ESG INVESTMENT

North American
Market Outlook

Abstract
How will environmental, social and governance factors affect the world of
investment for years to come? The Reuters Events ESG Investment North America
Summit looks at the biggest issues.

https://events.reutersevents.com/finance/esg-investment-usa
ESG INVESTMENT | North American Market Outlook 2

Contents
Acknowledgments.. .......................................................................................................................................... 3
Foreword. . ........................................................................................................................................................ 4
Introduction..................................................................................................................................................... 5
Chapter 1: The Future of ESG............................................................................................................ 6
The pushback against ESG....................................................................................................................... 7
The danger of definitions.......................................................................................................................... 7
Challenging diversity issues. . .................................................................................................................... 7
Finding clarity on ESG..................................................................................................................................... 7
“Alphabet soup”. . ...................................................................................................................................... 8
ESG as a process.. ..................................................................................................................................... 8
ESG is here to stay........................................................................................................................................... 8
Effects on bottom lines............................................................................................................................. 8
The social case . . ........................................................................................................................................ 9
“A race against time”................................................................................................................................ 9
Chapter 2: Net Zero......................................................................................................................... 10
The challenges of net zero............................................................................................................................... 10
Why private companies should have an ESG plan. . .......................................................................................... 10
Finding the right information . . .................................................................................................................. 12
Tools to aid the transition to net zero.............................................................................................................. 12
The role of data........................................................................................................................................ 12
Chapter 3: Regulation and Frameworks............................................................................................ 13
Pushback against the latest legislation........................................................................................................... 13
Comments from the CAQ.......................................................................................................................... 13
Convergence with international standards.. ..................................................................................................... 13
Engagement and collaboration.. ............................................................................................................... 14
The international view.. .................................................................................................................................... 14
Universal assurance standards........................................................................................................................ 14
Chapter 4: The ‘S’ in ESG................................................................................................................. 16
The financial case for social investing. . ..................................................................................................... 17
Addressing the obscurity around social data............................................................................................ 17
The future of social investment. . ............................................................................................................... 17
Conclusion....................................................................................................................................................... 18
ESG INVESTMENT | North American Market Outlook 3

Acknowledgments
We would like to give our wholehearted thanks to those who gave their time and
expertise to this project:

• Ann-Marie Fink, Private Markets and Funds Alpha CIO at the State of Wisconsin
Investment Board
• Brad Lander, NYC Comptroller
• Brian Horn, Chief Operating Officer at Disability: IN
• Bryan McGannon, Managing Director at the US SIF
• Chandini Jain, Chief Executive Officer at Auquan
• Dennis McGowan, Vice President of Professional Practice at the Center for Audit
Quality
• Eila Krevi, Chief Sustainable Finance Advisor at the European Investment Bank
• Elizabeth Small, Head of Policy at CDP
• Erika Karp, Chief Impact Officer at Pathstone
• Evan Siddall, Chief Executive Officer at the Alberta Investment Management
Corporation
• Ibrahim AlHusseini, Founder and Managing Partner at Husseini Group LLC
• John Goldstein, Head of Sustainable Finance Group at Goldman Sachs
• Lanaya Irvin, CEO at Coqual
• Linda-Eling Lee, Managing Director, Head of ESG and Climate Research at MSCI
• Matthew Rusk, Head of North America at the Global Reporting Initiative
• Mindy Lubber, Chief Executive Officer at Ceres
• Murugesh Mayandi, Chief Growth Officer for Content and Data at Straive
• Nathalie Rubens, Trustee at the American Jewish World Service
• Paul Bodnar, Head of Sustainability Policy and Engagement at BlackRock
• Pedro Guazo, Chief Executive Officer at the UN Join Staff Pension Fund
• Pratima Divgi, Head of Capital Markets at CDP
• Sam Gill, President and Chief Executive Officer at Doris Duke Charitable
Foundation
• Shaun Castle, Deputy Executive Director of Paralyzed Veterans of America
• Shoaib Khan, Director and CIO of Division of Investment, State of New Jersey
• Stephan Feilhauer, Co-Head and Managing Director of the Sustainable Energy
Fund at Builders’ Vision
ESG INVESTMENT | North American Market Outlook 4

Foreword
From the Chief Executive Officer of the Center for Audit Quality (CAQ):

Trustworthy company-reported information is what drives our capital markets and

the businesses that tap into them, and as the type of information reported by public
companies evolves beyond the traditional financial statement, it is important to
maintain a dependable corporate reporting system that provides investors with the
information they need to make informed decisions.

Global finance leaders such as Larry Fink have expressed the view that companies
have a “responsibility to shareholders, including through sound environmental,
social and governance (ESG) practices and policies.” Indeed, whether motivated
to reduce greenhouse gas emissions or to gain a better understanding of how DEI
is factored into business operations, it is indisputable that investors now expect
actionable information on how businesses are considering these issues.

For our capital markets to continue to operate efficiently, information that investors
take into consideration must be both reliable and consistent. Achieving comparable
ESG information for investors requires clear standards for public companies to guide
disclosures in a manner similar to the way that financial statement disclosures have
been standardized in major capital markets.

