• Melissa Chase, Senior Content Marketing Manager, Morningstar Sustainalytics 

• Aymen Karoui, Director of Methodology and Product Architecture, Morningstar Sustainalytics

How can ESG ratings help investors identify risk when constructing and maintaining their portfolios? In this episode, we explore the practical answers to this question and more. We also feature research leveraging Sustainalytics’ Low Carbon Transition Ratings and Physical Climate Risk Metrics assessing companies' misalignment with the transition to net zero.  

We also discussed COP 16, which is focused on biodiversity and the key role of the private sector in addressing biodiversity loss. A recent article using data from our Biodiversity and Natural Capital Stewardship program found that many companies are at the beginning of their journeys. 

Please take a moment to share your thoughts on ESG in Conversation. You can email us at [email protected]. 

00:00:00 

Introduction 

00:01:07 

Interview with Aymen Karoui about Morningstar Sustainalytics report series in collaboration with Natixis exploring the ESG Risk Ratings and portfolio risk 

00:19:51

Overview of the “Navigating Material Climate Risks in the Global Equities Market” report 

00:20:57 

Overview of “Mobilizing the Private Sector for COP16: A Critical Juncture for Biodiversity Action” 

00:22:29

Highlights of upcoming Morningstar Sustainalytics events

• Report series with Natixis  
  • ESG Risk Ratings: A 360° Review
  • ESG Risk Ratings: Distilling for Enhanced Performance and Downside Protection
  • ESG Risk Premium: A Further Look
• Navigating Material Climate Risks in the Global Equities Markets
• Mobilizing the Private Sector for COP16: A Critical Juncture for Biodiversity Action
• Morningstar Sustainable Investing Summit 2024 

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• Melissa Chase, Senior Content Marketing Manager, Morningstar Sustainalytics 

• Arthur Carabia, ESG Research Policy Director at Morningstar 

On the heels of the EU parliamentary elections and ahead of pivotal contests in the U.S., the U.K. and elsewhere, ESG in Conversation met with Director of ESG Policy Research, Arthur Carabia to discuss what a change in political agendas and shifting priorities could mean for ESG and sustainability-focused regulations globally.  

We also explore the topic of ESG materiality and what it means to asset owners globally, and we discuss its foundational role in the enhancements to Morningstar Sustainalytics' ESG Risks Ratings and corporate governance assessment framework.  

Please take a moment to share your thoughts on ESG in Conversation. You can email us at [email protected]. 

00:00:00 

Introduction 

00:01:34 

Interview with Arthur Carabia about EU election outcomes and the state of ESG regulatory landscape 

00:25:14 

Overview of the Voice of the Asset Owner Survey 2024 

00:26:34 

Updates on Sustainalytics’ corporate governance assessment framework 

00:28:14 

Introduction to “Fundamentals of ESG Materiality: An Overview for Investors” 

• Voice of the Asset Owner Survey 2024: Qualitative Insights 
• On the Materiality of Corporate Governance: Themes, Applications and Best Practices 
• Fundamentals of ESG Materiality: An Overview for Investors 
• Webinar | Single, Double or Dynamic? An Exploration of Materiality in ESG Approaches to Investment 

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• Melissa Chase, Senior Content Marketing Manager, Morningstar Sustainalytics

• Arthur Carabia, ESG Research Policy Director at Morningstar

In late March, the U.S. Securities and Exchange Commission introduced a climate disclosure rule that applies to its 10,000 registrant companies. In this episode of ESG in Conversation, we welcome back Arthur Carabia to shed light on what this new rule means for companies and their investors. He also shares his take on how the rule compares to other sustainability and climate disclosure regulations globally. 

Sticking to the regulatory theme, you’ll learn about the EU’s regulations on deforestation-free products and why the issue of environmental regulation is so significant across industries according to our ESG Risk Ratings. 
Finally, we share insight on the troublingly persistent issue of child labor in the cocoa supply chain.  

Please take a moment to share your thoughts on ESG in Conversation. You can email us at [email protected] or take this short survey.  

