ESG – Lending Costs Tied to Internal Diversity, Equity and Inclusion Goals – a Coming Trend?

Mid week last week, Dawn Lim reported in the Wall Street Journal that BlackRock Inc. had cut a 5 year, $4.4 Billion dollar deal with its lending consortium that ties its lending costs on its credit facility to BlackRock’s ability to meet certain diversity, equity and inclusion goals (“DEI”).

The deal, as reported, ties its borrowing costs to meeting targets for women in senior leadership and to meeting numeric goals regarding Black and Latino employees within its work force. The stated goals for Black and Latino individuals as a percentage of its workforce are 30% of its workforce by 2024.  Their goal on women in senior management is to increase numerics by 3% each year through 2024.  

BlackRock also is focused on growing its environmental, social and governance assets under management from $200 Billion currently, to over $1 Trillion (with a “T”) by 2030.  The goals noted are focusing on aligning its own practices with that of the companies BlackRock invests in as CEO Larry Fink continues to push the envelope on ESG investing and increasing workforce DEI.  

The result of the credit facility loan covenants will seek to more closely align the company’s ESG investing goals with its internal corporate goals and impose costs on its asset managers via higher costs in its revolver by not achieving their stated goals.  

The Triple Bottom Line: A bit too early to call this evolution of tying lending costs to internal ESG goals as a trend (vs. a reaction to public scrutiny elsewhere), but in my view, it is a big step and a signals to the broader market that such self imposed costs can be achieved and that BlackRock is willing to take this type of risk, that align its investment decisions with its internal policies.  Big and bold steps indeed. 

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on Sustainability and ESG planning and initiatives within their own space.  We would be happy to discussion your proposed project with you.  Contact your Duane Morris attorney for more information.

If you have any questions about this post, please contact Brad A. Molotsky  (bamolotsky@duanemorris.com), Nanette Heide, Darrick Mix, Michael Schwamm, David Amerikaner or the attorney in the firm with whom you are regularly in contact.

ESG – Global ESG funds flow increases to $80.5 B in Q3 of 2020 and $2.5 Trillion in ESG AUM

Per a neat article in Funds Fire last week, Moody’s Investor Services issued a February 2021 report  that showed Global ESG flows increased to $80.5 billion in the third quarter of 2020, up 14% from the previous quarter, with sustainable fund assets under management reaching a new high of $1.23 trillion.

In the third quarter, U.S.-based sustainable equity funds saw net inflows of $3.8 billion, even as overall U.S. equity funds saw net outflows of $118.5 billion, the Moody’s report shows.

Clean energy was the top-performing U.S. equity sector, with a total cumulative return of 185%, followed by consumer discretionary, which returned 48.3% last year. Meanwhile, despite entering 2020 with a low valuation, the energy sector lost 33% last year.

President Biden’s focus on renewable infrastructure, along with key political appointments that are likely to influence investment regulations, are likely to have further impact on ESG investing, according to Moody’s.

Per the report, Invesco, which manages $1.37 trillion and oversees $35 billion in dedicated ESG mandates, has targeted 2023 for full ESG integration. BlackRock aims to increase its $200 billion in sustainable investment assets to $1 trillion by the end of the decade.

Further, according to the report, AllianceBernstein was among the firms that had positive momentum in ESG in 2020. At the end of 2020, the firm’s suite of ESG strategies jumped to $16.5 billion, an increase of 60% over the prior year.

According to Funds Fire, Institutional ESG flows, as tracked by eVestment, increased to $109 billion in 2020 from $27.6 billion in 2018. Institutional ESG assets increased to $2.55 trillion from $1.79 trillion over the same period.

The Triple Bottom Line: While numbers can sometimes be manipulated to make a point, in this instance, the sheer numbers and upwards trajectory speaks for itself.  An increase from $27 Billion to over $109 Billion in 3 years; and an increase in ESG assets from 1.79 Trillion to over $2.55 Trillion is significant no matter how  you chose to view ESG investing.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on Sustainability and ESG planning and initiatives within their own space.  We would be happy to discussion your proposed project with you.  Contact your Duane Morris attorney for more information.

If you have any questions about this post, please contact Brad A. Molotsky  (bamolotsky@duanemorris.com), Nanette Heide, Darrick Mix, Michael Schwamm, David Amerikaner or the attorney in the firm with whom you are regularly in contact.

ESG Series – Monthly Free ESG Discussion with Industry Thought Leaders Kicks Off to over 200!

We are soo excited to report on the first of our monthly ESG (Environmental, Social and Governance) zoom webinars focusing on various and sundry ESG and Sustainability issues and topics.

Scheduled for the 3rd week of each month, these FREE webinars will gather “thought leaders” from around the globe to engage in discussion, answer questions and provide their views on what is going on in the arena, what they are planning and how they are executing.

Today’s session featured thought leaders Sara Neff, SVP of Sustainability at Kilroy Realty Trust, Dr. Chris Pyke, SVP at Arc Sokoru and Uma Pattarkine, VP of ESG at Centre Square and was a tour-de-force regarding defining Sustainability, juxtaposing it with ESG and showing how they are different.

We then ventured into a discussion of what are ESG focused companies and how their “alpha” compares vs. non-ESG companies, identified the lack of transparency in the real estate sector regarding others reporting on ESG and followed this up with sharing various “S” reporting methodologies.

Thereafter, we broke down the differences between GRI, CDP, GRESB, SASB, and the reporting of goals and outcomes. Spent some time on how folks are measuring and reporting ESG outcomes. We wrapped up the discussion focusing on how and why LEED and other third party certification methodologies are critical to showing and measuring success.

Key takeaways:

Sustainability – now becoming more carbon focused especially at the building level; measures social impact; provides a lens within which to view long term value creation and survival capabilities and resource allocation

ESG – more focused on disclosures of material, non public information, a set of practices companies should consider following; metrics to measure sustainability through

ESG Performance – ESG focused companies continue to show demonstrable outperformance metrics; the data is now more readily available and is indeed being measured; ESG centric companies have/continue to rebound faster, better and more efficiently than non-ESG focused companies in the face of the pandemic.

More C-suite, Boards, investors, employees and customers are asking ESG and Sustainability related questions and demanding answers on the ESG front than ever before.

Real Estate is currently ranked dead LAST in terms of disclosure and reporting on ESG, behind even the Energy Sector.

LEED continues to help set an aspirational tone for the sustainability movement and continues to require better results in order to score their certifications (v4 is now the standard) and operates and provides an impartial judge to call “balls and strikes” to show real action in buildings.

More and more public companies are reporting ESG goals and what they are doing, where they are doing it and how they are doing it – i.e., over 80% of the S/P 500 are reporting their ESG metrics.

We will publish a link to the webinar in the near future and all are welcome to listen and comment back and ask questions.

Next months panel will focus on the Built Environment and will be held on March 24 at 12-1 EST.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on Sustainability and ESG planning and initiatives within their own space.  We would be happy to discussion your proposed project with you.  Contact your Duane Morris attorney for more information.

If you have any questions about this post, please contact Brad A. Molotsky (bamolotsky@duanemorris.com) or the attorney in the firm with whom you are regularly in contact.