S&P Global Inc. (SPGI) Earnings Call Transcript & Summary

Hello, everyone, and welcome to today's webinar, University Essentials: From Crisis to Resilience - Navigating Sustainable Recovery. My name is Esther Whieldon, and I'm moderating today's panel. I'm a senior writer on the ESG Thought Leadership team at S&P Global Sustainable 1, and I'm also co-host of S&P Global's ESG Insider podcast. We want this to be an interactive session, [Operator Instructions] Please also check out the other widgets, and keep in mind that the console you see can be customized. You can resize or move any of the windows that you have opened. Two widgets I'd like to draw your attention to are the Resource widget, which is filled with valuable content and thought leadership pieces; and the other is the Survey widget. Please do take time to fill out our short survey. We really value your insight. Let me also note that this webinar is being recorded and an on-demand version will be sent to you by the end of the week. All right. Now to today's presenters. One is my colleague, Dr. James Salo. Dr. Salo is Head of Environmental Research with S&P Global Sustainable1. He has been the lead analyst and managed hundreds of projects that have provided multinational corporations and investment organizations with actionable insights to help meet their sustainability objectives. I'd also like to welcome Kai Chan. He is a professor at the Institute for Resources, Environment and Sustainability at the University of British Columbia. Professor Chan leads CHANS Labs, and that stands for Connecting Human and Natural Systems. And he is co-founder of CoSphere, that's A Community of Small-Planet Heroes. Our third panelist today is Dr. Gita Rao. She is a senior lecturer in -- of Finance and Associate Faculty Director of the Master Finance program at the MIT school Sloan School of Management. Before joining MIT Sloan, Professor Rao had more than 2 decades of experience in global investing, asset allocation, risk management and client service. She is also a Faculty Director for the MIT Sloan Impact Investing Initiative. Before we turn to our experts, let me set the stage briefly. The UN's Intergovernmental Panel on Climate Change, or, as we probably all know it, IPCC, recently issued the first of several forthcoming reports on the latest science on climate change. The report effectively signaled a code red for humanity. It told corporations and governments in no uncertain terms: act with urgency to lower emissions and adapt to the impacts of climate change at a more rapid pace and on a bigger scale. Moreover, for the first time, scientists said the world has already reached a tipping point for when things like climate change, like sea level rise and warming oceans, will continue for hundreds to thousands of years before they start to reverse. And recent flooding from extreme weather events and unusually hot summer in places like the Pacific Northwest as well as massive wildfires in the West last year, these are stark reminders of how climate change is already impacting our lives. But not all hope is lost, and that's what we're here to talk about today. The IPCC scientists noted that we can still mitigate the worst impact. And in a recent episode of the ESG Insider podcast, one of the authors of the report told me that every little thing we can do will help. As we all know, the world is still trying to recover from the economic damage wrought by the pandemic. So today, we're here to talk about where we're at, what things we still need to be considering and how we should move forward. All right. So this seems like a good time to have our first polling question. Let's go ahead and put that up on the screen. Our question is, following a code red for humanity from the IPCC report, what is the most impactful action that corporations, governments and investors can take? A, commit, enforce and reduce emissions -- carbon emissions; B, define sustainable standards on a global scale; or C, address physical impact-related and policy transition-related climate impacts? While we're waiting for answers to come in, let me mention this event is happening during New York Climate Week. And all of our divisions, including Market Intelligence and Sustainable1, are putting out great new content this week that I hope you'll check out. All right. So it looks like our answers are in. Let's put the results up, if they aren't already. It looks like the majority of you think that committing, enforcing and reducing carbon emissions is the most impactful action that everyone can take. Let's turn now to our panelists and see what they think about this. Dr. Salo, what did the IPCC's recent findings and what we know about climate change mean for companies? And how does COVID-19 and the recovery measures fit into all of this?

Fantastic. Thanks very much, Esther. So first of all, as a baseline, almost 2/3 of major global companies that make up the S&P 1200 have carbon-reduction targets, so interesting about that polling result that we just had. And even more than that, disclosed greenhouse gas emissions associated with their operations and purchased electricity. Now on the other hand, our research shows that 72% of these same global companies in the S&P 1200s are on track for a 3-degrees warming scenario, just 7% of the emissions that are reductions that are needed by 2025 to achieve the goals of the Paris alignment. We've also identified that major companies face up to $283 billion in carbon pricing costs by 2025, or 13% of their earning, at risk under a high-carbon price scenario. And 2/3 of the S&P 1200 have assets that may face moderate climate risk by 2050, and 2/3 have at least one asset with high-risk -- a physical risk under high-impact climate change scenario, with greatest risk coming from things like water stress and wildfires from -- that are linked to global increase in temperatures. In short, there's a lot of risk to business coming from transition and physical risks associated with climate change. Now with regards to COVID-19 and the recovery efforts and how they can move us towards a more sustainable future, depends on how effective we are as a global society towards moving towards a new normal. Certainly, governments can have a lot of power here and can move us to enact stimulus packages that support climate goals. But there are also ways that businesses and others can have effect. Our research has found that a 7% reduction in freight shipments in the shipping sector or a 40% reduction in business travel in the aviation sector could help align those 2 industries to a 2-degree climate scenario. And also just moving to a 3-day work-from-home policy in the professional services sector would align emissions from passenger transport over the next 5 years. So with the right government support for climate-aligned stimulus and some adjustments in business to a new normal, we may be able to align some solid building blocks to move us towards a more sustainable future.

