Baltimore Aircoil Company Announces Release of its First Environmental, Social, and Governance (ESG) Report

Increased commitment and transparency amidst efficiency innovation makes BAC leader in field

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COP27 lays foundations for long-term investment opportunities in Africa

By Philippa Owen, ESG Lead at GraySwan

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ESG – Not all ‘washing’ is squeaky clean

It should always be a good thing if companies say they are implementing ESG practices and principles.  Right?  Let’s face it, though: this is the real world and in the real world, theory and reality do not always converge. 

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Avaya releases its annual Corporate Responsibility Report

Report highlights the company’s focus on Environment, Social, and Governance (ESG) progress, and commitment to setting company-wide emissions reduction targets.

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ESG and Leadership

Leadership is a topic that receives a great deal of attention and training, yet it remains a difficult and complex process to successfully lead in today’s world.  When leadership is viewed in the ESG context it becomes even more complicated.

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ESG Africa Conference Aims to Tackle Key Issues Relating to ESG in Africa.

Registrations are open for the inaugural edition of the ESG (Environmental, Social, Governance) Africa conference, the first face-to-face event of its kind in Africa.  The event, which will take place from 25-26 October 2022 at the Sandton Convention Centre will look at ESG from an African perspective and tackle issues companies and leaders face in trying to embed ESG within their organisations. 

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Banking on climate change: the rise of climate finance related disputes

Following ESG trends, South Africa’s banking sector is gearing up to provide sustainable financing. This shift into a new era of clean energy will give rise to complex ESG related disputes, and stakeholders should consider including an arbitration clause in underlying contracts to mitigate their risks.

By Kirsten Wolmarans, Partner & Brittany Leroni, Associate at Webber Wentzel

South Africa’s economy and energy system is one of the most coal-dependent in the world.  South Africa’s ratification of the Paris Agreement has, however, set in motion a rapid energy transformation, with the goal of decarbonising the South African economy by 2050.  In the energy sector, South Africa estimates that the process of shifting to low-carbon technologies and the implementation of adaptation requirements to reduce greenhouse emissions will require roughly USD300 billion.

Sustainability-linked financing offers a significant opportunity for banks. Corporate clients, also looking to comply with environmental, social and governance (ESG) objectives, would rather partner with banks that have implemented ESG initiatives in their own processes and systems.  South Africa’s top banks are opting to use the United Nations’ Sustainable Development Goals as a guide to inform their approach to business and are setting targets to link to the Paris Agreement, the local regulatory framework, the South African Financial Sector Code, and the King Code on Corporate Governance for South Africa.  

However, doing the right thing, and becoming green, is not easy. In the absence of clear direction and regulation on how to best operate to achieve these goals, disputes will become increasingly common. This is especially the case where there is a gap between voluntary company commitments and practice. History has shown that this creates fertile ground for disputes.

Tracking global patterns, ESG-related disputes are arising in the context of multiple fields of law, across jurisdictions, and involving issues such as investment in renewable energy initiatives, asset divestment, breaches of representations or warranties relating to climate-change commitments, or where the receiving country is unable to meet environmental covenants which may be put in place under agreements. These disputes will be complex, and often the subject matter will constitute largely unexplored terrain. The South African banking sector will not be immune.

While the spotlight is on ESG, the reputational fall-out and financial repercussions of ESG-related disputes are likely to be significant for the party on the receiving end. Despite this reality, a risk that is often overlooked by parties to a contract is the dispute resolution mechanism. When the implementation of contracts goes awry, disputes arise, and how such disputes are resolved gives rise to a new set of risks.

An important risk mitigation factor that all banks should insist upon when entering to contracts is an agreement to arbitrate. By resorting to arbitration to resolve disputes, not only will the parties benefit from confidentiality, and the inherent flexibility to choose arbitrators with adequate knowledge of the relevant issues, but they will also be able to tailor the procedure to accommodate the dispute. This is especially the case when banks are implicated in disputes with an ‘international’ element, such as a dispute between banks (as investors) and host-states; or where the parties have their places of business in different states; or where the subject matter of the dispute is outside the state where the parties have their places of business. In these instances, the banks will be best equipped to resolve their disputes through international arbitration. Not only does this forum offer a neutral playing field in which to resolve the dispute, but the result is global recognition and enforcement of awards through the New York Convention. 

