon Transition theme. Not to say other environmental issues are not relevant, but Carbon Transition continued to be top of mind for many companies. In fact, Carbon Transition topics accounted for 64% of the growth in Materiality statements from 2020 to 2021. Other environmental issues that gained prominence toward the end of the year include water use, plastic waste, and deforestation Materiality statements for those topics grew 59.4% this year. The sectors that drive the story for Carbon Transition are the Energy and Utility sectors, closely followed by the automotive industry’s shift to electric vehicles.
It should be no surprise that the majority of statements around investments for the Energy and Utility sectors are focused on renewables. What is noteworthy, however, is the sheer increase in the volume of renewable energy mentions. Renewable energy as a topic tripled since 2018 and has steadily increased 20% since 2020.
Just a few weeks into 2021, we covered Duke Energy’s (DUK) acquisition of a solar array in Georgia to add to their utility portfolio. Not content to rest on those laurels, Duke Energy then partnered with Wells Fargo (WFC) to expand solar in North Carolina only a few months later. In May, we recognized Avangrid Renewables (AGR) for their role in developing the first US-based offshore wind project in Massachusetts. In that same issue, we explored Enel’s (Enel:IT) substantial renewable energy developments in middle-America as they began to develop five separate projects. This past week the Carbon Disclosure Project recognized Enel as an A List company for climate change.
As the year progressed, we also saw companies sanctioned for not doing enough in terms of carbon transition, most notably in the Royal Dutch Shell (RDS) court case where they were ordered to curb emissions. Exxon came under scrutiny from activist investor Engine One that replaced board members with more sustainability focused individuals. Financial companies as well were pressured by investors to divest from fossil fuel assets, in the case of Barclays, their coal investments. Finance and Energy have begun to interplay as investors, fund managers, regulators, and companies are walking a tightrope when it comes to Carbon Transition.
In 2021 we also saw Capital Goods companies that support Energy and Utilities in the Industrial sectors, like GE (GE) and Sembcorp Marine (S51:SG) shift gears towards supporting renewable energy infrastructure. As the markets shift away from fossil fuels, these are companies that have learned to adapt to the changing energy marketplace. GE’s increased turbine production to meet demand, and Sembcorp Marine with their offshore platform solutions serve to highlight this shift.
Before we move on from Energy and Utilities, we also saw hydrogen start to emerge as more than a novelty. In November, Plug Power (PLUG), a rising company in the development of hydrogen fuel cell systems, became part of a major renewable energy infrastructure project in Upstate New York. It is companies like the ones we have mentioned in this section that are driving real change around the world for a cleaner future.
But it's not just renewable energy infrastructure making this shift. Automotive companies are rapidly shifting to get in on the change too. A few months into 2021 Volkswagen (VOW3:DE) boldly proclaimed their intention to become a leader in the EV space.
"E-mobility has become a core business for us. We are now systematically integrating additional stages in the value chain. We secure a long-term pole position in the race for the best battery and best customer experience in the age of zero emission mobility" — Herbert Diess, VW Group chairman and CEO. Erticonetwork.com, 3/15/2021
They illustrated a plan based on EV production, battery technology development, and infrastructure investments, as a roadmap for the company going forward. More recently, the company signed a $2B loan with an interest rate linked to its future performance on carbon emissions, money fronted by a consortium of European Banks. While the money is helpful in fueling its growth in the EV market, the nature of the loan, being linked to its emissions performance, gives the company further incentive to make good on its Commitments.
However, Volkswagen wasn’t the only company to get in on the electric car gold rush this year. In India, Tata Motors (TTM) is producing an electric car at a fraction of the sticker price of Tesla that we explored in our small-cap spotlight.
Toyota has also recently come to embrace electric vehicles after vowing for quite some time to only produce hydrogen vehicles. Other familiar names like Nissan, GM, Ford, and Honda have all made strides to electrify. Energy and Utilities go hand in hand with the automotive sector. Infrastructure that was once geared entirely for fossil fuels and the internal combustion engine, is increasingly being fit for electric cars and their rechargeable batteries. This concept is no longer a pipedream and in 2021 we have seen this dream become reality.
It should come as no surprise that Human Capital was a major ESG focus in 2021. This year thousands of workers went on strike, particularly in the latter half of the year. This is something we have had our eyes on and signs indicated early on that 2021 would set the stage for shifting labor dynamics in America to play out. Macroeconomic factors would be the primary contributing factor to this shift, mostly from the collateral effects of the pandemic. When the pandemic was at its worst, the media heralded people who worked in jobs at grocery stores, warehouses, delivery drivers, as “essential workers”. Now, it is those same essential workers striking and filing lawsuits for fair pay and better working conditions.