Great. So Professor Chan, what are some other factors we should be thinking about when it comes to climate change? We heard -- we heard Jamie talking about sort of thinking about COVID-19 and all of these risk factors.

Yes. We can move to the next slide, I think. We -- thank you, Esther, for this. I'm still seeing -- I don't know if I have a delay on my side with the slides, but there we go. One of the most important things for us to think about in relation to climate is the way that climate makes everything else worse. And so next slide, please. One of the key pieces is that also our climate actions are also going to have impacts. And so whenever we think about climate, we need to be thinking about a whole diversity of human efforts and how they're going to fit together, and how they're going to undermine each other if we're not careful, right? And so this is actually a figure on the left of this slide coming from the IPBES or IPBES, which is the sister organization to the IPCC. A couple of years ago, the global assessment about biodiversity and ecosystem services came out and took stock of what we would have to do collectively in order to meet the kind of UN Sustainable Development Goals in the world that was envisioned in the Rio +20 process. And so meeting climate targets is one part of that, as you can see here. But -- and I'm not sure if you can read the little font here. But it's also the case that meeting climate targets also has to simultaneously balance, maintaining nature on the land base and also nature's contribution to people. Meanwhile, that all has to fit on to the same land base, feeding people without degrading nature on land and conserving and restoring nature on land. And all of those also have lots of downstream impacts, for example, on freshwater, both in terms of quality and quantity, which are obviously fundamental for human well-being as well as down even in the oceans and coasts, which we rely on both for food as well as for the nature they provide. So that's really a key piece. And all of that, like that sounds pretty academic. But those kinds of interactions -- next slide, do manifest in terms of impacts on prices and so markets. And that obviously has 2 different kinds of effects. And I'm going to pick up one particular kind of interaction that has the [indiscernible], but then also social justice issues, right? So way back, this really kind of blurry on the screen, image of the corn prices shows what happened when biofuels became popular in the mid-to-late 2000s. As corn ethanol was becoming a normal component of gasoline, it meant that lots of U.S. farmers switched from growing corn for human production towards -- sorry, for human consumption towards growing it for the ethanol because the prices were sufficiently competitive that, that made sense. Well, that meant a massive spike in corn prices that led to food riots in various parts of Latin America, where corn and derivatives of that like masa harina are absolute staples for many low-income people. So remembering that 3 billion people, upwards of 3 billion people live on USD 2.50 per day, what presents as a market opportunity is also a real problem for lots of people. So you can also see the same kinds of effects playing out more recently, and that's the graph here on the right with monthly commodity prices. These are different groups of food effectively. And you can see it impacts -- many of which are climate-related here, including droughts and floods and other kinds of more localized impacts that do have effects at -- on global prices because of supply restrictions.

That's right. I remember even just like at the beginning of the pandemic how I'd go to the store and finding toilet paper, meat, anything like that was a real challenge. We saw directly how the kind of supply chains can be affected, and that wasn't even just the climate change factor that we know was coming. All right. So Professor Rao, can you put this in context for us for -- when it comes to things like where sustainable investing fits in this? How should sustainable investing be looked at? And kind of where are we at currently with that market? I think you may be muted.

Sorry. Thank you, Esther. Yes. And please, if you could forward to the next slide. Yes, I -- the thing that I have spent a fair bit of time looking at is how can we, as shareholders, help corporations or, in some cases, push them along to take a stakeholder perspective. That is to think beyond quarterly earnings and to think about the impact of a corporation's actions on numerous stakeholders, whether it is the environment, it's the employees. And in fact, it's their competitors and the world they live in. And this slide, I must apologize, this is as of January 2020. It's a little bit out of date but the numbers have not changed. If anything, they've actually gotten even more stark. What we saw since the global financial crisis is that there has been a huge push towards index funds. And this has been both in the retail space as well as in the retirement space, which is a very significant part of the investing landscape. So index funds, and by that, I mean the complexes, BlackRock, State Street, Vanguard and Fidelity -- and actually, BlackRock and Vanguard, they own anywhere from 10% to 30% of individual companies because of this push towards index funds, because they outperform and they have low expenses, there's -- that's a whole topic for a whole different webinar. But what relevance does this have? The relevance that this has is that these index funds, how they vote their shares for shareholder resolutions related to the environment, issues like climate change response, climate change resilience, climate change impact of companies, social issues like gender diversity, gender pay equity, drug pricing, drug affordability, drug safety and governance issues. How these index filings vote makes all the difference in terms of what we can achieve for advancing an ESG agenda. So that, Esther, what I would say is that we need -- when we look at corporate America and we look at companies, there are 3 legs to the stool: There's the shareholder, there's -- who's the little investor, so to speak; there is the fund manager; and then there's the company. And all 3 need to work in tandem to push this agenda along.

