Week of 24 February 2020

Week of 17 February 2020

Week of 10 February 2020

Week of 3 February 2020

Week of 27 January 2020

Week of 20 January 2020

Week of 13 January 2020

Business, People and Planet

Three Developments This Week

Week of 24 February 2020

1. Discussions regarding an EU-wide mandatory human rights and environmental due diligence requirement (as a legal duty or standard of care) intensify with the release of a European Commission-sponsored study

The 2018 European Commission Action Plan on Financing Sustainable Growth discusses looking into “the possible need to require corporate boards to develop and disclose a sustainability strategy, including appropriate due diligence throughout the supply chain” and the 2018 European Parliament Report on Sustainable Finance calls for a “legislative proposal” for “an overarching, mandatory due diligence framework including a duty of care.” In response, the the European Commission DG Justice and Consumers commissioned a study on due diligence through the supply chain. The resulting study, undertaken by the British Institute of International and Comparative Law (BIICL) in partnership with Civic Consulting and LSE Consulting, was released on 24 February.

The views reported are based on 334 business survey respondents (from all sectors and sizes), as well as 297 general survey respondents (including business associations and industry organisations, civil society, worker representations or trade unions, legal practitioners and government bodies).

Key points (taken from the study itself) are as follows:

  • One-third of business respondents indicated that their companies undertake due diligence which takes into account all human rights and environmental impacts, and a further one-third undertake due diligence limited to certain areas
  • The majority of companies are limiting their due diligence to first tier suppliers only
  • Although the vast majority of business stakeholders cover environmental impacts, including climate change, in their due diligence, it was reported that human rights and climate change processes often take place in “silos”
  • Common due diligence actions referenced include contractual clauses, codes of conduct and audits
  • The three primary incentives for undertaking due diligence were (1) reputational risks, (2) investors requiring a high standard and (3) consumers requiring a high standard. In contrast, general stakeholders and civil society respondents viewed regulatory incentives as the top incentive for due diligence. (The authors note that this difference in view is presumably because of the existing lack of regulatory or legal requirements on companies to undertake due diligence)

Companies were asked how they would like the EU to proceed when it comes to environmental and human rights due diligence.

  1. Do they prefer the status quo with no policy change at the EU level (option 1)?
  2. Would they like new voluntary guidelines at EU level for companies on undertaking due diligence through the supply chain (option 2)?
  3. Would they prefer new regulation at EU level requiring due diligence reporting (option 3)? or
  4. Would they prefer new mandatory due diligence requirement at EU level which would require companies to carry out human rights and environmental due diligence as a legal duty or standard of care (option 4)?

Here are the responses:

  • Company respondents didn’t like option one. They noted that the current legal landscape at the EU level does not provide companies with legal certainty about their human rights and environmental due diligence obligations, and is not perceived as efficient, coherent and effective
  • Company respondents didn’t like option two either. They felt that there was already enough voluntary guidance. (The authors remark here on a marked difference between company responses and business associations, with business associations expressing a preference for this option 2)
  • Company respondents were open to considering option three, since they noted that reporting requirements in this area had had a positive impact in raising awareness. At the same time, they noted that reporting requirements do not usually provide for effective sanctions for non-compliance, and do not substantively require appropriate due diligence for compliance with the regulatory obligation
  • The majority of stakeholders (company respondents and other stakeholders) indicated option four could provide potential benefits to business. In particular, companies pointed to the advantage option 4 would bring of harmonization, legal certainty, and the creation of a level playing field, as well as increasing leverage in their business relationships throughout the supply chain through a non-negotiable standard. Almost all interviewees were in principle in favour of a policy change to introduce a general standard at the EU level, although they differed on aspects of liability and methods of enforcement.

These are important findings that will hold significant sway during the EU discussions this year. We already have seen responses from MEP Anna Cavazzini and MEP Heidi Hautala (members of the European Parliament’s International Trade Committee) as well as a large number of civil society organisations (e.g. a joint civil society response as well as a Global Witness briefing).

2. The Paris Agreement needs to be considered by the UK government when approving new projects, says the UK Court of Appeal (rejecting Heathrow airport’s third runway); this sets the stage for climate change to be considered for all high-carbon emitting projects moving forward

England’s Heathrow airport in London is one of the world’s busiest airports (with 80 million passengers a year). In 2018, the government’s national policy statement approved plans to build a third runway (£14 billion cost) to enable the passage of 700 more planes a day.

A number of organisations and individuals (Plan B, a legal charity, local residents, councils, the mayor of London, Friends of the Earth, Greenpeace and others) contested the national policy statement. They argued in court that the target captured in the Paris Agreement (of keeping global temperature rise as close to 1.5C as possible) had been ratified by the UK government and therefore formed an essential part of government climate policy and needed to be considered by ministers in their decision-making.

