ESG Recent Developments

Miriam Wrobel is Senior Managing Director and Global Leader of FTI Consulting’s Environmental, Social and Governance and Sustainability practice, Ben Herzkowitz is Senior Managing Director and Peter Reilly is Managing Director at FTI Consulting. This post is based on their FTI Consulting memorandum. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) by Lucian A. Bebchuk and Roberto TallaritaFor Whom Corporate Leaders Bargain (discussed on the Forum here) and Stakeholder Capitalism in the Time of COVID (discussed on the Forum here) both by Lucian Bebchuk, Kobi Kastiel, Roberto Tallarita; Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock (discussed on the Forum here) by Leo E. Strine, Jr.; and Corporate Purpose and Corporate Competition (discussed on the Forum here) by Mark J. Roe.

Transparency just a step on the road to gender pay parity

Legislation and directives that are forcing companies to be more transparent regarding gender pay appear to be having some effect on the gender pay gap, according to Bloomberg. One standout success story has been Iceland where 2018 legislation that forced companies to explain their gender pay gaps and bonuses helped the country cut its gender pay gap by half in the past 10 years. Their success has spawned similar initiatives in the EU, Japan, and Australia. However, regional dynamics also play a role in determining the success of pay transparency measures.

For example, data shows that these measures are more effective in countries with high levels of union membership due to the influence of collective bargaining. Belgium, which has 50% union membership, saw its pay gap halve between 2010 and 2021 to 5%. In the US, where only 10% of the workforce belongs to a union, the gender pay gap stands at 16.3%.

Legislation appears to fail to effect change without enforcement – in the 5 years of its existence, the UK’s gender pay reporting requirements have failed to make a dent in the pay gap there. Enforcement measures that have been implemented elsewhere include fines and government inspections. Additionally, experts say the legislation is just one piece of the puzzle and that governments play a key role in addressing the underlying structural issues that inhibit women’s career progression. These include more accessible childcare and placing greater value on female-dominated professions such as caring and educational roles. While pay transparency may help to shine a spotlight on the problem, the solutions will require greater effort.

SEC disclosure proposal delayed

The SEC has officially confirmed that it is pushing back its deadline for ESG disclosure legislation to October. The SEC’s proposal, first made public in March 2022, has been the source of extreme scrutiny from across the political and economic spectrum with, as Reuters reports, “a tremendous amount of lobbying either for or against”

The regulator’s plan can ultimately be summarised as the provision of a standardised disclosure framework to improve the market’s understanding of investment risk and opportunity, and therefore protect the broader economy. Despite SEC Chair Gary Gensler’s best efforts, it has sparked a debate in which the anti-proposal lobbyists are claiming it is both radical and an overhaul of the US equity markets. While the delay has been a foregone conclusion for some time, the confirmation is the latest reminder of how deeply politicised ESG has become, when in reality Gensler’s proposal is actually primarily aimed at enabling fiduciary duty. Without it, investors will be just pouring more resources into the same exercises but with less accuracy and efficiency, opening the gap for market failure.

The roadblocks in the sector aren’t restricted to the US, however, they are perhaps less fundamental elsewhere. The United Nations climate event in Bonn last week and resulted in little meaningful conclusion, despite the hope that the event would help shape November’s COP28. The genesis of the stalemate was, according to UN Secretary-General Antonio Guterres, a failure in nation-states meeting climate promises due to a lack of trust and cooperation, with Devex citing the failure of higher-income countries to deliver $100 billion in climate finance to lower-income nations by 2020 – as set out in the 2015 Paris Agreement.

Anti-ESG losing financial traction, staying politically divisive

The buzz around “anti-ESG” funds may not be “sticking” in US markets. Funds that call themselves, “anti-ESG” peaked in 2022 according to a Morningstar report. The Financial Times reports on the same topic, highlighting that although recording impressive inflows to start, many of these funds are now seeing lacklustre inflows. The anti-ESG fund, “Constrained Capital ESG Orphans ETF” is liquidating due to its’ lack of investments. The fund tracked companies in industries that ESG investors would typically avoid, fossil fuels, tobacco, and others.

Anti-ESG has been historically controversial and has launched politically driven conversations in the US. Global investors and managers that are not based in the US are not developing anti-ESG funds at the same pace as the US. Those anti-ESG funds are focused on some US-specific companies and conversations that have operations in gambling, controversial weapons, and fossil fuels; all very central to the US political climate.

Although these funds are losing traction, anti-ESG sentiment and discussions still float around the financial and political spheres in the US. Earlier last month, the governor of Florida signed a law to go into effect on 1 July. The law would prevent any of the State’s officials from investing with ESG considerations at the focus. The bill is intended to require a sole focus on financial returns and stop the issuance of green bonds. According to The Street, a climate-focused bank, Climate First Bank, is considering leaving Florida due to this legislation. As anti-ESG funds lose traction, they may find a place amongst the Floridian government and climate-focused financial institutions might make changes to continue their focus on ESG and sustainability.