And I think back to the announcements BlackRock made at the beginning of the year, saying that they're going to be more transparent about the index or sort of the carbon footprint of the different funds they have and offer more products. So even though they make the claim that they can't necessarily control, like, where that money is being put 100% because that's up to their customers, they certainly can create products or -- and create transparency. Which I think we're going to get to a little bit more later on here talking about -- not everyone is helpless, right? Everybody can do something in this regard.

Yes.

Yes. All right. So let's go to our next polling question, which is about green finance and impact. Let's pull that up. So in the U.S., billions have been allocated to green investments. What is the most likely impact? A, large-scale corporate investments with minimal impact; B, unclear standards of what is green in alternative asset classes with little progress towards sustainable goals; C, unintended consequences of climate and societal shifts despite best efforts by companies and sovereign nations; or C -- or D, green investments advance sustainable goals. When we're talking about green financing, I just want to mention, while we're waiting for the results to come in, that I -- on the ESG Insider podcast we just put out, I think about a week ago, an episode talking about green banks, which is like something that governments can create at the state level. And it's being thought about at the federal level to help fund some of these smaller funding gaps for like local projects and stuff like that. So I encourage you to check that out if you haven't already. All right, let's see what the results are. Are we ready to look at them? Great. So it looks like B is the dominant one, 50%, that we're going to have most likely unclear standards what is green and alternative classes with little progress towards goals. And as a former reporter, I often take the pessimistic view similar to that as well. Let's see what Dr. Salo has to say about this. We've seen this recent uptick -- this big uptick in recent years that Dr. Rao was talking about in sustainable investing. Can you talk to us about what is driving that growth?

Yes. Thanks very much, Esther. Over the last decade, there has been a huge growth in ESG and sustainable investment. In the U.S. SIF Foundation's 2020 biannual report says that there are now sustainable investing assets of over $17 trillion or 33% of total U.S. assets under professional money management. That's a 42% jump from 2018. Another way of looking at it is on the UN-backed Principal for Responsible Investments. As of September 2020, the PRI had over 3,000 signatories with $103 trillion in assets under management. That's up from 63 signatories and $6 trillion in assets under management in 2006. Now what are some of the reasons for that change? Growth of visibility of ESG issues for one. Certainly, research from Morgan Stanley shows that 85% of individual U.S. investors now express some interest in sustainable investing, while half have involvement in sustainable investing. Another reason towards that transition is the investment power and transfer of this power to younger generations. Nearly 95% of millennials are interested in sustainable investing. 75% of those believe that sustainable investment decisions can impact climate change policy. So the growth of ESG investing is likely to continue as there is that continued transfer of wealth. Also, the information available on ESG is -- the depth and breadth is expanding, and the materiality of that information is becoming more widely recognized. As an example using climate change, as of October 2020, there were more than 1,500 organizations that had expressed support for the Task Force for Climate-related Financial Disclosures, TCFDs. That was an increase of 85% only from a few months earlier. And nearly 60% of the 100 largest public companies support the TCFDs or report in line with some of their recommendations. The global pandemic has also put a spotlight on this with the value of ESG being considered more in capital markets. There's been evidence that shows that there has been greater resilience to market shocks in ESG investments. And there have been outperformance from mainstream indices and -- relative to ESG investments during time, and there's been significant inflows in those investments. So a number of things are kind of driving this, that there has been a large increase in those investments.

Esther, I think you're muted.

Now I did it. I was thinking about how while all these investments are being made and sort of these drivers are happening, there's also a lot of questions being raised about sort of the transparency, the accuracy, what's actually in the ESG funds, right? And maybe Professor Rao, maybe you can talk to us a little bit about kind of that transparency question. What needs to be done? And also kind of how should social factor like, such as equity, be factored into these decisions? I think you are muted.

Oh, my goodness, after 1.5 years teaching on Zoom, I should be better at this, right? I guess I'm not used to the room.

It's contagious.

