Brad A. Molotsky – Page 2 – Environmental, Social and Governance (ESG)

June 23, 2021June 23, 2021 by Brad A. Molotsky

NYC enacts Racial Equity Reporting for Many Land Use Projects

On June 17, 2021 the New York City Council passed Intro – 1572-B, legislation which requires “racial equity reports” for certain land-use actions. According to Langan and the ordinance, racial equity reports will be standalone, project-specific, publicly-available documents that provide supplemental information for use during the Uniform Land Use Review Procedure (“ULURP”) process.

Starting June 1, 2022, a racial equity report will be required for applications involving all of the following actions:

Adopting citywide zoning text amendments that affect 5 (or more) community districts;
Designating historic districts that affect 4 (or more) city blocks;
Acquiring or disposing of (selling) city-owned land for a project containing at least 50,000 square feet of floor area;
Increasing permitted residential floor area by at least 50,000 square feet;
Increasing permitted non-residential floor area by at least 200,000 square feet;
Decreasing permitted floor area or number of housing units on at least four contiguous city blocks;
Changing the permitted floor area (for any use) in a manufacturing district; and
Changing use regulations in a manufacturing district with a project containing at least 100,000 square feet of floor area.

The New York City Department of City Planning (“DCP”) and Department of Housing Preservation and Development (“HPD”) will have administrative oversight of the racial equity reports and have been charged with aggregating the data and developing detailed guidance for further report preparation.

According to the Real Deal, the measure requires the DCP and the HPD to create a database (called the “equitable development data tool” (“EDD”)) with current and historic information focusing on neighborhood demographics, affordability and displacement risk. The EDD will include a 20 year lookback, disaggregated by race origin, aimed at spotting trends in the data over time.

For residential developments, reporting would include proposed rents or sales prices and the household incomes as well as listing the number of government-regulated affordable units at different income levels.

For nonresidential projects, reporting would include the “projected number of jobs in each sector or occupation, median wage levels of such jobs based on the most recently available quarterly census data on employment and wages or other publicly available data, and the racial and ethnic composition and educational attainment of the workforce for the projected sectors of such jobs.”

It’s easy to provide this information for projects with government regulatory agreements; not so for areawide re-zonings and private applicants, where many outcomes are possible. By acknowledging the “worst” possible outcomes (market-rate housing! non-union jobs!), the reports will tee up the opposition’s demands.

Triple Bottom Line – often California leads policy and mandates on various social issues, in this instance, New York City has taken action and mandated racial equity reporting in various land use developments for new projects on a go forward basis. This action will require the aggregation of critical data in order to make land use decisions which will likely result in a different, more informed decision making process that takes into account racial disparity and equity. A big step in the process and one which many towns and municipalities in the US will look to in their own decision making. Too early to call on overall success of the initiative or what will occur, but in my view, a big important step in enabling more informed decisions, that this commentator believes will be the beginning of a more national move in many cities to similar reporting and requirements.

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. For more information, or if you have any questions about this post, please contact Brad A. Molotsky, Nanette Heide, Darrick Mix, David Amerikaner, Vijay Bange, Stephen Nichol, or the attorney in the firm with whom you are regularly in contact.

June 13, 2021 by Brad A. Molotsky

ESG: Will Creating C-Suite Pay Linkages with Diversity, Equity and Inclusion Goal Achievement drive behavior change?

Earlier this year we saw some large market movers tie certain of their credit facility metrics to achieving various ESG goals regarding gender and diversity goals. This appears to be gaining some traction as more companies who’s facilities are renewing are seeing some pressure on this front (i.e., cheaper credit/borrowing rates for achievement of ESG goals).

In addition to borrowing rates now starting to bear some correlation to ESG goal achievement, some companies are now tying executive compensation to specific ESG goal achievement as well.

As recently reported by Emily Glazer and Theo Francis in the Wall Street Journal, Starbucks (increase in managerial diversity), McDonald’s (increase in minority and racial minority leadership roles), Nike (increase in racial and gender diversity) have announced actual compensation based targets that will affect CEO and sr. officer pay depending upon specific ESG DEI (diversity, equity and inclusion) goal achievement. While some would argue this is in relation to increased Board, shareholder and stakeholder engagement and pressure on these companies, others would respond that the companies were already moving in the direction of more causal linkage of ESG goals and compensation.

Nike – setting a goal of 45% of global leadership positions to be held by women, up from 40% in 2025; and 30% of US directors to be members of a racial and ethnic minority, up from 27%

McDonald’s – setting a target of 15% of top executive bonuses being tied to human capital measures including improving the number of women and minorities in the company i.e., 45% of international senior directors and higher managers should be women and 35% in the US are to be held by racial and ethnic minorities, up from 37% and 29% according to the reporters.

Looking back at corporate disclosures from 2020, it was reported that 165 companies or 33% of the S&P 500 companies had disclosed using some level of diversity metric in their compensation structure. This 33% is up from 2020 where Glass Lewis reported that 20 companies had specific DEI metrics tied to compensation and up from 2018 where only 10 had any such metrics.

