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Take Five: TCFD Passes the Baton

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

This week saw one climate risk disclosure initiative bow out while another laid down an important marker for the net zero transition.

End of an era – The Task Force on Climate-related Financial Disclosures (TCFD) has issued its final annual status report on adherence by corporates and financial institutions to its recommended disclosures on climate risks, one of its final acts ahead of being fully subsumed by the International Sustainability Standards Board, which released its climate risk disclosure standard in June. The key takeaways reveal that 58% of companies now disclose in line with at least five of the TCFD’s 11 recommended disclosures (up from 18% in 2020), while nearly 70% of the largest 50 asset managers and 36% of the leading 50 asset owners disclosed in line with at least five of the recommended disclosures. The report also lists the current status of implementation of TCFD-aligned reporting in jurisdictions from Thailand to Switzerland to Canada. The TCFD makes it clear that it is passing on the baton rather than laying down its tools at the end of the job. It points out that climate disclosures are still a rarity in mainstream financial reporting – TCFD-aligned reporting is four times more likely to be disclosed in sustainability and annual reports than in financial filings. It also calls for successors to “continue driving progress”, particularly on physical risk assessment and adaptation planning, climate-related scenario analysis, and Scope 3 GHG emissions measurement, as well as decision-useful disclosure on other environmental and social topics. The extent of the TCFD’s contribution to addressing the climate crisis will be debated, but it has held up a mirror to the climate ambitions of the private sector and provided a blueprint for others to follow.

Depending on the detail – One of the initiatives building on the work of the TCFD is the Transition Plan Taskforce, which this week published its finalised disclosure framework, intended to provide investors with much-needed transparency on the future net zero pathways of investee firms. How companies move from net zero commitments to business models that embed carbon neutrality is a critical and controversial topic, not to mention an investment opportunity for those that can separate the leaders from the laggards. While a core aim of the TPT framework is to deliver consistent and comparable transition plans across portfolios, much of the value to investors will depend on sector-specific detail, making the TPT’s consultation on decarbonisation levers across 40 industries (open until 24 November) a key part of the process.

Counting the cost – The impact of the anti-ESG backlash is widely debated by sustainable investment professionals, including at a thoughtful session at last week’s PRI in Person 2023 conference. This week brought further evidence of its cost, with an analysis from Morningstar which suggested that support for ESG proposals at large US firms in the 2023 proxy voting season would have been higher without the votes of the ‘big three’ passive investment houses. Specifically, Morningstar calculates that several resolutions would have achieved majority adjusted support, including proposals on lobbying, climate, and workplace issues at Apple, Boeing, Chevron, and IBM, each of which had the potential to drive positive change. While State Street on average increased its support for ESG-related proposals over 2022, both BlackRock and Vanguard’s support declined, with the former citing a fall in resolution quality, claiming “so many proposals were overreaching, lacking economic merit, or simply redundant”. But at a time when other asset managers are strengthening their support for ESG-related resolutions, it’s hard not to see the influence of the anti-ESG lobby, which have targeted both Vanguard and BlackRock, the latter to the extent that CEO Larrry Fink has foresworn use of the term.

California Über Alles – Not content with leading the US toward rigorous mandatory climate reporting, California’s politicians have now turned their attention to curbing e-waste, by this week signing off on “the nation’s most sweeping electronics device repair legislation”.  Backed by HP and Apple, but interestingly not by trade associations, the bill requires manufacturers to support the repair of many consumer electronics devices for up to seven years after production. In this instance, the US’ most populous state is not the first to pass a consumer electronics repair law – both New York and Minnesota’s laws also become effective next year – but California’s status as home to Silicon Valley adds extra weight and momentum to the growing worldwide movement to extend producer responsibilities beyond the checkout.

Learning the three Rs – Following the UN General Assembly and Group of 20 leaders’ summit in September, this week sees another key date in the international development calendar with the World Bank Group – IMF Annual Meetings taking place in Marrakech. Resilience, reform and reinvigoration of global cooperation are on the agenda, reflecting the increasing pressure on multinational development banks – from the Bridgetown Initiative and Summit for a New Global Financing Pactto innovate and overhaul to address gaps in SDG funding and climate finance. A joint leadership statement made all the right noises, including a further commitment on ‘Accelerating the green transition’, but a new ‘reform tracker’ tool from the Center for Global Development underlined the size of the challenge, describing progress as “limited”.

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