• The SEC’s Climate Disclosure Rule: A Step in the Right Direction
• EUDR: Navigating the EU Regulation on Deforestation-Free Products
• The State of ESG Risk Across Industries: Three Key Takeaways From Our Annual Industry Reports
• Child Labor in Cocoa Supply Chains: Unveiling the Layers of Human Rights Challenges 

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• Melissa Chase, Senior Content Marketing Manager, Morningstar Sustainalytics 

• Kilian Theil, Associate Director, Intelligent Process Automation, Morningstar Sustainalytics 
• Andrei Hera, Senior Manager Data Science, Morningstar Sustainalytics  

In recent years the marvels of artificial intelligence have been touted across various sectors. As applications of AI technology proliferate, in this episode of ESG in Conversation we chat about how it’s being used in the ESG research space. Members of Morningstar Sustainalytics data research and development teams discuss how the company has been leveraging AI technologies for the past decade and what’s on the horizon in terms of gathering and analyzing corporate ESG risk data.   

You’ll also learn more about ESG risks in global supply chains as we share insights from our recently published ESG Spotlight series. The reports explore the impact of supply chain incidents, with a focus on human rights and biodiversity loss. They also offer investors frameworks for assessing supply chain-related risks among portfolio companies and potential strategies to improve portfolio performance and mitigate losses.   

Please take a moment to share your thoughts on ESG in Conversation. You can email us at [email protected] or take this short survey.

00:00:00 

Introduction 

00:01:17 

Interview with Kilian Theil and Andrei Hera on how AI is changing the world of ESG research and assessments  

00:20:52 

Overview of the ESG Spotlight series on ESG risks in supply chains 

• Artificial Intelligence for ESG Assessments 
• Supply Chain Incidents: Understanding the Impacts 
• Unlocking Human Rights in Corporate Supply Chains 
• Biodiversity in the Balance: Hedging Portfolio Risks 

• Melissa Chase, Senior Content Marketing Manager, Morningstar Sustainalytics

• Thomas Kuh, Head of ESG Strategy, Morningstar Indexes 

In this episode of ESG in Conversation, Thomas Kuh, Head of ESG Strategy at Morningstar Indexes shares the results from Morningstar Indexes and Morningstar Sustainalytics’ Voice of the Asset Owner Survey. Not surprisingly, asset owners are concerned about the influence of global events on the market. They are confused about ever-changing regulations and are seeking improvements and reliability from ESG service providers. Despite these challenges, asset owners also say they remain committed to sustainability and are putting more resources towards their ESG strategies.  

You’ll also learn more about the low-carbon transition risks facing some of the world’s biggest food companies and the steps they can take to get their emissions reductions back on track. Finally, the start of 2024 brings new sustainability-focused regulations. The Corporate Sustainability Reporting Directive (CSRD) came into effect in the European Union on Jan. 1 and will apply to nearly 60,000 companies globally. The directive could be a watershed moment for corporate reporting as well as investors seeking more sustainability data from issuers.  

Please take a moment to share your thoughts on ESG in Conversation. You can email us at [email protected] or take this short survey.   

00:00:00 

Introduction 

00:01:30 

Interview with Thomas Kuh discussing asset owners’ views on ESG investing  

00:10:52 

Insights on the low-carbon transition risks of major food companies and how they can reduce emissions 

00:12.33 

Details on the Corporate Sustainability Reporting Directive  

• Voice of the Asset Owner 2023: Quantitative Analysis 
• Big Food’s Broken Promises: The Data Behind the Food Industry’s Rising Emissions 
• CSRD Reporting: Preparing for Mandatory ESG Disclosure Deadlines 

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Melissa Chase, Senior Content Marketing Manager, Sustainalytics 

Ruthann Bartello, Commercialization Director, Stewardship Services 

Greenwashing is a growing concern among financial market participants. Whether it’s measuring the sustainability performance of companies in a portfolio or ensuring that their own firms and offerings are not making exaggerated claims about their sustainability impacts, asset managers are on the lookout for potential greenwashing risks. Adding to the confusion is a lack of clarity around what defines a sustainable investment, as well as the growing list of regulations and reporting frameworks asset managers need to comply with.  