The well-established structure and standards that exist in the U.S. for reporting
on a company’s financial performance and the effectiveness of internal controls
over financial reporting provide important building blocks when considering the
standards and assurance of climate-related and other ESG reporting. Assurance of
climate-related and other company-prepared ESG information by an independent
third party can also enhance the reliability of this information, creating a level
playing field for investors and public companies alike, by offering increased investor
protection.

Debate around the merits of ESG investing is ongoing but as we await final rules and
standards from global regulators and standard-setters, we hope this outlook, which
contains valuable insights from leaders across the financial reporting ecosystem, will
shed light on the state of play for the future of corporate reporting.

Julie Bell Lindsay

Chief Executive Officer
Center for Audit Quality
ESG INVESTMENT | North American Market Outlook
Introduction
Never has the conversation around environmental,
social and governance (ESG) aligned investing been so
pertinent as it is right now. The International Panel on
Climate Change said in March 2022 that 40% of the
world’s population is vulnerable to climate threats, so we
must act straight away. To rise to the challenge, Reuters
Events united hundreds of industry-leading delegates in
November 2022 to chart the course of an ESG-led future
of investing: serving people and planet in equal measure.
Among them, asset owners, thought leaders, financial
advisors, leaders from government institutions and
representatives for climate associations shared their
thoughts on some of the most pressing issues facing
the world of investment today. This report, with insight
from the Center for Audit Quality (CAQ), summarizes
the key points discussed throughout the event. It also
underscores the importance of auditing and assurance,
helping us to comply with changing legislation while
meeting sustainability targets.
With more than 60 experts from around the world across
20 sessions, the event covered themes including data and
reporting, private markets, net zero and proxy voting. It
also addressed the key changes to legislation that will
affect investment decisions and ESG reporting in years to
come. Namely, the Securities and Exchange Commission’s
(SEC) new ruling on public disclosure of climate reporting i
has sent shockwaves across US industry. In addition, Eila
Krevi, Chief Sustainable Finance Advisor at the European
Investment Bank (EIB), discusses legislation overseas
during a fireside chat on international comparisons.
The report addresses the tough but most pertinent issues
– for example, the transition from fossil fuels to
5
renewables and the associated costs, plus its subsequent
effects on investors. Moreover, it looks at the challenges
of achieving net zero and the frameworks we can use to
measure our contributions to this effort, looking not only
at Scope 1 and Scope 2, but Scope 3 emissions. ii
For companies, ESG reporting is fast becoming as vital
as traditional financial reporting and we are already
beginning to see a clear uplift in investor requests for
sustainability information and financial materiality.
As this paper underscores, climate change will have
significant effects on the economy, and mitigating tail risk
has become an urgent priority. Whether companies act or
not, climate change will continue to impact their supply
chain and infrastructure, so it is not something that can
be ignored.
Finally, the paper considers people as well as planet –
noting the disparities between reporting on social issues
and environmental or governance issues. In a panel
on social materiality, representatives from Paralyzed
Veterans of America (PVA) discuss the shocking case
studies that showcase how under-represented disabled
citizens are. From an economic standpoint, cost benefit
analyses show that investments in social causes will
attract investors long-term.
Right now, the world is at a point of climate emergency,
but it also faces new opportunities to invest in renewable
energy. With advancements in green tech and an ever-
growing pool of ESG data being unlocked, investors have
the tools at their disposal to effect real change. It is up
to the global finance community to act decisively and
urgently.
ESG INVESTMENT | North American Market Outlook
Chapter 1:
The Future of ESG
With a backdrop of economic instability, international
conflict and recovery from a global pandemic, risk
management becomes an ever-greater concern. Within
this context, ESG analysis becomes more pertinent for
investors.
6
Following developments in the Securities and Exchange
Commission (SEC)’s climate change disclosure
proposals, iii companies are under more pressure than ever
to have a robust ESG strategy. One of the fundamental
challenges as they face this endeavor is addressing
exactly what ESG entails.
ESG INVESTMENT | North American Market Outlook 7

