FAIRR calls for fast-food companies to cut climate risk; extreme weather concerns take centre stage at Davos; Canary Wharf, Marks & Spencer, and Nestlé latest companies to join war on plastic in Oliver Balch’s latest sustainability news roundup
The idea of Larry Fink penning an end-of-year note to the companies in BlackRock’s portfolios is nothing new. He has been doing it for eons. But no one took much notice until last year, when the founder and chief executive of the world’s largest asset manager called on corporate leaders to ensure their firms had a social purpose. This year’s much-anticipated open letter continued with the theme, arguing that "profits and purpose are inextricably linked". When you’re sitting on $6.3tr in assets, people sit up and listen. But, as Fink is now finding out, they also ask questions.
Last month, prior to the release of his latest letter, a group of ethical investors and shareholder activists issued a missive of their own. In it the alliance – which counts Trillium Asset Management, Boston Common Asset Management and ShareAction among its number – called on BlackRock to close the “gap between rhetoric and reality” and to give greater consideration to the environmental impacts of the companies in which it invests. The backlash was, seemingly, anticipated.
Barely had the campaigners posted their letter than BlackRock was knocking on the door of the US Securities and Exchange Commission, announcing its intention to set up an environmental impact fund. The company says that 5% of the BlackRock Liquid Environmentally Aware Fund will be used to purchase carbon offsets.
BlackRock is not the only one receiving demanding letters in the post at present. A coalition of over 80 investors, with more than $6.5 trillion in assets under management, recently sent a stinging letter to the world’s largest fast-food firms. The missive asks what the targeted firms are doing and will do to “de-risk” their meat and dairy supply chains from water and climate risks.
The recipients, which include Domino’s Pizza, McDonald’s, and the owners of Burger King, KFC and Pizza Hut, have been requested to reply by post (well, by the end of next month). Collectively, the half-dozen companies manage over 120,000 restaurants around the world. Every day, in the US alone, consumers munch through 84m eat-to-go meals.
Such volumes are “unsustainable”, the investors say, noting that agricultural emissions are on track to contribute around 70% of total allowable greenhouse gas (GHG) emissions by 2050. Beef production is particularly worrisome. If cows were a country, it would be the world’s third largest emitter of greenhouse gases, warns the FAIRR Initiative, an investor network and co-author (together with Boston-based environment group Ceres) of the letter. The livestock sector is also responsible for using around one tenth of annual global water flows, the organisers maintain. Analysis by FAIRR suggests that more than 70% of meat and livestock index companies currently do not have targets for reducing their greenhouse gas emissions.
Both stories demonstrate a growing concern among investors about the non-financial risks associated with the companies on their books. An interesting knock-on effect is the exponential growth in investor-focused indexes. Worldwide, there are now a staggering 37,000 indexes, amounting to a 60% increase on last year, that track companies according to their social, environmental and governance (ESG) risk and performance profiles, according to the Index Industry Association.
ESG indexes were the fastest growing part of the market, with the number of them climbing by 60% in the year to mid-2018. According to calculations by capital markets consultant Opimas, meanwhile, more than $30tr of assets are now tied to ESG strategies, up more than 30% in the last two years. This is good news for ESG data providers.
Opimas predicts investors will soon be shelling out $750m for such information, a three-fold rise on 2014 levels. The prize, of course, is that above-average ESG performance results in above-average returns. This isn’t just wishful thinking.
Recent analysis by disclosure advocate CDP shows that the STOXX Global Climate Change Leaders index (which is based on CDP’s A List of top climate performers) outperformed the STOXX Global 1800 of major firms by 5.4% per year between December 2011 and July 2018. CDP’s A List includes the likes of Apple, L’Oréal, Microsoft and Johnson & Johnson among its 120-plus constituent companies. (See Firmenich and L’Oréal get triple A scores as CDP raises bar in climate risk reporting)
Extreme weather risk concerns dominate at Davos
THE JETS are back in their hangers and the recycling bins are weighing heavy with empty champagne bottles. Davos may be over for another year, but the concerns of the world’s business elite are not. According to the latest iteration of the World Economic Forum’s (WEF) annual Global Risks Report, environmental degradation, cybersecurity breaches, economic strains and geopolitical tensions preoccupy today’s leaders of commerce. The first is the most prominent. Three of the top five threats ranked “most likely to happen” in the next 10 years are extreme weather events (ranked first), natural disasters (second) and failure of climate change mitigation and adaptation (fifth). The report analyses these three threats, together with three other major environmental concerns: accelerating biodiversity loss; pollution of air, soil and water; and risks linked to the low carbon transition.
Despite the snowy environs of WEF’s annual get-together in the exclusive Swiss ski resort, the threat of rising temperatures and irregular weather patterns merited its centre-stage place in discussions. The charity Christian Aid recently totted up the cost of the worst 10 climate-driven weather events of 2018. The cost: $85bn in total. The list includes floods in Japan ($7bn) and drought in Argentina (which amounted to $6bn and helped tip the country into recession).