In this episode, we discuss the European Sustainability Reporting Standards, the cornerstone of the Corporate Sustainability Reporting Directive, which should pave the way for more accessible and standardized corporate sustainability information. You also hear from Morningstar Sustainalytics’ Ruthann Bartello about the key strategies investors can use to mitigate greenwashing risks in their investment products and across their portfolios. 

Please take a moment to share your thoughts on ESG in Conversation. You can email us at [email protected].    

00:00:00 

Introduction 

00:01:50 

Morningstar Sustainalytics new ebook “Seeing Through the Green: As Guide to Greenwashing Risks for Asset Managers”  

00:03:00 

The final Corporate Sustainability Reporting Directive and its standards are published 

00:4:09 

Investor stewardship as a tool to combat greenwashing.  

00:5:30 

Interview with Ruthann Bartello on key strategies institutional investors can use to address greenwashing 

00:06:07 

Greenwashing explained 

00:08:15 

Investor concerns around greenwashing 

00:09:58 

What’s behind investors’ concerns 

00:11:35 

Consequences of greenwashing for investors 

00:15:05 

Key regulations related to greenwashing 

00:19:31 

Strategies for asset managers to mitigate against greenwashing risks 

00:20:23

Tips for asset managers to build a robust investment strategy 

00:24:49 

Final thoughts 

Links to Select Resources 

• Seeing Through the Green: As Guide to Greenwashing Risks for Asset Managers  
• Implications of CSRD: What the Final Standards Mean for Investors and Issuers 
• ESG Stewardship: A Powerful Tool to Mitigate Greenwashing Risks 

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• Melissa Chase, Senior Content Marketing Manager, Sustainalytics 

• Arthur Carabia, Director, ESG Policy Research, Morningstar 

We are excited to share with you the revamped ESG in Conversation! In this new format, we’re expanding the focus beyond sustainable finance to share the latest environmental, social and corporate governance insights. In addition to highlighting recent research from our global team of ESG experts, we will continue to bring you deep dives into the ESG, climate, impact, sustainable finance and regulatory insights you need to know about. 

In this episode you’ll learn about the upcoming greenhouse gas reporting requirements for companies in North America, the implications of Europe’s policy response to the climate crisis, the Fit for 55 package, and what it means for companies that supply goods and services in the EU.    

Also, Morningstar’s Arthur Carabia discusses what the recently published International Sustainability Standards Boards reporting standards mean for companies and investors. 

Please take a moment to share your thoughts on ESG in Conversation. You can email us at [email protected].    

00:00:00 

Introduction 

00:01:45 

Greenhouse gas emissions requirements for North American companies 

00:03:50 

Interview with Arthur Carabia about the launch of the ISSB standards 

00:10:40 

Highlights of the EU’s Fit for 55 legislation 

• Mandatory Scope 3 Emissions Reporting in the U.S. and Canada: Most Companies Are Unprepared 
• Policy Responses to Climate Change: The EU’s Fit for 55 Package and Its Implications for Companies and Investors 
• What the New ISSB Climate Standard Means for Investors 

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In this episode of ESG in Conversation, we’re exploring the question: what does it take to be a sustainability leader in 2023 and beyond? You’ll hear from Joseph Hill, London Techstars alumn and CEO of Zephframe, about the sustainability challenges facing start-ups. You’ll also hear from Eileen Buckley, VP of Corporate Responsibility at Stryker, about the importance of integrating sustainability across an organization. Gabriel Presler, Global Head for Enterprise Sustainability at Morningstar, also joins in to discuss the role investors play in sustainability leadership.

• Curtis File, Editorial Manager, ESG and Sustainable Finance

• Juliette Goulet, Project Manager, Ellen MacArthur Foundation
• Wayne Hubbard, CEO, ReLondon
• Joris Laseur, Associate Director, Stewardship, Morningstar Sustainalytics
• Jonathan Kellar, Manager, Stewardship, Morningstar Sustainalytics

As global leaders gain a more nuanced understanding of climate change, they are looking at the circular economy as a potential solution to mitigate their impact. In a circular economy, organizations aim to prevent waste throughout the value chain instead of relying solely on recycling. This approach involves sharing, leasing, reusing, repairing, and recycling materials and products for as long as possible. Proponents say the approach comes with huge potential upside. The Ellen MacArthur Foundation, for example, projects that a circular economy could reduce greenhouse gas emissions by 25%, create 700,000 jobs, and save $200 billion per year by 2040. But the path to achieving those goals is far from clear, and it will require an all-hands-on-deck effort.

