The SEC Finally Enforces ESG

SEC enforces ESG disclosure

With Earth Month upon us, we’re happy to report one small, incremental bit of progress in finance:

The Securities and Exchange Commission (SEC) will finally enforce ESG disclosure and begin requiring public companies to share their greenhouse gas pollution and climate risks.

Pressure Has Mounted – The SEC Finally Enforces ESG Disclosure

Back in a 2019 blog post we wrote about our key takeaways from three finance-focused climate events we attended.

The events had confirmed our understanding that ESG investing – that is, investing in funds that claim to prioritize environmental, social, and governance (ESG) factors – was subjective and, at best, financial industry “greenwashing.” 

Reason: Up until now, the SEC has not required public companies to disclose any ESG metrics. Without metrics, ESG fund managers were forced to make subjective judgement calls about their fund’s holdings (note: unless explicitly stated, ESG funds rarely divested from any specific companies or asset classes). Despite this reality, fund companies marketed these funds as fuzzy, feel-good environmentally-socially-conscious investment solutions.

At the time, the SEC defended it’s position by claiming that ESG metrics were nonmaterial to shareholders/investors.

Since then, and considering that there is now over $40 trillion in assets globally invested in ESG funds, there has been significant pushback from nearly all corners of the investment world. Individual and institutional investors, state pension funds, endowments, and even sovereign wealth funds have all pushed for more ESG disclosure.

Why Do Investors Want More ESG Disclosure?

One possible answer is, for the same reason they want good consistent financial disclosure: They want to be able to understand how companies work, so that they can buy the good ones and avoid the risky ones.

And most of the SEC’s proposal is about that sort of thing: Climate risks can affect a company’s business and financial results, so investors need to understand those risks to understand the business.

In other words, an about-face:

Emissions + climate risks = material information for shareholders/investors

Major Shift

This marks a major shift in how corporations must show they are dealing with climate change.

For the first time ever, the SEC finally enforces ESG and plans to require businesses to outline the risks a warming planet poses to their operations. In fact, some large companies will have to provide information on emissions they don’t make themselves, but come from other firms in their supply chain.

The rules will require companies to:

  • describe what climate-related risks they face and how they manage those risks
  • disclose, if applicable, a “transition plan” to adapt to a warming world, or whether they “use scenario analysis to assess the resilience of their business strategy to climate-related risks,”
  • disclose and quantify the use of carbon offsets
  • disclose how their financials are affected by climate risk

In essence, the SEC is proposing a complex accounting regime for ESG, a legally approved set of Generally Accepted Climate Principles, with its own body of technical standards and its own set of climate attestation professionals.

Takeaway:

While we’re optimistic that these new disclosure requirements will improve ESG investing, do note that it will take time. Implementation will take place between fiscal year 2023 and 2026 (depending on the size of company).

While increased disclosure of public companies is good, the UN’s Intergovernmental Panel on Climate Change’s (IPCC) latest climate report suggested that ESG investing “does not yield meaningful social or environmental outcomes.”

Instead, the report cited, in order to avert the increasingly likely scenario of catastrophic global warming, the world needs stronger government policy and enhanced regulation.

Happy Earth Month. 

How will you do your small part to honor Mother Earth this year?

Let us know!

The Centenarian Olympics

Training for the Centenarian Olympics

Training for a long, healthful, and functional life is not the same as training for performance. Eminent longevity doctor, Dr. Peter Attia, notes that, for most people, the body will fail before the other systems (brain, heart, etc.).

To identify the training protocols that would allow one to compete in what he refers to as “The Centenarian Olympics,” Dr. Attia suggests we should “backcast” (i.e. the opposite of forecast), or reverse engineer, the activities that we would need to do at age 100 and begin training for them today.

Some things your 100-year-old self may need to do:

  • Play with your potential future grandkids and great grandkids
  • Lift a 30lb suitcase into an overhead bin
  • Get up from the ground
  • Go grocery shopping and carry two 10lb grocery bags up/down two flights of stairs
  • Bathe, shower, and dress yourself independently

Dr. Attia has said: “If you have the aspiration of kicking ass when you’re 85, you can’t afford to be average when you’re 50.”

When backcasting these activities, the training protocols are based around a few essential pillars:

  • Stability
  • Strength
  • Aerobic Performance
  • Anaerobic Output

Let’s talk about each of these:

Stability: 

The foundation of the four exercise components – most people start to fail first with their stability. Dr. Attia recommends working with a qualified Postural Restoration Institute professional. You can also practice stability focused routines/exercises which include Pilates, yoga, and tai chi, to name a few. For those striving to be functional 100-year-olds, light stretching should be part of the daily routine and longer 60-minutes stability-focused sessions can be completed weekly.

Strength: 

Aging robs us of our strength – we lose 35-40% of our strength between age 20 and 80. Approximately 1-2% of our strength is lost each year after age 50. In fact, grip strength alone is shown to be a reliable biomarker for future injury (and death) prevention. To maintain strength, longevity experts suggest strength training three days per week. Some longevity-focused strength training exercises are linked here.

Aerobic Performance: 

Aerobic exercise consists of less intense, longer bouts of activity. Dr. Attia is a big proponent of Zone 2 heart rate training for aerobic performance – that is, the highest metabolic output/work that you can sustain while keeping your heartrate 60-70% of your max + lactate level below two millimole per liter.

In other words, for many of us, this might translate to walking uphill on a treadmill at a 15% incline going 3-3.4mph. Another option is riding a stationary bicycle at a pace that allows you to carry a conversation, but the conversation feels a bit strained (the person you’re speaking with would know you’re exercising). Zone 2 aerobic training should, ideally, account for 2-4hrs of your overall activity per week.

Anaerobic Output: 

Anaerobic activities are much more efficient and therefore do not require as much time as aerobic. This type of activity is more intense and focused on your Zone 5 heart rate (i.e. 90-100% of maximum HR). Anaerobic-focused workouts include HIIT, Tabata, and different boot-camp type workouts. However, they can be even shorter (30-60sec) “all-out” bursts of exertion performed by running/rowing/cycling or anything that gets your HR to Zone 5.

Less discussed, but arguably just as important as your physical training for the long haul, is the quality of your sleep. Take a look at our past blog for ways to improve your sleep and increase your quality of life.