The Court of Appeal agreed, and found on 27 February that the failure by then transport secretary Chris Grayling to take into account the Paris Agreement commitments when approving the third runway was “legally fatal”. The judges note that it “appears that the reason why it was never done is that the secretary of state received legal advice that not only did he not have to take the Paris Agreement into account but that he was legally obliged not to take it into account at all”. This was viewed as a “material misdirection of law at an important stage in the process.”

Transport secretary, Grant Shapps, has remarked that the government will not appeal the ruling. Commentators note that the impact of this decision will be far-reaching. Not only does it mean that the Paris Agreement would need to be considered for any high-carbon emitting project moving forward in the UK, it may open the door to challenges against similar projects in other jurisdictions that have ratified the Paris Agreement.

The ruling’s “implications are global. For the first time, a court has confirmed that the Paris agreement temperature goal has binding effect. This goal was based on overwhelming evidence about the catastrophic risk of exceeding 1.5C of warming. Yet some have argued that the goal is aspirational only, leaving governments free to ignore it in practice”

Margaretha Wewerinke-Singh, international public law expert, Leiden University, the Netherlands, Heathrow third runway ruled illegal over climate change (The Guardian, 27 February 2020)

3. Investors responsible for $2.4 trillion in assets join forces to request that Alphabet (Google) put in place Board-level oversight of human rights and take its growing human rights risks related to technology seriously

A number of human rights-related resolutions were filed last year at Alphabet’s (Google’s parent company) annual shareholder meeting. Topics included Google’s conduct in China and conditions for Google workers. Alphabet’s board recommended votes against each, and they were all rejected.

Following this, 83 investors sent a letter to the company late last year, requesting a meeting to discuss how Alphabet could devise adequate controls to monitor its human rights risks. Particular concerns related to the lack of human rights governance; the risks of digital surveillance related to the company’s moves into health, location and financial data; as well as the risks of exacerbating bias, reinforcing discrimination and facilitating incitements to violence connected to the company’s algorithms.

When faced with the company’s refusal to advance the human rights agenda, over ten investors responsible for $2.4 trillion in assets co-filed a shareholder resolution (coordinated by the Investor Alliance for Human Rights). This investor resolution, which will be put to a vote in June 2020, calls on the company to set up an independent committee at board level tasked with monitoring human rights risks in its products and value chain. Backers include Axa Investment Managers, the Church of England, Aviva Investors, Robeco, Hermes EOS, Boston Common Asset Management, NEI Investments, Loring, Wolcott & Coolidge and Pury Pictet Turrettini & Cie.

This resolution comes after Ross LaJeunesse, Google’s former head of international relations, reports that he was sidelined for raising human rights concerns related to Google’s plans to create a censored search engine in China (Project Dragonfly).

“Given the size and influence of Alphabet, it is of crucial importance that the responsibility for the governance of human rights concerns is at board level”

Larisa Ruoff, Head of shareholder advocacy, Loring, Wolcott & Coolidge, Alphabet faces investor backlash over human rights policies (FT, 24 February 2020)

Week of 17 February 2020

1. The health and future of children in every country is threatened by climate change, ecological degradation, migrating populations, conflict, pervasive inequalities, and predatory commercial and marketing practices (according to the WHO, UNICEF and the Lancet)

In its report of 18 February, a commission comprised of the World Health Organization (WHO), the United Nations children’s agency (UNICEF), and medical journal the Lancet find that “today’s children face an uncertain future”, with every child facing “existential threats.”

The commission compares 180 countries and provides a list of the best countries for children to flourish in their early years. When per capita carbon emissions per country are factored in, the top countries on the child flourishing ranking fall in the index. The only countries that are both (1) on track to reach their CO2 emission per capita targets by 2030 and (2) performing on child flourishing measures (within the top 70) are: Albania, Armenia, Grenada, Jordan, Moldova, Sri Lanka, Tunisia, Uruguay and Vietnam. The report also describes the risks to children from harmful marketing and predatory commercial practices, and calls on governments to put measures in place “to ensure children receive their rights and entitlements now and a liveable planet in the years to come”.