The pushback against ESG between 2019-2021, with net inflows of $25 billion
Throughout 2022, there was significant pushback against in 2020 and $35 billion in 2021, largely driven by the
ESG analysis. While some said it was not the complete products’ outperformance of the market. vi
solution to a sustainable future, others considered it an
Challenging diversity issues
ideological attempt to curtail shareholder capitalism.
Our attitudes towards ESG may be clouded by a lack
This partly derives from a lack of clarity around the role
of diversity on boards of investors. Calling for “a board
of ESG analysis. Part of this derives from the conflation of
renewal program,” Karp herself stressed the importance
ESG with sustainability and impact investing, not helped
of “progressive views,” which challenge the status quo
by the origins of the term “ESG,” which arose to measure
and enable the investment industry to innovate in service
non-financial impacts.
of ESG goals. “Historically, we have always had older
The danger of definitions white males on the board, which is problematic. We don’t
This murky definition has led to pushback against have the progressive views we need.”
ESG. Primarily, companies and investors are faced
Indeed, ESG should be viewed holistically rather than
with more data than ever before, which in turn leads to
breaking the term down into separate environmental,
inconsistencies – for example, global reporting standards
social, and government factors – as the three
may conflict with industry or country-specific standards.
complement each other. Karp added: “If a company is not
MSCI’s Head of ESG and Climate Research Linda-Eling looking at environmental and social factors, it is not well-
Lee, speaking at Reuters’ panel ‘Demystifying ESG governed.”
Through Data,’ (November 1) cites an example from the
These diversity issues, coupled with the tensions between
European Union: “We’re seeing more fragmentation
standardization and proprietary processes, showcase why
because different regions have different definitions. The
ESG continues to face pushback. The good news is that
EU declared that nuclear energy would be part of the
the tide is turning – Trustee Nathalie Rubens cites the
green taxonomy, which caused some investors to push
diverse range of board members at the American Jewish
back. It’s a lightbulb moment when even the regulator
World Service, for example – but this starts with a clearer
can’t have the final word.”
understanding of ESG itself.
In the context of financial investments, ESG is a way
Finding clarity on ESG
of organizing data that incorporates other factors into
In 2022, the Center for Audit Quality (CAQ) conducted
investment analyses beyond financial performance. iv
an analysis of the S&P 500 and their reporting of
Investors can protect themselves against risks stemming
climate-related and other ESG information. Their goal
from ESG factors such as climate disasters, while
was to identify trends such as reporting standards and
capitalizing on opportunities such as the transition to
frameworks used, use of an assurance provider to obtain
renewable fuels. As Erika Karp, Chief Impact Officer at
assurance or verification, the level of assurance obtained
Pathstone, put it while speaking on a panel at Reuters’
over what metrics.
‘Hear Directly from the Asset Owner’ panel (November 1),
ESG is an “investment research discipline”, not a set of They discovered that 93% of companies issued an
investment goals. To this end, Karp reiterated, “There is ESG report using at least one framework or standard,
no such thing as ESG investment.” while 230 used three or more. Likewise, more than half
(282) sought assurance over their metrics, including
In spite of the pushback, ESG-aligned investments have
contributions from providers such as the International
grown, much as “anti-ESG” funds have floundered. v
Organization for Standardization 14064-3 Greenhouse
Assets in global ESG equity products increased 98%
Gases.

If a company is not looking at environmental and

social factors, it is not well-governed.”
ESG INVESTMENT | North American Market Outlook 8

“Alphabet soup” ESG is here to stay

Among the frameworks used, the S&P 500 used the
Sustainability Accounting Standards Board (SASB),
the Global Reporting Initiative (GRI) Standards, the
Task Force on Climate-Related Financial Disclosures
(TCFD) Recommendations and the Integrated Reporting
Framework. While each of these standards gives investors
more data and choice, there’s a danger of falling prey
to “alphabet soup,” as pointed out by GRI’s Matthew
Rusk, in reference to the confusing mesh of different,
sometimes even incomparable ESG-reporting standards
and frameworks.
Then there are the less quantifiable metrics, as Ibrahim
AlHusseini points out. The founder of Husseini Group
LLC noted: “We can no longer pretend that ‘doing less
harm’ is good. It’s not strategic. There’s the shotgun
approach of ‘general good’ and then there’s the strategic
approach.” Rather than viewing ESG as frameworks alone,
it is important to see it as a process.
ESG as a process
The unanimous agreement at Reuters’ ‘The C-Suite
Perspective on the Road to Net Zero’ panel (November 1)
was that ESG is a process. It is not an investment product,
nor is it a strategy. These sentiments were echoed across
the board at the ESG Investment North America Summit.
As John Goldstein, Head of Sustainable Finance Group at
Goldman Sachs, reinforced: “[ESG] is a diverse, persistent,
related set of drivers.”
CDP’s Head of Capital Markets Pratima Divgi, speaking
at Reuters’ ‘ESG, Private Markets and the Need for
Transparent Data’ panel (November 1), reminded
investors that this definition can vary. “ESG can depend
on the client. It is a process, but there needs to be
more structure around it – not trying to standardize the
information, but the thinking in that process.” In the same
panel, Straive’s Chief Growth Officer for Content and
Data Murugesh Mayandi advised that we “define our own
standards,” particularly with social factors.
The motivations for ESG integration are vast and varied,
from the imminent climate emergency to the long-
term economic benefits on offer to companies and their
investors. Equally, ESG analysis provides key data to drive
all elements of business decision-making, as noted by
Karp at Pathstone: “ESG is a research discipline, and yet
some of the world’s largest foundations are still not doing
it. In 1,200 studies, we saw that integrating ESG gives
added insight into performance.” Part of this increased
uptake comes down to the calculations organizations
are making, as noted by Doris Duke CEO, Sam Gill, in
Reuters’ ‘Leading on Social Materiality’ panel (November
1). “Today, more companies are running cost benefit
analyses to determine the benefit of a short-term hit
versus long-term value.” This is where ESG data can prove
especially useful.
Effects on bottom lines
While ESG reporting is relatively green, we are already
beginning to see its effects on corporations’ bottom lines.
Rubens, Trustee at the American Jewish World Service,
commented on the benefits of working with Pathstone
to develop an investment and stewardship policy in line
with their sustainability values. The results were swift and
tangible: “We saw 50% returns in the first two years.”
Institutional asset owners should be considered
“universal owners” in this sense, looking holistically at all
the elements that might affect an investment portfolio
and utilizing ESG analysis to do so more effectively.
NYC Comptroller Brad Lander, speaking on Reuters’
‘Removing the Obscurity Around Social Data’ panel
(November 1), also noted that governments can invest
cyclically in a time of economic downturn. “There will be
job creation, even in a recession. It’s all about finding the
opportunities.”

