Daily ESG Briefing: BIS flags potential ESG price bubble while auditors say EU sustainable finance actions are “not enough”

The latest developments in sustainable finance

The Bank for International Settlements (BIS) has warned that a price bubble may be emerging in the ESG market, citing similarities between the rapid growth of ESG mutual funds and ETFs with the booming housing market prior to the 2008 financial crisis. According to the BIS, “there are signs that ESG asset valuations may be stretched” as evidenced by clean energy companies which continue to have price-to-earnings ratios well above “richly valued growth stocks”. The body called for continued monitoring of the ESG market but noted that better information on investor exposures was needed.

Separately, the BIS’s Basel Committee on Banking Supervision (BCBS) which is the global standard setter for the prudential regulation of banks, has said that it is developing a set of supervisory practices on climate-related risks which will be published for feedback in the next few months. The notice comes after BCBS published a series of analytical reports on the topic earlier this year. 

The European Court of Auditors (ECA) has called for more consistent EU action on climate, saying the EU isn’t doing enough to stimulate sustainable investments and “address the environmental and social cost of unsustainable economic activities”. In a 77-page report published yesterday the ECA made a number of recommendations, for example that the EU Taxonomy criteria and the Do No Significant Harm principle should be applied consistently across the EU budget. “The EU’s actions on sustainable finance will not be fully effective unless additional measures are taken to price in the environmental and social costs of unsustainable activities,” said Eva Lindström, the Member of the European Court of Auditors responsible for the report. “Unsustainable business is still too profitable. The Commission has done a lot to make this unsustainability transparent, but this underlying problem still needs to be addressed.” A European Commission spokesperson told RI it has published a response to the report that “partially or fully accepts the various recommendations made by the Court”. The spokesperson added “the Commission has already integrated, wherever possible, aspects of the Taxonomy Regulation into the EU budget.” 

UK competition watchdog the Competition and Markets Authority (CMA) has given businesses until the end of the year to stop exaggerating the environmental credentials of their products, or greenwashing. To help improve the accuracy of green claims by businesses, the CMA has today published the Green Claims Code which is based on existing consumer law. The CMA will carry out a full review of possible greenwashing instances from the start of 2022.

Local Pensions Partnership Investments (LPPI), one of the UK’s eight local authority pension pools, has committed to reaching Net Zero greenhouse gas emissions by 2050. The £21.5bn LPPI has said that it intends to sign up to the UN-convened Net Zero Asset Manager Initiative which requires members to demonstrate progress on decarbonisation by adopting 2050 and interim Net Zero targets, and a comprehensive stewardship approach.

The Investor Alliance for Human Rights is seeking signatories for an investor statement supporting EU legislative proposals for mandatory human rights and environmental due diligence. The statement calls for future EU due diligence requirements to be in line with international frameworks such as the UN Guiding Principles and OECD Guidelines, applied to businesses of all sizes and ensures accountability for harms caused by businesses. The EU’s proposals are expected to be published in October.

A UK parliamentary select committee will today begin an inquiry into the UK’s Net Zero by 2050 target to assess current progress on emissions reduction and to establish the actions needed to be taken by the government to deliver on the commitment, including the role of business and industry.