Sustainability, Clean Energy, Recycling & ESG

As the Univar and Eastman pictures show, it is now becoming almost mandatory to show your ESG badges in your quarterly earnings. The challenge for investors is the interpretation of the data presented. If there is no real consistency to the format, then it will be difficult to compare progress and this is one of the challenges that the SEC hopes to guide on by year-end – something we covered in last week’s ESG and Climate report.

Source: Eastman Chemical 2Q21 Earnings Release Presentation, August 2021

For example, the Univar claim that it has improved external ratings may be a function of better dialogue with the rating companies, or more consistent reporting of data and may not reflect any positive change at the company. Given the complexity of understanding environmental footprints at many of the industrial companies, including chemical manufacturing and distribution, it may not be much of a challenge to persuade any of the ESG rating agencies today that you are doing a better job than they have modeled, as they are unlikely to have the skills and experience to question you.

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.