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UK Proposes ETS Expansion

The UK Emissions Trading Scheme Authority has unveiled a package of consultations proposing the expansion of the country’s Emissions Trading Scheme (ETS). The ETS currently applies to the aviation, power and industry sectors, but the consultations suggest it should be extended to include the energy-from-waste and waste incineration sectors. In addition, the authority is consulting on how engineered greenhouse gas (GHG) removals, such as carbon capture, could be integrated into the system and whether high-quality nature-based removals could be suitable for the scheme. “These consultations deliver on our commitments to provide further clarity on the expansion of the UK ETS,” said a joint statement penned by UK ETS Authority ministers. “The consultation covering waste emissions will help bring certainty to drive investment in decarbonisation, as well as help businesses make the necessary preparations for the expansion of the scheme. For GHG removals, this is an important step towards building a thriving market in the UK.” The consultation on waste is open to feedback until 18 July, while the one on engineered GHG removals will close on 15 August. These will be followed by two papers considering the expansion of the UK ETS into the domestic maritime sector from 2026, and how the scheme would recognise non-pipeline methods for moving capture carbon into storage by road, rail or shipping.

Schroders Launches Impact Equity Fund

British asset manager Schroders has launched a European Impact Equity strategy in response to demand from institutional investors. The fund will invest in European listed equities that are “are actively contributing to advancing the UN Sustainable Development Goals (SDGs)”, the group said in a statement. Leon Howard-Spink and Paul Griffin will manage the fund, named Schroders ISF European Equity Impact. The vehicle will be classified as Article 9 under the EU Sustainable Financial Disclosure Regulation (SFDR) – the top sustainability classification reserved for financial products with a primary sustainable investment objective. The fund will use Schroders’ existing impact framework, which was developed with BlueOrchard. Griffin said the fund would not only aim to invest in companies making a positive impact, but also actively support their journey towards sustainable development. “By working closely with companies, we can drive meaningful change and contribute to a more sustainable future,” he added. “Schroders’ comprehensive impact framework identifies innovative European companies that align with SDGs,” said Howard-Spink. “By integrating impact considerations into our stock-picking approach, we believe we can deliver a positive societal impact whilst aiming for attractive long-term returns for our investors.”

 

 

Fund Solutions

Eurazeo Adds Planetary Boundaries Fund

French investment group and asset manager Eurazeo has launched the Eurazeo Planetary Boundaries Fund (EPBF), a thematic impact buyout vehicle aiming to reverse or adapt to the overstepping of planetary boundaries. The Stockholm Resilience Centre describes the concept of “planetary boundaries” as humanity’s safe operating space within Earth’s ecological limits. The EPBF will have a target size of at least €750 million (US$812.2 million), with an investment strategy focusing on two core themes: boosting a regenerative and circular economy, and championing solutions for transition and adaptation. The fund will invest in small to mid-market companies, primarily in Europe, in order to scale them up through ambitious buy-and-build strategies, in sectors including agriculture and food, water management, and low-carbon energy. Eurazeo has €35 billion in AUM invested across more than 600 companies. “For several years, the concept of planetary boundaries has been a central concern of mine. The ongoing impact revolution presents numerous opportunities for forward-thinking investors,” said Sophie Flak, Member of Eurazeo’s Executive Board. “Our EPBF approach allows us not only to tackle large-scale issues that reach beyond climate change, but by merging science and business, [to] empower investors to address the most pressing challenges of the transition to a circular and regenerative economy.”

