ESG and sustainability round-up: February 2023
Talk of the town
Major events on the road to COP28 are being finalised. Biden’s Climate Summit in Washington DC is taking place in April following the IMF/World Bank Spring meeting in DC earlier that week. In May the G7 will gather in Hiroshima, followed by President Macron’s Paris Summit for a New Global Financial Pact in June (with Mia Mottley’s Bridgetown Initiative featuring on the agenda), and the G20 come together in September in New Delhi. All of these discussions will undoubtedly provide the backdrop in the run up to COP28 in Dubai hosted by the UAE. One item high on the agenda for this string of events is reshaping and reprioritising multilateral development banks (MDBs) - like the IMF and World Bank - and the many regional and national development banks. More specifically, we’ll see a sharp focus on enabling climate finance for mitigation, adaption, loss and damage and nature recovery. The new President of the World Bank will be a major voice in this debate, after David Malpass (a Trump appointee) steps down in June.
UK
Recent analysis from the Green Technical Advisory Group (GTAG), chaired by the Green Finance Institute, promotes international interoperability of a UK Green Taxonomy and calls for the UK to raise its game to attract capital through strengthened global investment credentials. The Competition and Markets Authority (CMA) announced that it will be investigating green claims from companies who produce food, drink and toiletries, following on from their investigations into the clothing industry over the past year. The UK Government has confirmed plans for ‘Biodiversity Net Gain’ to be phased in from November this year for new housing, commercial and infrastructure developments. Labour leader Keir Starmer announced Labour’s five missions for a better Britain (in anticipation of the next UK general election, expected in 18 months’ time). One of Starmer’s missions is to make the UK a ‘clean energy superpower’ and reach zero-carbon electricity by 2030. Women reportedly now occupy 40.2% of board seats at FTSE350 companies (up from 9.5% 11 years ago) reaching the ‘FTSE Women Leaders’ target three years early. There were only 21 women CEOs however, which will now become a focus of the campaign.
Europe
The price of carbon in the EU Emissions Trading System (ETS) has reached 100 euros per tonne. The 100-euro level has long been cited as the price that could incentivise further R&D investment into expensive technologies needed to limit global warming. The EU has been developing its response to the US Inflation Reduction Act (IRA) and while further work continues, it has set out its plans for the Green Deal Industrial Plan.
Beyond
The OECD is consulting on changes to guidelines for multinational enterprises, with updated human rights standards being proposed along with the inclusion of ISSB and biodiversity standards. In India, a regulatory framework for ESG disclosures is currently under consultation with a view to improve assurance of disclosures through the integration of KPIs such as gender pay data. The UN’s PRI has set out its views on the increasingly polarised ESG debate at individual state level in the US. Some Republican leaning ‘red’ states are implementing an ‘anti-ESG’ stance whilst Democrat leaning ‘blue’ states are mobilising to support ESG as a fully legitimate and appropriate investment framework. This short video from the Financial Times gives a useful summary of the recent ESG backlash.
Ones to watch
The UK Government is preparing to update its Net Zero Strategy by the end of March (after it was declared unlawful by the High Court last year) and is currently looking at ‘quick wins’ for net zero. The timing coincides with the need to respond to the Government’s Skidmore Review. Taking the lead will be the new UK Government department for Energy Security and Net Zero (DESNZ) created by the Prime Minister in his recent machinery of Government changes. At an event in February, the Chancellor of the Exchequer alluded to an upcoming net zero growth plan. The UK Government is also likely to publish its Digital Markets and Competition Bill in March that will contain powers to fine companies up to ten per cent of their global turnover for breaches of consumer law, which are likely to include greenwashing.
The Science Based Targets Initiative will be publishing the first draft of its Science Based Targets for Nature (SBTN) methodology in March.
The European Commission is reviewing the requirements on packaging and packaging waste in the EU (open for public feedback until April). The draft regulation will apply to companies outside of the EU supplying packaging to EU customers. The EU is likely to publish its proposals for a directive on greenwashing by the end of March which will strengthen regulations against greenwashing and may ban the use of vague and generic terms that could be misleading.
Other news and research
Storebrand’s latest investor commentary looks at Scope 4 emissions and solutions to the climate crisis, which have seen an unbalanced investor and regulatory focus to date. Recent CDP data highlights that while companies recognise the need for climate transition plans (CTP), only 0.4% of the 18,600 companies assessed displayed best practice in their CTP disclosures – despite incoming mandatory disclosure. WWF has published a report outlining how nature recovery can be included in climate transition plans as part of the follow up to COP15 and the Kunming Montreal Agreement in December.