“We live in an era like no other. Our children face a future of great opportunity, but they stand on the precipice of a climate crisis … our challenge is great and we seem to be paralysed.  Although awed by the scale of our task, this Commission is also optimistic about our chances to change our world for the better, for and with children. It will require bold politicians, courageous community leaders, and international agencies that are willing to radically change the way they work. No excuses, and no time to lose”

A WHO–UNICEF–Lancet Commission, A future for the world’s children? (The Lancet Commissions, February 2020)

2. Company reporting on climate and human rights following the EU Non-Financial Reporting Directive represent warm words, rather than concrete targets (according to the Alliance for Corporate Transparency’s review of 1,000 reports)

On 17 February, the Alliance for Corporate Transparency (a project initiated by Frank Bold with a range of civil society organisations) released its latest report analysing disclosure of 1,000 companies pursuant to the EU Non-Financial Reporting Directive. The analysis finds that the information provided is falling “far short” of expectations and that:

  • Disclosure generally fails to address concrete issues, targets and principal risks, and report outcomes
  • Only 14 % of companies report their Boards discussing specific issues in their non-financial report, and only 15 % report a link between sustainability objectives and executive remuneration
  • On climate change, only 35 % of companies have targets and only 28 % report on their outcome
  • The number of companies reporting specific issues and targets on climate change has reduced
  • Companies who chose to give no information at all about the general structure and risks of their supply chain has increased
  • Less than 4 % of companies report on measurement of actions to manage human rights risks
  • Only 7 % of companies express a commitment to remedy affected workers or communities
  • Over 75 % of companies do not provide information about supply chain transparency in their reports, with less than 1 % publicly listing their suppliers (with the exception of apparel)

The findings will feed into discussions at the European Commission level related to updating the directive and the development of the European Non-Financial Reporting Standard, as well as ongoing EU and national legislative discussions.

“The true challenge is whether fundamental environmental and societal change in our world is so rapid, that the legislation itself is failing to enable business, markets and society to adapt, respond and to meet those changes. The fact that the UN International Panel on Climate Change predicts that we have only a decade left to avert a disastrous climate change speaks for itself”

Richard Howitt, 2019 Research Report: An analysis of the sustainability reports of 1000 companies pursuant to the EU Non-Financial Reporting Directive (The Alliance for Corporate Transparency with Frank Bold, February 2020)

3. Discussions on a legal duty to prevent human rights harms, building on the UK Bribery Act, take place in the UK (with release of BIICL report)

A report by the British Institute of International and Comparative Law (BIICL, with support from Hogan Lovells and Quinn Emanuel) looks at the legal feasibility of introducing a failure to prevent mechanism for business and human rights legislation, modelled on section 7 of the UK Bribery Act. This had been proposed by the UK Joint Committee on Human Rights (JCHR) in its 2017 report. In short:

  • A failure to prevent mechanism would establish a new legal duty for a company to prevent human rights harms in its own activities and business relationships
  • This failure to prevent mechanism would establish a right to civil action by those affected for compensation for damages suffered as a result of a failure to prevent human rights harms
  • The company could avoid civil liability by demonstrating that it has undertaken the due diligence required in the circumstances – ‘reasonable’ due diligence. (This is distinct from questions of criminal liability)
  • What is reasonable would be determined on the facts of each case, with the authors recommending that guidance be produced alongside legislation to ensure due diligence does not become a ‘safe harbour’
  • The law could also provide for preventative and injunction orders, as well as state-based oversight mechanisms

The report also describes survey responses (40) received primarily from large companies, in which the majority of respondents indicated that additional regulation may provide benefits to business: through providing legal certainty (82 %); through levelling the playing field, insofar as it will hold competitors and suppliers to the same standards (74 %); and by facilitating leverage with third parties, including in the supply chain (75 %). Similar benefits of legal certainty, levelling the playing field and facilitating leverage were reported by companies applying the UK Bribery Act.

Week of 10 February 2020

1. Half of apparel and furnitures companies sourcing significant amounts of cotton are not thinking about the environmental and socio-economic impacts of the cotton they source (according to the Sustainable Cotton Ranking 2020)

Organisations PAN UK, Solidaridad and WWF have ranked companies (apparel brands, supermarket chains, and furniture and department stores) which use a significant amount of cotton (over 10,000 metric tonnes of cotton lint per year). 77 companies were assessed based on their policy, uptake of sustainable cotton as well as traceability (the origin of their cotton, who their suppliers are, and how much cotton passes through their supply chain).

The resulting Sustainable Cotton Ranking 2020 found that 38 out of these 77 companies have not yet started considering sustainable cotton. Front-runners included Adidas, IKEA, H&M, C&A, Otto Group, Marks and Spencer, Levi Strauss, Tchibo, Nike and Decathlon. In interviews, Marks & Spencer and H&M provide some tips for companies, including the importance of senior management support and public targets.

