Welcome to the latest edition of Gilmartin Group’s ESG newsletter. With a special focus on the healthcare sector, this newsletter sheds light on the latest trends in the rapidly evolving ESG space, covering developments with companies, investors, regulators, and policymakers.
In The Spotlight
Alternative investment manager CVC Capital Partners outlined new climate-related expectations for its portfolio companies in its latest ESG report. CVC will require all eligible companies in its private equity and listed equity portfolio to set greenhouse gas emissions reduction targets verified by the Science Based Targets initiative (SBTi) by 2035.
This requirement applies to portfolio companies two years out from acquisition, where CVC holds more than a 25% ownership stake and a Board seat. CVC has already set SBTi-backed emissions reduction targets covering its own operations and has created a program to support portfolio companies in measuring and managing their emissions.
CVC’s climate push reflects the growing focus on sustainability issues in the private markets. For example, Blackstone recently closed a $7.1 billion private credit fund focused on the energy transition, the largest fund of its kind raised to date.
A Note on ESG Investing
S&P Global recently dropped its alphanumeric ESG scores from its credit ratings, opting to transition to a more qualitative analysis of a company’s ESG performance. According to Bloomberg, investors found S&P’s ESG scores confusing because they were easily conflated with a company’s overall credit rating.
However, S&P is holding firm to their belief that ESG analysis is an integral part of their credit reports, stating that the update “does not affect our ESG principles, criteria or our research and commentary on ESG-related topics.” Rather, S&P believes that “dedicated analytical narrative paragraphs” are more effective to convey information on ESG-related credit risks.
At Gilmartin, our view is that quantitative ESG scores are more akin to sell-side analyst opinions rather than credit ratings. ESG ratings firms have been criticized for the notable lack of correlation between their methodologies, and the EU is looking to institute new regulations for the ESG ratings industry. We believe that the underlying data within the ESG ratings firms’ reports provides much more insight into a companies’ ESG performance than a top-line ESG score.
The Healthcare View
Last week, Genentech reached a settlement with the U.S. Environmental Protection Agency (EPA) after inspectors found that the company did not properly store and monitor hazardous waste at its South San Francisco, California facility. Although Genentech was only fined $158,208 in civil penalties, the matter displays how a convergence of ESG issues can materially impact a company’s bottom line. According to the EPA, Genentech’s management of hazardous waste was not only a compliance violation, but also a potential risk to employee health and safety.
In The Weeds
Beyond its well-publicized climate disclosure proposal, the SEC is moving to finalize other ESG-related disclosure requirements for public companies. At the end of July, the SEC finalized a rule requiring companies to disclose any material cybersecurity incidents, as well as their cybersecurity risk management and governance strategies.
In particular, the rule requires companies to disclose cybersecurity incidents through Form 8-K within four business days of discovering the incident and determining its materiality. Most public companies will be required to comply starting in December 2023.
For more information, please refer to the SEC’s factsheet.
To learn more about how Gilmartin strategically partners with our clients, please contact our team today.
Authored by: Patrick Smith, ESG, Gilmartin Group & Tamsin Stringer, ESG, Gilmartin Group