To illustrate the advantages of electing arbitration, a local population may be directly impacted by an investment in a new gas pipeline to be constructed through a forest, impacting natural resources for the residents in the area. Entering a submission to arbitrate agreement will avoid court proceedings involving numerous parties, spanning several jurisdictions, with the potential of conflicting court orders.  Instead, the arbitration proceedings will provide certainty, finality, and an enforceable award across states.

In summary, the legal and commercial pressures on banks and their corporate clients in moving towards a net zero target by 2050 will create additional risks and challenges. Not only will contractual relationships need to be overhauled, but so will internal practices and policies. To mitigate the risks of when a dispute arises stemming from ESG obligations, serious consideration should always be given to including an arbitration clause in the underlying contract.


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Focus on impact investing grows as investors eye new opportunities addressing the energy transition

Impact investing is now viewed among the key pillars of sustainable investing, alongside integration and positive screening, Schroders Institutional Investor Study 2022 has found. Schroders flagship annual institutional study, first launched in 2017, is an influential bellwether of the investment appetite of investors globally, spanning 770 investors and US$27.5-trillion in assets.

Just under half (48%) of investors said impact investing was their preferred approach to implementing sustainability, a significant increase on 38% a year ago and 34% in 2020. The Study also found that the importance of full ESG integration into the investment process had grown as a focus, further cementing it as the most favoured approach among investors. 

Q. What is your preferred approach to implementing sustainable investments?

Growing demand for investment solutions focused on the energy transition was also reflected by the findings. Well over half of investors (59%) said that new investment opportunities addressing the energy transition would encourage them to invest more into sustainable investments. This focus was particularly strong in the UK and Asia Pacific where 68% and 62% of investors respectively highlighted the need for more transition-oriented solutions.

Q. What would encourage you to invest more in sustainable investments?

Interestingly, although the South African sample was small, nine out of 10 respondents said that they believe more consensus around frameworks and methodology would help the journey to net zero.

Sustainable investment performance concerns

At the same time, performance concerns over investing sustainably have ticked up over the past 12 months, with 53% of investors citing this as a challenge compared with 38% a year ago. This is a significant reversal with worries about performance having consistently fallen year-on-year until now, and likely reflects the more challenged market environment. Specifically, in South Africa, eight out of 10 respondents cited performance as a concern. A lack of transparency and reported data was also recognised globally as one of the major obstacles holding investors back from investing sustainably.

Engagement remains a key focus for investors globally with 59% stating that tangible evidence of real world outcomes was the most important component of any active ownership strategy. Specifically, almost two-thirds of investors (64%) believed governance (e.g. transparency of voting and shareholder resolutions) was the top engagement theme. A focus on human rights and the climate completed the top three in terms of engagement priorities.

Encouragingly, almost four in ten investors globally said they had committed to reaching net zero by 2050, with European investors leading the field on this point, ahead of those in Latin America, Asia Pacific and North America. One-third of North American investors are still exploring the transition but are not yet committed to specific targets. Locally, concerns around the practical implications of a just transition are evident with seven out of 10 respondents stating that they are committed to reducing emissions but not to net zero.

Q. Where are you on your path to net zero?

“The findings of today’s influential Study are striking; more and more institutional investors want to measure, manage and deliver impact. Recognising concerns over tensions between sustainable investment and return goals, it’s becoming clear that thoughtful approaches grounded in investment experience will be increasingly critical,” says Andy Howard, Schroders Global Head of Sustainable Investment.

The Study shows that this focus on impact is increasingly important and Schroders is committing significant time, resource and expertise to developing robust and rigorous solutions to meet that need. This focus also extends to offering solutions designed to support the energy transition among a spectrum of social and environmental goals, which is strikingly now one of the key priorities for investors going forward.

“The Study’s overarching focus on delivering real investment outcomes for investors was further evidenced by the importance placed on engagement. Schroders’ market-leading Engagement Blueprint, published this year, is setting new standards on active ownership as it maps out our ambitions and how we look to engage with companies to support and drive progress.”

Investment outlook

More broadly, investors’ return expectations for the next five years have deteriorated compared with a year ago, compounded by significant concerns over the impact of rising inflation and interest rates, as well as geopolitical uncertainty growing and fears over a global slowdown.

Q. Which one worries you the most?

Amid a more challenged outlook, the Study did however find that investors’ confidence in achieving their returns has remained steady – most likely the result of their scaled back expectations.

Interestingly, concerns over global pandemics have markedly fallen in importance as an issue for investors compared with the previous two years.