AUM in Action

JP Morgan, Morgan Stanley Shareholders Push for Better Disclosures

Investors at JP Morgan and Morgan Stanley voted on several proposals at the banks’ AGMs this week, calling for stronger transparency on energy financing and impacts on indigenous peoples’ rights. A resolution filed at Morgan Stanley by New York City (NYC) Comptroller Brad Lander and public pension funds requested annual disclosure of the bank’s clean energy supply financing ratio, receiving 23% of support. At JP Morgan, a resolution requested a report on the effectiveness of policies for respecting the rights of indigenous people in regards to financing decisions, receiving 30.4% of support. Last year, the two institutions faced several climate-related shareholder proposals calling for progress on implementing their climate and human rights commitments. Investors showed strong support on similar resolutions at other major US banks this AGM season. In the lead up to it, Citigroup, JPMorgan Chase and Royal Bank of Canada agreed to disclose their relative levels of financing for low-carbon energy versus fossil fuels in response to shareholder resolutions filed by the NYC comptroller and three NYC pension systems. However, Bank of America, Goldman Sachs and Morgan Stanley failed to reach similar agreements. Lander has consistently emphasised the need for banks to increase financing for low-carbon energy, and decrease financing for fossil fuel expansion in order to align with the Paris Agreement. Last year, he filed a proposal at JP Morgan asking for the disclosure of 2030 absolute greenhouse gas (GHG) emissions targets for the bank’s energy portfolio, receiving 12% of support. “This week’s results at JP Morgan and Morgan Stanley are a decisive conclusion to this year’s bank AGM season, demonstrating that investors are serious about pushing banks to deliver on their climate commitments,” commented Adele Shraiman, Senior Strategist for the Sierra Club’s Fossil-Free Finance campaign.

Green Bonds

Emerging Market Green Bonds Rebound

Green bond issuance in emerging markets grew by 34%  to US$135 billion in 2023, a joint report by the International Finance Corporation and Amundi Asset Management has shown. China remained the largest emerging market green bond issuer, with US$89.1 billion worth of bonds last year. Meanwhile, issuances across the broader category of global green, social, sustainability and sustainability-linked (GSSS) bonds in emerging markets reached a record US$209 billion. Across all markets, GSSS issuances exceeded US$1 trillion, equalling the all-time high of 2021 after a dip in 2022. GSSS bonds accounted for 2.5% of global fixed income issuance, up from 2.2% in 2022. IFC and Amundi said the improvement year-on-year could be attributed to better economic conditions and to “governments and companies stepping up efforts to confront climate challenges in developing economies”. They predicted growth across GSSS and green bonds would exceed 7% in 2025. “Financing sustainable projects in emerging market economies will require deeper capital markets to fund economic and energy transitions,” said Susan Lund, Vice President for Economics and Private Sector Development at the International Finance Corporation. “To achieve these goals, substantial efforts must be made to ensure continued growth in the GSSB bond market, including enhancing regulations and standardising best practices,” she said.

 

US Investors not Breaching Fiduciary Duty

An independent legal memo has found that investors or companies joining collaborative climate groups such as the Net Zero Asset Managers initiative while making independent investment choices are at “negligible risk” for antitrust claims. The analysis by law firm Jenner & Block specifically addressed a letter signed by 21 US Republican state attorneys-general that was issued to asset managers and owners, warning that their consideration of climate factors risked breaching their fiduciary duty, antitrust rules and securities laws. The memo argued that investors’ consideration of climate risk in investment decision-making, company engagements, proxy voting and investor collaborations was unlikely to constitute a breach. The legal theories outlined in the attorneys-general letter were unlikely to succeed in litigation, the law firm added. “These authoritative analyses should provide confidence to investors, asset managers, asset owners, companies, and other actors within the financial system who are facing highly politicised scrutiny because of climate considerations,” said Maria Lettini, CEO of US SIF. “This confirmation is much needed for shareholders who have faced punitive backlash from state policymakers. This is another instance of politicians inappropriately interfering with asset managers’ fiduciary duty to evaluate risk and act in the best interest of investors.”

Fashion Commits to Circular Economy

Global fashion brands including H&M, Primark and Zalando have joined a new initiative convened by the Ellen MacArthur Foundation to promote circularity in the sector. Launched at the Global Fashion Summit in Copenhagen this week, the Fashion ReModel initiative aims at scaling business models that do not rely on selling new items, encouraging repair and resale instead. Participating companies will trial business offerings that decouple revenue from the production of new garments, prioritising rental, upcycling and maintenance or customisation. They will then present findings to policymakers, with hopes that this will provide learnings on successfully scaling such business models. Several participants brands have already tested circular models – including H&M, which has been offering in-store garment rental in Sweden since 2019 and in the UK since 2022. However, the sale of new items still predominates. “In order to challenge conventional linear models and create a new normal, brands must decouple revenue from production by accelerating efforts to redesign the products of the future, as well as rethinking the services and business models that deliver them to customers and keep them in use,” said the Ellen MacArthur Foundation’s Fashion Lead Jules Lennon. “The fashion industry is rooted in reinvention and we welcome business-led action towards a world where, instead of being worn once and discarded, clothes can be used many more times and threaded through the lives of more people.” None of the world’s 11 largest fashion brands publicly share data on the number of items they produce and sell each year, according to global advocacy group Stand.Earth. Ellen MacArthur believes circular options could take up to a quarter of the fashion market share by 2030 with the right support from businesses and policymakers. Separately, the foundation announced this week a partnership with marketing data and analytics company Kantar to develop and promote circular economy as a solution to global challenges including climate change, biodiversity loss, waste, and pollution.

