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Three Actions Needed to “Beat Back Biodiversity Apocalypse” – Guterres

In his opening speech at Montreal’s COP15, UN Secretary General Antonio Guterres advised that three “concrete” actions are needed to “forge a peace pact with nature” and avoid a “biodiversity apocalypse”. The first action Guterres highlighted was for governments to “develop bold national action plans across all ministries” which re-purpose subsidies and tax breaks away from nature-destroying activities and towards green solutions such renewable energy, plastic reduction, and nature-friendly food production. Guterres said plans also need to “recognise and protect” the rights of local peoples and Indigenous communities, as well as closing the finance gap with national biodiversity finance plans. Second, the private sector must recognise that profit and protection of nature must “go hand in hand”. As firms in the agri-food industry move towards sustainable production methods, for example, it is still “in their interest to protect nature above all else”, he said. Finally, Guterres stressed that developed countries must financially support nations in the global South, as well as ensuring that multilateral development banks’ investments promote the conservation and sustainable use of biodiversity. Guterres said: “It is up to us to take responsibility for the damage we have caused, and to take the necessary measures to repair it. Forget the musings of some billionaires – there is no planet B. It’s up to us to fix the world we have.” 

TAI, PRI to Create Global Stewardship Standard

The UN-backed Principles for Responsible investment (PRI) has partnered with the Thinking Ahead Institute (TAI) to research the level of resources institutional investors should be dedicating to stewardship, with an end goal of creating a global stewardship standard. The project will involve an institutional benchmarking study to assist organisations in better understanding current stewardship practices, resourcing requirements and other key costs. The standard will outline examples of best practice stewardship by asset owners and managers, including show their stewardship activities are monitored, measured and disclosed. The PRI and TAI will additionally propose a calculation methodology to estimate “appropriate” levels of resources that investors need to dedicate to both direct and market stewardship activities to have a real-world impact. Marisa Hall, TAI’s Co-Head, said: “This is an important project aimed at encouraging positive behavioural change and increasing stewardship resources commensurate with rising systemic risks. Robust and well-resourced stewardship practices are vital to ensuring that investors are able to maximise overall long-term value.” 

Asian Investors Raise the Bar on Gender Diversity 

The Asia Securities Industry & Financial Markets Association (ASIFMA) has published guidance on investors’ expectations on gender diversity to support understanding, engagement and disclosures among issuers. The guidance from ASIFMA’s asset management group (AAMG) included gender diversity recommendations at board level, across the company and as part of a wider diversity strategy. AAMG’s guidance document said the need for greater gender diversity is “increasingly acknowledged” by companies, as well as being emphasised by regulators and investors. It said board gender diversity is just one indicator that companies should be looking to achieve, noting that company-wide policies, programmes, metrics and targets to promote diversity, equity and inclusion are “critical” to establishing a more diverse and inclusive corporate culture. Yvette Kwan, AAMG’s Executive Advisor, said: “While there has been significant progress in gender diversity for companies in Asia, there is still much more work to be done and we very much hope that our follow-on guidance provides helpful insights to support further development in this continuingly important focus area for investors.” 

 

 

“Unprecedented Momentum” for Renewables – IEA

The International Energy Agency (IEA) expects renewable energy capacity to expand significantly faster over the next five years. In a new report, the IEA cited Russia’s invasion of the Ukraine as driving “unprecedented momentum” for renewables adoption, with renewable electricity offering energy security benefits urgently needed following fossil fuel supply disruption for the majority of this year. The IEA predicted that renewables capacity will grow by almost 2,400 gigawatts by 2027 – the equivalent of the entire installed power capacity of China today. That’s an 85% acceleration from the previous five years, and almost 30% higher than what was forecast in last year’s report, marking IEA’s largest ever upward revision in renewable capacity expansion. This rate would see the world add as much renewable power in the next five years as it did in the previous two decades. Renewables are set to account for more than 90% of global electricity capacity expansion over the forecast period, with the upward revision mainly set to be driven by China, the EU, the US and India. Renewables became the largest source of global electricity generation by early 2025, surpassing coal. Solar photovoltaics installed power capacity is also projected to surpass that of coal by 2027, becoming the world’s leading energy source, with cumulative solar PV capacity almost tripling in IEA’s forecast.  

EU Backs “Groundbreaking” Deforestation Law

The European Council and Parliament have agreed a proposal to minimise the risk of deforestation and forest degradation resulting from EU imports and exports. The deal sets mandatory due diligence rules for entities involved in trading commodities – palm oil, beef, timber, coffee, cocoa, rubber and soy – and certain derived products, including chocolate, furniture and paper. This means firms will be required to trace the products they are selling back to the plot of land where it was produced. The proposal also establishes a benchmarking system, which assigns to third and EU countries a level of risk related to deforestation and forest degradation, which will determine specific obligations on inspections and controls. NGOs welcomed the deal, with the World Wide Fund For Nature (WWF) describing it as “groundbreaking”. Anke Schulmeister-Oldenhove, Senior Forest Policy Officer at WWF European Policy Office, said: “The EU will not only change the rules of the game for consumption within its borders, but will also create a big incentive for other countries fueling deforestation to change their policies.”