The other major factor at play centered around the many companies who cut jobs during the pandemic in industries like retail and hospitality. These laid-off or furloughed workers were not willing to come back for the same wages when the economy began to recover. This in turn caused upward pressure on wages as companies started to compete for labor in the face of these labor shortages.
In March, things started to heat up as Amazon’s warehouse in Bessemer, Alabama was the scene of a major unionization effort. The campaign ultimately failed, amidst calls of obfusification and misinformation, but it marked a major shift in the public perception of Amazon as questions and concerns emerged about how Amazon’s warehouse employees and drivers were treated during the height of the pandemic.
In July, Pepsi (PEP) workers went on strike, as did workers from their subsidiary Frito-Lay. Frustrated workers called for an end to forced overtime and rising healthcare premiums. However, it wasn’t just blue-collar America that experienced frustration with their employers. We also saw issues in the Tech and Gaming industries. This summer we covered Activision-Blizzard (ATVI) with a recent follow-up on its aftermath. The company was embroiled in a scandal involving overt sexual harassment, unequal pay for women at the company, and poor leadership. The fallout resulted in a significant and persistent drop in its stock price as the turmoil from the scandal disrupted its ability to deliver on its products.
As the year moved into the fourth quarter, massive strikes occurred in the film industry, healthcare, food staples, and manufacturing industries in what was dubbed “Striketober” by some. We focused our attention on John Deere (DE) and Kellogg (K) workers, who were striking for similar reasons. The John Deere strike was led by the United Auto Workers Union, who also organized the 2019 General Motors strike. Kellogg strikers were led by the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM). The John Deere strike ended with a new agreement being signed, but the Kellogg strike is still ongoing with the company threatening to replace all the strikers with new workers or outsource the labor. However, it’s not close to being over for organized labor in America as efforts towards unionization at Starbucks (SBUX) amongst other companies are gaining traction.
Employee dissatisfaction exists at all levels in America and while benefits do play a factor, most of these issues also have to do with people not feeling safe or respected when they come into work. Frustration was reaching a tipping point even before the pandemic with more employees coming forward about harassment issues and unsafe conditions at factories and warehouses across America. The pandemic pushed these issues to the brink and now workers want more than compensation. People want answers, people want respect, and above all they want change. Things will never be the same as labor markets have become decentralized with remote work and industries that once had a large supply of cheap labor are now struggling to fill those positions. Automation and innovation will help some of these industries adapt, but companies still need to make changes so they become appealing places for humans to work.
A few different themes characterized the Governance portion of ESG in 2021, but none was more pronounced than our Cyber Risk event type. Cybersecurity became a hot topic starting with the SolarWinds hack to start the year. Cyber Risk mentions about SolarWinds made up 26.5% of all Cyber Risk mentions in 2021, with the majority of them occurring in the first few months of the year. We predicted this would be a major topic and our data on the year shows a 40% increase in mentions about cybersecurity. In the summer, companies like JBS, a meat producer, which does not operate in the software industry, were also hacked in a string of ransomware attacks. We can see in our data below mentions of malware have drastically increased since 2019. This prompted action by the Biden administration, in cooperation with major tech companies like Alphabet (GOOGL) and Microsoft (MSFT), to bolster the nation's cybersecurity infrastructure.
To wrap it all up, 2021 was another exciting year for ESG. Heavy investments in the Utility, Energy, and Auto sectors fueled aggressive carbon transition action and set the stage for the next decade. Companies also started to focus on other resource management issues like packaging, water stewardship, and deforestation that we will be on the lookout for in 2022. From a social standpoint labor in America has shifted and more workers are thinking about organizing and acting on issues like benefits and workplace conditions. Lastly, 2021 was a year that Cybersecurity emerged as a major risk that warranted cooperation between government and private companies to address. We’ve been happy to share our findings with you, our readers, each and every week and we look forward to doing so again in 2022.
Thank you for tuning in and enjoy the holiday break, from all of us at Amenity.
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The market is increasingly rewarding companies for their climate and sustainability commitments. But do these commitments matter? How can you track them? And what do the regulators think? Watch our interactive webinar where we answered these questions in real-time using our industry-leading ESG platform to demo our Modern Materiality approach. Modern Materiality allows investors to quickly and precisely analyze the multitude of document disclosures that strike at the heart of what companies are specifically doing about ESG commitments, investments, milestones, and exposures.
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This communication does not represent investment advice. Transcript text provided by FACTSET and S&P Global Market Intelligence.
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