AUM in Action

Climate Takes Spotlight at Brunel

UK-based asset owner Brunel Pension Partnership has published its latest responsible investment and stewardship outcomes report, evidencing a further focus on climate. Brunel’s work is structured around seven priorities: biodiversity and nature, circular economy and supply chain management, climate change, cyber, diversity, equity and inclusion, human rights and social issues, and tax and cost, transparency and fairness. Last year, Brunel voted at 99.8% of meetings, engaged with 805 companies, and undertook 121 public policy interactions. Engagements included dialogue with more than 600+ companies specifically on climate, and Brunel has committed nearly £1 billion in capital to sustainable infrastructure. The pension partnership has also driven new work on alignment between asset owners and managers on climate stewardship. Next month, it will also share a climate progress report, demonstrating how that measured up against the 2023-2030 policy targets it set last year. “The many examples in this report highlight our continued commitment to work in partnership with our managers and peers to raise the bar on impactful stewardship,” said Vaishnavi Ravishankar, Head of Stewardship at Brunel. “Stewardship by nature isn’t high-profile. It occurs during regular meetings and through diligence of approach, and it is great to have this annual opportunity to demonstrate the impacts it had in 2023.”

Rio Tinto Sued Over Mine Pollution 

Residents of the Papua New Guinean island of Bougainville have launched a class action against mining giant Rio Tinto over alleged environmental and social harm caused by its now-closed Panguna Copper Mine. The class action will seek billions of dollars in damages from Rio and Bougainville Copper on behalf of over 3000 local residents of the island, lawyers leading the lawsuit said in a statement. The Panguna Copper mine closed in 1989 at the outbreak of civil war. The lawsuit alleges that Rio and Bougainville Copper failed to safely dispose of waste from the mine, and that the tailings have since polluted waterways and damaged the local environment. In a letter to Rio Tinto CEO Jakob Stausholm, members of the class action said “toxic chemicals” from the tailings “pollute once pristine forests and rivers, endangering biodiversity”. The letter claimed “entire villages” had been destroyed or forced to relocate, and pollution had undermined “our people’s access to reliable sources of food and fresh water and to the natural habitat. The letter asks Rio Tinto to clean up the mine area and river valley, and demands “adequate compensation for the 50 years during which the lives of our people have been harmed by the consequences of the mine”. 

Investment Industry Calls for 2025 Global ISSB Adoption

A new multi-stakeholder call to action has urged jurisdictions around the world to adopt the sustainability reporting standards developed by the International Sustainability Standards Board (ISSB) by 2025. The letter claimed that standardised reporting will allow the financial industry to allocate capital efficiently, accounting for sustainability-related financial risks and opportunities, and ensure governments and international organisations to also deploy the power of capital markets more effectively to achieve their own sustainability-related goals. It was coordinated by the UN-backed Principles for Responsible Investment (PRI) and supported by a number of asset owners and other industry groups. “Investors need comparable and high-quality ESG data from companies to consider sustainability risks and opportunities in their investment decisions,” said David Atkin, CEO of the PRI. “The ISSB’s first set of standards are a significant step in this direction, but their success relies on adoption across global markets.” The letter also highlighted the efforts of the ISSB to bring together existing standards bodies and approaches to limit fragmentation in sustainability reporting, ensuring a more interoperable baseline. “Climate change is a worldwide issue, and if we have differing rules in different regions, we risk slowing our progress in the transition to a low-carbon economy,” said Chris Ailman, Chief Investment Officer at the California State Teachers Retirement System. “We must improve sustainability-related financial information to help us manage the risks in our portfolio so we can protect the pensions of California’s public educators. The ISSB standards will help us accomplish this goal.”

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