Supply chain News and trends

Private market funds may soon need to open their books to scrutiny regarding their ESG performance, and many industry players are welcoming the change.

“I’m looking forward to seeing more disclosure and transparency in the private markets,” said Bonnie Foley-Wong, Canada sustainable investment leader with Mercer (Canada) Ltd. in Toronto. “Investors are asking for that and it will certainly help in terms of whole-portfolio management.”

Via EcoVadis

Some asset managers are retreating from their public ESG commitments due to so-called ‘greenhushing’ suggests a report into ESG investing in private markets.

The report, ‘The State of Private Market ESG and Impact Investing in 2024’, was published by PitchBook, a market data provider for the private equity and venture capital markets.

It found that firms are no longer prioritising some of their ESG and impact investing programs for fear of a backlash from opponents of green and sustainable investment strategies or for fear of reputational damage amid claims of greenwashing.

Via EcoVadis

As the regulatory landscape continues to evolve, integrating Environmental, Social, and Governance (ESG) considerations for new investment deals has become an increasingly imperative consideration for private equity firms. The term ESG has become a regular feature in business vocabulary. It is no longer just a matter of abstract compliance for private equity but also a strategic imperative for driving value. Transparent reporting of ESG measures is crucial to ensure fairness and accountability, and positively impacts the deal lifecycle for all. 

Via EcoVadis

By investing in earlier-stage companies and having controlling ownership, private equity has the potential to tackle ESG considerations effectively, according to Jennifer Signori, managing director, Neuberger Berman. Here, Signori discusses creating value, engaging with companies and calculating portfolios’ carbon footprints.

How does ESG create value within private equity?

Private equity investors are uniquely positioned to effect change, given they generally have controlling ownership of companies. This means private equity investors potentially have more ability to influence strategic and operational change – whether to tackle climate risks or other business challenges – than many public equity investors.

Via EcoVadis

Mainstream private-equity funds need to ramp up data gathering to demonstrate how ESG issues are integrated in their investment processes, law firm Morrison Foerster says
Survey of 100 Asia-headquartered fund general partners with over US$1 billion in assets under management shows only 29 per cent always require the inclusion of clauses in investment documents to enhance or ensure ESG compliance

Via EcoVadis

ESG (environmental, social and governance) – or sustainability, has taken up social space and dominated business agendas, swaying consumers and investors alike. It's more than just a trend – in some shape or form, the term has been around for quite some time, subsuming the concepts of corporate social responsibility and responsible business. As the demands rise for sustainability to be viewed as a business risk – or opportunity, stakeholders are turning to ESG ratings to quantify performance. If you’re a vendor or business partner in a supply chain, this demand may materialize in a form of a sustainability questionnaire from your customers.

Via EcoVadis

Sustainable or green IT is not new. In fact, it has been a topic of discussion among IT leaders for decades. But the concept of sustainability in general, which the United Nations defines as “meeting the needs of the present without compromising the ability of future generations to meet their own needs,” is something people and organizations are prioritizing more than ever — and for good reason.

Concerns about the environment and climate change are front and center among world leaders, environmental advocacy groups, and society at large. Corporate executives and boards want their organizations to do their part — or at least be perceived as doing their part — to help.

The push for better environmental, social, and governance (ESG) initiatives has taken a high priority at many organizations, and this encompasses more efficient uses of technology.

Via EcoVadis

With regulators, investors and customers demanding cleaner business processes, companies understand the need to improve, but can find it daunting to start measuring all the ways they emit carbon. Organizations must understand Scope 1, 2 & 3 emissions, address ESG issues (environmental, social, governance) and get to grips with terms like “carbon-neutral” or “net-zero” and how they apply to their business operations and strategic objectives.

Via EcoVadis

As investors query the value of ESG, Mandi McReynolds, Head of Global ESG, Workiva, outlines three steps to link sustainability and business value creation
Evidence overwhelmingly suggests that companies, which get their ESG proposition right can create more business value. By paying attention to ESG concerns, companies don’t compromise their returns – rather, the opposite.  

But even as the case for a strong ESG proposition becomes more compelling, an understanding of how ESG criteria link to value creation is often less comprehensive. This can lead to investor concerns and mistrust. According to a recent Workiva survey, 52% of UK investors find it difficult to trust a company’s actions and what they say, when it comes to the environment and society.  

Via EcoVadis

For many years the bulk of investor and stakeholder pressure on ESG issues focused on larger companies. Indeed, recent findings by The Conference Board in collaboration with Esgauge and Heidrick & Struggles show that most smaller publicly traded firms remain on the sustainability-disclosure sidelines. But with the SEC’s ESG disclosure rules right around the corner, and with evidence that investors expect smaller companies to do more on ESG, that’s no longer a tenable position for firms regardless of size. 

