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
Last week, the International Sustainability Standards Board (ISSB) published its long-awaited global sustainability disclosure framework. Intended to address the proliferation of ESG standards, ISSB builds off of existing standards such as the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-Related Financial Disclosures (TCFD). Like these standards, the ISSB standards are voluntary and hope to encourage companies to disclose sustainability-related risks and opportunities that could have a material impact on their businesses. The ISSB standards include climate-related disclosure expectations that generally apply to all companies, as well as guidance for industry-specific disclosures.
While certain ESG disclosure standards are more popular in different geographies (for example, SASB is more popular in the U.S.), ISSB aims to provide a baseline of disclosure standards for companies around the world. Sue Lloyd, vice-chair of ISSB, explains that with the new standards, “investors can be confident that, when they compare companies, they’re doing that on a like-by-like basis when they’re making their investment decisions.”
ISSB expects companies to align their sustainability reporting with the standards in 2025, addressing FY 2024 information.
A Note on ESG Investing
Despite the recent political backlash against ESG investing, a recent report from the Index Industry Association (IIA) revealed that asset managers are continuing to integrate ESG factors in their investment strategies. Surveying 300 CFOs, CIOs, and portfolio managers in the U.S. and Europe, the IIA found that 81% of asset managers said that ESG has become “more” or much more” of a priority to their investment strategy over the last 12 months. Notably, support for ESG was highest among U.S. asset managers, with 88% saying that it has become more of a priority. The IIA predicts that approximately half of portfolios will have integrated ESG into their strategies over the next 2-3 years.
Although asset managers continue to embrace the principles of ESG investing, the industry is starting to move away from the term “ESG” itself. A recent report from RBC Capital Markets found that over half of sustainable funds launched in 2023 were labeled as “thematic” instead of “ESG.” Rather than combining environmental, social, and governance factors together, sustainability-focused thematic ETFs focus on particular categories within ESG, such as climate change or gender diversity.
BlackRock is widely viewed as the most outspoken proponent of ESG among institutional investors, yet CEO Larry Fink recently said that he no longer uses the term because of how it has been politically weaponized. However, Fink emphasized that dropping references to “ESG” will not affect how the firm engages companies on key topics such as climate change, corporate governance, and social issues. Even if the term “ESG” disappears, the underlying issues and subject areas it comprises will remain.
The Healthcare View
At the end of June, AstraZeneca announced an ambitious environmental initiative to promote biodiversity and build ecological resilience in South America and Africa as part of the firm’s commitment to climate action. The company announced a $400 million investment in its AZ Forest program, which aims to plant 200 million trees by 2030 in countries such as Brazil, India, Vietnam, Ghana, and Rwanda. The program aims not only to help restore biodiversity and natural habitats in these countries, but also to bring economic and health benefits to local communities.
The AZ Forest program is part of AstraZeneca’s flagship sustainability strategy, Ambition Zero Carbon, which is focused on achieving emissions reductions in line with the Paris Agreement goal of limiting global warming to 1.5°C. The company is on track to reduce the greenhouse gas (GHG) emissions from its operations by 98% by 2026 and achieve net zero by 2045. Moreover, AstraZeneca hopes that the forest program will help the company remove its residual GHG emissions from the atmosphere.
In The Weeds
Sustainable Fitch, the ESG-focused arm of Fitch Group, recently launched a database that monitors the latest regulatory developments in the ESG space. The ESG Regulations and Reporting Standards Tracker is updated quarterly and provides information on existing and upcoming disclosure regulations as well as key developments with various ESG reporting frameworks.
In June, Organon announced a “first-of-its-kind collaboration” to take the company’s access to healthcare program even further. Organon signed an agreement with the Development Bank of Latin America (CAF) to finance programs focused on improving the health and autonomy of women and girls in Latin America and the Caribbean. Organon states that health-focused social impact investments can mobilize capital “towards initiatives that might not otherwise receive adequate support,” such as services related to sexual and reproductive health. Both Organon and CAF hope that such investments will not only help improve women’s health in Latin America, but also ultimately contribute to economic development in the region.
Last week, the SEC disclosed that it will consider finalizing its climate-related disclosure proposal in the Fall. The proposal was initially floated in March 2022 but was delayed as a result of pushback from companies and investors – nearly 15,000 comment letters were submitted to the SEC about the rule. It remains to be seen whether the commission will soften its proposal, particularly with respect to Scope 3 GHG emissions.
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Authored by: Patrick Smith, ESG, Gilmartin Group & Tamsin Stringer, ESG, Gilmartin Group