Darrick Mix – Sustainability, Resiliency and Risk Mitigation

September 21, 2021 by Brad A. Molotsky

ESG – Wynn Resorts Announces Sustainability Goals with public ESG Reporting – Big Moves!

Earlier this week, on September 21, 2021 Wynn Resorts issued its Environmental, Social and Governance (ESG) Report, which included the Company’s collective pledges and defined goals to decrease emissions and confront the mounting risk of climate change.

According to the report, Wynn Resorts has achieved various ESG and Diversity, Equity and Inclusion (DEI) goals, with strides being made in community outreach and crisis relief efforts, responsible business practices, and human rights.

In the report’s forward, Wynn Resorts CEO Matt Maddox remarked, “…operating in today’s socially and environmentally-fraught world, [the company] is called to a higher standard: to take responsibility, not just for our decisions, but for the all future impacts of those decisions. Impacts we ourselves may not live to see, but will have caused, nonetheless. Decision-making with careful consideration to the impacts 20 or 30 years from now isn’t just essential, it’s an existential imperative. That is what the future demands of us.”

The Wynn Resorts sustainability program, known as Goldleaf, attempts to bring solutions to the wide range of environment and climate challenges that are unique to each resort that Wynn Resorts operates.

Under the direction of CEO Matt Maddox and Chief Sustainability Officer Erik Hansen, the Company has committed to the following Wynn Resorts Corporate Sustainability Goals:

Net-Zero by 2050: To reduce or offset all carbon dioxide (CO2) produced by our operations no later than 2050.

Carbon Dioxide Emissions Peak by 2030: To stop and reverse year-over-year growth of operational carbon dioxide (CO2) emissions by 2030.

50% Renewable Energy Procurement by 2030: To increase Wynn Resorts supply of renewable energy produced or procured to at least 50% of total consumption by 2030.

The above commitments are aligned with the recommendations made by the Intergovernmental Panel on Climate Change (IPCC) for limiting global warming to below 1.5 degrees Celsius, as referenced in the 2015 Paris Climate Accord.

In 2020, Wynn Resorts completed several major projects in renewable energy, waste diversion, and emissions reduction, including:

Wynn Resorts installed 23 Megawatts of solar power capacity in the United States, which offsets 100% of the energy consumed in the 560,000 square-feet of convention space in Las Vegas, and up to 75% of the peak power demands of the entire 10-million-square-foot Las Vegas resort.

Wynn Las Vegas reduced its annual energy consumption by 20% in 2020 relative to 2015 through capital investments in critical energy-reducing technologies and operational efficiencies, most notably the 160-acre Wynn Solar Field and a concerted effort on preventive systems maintenance.

Encore Boston Harbor received 100% of its energy from renewable and green sources of power and, according to the Report, is the first integrated resort in the Unites States with an onsite microgrid balancing solar energy production, combined heat and power co-generation, and battery storage.

Wynn Las Vegas reduced Carbon Dioxide (CO2) emissions by over 80,000 metric tons from 2019 to 2020, achieved by offsetting energy procured from traditional fossil fuel-based generation with renewable and green energy products.

Encore Boston Harbor diverted 100% of waste from the landfill in 2020 during its first full year of operation, utilizing its comprehensive waste management infrastructure of recycling, composting and waste-to-energy conversion to ensure no waste goes to a landfill.

Wynn Resorts CEO Matt Maddox spearheaded the creation of one of the hospitality industry’s first science-based Health & Safety Plan, which Maddox presented during the White House Business Council on Reopening. The plan became the preeminent roadmap to a successful reopening effort, with policies adopted by several other international brands and industries.

Wynn Las Vegas collaborated with University Medical Center (UMC) to open the UMC COVID-19 Vaccination Center, the first vaccination site to be located onsite at a resort, which administered over 50,000 vaccinations to eligible Nevada residents.

Wynn Las Vegas built and opened the Lighthouse Lab COVID-19 testing facility, a 3,000-square-foot facility at the resort staffed by medical professionals from Lighthouse Lab Services who administer up to 7,000 PCR tests per day, helping usher the return of convention business and group events.