2. BP sets new targets for the extractive sector by committing to net zero across its entire operations by 2050 or sooner

BP’s new CEO Bernard Looney announced this week the company’s commitment to net-zero emissions by 2050 or sooner across its entire operations, including from BP fuel burnt by the company’s customers. This means tackling approx. 415 million tonnes of emissions, most of which (360 million) comes from the carbon content of the company’s upstream oil and gas production. The company has also committed to helping the world meet net zero. The FT views the commitment as the “most ambitious climate target to date from a major oil company” and notes that “[s]hareholders gave the plan a cautious welcome with BP’s shares closing up 1 per cent.”

“The world’s carbon budget is finite and running out fast; we need a rapid transition to net zero”

Bernard Looney, BP Chief Executive Officer, Reimagining energy (BP, February 2020)

3. New UK High Court case shines the spotlight on the need for companies selling ships to conduct human rights due diligence and the rise in deaths of workers dismantling ships in Bangladesh

Shipbreaking, the practice of dismantling the world’s ships, has long been known to be a dangerous activity. Deaths and accidents take place every year in the shipbreaking yards, most of which are situated in Bangladesh, India and Pakistan. When ships are broken apart directly on the beach (instead of in an industrial site), this is known as “beaching”. NGO Shipbreaking Platform reports that close to 700 ships were sold to Bangladesh in 2019 – making Bangladesh the country with the most shipbreaking yards in the world. This is also where health and safety standards are the lowest in the world (the NGO reports 389 worker deaths linked to shipbreaking since 2009, a number of which took place in Bangladesh).

One case will now be ruled upon later this year by the UK high court. In March 2018, Khalid Mollah was working to cut up a 300,000-tonne super-tanker in Chittagong, Bangladesh, and died when he fell from the eighth storey. His wife has brought a UK court case against the company that owned the ship before it was sold for demolition. She argues that Maran (UK) would have known that the ship was going to Chittagong for demolition and should have anticipated the risk of injury to workers demolishing it.

Week of 3 February 2020

1. Discussions take place in Switzerland on environmental and human rights due diligence legislation, and in Canada on modern slavery legislation

In Switzerland, parliament’s upper house (the Council of States) adopted last year an indirect counter-proposal to the Responsible Business Initiative (calling on companies to conduct environmental and human rights due diligence). On 31 January, the legal affairs committee of the lower house (the National Council) decided to reject this counter-proposal and reaffirmed its commitment to its own indirect counter-proposal (with a few further changes). Discussions focused on applicable law and corporate responsibility.

In Canada, three parliamentarians introduced a Modern Slavery Act in the Senate on 5 February that would require large companies to disclose what they are doing to identify and prevent forced labour in their business and value chains. The bill builds on the UK and Australian Modern Slavery Acts, and seeks to go further by amending the Customs Tariff so that it prevents goods manufactured or produced by forced labour or child labour from being imported into Canada. Companies subject to the law could also be subject to an investigation and a $250,000 fine.

While we’re talking about laws, there was a development on 30 January regarding the first court case looking into the French duty of vigilance law. France’s civil court (tribunal de grande instance) ruled that it did not have jurisdiction to look into whether Total met its duty of vigilance related to its activities in Uganda, and has passed the case over to to the the commercial court (tribunal de commerce).

2. Quasi-judicial mechanisms (OECD National Contact Points) are used to shine a spotlight on banks’ financing activities: ANZ and Australian bushfires, Credit Suisse and pipeline impacts on indigenous peoples in the United States, ING Group and palm oil

As a recap, National Contact Points (NCPs) are government-supported offices whose core duty is to advance the effectiveness of the OECD Guidelines for Multinational Enterprises (the Guidelines). These Guidelines provide for a specific responsibility on companies to seek to respect human rights, including in their extended value chain. This means that plaintiffs can resort to NCPs to hold companies to account for their activities impacting upon human rights and the environment taking place in far-flung places. There are currently 48 NCPs. I discuss these quasi-judicial instances with Practical Law here.

On 30 January 2020, Friends of the Earth Australia and individuals affected by the bushfires in Australia filed an instance against the Australia New Zealand Bank (ANZ) at the Australian NCP. The complaint states that ANZ does not adhere to the Paris Agreement in its lending activities and should disclose its full lending emissions. (This follows an OECD NCP instance filed against ING in the Netherlands which resulted in ING making a number of new carbon-related commitments).

On 30 January 2020, Women’s Earth & Climate Action Network, International (WECAN) and indigenous women filed an instance against Credit Suisse at the U.S. NCP for contributing to adverse impacts to indigenous peoples and the environment through their financing of firms that built the Dakota Access Pipeline and Bayou Bridge Pipeline. (This follows an OECD NCP instance filed against Credit Suisse by the Society for Threatened Peoples (STP) at the Swiss NCP regarding the bank’s financing of the Dakota Access Pipeline. That case related to the bank’s project financing and resulted in Credit Suisse committing to incorporate the concept of Free Prior Informed Consent – FPIC – into its internal guidelines on project financing. This new case relates to the bank’s corporate lending, not project financing).