Yes, Slide #23, please, if you don't mind. Could you advance to that so I could just speak briefly about it? Yes. So one thing I decided to look at was -- I think it's wonderful, the data that Jamie cited. I don't want to sound like a Debbie downer, but through the ages, the scent of money has been irresistible. And the financial services industry has latched on to ESG big time. And this has led to a concern about impact washing, greenwashing and so on to the extent that in Europe, they're actually now -- they're starting to try to implement some standards about what is considered greenwashing. And the SEC is looking at the same thing. So what I decided to look -- do was look at ESG index funds to see how they voted. So these are funds -- and the Vanguard one is the oldest one in the U.S., it's been around since about 2000, to look at how these funds voted on environmental, social and governance issues. And as you can see, this data runs through 2020, and it's actually rather depressing. Which is on the environmental side, they basically voted against most of these proposals. And mind you, the proposals are very modest. These are not -- they're not looking for companies to completely revamp their strategy or whatever. It is a disclosure of response to climate change or proposed response or how are they going to deal with greenhouse gas emissions and so on. On the social side, the same was true, voting with management in almost all instances. And on the government side, though, this fund was quite engaged and has been. And I also looked at BlackRock's similar ESG -- ETF, exchange traded fund, and I got similar results. What do you take away from this? First of all, to -- back to what Esther was talking about transparency, this data is in a 1,000- to 1,200-page PDF which has to be script using Python. It's impossible to access it otherwise. And we do know that funds have the ability to present data in a simple way that regular people can understand. But it's not being done that way. It's being buried, and it makes it very difficult for us as shareholders to understand what actually funds are doing. So pushing for transparency and pushing for disclosure is, I think, critical. So back to you, Esther. I think that's what you're asking, right?

Yes. And I think one of the things I've observed is that -- so I started reporting on ESG and like covering it maybe 3 years ago. And at that time, climate change was the main thing, right? It was like the thing -- there was some social stuff. But then the pandemic really, I think, brought a lot of social issues to the forefront. And we've seen a lot more companies and investors kind of paying more attention to that. Do you have a sense for how that is -- if that is also appearing in like the shareholder engagement process? Or is it primarily just on the public-facing side?

Yes. I think that's a great question, Esther. One thing -- I think it was a combination of the pandemic and George Floyd's murder back last summer. It kind of pushed the agenda of diversity onto the agenda at annual general meetings, at AGMs and through the mechanism of shareholder resolutions. And the question of diversity as well as gender pay equity, both of those, there was an unprecedented number of resolutions in the 2020 season on this. And if you wouldn't mind going to Slide #33, I did look at social resolutions on gender pay equity. And these were also on the -- in the column that says AGM date, that's the annual general meeting date. So as you can see, these run through 2019 and 2020. And there were a lot of these: gender pay gap, median gender pay gap, how is it broken down by race and gender. And these are all shareholder resolutions. I think there's a few takeaways here. It's striking that in every single case, management was recommending voting against disclosing anything about the gender pay gap, in every single case. And in the case -- this is actually the Vanguard fund, and the vote cast was also against. And the -- it is actually really striking to me that companies like JPMorgan Chase, that have been very much in the news saying they want to have a diverse workforce. They are committed to it and they're committed to equal pay for equal work. But management recommends voting against disclosure, and the investors are voting against it. ESG investors are voting against it. Something's got to be done. And there's a lot of reasons for this. One reason could be that it's complicated. But these companies have to report this data in the U.K. because in 2018, it was mandated that they have to start reporting it. The FSC mandated it. It could be because once you report, it's something needs to be done. And I know S&P is doing some very interesting research, which should be coming out in October on this topic. So let me stop here, Esther.

Well, I think you have a good point that like we're seeing progress, but obviously, there's choke points, right, where we're not seeing it sort of interpreted into results. And maybe we can turn to Professor Chan here, who can talk about the sustainable investing side of this. So we know asset managers, from what Professor Rao told us, aren't necessarily voting the way that the rhetoric is headed. Can you talk to us about kind of what we need to do to align sustainable investing itself and sort of interrelated nature, you kind of touched on before, of climate and the actions we take.

