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Increase in Tech Firms’ Sustainability Budgets

A report from London-based marketing services firm iResearch Services has shown global technology companies are earmarking larger budgets for sustainability issues and ESG projects. The report surveyed 550 technology business executives in 11 countries and showed 36% had between US$500,000 and US$1 million earmarked for ESG projects in 2021. This year, 31% have budgeted US$500,000-US$1 million or US$2-US$5 million on sustainability. Germany is currently the leading country surveyed on sustainability issues but is set to be surpassed by the UK in 2023, with British firms planning investment which would provide a substantial increase in average investments. Gurpreet Purewal, iResearch Services’ Vice President of Sales, said: “It is generally acknowledged that between two and three percent of greenhouse gas emissions globally are produced by IT issues, so it is an important factor in sustainability, particularly in tech companies that rely so heavily on IT.” 

ESG Bond and Loan Issuance Sees Strong Quarterly Growth Amid Yearly Decline

The Association for Financial Markets in Europe (AFME), a policy advocate firm, has published its Q2 2022 report outlining ESG bond and loan issuance from the last quarter. It noted a 16.5% increase compared to Q1, although the year-on-year volume declined 20.7%. ESG bond issuance, including ESG-labelled, sustainability-linked and transition bonds, represented 19.1% of total European bond issuance in H1 2022. The sustainability-linked bond market has decelerated in Q2, with a 47% year-on-year and a 59.3% quarter-on-quarter decline in issuance. ESG-labelled bond issuance remained fairly steady with a 6% year-on-year increase, which AFME accredits to a 47.9% year-on-year growth in the green bond segment. On carbon prices, the European Union Allowance price per metric tonne finalised H1 2022 at €88/Tn, an increase from €80/Tn at the end of 2021. Global ESG fund issuance decreased during Q2, with ESG-mandated funds totalling US$6.5 trillion, a 16.7% decrease from Q1 levels. AFME says the quarterly decline was primarily driven by valuation losses, with net outflows from ESG funds totalling US$37.5 billion in Q2, which is representative of less than 5% of the decline in the total amount of Global ESG funds. 

GFANZ Launches Net Zero Alignment Guidance

The Glasgow Financial Alliance for Net Zero (GFANZ) has published a report proposing new and enhanced guidance on measuring the alignment of financial institutions’ investment, lending, and underwriting activities with their net zero commitments. GFANZ is a coalition of financial institutions which have committed to aid the transition the global economy to net zero greenhouse gas (GHG) emissions. The consultation report’s proposed enhancements aim to address current gaps and accelerate progress toward the wider adoption of portfolio alignment metrics among financial institutions committed to supporting a 2050 transition. One key enhancement is an illustrative credibility framework to help assess emissions reduction targets and corporate net zero transition plans in order to project future GHG emissions of portfolio companies. David Blood, Senior Partner at investment management firm Generation Investment Management, said: “The proposed enhancements in today’s report should help provide financial institutions with the guidance they need to implement credible and easy-to-use tools to navigate the net-zero transition and make more informed business decisions.” 

Cautious Welcome for European Sustainable Reporting Standards

Trade body Eurosif and US$1 trillion sovereign wealth fund Norges Bank Investment Management (NBIM) have published their reactions to the European Financial Reporting Advisory Group’s (EFRAG) consultation on their European Sustainability Reporting Standards (ESRS). Eurosif, which represents investors and finance sector firms, was positive in its response, congratulating EFRAG on its development of an “ambitious and comprehensive” reporting framework based on “double materiality and encompassing the full spectrum of ESG”. NBIM was less positive overall, however. While the fund welcomed EFRAG’s “level of ambition” and the range of issues included in the ESRSs, NBIM suggested the draft standards need to be “further amended and simplified” for them to be “operationally practical” for reporting companies. The firm said EFRAG could further “prioritise and reduce” the number of disclosure metrics in its standards and focus on key information that is likely to be valuable for users. NBIM also proposed EFRAG could also modify some of its metrics to “ensure greater harmonisation of standards”. EFRAG’s ESRS consultation period closed on Monday 8 August and its final standards, to be used in the Corporate Sustainability Reporting Directive, are expected to be presented to the European Commission for approval in November.  

Asset Owners Increasingly Committing to Net Zero

A white paper by Cerulli says asset owners and managers are increasing their climate change mitigation efforts and prioritising risk reporting standards. Many institutional asset owners have pledged to net zero, with 44% in Asia, 43% in Europe and 32% in North America having made this commitment, according to the Boston-based global research and consulting firm. The paper found approximately four in five European institutional investors request energy transition risk and physical climate risk exposure data, while over three in five requested data on their portfolio’s carbon footprint. In North America, 38% of asset owners require climate risk reporting from managers and 34% plan to within the next two years. In Asia in the next two years the most requested data by asset owners will be security-level exposure to climate risk (74%), portfolio-level exposure to climate risks (69%) and scenario metrics for climate change (57%). Cerulli suggests within the next two years, asset managers should expect a “strong uptick in interest in measuring portfolio temperature”. David Fletcher, Cerulli’s Senior Editor, said: “Asset managers continue to face challenges and are seeking better quality data. We believe that institutional investors will be looking to partner with asset managers that offer strong expertise in climate risk assessment and reporting.” 

