October 2023 Newsletter

Please see some ESG highlights from October below:

UK TPT publishes final recommendations on credible and robust climate transition plans

The UK Transition Plan Taskforce Disclosure Framework provides a set of recommendations to assist companies in various sectors in making high-quality, consistent, and comparable disclosures about their climate transition plans. These plans are vital components of annual reports, outlining how organizations intend to meet climate targets, manage climate-related risks, and contribute to the broader transition to a sustainable economy. The TPT Framework suggests disclosing a company's strategic climate ambition, its implementation and engagement strategies, governance arrangements, and financial plans. The UK government and FCA may make TPT disclosures mandatory, although reporting is unlikely to commence before 2026. In the interim, there are consultations and publication schedules for the TPT Sector Summary, as well as sector "Deep Dives" for specific industries, and a Forward Pathway to strengthen the ecosystem around transition planning. LINK

TCFD Publishes Final Report, Identifies Further Work Needed

The final Task Force on Climate-related Financial Disclosures (TCFD) status report finds several focus areas for future improvement. In fiscal year 2022, 58% of companies disclosed in line with at least five of the TCFD's 11 recommended disclosures, up from 18% in 2020. However, only 4% disclosed in line with all 11 recommendations. This compares with almost two thirds of asset managers for more than 5 recommendations and 15% for all 11 recommendations. Amongst asset managers, the report also finds that the more challenging areas for reporting are scenario analysis and target setting. For further insights into how asset managers are progressing with TCFD, see our article here. The report emphasizes the need for further progress and notes that climate-related financial information is more likely to be disclosed in sustainability and annual reports than in financial filings. LINK

ESG names and claims in the EU fund industry

The European Securities and Markets Authority (ESMA) released a report this month investigating the basis of greenwashing claims levelled at various datasets of EU funds. Through investigating a dataset of 36,000 funds with aget in touch cplease get in touchombined assets under management of EUR 13 trillion, the authors conclude that funds increasingly use ESG-related language in their names, and investors consistently prefer funds marketed as ESG and with ESG documentation. The authors also observe evidence of the fund industry adapting ESG communications depending upon whether documents are regulated or unregulated. LINK

ESG ratings: whose interests do they serve?

Kenza Bryan investigates the evolution of ESG ratings in an opinion piece in the FT. Drawing the conclusion that ESG ratings and ratings methodologies are facing increased scrutiny across Europe, Asia and the US, it is reported that lawmakers are considering a law that would require ESG rating agencies to disclose more about their methodologies, separate from consultancy arms, and register with authorities. Since ESG ratings help inform which stocks or bonds are included in sustainable investment funds, it is crucial that ratings are holistic and accurate regarding the criteria each rating claims to assess. LINK

AIMA Summary - AIMA Working Group Call on SFDR review consultation

Responding to an EU consultation on how SFDR should be changed for future use (including whether it should be transformed into a labelling regime rather than a disclosure regime as it was initially designed), AIMA proposes that Articles 8 and 9 be retained as labels. AIMA also notes that the prescriptiveness of SFDR disclosure templates lacks flexibility for explaining investment strategies and should be adjusted. Moreover, AIMA proposes the need to reform mandatory disclosures for Principal Adverse Impacts (PAIs) as some entities struggle with non-relevant PAI disclosures. Uniform sustainability disclosures across all products face opposition with AIMA members, and it was suggested that they should only apply when sustainability claims are made. An optional labelling regime aimed at retail investors was acknowledged, with debates on the number of labels and third-party verification. LINK

Global electricity grid must be upgraded urgently to hit climate goals, says IEA

The International Energy Agency (IEA) highlights the need for financial institutions to invest in a vast network of new electricity grids to meet climate goals. New findings by the agency warn that the equivalent of the entire global electricity grid must be added or upgraded by 2040 to achieve climate targets and ensure reliable power supplies. To meet national climate targets, global investment in energy grids must double to over $600 billion annually by 2030. As demand for electricity increases due to the adoption of low-carbon alternatives, financial institutions need to support grid development to facilitate the transition to clean energy. Delays in grid investment could prolong a reliance on fossil fuels, hindering climate goals. Improved coordination, planning, and the use of digital tools will be critical to the success of renewable projects and grid development. LINK

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