Sustainability Update

Lack of Good Quality ESG Data a Challenge

The financial industry is paying increasing attention to published Environmental, Social and Governance (ESG) data, driven by regulatory requirements and investor demand.

Unfortunately, there is a lack of corporate disclosures around sustainability which means they then have to seek out data and face the challenge of inconsistent data.

Research by Alveo, a data management provider, found 71% of companies were using more than five data sources. This makes comparisons hard since the underlying methodologies differ so much.

The research commented that using ratings services does help manage the shortfall in information but creates other issues of data management.

The European Union introduced the Sustainable Finance Disclosure Regulation (SFDR) in March 2021 in an attempt to ensure the sustainable investment market was based on sound data, as opposed to ‘greenwashing’. A second level of SFDR measures comes into effect in January 2023 requiring more disclosures from companies relating to their principle adverse impacts. Unfortunately, there is little international harmony relating to disclosures around the world.

The lack of consistency means attempts to automate data analysis are frustrated.

The Importance of Reporting ESG Accurately

The CEO of a subsidiary of Deutsche Bank, DWS, has resigned due to allegations that the company exaggerated the sustainability credentials of some of its financial products. DWS was selling ESG investments, which makes the allegations particularly sensitive.

German law officials raided the offices, and the public prosecutor has said that they found evidence that could support allegations of prospectus fraud. The head of sustainability at DWS left the company last year having warned that the 2020 annual report made misleading allegations.

The US Securities and Exchange Commission recently fined BNY Mellon $1.5 million for misstatements and omissions relating to ESG considerations connected to investment decisions for some mutual funds it managed. This was the first time this had happened in the US.

Cash Charter Group Works on Standardisation

The UK’s Cash Industry Environmental Charter Group met for the first time since it started in September 2020. A small group met at a cash centre to discuss specific types of packaging used in wholesale cash movements – plastic seals, outer containers for the bulk transport of cash and smaller note and coin packets. A goal is to standardise and reduce packaging across the industry as well as increase the percentage of waste that is recycled.

Most cash related packaging today is colour coded with different coloured bags/printing being used for different denominations of coins and notes. This is a major barrier to effective recycling as the dyes must be separated from the material before reprocessing. A review is being undertaken to ascertain whether in future single use packaging can be made of clear plastic with multipurpose labelling. This would allow better stock control for users as well as improving the quality of plastic available for recycling.

Of course, in some circumstances there is an aspiration to cease using plastic altogether and plant-based alternatives are coming onto the market all the time. These are being tested in various locations, so the Charter group has this under review.

CIT Sustainability

Prosegur Cash and Prosegur have announced that they are the first private security companies in the world to obtain and publish their S&P Global Ratings’ ESG Evaluations. These evaluations assess a company’s ESG strategy and ability to prepare for potential future ESG risks and opportunities.

Following this analysis, S&P Global Ratings has awarded a score of 62/100 to Prosegur and of 64/100 to Prosegur Cash, specifically highlighting the environmental actions relating to the management of greenhouse gas emissions, waste, and pollution.

The two companies have also announced their latest carbon offsetting project, by supporting the Punta Palmeras Wind Farm project in Chile. The output of this farm prevents the emission of 119,000 tons of CO2 by coal-fired power plants and the import of some 215,000 barrels of oil to generate the same energy.