CEOs of smaller companies might be tempted to dismiss sustainability reporting as the exclusive province of large multinationals. Yet just last year shareholders voted on 15 resolutions on environmental and social topics at Russell 3000 companies (that includes almost all U.S. publicly traded companies) with less than $5 billion in revenue. Notably, six of these resolutions passed.  

Via EcoVadis

The supply chain crisis has prompted many businesses to focus urgently on sustainable sourcing. It’s a good idea, but they should go even further by integrating their overall environment, social and governance (ESG) strategies into their sourcing plans. 

Indeed, two-thirds of the average company’s ESG footprint lies with suppliers, according to McKinsey. The cost of failure — even at multiple levels down the supply chain — can be catastrophic to a firm’s reputation. Major incidents have brought widespread attention and spurred enterprises worldwide to double down on sustainable procurement.

At the same time, investor expectations, along with increased regulatory oversight requirements — such as the German Supply Chain Due Diligence Act and the UK Modern Slavery Act — are compelling businesses to establish and execute ESG strategies and uphold high ethical standards.

Via EcoVadis

Sustainability-driven investment is no longer considered a trade-off between generating economic value and positively impacting society. However, from an investor’s perspective, the current multiplicity of practices remains a substantial challenge, especially for those managing well-diversified, international portfolios.

Without a doubt, investor appetite for sustainable investment products is strong and growing. For example, the German Banking Association reported in 2021 that for 67% of surveyed investors, making socially and environmentally friendly investments is important.

Via EcoVadis

Increased global awareness and debate surrounding climate change and sustainability has propelled environmental, social and corporate governance (ESG) practices from a ‘nice to have’ to a necessity for today’s corporate treasurer, according to Karin Flinspach, head of transaction banking, Europe & Americas at Standard Chartered

Via EcoVadis

Various environmental, social and governance (ESG)-related funds from Abrdn, Morgan Stanley and UBS have recently been renamed to omit sustainability-related phrases.

In addition, according to data from Morningstar Direct cited by the FT, launches of environmental, social and governance (ESG)-related funds have been steadily declining, with only six launched in the second half of 2023 compared to an average of nearly 100 a year between 2020 and 2022.

The trend follows a ruling from the SEC in September 2023 that 80% of assets in funds must be related to the name.

Via EcoVadis

In recent years, environmental, social and governance (ESG) reporting for companies has moved from a "nice-to-have" to an integral part of corporate strategy. An increasing awareness of the need to address the material environmental and social risks and opportunities against a backdrop of strong governance is driving increased reporting. Meanwhile, stakeholder pressure to measure and manage ESG performance is mounting, further supported by regulatory tailwinds. 

Increased regulations around the world is requiring companies to disclose information regarding the extra-financial aspects of their business to interested stakeholders. Thus, being proactive in monitoring current and emerging ESG regulations to ensure compliance and remain competitive has become a business imperative.

Via EcoVadis

In many ways, private equity is made to be invested in environmental, social and governance (ESG) initiatives. But it takes thoughtful strategies to ensure those investments generate maximum value for both business and society.

Record levels of cash reserves — including $1.1 trillion in the U.S. and another $6.3 trillion in assets under management — combined with increased investor focus on ESG could make private equity an attractive vehicle for creating real impact.  

Via EcoVadis

Companies in the United States are beginning to shift from commitment to action when it comes to environmental, social, and governance (ESG) issues to address stakeholder concerns and pending regulations, according to a report from Deloitte.

Businesses are taking that next step by implementing working groups and staff led by executives such as chief sustainability officers, chief financial officers, and chief strategy officers. They are investing in new technologies and data, and nailing down accurate reporting. Nearly 100% of the companies that responded to the Deloitte survey said they were going to invest in new technologies and other tools throughout the next year, as access to quality data and overall ESG preparedness can also create value and help address growing stakeholder demands.

Via EcoVadis

The KEY ESG survey of 100 general partners and portfolio companies in Europe, the U.K. and U.S. found that while 75% were required to report ESG data to limited partners, 90% of them were unsure of how do to so. Survey respondents were primarily from midmarket private equity firms, with 43 each from Europe and the U.K., and 14 from the U.S.

One of the biggest problems for general partners was the time it takes to collect ESG data, which can be as long as 12 weeks. Survey respondents said they missed reporting deadlines and risked having deals stall or fail, and 70% said they would prefer to focus on the most material information that leads to better metrics and ESG performance.

Via EcoVadis

According to Barclays, global sales of corporate bonds with environmental, social, and governance (ESG) criteria will exceed $460 billion this year, after the asset class suffered its first setback in 2022 as rising interest rates weighed on credit markets.