Explore the The CAQ’s annual analysis looks at publicly available ESG data for companies
listed on the S&P 500. Explore the full analysis which looks at:
Center for Audit + Standards and frameworks used to report this information
Quality’s full + Types of ESG information subject to assurance
S&P 500 ESG + The level of assurance obtained over this information

Reporting + Assurance standards used by public company auditors and other providers

Analysis Click here to read the full S&P 500 ESG Report
ESG INVESTMENT | North American Market Outlook 9

The case for social investment ‘This aligns with our values.’” Hearteningly, social impact
In recent years, the rising awareness of social movements, investment market has grown by 26% in the past year, to
such as Black Lives Matter and #MeToo have highlighted $6.4 billion, according to Big Society Capital. vii
the urgent and compelling case for a robust and
“A race against time”
responsible integration of ESG analysis from a social
A key driver for ESG is and always has been the climate
perspective. These major civil rights movements have
emergency. As AlHusseini noted in Reuters’ ‘Hear Directly
revolutionized discourse not only around society as
from the Asset Owner’ (November 1), climate calamities
a whole, but also around employment policies and
now take place every 14 days, as opposed to occurring
considerations that employers must take to ensure their
every 84 days in the 20th Century. He went on to issue an
workforce is treated in a just, fair, and equal manner and
urgent call to action to reverse this trajectory: “It’s a race
use their impact in service of marginalized communities,
against time. We need to switch out the underpinnings of
rather than further exacerbating inequalities.
modern civilization from its 20th Century counterparts.”
In addition to social discussion, these movements have
Naturally, protection against long-term climate risks
significantly impacted both investor and consumer
feeds into the success of financial portfolios, particularly
decisions. Adding to his insights at the ‘Social Data’
as companies struggle with meteorological events. During
panel (November 1), Lander reminded the Reuters
‘The Road to Net Zero’ panel on November 1, BlackRock’s
audience: “It’s extremely important for companies and
Global Head of Sustainable Investing, Paul Bodnar,
investors to see that thriving workers help the business
reminded audiences: “If climate risk is not managed
thrive.” Lanaya Irvin, CEO at Coqual, expanded on these
successfully, we will deal with the fiscal, household, and
comments by looking ahead to 2023. “We will see new
company impacts of climate change. If we succeed, we
things emerging. There has already been a focus on
will have remade the global economy to transition to a
racial equity. Conversations are happening organically,
low carbon energy model
and companies will be standing on a ledge and saying,

We believe that climate

risk will shape the global
economy in the coming
decades, whether it is
managed or not.”
ESG INVESTMENT | North American Market Outlook
Chapter 2:
Net Zero
In a survey of 350 CEOs at Reuters’ IMPACT event in
October 2022, 80% said they had targets to reach carbon
neutral status. With so many standards and transition
frameworks to explore, one theme that continues to drive
ESG action is turning net zero promises into action. Both
the European Union and the United States are committed
to a net zero target by 2050, and institutional investors
have a pivotal role to play in this.
“Investors can drive markets,” says Shoaib Khan, Director
and CIO of Division of Investment, State of New Jersey.
Speaking at Reuters’ ‘The C-Suite Perspective on the
10
Road to Net Zero’ panel (November 1) alongside MD
of Builders Vision Sustainable Energy Fund, Stephan
Feilhauer, he notes how important financial risk is for
influencing market sentiment.
“We are a fiduciary so we look at risks. We have a team for
evaluating ESG risk, as well as one monitoring risk, and
one being active for shareholders. If climate risk is not
appropriately managed, it can lead to regulatory costs.
These are long-term investments, so we need recognition
and intent to find solutions. So far, our shareholder
approaches have been successful.”
ESG INVESTMENT | North American Market Outlook 11

