The Great Repricing is Here

In last week’s ESG Practice Playbook, Jeff talked about the cascade of recent physical climate events and the legal and regulatory trends that are increasingly putting climate change considerations at the center of business and investment decisions.

With climate data growing in volume, availability, and sophistication, pricing climate risk is becoming easier.  The stakes are getting higher across asset classes and sectors, as well as at the level of national governments.  For example, earlier this year, a French court determined that the French state is not meeting its commitments in relation to reducing greenhouse gas (GHG) emissions, and can be held responsible.  “Activists also hope the ruling will set a legal precedent for victims of climate change.”¹

In the U.S., the SEC, which is stepping up overall activity in relation to ESG, is reviewing its “disclosure rules with an eye toward facilitating the disclosure of consistent, comparable, and reliable information on climate change.”² The agency laid out a number of questions for stakeholder consideration and encouraged the public to respond.

This effort is in addition to the launching of a taskforce that will “initially focus on identifying any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules.”³  If you would like to learn more about climate investing, please don’t hesitate to reach out to us.

Last week Tariq Fancy, former CIO of Sustainable Investing at BlackRock, catalyzed conversation when he published an op-ed accusing the industry of “duping the American public with its pro-environment, sustainable investing practices.”⁴

Certainly, greenwashing is a problem, and Wall Street is not going to rid the world of all its social and environmental challenges!  Criticism is important in keeping the industry honest, but so is recognition and encouragement where it’s due.  One of the reasons we favor active over passive managers, especially with respect to climate investing, is because ESG topics are dynamic, complex, and often interactive.

A future that will not resemble a past that lives inside financial models necessitates the deep research and analysis associated with active management.  Moreover, when in-depth analysis is supported by direct engagement with companies, it can lead to real change, as evidenced by our partners at Green Century, Federated Hermes, and Promethos, among others.

We hope that the recent moves by the Biden administration and the SEC to create more structure and clarity with respect to climate change and ESG will lead to greater trust and transparency in sustainable investing.