On 20 January 2020, the Dutch NCP accepted an instance filed against ING Group related to environmental, human rights, and labour rights impacts of palm oil allegedly caused by subsidiaries of ING’s clients Noble Group, Bolloré Group/Socfin Group, and Wilmar International. The Dutch NCP will now proceed to seek to “bring parties to agreement on possible improvements of ING’s due diligence policies and practices regarding palm oil, and to assess the enterprise’s involvement with the actual or potential adverse impacts identified, in order to determine the appropriate responses and specifically, assess whether the enterprise contributed (or would contribute) to the adverse impact; or whether the adverse impact is (or would be) directly linked to its services by the business relationships.” This determination matters, since how the bank is viewed as connected to the impact determines what it should be doing about it, with complainants alleging that the bank has contributed to the impacts due to the high degree of foreseeability of the harmful impacts and ING’s failure to mitigate or decrease the risk of impacts over time.

3. Companies steps in to protect trade unions in their supply chains (17 companies sourcing garment, footwear, and travel goods from Cambodia; adidas sourcing from Myanmar) and Turkish metalworkers’ trade unions tackle the effect of inflation on wages

Legislative developments have recently been taking place in Cambodia related to labour rights. A range of stakeholders (including Cambodian and international civil society organisations, the Office of the UN High Commissioner for Human Rights, and the International Labor Organization) state that the legal revisions fall short of international labour rights standards, in particular when it comes to freedom of association, and rights to organize and collective bargaining. In a letter addressed to the Prime Minister on 22 January, 17 companies (adidas, Burton, Esprit, Fruit of the Loom, Kik, Levi Strauss, lululemon, MEC, Montane, New Balance, PVH, Puma, Ralph Lauren, Salewa, Schoffel, Under Armour and VF Corporation), the American national trade association representing apparel, footwear and other sewn products companies (American Apparel & Footwear Association) and a number of other organisations reiterated this point. The private sector sourcing garment, footwear, and travel goods from Cambodia request that the government immediately amend the Trade Union Law so that it aligns with international standards, repeal a law that enables repression of civil society organizations and unions (the Law of Associations and NGOs) and drop all outstanding criminal charges against trade union leaders.

A footwear factory in Myanmar (Myanmar Infochamp) fired four workers when they sought to organise a trade union for the workers in the factory. The concerns they were seeking to address included management forcing workers to undertake non production-related work during lunch breaks, verbal abuse, and non-payment of bonuses. The factory also blacklisted the trade union leader, making it impossible for her to find a new factory position elsewhere. Adidas, a buyer from the factory, worked with civil society (Workers Rights Consortium, the Clean Clothes Campaign and Action Labor Rights) to address the case. Because the factory was going out of business, reinstatement of the workers was not an option. Adidas ensured that the factory would provide back pay to the fired trade union leaders, legally-owed severance pay to all workers following the factory closure and pay to the blacklisted trade union leader to compensate for preventing her from finding new employment.

A collective agreement governing approx. 200 metal companies and 130,000 trade union metalworkers in Turkey expired in 2019. On 29 January, following collective bargaining negotiations and striking activity, the relevant trade unions for metalworkers (Türk Metal, Birleşik Metal-İş and Özçelik-İş) reached an agreement with the Turkish Employers Association of Metal Industries. Of particular note, the agreement seeks to address the impact that high levels of inflation, combined with devaluation, has had on wages in Turkey. All wages and benefits will be increased above inflation levels every six months.

Week of 27 January 2020

1. Attacks against people shining the spotlight on negative impacts of business-related activities (human rights defenders) continue, with 2,000 attacks in the last 4 years and close to 600 attacks in 2019 alone, according to the BHRRC

The attacks include frivolous lawsuits, arbitrary arrests and detentions to death threats, beatings and even killings. The Business and Human Rights Resource Centre (BHRRC) reports the following:

  • 2,000 attacks on human rights defenders between 2015 and 201
  • 572 attacks in 2019 alone, up from 492 in 2018
  • Attacks on women (in particular, indigenous women and affected rural communities’ leaders and members) have increased every year for the past five years, with 137 attacks recorded in 2019
  • These attacks include restrictions on worker organising and violence against labour rights defenders
  • These attacks took place, primarily, in Latin America, followed by Asia and the Pacific region, and Eastern Europe and Russia

The companies that should be the most concerned are those from mining, agribusiness, waste disposal, renewable energy, construction, extractive (oil, gas, coal), and logging and lumber. A number of companies have taken a specific position on human rights defenders (including adidas, FIFA, Chevron, M&S, Barrick Gold, Unilever, the RSPO) and organisations have provided a number of expectations of companies when it comes to playing a role to protect human rights defenders.

