Letting you all in a secret, today’s edition was written two weeks ago as our team comes back from vacation! No, we are not burned out, just enjoying fall break with our friends :) Yes, there is a lot happening in the world of climate change right now with COP26 right around the corner, we will cover all things related to the Paris agreement and COP26 next week. But don’t worry, we have an exciting array of stories to cover today. Enjoy reading!
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What to expect today:
A brief overview on ESG
Environmental, Social, and Corporate Governance (ESG) is an evaluation of a firm’s focus on social and environmental factors. It is typically a score that is compiled from various data sources and can be considered a form of corporate social credit score. ESG factors are a subset of non-financial performance indicators which include ethical, sustainable and corporate government issues such as making sure there are systems in place to ensure accountability and managing the corporation’s carbon footprint.
Environmental criteria: waste, pollution, climate change, deforestation etc.
Social criteria: employee relations, diversity, working conditions, community impact, health and safety
Governance criteria: board diversity and structure, lobbying, executive remuneration, tax strategy etc.
How are ESG scores calculated?
The specific factors assessed vary by company, ESG rating firms commonly review things like annual reports, corporate sustainability measures, climate disclosures, board structure and compensation and even controversial weapons screenings. Scores generally follow a 100-point scale: The higher the score, the better a company performs in fulfilling different ESG criteria. Scores may vary among firms, which may employ different metrics and weighting schemes. Bloomberg, S&P Dow Jones Indices, JUST Capital, MSCI and Refinitiv are a few of the most well-regarded ESG research companies. Investors use these ESG scores to invest in companies that align with their and their clients priorities.
Source: Wikipedia, Market Business News, Forbes
ESG investments by Japan
The Japanese Finance Minister, Shunichi Suzuki, announced on Oct 8 that Japan will start using foreign reserves to buy securities that meet ESG criteria, joining a trend among global investors to focus on combating climate change. "Revitalising new ESG investment will help achieve a greener society and carbon neutrality in 2050," Suzuki said. "As the ESG bond market grows, I believe investment in ESG bonds will increase from now on."
In doing so, Japan will become the first G7 government to use foregin reserves for ESG investments. Standing at $1.4 trillion, Japan’s foreign reserves are second only to China’s and the move represents a significant change that will hopefully inspire other nations to follow and subsequently companies to adhere to ESG guidelines.
Source: Reuters
Project Gigaton at Walmart
We couldn’t finish this week’s edition without actually looking at one company’s ESG report and we stumbled upon Project Gigaton at Walmart but before we get into Project Gigaton, we want to give an overview of what Walmart’s ESG report covers.
What exactly is covered in an ESG report?
Walmart organizes their ESG priorities into four leadership themes and the report quantifies Walmart’s efforts across the four themes (we will deep dive into one of them, no prizes for guessing here :D ):
Opportunity: Job advancement for associates, Equity and Inclusion and growth for local economies
Sustainability: Climate and renewable energy, zero waste, recycling, regeneration of natural resources and sustainable product supply chains
Community: Supporting local communities and employees during Covid-19 and other disaster preparedness and response
Ethics and Integrity: Corporate governance, ethical compliance standards, engagement in public policy and respect for human rights
Key climate goals at Walmart
Achieve zero emissions across global operations by 2040
Reduce Scope 1 & 2* emissions 35% by 2025 and 65% by 2030
Reduce or avoid 1 billion metric ton of Scope 3 emissions by 2030 (Project Gigaton)
Power 50% of operations with renewable energy by 2025 and 100% by 2035.
Notably, Walmart does not report Scope 3 emissions as part of its annual disclosure but does report them separately to CDP. Walmart says it doesn't report a figure for its Scope 3 estimates in its ESG report because of the fact it’s an estimate. (CDP or Carbon Disclosure Project is a global non-profit that helps companies and cities disclose their environmental impact; check out Walmart’s disclosures)
Project Gigaton
Project Gigaton is an initiative announced by Walmart in April 2017 which aims to inspire suppliers to reduce upstream and downstream (beyond-the-shelf) greenhouse gas (GHG) emissions from the global value chain. Specifically, the goal of Project Gigaton is to avoid one billon metric tons, or one Gigaton, of CO2 emissions from global value chains by 2030. (For reference, One Gigaton is equal to the emissions from 211 million average passenger vehicles in a year, according to the Environmental Protection Agency’s greenhouse gas equivalency calculator). Project Gigaton is the Scope 3 component of Walmart’s emission reduction target and from 2017-2019 (based on voluntary reporting by suppliers), Walmart’s suppliers have avoided 230 million metric tons of emissions.
Recommendations from the team
MSCI - What are MSCI ESG Ratings? (4 min video)
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