As we discussed in yesterday’s ESG and Climate report, the SEC has some challenges ahead, not just because there are high hopes that it will start mandating a change in terms of disclosure accuracy and consistency, as well as fund definition, but also because, as yet, it does not have the mandate to do so. All eyes are on the regional regulators, in the US, Europe, and other countries to police what is the wild west of reporting. The E piece of ESG is the major challenge and it is where corporates and fund managers alike are dealing with issues and measures that are likely very different company by company within a sector, let alone between the sectors themselves – it is far more complex and harder to analyze than, for example, board diversity.
The biggest challenges for the chemical sector are CO2 (and equivalent) emissions and plastic waste. Making matters worse is that the legislative/regulatory landscape that each company faces is different by region, but the equity oversight is governed by the county of domicile – LyondellBasell and Borealis, for example, will likely face a different set of emission and waste challenges but also a different set of ESG disclosure guidelines, making the global ESG investors job harder when comparing LyondellBasell with OMV (Borealis’ parent). This is a work in progress and the challenges for the regulators are very high – SEC’s Gensler said yesterday that he would like to see more robust guidelines by the end of the year. We believe that this could cause significant upheaval in what are currently held in ESG funds, and would encourage clients to look at the pure-play energy transition names, despite valuation, see chart below.
Source: Bloomberg and C-MACC Analysis