Globally, per the Report, Wynn Resorts donated $23 million USD in funds and in-kind donations to charities in 2020, which included $4.75 million in direct COVID-19 relief efforts, almost $1 million in food and meals, and over 2.5 million pieces of personal protective equipment to recipients like the Nevada National Guard and the Macau Government. In addition, Wynn Resorts global workforce volunteered over 34,000 hours of time in 2020.

The Wynn Resorts Human Rights Policy was broadened in 2020 to include specific expectations and core principles for diversity, inclusion, and non-discrimination. In addition, the Wynn Resorts Diversity Council drafted the first Wynn Resorts DEI Policy to codify goals that foster a culture of inclusion, embrace a diverse workforce, and develop vendor partnerships that create a fair and equal economy.

According to the company, extensive training and security procedures were enhanced in 2020 to combat human trafficking and commercial sexual exploitation, including the development of a company-wide training program for trafficking awareness that will be mandatory for all employees.

The Wynn Resorts ESG Report presents information that references select Global Reporting Initiative (GRI) Standards and Sustainability Accounting Board Standards (SASB).

Triple Bottom Line – Wynn’s public announcement of their Sustainability Goals is a big step and will likely put pressure on their competitors to make similar announcements regarding their plans. Time will tell. Care to take a bet on this front?

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, Jolie-Anne S. Ansley, David Amerikaner, Adam Berger, Frank DiGiacomo, Vijay Bange, Stephen Nichol, or the attorney in the firm with whom you are regularly in contact.

July 2, 2021July 2, 2021 by Brad A. Molotsky

ESG – Green Bonds and Green Financing Continues Torrid Pace of Uptake – $2.36 Trillion Anticipated by 2023

I had the pleasure of hosting Emily Paciolla (Federal Realty), Dan Winters (GRESB), Ethan Gilbert (Prologis) and Ben Myers (Boston Properties) this past week on our monthly ESG podcast.

Wow, what a fascinating conversation focusing on what each of their companies (leaders in their own industry segments of industrial, office and retail as well global benchmarking on the GRESB front) are doing and how they are utilizing green bonds as a part of their strategies for continuing to invest in sustainable solutions for their companies and their clients (i.e., their tenants).

The panelists represent over 1 Billion Square Feet of office, industrial and retail space in the US and abroad and are market movers in their respective sectors.

We heard on the podcast that interest in GRESB, the Global Real Estate Sustainability Benchmark that is used to rate companies (i.e., aggregation of assets not just single buildings but portfolios), has also continued to have an incredible uptake of clientele companies joining GRESB and submitting to their voluntary benchmarking and scoring. In 2020, over 1,200 international companies submitted to GRESB and, with yesterday’s filing deadline for 2021, it is likely that over 1,600 companies will be submitting in 2021. Each of these companies have multiple assets and, as such, represent a growing footprint of square footage willing and interested in participating in measurement, verification and benchmarking.

The panelists also discussed that within their companies, they are voluntarily reporting their results publicly and are having these results verified by external reporting. These ESG and sustainability reports have been published and other public companies are following their lead and also publishing their results (e.g., over 85% of Fortune 500 companies publish their results).

All panelists have issued green bonds and anticipate likely future issuances. Both Boston Properties and Prologis have issued over $1B of green bonds each and continue to expand the depth and breadth of their investments. Federal Realty has also used their green bond proceeds to broaden and deepen their LEED certifications and other sustainability programs within the portfolio of over 110 properties in the US. Green bond dollars have been used to further other ESG and sustainability initiatives and help expand building certifications (LEED and BREAM as well as WELL and Fitwel) within each of their respective portfolios and enable initiatives to be pushed further and faster.

Of particular interest is not only the scale that they are issuing bonds but also that these bonds are being priced with a discount of 5-15 basis points cheaper than non green bonds – meaning, it is cheaper to borrow this type of money for green usage and investment than for non green usage. Over a few billion dollars, these basis points may sound small but these savings are NOT…think millions of dollars of savings each year and over the life of the bond. Real money being invested in green investments at a cheaper rate!

During 2021, ESG efforts at these companies will be focusing on supply chain sustainability metrics, use of materials, embodied carbon, renewables including on-site solar energy generations, energy efficiency, the Task Force on Climate Disclosure, Scope 3 emissions and diversity, equity and inclusion.

