Which ESG-Topics Should You Disclose Using The Economist as a Proxy?

Digging through the first four months of The Economist for relevant ESG-articles, I thought it would be nice to group the articles and see which groups get the most coverage in this highly regarded newspaper. My effort in the form of a Materiality Matrix is shown above, with the number of articles per topic on the Y-axis and the – debatable – impact on a firm’s profitability if this topic is not tackled by its management, on the X-axis. If The Economist can be used as a guide, the topics that should be covered by your organization are thus governance, green technology, pollution and climate change.

Some interesting snippets taken from the articles can be found below, grouped per topic. (Almost all quotes are adopted directly from The Economist).

Governance

  • Must read governance-article on women on boards: Skirting Boards
  • Norway introduced compulsory quotas requiring stockmarket-listed companies to give women at least 40% of their board seats.
  • In Belgium, Germany and France women make up 30-40% of board directors in large listed firms.
  • Quotas have done little to advance women further down the career ladder: in Britain, France, Germany and the Netherlands 80-90% of senior-management jobs are still held by men.

Green Tech

  • Oil firms Shell and Total plan to take on utilities in deregulated markets to provide electricity and gas direct to homes and businesses. They are toying with a strategy that could move their core business from oil to electricity. Must read article: From Mars to Venus
  • Solar cells made from perovskite (a compound of calcium, titanium and oxygen) are coming to the market and might drive silicon-based cells out of business. It’s early stages though.
  • Solar power gets a lot of attention but generates only 2% of the world’s electricity.
  • Microchip costs have fallen a million times faster than those of solar panels.
  • Solar suffers from “value deflation”: the more solar is installed, the less of the electricity that is produces in the middle of the day is needed. Unless it can be stored, the more costs it imposes on the rest of the system.
  • In an article on electrical vehicles, The Economist doubts if batteries will displace diesel in trucking anytime soon. Batteries have to replace part of the cargo and that makes it too pricey for a thin margin business.
  • To see how hard governments can push for renewable energy, look to South Australia: all coal-fired power stations have been closed, it gets 50% of its power from renewables and recently set a target of 75% renewables for 2025.

Pollution

  • Must read article on plastic pollution: Plastic Surgery
  • China is not only the world’s biggest emitter of carbon, but the world’s largest recycler, treating just over half of exported plastic waste. On January 1st China banned the import of 24 categories of waste, including household plastics.
  • China furthermore has taken a harder line and pressed on with pollution controls, hitting coalminers, cement-makers, paper mills, chemical factories, textile firms and more.
  • The European Union launched a “plastics strategy”, aiming, among other things, to make all plastic packaging recyclable by 2030 and raise the proportion that is recycled from 30% to 55% over the next seven years.
  • On current trends, by 2050 there could be more plastic in the world’s waters than fish, measured by weight.
  • Just 10% of 3.6m tonnes of solid waste discarded each day the world over is plastic. Whereas filthy air kills 7m people a year, nearly all of them in low- and middle-income countries, plastic pollution is not directly blamed for any.
  • Researchers have identified 400 species of animal whose members either ingested plastics or got entangled in it.
  • Trucost, a research arm of Standard & Poor’s, puts the overall social and environmental cost of plastic pollution at $139bn a year.
  • To put that into perspective, the United Nations Development Programme says that the costs of overfishing and fertiliser run-off amount to some $50bn and $200bn-800bn a year, respectively. By 2100 ocean acidification, which is caused by atmospheric carbon dioxide dissolving into water, could cost $1.2trn a year.

Climate Change

  • Must read article on including carbon pricing in decision making: Low-Carb Diet
  • Of the 6,100-odd firms which report climate-related data to CDP, a British watchdog, 607 now claim to use “internal carbon prices”.
  • Investors increasingly demand that companies take a carbon tax seriously.
  • The atmosphere contains two-and-a-half times as much of methane (a powerful greenhouse gas) as it did before the Industrial Revolution.
  • Methane emissions must be slashed. Several giants have made strides to limit fugitive emissions. If all the world’s gas producers attained BP’s leakage rate of 0.2%, instead of an industry average of over 2%, it would prevent 100m tonnes or so of methane from entering the atmosphere every year. This would spare Earth as much warming as cutting all the carbon dioxide emitted since the 19th century by one-sixth.
  • The X Prize Foundation awards companies that come up with carbon capture and storage techniques: Four of the finalists plan to produce sturdy building materials such as cinder blocks made from the slag left over from steel production, cured with carbon dioxide. Another four will fashion the gas into plastics or carbon-fibre composites. The remaining two have invented ways to turn the stuff into carbon monoxide or methanol, which are industrial raw materials.
  • Shipping and airlines were the only greenhouse-gas-emitting industries not mentioned in the 2016 Paris climate agreement.
  • Shipping produces 3% of the world’s greenhouse-gas emissions, similar to an economy the size of Germany’s. Lack of cleaner shipping technology is not a constraint. Zero-carbon fuels are becoming available. Slowing ships down by 10% could reduce fuel usage by almost a third. Diplomats argue that the slow progress is because their actions affect not just the shipping industry, but exporters too. If regulators move too aggressively they may reduce the competitiveness of seaborne trade.

This was a first attempt to a materiality matrix inspired by articles that appeared in the Economist in the first quadrimester of 2018. I hope to also create materiality matrices for the remaining quadrimesters of 2018.

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