ESG Investor Live

Investors Call on Firms to Support Human Rights in Ukraine

Companies should take “immediate steps” to align their operations with international frameworks to protect human rights in response to Russia’s invasion of Ukraine, according to asset owners and managers responsible for more than US$1.7 trillion in assets. Firms with business activities or business relationships in Ukraine, Russia, and Belarus or other conflict-affected and high-risk areas should follow the UN Guiding Principles on Human Rights and Business and the OECD Guidelines for Multinational Enterprises, said a statement issued on behalf of 56 organisations. “Russia’s human rights abuses and violations of international law have manifested in salient and material risks that should compel investors to take measures to help protect both the rights of the Ukrainian people and the integrity of our investment portfolios,” said the statement, supported by investors and their representatives, including AP Pension, Robeco, Schroders, Storebrand Asset Management and Wespath Benefits and Investments. Among the recommended actions, firms were encouraged to report “regularly and publicly” on their human rights policy, including due diligence efforts and procedures in place to cease, prevent, and mitigate negative human rights impact. “It is a moral, legal, and financial imperative for the private sector to take action and demonstrate leadership by supporting the human rights of the Ukrainian people, their democracy, and their struggle for peace and security,” the statement said.

Investors Spend US$1.3m to Assess Firms’ Climate Risks

Institutional investors typically spend US$1,372,000 annually to collect, analyse and report climate data to inform their investment decisions, according to a new survey. The poll, conducted by sustainability consultancy ERM for US investor network Ceres and Persefoni, a SaaS-based climate management and accounting platform, also found that corporate issuers spend US$533,000 per year to produce climate-related disclosures – almost exactly in line with the US$530,000 estimated by the Securities and Exchange Commission as the cost of compliance with its proposed climate disclosure rule. Asked to rate the potential benefits of climate-related disclosures and impact assessments, investor respondents ranked meeting client demand for climate disclosures highest, followed by better performance in meeting sustainability, climate, ESG and SDG goals. Investors spent most on external ESG ratings, data providers and consultants (US$487,000 per year), in-house / outside counsel, and proxy solicitor analysis of shareholder voting related to climate reporting (US$405,000), and internal climate-related investment analysis (US$357,000).

IEA Urges ASEAN Countries to Accelerate Transition to Net Zero

The ten member economies of the Association of Southeast Asian Nations’ (ASEAN) continued reliance on fossil fuels is proving to be a “significant vulnerability in today’s energy crisis”, according to the International Energy Agency’s (IEA) Southeast Asia Energy Outlook 2022. ASEAN members include Cambodia, Indonesia, Malaysia and the Philippines. IEA’s outlook said that these are some of the world’s fastest growing economies, noting that their accelerated transition to low-carbon operations and products would provide greater business and investment opportunities. The IEA has called on ASEAN countries to make “major efforts” to improve their energy efficiency, implement renewable power generation and switch to low emission fuels. “Southeast Asia is an emerging heavyweight of global energy, and the speed of its economic development makes it even more essential that the region’s governments hasten efforts to transition to sustainable energy and that they get the international support they need to do so,” said Fatih Birol, IEA’s Executive Director.

UK Asset Manager Says it Cannot Back Shell Transition Plan

Royal London Asset Management will abstain from voting on Shell’s climate transition plan at the energy firm’s AGM, despite acknowledging “considerable progress”. “There is not enough certainty in the plan that it aligns with the goals of the Paris agreement and the global necessary efforts to constraint temperature increases to below 1.5°C,” said Carlota Garcia-Manas, Head of Engagement, saying the decision reflected the £164 billion AUM asset manager’s net zero engagement strategy, upgraded as part of its commitments as a member of the UN Net Zero Asset Managers initiative. Garcia-Manas went on to note the Shell plan’s reliance on nature-based offsets and divestments, as well as its intention to conduct new oil and gas exploration, which deviates from the International Energy Agency’s Net Zero by 2050 pathway. “We will continue our engagement on those topics, as we would like to see more stringent short and medium-term targets that seek to reduce emissions in absolute terms and for all emission scopes, including Scope 3,” she said.

UK to Consult on Carbon Border Adjustment Mechanism

The UK government will consult this year on the possible introduction of a carbon border adjustment mechanism to prevent carbon leakage, ie the displacement of production and associated C02 emissions between jurisdictions due to differences in carbon pricing and related climate regulations. The consultation will cover the suitability of a range of carbon leakage mitigation options in the context of the existing UK policy mix, according to a statement made by Lucy Frazer, Financial Secretary to HM Treasury. “The best way to prevent carbon leakage would be for all countries to move together in pricing, regulating, and therefore reducing carbon emissions. We are strongly committed to working with our international partners to develop a common global approach to carbon leakage,” said Frazer, noting that domestic action also needed to be taken given the time required to develop multilateral solutions. The announcement was welcomed by Chris Stark, CEO of the Climate Change Committee.

