Nature Action 100 announce companies “systematically important” to reversing nature and biodiversity loss

In our monthly Corporate ESG newsletter we breakdown the trending ESG* trades and themes, helping Corporates get ahead of the latest issues shaping the market.

Institutional developments: regulators / standard setters

UK PM postpones deadlines for selected decarbonisation policies while reconfirming Net Zero goal

On 20 September, Rishi Sunak, UK Prime Minister (PM), announced a new approach to meeting Net Zero emissions, focussed on “a ‘fairer’ path to meeting international commitments”. CEOs of the UK Sustainable Investment and Finance Association (UKSIF) and Principles for Responsible Investment (PRI) sent the PM a letter, supported by 32 investors, stating that they are “deeply concerned” by the decision. The policy updates focus on cars, boilers and insulation, amongst others. As a result, new cars with combustion engines will be banned from sale by 2035, rather than by 2030 (as originally planned); similarly, the phase out of the installation of gas boilers will only target 80% by 2035 (vs the initial 100% target). In terms of insulation, the policies no longer demand that homeowners achieve energy efficiency targets. It has been suggested that the measures: 1) may not save British families any money; 2) are likely to undermine investor confidence and therefore divert investment away from the UK as businesses demand certainty; and 3) are contrary to the conclusions which the Independent Review on Net Zero drew earlier in 2023.


EU Parliament votes to double renewable energy share by 2030  

Members of the European Parliament have overwhelmingly approved changes to the Renewable Energy Directive (RED), thereby demanding that at least 42.5% of the EU’s energy consumption derives from renewables by 2030, with Member States being encouraged to aim for 45%. Once the EU Council provides its formal approval, the 2030 target will nearly double the share of renewable energy in the EU’s energy mix, which in 2021 stood at 22%; the proposed target is more ambitious than the recommendations originally outlined in the “Fit for 55 package” in 2021. The RED will speed up the process to obtain permits for green power plants such as solar panels and wind turbines. Furthermore, a number of high-emitting sectors will be required to set more ambitious targets: buildings, for instance, will have to source at least 49% renewable energy by 2030, whereas the transport industry will have to reduce emissions by 14.5%, in part through the use of hydrogen from renewable fuels of non-biological origin.


ECB’s climate stress test findings 

Following its inaugural test in 2021, the European Central Bank (ECB) performed its second economy-wide climate stress test, seeking to assess the impact of different transition pathways on families, businesses and financial institutions in the Euro area. According to the ECB, not only does slowing the green transition negatively affect firms’ profitability and households’ purchasing power, but it will also increase credit risk for banks by more than 100% by 2030 (vs 2022). Similarly, further delaying the transition will result in a failure to achieve the Paris Agreement targets, which in turn will exacerbate the impact of physical risks. The ECB adopted three separate transition scenarios: 1) ”accelerated”, whereby green policies and investment are frontloaded, with emissions reducing in line with the Paris Agreement; 2) “late-push”, which despite not accelerating until 2026 would still be sufficiently intense to achieve the emissions reduction goals; and 3) “delayed”, which would start in 2026 and would be insufficiently ambitious to meet the Paris goals. Under the most ambitious scenario, the ECB has estimated that €2 trillion ought to be invested by 2025.


European Securities Market supervisor sets expectations on sustainability disclosures in prospectuses 

The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, has issued a Public Statement on the sustainability disclosure expected to be included in prospectuses. The statement sets out ESMA’s expectations on how the specific disclosure requirements of the EU Prospectus Regulation (PR) relate to sustainability-related matters in equity and non-equity prospectuses. A prospectus shall contain the necessary information which is material to an investor for making an informed assessment of: (1) the assets and liabilities, profits and losses, financial position, and prospects of the issuer and any guarantor; (2) the rights attaching to the securities; and (3) the reasons for the issuance and its impact on the issuer (emphasis added).


Reporting: TNFD releases Framework for reporting on Nature-Related risks and opportunities  

After two years of design and development, the Taskforce on Nature-related Financial Disclosures (TNFD) published its final recommendations for nature-related risk management and disclosure. The recommendations, which consist of 14 suggested nature disclosures, focus on four contextual pillars (in line with the Taskforce on Climate-related Financial Disclosures (TCFD)), namely: Governance, Strategy, Risk & Impact and Metrics & Targets. The TNFD recommendations are structured to allow companies and financial institutions to get started, with the intention to encourage learning and continuous improvement over time. As with climate-related reporting, and as familiarity with nature grows, management of nature-related issues will improve, and disclosure ambition will increase. 


Reporting: Existing shortfall in CSRD disclosure suggests implementation challenges lie ahead, says Position Green  

Software provider Position Green published a study of the 300 largest companies from Norway, Sweden, and Denmark to assess how prepared listed companies are for the European Sustainability Reporting Standards (ESRS), which are set to be phased in from 1 January 2024 under the Corporate Sustainability Reporting Directive (CSRD). The findings concluded that 62% of the 186 companies assessed had committed to achieving zero emissions by 2050 but most climate targets are not matched with credible transition plans; only 41% of firms have a transition plan in place and 33% of businesses have carbon emissions targets verified by the Science Based Target initiative (SBTi). The report noted that Scandinavian companies typically tend to be more advanced in their ESG disclosures and therefore suggested that other European counterparts will face major implementation challenges in the coming months.