Yes, it's such a big topic, and it's really troubling to see those slides from Dr. Rao. I think the issue is going to have to rise in terms of people's concern that takes it on all fronts, right? We need for individual investors to be calling for different kinds of actions. We need also action on the part of lawmakers to mandate some of these disclosures. I think that, that's really going to be necessary. Because the issues that are most important, as you can see, are just not getting sufficient attention. And so it goes -- Dr. Rao showed you how the funds were voting in terms of environmental issues. The importance of those environmental issues continues to be missed. So if we can go to -- just to Slide 21, please. This is -- there we go. This is a slide that shows how the changes in nature are either -- so the changes in how we are managing the planet basically, right? So not just like nature as in wildlife, but also the land use and how we're managing water. And all of the rest of that, how those changes are affecting our efforts towards individual Sustainable Development Goals. And what you can see is that, like we're doing a terrible job, for the most part. There is a column in this figure that is positive, that is not shown because there was nothing in that column, right? And so most of what you're seeing is negative. In some cases, you're seeing some positive signs and some other -- and some negative signs. That's this partial support here. So really, like the changes -- what we're doing on the landscape is having all kinds of reverberations that have negative effects. And that starts with environmental initiatives. It starts with social initiatives. The good news is that, as Dr. Rao pointed, you're seeing more of -- more interest and action on the governance side. That governance side is really important. So if we can go now to Slide 20, I think. I'm going to talk about this a couple of times perhaps. But these 3 -- if you can see the brownish 3 circles, these are 3 of the most important levers that -- in terms of what would actually help to bring about a sustainable system, a sustainable economy. And 3 of those key levers, it's the levers on the outside and it's the leverage points on the inside here. And I'll show this figure in a different way later -- are all about those kinds of governance initiatives. Now of course, they don't pertain only to initiatives within companies as to preemptive, being preemptive about risks, for example, which would mean actually disclosing them for the most part, right? That's one of those really key pieces as well, is addressing risks together. That's the integrated part of B. And doing so adaptively where you take what is measured, and you measure new things in order to make decisions differently. So we're not seeing enough of that within companies. We're not seeing that kind of an approach either in -- at the state and federal levels. And we really need to see that in order for -- in order for investments to be sustainable and to be successful in the long term.

That's the phrase that you often hear in these discussions, what gets measured gets managed, right? You kind of have to do one for the other to really happen effectively. So we're a little bit ahead of schedule at this point. And I'm wondering if any of the panelists have thoughts on this challenge here of how to actually affect change when it comes to these issues. We know we need more disclosure. We know we're having regulations happening, which we're going to talk a little bit about in the next part of this. But how do we get the public will, which I think is a big part of this challenge, to be stronger here? I'll take whoever wants to take them.

I'll weigh in there, although I may take a pause to close the window. You know what, actually, come back to me because there's a leaf blower outside. I'm going to close my window.

Okay, sure. Gita, do you want to take that on or Jamie?

Sure, I'd be happy to. I think from some of the audience questions and from what Jamie said, this is a generational shift that we're going to see. Time after time, surveys are showing that people under 45 feel very differently than people over 45. And so this -- we are in the process of a transformation. The question is, will it happen fast enough? And I think that was a very good question. I know we're now getting to Q&A, but I'll just sort of weave it into what I'm saying. There was a very good question about how do we get our voices reflected. And I think we need to have discussions like this, and they need to be action-oriented. So for instance, this is really geared to universities. A lot of university endowments have announced that they're going to engage in divestment from fossil fuels because, in part, because of pressure from students. And last semester, I met with an incredible group of undergrads from the MIT engineering departments who are putting pressure on the endowment to divest. And this is -- divestment is not straightforward. There is a lot of -- this is a real ball of wax. We've got to remember that over 50% of oil and gas reserves are owned by nationalized oil companies, not by these publicly traded integrated oil majors. What do we mean by nationalized oil companies? These are the Islamic Republic of Iran, of Iraq, Venezuela, not really considered very responsible actors. You take Saudi Aramco alone generates about 5% of greenhouse gas emissions. So if we divest and the oil companies are pushed to themselves divest assets, and we are seeing this happening, and the nationalized oil companies buy them, we move from a situation where we have some disclosure to no disclosure and no transparency. And in all likelihood, we're actually worse off net-net. So...

But I think you make a good point that the youth of today can and is making a difference. I think of the protests that were happening a couple of years ago, really made companies start taking it seriously. We saw the Business Roundtable put out an announcement that all of a sudden, they cared about everybody else in addition to investors. And like you said, this divestment, while a college may not own a huge share of a corporation, it is a signal, right, of the changing times. And Professor Chan, we do need to get on to the survey real quick, but I'll let you give a quick answer if you want while we have a...

Yes. Now that I've closed the windows from the leaf blowers that just like strolled in as you were asking that question. I have 2 different kinds of answers to this, and both of them are going to sound kind of self-serving because I'm trying to fill the gap that presented to me. But the 2 big gaps that I see, one of them is the role of credible information in the space about what needs to be done. We don't -- there's a big void there effectively, because there's so much noise coming from advocacy organizations, which are -- obviously, they have their own agendas, right? And it's really hard for somebody who cares about these issues to really figure out what actually needs to happen, right, because the loudest voices in the room have their own agendas. And so I personally see a really important role for academics in this space to be engaged much more with those -- with what NGOs are saying and to give credence to some of them and to take a position of -- a different position in some cases. And the second is for people to understand that they have much more to do with these problems than through their private actions. For the most part, what most people are absorbing is that what they need to do is they need to buy things differently. They need to invest differently, they need to commute differently. All of that, those are private actions. The scale of the problem is way bigger than that, right? A person is right to think, I'm just one of like 8 billion people on this planet. My private actions don't add up to that much. But this is a time when we need to start grappling with societal norms, and we all have a lot to say about what is acceptable there, but we are so shy. Most people are so shy about coming out and being strong in terms of what they see as being acceptable, while still engage in conversation with those who have a different perspective. And that's what we're going to need to have much more of.