The challenges of net zero Why private companies should have an ESG plan
Of course, the benefits of integrating ESG analysis into
investment decision-making outweigh the financial toll
Speaking on the ‘ESG, Private Markets &
of implementation. Stephan Feilhauer, Co-Head and
the Need for Transparent Data’ panel on
Managing Director of the Sustainable Energy Fund at
November 1, CDP’s Head of Capital Markets
Builders’ Vision, announced to audiences in Reuters’ ‘The
Divgi outlined eye-opening statistics
C-Suite Perspective’ panel: “Already, $2 trillion has been
on private versus public ESG reporting.
invested in the [ESG] space. But we need $3-4 trillion.”
Approximately 88% of publicly listed
To achieve this, Feilhauer stressed the importance of
companies report on their Scope 1 and 2
motivating the market to see these benefits.
emissions, compared to just 50% of private
While Feilhauer volunteers long-term climate solutions companies. The gap, Divgi explains, comes
such as green hydrogen as areas for responsible, alpha- down to a lack of information – particularly
generating investment, there still remain short-term around greenhouse gases.
challenges to overcome on the road to a sustainable
future. In response to Khan’s comments, Mindy Lubber,
CEO of Ceres, recounts a survey of 2,000 oil and gas However, there has never been a more pertinent need
engineers: “After 20 years of working in the industry, for an ESG plan, particularly after over a decade of
they’re telling us they’re being demonized. One said, exponential growth in the relative and actual size
‘Do you know how complicated it is to get to a net zero of private markets. ix As Divgi warns: “Firstly, [private
future?’ How do we give them hope?” corporations] need to consider the public regulation
standpoint. We have just seen the SEC ruling, which
Encouragingly, Khan noted the multi-decade
also affects private companies because it applies to 14
innovations happening right now, with oil demand set
jurisdictions including the EU and the US SEC.”
to decrease from as early as 2030. Speaking on the
same panel, Bodnar added that costs for renewable As she elaborated: “The Financial Accounting Standards
fuels are decreasing over time. Likewise, renewable Board applies across 160 countries. With the new
sources of energy are now being yielded by increasingly regulations, each company will be asked to focus
uncomplicated processes – solar power is far simpler than on the emissions in their value and supply chains.
digging oil out of the ground, for instance. Whether you’re public or private, a client will want this
information.”
This global energy transition would not have been
possible without the influence of investors. Feilhauer
remains optimistic about the future, citing the
Catalyst Program backed by Bill Gates, viii which funds
decarbonization and carbon capture projects. He also
gestured to the increasing interest amongst graduates for
jobs in the renewable fuels space as another example the
delegation could take heart from, imbuing an infectious
optimism for the future.

Explore the The CAQ’s annual analysis looks at publicly available ESG data for companies
listed on the S&P 500. Explore the full analysis which looks at:
Center for Audit + Standards and frameworks used to report this information
Quality’s full + Types of ESG information subject to assurance
S&P 500 ESG + The level of assurance obtained over this information

Reporting + Assurance standards used by public company auditors and other providers

