CFOs should watch these 3 ESG trends going into 2023

“We’ve been following the fact that over the last few years attention to climate and ESG has really shifted in a lot of organizations. So it’s not just the [corporate social responsibility] people or the sustainability people or even the investor relations people—it’s the finance people.” That’s what Meggin Thwing Eastman, managing director and global ESG editorial director at MSCI, told me.

MSCI is a provider of investment decision support tools, such as ESG (environment, social, and corporate governance) and climate products for the global investment community. I sat down with Eastman to discuss the company’s annual “ESG and Climate Trends to Watch” report. Here are some key findings:

A is for Accountability

Get ready to get very accountable when it comes to what you and your suppliers are producing.

The U.S. Securities and Exchange Commission’s proposed mandatory climate-risk disclosure rule will launch next year if approved. It requires all filers to disclose Scope 1 and Scope 2 greenhouse gas emissions that occur onsite and are controlled by the company. Meanwhile, reporting Scope 3 emissions (those that aren’t produced directly from the reporting company but from the activities of its value chain), will become a requirement for some companies as well. 

“If you as a firm have a net-zero emissions goal and include Scope 3, suddenly you’ve got to be working with all of your suppliers and your customers in order to get to that goal,” Eastman notes. “It’s much more of a network effect. I think investors and regulators both are understanding how intertwined the economy is with these relationships businesses have. And they see a lever that they can pull to get companies to influence each other.”

The Partnership for Carbon Accounting Financials, a global organization, has been making progress on a standard for Scope 3 financed emissions measurement and disclosure, Eastman says. MSCI has been using that methodology for clients who want to analyze their portfolio, but it’s also available to banks and investors directly, she says. “It’s just an estimation,” Eastman says. “But it’s shining some light on something that was previously completely dark.”

She says a focus on “insured emissions” is also on the horizon. It would allow insurance and reinsurance companies to measure and disclose greenhouse gas emissions associated with their underwriting portfolios. “Insurers are going to be looking at the business models and the emissions footprints of the entities that they insure—not just their physical risks, or whether your waterfront property will be there in 10 years,” for example, she says.  

New regulation

MSCI ESG Research provides ESG data and analytics for about 1,700 clients worldwide, and provides ESG indexes, according to the company. “Regulators are increasingly looking to regulate businesses like our own, and other ESG and data ratings providers,” Eastman says.  

For corporations, regulation is going into new areas. For example, “There’s a brand new law in the EU that is going to require all commodities products coming into the EU be able to prove that they were not produced in a way that caused new deforestation,” Eastman says. 

There are also proposed updates to the SEC’s naming of funds rule, and “more stringent regulation in the European Union with the sustainable finance directive,” she says. 

“So we’re seeing disclosure, categorization, and naming of funds and most banks are not prepared for that at this point,” she says. 

Better boards

New corporate board demographics could play a role in say-on-climate and other proxy voting trends, according to the report.

“Companies are really needing to look at structuring their boards and their governance structures for a whole new class of problems and challenges,” Eastman says. “It’s about assembling the boards of tomorrow today. So we’re looking at things like, do they have climate expertise on the board? What’s the view of diversity, not just gender or race or ethnicity, but age, nationality, experience.” 

There’s a lot of moving parts, for sure.

See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

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Big deal

Quiet quitting is when employees simply perform their duties without going the extra mile to avoid burnout or a response to feeling devalued by their company. A new LendingTree report finds that quiet quitters surveyed believe they've benefitted from the movement, as 57% say their work-life balance has improved. Because they've set boundaries, 40% of quiet quitters say they’re more engaged at work than in the past. But there needs to be more communication between workers and managers for a productive solution, the report finds. “Setting and maintaining boundaries isn’t easy,” LendingTree chief credit analyst Matt Schulz said in a statement. “It requires honest discussions with your supervisors and co-workers." If not, these employees may end up just leaving. More than half (56%) of quiet quitters say they’re searching for new roles, according to the report.

Courtesy of LendingTree

Going deeper

"What Companies Still Get Wrong About Layoffs," a report in Harvard Business Review, offers strategies for "a smarter approach" to workforce change. Layoffs may provide short-term cost savings, but it has a detrimental effect on individuals and corporate performance in the long run, such as weakened engagement, higher voluntary turnover, and lower innovation, according to the Harvard Business School researchers. Three ways layoffs during these times are different than in previous eras: word travels faster, corporate decision-making is under a microscope, and the pandemic showed companies have other options, according to the report.

Leaderboard

Roland A. Caputo, EVP and CFO at The New York Times Company plans to retire next year. Caputo will continue to serve as CFO until his successor is identified, and is expected to stay on through a transition period. Caputo has been EVP and CFO since 2018 but with the company for 36 years. He joined The Times in 1986 as a financial analyst. In 2008, as SVP and CFO of The New York Times Media Group, he helped shepherd the core print-based business to recover from a deep recession. He also served as EVP of print products and services and laid the roadmap for digital transformation. The company has retained an executive search firm to help identify Caputo's successor.

Jim Caltabiano was named CFO at Del Monte Foods, Inc. Caltabiano will report to Parag Sachdeva, COO. Caltabiano has nearly 30 years of experience. Caltabiano previously served as EVP and CFO for Ajinomoto Foods North America, overseeing the North American food division. Before that, he spent 10 years at Campbell Soup Company, where he held roles including CFO of Fresh Division. Caltabiano originally joined Campbell as VP of strategic and financial analysis for their North America division. He also served as VP of finance for Campbell Canada, VP of finance, interim general manager for the company's Away from Home division, and general manager for Plum Organics.

Overheard

"Earlier this evening, Bahamian authorities arrested Samuel Bankman-Fried at the request of the U.S. Government, based on a sealed indictment filed by the [Southern District of New York]. We expect to move to unseal the indictment in the morning and will have more to say at that time."

—U.S. Attorney for the Southern District of New York Damian Williams released a statement on Twitter on Monday evening, confirming the arrest of Sam Bankman-Fried, the former CEO of the collapsed FTX cryptocurrency exchange, by Bahamas law enforcement. His arrest is the first step in a multi-stage legal process to transfer the one-time crypto billionaire to U.S. custody, Fortune reported.