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Commentary

Take Five: Nature Takes New York

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

The ‘Big Apple’ saw the launch of a critical initiative for nature-led investment.

Natural cycle – Centre stage at the start of New York Climate Week was given over to the unveiling of the final recommendations of the Taskforce on Nature-related Financial Disclosures. This marks the culmination of a highly collaborative and iterative process over many months, with multiple disparate parties feeding into the effort to build a framework that will help companies and investors come to terms with their risks, impacts and dependencies on nature. But, like night follows day, it also represents the start of new phase, in which the framework’s rough edges are smoothed and refined by practice, and regulators consider how best to turn this voluntary framework into mandatory rules, the better to meet their commitment to the goals of the Global Biodiversity Framework. If only there was some kind of forum available in the coming months where all parties could discuss the challenges ahead with like-minded peers.

Talks, then action – With just 15% of the Sustainable Development Goals on track, this week’s UN SDG Summit saw governments rally behind a political declaration that emphasised the need to close a yawning finance gap. They pledged to enact Secretary-General Antonio Guterres’ three-point SDG stimulus plan, which aims to direct US$500 billion per annum to SDGs by tackling the high cost of debt and rising risks of debt distress, “massively” scaling up affordable long-term financing for development, and expanding contingency financing to countries in need. The summit’s delegates and documentation admitted there was little new on the agenda, consensus having been reached on the need to reform the global financial architecture, but were consistent in their calls for “a political push to achieve sufficiently ambitious outcomes”. Enter Mia Mottley, Prime Minister of Barbados and architect of the Bridgetown Initiative, who offered HSBC CEO Noel Quinn the opportunity to put into action his ideas to reform the “too slow” processes of blended finance ahead of COP28.

Nine out of ten – Using home-field advantage in New York Climate Week, US Treasury Secretary Janet Yellen unveiled nine “voluntary” ‘Principles for Net-Zero Financing and Investment’, aimed at promoting “consistency and credibility” in the actions of financial institutions that have made net zero commitments. There is no shortage of reference frameworks for keeping finance sector firms on a straight and narrow path to net zero; and some might raise an eyebrow at guidance from a country that has done more than most to undermine the collaborative decarbonisation efforts of banks, insurers and investors. The nine principles are sometimes vague in their wording but also all-encompassing, suggesting nothing less than a wholesale integration of net zero ambition into every policy, procedure and process, but it’s not too much of a stretch to think of one more to round them up to a perfect ten.

What’s in a name? – Anti-greenwashing action returned on both sides of the Atlantic this week. The US Securities and Exchange Commission toughened the Investment Company Act’s ‘Names Rule’ to ensure ‘ESG’, ‘green’, ‘net zero’ and other sustainability-themed funds deliver on the labels. Those that like to read the small print before they buy will need to wait a little longer for new rules on the disclosures that US asset managers must provide to investors on how they integrate ESG factors. These are expected to also outline the buckets into which green funds will be categorised. Light and dark green funds are a thing of the past we assume, but those classifications may yet remain on the European high street, after green amendments were finalised this week to the Unfair Commercial Practices Directive and the Consumer Rights Directive, making firms think twice before they label their products ‘climate neutral’, ‘eco-’ or ‘biodegradable’ .

Car crash – If we’re being charitable, it could be argued that UK Prime Minister Rishi Sunak was practicing greenhushing rather than greenwashing, when he announced this week a relaxation of his government’s efforts to achieve net zero carbon emissions by 2050. Central to the statement was the decision to push back a ban on the sale of new petrol and diesel cars to 2035, bringing the UK into line with the European Union, but passing up the opportunity to establish itself as a pioneer in electric vehicle manufacture. The UK government later confirmed that fines would still be in place for manufacturers not meeting EV sales quotas, despite the ban deadline revision, which somewhat diminishes consumer incentives. Investors looked to the big picture, noting the damage that uncertainty would do to green investment inflows, which are already falling behind Europe. By putting distance between himself and political opponents, Sunak also seems to be joining the ‘anti-green growth coalition’.

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