ESG bond volumes increased in recent years but fell by 22% in 2022, as corporations faced much higher borrowing costs as a result of significant monetary tightening operations by global central banks combating inflation. According to a credit research note from Barclays, corporate ESG bond issuance dropped to $362 billion last year from $461 billion the previous year. The lender estimates that this year, ESG bond sales will increase by 30% due primarily to the sale of green bonds.

Charlotte Edwards, Head of ESG FICC Research at Barclays, stated, “We expect green bond issuance to continue to dominate the market thanks to strong demand and a long list of green projects that need funding as companies put decarbonization plans into action.”

Globally, countries and governments have a mountain to climb when it comes to hitting 2030 carbon reduction targets. The International Energy Agency estimates shifting the planet’s energy system away from fuels that emit greenhouse gases will cost $2 trillion a year by 2030.

Via EcoVadis

Environmental, Social, and Governance (ESG) is shaping up to be the corporate mantra of the 2020s, with the majority (83 per cent) of Australians concerned about climate change, according to the annual Ipsos Climate Change Report 2022. 

In Europe, we have seen the introduction of supply chain legislation that will make companies accountable for the behaviour and performance of their suppliers in a way never seen. As is the way of these things, we will no doubt be seeing a similar legislative effort on our own shores in the near future. 

The way we view our responsibilities as corporations, from the board down, is shifting. But this change has been slow. Current measures are not enough, on their own, to push corporate Australia down the necessary path to Net Zero.

Board buy-in is necessary  
Only 18 per cent of businesses have set a Net Zero goal, and of those businesses that have set a goal, only 21 per cent are taking steps to achieve it, according to research at Energy Action. That’s a fraction of the buy-in that we need.

Via EcoVadis

The turn of the new decade saw the rise of ambitious sustainability goals. Products with sustainability labels received increased traction. Around the same time, social media influencers were voicing their support for ethical work practices and security for frontline supply chain workers. As a result, sustainable procurement became a priority in enterprise strategic agendas. But in 2020, when Covid-19 rocked the world economy, new challenges emerged.

The impact of the pandemic on supply chains was disruptive. Many feared that the crisis would dampen growing enthusiasm to invest in sustainable procurement practices. But it did the just the opposite.

Via EcoVadis

The EY CEO Survey 2022, part of the CEO Imperative Series, reports that sustainability is a key priority for almost all MENA executives, with 97% naming environmental, social and governance (ESG) principles ‘extremely or more important’ as a driver of value over the coming years, more than other parts of the world.

Of the respondents, 29% see sustainability as an opportunity to gain a competitive advantage. As such, a number of companies are looking to embed sustainability into their business strategies as they plan for the future.

One-third (33%) of MENA respondents say that pressure from governments, regulators, and society are the primary drivers of their sustainability strategy. And while MENA companies may be encountering resistance from some investors regarding their sustainability transition strategy, they also recognize that it is an important factor in attracting sustainability-minded investors and talent.

Via EcoVadis

As the call for sustainability intensifies across the entire stakeholder spectrum, ESG compliance in the procurement function is quickly becoming the standard, and value creation the new competitive advantage. But how can corporate supply chains create social and environmental impact? One clear answer is through social procurement.

Via EcoVadis

As momentum builds around embarking on a net-zero pathway, advanced technologies can serve to leverage operational benefits across every aspect of the energy value chain, explains Damien McDade, Vice President Pacific at AVEVA.

As global resolve begins to coalesce around the energy transition, 2022 will mark a turning point for industrial enterprises. At the recent COP26 summit, governments and private-sector companies around the world pledged to work towards keeping planetary warming to 1.5°C, and to support net-zero carbon emissions by 2050.

Now comes the difficult challenge of taking action to make good on those promises, while complying with stricter Environmental, Social, and Governance (ESG) regulations.

Businesses in mature industries such as oil and gas, mining and metals, and power generation and chemicals will need to address new business imperatives if they are to build an alternative, sustainable energy landscape while maintaining current operations continuity.

Via EcoVadis

In its latest report, Pitchbook explores how sustainable investment is defined and carried out in the private market, and discovered there are different schools of thought on ESG investing. 

John Gabbert, Pitchbook Founder and CEO, says it found there are three approaches to ESG investing - ‘purist’, ‘pragmatist’, and ‘pluralist’.

“This can lead to very different-looking portfolios in private equity, compared to venture capitalism,” he says. “Where advocates for one approach might see a legitimate sustainable investment program, sceptics might see greenwashing.”

The main areas of differences in the three approaches concern the willingness, or otherwise, to invest in companies in high-risk ESG industries such as oil, coal, and gas, as well as medium-risk ones, such as food product manufacturing and textile production.

Gabbert says understanding these differing ESG philosophies and their implications “will reduce confusion over why legitimate ESG programs can result in such different-looking portfolios”. 

Via EcoVadis