Earth Day And ESG: The Stakeholder View Of Top Firms

Earth Day and Earth Week in 2022 are starkly different from the annual holiday in past decades: this is no time to simply plant a tree, pick up some roadside trash, and call it a day.

Investors today must focus on climate and environmental risk as the U.S. Securities and Exchange Commission (SEC) pushes for mandated carbon footprint disclosures. At the same time, risks to corporations mapped out by the Task Force on Climate-related Financial Disclosures (TCFD), including reputational, legal, and policy risk, are increasingly in focus.

Beyond climate, though, investors can’t assess corporate performance on biodiversity and ecological issues solely through a self-reported corporate social responsibility (CSR) report. Corporate behavior, both positive and negative, is tracked by Truvalue Labs, a FactSet company, by analyzing stakeholder conversations from newspapers, trade journals, and non-governmental organizations (NGOs).

A 2019 study by Witold Henisz and James McGlinch of the Wharton School found a relationship between Truvalue Labs’ environmental, social, and governance (ESG) scores on biodiversity and material credit events and credit risk. In their study, Henisz and McGlinch write that, “biodiversity and environmental ratings of companies in the commodity value chain were highly positively correlated with a number of ESG risks.”

What do the data show today? Here we examine the companies and industries with the biggest impact on the environment, beyond simply climate concerns.

Tracking Corporate Behaviors with Ecological Impacts Data

How can investors track company behavior that affects nature outside of carbon emissions? The Sustainability Accounting Standards Board (SASB) provides a framework and ESG category to do just that.

Ecological Impacts

The category addresses management of the company’s impacts on ecosystems and biodiversity through activities including, but not limited to, land use for exploration, natural resource extraction, and cultivation, as well as project development, construction, and siting. The impacts include, but are not limited to, biodiversity loss, habitat destruction, and deforestation at all stages – planning, land acquisition, permitting, development, operations, and site remediation. The category does not cover impacts of climate change on ecosystems and biodiversity.

Read the full article here.