I think that's a really good point. And it sort of fits nicely with our next polling question, which is, what steps can organizations -- so we've talked about the individual action. But now on this pressure that hopefully, they'll be getting more from the public, right, that people will be speaking up more, what steps can organizations take on their end to ensure they are measuring? We talked about the need to measure to be able to manage. What can they do to make sure they're managing what matters in ESG to effectively monitor the change we've talked about that's needed? A, in partnership with regulators, established global company disclosure standards. We know there's been a lot of discussion there. B, assess and disclose all key physical and transition-related risks; C, constantly reevaluate their environmental, physical and social -- societal risks. And since we took a little bit of time getting to the survey, I think people already filled it out. So 68% said that we need to have global disclosure standards, which I think is interesting because a lot of corporations push back against that, right? Or they want just global disclosure standards, but they could be slightly muddied, I think, is one of the concerns around that. So let's get to -- back to our panelists here, which is -- obviously, disclosure is big here. So Dr. Salo, I understand the state of disclosure requirements in the U.S. may change soon. Can you talk to us about what's in the pipeline there and how it might affect the state of ESG in the future here?

Great. Thanks, Esther. Next slide, please. There is a huge amount going on right now. The ESG disclosure rules front, as you have reported in the U.S., the SEC has posed to roll out ESG disclosure regulations of companies or areas like climate risk and human capital management. And the SEC is also considering increasing the transparency rules around fund managers and how much they must provide in their investment products that they are being touted as ESG-focused or green-focused, et cetera. So there's change coming here in the U.S. Also in the EU, as mentioned on this call even earlier, there's a lot happening trying to make ESG investment more transparent to improve corporate ESG disclosure. These are cornerstones of the EU Sustainable Finance Action Plan, which includes the green taxonomy, the Sustainable Finance Disclosure Regulation, SFDR, and the Corporate Sustainability Reporting Directive, the CSRD. All of those are looking to drive greater ESG disclosure and standardize it in certain ways. The CSRD will cover nearly 50,000 businesses, and companies reporting into it are going to have to report on what their businesses -- how their business are affecting the environment, their employees and customers. And they're also going to have to disclose what percentage of their revenue is aligned with the green taxonomy. Under SFDR, asset managers, fund -- pension funds and insurance companies are going to need to disclose whether -- how they consider ESG risks in their investment decisions to help prevent greenwashing through more disclosures and information. They'll also need to highlight specifically where their ESG risks lie in their investments. Turning a little bit towards more looking at what the future is and what ESG measures are going to really define the next decade. We've talked about green investment, and there's been a significant growth in ESG investments, as we highlighted earlier. And corporate green bond issuances have been growing sharply in the last 5 years. That being said, just focusing on climate change, estimates from the IEA and the IPCC are that trillions of dollars of investment are needed annually just to transition to an energy system that will keep temperature rise below 1.5 degrees from pre-industrial levels. So I'll be watching how much is going into climate investments quite closely. The other ESG measure I wanted to highlight, as for defining the coming decade, is the value of nature and biodiversity. Just as climate, nature-related risks are coming more in focus and their importance is becoming more understood, recent research from the World Economic Forum that analyzed 163 different industrial sectors and their supply chains, found that over half of the world's GDP is moderately or highly dependent on nature and its services. And the recently launched Taskforce on Nature-related Financial Disclosures, TNFD, has been established to create a framework for corporates and financial institutions to assess, manage and report their dependencies on -- and impacts on the environments. And they've committed to releasing a framework by 2023 for organizations to report on and act towards these evolving nature-related risks. So lots of standards, both from kind of the government side of things and also from the rest of kind of civil society.

So as civil society and regulators and these volunteer groups -- voluntary organizations, are creating these disclosures and coming up with strategies and policies, Professor Chan, how should they be thinking about integrating what we've talked about, the social and ecological sustainable decisions, into those processes and disclosures?

I'm not sure if I follow that part of the question.

Well, trying to think of how they should factor it in. Yes, like the policy response, how do you ensure they're making socially responsible decisions?

Yes. I mean, one part of it is to have the information. We've talked about these disclosures. And I really like that last poll and also agree very much with the responses. It's kind of a shame not to have the option of like yes to all basically, because I think that, that...

All of the above.

That really makes sense in many of these cases. Exactly, all of the above. Two of those questions were about risks, right, to the company. And the first one was about disclosure. And we need to pay attention to both of those. And I think that up to this point, we've been paying more attention to environmental risks to business, right? That, that's something that an investor needs to know about if they're going to be investing in a company. You need to know if a company is likely to be a bad investment for any number of reasons that aren't obvious, right, from the outside. But in this world where -- I call it a small planet because so many of our actions come back and harm other people and even ourselves through chains of interactions, environmental and social. We need to know about those impacts if we are a concerned investor, right? And so we need to know about those disclosures. It needs to go beyond greenhouse gases. It needs to include land use. It needs to include water and other kinds of drivers of the changes in nature and what nature does for us. So yes, I mean, it's just without that information, how can we know what to do, right?

