Resource Center

This episode of ESG in Conversation explores ESG materiality and what a shift in political agendas globally could mean for the state of sustainability-related regulations.

In this article we define ESG materiality and highlight what investors need to know when considering the materiality of ESG issues in their investment portfolios.

Morningstar Sustainalytics’ Annual ESG Risk Ratings Industry Reports are now available. Discover the cross-industry insights that emerge from this year’s reports and the research behind them.

Chemical companies face growing pressure to phase out some of the most hazardous substances from their product portfolios. Learn how well companies manage related risks and what upcoming regulations could mean for them and their investors.

Non-GHG emissions will increase as the physical impacts of climate change continue to materialize. Our analysis shows that companies could be doing more to eliminate hazardous non-GHG air emissions from their operations.

The Clean Power Plan was created using a directive from the Clean Air Act that enabled the EPA to set emission limits for air pollutants based on the best available technology to reduce emissions. The EPA aimed to cap carbon emissions and curb greenhouse (GHG) emissions by changing the composition of the existing operational power generation assets by forcing the closure of coal plants through strict emission caps, resulting in a system-wide transition to renewable energy.

Transport electrification is at the forefront of the international climate transition agenda. Because of this, global demand for cobalt is projected to grow fourfold by 2030, which raises the question, are mineral supply chains robust enough to fuel a sustainable EV revolution?

The various interpretations of the sustainable investment definition introduced by the SFDR and leveraged in MiFID II leave many market participants unsettled, having to decide between approaches that have different benefits and limitations in the short to medium term.

As our clients and the industry at large focus on proactively mitigating risk and capitalizing on this evolving landscape, stewardship will be a key lever for savvy investors—particularly those facing external pressure to divest. Here are the ESG themes we see influencing stewardship priorities this year.

Reactions to the COP26 Conference and the resulting Glasgow Climate Pact have predictably run the gamut from claims of greenwashing to the celebration of progress in the fight against climate change. Ultimately, any judgement on COP26 may be premature, as the success of the conference will best be measured in time by the extent to which commitments made are put into motion. While we wait to see the concrete actions that materialize, the past two weeks have underscored the importance of several themes that will garner increasing attention and should be considered by sustainable investors.

Investors can examine to what extent petroleum refiners manage their Non-GHG Air Emissions and assess the quality of a company's programs to reduce air pollutants. For instance, examining all the petroleum refiners assessed by Sustainalytics, we observe that only 3% have a strong program to manage non-greenhouse gas emissions.

Despite the shifting timelines, we observe that the market momentum around PAIs is not diminishing, quite the contrary. Investors in the scope of the regulation are using the fourth quarter of this year to get acquainted with PAI data and set up their systems. Most investors we speak with want to be prepared in time to be able to monitor PAIs throughout 2022 and adjust their portfolios to boost their PAIs (or rather limit the downside, as these are adverse impact indicators). This means that PAIs may significantly impact stock selection and portfolio construction by fund managers keen to have ‘good’ PAI scores.

As world leaders prepare to meet in Glasgow for COP26 to discuss accelerating climate action towards the goals of the Paris Agreement, an emerging energy crisis persists around the world.

Indications that a food crisis is imminent are clear. Fundamental changes in the global food system are required to address these challenges. This decade is a watershed moment for urgent efforts to close the loop, and companies and investors can play a pivotal role. Despite being closely connected to issues such as climate change and basic human rights, food waste has attracted comparatively less attention from companies, investors, and other stakeholders.

There are many factors that rating agencies consider within its overall assessment. For example, ESG rating companies tend to look for at least three years of ESG metrics to determine company trends and long-term ESG targets, goals, and strategies to manage and reduce ESG risks at least five years ahead. Read on to learn about how Sustainalytics' Material Risk Engagement program promotes and protects long-term value by engaging with high-risk companies on financially-material ESG issues. (A North American Snapshot)

Pipelines play a critical role in the U.S energy infrastructure transporting natural gas, crude oil, natural gas liquids, petroleum, and petrochemical products. While these pipelines play a vital role in supporting the U.S economy, investors are increasingly scrutinizing pipeline operators' long-term economic profitability and sustainability practices. A closer look into the status of pipelines reveals a particular issue that investors need to consider.

On July 6th, the European Commission published its Strategy for Financing the Transition to a Sustainable Economy, the successor of the EU’s Sustainable Finance Action Plan, which launched in 2018. The strategy focuses on transforming the financial system and financing transition plans, building on the 2018 Action Plan, which centered on developing the EU Taxonomy, putting in place disclosure regimes, and developing tools for the market to develop sustainable investment solutions and prevent greenwashing.

As onshore resources became harder to locate over the past decades, offshore exploration and production have grown into a global industrial activity. The prospect of finding hydrocarbons has led some companies to explore deeper waters in some regions.

While Oil and Gas (O&G) operations are responsible for roughly 15 percent of global energy-related GHG emissions, some energy companies have pledged the role of natural gas (NG) as a transitional fuel. At the same time, NG energy use is increasing globally, and shale-gas extraction is booming at an unprecedented rate. One factor that is often overlooked is the methane emissions across the NG value chain.

One of the lasting impacts of the COVID-19 pandemic will surely be a transformed understanding of supply chains. As we touched on in earlier posts[i] in our coronavirus blog mini-series, we expect the pandemic to catalyze a range of efforts by management teams to better understand the vulnerabilities of their supply chain. While executive teams closely track their tier 1 suppliers, many are unaware of the full scope of their global supply chain. Bain & Co recently estimated that up to 60% of executives have no knowledge of the items in their supply chain beyond the tier 1 level.[ii]