As these metrics continue to evolve, my sense is better and more transparent measurements will emerge and begin to be assured by external audit type companies to confirm and verify goal achievement. How one retains a worker, recruits a worker and how diverse their supply chain is subject to interpretation, and, as such, clarifying what is being measured and by whom will take some work but our sense is this will be clarified in the next 1-3 years.

“There is a growing body of evidence that shows that companies that have diverse teams outperform companies that are not diverse, whether they’re looking at operating performance or financial performance or innovation“, according to Simiso Nzima, head of corporate governance for California Public Employees’ Retirement Systems as identified in the WSJ article.

Triple Bottom Line – Will putting their proverbial money with their disclosure mouths have been drive additional change? I tend to believe that directly incenting behavior with targeted bonus compensation will, and does, drive specific behavioral outcomes. In this case linking specific bonus targets to ESG DEI outcome achievement will create additional focus and precision in the company’s adhering to and achieving these DEI goals. As such, my sense is that as more and more companies adopt these practices, ISS and Glass Lewis will consider if these metrics should be “matter of course” and as such if a company does NOT have it as a compensation metric it will run the risk of being singled out as poor performer.

Thus, one’s ESG diversity and inclusion goals will actually begin to have a direct fiscal impact on a company’s compensation to its senior officers which is highly likely to get additional or continued focus by these senior officers to insure achievement of these goals. As other S&P 500 corporations begin to include DEI metrics as being tied to compensation, this will also put additional pressure on other public and non public companies to begin measuring and then reporting on DEI type outcomes.

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. For more information, or if you have any questions about this post, please contact Brad A. Molotsky, Nanette Heide, Darrick Mix, David Amerikaner, Vijay Bange, Stephen Nichol, or the attorney in the firm with whom you are regularly in contact.

April 18, 2021April 18, 2021 by Brad A. Molotsky

ESG: Carbon Footprint Labels – Helpful or Green Washing?

Major Fortune 100 and 500 companies and others continue to focus on their ESG efforts in various forms and arenas, including the continued evolution of carbon emissions disclosures on various products.

As noted by Saabira Chaudhuri in her Wall Street Journal column, consumers, investors, Boards and regulators are becoming more and more interested in emission levels in the context of growing concerns over climate change and its impact.

Unilever PLC – intends to introduce carbon footprint details on 70,000 of its products, given that sales of sustainable products are growing faster than their lines of non-sustainable products. They are currently working on obtaining direct information about their carbon footprint for each ingredient supplier that provides products that are used in Unilever products.

Colgate- Palmolive – continues to work with their supply chain providers of various ingredients that are inputting into their products in an effort to avoid allowing estimates of amounts of impact in favor or real numbers. Colgate continues to work on ways to measure and verify their footprint, and to require that their supply chain actually measure and verify these impacts.

Quorn/Monde Nissin Corp – began displaying carbon-dioxide/kilogram on-package carbon footprint details in 2020 for certain of their meatless products.

Oatly AB, Upfield Holdings BV and Just Salad brands have also started listing carbon emissions figures on both their packaging and menus.

Logitech International began listing carbon emissions figures on their computer keyboard products.

Having labelled and provided on line environmental impact numbers for its Garnier hair products already, L’Oréal SA announced it will be adding carbon labels for all of its “rinse off” products, including shampoos, in 2022.

To date, there is no market based, agreed upon, uniform way to report or measure these various GhG impacts but, each of the above mentioned companies, have attempted to outline their methodologies and have given their rationales on how they measure and report – an excellent first step. As others either desire to join them or feel the pressure from consumers, their Board and/or stakeholders to measure and report as well, one can only hope that a quasi uniform methodology for monitoring, measuring and reporting is agreed upon and utilized so that consumers can measure apples to apples rather than apples to oranges or kilograms to pounds.

The Triple Bottom Line: While personally I am a big fan of labeling (whether this be nutrition or calories on a menu or ingredients in a chemical mixture to enable the consumer to review the information and make an informed decision), and, in my view, the growing use of “carbon labeling” represents a good step in the right direction to enable better, more informed consumer choices, I am just not so sure that everyone’s motivation and nomenclature is the same when using phrases like “net-zero”, “carbon emissions” and “greenhouse gas impact”. As such, the reported results will not be comparable as between products, at least not yet. Again, I am very much in favor of solid attempts by various organizations to self report their impacts, I just look forward to the day when everyone is measuring outcome in a similar fashion so that real comparisons by brand and product will be possible, rather than merely smart marketing by some with a lack of a verifiable real methodology for measuring and reporting. As such, I will put “carbon labeling” in the “growing in interest” category, likely to become more and more real and relevant as time and measurement systems are put in place during 2021 and 2022 and, very likely that regulators like the EU, the SEC or trade associations like the SASB continue to push for more required and verifiable disclosure. As such, an area to continue to pay attention to and keep attuned to the market dynamics that continue to push for more and better information.

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), Christiane Schuman Campbell, Darrick Mix, Dominica Anderson, Nanette Heide, David Amerikaner or the attorney in the firm with whom you are regularly in contact.

April 11, 2021 by Brad A. Molotsky

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.

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.

March 16, 2021March 16, 2021 by Brad A. Molotsky

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.

February 24, 2021 by Brad A. Molotsky

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.

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.