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 SEC finalized its long-awaited climate disclosure rule, which was initially floated in the Spring of 2022. The final rule is significantly scaled back from the Commission’s first proposal and omits disclosure requirements for hotly-debated items such as Scope 3 greenhouse gas (GHG) emissions. Moreover, companies only need to disclose their Scope 1 and Scope 2 GHG emissions and climate-related risks if they are deemed to be “material” – leaving room for interpretation. Large Accelerated Filers must make their first qualitative disclosures based on the new rule in 2026, covering FY 2025 data. More specific information about the compliance deadlines under the final rule can be found in the SEC’s Fact Sheet.
Before the ink was dry on the announcement, however, a coalition of ten Republican states filed a lawsuit to block the new rule, claiming it is a “back door move to undermine the energy industry.” In response, the SEC said that it will “vigorously defend the final climate risk disclosure rules in court.” On the other hand, certain sustainability-focused investors and environmental advocates criticized the rule for not going far enough, particularly because of the absence of Scope 3 GHG disclosure requirements.
If you have any questions about the SEC rule and climate-related disclosures in general, please contact the Gilmartin ESG team.
A Note on ESG Investing
Last year, BlackRock began moving away from the term “ESG” because it had become politically weaponized by the right – Larry Fink even stopped using the acronym himself. More recently, the firm has rebranded its ESG investment strategy as “transition investing.” While BlackRock still has a “sustainable investing” strategy that considers environmental, social, and corporate governance issues, “transition investing” is more narrowly focused on climate-related issues.
BlackRock’s Former CIO of Sustainable Investing, Tariq Fancy, said that the new term was a natural change for the firm and that they will take “the parts of ESG that actually do make sense and dispense with the marketing and move forward.” For example, BlackRock continues to see rising demand for climate infrastructure projects, as evidenced by its fourth Global Renewable Power Fund.
The Healthcare View
A cyber-attack against a little-known subsidiary of UnitedHealth Group – Change Healthcare – has caused a nationwide healthcare payment crisis over the past three weeks. Change Healthcare offers payment and revenue cycle management tools for hospitals and health insurers, processing approximately $2 trillion in healthcare claims every year.
Since discovering that hackers accessed their network in late February, Change Healthcare’s affected systems have been offline, preventing healthcare providers from obtaining insurance approval and payments for services and prescriptions.
UnitedHealth said that it plans to restore access to Change Healthcare’s networks by mid-March, and the Department of Health and Human Services (HHS) announced measures to alleviate financial pressure on affected providers. Earlier this week, the Biden Administration met with UnitedHealth’s CEO and other healthcare industry leaders to discuss additional emergency funding efforts.
Like the 23andMe data breach that occurred last year, this event highlights the severity of cybersecurity incidents involving healthcare companies, especially where sensitive patient data is involved. Moreover, the attack also brings the SEC’s newly adopted cybersecurity rule into the fore, as it requires public companies to disclose the material cybersecurity incidents they experience as well as their cybersecurity risk management strategies.
In the Weeds
According to a recent report from the Morgan Stanley Institute for Sustainable Investing, sustainable funds outperformed their traditional peers across all major asset classes and regions in 2023. While traditional funds had a median return of 8.6% last year, sustainable funds experienced a 12.6% return, according to Morningstar data. Moreover, global inflows to sustainable funds remained positive and sustainable fund AUM rose 15% year-over-year.
Interestingly, sustainable fund returns in the Americas significantly outperformed global and Europe-focused funds. Morgan Stanley notes that greater exposure to technology stocks “helped sustainable equity funds investing in the Americas in 2023, but this was not the only factor influencing sustainable funds’ outperformance.”
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