Governments do not realise that sometimes the vision of development needs to go beyond economic benefit, beyond the capitalist view, but it has to be a holistic view that is actually respectful of minorities… There are many companies that recognise that it is important to join the struggles on women’s rights, LGBTI, with indigenous people — but it is necessary that they get involved more genuinely, because they have a level of power and access with government, that for civil society is much harder to reach

Joshi Adriana Leban Montenegro (Nicaraguan human rights defender), Business and Human Rights Defenders & Business: January 2020 Snapshot (BHRRC, January 2020)

2. Climate change could cause the next financial crisis (Bank for International Settlements); European investors doubled investments in sustainable funds in 2019 (€120bn compared to €48.8bn in 2018, Morningstar); and asset owners take decisive actions to incentivise asset managers to invest in sustainable companies (e.g. Brunel Pension Partnership, Church of England Pension Board)

The Bank for International Settlements, which represents all central banks, said climate change could cause the next financial crisis. The bank further noted that central bankers at present lack tools to deal with what could be one of the biggest economic dislocations of all time.

Climate change poses unprecedented challenges to human societies, and our community of central banks and supervisors cannot consider itself immune to the risks ahead of us.

François Villeroy de Galhau (governor of the Banque de France), The green swan: Central banking and financial stability in the age of climate change (Bank for International Settlements, January 2020)

According to data provider Morningstar, a record €120bn was invested in sustainable funds, more than double the amount in 2018 (€48.8bn). Responding to client demand, an increasing number of asset managers are converting products into sustainable funds, and creating new funds. These funds integrate environmental, social and governance standards into their portfolios, pursue sustainability-related themes, or provide sustainability metrics alongside financial returns.

Sustainable solutions are more attractive than ever and demand across Europe is increasing rapidly.

Jan Erik Saugestad, Chief Executive, Storebrand Asset Management, Europeans make record investments in sustainable funds (Financial Times, January 2020)

Brunel Pension Partnership, a £30bn British pension fund which manages pension money for councils in south-west England and the Environment Agency, has adopted a new policy stating that it would “review the mandates of asset managers that don’t reduce exposure to climate risk by 2022.” Asset managers affected include Aberdeen Standard, Invesco, Legal & General Investment Management, Royal London Asset Management and Wellington Management. The Guardian reports the following issues amongst asset managers, identified by Brunel: short-termist thinking, unwillingness to invest in companies pursuing low-carbon technologies, and risk models that rely on flawed assumptions and fail to integrate climate risks.

Climate change is a rapidly escalating investment issue. We found that the finance sector is part of the problem, when it could and should be part of the solution for addressing climate change.

Mark Mansley, Chief Investment Officer, Brunel Pensions Partnership, £30bn pension fund: we’ll sack asset managers that ignore climate crisis (The Guardian, 27 January 2020)

The Church of England Pension Board (which oversees the £2.8bn pensions for the Anglican clergy) has launched the first passive index on the London Stock Exchange that enables passive funds to invest in companies aligned to the Paris Agreement. The FTSE TPI Climate Transition Index was developed in collaboration with FTSE Russell. The Church of England will invest an initial £600m in the index.

David Cumming from Aviva Investors urges asset managers to adopt a more radical approach in the face of climate change. David provides guidance on engagement, internal structures that are needed within asset managers, and communication.

Climate change has changed everything. Investment objectives have to include responsible values and actions, in addition to financial returns. We have to respond by engaging in a different way and by taking decisive action when the companies we invest in don’t. We cannot be passive in the face of climate change. We have to be active.

David Cumming, Chief Investment Officer for equities, Aviva Investors, Why asset managers cannot be passive on climate change (FT Opinion, 30 January 2020)

3. A lack of decent work combined with rising unemployment and persisting inequality affects nearly half a billion people worldwide, according to the ILO

The International Labour Organisation (ILO), in its report the World Employment and Social Outlook: Trends 2020, finds that almost half a billion people (470 million) are working fewer paid hours than they would like or lack adequate access to paid work. The report notes that the share of national income which goes to labour declined substantially between 2004 and 2017, from 54 to 51 % (in particular in Europe, Central Asia and the Americas).

