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Take Five: Integrity Matters

A selection of this week’s major stories impacting ESG investors, in five easy pieces.    

The Bonn Climate Conference got under way this week by unveiling a new phase in accountability and transparency of non-state net zero commitments.

Pledges and plans – This was a potentially significant week in the fight against greenwashing, with UN Climate Change unveiling its ‘recognition and accountability framework’ – essentially a tool for monitoring and verifying the net zero pledges of non-state actors – at its Bonn Climate Conference. Following on from the Integrity Matters report issued at COP27 (“a how-to guide for credible, accountable net zero pledges”, according to UN Secretary-General Antonio Guterres), the framework “sets the principles of engagement, governance, and data management to achieve the aim of recognising leadership and ensuring greater accountability”, for individual entities as well as voluntary alliances, coalitions and initiatives, such as GFANZ. The framework is accompanied by a draft implementation plan to be used by entities to demonstrate in detail the Paris-alignment of their pledges. A UNFCCC portal will be a single source of information on the pledges and plans of non-state actors, once it has established a process to monitor and analyse net zero alliances and initiatives. Race to Zero, previously responsible for non-state campaigns, will partner with UNFCCC in the endeavour. The work begins in Bonn and initial results will be announced prior to, or at, COP 28, and updated on an annual basis “to provide public assurance” on progress.

Un-American activities – ESG themes were firmly on the US political agenda this week, both domestically and internationally (although it is still far from clear whether they have electoral resonance). Investors urged Congress to oppose state-level moves to prevent ESG factors from being considered by US public pension funds. The House Committee on Oversight and Accountability held a second round of ESG-related hearings in which Republicans voiced their reasons for concern, which included the argument that pursuing climate action was unconstitutional and undemocratic, as Congress had not ratified the Paris Agreement. Against this backdrop, two senators challenged the Securities and Exchange Commission’s efforts to align their climate-related regulations with international peers, on grounds that this would impose alien (i.e. European) rules on American firms. Green jobs are on the agenda for talks between US President Joe Biden and UK Prime Minister Rishi Sunak, but their discussions on the Inflation Reduction Act’s extra-territorial impacts were overshadowed by the unfolding ecological catastrophe inflicted on vast swathes of Ukraine, including agricultural land.

Staying the course – Before the US anti-ESG lobby set its sights on the members of Net Zero Insurance Alliance, leading members challenged investor-led engagement initiative Climate Action 100+. Six Republican representatives wrote to investor network Ceres and pension fund CalPERS, demanding documentation about their collaborative activities, having identified them as US agents of a globalist plot to save the world from CO2. At the time, Ceres CEO Mindy Lubber rebutted the claims, insisting investors were just carrying out their fiduciary duty to identify and manage material risks. “The economic case for action is stronger than ever,” she declared this week, still a global steering committee member, commenting on the release of CA100+’s plan for a new phase of action. The fact that CA100’s new programme – which focuses on implementation of corporate transition plans and increases responsibilities for ‘lead investors’ – will run to 2030 suggests Lubber and friends are not about to back down. It’s no accident, however, that the longest section of the press release announcing the new phase is the legal disclaimer.

Fork in the road – As the clock begins to run down on the present European Commission’s term in office, fears are rising over the fate of key policy initiatives, including those aimed at delivering a sustainable natural environment and food security. The International Union for Conservation of Nature wrote to President Ursula von der Leyen this week to express concern over its proposed Nature Restoration Law (NRL). The IUCN called its binding targets both “a central pillar” of Europe’s biodiversity ambitions and its Farm to Food strategy – another key element of which will be unveiled in September – as well as a “vital step” in the implementation of Europe’s commitments to the Global Biodiversity Framework. Having suffered defeat in recent European Parliament committee votes, the NRL risks being picked apart in trilogue discussions and is expected to face another key vote at the hands of the Environment, Public Health and Food Safety committee next week.

Ready to commit – Legislative change is essential to address nature-related risks, such as biodiversity loss, water stress and deforestation, especially given evidence this week that both asset owners and managers are currently still grappling with their responsibilities. Some leaders are coming out with clear strategies, but many investors are neither voting nor investing in line with the goals of the Global Biodiversity Framework. Identifying risks and impacts is a multi-faceted challenge in its own right, although help is at hand via the work of the Taskforce on Nature-related Financial Disclosures. But many investors know they must look beyond their portfolios too. As most lean toward engagement rather than divestment, not least because of the complexities of the latter, focus is needed perhaps as urgently at the policy level as much as the company level.

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