Fed Consults on Climate Risk Framework for US Banks

The Federal Reserve Board is consulting on a high-level framework for the management of exposures to climate-related financial risks by large US banking organisations. The framework proposes principles that would apply to banking organisations with more than US$100 billion in total assets and address both the physical risks and transition risks associated with climate change. The principles cover six areas: governance; policies, procedures, and limits; strategic planning; risk management; data, risk measurement and reporting; and scenario analysis. The proposed principles are substantially similar to proposals issued by the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation. The Fed Board intends to work with both agencies to promote consistency in the supervision of large banks through final interagency guidance. Fed Governor Christopher Waller said he disagreed with the premise that climate change poses a serious risk to the safety and soundness of large banks and US financial stability because stress tests show the banks are resilient.

 

Discrimination Remains Despite Greater UK Boardroom Diversity

The largest listed UK firms have appointed increasingly ethnically diverse boards, but many finance sector employees from ethnic minorities continue to experience discrimination, according to new reports. Thomson Reuters Practical Law’s Annual Reporting and AGMs 2022 found that 84% of FTSE 100 firms have at least one board member from an ethnically diverse background, compared to 55% in the FTSE 250. This means two thirds of FTSE 350 companies have at least one board member from an ethnically diverse background, a steep rise from 45% in 2021. Under the Parker Review, all FTSE 350 firms were required to have at least one director from an ethnic minority background by 2021. Separately, the Race to Equality in UK Financial Services report by Reboot found that seven out of ten ethnic minorities (68%) have experienced discrimination at work in the last year and eight out of 10 (82%) have experienced unwelcome comments based on their background. Around half (47%) of ethnic minority survey respondents with experience of discrimination said they had raised issues with their HR team, of which three quarters (75%) felt HR had not been very effective. The survey is based on 800 people working in financial services roles with a minimum of 10 years’ experience in the industry.

Railpen to Pre-declare Voting Intentions in 2023

UK pension scheme Railpen said it will “consider pre-declaring voting intentions on specific resolutions” at the AGMs of investee firms next year. The £35 billion AUM scheme said pre-declaring “sends an important signal to the company and the market”, but added that it would notify priority holdings of its voting intentions in advance to support effective engagement. Railpen made the announcement in its 2023 Global Voting Policy, which includes new voting policies on cybersecurity, climate transition plans and biodiversity, and mental health, while also enhancing its existing voting and engagement positions on dual-class share structures, fair pay and the treatment of gig economy workers, and modern slavery. “Laying out a clear, defined voting policy allows us to highlight our expectations of performance on key ESG risks in a way that is accessible to our portfolio companies, our external managers and our beneficiaries,” said Michael Marshall, Head of Sustainable Ownership at Railpen.

 

GRI Consults on Biodiversity Disclosure Standard

The exposure draft of the Global Reporting Initiative’s (GRI) revised Biodiversity Standard is open for consultation until 28 February 2023, following approval by its Global Sustainability Standards Board (GSSB). GRI, an independent sustainability disclosures standards-setter, said the review will ensure the revised standard represents “internationally agreed best practices” and aligns “with recent developments as well as relevant authoritative inter-governmental instruments in biodiversity”. The announcement comes ahead of COP15, which will finalise the post-2020 Global Biodiversity Framework, which is expected to require companies and investors to report on their nature-related risks and impacts. Changes to the existing standard are designed to improve reporting across the supply chain, help reporting firms prioritise their biggest impacts, and connect disclosures more closely to the drivers of biodiversity of loss. The revised GRI Biodiversity Standard will be used to inform the CDP disclosure platform, and input to the disclosure framework for nature-related risks being developed by the Taskforce on Nature-related Financial Disclosures (TNFD). Cooperation and alignment with EU reporting body EFRAG has also taken place on a new EU biodiversity standard, under the Corporate Sustainability Reporting Directive.

 

 

 

Big Gap Between ESG Investing Supply and Demand

A global survey by the Morgan Stanley Institute for Sustainable Investing has revealed a wide gap between asset owner expectations and asset manager delivery on sustainable investment products. Based on responses from more than 300 large institutions, Morgan Stanley found a 49-percentage point gap between demand for and supply of ESG performance disclosures. The survey also said that almost three quarters of asset owners wanted managers to have dedicated ESG teams and resources while only four in ten supplied this. Four in five asset owners wanted their managers to provide carbon footprint data, but only 63% of asset managers surveyed currently offer this information. Looking forward, Morgan Stanley found growing demand for net zero targets, with 40% of European asset owners saying they would require this of third-party managers with in the next two years.

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