Analysis Click here to read the full S&P 500 ESG Report
ESG INVESTMENT | North American Market Outlook
Finding the right information
Divgi added that scrutiny is only going to get stronger
on sustainable portfolios, meaning companies will need
to start addressing best practices with an enterprise risk
management framework. Speaking on Reuters’ ‘From
Under the Radar, Into the Spotlight: Private Markets and
ESG’ panel, Goldman Sachs’ Goldstein also noted the role
of people in this transformation:
“It’s about being holistic. We shouldn’t look at E vs S vs
G. We should look at organizational ethos, processes,
teams, and resources. More information leads to better
outcomes. I believe that limited partners are leading the
discussion, not general partners. Much of the discussion
with GPs is that we’ve always done governance – but we
need to look at quantitative and qualitative factors.
“This will lead to some tough conversations. We can’t
just fall into tropes like charity days. We should evaluate
managers upfront.”
Tools to aid the transition to net zero
Anne-Marie Fink, Private Markets and Funds Alpha
CIO at the State of Wisconsin Investment Board, states
that risk analysis is crucial in the transition to net zero.
Speaking on the ‘Under the Radar’ panel (November 1),
she talked openly about tail risk, elaborating on how her
organization had been assessing climate risks in their real
estate portfolio:
“We’re spending lots of time on climate tech. We’re
getting climate tech managers into our venture portfolio.”
By using a return-and-risk approach, Fink described how
fewer resources are consumed, leading to better bottom
lines.
12
During the same panel, the speakers discussed the
development of new technologies which bolster risk
management processes – for example, in relation to
cybersecurity. This focus on digital solutions has its part
to play in diversity efforts too, as Fink pointed out in a
cautionary tale:
“Some managers see investments that others don’t,
which is a great argument for diversity. For example, we
saw a case of an older gentleman declining to invest in
Pinterest. A young woman looked at the same investment,
loved it, and is now a partner.”
The role of data
Speaking about ‘Demystifying ESG Through Data’, Linda-
Eling Lee issued a data-driven call for greater scrutiny
and precision: “We need to make sense of investor
objectives. It’s the use of the data that determines the
definition. For example, we shouldn’t say ‘sustainable’ if
we’re looking for companies with female leaders.”
UN Joint Staff Pension Fund (UNJSPF) CEO, Pedro Guazo,
speaking at Reuters’ ‘Beyond ESG: High Quality Data’
panel (November 2), agreed that data needs to be used in
context. “We talk about ESG, sustainable investment, or
universal ownership. ESG might affect the performance
of an investment portfolio. With sustainable investment,
you might be responsible, but not a sustainable investor.
With universal ownership, we are here to take care of our
portfolio to fulfil our mandate for several generations to
come.”
This underscores the need for comparable and verifiable
data, which is bolstered by collaboration. This sentiment
united speakers from the GRI and World Bank, as seen in
Reuters’ discussions on regulatory frameworks.
ESG INVESTMENT | North American Market Outlook
Chapter 3:
Regulation and Frameworks
A key discussion point at the Reuters ESG Investment
North America 2022 Summit was the climate change
disclosure ruling introduced by the SEC in 2022. The
new ruling requests public input on climate change
disclosures to better inform investors.
13
Other public bodies are following suit. In November 2022,
The Department of Labor finalized a rule to let retirement
plan fiduciaries consider ESG factors when selecting
investments. In Europe, all companies listed on regulated
markets will have to follow the Corporate Sustainability
Reporting Directive (CSRD) from 2023 – a legislative step
aimed at putting a stop to greenwashing.
ESG INVESTMENT | North American Market Outlook
Pushback against the latest legislation
The new rulings have been met with some controversy,
as reported by ESG and Corporate Governance Reporter,
Ellen Meyers, in Roll Call in December 2022. In the
report, ‘ESG funds plunge, underscoring need for SEC
standards,’ Meyers cited findings from the US SIF (the
Forum for Sustainable and Responsible Investment),
revealing that sustainable assets under management
totaled $8.4 trillion, or one-sixth of all funds – less than
half of the $17.1 trillion in 2020.
“The ruling will be challenged. It was built to be,” says
Elizabeth Small, Head of Policy at CDP, speaking at
Reuters’ ‘The USA’s Regulatory Future’ panel (November
2). The good news, as she pointed out, is that the
ruling has been drafted to protect corporates on their
ESG journeys, whatever stage they may be at. As she
added, in the last year, 14,000 corporates chose to
voluntarily disclose. This number shows a willingness
from companies to work with standard setters and
policymakers to create actionable pathways towards a
more sustainable future.
Dennis McGowan, Vice President of Professional Practice
at the Center for Audit Quality (CAQ), added that “A
ruling brings more disclosure and helps us define the
lines.”
A step in the right direction
Expanding on his point, McGowan noted that the SEC
received 10,000 letters from the public expressing
support for the ruling. The CAQ also submitted a 50-page
letter to the SEC, highlighting their feedback around six
key areas:
1. Many organizations are voluntarily disclosing GHG
emissions based on their own frameworks, so the new
ruling could pose challenges for companies as they
move towards standardized reporting.
2. The SEC should specify in their final rule a widely
used framework (Such as the GHG protocol) that
would offer better comparability from company to
company.
3. They supported the requirements for some
registrants to seek attestation over the GHG
emissions.
4. Climate risks will vary for each company and
reporting should be fluid based upon this.
14
5. Support for convergence with international standards
and the SEC’s phased approach for compliance
dates.
Each of these points provides food for thought regarding
onward reporting and global standards.
“The CAQ has long acknowledged the value of company-
prepared climate and other ESG information for
investors,” said McGowan. “We are supportive of the
SEC’s effort to propose a rule thar can provide both
companies and investors clarity around information that
investors have increasingly asked for and that companies
are – to some degree – already providing to the capital
markets.”
Convergence with international standards
One of the biggest questions to come out of Reuters’
‘The USA’s Regulatory Future’ panel was in relation to
the real-world usefulness and applicability of global
standards. Small, like many of her peers, noted that it’s
not simply a case of a “one-size-fits-all” approach - there
may be complex litigation issues to consider, for example,
the relative danger of a lawsuit in the US versus the EU.
“We now have the worry of ‘greenhushing’ because we
don’t want to be sued for talking about some things” -
she cautioned.
In the long term, however, all parties agreed that
organizations should seek assurance. “The auditing
profession is steeped in bringing accountability,
standards-based analysis and objectivity to the review
of company-reported information – and these skills are
transferable to these other areas of company-reported
information like ESG data,” said McGowan.
Engagement and collaboration
Whether or not the world can agree on one framework,
engagement and collaboration across companies,
industries, and jurisdictions are key, McGowan adds:
“We should continue to engage with corporates, ask
for this information, and hold companies accountable.”
Speaking at the same event, Bryan McGannon, Managing
Director at the US SIF, said: “There will need to be more
engagement. People want to hear from investors.”
At Reuters’ ‘Which Framework Is Right for You?’ panel
(November 2), the speakers discussed the notion that
comparable and verifiable data are the most important
factors in driving ESG integration. Matthew Rusk, Head
ESG INVESTMENT | North American Market Outlook 15

of North America at the Global Reporting Initiative (GRI),
said: “Sustainability reporting needs to be on the same
level as financial reporting. That’s why I’m so excited by
the GRI’s collaboration with the International Society of
Sustainability Professionals. These two organizations
see information as comparable, trustworthy data, from
financial to sustainability reporting. We’re trying to align
some of the terminology.”
Following Rusk’s comments, Chandini Jain, CEO
at Auquan, added her advice: “If you’re looking at
investment, you need to consider what issues affect
enterprise value and how this impacts the rest of the
world. Once you have that framework, you can start
looking at the data sets you need to answer these
questions.”
In agreement, Rusk noted that while there may not be one
framework for all, there can certainly be one “ecosystem
of standards.”

The international view

Speaking in Reuters’ ‘International Comparison’
Fireside Chat on November 2, Eila Krevi, Chief
Sustainable Finance Advisor at the European
Investment Bank, shared her thoughts on the European
landscape:
“Not all regulations are compatible, [take] for example,
the Sustainable Finance Disclosure Regulation. It
started off as advice and became a reference for
reporting, but it doesn’t force anybody to do anything.
You can still invest in coal mines, but you can’t call
yourselves green.
Her next steps were clear: “To address
incompatibilities, we cannot use estimates or proxies.
We need precise, audited information in our reporting.
Global standards are not realistic. Europe has started
good work with taxonomies, and it has been adopted
by countries like the UK, Colombia, and South Africa,
but they change their screening criteria to fit their
circumstances.”

