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Tracking Climate’s Prominence in ESG Conversations

ESG

By Eliot Caroom  |  December 15, 2021

The global focus on climate steadily ramped up throughout 2021 despite successive waves of COVID-19 around the world. In fact, as countries work to rebuild economies decimated by the pandemic, legislators and regulators are increasingly focused on “green” initiatives. This effort was on full display at the 26th Conference of the Parties to the UN Framework Convention on Climate Change, better known as COP26, held October 31 through November 13, 2021, in Glasgow, Scotland.

As laws and regulations continue to shift toward combatting climate change, the corporate world is under increasing pressure to act. Truvalue Labs, a FactSet company, tracks a universe of 30,000 firms to detect and analyze environmental, social, and governance (ESG) conversations published by non-governmental organizations (NGOs), trade journals, or mainstream media. Environmental categories tracked by Truvalue and defined by the Sustainability Accounting Standards Board (SASB) are top areas of focus year after year across more than 100,000 sources and a decade of data.

What Have Been the Top ESG Topics in 2021?

This year, two ESG topics related to climate change dominated conversations tied to company ESG behavior. Greenhouse Gas (GHG) Emissions and another climate-related category, Product Design & Lifecycle Management, were found in about a quarter of total ESG conversations.

Discussion of GHG Emissions is present in 10.5% of trailing 12-month data volume across the universe in November 2021. The only other ESG category with greater sway was Product Design & Lifecycle Management, at 11.7% of total article volume. That category addresses characteristics of products and services including their climate impacts, such as a car’s lifetime tailpipe emissions.

The increases in these two categories followed dips in 2020 as Employee Health & Safety and Labor Practices dominated public attention at the height of the first wave of COVID-19. Another area of growing attention in 2021 was Supply Chain Management, which now ranks third in frequency.

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Key Events Show an Even Greater Significance of GHG Emissions

Truvalue’s Spotlight Events are key events detected when public discussion focuses on a key issue for a company with shared sentiment and a spike in volume.

Through the lens of spotlights, year to date as of November 15, GHG Emissions claimed an even greater share of the conversation, making up 16.6% of all spotlight events. This serves as compelling timely evidence of accelerating stakeholder attention. Even in the face of a black swan event like a worldwide pandemic, climate concerns appear to be enshrined as the top focus of the world—and rightly so, when the stakes are considered.

The Next Big Thing? Look to Methane and Waste Management Firms

Methane was a major focus at COP26, as this potent greenhouse gas has the biggest influence on near-term warming over the next decades and can be mitigated with existing technologies.

FactSet’s earnings call transcripts show a quadrupling of discussions of methane in quarterly earnings calls. Over the past 18 months, mentions of “methane” in earnings calls have ramped up exponentially, from an average of approximately 50 mentions per quarter over the past 10 years to 216 this quarter.

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What is the most underappreciated source of GHG Emissions? Let’s compare industries to find the biggest gap between methane output and stakeholder attention related to the keyword “methane” among ESG-relevant data.

A search of stakeholder conversations in 2021 year to date on the Truvalue platform finds that oil and gas exploration and production (E&P) firms receive 31% of the attention related to methane that Truvalue identifies in ESG conversations. This is very close to the 30% of emissions classified as “fugitive emissions” by CAIT and compiled by Our World in Data, which are in large part due to oil and gas E&P.

A likely next focus for activists, governments, and investors is waste management. CAIT climate data shows that the waste industry contributes approximately 15% of global methane emissions, which can often be affordably controlled in well-managed landfills. Meanwhile Waste Management firms receive only 1% of stakeholder attention related to methane, as measured by Truvalue Labs.

There is a similar gap in earnings call discussions of methane, with 43% attributable to firms in the Energy sector and only 4% to Business Services, which includes Waste Management companies.

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methane-emissions-by-sector-world

Using Satellites to Locate and Measure Methane Emissions

Efforts to reduce global methane emissions are about to launch into space. In the next 24 months, methane surveillance satellites will be launched by the Environmental Defense Fund (MethaneSAT, launch projected for late 2022) and by NASA in conjunction with Planet Labs and the state of California (CarbonMapper, launch expected in 2023). These satellites will monitor sites globally, driving increased investor, regulator, and media attention.

As alternative data from these satellites prompts greater regulatory scrutiny and reputational hazard for the largest producers of methane emissions, investors have an opportunity to engage with Waste Management firms. Investors who are ahead of the curve in calling attention to easily mitigated methane sources may earn both good PR and financial performance from their early engagement.

Conclusion

With climate-related topics dominating ESG conversations in 2021, Truvalue data allows us to identify and anticipate the key themes for companies moving forward. While stakeholder discussions regarding emissions have continued to be largely focused on energy firms, recent developments have highlighted the importance of curbing methane emissions to slow global warming, increasing scrutiny on the waste management and agriculture industries.

Listen to the MKT 2022 Outlook Webcast to hear FactSet thought leaders discuss recent trends and events to watch in the key areas of Earnings, Energy, and ESG.

The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

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Eliot Caroom

Product Development Manager

Mr. Eliot Caroom is a Product Development Manager at Truvalue Labs, a FactSet Company. In this role, he researches new applications for ESG data and develops products in collaboration with engineering colleagues. Prior, he authored research for Truvalue Labs, worked for Bloomberg News as an oil markets reporter, and reported on utilities, solar, wind, and nuclear energy for The Star-Ledger. Mr. Caroom earned a master’s degree in business journalism from the Craig Newmark Graduate School of Journalism at CUNY.

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