Early 2016 ESG momentum

Over the last two months, we closely watched the highly active US energy policy space, at the federal and state level, optimistically seeking a trend pattern of long-term “good stuff” among the regulatory developments that range from forward-thinking pioneering to highly reactive incumbent protection. Once we considered the current additional risk of a 4-4 SCOTUS decisions, we determined that the timing isn’t right just yet for sweeping conclusions. We will keep monitoring the space and report back as soon as we spot somewhat cohesive momentum.

In the meantime, the ESG world actually did not stop turning – our top three pick of “good” ESG trends:

Gender pay gap analysis and disclosure is getting attention both in the US and the UK, key homesteads for large corporates. Realistically, these disclosure initiatives will not close the gender pay overnight; there is no generally accepted methodology on gender pay gap analysis; and identifying the levers that lead to closing the gender pay gap while understanding resulting externalities is no small feat. But the issue has moved into the spotlight with a mainstream understanding that closing the gender pay gap is good for sustainable economies and businesses in the long run. The gap can be easily expressed as an aggregate benchmark in less than 140 characters, which is very useful to make it a front-of-mind issue. Closing the gender pay gap is more involved. It involves lasting shifts in workplace culture and policy as the gap is a symptom of lack of diversity in leadership, insufficient gender equality workplace policies, and the growing wage gap between job types in our economies.

Recommendations for further background reading on the gender pay gap:
PWC’s Women in Work Index
Morgan Stanley Research: Mind the Inequality Gap
What happens to pay when women enter male-dominated fields?

 

Long-termism: Some of the world’s key capital market influencers – Jaime Dimon of JP Morgan, Warren Buffet of Berkshire Hathaway and Larry Fink of BlackRock – are making conversations between investors and large companies happen. This is still early days – dialogue is occurring behind closed doors. But the topic is moving forward, from high profile advocacy from thought leaders such as Dominic Barton of McKinsey and Harvard’s Lawrence Summers, former US Treasury Secretary and World Bank Chief Economist, to engagement of the actual market participants. These conversations do not lend themselves to be feel-good round-table meetings as interests of both companies’ management and investors are plentiful, heterogenous, nuanced and context-dependent. Finding common interests and positions can only occur after a working definition what constitutes long-termism has been agreed on. A definition that applies to all participants, most of them agents subject to complex mandates from their principals. So, don’t expect change overnight – this is just one step of many into the direction of re-appreciating long-term investment horizons and entrusting the system’s actors with a long-term mandate.

 

US legislative action and results on supply chain ills: