69% of Investors to Increase Nature Focus

Research by global climate and nature investment and advisory firm Pollination has found that the majority of 557 surveyed investment firms plan to increase their investments in nature. Seventy-five percent of investors said that some or all nature-related investments can be classified as an asset class, with 23% saying that they are motivated firstly by improving environmental outcomes. Investors in the US are leading the charge, according to the report, which noted 87% of US-based firms are set to increase investments in nature, despite increasing polarisation in the market in the face of the anti-ESG movement. However, opinions varied when it came to motivations and perceptions of risk through to expectations of returns, which Pollination said highlights the “preliminary nature of work in the space”. Martijn Wilder, Pollination’s Co-Founder and CEO, said: “Investing in the natural world is investing in the resilience of the economy. It’s clear that investors across the globe are starting to recognise the potential nature-related investments have for producing returns as well as reducing systemic risk, alongside protecting and improving the natural environment. But we need much more: a significant and sustainable build in capability across capital markets is needed, including skills and human capital, information infrastructure an new models and norms.” The survey involved investors from the UK, US, Australia, France, Singapore, and Japan.

Ocean-based Solutions Key to Mitigating Climate Change

A new report from the High-Level Panel for a Sustainable Ocean Economy has emphasised the pivotal role of ocean-based actions in averting the consequences of climate change. The study said readily deployable ocean solutions have the potential to reduce emissions by up to 35% on a 1.5°C trajectory by 2050, equivalent to four times the annual emissions of the entire EU. The Ocean as a Solution to Climate Change unveiled during the Ocean Panel’s annual meeting in New York, attended by 17 heads of state called for immediate collective efforts to implement ocean-based climate solutions. Jonas Gahr Støre, Prime Minister of Norway and Co-chair of the Ocean Panel, said: “This latest report demonstrates the significant potential of ocean-based climate action in closing the emissions gap. Ocean-based climate action is the lifeline that coastal and ocean states must take advantage of to help benefit the climate while creating jobs and economic prosperity. The report, authored by 28 independent experts from four continents, 13 universities, and six NGOs, assesses seven ocean-based sectors’ potential to combat climate change while promoting a sustainable ocean economy and safeguarding coastal communities. These sectors include scaling ocean-based renewable energy, decarbonising ocean transport, conserving marine ecosystems, utilising low-carbon oceanic food sources, marine carbon dioxide removal, decarbonising ocean-based tourism, and reducing offshore oil and gas extraction. While Sustainable Development Goal 14 focuses on ocean conservation and sustainable use, it remains one of the least funded UN goals, accounting for only 0.01% of development funding. To achieve the full potential of ocean-based emissions reductions, the Ocean Board said a targeted investment of US$2 trillion between 2030 and 2050 is imperative. 

Investors Round on Sunak over Net Zero U-turn  

Aviva Investors, the UK Sustainable Investment and Finance Association and Tribe Impact Capital are among the investors who have signed a letter from a 400-strong group of organisations to UK Prime Minister Rishi Sunak urging him not to weaken any net zero policies. On Wednesday (20 September), Sunak announced a U-turn on several net zero policies in what he described as a “more pragmatic, proportionate and realistic approach to meeting net zero”. This included pushing back a ban on the sale of petrol and diesel cars from 2030 to 2035 and weakening plans to phase out the installation of gas boilers by 2035. In the letter to Sunak, the organisations say they have already made substantial investments in the net zero transition and made it clear that sticking to long-term net zero policies is crucial to build business confidence and mobilise investment. “Watering down these policies would damage the UK’s credibility as a good place for green investment, undermining British competitiveness. We are already losing investment to the US and EU, and rowing back would make it worse.”

UK DC Pensions View High Fees as ESG Investment Barrier

UK defined contribution (DC) pension schemes are reluctant to accept higher fees on ESG investments, despite average charges decreasing by 20% over the past decade, a report by investment consultancy firm WTW revealed. Only 26% of schemes are willing to compromise on higher charges for greater access to illiquid assets and private markets, and a mere 25% express interest in boosting their investments in ESG strategies, even if it means incurring higher fees. The remainder appear either reluctant or uncertain about such a trade-off, the report noted. The recent government pension proposals collectively referred to as the ‘Mansion House Reforms’ are encouraging DC schemes to consider more expensive yet potentially higher growth assets like unlisted equities, private markets, and other illiquid assets. Gemma Burrows, Director in WTW’s Retirement Business, said: “While it’s great news that DC schemes have successfully negotiated down fees over the past decade, in reality, we know from our research that these modest gains do not alone provide a significant boost to average pot sizes for members. Scale and innovation are needed quickly in this area, and careful selection of investment strategies, asset managers, and funds will be a key part of the decision.” Additionally, the report touched upon the growing interest in diversity, equity, and inclusion (DEI) within DC pension schemes. Approximately 45% of schemes intend to address their gender pensions gap, while only 8% have taken concrete measures to address retirement disparities among different demographic groups. 

Technology & Data

CDP, NZDPU Collaborate to Improve Access to Climate Data

Global non-profit disclosure platform CDP and the Net-Zero Data Public Utility (NZDPU) have confirmed a strategic collaboration that aims to “accelerate access” to core climate data. The NZDPU is due to release its proof of concept at COP28 later this year. This will be supported by CDP, with the proof of concept providing an initial set of companies’ Scope 1, 2 and 3 greenhouse gas  emissions and reduction targets. Data provided by CDP will enable NZDPU users to experience its initial set of features and offer “valuable insights” to inform its future releases. CDP said that access to “high-quality and consistent” climate transition-related data “enables action, creates transparency, encourages accountability and will help accelerate the transition toward a net-zero economy”. The goal of the NZDPU is to provide an open, free, and centralised data repository allowing all stakeholders to “easily” access key climate transition-related data, commitments, and progress of businesses and financial institutions toward those commitments. The proposal for the NZDPU was created by the Climate Data Steering Committee (CDSC), which was established in June last year by French President Emmanuel Macron and UN Special Envoy for Climate Ambition and Solutions Michael Bloomberg. Mary Schapiro, Chair of the CDSC, said: “The collaboration between CDP and the NZDPU marks a critical step towards achieving the CDSC’s vision of a centralized repository that provides free access to verifiable, foundational climate-transition-related data.” 

Greenium Persists in US Green Bond Market – CBI  

Thirty-two percent of green bonds achieved a ‘greenium’ in the first half of 2023, according to new analysis from the Climate Bonds Initiative (CBI). A sample of 50 green bonds, during H1 2023, were found to be 16 priced inside their own secondary market yield curves. These results are included in the latest iteration of the Green Bonds Pricing in the Primary Market Series, sponsored by IFC, which assesses bonds denominated in EUR or USD, across countries and issuer types. The period saw particularly strong pricing metrics for USD deals with average book cover for USD denominated green bonds being 5.4 times the deal size. The period covered 111 green bonds overall with a combined volume of US$124.6 billion with green bonds in both EUR and USD performing well on all metrics in the primary market, on average, and allocations to green investors remaining stable at 66%. Among other highlights, three EU sovereigns return to the green bond market and Israel priced its debut sovereign green bond deal. Caroline Harrison, Head of Market Research, CBI: “The glowing green bond pricing metrics continue to demonstrate the strong investor appetite for these instruments. Investors are keen to finance the decarbonisation of our economy, and issuers should leverage this by prioritising green investment.” Further, the CBI has released guidance to assist stakeholders in understanding the fundamental markets of credible transition plans. Sean Kidney, CEO of CBI, said:  “Transition plans are the linchpin in the journey towards the Paris goals. They must be built on clear targets, effective strategies, ample financial support, and unwavering leadership. Transparency through regular progress disclosure is paramount, but evaluating these plans can be difficult. To bolster investor and stakeholder trust, Certification is paramount to underscore the credibility of these crucial blueprints.” 

Seven-times Faster Decarbonisation Rate Needed – PwC

Big Four consultancy firm PwC’s latest Net Zero Economy Index indicates that a decarbonisation rate of 17.2% per year is now essential to limit global warming to 1.5°C, up from 15.2% the previous year. According to PwC analysis, no G20 country has achieved a decarbonisation rate exceeding 11% in a single year, with the highest level recorded by the UK in 2014 PwC said all nations must intensify their efforts to meet the IPCC’s 2030 target of a 43% reduction in emissions and a 78% reduction in carbon intensity. Emma Cox, Global Climate Leader at PwC, said: The fact that the world needs to decarbonise seven times faster is a spur to action, not a counsel of despair. The past year witnessed a surge in renewable energy adoption, with solar energy experiencing a record growth rate of 24.4% and wind energy increasing by 13.1%, the PwC report noted. This acceleration in renewables was particularly pronounced in Asia, the USA, and Europe, but further action is needed across economic sectors, infrastructure, and support for developing nations. BMI, a Sustainable Fitch company, anticipates a significant acceleration in the growth of non-hydro renewables in the coming decade. This positive projection, in a new report, is underpinned by expectations that annual capacity additions for solar and wind energy will bounce back from industry disruptions, reaffirming their dominance in the global low carbon power expansion landscape.We expect non-hydro renewables growth to accelerate over the next decade as yearly solar and wind capacity additions rebound from industry disruptions and continue their dominance of global low carbon power expansion,” BMI said in a statement. 

Plastic Players Failing to Link Sustainability to Executive Pay

Research by NGO think tank Planet Tracker has found that 95% of “leading plastic players” do not have a “sufficient link” between executive pay and sustainability factors. The ‘Plastics – Executive Compensation‘ report analyses the pay-performance plans of 39 plastic-related companies including ExxonMobil, Saudi Aramco, Costco and Mars. According to Planet Tracker’s data, 41% of plastic-related companies lack any link between sustainability practices and executive compensation which the NGO calls a “key requisite of a credible sustainability plan”. Additionally, its research found that the approaches of the 23 firms that do align compensation with ESG performance are “insufficient”, with them lacking a quantitative link or only tying a minimal proportion of compensation to sustainability performance. The study also found that 54% of companies do not have science-based targets, with Planet Tracker underscoring the need for independently verified target setting to enable investors to rule out greenwashing and compare companies. Thalia Bofiliou, Senior Investment Analyst at Planet Tracker, said: “It’s a positive sign that all plastic companies we analysed are committed to wider sustainability goals. However, without meaningfully tying executive pay with sustainability metrics, this is all wrapping and no substance. To reduce the significant risks the plastic industry faces, from CO2 emissions and microplastics to new regulations, investors can no longer afford to wave pay packages through that aren’t linked to sustainability-related elements.” Last month, analysis by Planet Tracker also found that executives across the plastics value chain could be underestimating the range and urgency of the ESG risks facing the sector. 

GFANZ Seeks “Rigour” on Transition Finance Strategies

The Glasgow Financial Alliance for Net Zero (GFANZ) Secretariat has launched a consultation to better support financial institutions in assessing the impact of transition finance strategies on decarbonisations efforts. Last year, GFANZ identified four strategies needed to finance a whole economy transition to net zero: the development and scaling of climate solutions, assets or companies already aligned to a 1.5°C pathway, assets or companies committed to transitioning in line with a 1.5°C pathway, and the accelerated managed phase-out of high-emitting physical assets. The consultation, which is open to feedback until 2 November, is seeking market insight on a voluntary, pan-sector and globally applicable principles-based approach to these identified strategies, highlighting potential approaches to estimate the associated decarbonisation contribution impact. Mary Schapiro, GFANZ Vice Chair, said: “Transforming the global economy to achieve net zero is the biggest challenge facing this generation. To move forward, we must apply more rigour to how we finance the transition and how that investment is truly driving decarbonisation over time – but we must do this thoughtfully and in broad consultation.” Building on GFANZ’s transition plan guidance, the US Treasury has unveiled its Principles for Net Zero Financing and Investment for financial institutions at the Bloomberg Transition Finance Action Forum in New York City.

Technology & Data

Impact Cubed Introduces ‘SmartESG Global Sustainability Index’

ESG data and analytics provider Impact Cubed has unveiled its SmartESG Global Sustainability Index’ at New York Climate Week. Created in collaboration with Solactive, a leading index provider, the index was developed with input from the pension plan of a major European financial institution. The index aims to align financial objectives with environmental and social responsibility and offer asset owners a “fresh perspective on their ability to be ambitious in achieving climate objectives. According to Impact Cubed, the index enables asset owners to customise ESG impact and reduce tracking error. The index also places a strong emphasis on governance and social impact, with metrics for gender equality, board independence, and executive pay. Aston Chan, Head of Portfolio Solutions at Impact Cubed, said: “Our Smart ESG Global Sustainability model portfolio encapsulates the future of sustainable investing. By harnessing the power of Smart ESG, investors can achieve superior impact across their customised ESG objectives, without additional risk. This index really shows our portfolio capabilities in action.”

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

Copyright © 2023 ESG Investor Ltd. Company No. 12893343. ESG Investor Ltd, Fox Court, 14 Grays Inn Road, London, WC1X 8HN

To Top