In this episode of ESG in Conversation, we’re exploring the question: how do businesses, governments and investors fit into the circular economy? You’ll hear from Juliette Goulet, a seasoned sustainability practitioner from the Ellen MacArthur Foundation, about the challenges of implementing a circular economy. You’ll also hear from Wayne Hubbard, CEO of ReLondon, about putting the circular economy into practice in London, England. Joris Laseur and Jonathan Kellar from Morningstar Sustainaltyics’ stewardship team also join to discuss the role investors play in helping businesses reduce their waste and implement circular business practices.

• Nicholas Gandolfo, Vice President, Corporate Solutions
• Aditi Bhatia, Senior Regional Manager, Corporate Solutions

With the European Union’s Green Bond Standard set to come into effect sometime next year, we look at what it could mean for the global sustainable finance market more broadly. Although the highly anticipated framework is expected to be the gold standard for what we see in the market going forward, there are ongoing concerns about its usability. Some market participants are worried about the potential difficulty in meeting all the requirements of the Green Bond Standard and whether the standard is too prescriptive in its requirements to set up a framework.  

The sustainable debt market continues to see innovations in the types of projects being funded. One example is the use of green bonds to raise money for artificial intelligence (AI) projects related to green or social initiatives. The green bond issuance highlighted in this episode will finance AI projects related to improving the environmental performance of buildings through data analytics and energy management software. Using AI to support corporate sustainability improvements is not new, but funding such projects using sustainable debt instruments could be the next wave. 

Our sustainable finance insights show will be taking a break for the summer. We’ll be back this fall with some exciting changes to bring you more ESG, sustainable finance and responsible investing insights. In the meantime, please subscribe to ESG in Conversation on your favorite podcast platform and enjoy new episodes each month! 

• Climate Bonds Initiative – Sustainable Debt Market Summary Q1 2023 
• Environmental Finance – LMA Publishes ‘Vital’ Sustainability-Linked Loan Drafting Model 
• Morningstar Sustainalytics – Anticipating the Inevitable: What to Expect from the European Green Bonds Regulation  
• Responsible Investor – Details Emerge on EU Green Bond Standard as Concerns About Uptake Remain 
• Environmental Finance – Sustainable Bond Market Risks Fragmentation Amid ‘Regulatory Overload’ 
• BusinessWorld – No Plans for Follow-Up Offer of Catastrophe Bonds – De Leon 
• WION – Bhutan Takes Steps to Set Up Green Cryptocurrency Mining Operation: Report 
• Environmental Finance – ‘Huge Opportunities’ for Gender-Focused Corporate Sustainable Bond Growth 
• Environmental Finance – GSAM: 36% of European Investors Ready to Invest in Social Bonds 
• Forbes – Companies Going Green Should Add Finance To Sustainability Strategies 
• Eco-Business – The Next Wave of Greenwashing: Offsets, Competitor Claims and ‘Transition-Washing’ 
• Environmental Finance – Banks Call on EU to Provide Transition Plan Guidelines 
• Environmental Finance – Credit Suisse Arranges $1.6bn Debt-for-Nature Conversion With Ecuador 
• IRENA – Low-Cost Finance for the Energy Transition 
• Climate Bonds Initiative Reports 
  • Concrete Policies to Underpin the Cement Transition 
  • ASEAN Sustainable Finance State of the Market 2022 
  • Property Certification Opportunities in Tokyo 
  • Sneak Peek: The CBI’s Resilience Taxonomy Blueprint 
• Sustainalytics Second-Party Opinions 
  • TDC NET Sustainability-Linked Finance Framework Second Party Opinion 
  • UMH Properties Inc. Sustainable Finance Framework Second-Party Opinion 
  • Grupo Bimbo Sustainable Financing Framework Second-Party Opinion 

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Hosts:

• Sabrina Tang Sales Associate, Sustainable Finance Solutions
• Nicholas Gandolfo, Vice President, Corporate Solutions

In this month’s episode, Nick and Sabrina dig into the sustainable finance market’s rebound in Q1. Despite the market pressures caused by inflation and the banking shake-ups at UBS and Credit Suisse, sustainable finance activity saw an upward trend in the first part of the year. Although Nick and Sabrina stop short of making any predictions about where volumes will land by the end of the year, they do note some interesting dynamics in the market: green use of proceed bonds remain strong, social and sustainability focused bonds are down slightly, and sustainability-linked finance appears to be gaining some ground again despite continued market scrutiny.