While not all tenants everywhere are asking about green features in their buildings, more and more are interested in them in the panelists’ views and to address this interest, these companies continue to offer more and more green attributes and features within their respective portfolios. Moreover, with return to work post pandemic being somewhat imminent, the panelists also saw the role of the Chief Sustainability Officer being expanded in most cases to include some level of involvement or oversight with respect to health and safety and return to work – think elevator policy, green cleaning and chemicals, plexiglass and social distancing, air conditioning and fresh air intake and MERV filtering of air (13 or higher to trap 99% of air borne particulate matter), etc.

Our panelists have also tied their revolving credit facility metrics on rate to various ESG metrics and are also tying executive compensation to various ESG and sustainability metrics. As we have reported previously, as more public companies tie compensation to reaching various ESG goals, the uptake will continue to build until this approach is not viewed as novel but, rather, common place, as others will likely begin to follow this lead or be viewed by investors as not paying attention or caring.

We also heard the Roger Platt-ism of a “self-licking ice cream cone” being used to describe the interplay of measuring, verification and outcome in the green space across various segments (longer explanation need than we have room for but ring me and we can discuss) – as well as describing the ESG space as being a lot of Plan, Do, Check and Act!

Triple Bottom Line – with over 23 countries represented and a Strategic Framework being created and issued by the World Bank in 2008, green bond issuances started slow and steady but have seen a massive uptake in interest and investment in the last 6 years. The bonds and financings have been used to support and encourage environmentally friendly projects in the US and internationally (including required covenants to maintain these projects on a go forward basis). In 2020 over $269 Billion in green bonds were issued, noting that the pandemic did little to dampen enthusiasm for this green type of investment vehicle. In Q-1 of 2021 we saw over $106.86 Billion of green bond issuances, a bit of a harbinger of a super green bond year. All in all there have been approximately $1 Trillion of green bond issuances cumulatively with an annual year of year uptake of 60% growth since 2015. Current estimates have cumulative totals of green bond issuances at over $2.36 Trillion dollars by the end of 2023!

As such, this author’s view is that green bonds as a financing source is NOT a passing fad, rather they are a viable source of debt capital and continuing to build in interest and issuances both nationally and internationally and will continue to do so.

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, Jolie-Anne S. Ansley, David Amerikaner, Vijay Bange, Stephen Nichol, or the attorney in the firm with whom you are regularly in contact.

P.S. Our panelists divulged that their favorite podcasts these days include “How things Work”, “The Hidden Brain”, “How to Save a Planet”, “The Energy Gang” and “Big Switch” – check it out! Also, if you are looking for a super children’s book to help explain climate change to your kids, check out “Earth’s Climate Heroes” – A+

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.

June 7, 2021 by Brad A. Molotsky

The Network for Greening the Financing System (NGFS) – 90 Worldwide Central Banks and Growing – The Advent of Pricing Carbon into Lending Rates

According to a recent Wall Street Journal Article by Simon Clark, this past December saw the US Federal Reserve join various international central banks and supervisors in the “Network for Greening the Financing System” (the “NGFS”), an international assembly of central banks who set monetary policy around the globe. The NGFS includes central banks and regulators of major European countries as well as Japan, China and Russia. Started in 2007 with 8 members, the NGFS now has over 90 central banks and regulators in its membership and is planning to meet later this month (June) to discuss further policy changes in the climate and risk arena.

Central banks throughout the world are quietly, but more publicly, getting much more involved in climate change risk analysis when setting monetary policy. Some of the central banks are even taking on what some would consider activist stances on the environment and risk. Formerly behind the scenes discussions are evolving into various central banks stating publicly that climate change is a current fiscal and economic risk and, that it is time to take into account these risks when setting monetary policy.

This pivot is already finding its way into monetary policy that will impact US companies doing business overseas, as banks like the Bank of England, now specifically include environmental sustainability as well as price stability in their monetary policy. This policy change will result in US based companies doing business in the UK being impacted by these types of policy changes as it will affect their borrowing rates overseas. For instance, earlier this year the UK Treasury chief changed the Bank of England’s interest rate setting for its committee, to require inclusion of strong sustainable and balanced growth that is also environmentally sustainable as part of its pricing review.

In addition to the Bank of England, the European Central Bank which overseas monetary policy in the EU, has also publicly stated that climate change is within their purview and they will begin taking climate change into consideration when setting monetary rates.