Universal assurance standards With this third-party assurance, companies can

better serve their need to educate the public on their
Reporting inconsistencies amongst different regions
sustainability efforts. Clear-cut data and verification
is one issue; reporting across different industries is
on reporting will guide better investment decisions.
another. Despite these barriers to standardization,
Speaking on the previously mentioned ‘Which Framework
the Center for Audit Quality (CAQ) nevertheless found
Is Right For You?’ panel (November 2), Ibrahim AlHusseini
some convergence on assurance in its S&P 500 report.
said: “We have a self-chosen mandate to educate the
Specifically, 282 companies disclosed that they had
public. The faster we prioritize how much our investment
sought assurance or verification. Within these, 174
dollars are going to update the trajectory we’re on, the
companies used the ISO assurance standard, 76 used the
faster we’ll stabilize it and not realize a world that is
ISAEs, and 21 used the AA 1000.
uninsurable and a risk to invest in.”

Explore the The CAQ’s annual analysis looks at publicly available ESG data for companies
listed on the S&P 500. Explore the full analysis which looks at:
Center for Audit + Standards and frameworks used to report this information
Quality’s full + Types of ESG information subject to assurance
S&P 500 ESG + The level of assurance obtained over this information

Reporting + Assurance standards used by public company auditors and other providers

Analysis Click here to read the full S&P 500 ESG Report
ESG INVESTMENT | North American Market Outlook
Chapter 4:
The ‘S’ in ESG
As part of Reuters’ ‘Leading on Social Materiality in North
America’ panel (November 1), Doris Duke’s CEO, Sam Gill,
addressed the notion of social materiality: “There is some
category confusion in ESG. We’re looking at economic
value generation. We single out E and G for good reasons,
but they’re all dimensions of S.”
Indeed, the global consensus among investors is
increasingly that the social side of ESG has too long been
ignored. Brad Lander, speaking at Reuters’ ‘Removing the
Obscurity Around Social Data’ panel (November 2),
16
drilled down into the root of the problem, saying: “The S
includes racial and gender diversity. We’ve built a system
on returns, but only short-term. It’s not surprising that
there’s no long-term data to share.”
Lanaya Irvin echoed these sentiments as she highlighted
the increased awareness around the race and wealth
gap. “There has been an awakening around race and the
wealth gap. It’s become clear that it is no longer on the
fringe. The S is now relevant for risk management and
thinking long-term about where society fits into risk.”
ESG INVESTMENT | North American Market Outlook
The financial case for social investment
In an eye-opening case study on the ‘Leading on Social
Materiality in North America’ panel, Shaun Castle, Deputy
Executive Director of Paralyzed Veterans of America,
recounted one airline’s refusal to comply with disability
regulations. “They made a calculation that it was more
expensive to install disabled restrooms than it was to pay
the fine. As investors, we have to consider whether or not
these companies are doing the right thing.”
Thankfully, the tide is turning, and the ‘Social Materiality’
panelists noted the merits of a cost benefit analysis
used in different circumstances. At present, the
abovementioned fines may be too low, but external
pressures will see these increase, meaning that in the
long term, it will be a better investment to make these
socially progressive changes.
Regulation has a role to play here, too. Rather than the
cynical view of investing in philanthropy for marketing’s
sake, organizations are beginning to look at how they
can make an investment in social causes which fulfil their
own unique impact philosophies. Regulation is set to
internalize this, as will the influence of investors.
Addressing the obscurity around social data
While short-term financial hits may be one reason behind
the pushback against social considerations, obscure data
is another. Irvin, CEO at Coqual, says: “The obscurity of
not having access to data is a challenge. There is intent
around measurement and data collection in ways that
we weren’t seeing five years ago. We may begin to see
some standardization, though this will be difficult. How
can you have an enterprise view if you’re operating in 40
countries?”
The answer may lie in external pressures. Brian Horn,
COO of Disability: IN, addressed this movement towards
standardization in the ‘Leading on Social Materiality
in North America’ panel (November 1). “We are paying
attention to human capital management, such as
women and minorities. We use a benchmarking index.
Organizations like the Bank of America are calling out
companies to pay more attention.”
17
The future of social investment
Public scrutiny continues to put the spotlight on social
issues, which is expected to grow to the intensity of that
which E and G are currently cast under in years to come.
Irvin explains: “The S is now relevant, especially for risk
management, taking a long-term view of how society fits
into risk. Institutional investors care about this.”
The business case for social investment will continue
to grow, as Pratima Divgi pointed out during a talk on
transparency in data (November 1). “There are 2,000
companies with net zero targets, but how do we define
these in social terms? Have we considered the people
and how they align with this journey?” As Lander added,
investors need more information on pay equity and
worker ownerships which they can then tie into bottom
line returns to paint a clearer picture of impact-value
alignment.
In the future, we should expect to see more visibility
on diverse social issues. Evan Siddall, CEO at Alberta
Investment Management Corporation, gave a rallying cry
in the ‘Leading on Social Materiality in North America’
panel on November 1: “We need to focus on what we’re