Despite the rebound in sustainability-linked bond (SLB) activity in Q1 this year, concerns remain about this sustainable debt instrument. Several recent articles and reports discuss the credibility of SLB targets, whether coupon rates offer enough of a penalty if targets are missed, and whether the performance targets and indicators have an impact on sustainability.

There’s also some media coverage on SLB issuers missing their stated sustainability performance targets. Although not ideal, missed targets among SLB issuers could be viewed as a sign of their rather than an indication of something being fundamentally wrong. For issuers considering sustainability-linked debt instruments and seeking additional guidance, check out the latest market references from Climate Bonds Initiatives (CBI).

CBI’s 2022 market summary highlights the growth of sovereign bond issuances. This is great to see because sustainable debt from sovereigns catalyzed the market in many cases. Sabrina highlights the recent activity from Turkey, Austria, Italy, and Cyprus as well as the sovereign green bond program being considered by the Australian government. In addition to more countries seeing the opportunities in sustainable debt instruments, regulators across a growing number of jurisdictions are ramping up sustainable finance activities in their countries. Developments are ongoing in India, Indonesia, Malaysia, Sri Lanka, Japan, and Vietnam to name just a few.

0:00:59

Market overview

0:02:07

Q1 market overview

0:03:25

CBI 2022 state of the market report

0:05:22

Continuing SLB scrutiny

0:06:46

Climate transition plan transparency

0:08:34

More updates to the EU taxonomy

0:09:34

Additional articles and reports to read (see links below)

0:11:34

SLB and SLL overview

0:14:15

Audience questions

0:18:14

Green bonds overview

0:21:13

Green loans overview

0:22:30

Social bonds and loans overview

0:23:25

Labeled products, transition bonds and regulatory updates

• Climate Bonds Initiative – Green and Other Labelled Bonds Fought Inflation to Amass USD858.bn Volume in 2022
• Climate Bonds Initiative – Sustainable Debt: Global State of the Market 2022
• Environmental Finance - ‘It’s time to stop step-up-only sustainability-linked bonds’
• Environmental Finance – Union Investment: SLBs Can Have Impact
• Environmental Finance – CBI Launch Sustainability-Linked Bond Certification Scheme
• Energy Monitor – Are We About to See a Surge in Sovereign Sustainability-Linked Bonds?
• Environmental Finance – Sustainability-Linked Targets Could Add ‘Discipline’ in Green Bond Markets
• Retail Banker International – CaixaBank Rolls Out Metaverse Initiative to Promote Sustainability
• Responsible Investor – Market Hails ‘Surprisingly Helpful’ SFDR Clarifications from European Commission
• GreenBiz – Should Sustainability Teams Report Directly to the CEO?
• Climate Action 100+ - Climate Action 100+ Releases the Latest Evolution of the Net Zero Company Benchmark
• Financial Times – New Standards Keep the Greenwash off Green Bonds
• The Strait Times – Companies Risk Penalties as Asia and Australia Target Greenwashing
• Environmental Finance – ‘Greenwashing is rife’ in Green Bonds, Says EU’s Tang
• IPCC – AR6 Synthesis Report: Climate Change 2023
• Environmental Finance – Nature-Related Sovereign Issuances Set to Grow, Insight Predicts
• Climate Bonds Initiative – Sustainability-Linked Debt Instrument Certification
• Sustainalytics Second-Party Opinions
  • Hera Group’s Green Financing Framework Second-Party Opinion
  • Council of Europe Development Bank Social Inclusion Bond Framework Second-Party Opinion

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