Executives will also be mindful of temperature rises in 2017, which registered as one of the three hottest years on record (and the hottest year without an El Niño ever), according to the National Oceanic and Atmospheric Administration. Furthermore, 17 of the 18 hottest years recorded since 1850 have occurred since 2000. According to the UK’s Met Office, there is now a 6% chance per decade that natural disasters could destroy maize production in China and the US, which together produce 60% of the global supply.
As for biodiversity, researchers in Germany recently calculated that the populations of insects critical to global food systems have fallen 75% since 1990 – a phenomenon labelled “ecological Armageddon”. Portending more doom is the seemingly inevitable melting of the glaciers of the Hindu Kush-Himalaya, which are predicted to reduce 36% by 2100 even if global warming remains at 1.50C.
Another report that provided a backdrop to last month’s Davos meeting came from Oxfam. A startling 82% of all the wealth generated last year ended up in the pockets of just 1% of the world’s population, the anti-poverty charity calculates. Since 2010, the wealth of the world’s billionaires has risen by 13% per year, six times faster than the wages of ordinary workers. The poorest half of the global population saw no increase in wealth during 2018. Oxfam point the finger at a range of causes for this growing economic disparity, including the erosion of workers’ rights, corporate lobbying, and the untrammelled pursuit of shareholder maximisation. Oxfam is using the findings to campaign for, among other things, a crackdown on tax avoidance. A global wealth tax of 1.5% for billionaires would pay for every child to go to school, the charity claims.
Canary Wharf, M&S take on plastic waste
WORKERS in Canary Wharf, London’s financial satellite district, are a busy bunch. Too busy, arguably, to think too much about recycling. To help promote more sustainable behaviours among the 150,000 people who work in the area, Canary Wharf Group is piloting a new app called ‘HELPFUL’. Launched in conjunction with a charity of the same name, the app encourages participants to deposit bottles and coffee cups from 40 bottled water brands and 33 coffee chains, respectively.
Points can also be gained for using refillable water bottles and reusable coffee cups, among other multi-use options. Using artificial intelligence, the app allows users’ collected points to be traded for discounted products at clothes shops, coffee stores and eateries in the locality, such as Carluccio’s, Leon and Starbucks. Consumers in the UK use 2.5bn cups and 7.5bn water bottles every year, according to HELPFUL.
The move, which forms part of Canary Wharf’s ambition to be the UK’s first plastic-free commercial centre, is just one of a string of business-led initiatives to reduce plastic use. Other recent examples include Nestlé’s decision to drop plastic straws from its products. The announcement coincided with news that the world’s largest packaged food company is planning to make all its packaging recyclable or reusable by 2025.
UK retailer Marks & Spencer (M&S), meanwhile, is trialling a scheme to sell over 90 lines of fruits and vegetables without plastic packaging. M&S has committed to extend the initiative across all its stores, potentially saving up to 580m tonnes in plastic waste over two years.
The scheme, which is being tested in its Tolworth store in south-west London, complements existing moves that have seen 75m pieces of plastic cutlery and 2m plastic straws removed from M&S stores. Waitrose, meanwhile, another UK retailer, has launched a £1 million grant fund to give money to projects designed to reduce unnecessary plastic and tackle plastic pollution. Run in association with environmental charity Hubbub, the Million Pound Challenge is financed through the sales of 5p single-use carrier bags. As with M&S, Waitrose is also looking to replace loose fruit and vegetable bags with home compostable alternatives. It aims to do so by spring 2020. If successful, the move will cut almost 134m bags per year, saving 500 tonnes of plastic.
In other plastic-related news, petrochemical giants such as Shell, ExxonMobil and Dow are joining forces with plastic producers and users to funds improvements to waste collection and recycling in south-east Asia. The companies are part of a coalition of 30 global firms behind a $1.5bn fund to promote infrastructure, education and engagement, innovation, and clean up efforts to “keep plastic waste in the right place”.
The Alliance to End Plastic Waste is being co-ordinated by the World Business Council for Sustainable Development (see Peril on the high seas: the global push to rescue oceans).
In a separate alliance, two dozen consumer goods manufacturers responsible for large-scale plastic use have joined together to support household collection of empty or used product packaging. The alliance, which includes household names such as Procter & Gamble, Nestlé, PepsiCo, Unilever, The Body Shop and Danone, is based on a global system called Loop.
The brainchild of recycling specialist TerraCycle, Loop sees participating manufacturers use brand-specific, durable packaging. The packaging is then collected from consumers’ houses before being cleaned, refilled and reused. The initiative is being supported by French food retailer Carrefour and UK supermarket Tesco.
CSRCheatSheet BlackRock Ceres CDP WEF19 Larry Fink TerraCycle ethical investing STOXX index ShareAction fast-food industry FAIRR Davos extreme weather plastics Canary Wharf M&S