Proxy season: a complex landscape for climate-related proposals though some progress is achieved

This week, Environmental Finance revealed that shareholders filed 11 proposals to call on companies to reduce deforestation in 2023, which is almost twice the number filed last year. Out of these 11 resolutions, nine were withdrawn after companies committed to take action. Greta Fearman, from asset manager Cardono, said: “It has definitely become increasingly common for companies to realise that they need to address deforestation as part of a broader strategy to address climate risk.” Annie Sanders, from Green Century, added: “The work of the Science Based Target initiative has been really helpful to provide guidance to measure and disclose land- and agriculture-related emissions.” She however noted that: “there are still a number of companies that have articulated a desire to address climate risk, but have not yet committed to eliminating deforestation from their supply chains by 2025, which is what is entailed in an SBTi commitment.”

Meanwhile, according to a report from the French SIF, the number of management-sponsored say-on-climate proposals observed globally decreased from 48 in 2022 to 23 in 2023. Given the anti-ESG movement in the US highlighted above, shareholders may have had a lower appetite for these proposals this year, allowing some companies to put on hold their plans to table such resolutions.

Financial Institutions grapple with how to approach complex Scope 3 emissions

The Science-Based Targets Initiative (SBTi) has launched a series of consultations aiming to strengthen targets set by financial institutions. The three consultations cover guidance that supports financial institutions in setting SBTs that align to a 1.5°C pathway, outline Net Zero guidance and provide a position statement on how financial institutions should work with fossil fuel companies. The fossil fuel consultation covers a topic which has been tricky for financial institutions who have been grappling with whether engagement, divestment, or no action at all is the best approach to reducing their Scope 3 emissions associated with financing fossil fuels.

The SBTi position statement on this issue outlines a four-step approach, encouraging financial institutions to disclose their exposure to fossil fuels, immediately cease new financial support to companies and projects that add to the unabated capacity of fossil fuel assets, engaging with fossil fuel companies to achieve a 1.5°C transition, and phase out financial support to those unwilling to align to these goals. This comprehensive approach combines engagement with divestment as a last resort, perhaps demonstrating that there is no one-size-fits-all approach to financial institutions’ Scope 3 dilemma.

The consultation from SBTi comes as asset managers struggle to decide whether to pressure firms on disclosing Scope 3 data, according to ESG Clarity. Despite upcoming rules requiring Scope 3 disclosure, including the CSRD, asset managers are split in their support for mandatory Scope 3 reporting, according to Morningstar data. Concerns raised reflect the complexity of Scope 3 calculations and challenges around data reliability. While support is mixed, some asset managers are calling for clearer regulations and standards that allow for comparable, reliable Scope 3 data to support their decarbonisation efforts.

High supply chain risk across Western Europe

Western markets which have been presumed to be a “safe haven for its better production standards”, have shifted away from their lower risk classification and have been identified as ‘high risk’ in the Elevated Supply Chain ESG Risk Ratings Report for 2023. The report highlights that countries such as the US and the UK are seeing a higher risk for critical violations “in part due to a rise in the exploitation of foreign migrant workers”, as identified in this recent article. 

Countries such as the UK, Germany, Portugal and Italy are now ranked as ‘high risk’ for several of the most critical forms of supply chain ESG violations, with forced labour, child labour, freedom of association, and wage-related violations. The risks associated with forced labour have been most common in sectors such as agriculture, construction and domestic work.

The “current geopolitical economic and legislative climate has made it increasingly difficult for businesses across the world to be confident about ESG risk in their supply chains”, notes Elevate MD, Kevin Franklin. This further strengthens the need for systemic and proactive supply chain risk assessment, monitoring and management across all sourcing locations, to minimize the impacts to the business. While countries like the UK have enacted the Modern Slavery Act, companies continue to fall short in prioritising this issue.


  • Bank of America Surpasses $500 Million in Equity Investments to Support Minority and Women Entrepreneurs. Bank of America has committed equity to over 150 minority- and women-led funds which have invested in over 1,000 companies across 40 states. This takes Bank of America’s total investment in minority- and women-led funds to over $500m, more than doubling its initial $200m commitment.
  • Sovereign green bond issuance sees a record start to 2023. 2023 is expected to be a record-breaking year for sovereign green bond issuance with the $80bn raised so far this year more than double the amount raised at the same point in the past two years while the $80bn is greater than the total raised for the 12 months of 2022. The largest contributions so far this year have come from Italy, Hong Kong, Germany and the UK. Since the sovereign green bond market was launched by Poland in 2016, over $342bn has been raised with two-thirds of this since 2021 alone.
  • Middle East countries face extreme heat risk, study findsAccording to new research published in the Nature Sustainability journal, countries in the Middle East are highly vulnerable to extreme heat as a consequence of climate change. Tim Lenton, one of the study’s authors, said that the extreme heat may “pose habitability challenges” and poorer populations are likely to face greater challenges while he encouraged countries in the region to increase cooperation to deal with the impacts of climate change.
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