Reporting: Only 1 in 4 companies “very confident” in meeting ESG Reporting requirements   

Covering US companies from multiple industries, with more than $1 billion in revenue, KPMG’s ESG study surveyed over 200 business leaders that have a responsibility for their companies’ ESG strategies. Only 53% of respondents reported being “somewhat confident” in being able to meet US sustainability reporting requirements, whilst only a quarter felt “confident” in their ability to meet future ESG reporting requirements in multiple jurisdictions. Further KPMG research undertaken as part of the KPMG ESG Assurance Maturity Index 2023 found that only a quarter of companies feel they have the necessary ESG skills, systems and policies in place to be prepared for ESG data assurance. More than 50% of those that felt the least ready and confident highlighted the difficulties in balancing ESG assurance goals with shareholder expectations on profit.



Ratings and data: Kroll study shows stronger investment returns for companies with high ESG ratings

In its ESG and Global Investor Returns study, Kroll analysed data on more than 13,000 companies across various industries globally to examine the relationship between ESG ratings and publicly traded companies’ historical returns. Worldwide, ESG Leaders earned an average yearly return of 12.9% versus Laggards, which earned an average of 8.6% annual return; representing a premium of approximately 50% in relative performance by top-rated ESG companies. The terminology refers to MSCI’s definition of Leader, Average and Laggard companies. Leaders outperformed Laggards in nine out of 11 industries analysed, the exceptions being Healthcare and Consumer Staples. The study also provided insight into the percentage of businesses classified as Leaders across various geographies – in Europe the figure stood at over a third, whereas in North America and Asia only 10% and 6%, respectively, had a Leader rating.


Ratings and data: EcoVadis launch product carbon emissions tracking solution  

Sustainability rating provider EcoVadis launched its Product Carbon Footprint (PCF) Data Exchange, the most recent addition to its Carbon Action Module solution. EcoVadis has stated that the new feature’s key aim is to enable emissions reporting for specific products and services purchased within the supply chain. This has been identified as a crucial hurdle preventing buyers from accurately determining the emissions attributable to their purchases, as suppliers have historically only provided their overall carbon footprint (if at all). The PCF feature utilises the Partnership for Carbon Transparency’s (PACT) standards-based Pathfinder Framework and enables product carbon footprint tracking across EcoVadis’ network of suppliers; 40,000 of whom are currently engaged. According to EcoVadis this will increase inter-company cooperation, thereby giving rise to emissions reduction opportunities.

Capital Markets

Primary and Secondary Market

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Carbon Markets

EDF launches Oklima, a subsidiary dedicated to carbon offset solutions  

In a similar move to Iberdrola (see our September publication), EDF has launched Oklima, a specialist carbon offset company developed by the EDF Pulse Incubation intrapreneurship programme. Oklima develops projects that contribute to carbon “sequestration” (e.g. through afforestation operations) or to reduce greenhouse gas emissions (e.g. by helping farmers reduce the fossil fuel consumption of their agricultural machinery). Oklima also offers "carbon credits" from projects developed outside France, certified by international labels.


Robeco debuts climate high-yield bonds in London  

Robeco has launched its Climate Global High Yield Bonds fund in London, an initiative aiming to reduce carbon footprints via high-yield investments, benchmarked against the Paris Aligned Benchmark by Solactive. It is structured to achieve a 7% yearly reduction in emission intensity and commences with a carbon intensity that is 50% less than the prevailing investment landscape. Notably, fossil fuel-related ventures are excluded from the fund's purview. In alignment with the European Union's Sustainable Finance Disclosure Regulation (SFDR), the fund meets the specifications of Article 9.


AXA IM – How to integrate green bonds in a global allocation  

Green bonds “remain one of the most appropriate instruments” to deliver environmental benefit while gaining access to a global, diversified and well-balanced universe, according to AXA IM. While the green bond market may have converged towards the conventional bond market when it comes to average duration or ratings, some differences remain. The green bond universe is more concentrated towards euro and dollar currencies and offers higher exposure to credit debts than the conventional market. These differences imply that investors can face a tracking error dilemma. However, green bonds combined with a small allocation to US Treasuries, potentially offers the benefits of investing in green bonds while addressing the tracking error dilemma.


Nature Action 100 announces focus list of companies “systematically important” to reverse nature and biodiversity loss  

Global investor initiative Nature Action 100 (NA100) has entered its engagement phase, sending letters to focus list companies calling for “urgent and necessary action” to protect and restore nature and to mitigate financial risks. NA100 has named the 100 companies – which collectively have a market capitalisation of more than US$9 trillion – it will prioritise in key sectors to tackle the major drivers of nature loss caused by corporates (e.g. biotechnology, pharmaceuticals, chemicals, food, forestry and paper, and metals and mining). Companies are expected to assess and report on their nature-related dependencies, impacts, risks, and opportunities throughout value chains, set and disclose science-based targets, engage with indigenous peoples and local communities when affected on targets, and establish board oversight and disclose management’s role in assessing nature-related information.

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