WFE Publishes Green Equities Labelling Framework

The World Federation of Exchanges (WFE) has launched the world’s first global framework for designating stocks and shares as green. The Green Equity Principles look to counter greenwashing and support the enhanced flow of funding towards more sustainable economies. The principles create a globally harmonised framework for defining green equities comprised of the ‘WFE Green Criteria for Equities’ and the ‘WFE Green Equity Classification’. The framework is based on five overarching pillars: revenues/investments, use of a taxonomy, governance, assessment, and disclosure. The framework looks to enable sustainability-focused investors to make more informed decisions, ensuring that adequate information is available for investment and capital allocation decision-making. The principles will also look to enable issuers to raise their profiles among sustainability-focused investors; use the classification as a marketing and communications tool; and increase visibility of their green credentials and commitment to the green economy. Nandini Sukumar, WFE CEO, said: “The WFE Green Equity Principles provide a carefully evaluated structure within which exchanges set criteria for issuers and investors to demonstrate their green credentials. Investors should be able to have greater visibility of issuers who have green activities in a way that is rigorous and that counters greenwashing.”  

UK TPR: Improvements Needed on Climate Reports 

A review by UK’s The Pension Regulator (TPR) of 71 pension schemes’ annual climate reports has found 43 had set a formal net zero target, with several reports containing examples of trustees taking appropriate action to tackle climate risk. This includes using stewardship to manage climate-related risk and allocating more funds to sustainable investments. But the TPR review also found areas where reports could be improved, with common issues including, disclosures of climate strategy, scenario analysis and metrics activity not at the appropriate level as described in statutory guidance and accessibility issues, which could make it difficult for savers and others to find and access reports online, including long or complicated web addresses and the use of PDFs not compatible with those using reader accessibility requirements. Louise Davey, Director of Regulatory Policy, Analysis and Advice at TPR, said: “Climate change is likely to continue to pose a core financial risk to savers’ pensions for the foreseeable future, so I urge all trustees in scope of the regulations, and their advisers, to read our review and consider how they can improve their governance and reporting of climate-related risks and opportunities.” 

Investors Call on Chemical Companies to Align with 1.5°C

An investor coalition collectively managing over US$4 trillion in AuM have published a joint statement calling on the 13 largest chemical companies in Europe to set out a path to transition away from fossil fuels. Led by responsible investment NGO ShareAction, the statement said there are “clear steps” the companies can take to decarbonise their operations, including changing the make-up of their feedstocks to emissions-neutral materials instead of fossil fuels. Further, companies have been asked to eliminate woody biomass as an energy source and align their capital expenditure with a 1.5°C temperature pathway. “Europe’s chemical companies need to know that action on decarbonisation isn’t optional,” said Vincent Kaufmann, CEO of the Ethos Foundation. “The progress we have seen over the past 18 months, with some companies setting increasingly ambitious targets and transition plans, indicates that sustained investment engagement is important and effective.” The 15 investor signatories also include Legal and General Investment Management (LGIM) and Amundi. Kaufmann said: “Investors will continue to engage these companies to set credible 1.5°C-aligned strategies. This is the only way to ensure long-term profitability and competitiveness, as well as a liveable planet for the future.” 


ISS ESG Releases Regional ESG Risks, Opportunities Report

ISS ESG, the sustainable investment arm of Institutional Shareholder Services (ISS), has released an in-depth, regionally focused report on ESG opportunities and risks for investors. The report looks to complement the firms’ ‘Actionable Insights: Top ESG Themes in 2023 – Global Edition’ report, drawing on ISS ESG data, with research and insights from ISS ESG’s financial research and sector leads, climate specialists, and regulatory experts to help investors identify key regional ESG risks and opportunities likely to impact their portfolios in 2023. Key regional trends highlighted include climate change, accurate disclosure of ESG-related assets and activities, the consequences of Russia’s invasion of Ukraine, and protecting human rights. The report said the US is pursuing climate mitigation measures through the Inflation Reduction Act, while its Federal Reserve Board is encouraging major banks to apply climate scenario analyses to their portfolios. In EMEA, the EU is requiring banks to disclose the share of their assets that are environmentally sustainable, a measure known as the “Green Asset Ratio”. It also found that there have been increased natural gas prices across Japan, South Korea, and Singapore as they opt to diversify and prioritise their energy transition strategies towards alternative sources. Japan is also focused on addressing risks related to modern slavery, including among migrant workers. 

GIIN Impact Benchmark Targets Agriculture

Following the introduction of its impact performance benchmark for financial services last year, the Global Impact Investing Network (GIIN) has now developed an impact performance benchmark for the agriculture sector. Available through the GIIN’s IRIS+ platform, the pilot benchmark was co-developed with 16 agriculture-focused impact investors and aims to help investors measure their impact investment performance against both their peers and the UN Sustainable Development Goals (SDGs). The benchmark outlines a number of KPIs, such as changes in a farmer’s income. The new benchmark currently includes nearly 1,200 annualised investments. Dean Hand, Chief Research Officer at the GIIN, said: “For investors, benchmarking impact performance against their peers, prior periods, or the scale of the social and environmental challenge represents a seismic shift in their toolkit. By doing so, they gain a better understanding of their own performance and are better equipped to manage it effectively. Through benchmarking, investors can quickly identify what strong performance looks like and direct their capital towards more effective solutions.”   

