Daily ESG Briefing: Bank of England rejects idea of ‘greening’ capital requirements

The latest developments in sustainable finance

The Bank of England (BoE) has said that the UK government must define sector-level Net Zero pathways before climate factors can be incorporated into banking capital requirements. In a submission to the UK Parliament, the supervisor argued that capital requirements should not be used as a tool for greening  the economy without such guidance as it “cannot substitute for government climate policy”. In addition, other tools such as carbon taxes, emissions trading schemes and regulations are better suited to the task, said the BoE.

Carbon markets veteran Louis Redshaw has launched a company called Net Zero Markets, “to provide offsetters with a genuine path to Net Zero”. Over coming months, the London-based venture will launch new types of carbon offsetting products to “combine transparency, commoditization and two-way pricing”. Redshaw established Barclay’s Environmental Markets team back in 2004 and helped create the mainstream standard for carbon offsets. “I’ve been consistently frustrated with the closed-shop nature of the global voluntary carbon markets,” he said. “Something that was set-up to slow down and reverse climate change, is simply not working as well as it should. The markets are hamstrung by a lack of commoditisation and information asymmetry, resulting in rampant price gouging at the expense of revenue heading to where it needs to: emissions reducing projects.”

The World Federation of Exchanges (WFE) has backed the inclusion of green revenues indicators in the revamped climate reporting guidance from the Taskforce on Climate-related Financial Disclosures (TCFD). According to the WFE, reporting green revenues would help investors to “build a holistic view of a company's approach to transition”, although it noted that companies would require the use of taxonomy frameworks to provide definitions for eligible green activities. The feedback was in relation to draft TCFD guidance on climate-related metrics, targets and transition plans.

London-based think tank Planet Tracker says that Vanguard’s acquisition of Just Invest is part of a “step change for pension funds and retail investors” when it comes to sustainable finance. Last week, the investment giant announced it will buy the $1bn index provider in its first ever acquisition. Just Invest specialises in direct indexing, which enables clients to customise indices more easily. “This approach permits a high degree of portfolio customization, providing advisors with the ability to personalise investment portfolios to reflect investors’ values and financial objectives,” said Planet Tracker, pointing to similar moves into the space from Morgan Stanley, Charles Schwab and BlackRock over the past year. “Sustainable investors should find this news encouraging.”

Japan’s Mizuho Bank has analysed the impact of reaching Net Zero on Japanese companies. A ‘Carbon Neutral Impact’ report, released in Japanese by the bank’s Industrial Research Department, assesses the implications of the climate transition on a number of sectors including Oil & Gas, transportation, real estate, food & agriculture, renewables, retail and electricity. 

The UK’s Treasury has conducted a five-year review of its gender diversity initiative, the Women in Finance Charter. It reveals that, since its launch in 2016, the average proportion of women has increased from 14% to 22% on executive committees across the UK finance sector and from 23% to 32% on boards. Based on the rate of progress, the report suggests that executive committees would on average reach gender parity in 2033, while boards would get there by 2029. 

A report from think-tank the Institute for Energy Economics and Financial Analysis shows that big investors committed more than $300bn to scaling renewable energy last year. This includes 10 banks across Asia and Europe – Sumitomo Mitsui, Mitsubishi UFJ, Mizuho Financial, Santander, CaixaBank, BNP Paribas, Societe Generale, Rabobank, Credit Agricole and ING – that between them financed $30bn in renewable energy projects in 2020. The biggest equity investors in the space are BlackRock, Amundi, Brookfield, Canada Pension Plan Investment Board, Caisse de dépôt et placement du Québec, Cubico Sustainable Investments and Global Infrastructure Partners.