Sustainability and ESG investing is continuing to gain momentum among investors. Yahoo Finance’s Alexis Christoforous and Brian Sozzi discuss with S&P Global Market Intelligence President, Martina Cheung.
Video Transcript
BRIAN SOZZI: Sustainability and ESG investing is continuing to gain momentum among investors as more corporations are striking green power deals. Let’s bring in S&P Global Market Intelligence president Martina Cheung to discuss. Martina, so what would change in the White House, meaning to the future of ESG investing?
MARTINA CHEUNG: You know, we’ve seen quite a bit of momentum around ESG investing independent of policymaking. So for example, this year, Brian, the ESG inflows, or inflows into ESG funds, is up substantially year on year. And we’ve seen the growth in social bonds and green bonds over the last year or two as well.
And so this has all been happening independent of policy. I would say, in addition, that a recent report by the CFTC which highlights climate change, for example, as a meaningful risk to the US financial system, was a real step forward in actually engaging regulators and policymakers in the discourse around how to actually tackle this. So any change in the White House, you know, would– would, I think, just be in line with some of the additional things that we’ve seen coming out of various different groups independent of the government’s support.
ALEXIS CHRISTOFOROUS: Martina, when people are looking to get into ESG investing, what are some of the trends you’re seeing? What are some of the areas specifically that people are looking to pour in some money?
MARTINA CHEUNG: Well, we see that there are a couple of things– ways to look at it, Alexis. So first and foremost, if you’re an investor that is interested in sustainability, you’re going to want to examine ESG funds, make sure that you have the right allocations to ESG and that you’re looking at the right factors. But more and more, we’re seeing that– investors wanting to dive much more deeply and understand the underlying factors that could be driving some financial performance. As we understand, ESG factors are increasingly financially material.
I think climate is the most obvious and clear example of that, where you have physical risk really stressing corporate assets on a global basis. And so I think we have investors who can look at broader sustainability measures. But we also have investors looking at deeper data sets to understand specific financial material risks.
BRIAN SOZZI: Martina, are S&P 500 companies adhering to some of the ESG commitments that Alexis and I heard in Davos? Alexis, this is all we heard about in Davos– ESG, climate change. But it’s been a tough year since then. How are companies holding up?
MARTINA CHEUNG: Well, recently, the climate week for NYC actually happened. And we’ve highlighted that there’s been an incredible amount of momentum, Brian. We now have over 1,100 companies globally.
These are one of– some of the largest companies in the world that have committed to net-zero targets, over 450 cities globally, many regions, municipalities, and even governments. New Zealand, for example, most recently required TCFD reporting by corporates, for example. So we don’t actually see a slowdown in these commitments. If anything, we see an acceleration in these commitments. And we’ve seen emphasis on the social factors this year, you know, as we’ve seen with social equity challenges being very visible and companies really stepping up to the plate to make those commitments. You see that happening, for example, with the business roundtable, who have really doubled down on their commitments to diversity this year as well.
ALEXIS CHRISTOFOROUS: When you look at the companies that are committing to these sorts of goals over the next few years, who do you think is really doing it right and making a difference that maybe other companies can use them as a blueprint?
MARTINA CHEUNG: That’s a great question. I would say the first thing is measurement and disclosure, Alexis. So it’s incredibly important to make sure that there is consistent and standard measurement year over year in ESG factors. And you know, we’re very focused on trying to make sure that we can actually unearth a lot of the underlying drivers that link to ESG.
More specifically, I mean, if you’re a company that has reported TCFD, and you’ve also, you know, done your sustainability reports, what we’re seeing now is, the best in class companies are continuing to expand and actually measure themselves on impact. So impact is the framework that was encapsulated under the SDGs, or sustainable development goals, from the UN. And when you look at impact specifically, there are quite a few more companies at the highest levels who are beginning to come out with measurements against the SDGs policies in support of the SDGs.
For example, we did a recent survey of the top 3,500 companies globally, and 2/3 of them had policies that were in support of the SDGs. So we see quite a bit of progress there. And the best in class companies are looking at ESG, climate, as well as impact.
ALEXIS CHRISTOFOROUS: And recently, we heard China’s Xi Jinping come out and say that he hopes to have China carbon-neutral by 2035. It’s a very aggressive goal, even more aggressive than the Paris Agreement. If that were to happen, what would that mean for ESG opportunities, investing opportunities?
MARTINA CHEUNG: Well, they– it was a huge announcement. They’ve committed to stop increases in carbon by 2030 and carbon neutrality, or net-zero, by 2060. Now that– 2060 might seem like it’s a long way off, but it’s actually a massive commitment from the Chinese.
The great news is that you get a country that represents a very high proportion of global CO2 emissions– around 30%– that commitment in and of itself will reduce climate warming by about 11%. I would say that this is going to require a very substantial investment in the Chinese economy to get to net-zero. They’re dependent– their energy system is dependent on fossil fuels. The majority of their consumption is in fossil fuels, around 85%. So our sister company, S&P Global Platts, has been examining that and highlighted the need for very meaningful investment in low-carbon technologies to get to those targets.
BRIAN SOZZI: Martina, how does the average investor decipher if a company is following through on ESG goals? Sure, we can hop into the annual report, look at financial statements, cash flow. But this is next-level type of stuff.
MARTINA CHEUNG: Yeah, there are plenty of frameworks out there for measurement. And we ourselves have our S&P Global ESG score, for example. What you’ll find is that a lot of companies are trying to figure out– investors in particular are trying to figure out which framework is going to be the most relevant for them to actually integrate ESG into their portfolios.
And there really are a plethora of them out there. But one of the positive things that has happened this year– and there were some very significant announcements in September from the IBC, which is probably one of the groups you heard about in Davos. They have been working with the Big Four, for example, to come out with framework to combine some of the ESG taxonomies. And there’s another group that is being managed by the Impact Project that includes the Carbon Disclosure Project, the SASB, and others, who are also attempting to bring together a standard for the capital markets. And so I think what’s going to be important is that there is a harmonization of some of the outside-in frameworks, particularly those that you might be required to report against from a regulatory standpoint. And then, as you begin to compile those metrics and data, having consistent underlying data sets is going to be very, very important also.
BRIAN SOZZI: All right, we’ll leave it there. Martina Cheung, S&P Global Market Intelligence president, good to hear from you.
MARTINA CHEUNG: Thank you.