The report finds that “even when people have a job, there remain significant deficiencies in work quality. Decent work concerns the adequacy of wages or self-employment earnings, the right to job security and a safe and healthy workplace, access to social protection, the opportunity to voice one’s views and concerns through a trade union, employers’ organization or other representative body, and other fundamental rights such as non-discrimination. Decent work deficits are especially pronounced in the informal economy, which registers the highest rates of in-work poverty and high shares of people who are own-account self-employed or contributing family workers who lack adequate protection.”

Another key finding relates to “substantial inequalities” which “prevail in the access to work and work quality. These include key lines of segmentation among workers, according to geographical location (between countries and between workers in urban and rural areas), sex and age. Moreover, new ILO data on labour income (for all workers, including the self-employed) demonstrate that, at the global level, income inequality is far greater than previously thought.”

““For millions of ordinary people, it’s increasingly difficult to build better lives through work. Persisting and substantial work-related inequalities and exclusion are preventing them from finding decent work and better futures. That’s an extremely serious finding that has profound and worrying implications for social cohesion.”

Guy Ryder, ILO Director-General, Insufficient paid work affects almost half a billion people, new ILO report shows (ILO, 20 January 2020)

Week of 20 January 2020

1. The time on the Doomsday Clock has changed. With the climate crisis and nuclear threats, the world is the closest it has ever been to catastrophe since the end of World War II

The Doomsday Clock was created following World War II to illustrate the likelihood of a man-made global catastrophe. It is the “universally recognized indicator of the world’s vulnerability to catastrophe from nuclear weapons, climate change, and disruptive technologies in other domains.” Every year, leading scientists (who form part of the Science and Security Board within the Bulletin of the Atomic Scientists) decide where to place the minute hand of the clock.

This year, they have moved the clock forward to 100 seconds to midnight. This is the closest to catastrophe that the scientists have judged the world to be at any point since the clock’s creation – including during the Cold War. The scientists explain that the situation is even worse now “because the means by which political leaders had previously managed these potentially civilization-ending dangers are themselves being dismantled or undermined, without a realistic effort to replace them with new or better management regimes.”

“Climate change that could devastate the planet is undeniably happening. The global security situation is unsustainable and extremely dangerous, but that situation can be improved, if leaders seek change and citizens demand it. There is no reason the Doomsday Clock cannot move away from midnight. It has done so in the past when wise leaders acted, under pressure from informed and engaged citizens around the world. We believe that mass civic engagement will be necessary to compel the change the world needs.”

The Bulletin of the Atomic Scientists’ Science and Security Board, Closer than ever: It is 100 seconds to midnight (January 2020)

2. Timed for the WEF convening in Davos, Microsoft’s new carbon commitments shift the debate from avoiding and offsetting emissions to removing carbon from the atmosphere, with a particular focus on supply chain emissions

Microsoft has committed to be carbon negative by 2030, and by 2050, to remove from the environment all the carbon the company has emitted (either directly or by electrical consumption) since it was founded in 1975. To understand the implications of Microsoft’s commitments here, let us take a step back.

First, the kinds of commitments to carbon companies can take vary:

  • Carbon neutral: the company reduces its emissions and pays to reduce carbon elsewhere to balance the remaining carbon it does emit
  • Net zero: the company removes from the atmosphere the same amount of carbon it emits
  • Carbon negative: the company removes more carbon than it emits each year

Second, companies have three types of carbon emissions:

  • Scope 1: These are direct emissions that the company’s activities create
  • Scope 2: These are indirect emissions coming from the production of the electricity or heat the company uses in its buildings
  • Scope 3: These are indirect value chain emissions which include the emissions across the company’s value chain (e.g. of the company’s supply chain, associated with the use of products by consumers). This is where the level of emissions tend to be the greatest (but also where the company has the least control)

Microsoft’s commitment is far-reaching:

  • Microsoft states that we must reach “net zero” emissions, meaning that humanity must remove as much carbon as it emits each year. (This is aligned with civil society’s recent open letter to World Economic Forum (WEF) delegates to transform the economy to reach net zero by 2050.) The company remarks that companies and organisations “who can afford to move faster and go further should do so.” Microsoft remarks that being carbon neutral will not suffice: the company is committed to reducing, then removing, the company’s footprint. As a first step, the company’s commitment to being carbon negative by 2030 will be achieved by (1) cutting the company’s carbon by more than half and and (2) removing more carbon than the remaining carbon it emits. As a second step, the company’s commitment to remove from the atmosphere all the carbon it has emitted (either directly or by electrical consumption) since it was founded in 1975 will be aided by the company’s financing of a $1 billion climate innovation fund to accelerate the development of necessary technologies for carbon reduction and removal

This direction of travel is evident in other sectors too:

  • Nestlé has committed to cut greenhouse gas emissions across its operations and supply chain to net zero by 2050
  • Maersk has committed to become carbon neutral by 2050 (with regard to scope 1 – direct emissions)
  • Mahindra Group has committed to net zero across the whole range of Mahindra businesses by 2040 (with regard to scope 1 – direct emissions)

(You can view CDP’s recently released 2019 annual A List which names 170 companies “as the leaders acting to address climate risks and build our future zero-carbon economy” here).