Near-term Economic Impacts of Climate Change “Harder to Ignore”

The UN Environment Programme Finance Initiative and UK-based think tank National Institute of Economic and Social Research (NIESR) have published a report exploring short-term climate-related shocks for financial actors with macroeconomic models. This report features three climate-driven macroeconomic shock scenarios – a sudden rise in the carbon price, an oil price hike and a trade war – developed by UNEP FI and NIESR as part of UNEP FI’s Taskforce on Climate-related Financial Disclosures (TCFD) Programme. The report notes that macroeconomic impacts caused by climate change may create significant credit, market, and operational risks for financial institutions, warning also that “near-term impacts are becoming ever harder to ignore”. “The interconnectedness of the global economy means climate-related impacts in one area can have ramifications across the world,” says the report. “Near-term transition risks can also create systemic instability as many incumbent industries, such as fossil fuels, will face existential changes.”

Sharma Calls for Increased Determination on COP26 Commitments

COP President Alok Sharma will tell world leaders that “current crises should increase, not diminish, our determination” to honour commitments made at COP26, during a speech today at Glasgow’s Scottish Event Campus to mark six months since the conclusion of COP26. Sharma is expected to stress the urgency of countries fulfilling promises made at COP26 and that the global community must move much faster in taking climate action over the next six months, than over the last. He will also remind countries that the Glasgow Climate Pact signed at COP26 commits countries to “revisit and strengthen” their nationally determined contributions during 2022. Sharma recently co-chaired the May Ministerial Meeting on Implementation in Copenhagen, at which over 40 countries renewed their efforts to deliver commitments and pledges made at COP26 and within the Glasgow Climate Pact. Today’s event also sees the publication of the COP26 Sustainability Report detailing the legacy of COP26 on the city of Glasgow.

2022 Sustainable Bond Issuance Could Stall – Moody’s

Sustainable bond issuance may only repeat last year’s US$1 trillion volumes in 2022, after market headwinds suppressed Q1 activity. According to Moody’s, global issuance of green, social, sustainability and sustainability-linked bonds totalled US$203 billion in Q1 2022, down 11% from Q4 2021 and 28% lower than Q1 2021. Moody’s said the impact would only be temporary, citing the need for climate mitigation and adaptation financing, accelerated decarbonisation efforts to achieve net zero goals, growing regulatory attention on sustainability “and a continued focus on the interconnectedness of environmental and social objectives”. Earlier this week, the Association for Financial Markets in Europe reported Q1 2022 ESG bond and loan issuance in Europe down 32.4% from Q1 2021 and 27.2% below Q4 2021 issuance, but noting that sustainability-linked bonds backed the trend. Overall, ESG bond issuance represented 14.1% of total European bond issuance during Q1 2022, falling from 19.5% in 2021.

Regulation Outstripped by Industry Practice Ahead of COP27

Ahead of COP27 in Egypt later this year, law firm Herbert Smith Freehills (HSF) has published the ‘Halfway to COP27‘ report, which reviews governments’ climate ambitions six months on from COP26. The report recognises that the effects of climate change will be different around the world, and that policy, regulatory and legislative responses will therefore differ between countries, but collaborative global action is necessary to align with a 1.5°C. The EU and UK continue to lead the way on the regulatory front, HSF said. “At COP26 the business world was invited to the negotiation table and showed it would not be slowed by governments’ inability to reach consensus and provide the legislative guidance which has been requested of them over the past decade. With industry standards increasingly exceeding legal compliance, governments and legislators must play catch-up with a world that wants to transition to net zero,” the report noted.

UK Government Consults on Green Finance Strategy

The UK government has issued a Call for Evidence supporting its proposed updates to the ‘Green Finance Strategy’, which will be published later this year. Respondents have until 22 June. The Green Finance Strategy, originally published in July 2019, aims to support the financial services sector as it aligns with the country’s net zero commitment, captures investment opportunities during the climate transition, and mobilises private investment at scale to support sustainable growth. As part of the strategy, the government has set out plans for a Net Zero-aligned Financial Centre, mandated Task Force on Climate-related Financial Disclosure-aligned reporting, and setting out a roadmap for Sustainable Disclosure Requirements (SDRs). “The UK government is committed to ensuring the UK continues to be at the forefront of the rapidly growing market for global green finance. Achieving net zero, adapting to climate change and restoring nature will see fast growth in green financial products and services to support these objectives, presenting a significant opportunity for UK business,” the document said.

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