May 2024 Newsletter

Hello and welcome to our May newsletter covering the latest stories and updates on ESG.

ESMA publishes ESG fund names guidelines

The European Securities and Markets Authority (ESMA) has issued final guidelines on the use of ESG terms in fund names; the guidelines will apply three months after publication of translations of the guidelines, with a further six-month transition period for managers of existing funds. ESMA categorises fund names into those using transition, social and governance-related terms; environmental or impact-related terms; and sustainability-related terms. All categories must meet an 80% investment threshold for environmental or social objectives and adhere to specific exclusions, such as companies involved in controversial weapons, tobacco, and those violating UN Global Compact principles. Additional exclusions apply to environmental or sustainability-related terms, including companies significantly involved in fossil fuels. Additionally, funds using transition or impact terms must ensure measurable social or environmental progress or impact. LINK

SFDR review consultation summary published by European Commission

The European Commission has collated responses to its Sustainable Finance Disclosure Regulation (SFDR) review consultation, which proposed changes including simplifying product disclosures and introducing product labels. There is broad support for the SFDR's objectives, however, opinions vary on the topic of its effectiveness. Respondents highlighted a need for greater consistency among various EU sustainable finance regulations, such as the EU Taxonomy, CSRD, and MiFID II. There was strong support for categorising products, but no preference on which criteria to use. The consultation revealed inconsistencies between different regulations, data gaps, and the SFDR's current use as a labelling regime rather than a disclosure tool. The initiation of further public consultations is likely prior to the implementation of any changes. LINK

UK Sustainability Disclosure Requirements implementation update

The UK Government has released an update on implementing the Sustainability Disclosure Requirements (SDRs). The update outlines the next steps for various elements of the requirements, including the SDR and Investment Labels regime, the endorsement of IFRS Sustainability Disclosure Standards, Transition Plan Disclosures, the UK Taxonomy, and Nature-related Disclosures. The SDR and Investment Labels regime was first published in November 2023 and includes implementation dates and a consultation on extending SDRs to portfolio managers and funds under the Overseas Fund Regime. The Government plans to assess the endorsement of IFRS Sustainability Disclosure Standards for use in the UK, with potential implementation starting in January 2026. The Transition Plan Taskforce has also developed a voluntary framework for net zero transition plans. Work on the UK Taxonomy is ongoing, with consultations and a two-year testing period expected before mandatory disclosures. LINK

Banks have given almost $7tn to fossil fuel firms since Paris deal, report reveals

Since the Paris Agreement in 2015, major banks have provided nearly $7 trillion to the fossil fuel industry, despite global commitments to limit warming to 1.5-2°C. The report "Banking on Climate Chaos" revealed that banks funded over 4,200 fossil fuel firms, with $3.3 trillion specifically for expansion. In 2023 alone, banks financed fossil fuels with $705 billion, $347 billion of which supported expansion efforts. US banks, led by JP Morgan Chase and Bank of America, were the largest contributors. European banks, including Barclays and Santander, also played significant roles. Detractors of the report argued that its methodology lacks detail on specific financing activities, while banks claim they support sustainable transitions. LINK

Sexism in the City: HM Treasury, Prudential Regulation Authority, and Financial Conduct Authority Responses to the Committee’s Sixth Report

On 14th May, the responses of HM Treasury, the Prudential Regulation Authority and Financial Conduct Authority to the Treasury Select Committee’s Sexism in the City report were published. The report, first published in March – see our summary here - examined progress on women’s roles in financial services, finding incremental improvements in senior positions but persistent issues. It reported a small reduction in the gender pay gap, however, sexual harassment and bullying remain prevalent, with firms handling allegations poorly. The report also provided 19 recommendations to enhance diversity and inclusion in the financial sector. The Treasury response did not hint at any ambition to expand the Women in Finance Charter and deemed it too soon to change pay gap reporting requirements. The Treasury also cited statistical and practical issues regarding mandatory reporting for smaller organisations and warned of unintended consequences which may arise from increasing pay transparency. Regarding NDA misuse, the Treasury acknowledged concerns and noted ongoing government action without introducing new measures. LINK

UK Chair to Oversee ISSB Implementation

Sally Duckworth has been appointed to lead the UK's Sustainability Disclosure Technical Advisory Committee (TAC), providing guidance on the implementation of International Sustainability Standards Board (ISSB) disclosures. The TAC, supported by the Financial Reporting Council, will meet monthly to analyse the ISSB's corporate reporting standards and their suitability for the UK. The committee, comprising Duckworth and 14 other members, aims to enhance sustainability and transparency in financial practices. The government has also issued guidance on UK Sustainability Reporting Standards to support the implementation of the ISSB's standards locally. LINK

If you’d like to know more or discuss any of the topics please get in touch.