doing as responsible investors to lift up workers. We see
companies like Starbucks and Apple not practicing what
they preach. If we showed the social side of ESG more
often, people would care about it.”
In its comment letter to the SEC, the Center for Audit
Quality (CAQ) cited academic research from García-
Sanchez et al, which notes that external assurance on
corporate social responsibility improves the positive effect
of CSR disclosure on the access to financial resources
for reporting companies. improves the positive effect of
CSR disclosure on the access to financial resources for
reporting companies. x
There is likely to be pushback as firms continue to run
cost benefit analyses, but Irvin nonetheless noted that
we are in the midst of a “rapidly transforming business
landscape.” She says: “There are large firms who face
backlash but stay the course. They are trying to build
cultures that will survive. Public disclosures are critical
but internal audits are too. The opportunities created
in those organizations will have tremendous economic
ESG INVESTMENT | North American Market Outlook
Conclusion
The turn of the decade has continued to shine the
spotlight on environmental, social, and governance
issues. Startling data – such as climate calamities taking
place every 14 days – only underscores this further.
While it is encouraging to see the introduction of global
initiatives and regulations, there is still work to be done
on defining ESG for investors and overcoming data
inconsistencies.
An ESG strategy should be seen as a holistic process
where each element complements the other. Empirically,
we have seen improvements to bottom lines, investor
confidence, and social welfare – as noted by the 50%
increase in returns by the American Jewish World Service.
We should expect these trends to continue, particularly
with the added pressure of new legislation and external
influences.
Within these external pressures, investors have a
tremendous influence to drive markets. While there may
be pushback on some ESG initiatives – such as the cost
of shifting to renewable fuels – investors have more data
than ever to assess risks and position themselves to
capitalize on untapped rewards.
The prevalence of data may be seen as a blessing and
a curse for the future of ESG. On the one hand, we are
equipped with a vast range of assurance standards to
confirm the quality of ESG reporting. On the other hand,
the sheer number of reporting frameworks – be they
the GRI, TCFD or SASB – may cause discrepancies in
reporting which could hinder investment.
However, it is wise to be cautious about global reporting
standards. As evidence from the US and EU shows
us, there are a huge range of variables, from internal
legislation to the industries themselves. It may serve
corporations to work collaboratively, taking inspiration
from these frameworks but also adjusting them to fit their
industry and regional needs.
18
The existing partnerships highlighted in the Reuters
Events ESG Investment North America 2022 Summit
showcase the importance of an “ESG ecosystem.”
Regardless of the industry or region, investors can be
united in the common goal of doing better for the planet
and looking after the people that their organizations were
created to serve.
As the two days of discussions made clear, while new
legislation such as the SEC ruling shows great strides in
environmental and governance reporting, there is still
work to be done on the social side. Historically, we are
lacking in social data, which may explain its relatively
slow adoption into investors’ priority lists. However, the
widespread prominence of movements such as BLM have
served to highlight how high social factors must be on the
ESG agenda – more and more investors must consider
them as a non-negotiable aspect of responsible decision-
making.
Indeed, from an investor perspective, a renewed and
refined approach to ESG can and will generate a wealth
of opportunities to minimize risk and maximize returns.
Even against a backdrop of impending recession, the
investment community is identifying untapped areas for
growth, spanning new job roles and cheaper sustainable
technologies.
At the heart of all this remains the strongest imperative
of all: the climate and biodiversity crises. If there was
one call-to-action that was abundantly clear at Reuters
Events ESG Investment North America 2022, it was that
ESG has not arisen for ESG’s sake, but for the protection
of our planet. Whatever the motivation, the time for
investors to act is now.
 ESG INVESTMENT | North American Market Outlook 19

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ESG INVESTMENT | North American Market Outlook 20

References

i 
Climate and ESG Risks and Opportunities. (U.S. Securities and Exchange Commission:
March, 2021)
ii
Briefing: What are Scope 3 emissions? The Carbon Trust. (The Carbon Trust: December,
2022)
iii
SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for
Investors. The U.S. Securities and Exchange Commission. (SEC, Washington D.C.,
March, 2022)
iv
h ttps://www.forbes.com/sites/shivaramrajgopal/2022/10/03/does-the-anti-woke-
maga-etf-inadvertently-make-the-case-for-esg/
v
Matt Orsagh on the “mosaic theory” of analysis. ‘Materiality.’ The Sustainability Story
podcast. (CFA Institute: September, 2022)
vi
h ttps://www.pionline.com/esg/global-esg-equity-products-grow-performance-strong-
until-2022-investment-metrics
vii
Social impact investment market grows almost tenfold in a decade. May, M. (UK
Fundraising: September, 2022)
viii
Breakthrough Energy Catalyst. (Breakthrough Energy: https://breakthroughenergy.org/
our-work/catalyst/)
ix
https://www.economist.com/special-report/2022/02/23/private-markets-have-
grown-exponentially
x
Audited Financial Statements and Climate-Related Risk Considerations. (CAQ,
September 2021, https://thecaqprod.wpenginepowered.com/wp-content/
uploads/2021/09/caq_climate-related-risk-consideration_2021-09.pdf)