Yes. I think that's a fair point. And it all goes back to that disclosure side, right? Professor Rao, you talked a little bit about shareholder activism earlier on. What can we expect to see kind of around this disclosure and what investors are trying to get from companies? What can we see change going forward in light of everything we've talked about here about changing social pressure, lack of action and frustration with that and the need to kind of think of things not just in silo, but as interconnected to each other?

Yes. Could you -- actually, before we advance to Slide 34, I just wanted to follow up on what Kai was saying. Two things: one is, I think global, act local. Without legislation, very little is going to change. Companies have incentives to do things because there appears to be a valuation premium for incorporating sustainability. But it's unclear how much is actually getting implemented as opposed to stated that it's being implemented in the glossy sustainability report. So when I say act local, what I mean is really engage on whatever topic that -- for me, it's zero waste. And I live in Brookline which borders Boston, and I have joined our local group that is advocating with our department of solid waste to eliminate food waste from our system. Food waste in America is 30% of trash, and we are running out of landfill space. So find an issue, one of the SDGs, and just hammer away on it. The second thing is let's start underestimate the power of collective action over time. There is a tipping point. And there's a cascade and an effect where the things just sort of -- and I think, Esther, you referred to this. Things kind of pick up momentum, and before you know it, you have reached that tipping point. And I think we're getting there. And then the third thing is we really, really have to think long term, really think long term in our decisions, in our investing decisions, in our consuming decisions. And be hopeful because without hope, where would we be, right? So if you could please go to Slide 34, I just want to summarize a few things that for me, as an investor, have been important that I want to touch on. Transparency on how our shares are being voted, regardless of whether we own them in a retirement plan or in an IRA or whatever, how are our shares being voted? Accountability. If companies say that they're going to do something, what happens if they don't do it? And this is where regulation is needed, and regulation that does not put too much of a burden on companies in terms of reporting and in terms of monitoring. So we do need that. We have to be pragmatic about it. And finally, how can we change things like gender pay, the gender-to-pay gap, if companies don't disclose how they're paying. So we have to be able to source data for social factors, which means we need more disclosure from companies. So I'll stop there.

Great. Well, I think we're about to transition to our Q&A session. While we pull up the audience questions, everyone, please take a moment to select an option on your screen for outreach from our experts on ESG solutions for your workflow. Okay, now let's dive into some questions. One I saw came up, sort of fits into what we're talking about here, which is one of the things that often happens when we talk about divestment is will someone else will buy it, right? Someone else will be the investor there as sort of the reason why asset managers stay in companies that aren't necessarily changing fast enough for what they would prefer. And one of the people here asked, is it possible that we could have basically -- with divestment happening, that we could have a few shareholders or investors kind of holding on to the stocks of those companies that aren't changing and unable to drive that change or unwilling to drive that change, I guess?

I think that is possible, but I do think that we need to remember that divestment is not primarily a private act, right? Like as I was talking about earlier, divestment is primarily a social signaling action. And when it's accompanied by efforts that really broadcast that message, then it really does start to contribute to a change in norms, right, where it goes from being seen as normal to invest in fossil fuels, et cetera, for example, or decades ago in South Africa, right, including the apartheid system. Then it can switch relatively quickly with enough pressure so that it becomes seen as inappropriate, unacceptable. So that even if there are some laggards, which there always will be some laggards, this pressure and scrutiny on those laggards does eventually become so great that they suffer from that and join.

I guess I would offer a counterpoint, Kai. This is the whole debate about exit versus voice, right? And the counterpoint would be South Africa was very small in the global economy, and we are very dependent on fossil fuels. And so I think the question that the person posed, we are actually seeing that play out, which is as you divest, your -- you are likely to be left with investors who care much less about these issues. And so it is very difficult to transition these companies to a more sustainable path. So whether it's the ExxonMobils or the Chevrons or whoever. And what we saw when oil prices really plummeted, right, during COVID is that hedge funds and private equity funds swooped in and -- particularly on the fixed income side and bought the debt of these companies because they were in trouble. They needed financing, they needed liquidity. And so I think there's -- the engagement side of it, we need to be able to help companies transition to the carbon-neutral, zero-carbon future. We really need to be able to in terms of financing. That financing has to be made available.

Yes.

And it's going to be very expensive, right? And so with coal, I would agree that divestment makes sense because that whole argument. But I think with oil and gas, it's a lot more complicated. So...

Yes. No, I would agree with that 100%.

Go ahead, Professor Chan.