While it is imperative that we continue to avoid emissions, and these investments remain important, we see an acute need to begin removing carbon from the atmosphere, which we believe we can help catalyze through our investments. Reducing carbon is where the world needs to go, and we recognize that it’s what our customers and employees are asking us to pursue. This is a bold bet — a moonshot — for Microsoft. And it will need to become a moonshot for the world.

Brad Smith, President, Microsoft, Microsoft will be carbon negative by 2030 (Microsoft, January 2020)

3. We now have a list of the 2,000 most influential companies that will make or break the world’s ability to meet the UN’s Sustainable Development Goals, courtesy of the World Benchmarking Alliance

The World Benchmarking Alliance (WBA) has identified 2,000 companies as “‘keystone companies‘ that will have disproportionate influence on industry’s collective chance of success for meeting” the UN’s Sustainable Development Goals (SDGs). These companies collectively make up half of the entire global economy and are responsible for $43 trillion in revenue. In short, without their committed actions, we face an unsustainable future, with the UN SDGs remaining unmet.

These 2,000 companies are the ones with the most impact and influence within industries that can positively and/or negatively impact one (or several) of the following seven transformations needed to meet the UN SDGs: social, food and agriculture, decarbonisation and energy, circular, digital, urban and financial. Companies on this list will be benchmarked by the WBA to see whether and how they are performing in line with sustainability expectations and in relation to their peers.

Without these companies aligning their business models and operations with the SDGs – they simply won’t be delivered. 

Gerbrand Haverkamp, Executive Director, World Benchmarking Alliance, Tick tock, tick tock….Happy new year and here’s to a new decade (World Benchmarking Alliance, January 2020)

Week of 13 January 2020

1. Climate risk will re-shape finance, according to the world’s largest asset manager BlackRock

Larry Fink, founder and CEO of BlackRock (the world’s largest asset manager with close to $7 trillion in investments) is pushing companies to consider their carbon footprints. He announced that BlackRock would exit investments that “present a high sustainability-related risk” and that “in the absence of robust disclosures, investors, including BlackRock, will increasingly conclude that companies are not adequately managing risk.”

“Awareness [of climate change] is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance. The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.”

Laurence Fink, founder and CEO, BlackRock

Laurence Fink, A Fundamental Reshaping of Finance (BlackRock, 14 January 2020)

2. The last decade was the hottest decade ever, and years 2016 and 2019 were the warmest years on record, according to NASA and NOAA

NASA (The National Aeronautics and Space Administration) and NOAA (the National Oceanic and Atmospheric Administration) found that the average global temperature is now more than 1 degree Celsius (2 degrees Fahrenheit) above what it was in the late 1800s. (As a reminder, the critical threshold of warming is 1.5 degrees Celsius). Earth’s global surface temperatures in 2019 were the second warmest since modern recordkeeping began in 1880, and the past five years have been the warmest of the last 140 years.

“We crossed over into more than 2 degrees Fahrenheit warming territory in 2015 and we are unlikely to go back. This shows that what’s happening is persistent, not a fluke due to some weather phenomenon: we know that the long-term trends are being driven by the increasing levels of greenhouse gases in the atmosphere.”

Gavin Schmidt, Director of the NASA Goddard Institute for Space Studies (GISS)

NASA, NASA and NOAA Analyses Reveal 2019 Second Warmest Year on Record (NASA, 15 January 2020)

3. The European Commission launches consultations to discuss how to ensure that every worker in the EU is protected by adequate minimum wages

The European Commission is looking to collect “views on the possible direction of an EU action to ensure that every worker in the Union is protected by adequate minimum wages.” The commission clarifies that the new EU initiative is not seeking to “set a uniform European minimum wage, nor impose one model of minimum wage setting over another.” Rather, to assess in the first instance whether there is a need for action on fair minimum wages at the EU level.

“We have to restore the dignity of work. And the first dignity of work is to pay people a fair wage”

Nicolas Schmit, EU Commissioner for Jobs and Social Rights

European Commission, A Strong Social Europe for Just Transitions (European Commission, 14 January 2020)
Beatriz Ros, Nicolas Schmit: The first dignity of work is to pay people a fair wage (Euroactive, 16 January 2020)