As noted in the Wall Street Journal article, the Bank of France has also begun collecting data on the potential costs of climate change, having found that the cost of insurance claims due to flood and drought impacts are likely to rise by as much as 6x in various French provinces by 2050.

Some of the central banks that are members of the NGFS have adjusted policy based on climate considerations, including higher capital charges for lending to fossil-fuel based companies and including stress testing for climate risk and rising temperatures in their portfolio analysis.

The NGFS’ beginning of increasing of interest rates to address climate concerns, comes at a time where the inflow of investor capital into consumer products, green bonds and stocks of companies focusing more on ESG and products that support ESG and sustainability efforts is at an all-time high and exponentially continuing to show signs of a stable base of investors looking for climate considered attributes.

According to Mr. Simon, the risks being explored include loss of loans or a decline in asset value given locations at or near waterfronts as well as risk adjusting properties in areas that are and have been the subject of wild fire risks. The central banks are also considering charging higher interest rates to lenders that pledge carbon intensive assets as collateral. Meaning, those member banks who continue to lend to carbon intensive asset classes will see higher interest rates that they will pass along to their more carbon intensive customers seeking to borrow these funds

Some of the central banks are also considering whether to require their member banks to set aside additional capital for loans to fossil-fuel companies and less to those in renewable arenas. This would likely translate into loans being made to more carbon intensive user/borrowers having to have a higher loan to value for their assets than their less carbon intensive competitors; resulting in more lending capacity for less carbon use intensive borrowers than their carbon consuming rivals.

Historically, the central banks have always avoided, at least publicly, attempting to influence lending decisions of their member banks where the decisions would have political implications regarding whether climate change is a man-made event. This shift at the NGFS in taking a more public stance, would effectively shift direction for their central bank members and put them directly into the cross hairs of the political discussion of how and what to do about climate change and whether climate change is “man-made”.

Triple Bottom Line – as the NFSG continues to garner more members and, as these members, including the US Fed, start to really include carbon intensity in their pricing decisions for lending, companies that borrow funds internationally will begin to see the impact of their carbon use and will likely face increased risk and higher borrowing costs depending upon how intensive their impact is on the environment. Thus, one’s carbon footprint will actually begin to have a fiscal impact to their operations which will likely create additional disclosure around this risk and attendant result.

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, David Amerikaner, Nanette Heide, Darrick Mix, 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.

March 15, 2021March 15, 2021 by Brad A. Molotsky

ESG – Calvert tightens its proxy voting standards to require Diversity by Gender and by Color on Boards

In a post earlier today, the President and CEO of Calvert Research and Management, Jon Streur, discussed his view on why Calvert “raised” their standards for proxy voting on board diversity. Calvert, with over $31 Billion in assets under management, is one of the foremost fund managers who have been utilizing an ESG lens within which to evaluate companies for decades.

Per John, “[a]t Calvert, we have used the power of our proxy vote to hold boards accountable for their attention to diversity for three decades. This year, expectations for corporate diversity are rising, and we are more aware than ever of the value of diverse leadership for long-term corporate performance. For this reason, we are increasing our standards for board diversity.”

As a result of their change in voting standards, Calvert will vote AGAINST the nominating/governance committees of public companies that have fewer than 2 women on the board.

Previously, they voted against the nomination of directors for company boards that lacked representation of women.

They also indicated that for companies in the US, the UK, Australia and Canada, Calvert will also vote AGAINST the nominating/governance committee at public companies that have fewer than 2 people of color on the Board or are less than 40% diverse.

Previously, Calvert’s minimum standard was 1 person of color and a board that was 30% diverse.

Research indicates that diversity is a financially material ESG issue. In research begun in 2019 and continuing currently, Calvert found that in “evaluating the financial materiality of gender diversity factors” that gender diversity factors are associated with improved equity returns for both the U.S. and non-U.S. markets.

Per their data, companies with at least 2 women on the board outperformed when compared to those with fewer women on the board, and U.S. large-cap companies with more than 2 women saw even greater improvement. In the U.S. and certain like markets, similar results were found for ethnically diverse boards.

The Triple Bottom Line: According to Jon and Calvert, “proxy voting is a vital way to hold companies accountable for their commitments to board diversity. This and other tools of structured engagement can help encourage positive change”.

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