Fund Solutions

Two New Article 8 Flexible Credit Strategy Funds for MSIM

Morgan Stanley Investment Management (MSIM) has launched the MSINVF Short Maturity Euro Corporate Bond Fund and the MSINVF Global Credit Opportunities Fund. The Short Maturity Euro Corporate Bond Fund will predominantly target short-dated investment grade corporates with maturities or call dates of less than three years, whereas the Global Credit Opportunities Fund will invest in a “wide spectrum” of fixed income securities. Both listed as Article 8 under the EU’s Sustainable Finance Disclosure Regulation (SFDR) and will consider issuer sustainability factors as an “integral” part of the research, incorporating an assessment of sustainability-related risks and opportunities into the investment process. “We have seen a growing appetite among European investors for flexible credit strategies,” said Richard Ford, MSIM’s Co-Head of Broad Markets Fixed Income. “Both funds seek to provide investors with a flexible, active approach and we believe they will help to deliver strong risk-adjusted returns over the medium and long term for our clients.” 

EU Fit for 55 Package to “Kickstart Wave of Climate Litigation”

A report by the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science has projected that the EU’s ‘Fit for 55’ decarbonisation package will lead to a “growth in climate litigation cases”. The report said that much of the litigation will likely involve “challenges to government action or inaction”. Fit for 55 encompasses a collection of measures aimed at keeping the EU on track to deliver on its 2030 climate target of 55%. The report predicts the four main types of litigation cases they expect to be filed over the coming years after the Fit-for-55 is adopted, which includes: litigation focused on the extension of the European Union Emissions Trading System, ‘government framework’ litigation, just transition’ litigation and disputes over what constitutes renewable energy. The report’s authors said that there is “a high likelihood that states may be involved in litigation, as both defendants and plaintiffs, particularly as civil society activists seek to ensure that national level policies and action are as ambitious as possible, and as controversies over the type and nature of new energy technologies continue to play out”. 

IIGCC Issues Final Net Zero Infrastructure Guidance

The Institutional Investors Group on Climate Change (IIGCC) has published guidance for investors on aligning and managing their infrastructure portfolios with net zero. It can be used by both multi-asset and specialist infrastructure investors, the IIGCC said. The guidance allows investors to assess alignment based on six criteria, including whether targets cover all scopes of emissions. It also outlines credible portfolio coverage targets and how the percentage of AuM aligned with net zero will increase over time. Signatories of the Net Zero Asset Managers initiative (NZAM) referred to the guidance in their latest target-setting, with the IIGCC now encouraging asset owner signatories to Paris Aligned Asset Owners to utilise the methodology to meet the requirements of the initiative. The final guidance follows an investor-led consultation launched in 2022 and is also aligned to IIGCC’s Net Zero Investment Framework (NZIF). “We know that decarbonising infrastructure globally will be vital if we are to deliver net zero and that within this context investors have a pivotal role to play, not least owing to the level of investment held in the asset class,” said Stephanie Pfeifer, IIGCC’s CEO. The IIGCC has also announced that it will be leading the second phase of the development of the Physical Climate Risk Assessment Methodology (PCRAM), which was formally launched in September by Mott MacDonald and the Coalition for Climate Resilient Investment. The methodology aims to help infrastructure owners and operators to evaluate physical climate risks and analyse long-term impacts. The PCRAM 2.0 workstream led by the IIGCC will commence in April. “In addition to the pursuit of net zero, due to its unique characteristics, infrastructure is arguably the most important asset class to build resilience into at the same time,” said Pfeifer.  


AUM in Action

Storebrand, NBIM Acquire German Offshore Wind Farm Stake 

A consortium of Denmark-based AIP Management, Storebrand Asset Management’s strategic infrastructure partner, Norges Bank Investment Management (NBIM), and Allianz Capital Partners (ACP) have acquired 49.9% of Germany’s largest planned offshore wind farm. He Dreiht is a construction-ready 960 megawatt (MW) offshore wind farm in the German North Sea and is expected to be operational by the end of 2025, producing clean energy equivalent to the electricity demand of over one million German households. Storebrand Infrastructure Fund is investing more than NOK 1 billion (US$96.4 million) in the transaction. NBIM’s stake is 16.6% for which it will pay approximately €430 million (US$467.7 million), with the total value of the project estimated to be €2.6 billion (US$2.8 billion). The seller of the wind farm interest is German utility firm EnBW that developed the project and will remain co-owner and operator of the project. Jo Gullhaugen, Head of Infrastructure at Storebrand Asset Management, said: “He Dreiht represents an attractive combination of key infrastructure characteristics and meaningful impact on the path to net zero. The wind farm is expected to produce clean energy for more than 1.1 million households, and long stable cash flows provide characteristics we consider attractive in a balanced portfolio.” 

BSI, Defra Establishes Nature-based Standards Framework

The British Standards Institution (BSI) has announced the launch of a new Nature Investment Standards Programme in partnership with the Department for Environment, Food and Rural Affairs (Defra), starting with a discovery phase. The framework aims to build confidence in nature markets and guard against greenwashing. It forms part of a suite of interventions the UK government is putting in place as part of its much-anticipated Green Finance Strategy. This will ultimately help to accelerate progress on environmental goals such as reversing biodiversity loss and achieving net zero. The programme is designed to overcome barriers to investing in nature and the services it provides, including addressing the lack of standardised, transparent data. The programme will drive a consistent approach and provide a benchmark for industry codes to be recognised as sufficiently robust and credible. Scott Steedman, Director-General of Standards at BSI, said: “Enabling high integrity nature markets can help build confidence, attract investment, and empower land managers and other stakeholders to deliver projects that can achieve meaningful environmental impact. This is important at a time when these markets are emerging, to guard against greenwashing, and has the potential to offer substantial benefits to society.”

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.

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