Markets continue to be caught in the cross currents of concerns about rate increases and worries about recessionary risks. The Study found that investors’ allocations to equities have dipped, reflecting our own house positioning. Indeed, determining what other positions to own around that core defensive position in equities requires a view on whether rates or growth risks are most important,” comments Johanna Kyrklund, Schroders Group Chief Investment Officer and Co-Head of Investment.

“More broadly, in terms of the impact on portfolio performance, the Study found that a number of issues are increasingly on the radar of investors: rising inflation and interest rates, hawkish monetary policy stances, global conflicts and the looming threat of a global economic slowdown. These are all factors that Schroders as an active manager is also looking to navigate on behalf of its clients globally.

“Our conclusion is to continue to focus predominantly on the consequences of rising rates because traditional inflation models are vulnerable to supply bottlenecks caused by a myriad of unprecedented sources; post-pandemic spending patterns, lockdowns in China and the war between Russia and Ukraine. This leaves central banks focused on normalising policy above all else.”

About Schroders Institutional Investor Study

Schroders commissioned CoreData to conduct the sixth Institutional Investor Study to analyse the world’s largest investors’ key areas of focus and concern including the macroeconomic and geopolitical climate, return expectations, asset allocation and attitudes to sustainable investing and private assets.

The respondents (770 globally) represent a spectrum of institutions including corporate and public pension plans, insurance companies, official institutions, endowments and foundations, collectively responsible for US$27.5 trillion in assets. The research was carried out via an extensive global survey during March 2022.

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SA businesses to prioritise sustainability to remain competitive

Businesses in South Africa are fairly familiar with carbon tax by now, and as these taxes increase, it’s becoming more important for industrial operations to find methods of cutting carbon emissions.

However, the emerging trend that companies should take more seriously is their carbon impact. If they do not they risk losing money as their operational costs start to soar as well as their competitive edge among potential partners and investors in the future.

his is the warning from Tygue Theron, Head of Business Development at Energy Partners Intelligence – a division of Energy Partners and part of the PSG group of companies – who says that large local companies’ environmental, social, and governance (ESG) strategies are coming under increased scrutiny by stakeholders. “We’ve increasingly seen corporates being called out in recent years over their low ESG scores. This is due to the negative impact these businesses are having on world around them – either from an environmental, social or governance perspective. Knowing this, businesses need to understand that their sustainability strategies should be about more than simply keeping operational costs low.”

Theron goes on to note that the international financial reporting structure (IFRS), which every publicly traded company must adhere to, has made it a requirement to disclose non-financial climate-related information about business operations. “In short, public companies are forced to take an in-depth look at their environmental impact and the resources that they use and make a change if they want to be perceived as viable investments.”

Interestingly, he adds that investors are currently hungry for companies that take ESG responsibility seriously, so a well-structured sustainability plan will give a company a significant boost in its investment appeal. “Even if a company hasn’t made substantial strides in curbing its carbon impact yet, committing to a sustainability strategy that takes the business risks into account and shows these will be addressed can be enough to send the potential for investment through the roof.”

In addition, corporates can also enable access to better interest rates on business loans. Sustainability-linked finance is a massive benefit in terms of lowering the cost of capital for businesses that have a forward-thinking vision.

However, Theron also points to one major possible challenge facing companies looking to commit to more investor friendly ESG strategies. “There are so many frameworks to base a sustainability strategy on, and a fair number of them will have no effect on an ESG score. We often see clients pursue the wrong priorities and adopt the incorrect frameworks, which is why we have started specialising in ESG consulting. We are uniquely positioned to set the strategy and execute it with a strong implementation layer within our team, focusing on the ultimate goal of helping clients ensure that they implement the correct frameworks, use their time effectively and get the right results with their strategies.”

Ultimately, Theron says that sustainability strategies have become incredibly complex and specialised. “It is more important than ever to have the right strategy in place. In order to develop an impactful strategy that allows the company to make the right impact for years to come, it’s essential to partner with specialist that has a proven track record and can hold the business accountable to its plan.”

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Western Cape Schools benefit from GPT’s carbon-cutting investments

Earlier this year, on World Rainforest Day, Global Payment Technologies (GPT) committed to bolstering efforts that aid carbon emission sequestration in South Africa. Four hundred and sixty trees were planted in Food & Trees for Africa’s (FTFA’s) afforestation project in the Eastern Cape. On 26 August, GPT’s long-term smart ESG strategy saw a further 270 trees planted at six different under-resourced schools in the Western Cape.

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