Yes. I just want to say that I completely agree. My point was that divestment can work in more than just a private way, that it can spurt. But Gita's points, totally bang on, that sometimes it doesn't make sense. Sometimes it makes sense to remain in the room. Now that said, it really depends on what that remaining in the room means, right? And I think there are so few of us, given the points that Gita raised earlier. There are so few of us that can have confidence that our values are being represented appropriately in terms of shareholder motions and how they're voted on, right? So staying in the game is not necessarily helping a transition until we have those steps in place that we already discussed earlier.

Yes.

And one thing that comes to mind real quick, though, is how -- what was it, Exxon, where they basically ousted a couple of Board members this year, right, and replaced them with more climate-friendly ones. And while those people don't represent the majority of the Board, so they can't control what the Board does, it certainly, I'm sure, sent a signal to the utility, to the gas company. And so those were people who still had shares, right? Those were major asset managers that still had shares in those companies and hadn't divested.

I think, Esther, I don't mean to keep going on and on like about this but one area that is very clear something can be easily done is the big banks are busily continuing to make loans to oil and gas companies without putting any restrictions on that debt. Debt covenants are probably the most effective way of doing it, but all of these banks are continuing to do that. It's been highlighted in the press. So I'm going to stop there.

And I'd like to get back to that. But first, I want to turn to Jamie real quick on the data side. Do we have the data we need currently to like support this response to climate emergency that the IPCC report has shown and, obviously, investors aren't putting enough pressure on at the moment. So kind of what do we need data wise? And where are we at there?

Yes. I mean it's a great question, and the answer is both, yes, we have a lot and a lot of the information we need. And no, we don't have enough, and we need more. More and more companies are disclosing their greenhouse gas emissions for their operations, for their electricity and for areas of their -- the rest of their life cycle, if it's in their supply chain or downstream in their products, which is wonderful. But much of that disclosure is also limited to the largest kind of 4,000 companies globally. We've done a lot of work over the years within S&P Global to help kind of fill that gap and have ways of pulling out information from the business activities that companies have and what the likely impacts there are, because we need to have that complete picture. Regulation is going to help there, too, with providing more information. There's also information that we have on companies' assets. But the more information we can get on asset-level information and how assets might be impacted by physical risk so we can put it into analytics, like we have, to see how that's going to be impacted in the next 5, 10, 15 years, that's going to be incredibly important as we've seen with impacts from severe weather and the effects that we're increasingly seeing from climate change. So it's both, yes, we're -- things are definitely moving and it's increasing every year; and no, there's a lot more that is required. Sorry, Esther, I think you might be muted.

Having that asset level data is something companies are definitely clamoring for because they're trying to meet this investor need. And Gita, I'd like to get back to something you said about sort of needing to have sort of the terms and conditions of debt finance or financing in general to put more pressure on the company. So one of the things I found when I was reporting on long-term debt for municipalities, for example, is that there's not enough munis putting out the issuances. And so the demand for those issuances is so high that the people who are trying to -- the people who are trying to get those products, who are trying to invest in that are clamoring for them. So they're not going to ask them to change because they want it so bad. How do we solve that problem of there not being enough financing for munis, right, to kind of make it lucrative enough that then, there can be pressure on them to change or corporations as well?

Yes. That's a great question. Everybody wants green bonds of whatever stripe, right? So the Massachusetts Watershed Resource Authority (sic) [ Massachusetts Waters Resource Authority ] here in Massachusetts, every time they've had a bond issue, completely oversubscribed and at a premium. The solution probably is that we do have more asset linked issuance. So we do have to have more of that. And municipalities -- COVID really has thrown a wrench in all of this, Esther. Municipalities are struggling with all the manifold -- here you've got to arrange COVID testing, you've got to do schools. I mean the green stuff was so important, has taken, I think, a backseat. But hopefully, with more money coming now from the administration, it's actually going to, right? I do feel hopeful it will pick up. I think Jamie might have touched on it. There was the issuance from multilateral organizations is astounding. There, too, we have to be cautious. Would I look at a green bond issuance from China? I'd have to get somebody to translate it from Mandarin and look at the users purpose and users section because, again, like I mentioned, there is a lot of greenwashing going on.

Yes. I hate to end it there. We are just about out of time. This has been such a great discussion, we can just go on forever and ever. Thank you, Dr. Salo, Professor Chan and Professor Rao for those insights on navigating sustainable recovery from climate change. We've covered quite a lot today. So if any of you who are tuning in have any follow-up questions, please use the Contact Us widget, and we'll be glad to assist. For those of us -- for those who want to review anything we've gone through today, as mentioned previously, the session has been recorded, and you will receive a copy by the end of the week. So you can go back and look at it at your convenience. And when we close out this webinar, you will be routed to our survey form. We'd love to hear your feedback, so please take a few minutes to fill this in. And thanks, everyone, for taking the time to attend today's session. We look forward to having you join us again soon.