Firms Facing Circular Economy Challenges – Sage

A new survey by software development firm Sage has highlighted challenges for senior manufacturing and distribution industry leaders in the transition of their business operations to the circular economy (CE). The report noted that CE strategies are considered “a priority” for 84% of those surveyed, but two-thirds have yet to transform their operations accordingly. Respondents reported several barriers to implementing a CE strategy, with 71% citing difficulties finding employees with the appropriate area expertise. Further barriers include cost and budget limitations (68%) and challenges in updating technology integrations and processes (68%). Nonetheless, Sage added that 32% of organisations believe they will achieve benefits from incorporating a CE strategy within the next three years. Thirty-two percent of firms worldwide, and 43% of firms in North America, have experienced “significant benefits” from incorporating CE strategies, including “greater profitability and productivity to improved resource usage and an enhanced brand reputation”, the report said. Isaac Sacolick, Founder and President of StarCIO, a technology firm focused on digital transformation, said: “Organisations can overcome these barriers with innovative thinking. Recruiting from a wider talent pool to bring data and analytics skillsets into the fold will help manufacturers and distributors see the bigger picture.” 

UK Pay Inequality Gap Widening – CEBR

A report by the Centre for Economics and Business Research (CEBR) shows there is a growing gap in pay between high earners and low earners, while real pay growth for workers across all percentile levels is close to zero. Against the backdrop of a significant cost-of-living crisis, the report by the economics consultancy says employees in the 10th percentile have seen their wages rise by just 1% since January 2022. The CEBR says this has led to cases of “families making impossible choices” between food consumption and mortgage payments. Meanwhile, workers in the 99th percentile have seen an average annual pay growth of around 10%, with workers in the 50th percentile or above achieving at least a 5% average annual pay growth. Due to price inflation ranging between 5.5% and 9.4% over the first half of 2022, the majority of employees at all levels of the pay scale’s real pay growth is close to zero, although the report highlights this is especially damaging for workers at the lower end of the scale. This year has already seen rising opposition to executive pay rises, with investors becoming increasingly willing to challenge executive remuneration and businesses being pressured to pay workers fairly. The CEBR said: “Looking at the lowest earners, following higher pay growth over the past couple of years, their pay has flatlined in 2022. Problematically, this has coincided with record rises in the costs of essentials.” 

Energy Crisis Requires Short- and Long-term Response – UNCTAD

Governments must “mix urgency and strategy” in their response to energy price volatility to avoid “high-emission, expensive energy” in future, according to the United Nations Conference on Trade and Development (UNCTAD). The latest report from the UN’s Global Crisis Response Group (GCRG) on the global impacts of the war in Ukraine says developed countries should seek to manage energy demand via new technologies and behavioural changes, while developing countries will need to prioritise business access to energy to sustain their economies, but also support vulnerable populations. In parallel, governments should aim to attract investment to increasingly competitive renewable energy projects, also addressing supply chain bottlenecks and boosting resilience, to meet their 2030 sustainable development and climate commitments. The report notes that commodity prices are stabilising, but warns of increasing levels of acute food insecurity, further energy price volatility, stagflation risks and widening emerging markets sovereign bond spreads. It also calls for greater coordination between countries at forthcoming meetings of the UN General Assembly, IMF, World Bank and G20. “Climate finance in developing countries must be scaled up, through better carbon and sustainable debt markets and increased blended and multilateral finance”, the GCRG said.

 

US Senate Passes Inflation Reduction Act to Meet Climate Targets

US Vice-President Kamala Harries broke a 50:50 tie in the Senate last night, voting in favour of the Inflation Reduction Act. The legislation includes a planned US$369 billion investment in combatting climate change, strengthening energy security and creating jobs across domestic clean energy projects, including manufacturing solar panels, wind turbines and electric vehicles. The act will also limit healthcare costs and the national deficit. It is now slated to pass through the House before President Joe Biden can sign it into law. Ani Dasgupta, President and CEO of the World Resources Institute, said: “Major companies have rallied behind the Inflation Reduction Act because they see how it will create business opportunities and keep America competitive in the rapidly growing clean energy economy. This legislation isn’t a panacea for climate change – and no bill ever will be. US states, cities and the private sector all need to step up their efforts for the US to fulfil its climate targets and prove to the world that America stands by its word.”

Global Response to ISSB Draft Disclosure Standards

The International Sustainability Standards Board (ISSB) has welcomed hundreds of responses to its draft Climate and General Requirements disclosure standards. Over the 120-day comment period, the draft proposals – which aim to standardise sustainability reporting globally – received global feedback from a range of stakeholder groups, including investors (such as the Net Zero Asset Owner Alliance), regulators and standards-setters. The ISSB is now assessing submitted comments and will discuss the findings in its board meetings. Emmanuel Faber, ISSB Chair, said: “I am encouraged by the number of comments we have received on our proposals. Global solutions require collective action, and the feedback we have received provides a critical grounding on which to build sustainability disclosure standards that provide a global baseline for the capital markets.” The standards are expected to be finalised by the end of this year. 

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