Daily ESG Briefing: BoE mulls changes to capital buffers in response to climate risks

The latest developments in sustainable finance

The Bank of England will examine whether banks should set more capital aside to account for climate-related financial risks. The project, overseen by the central bank’s regulatory arm, the Prudential Regulation Authority, is part of its climate change adaptation report, published yesterday. The findings will be released late next year, it said. A recent review by the PRA suggested that shifting capital buffers might help banks protect themselves against climate risks, prompting its decision to examine the topic further. However, the regulator also concluded that the “regulatory capital framework is not the right tool to address the causes of climate change (greenhouse gas emissions)”.  Its research suggested that capital requirements wouldn’t influence investment decisions unless “calibrated at very high levels”, and such levels, it added, could carry “unintended consequences”.  Ultimately, it concluded, “regulatory capital cannot substitute for government climate policy”. 

New Zealand’s NZ$59bn (€36bn) sovereign wealth fund is one of four of the country’s largest asset owners to pledge to be Net Zero by 2050 this week. NZ Super along with Accident Compensation Corporation, Government Super Fund and National Provident Fund, have all signed up to the Paris Aligned Investment Initiative’s Net Zero Asset Owners Commitment. The announcement comes as all four welcomed the New Zealand Government’s Crown Responsible Investment Framework, which seeks to align the investments of the funds with the government’s own 2050 Net Zero ambition. The four funds have until December to set out how they will fulfil the framework over the next five years.     

Fears of a ‘green bubble’ may be “overdone”, according to research by the Banque De France. After analysing more than 2,500 stocks in the Datastream Global Equity Index, the central bank found that stocks with a “high environmental score” actually “appear to have lower valuations”.   

The Science Based Targets Initiative (SBTi) has launched what it claims is the world’s first Net Zero standard for corporates, offering an independent assessment of the credibility of companies’ 2050 Net Zero goals. Seven companies, including Danish wind giant Ørsted, have already had their Net Zero targets verified by the new standard as part of a pilot.  SBTi will start validating companies’ targets from January. The UN Environment Programme’s Finance Initiative has put out its own Net Zero framework for consultation this week.  

The New York State Common Retirement Fund has co-filed a proposal calling for Facebook to eliminate its dual class structure, which gives founder Mark Zuckerberg the majority of voting rights despite owning less than 13% of the stock. Last week, RI reported that an investor campaign to get Facebook and other tech giants to address the publication of objectionable content on their platforms was being wound up, with the firms “highly unlikely to install measures to absolutely prevent the spread” of such content. Facebook announced plans to change its name to Meta yesterday, as part of a rebrand.  

The Securities and Exchange Board of India (SEBI) has proposed regulation requiring ESG-branded funds to invest at least 80% of assets in “securities following ESG theme[s]”, while the remaining 20% “should not be starkly in contrast to the philosophy of the scheme”. Alongside this measure, SEBI has floated disclosure requirements covering the policies, objectives and strategies of ESG funds. Stakeholders have until November 16 to provide feedback on the proposals.   

The impact of China’s planned environmental disclosure requirements for companies “would be limited initially due to weak penalties for breaches”, according to Fitch. It comes as a consultation on the measures, which are being proposed by the Ministry of Ecology and Environment, closed earlier this week. If adopted, companies would be required to report a variety of environment-related information aimed at supporting investor decision-making and will face fines of up to $15,536 (CNY100,000) for non-compliance.   

UK insurance marketplace Lloyd’s has joined the UN-convened Net Zero Insurance Alliance, committing to transition its £3bn Central Fund to Net Zero by 2050 and “advocate and support” the broader market to shift to Net Zero – including by putting formal expectations into its oversight framework so that it can reach a “Net Zero underwriting position” by 2050.   

Professional services giant Deloitte has entered a “business relationship” with ESG risk management software firm Datamaran. The partnership, the details of which were not disclosed, will see Deloitte’s sustainability assurance processes employ Datamaran's technology. 

Nearly half of investors (49%) have said that they would consider divesting a company failing to address ESG issues, according to PwC’s latest global investor survey on ESG, which polled more than 350 large institutional investors. 59% said a company’s lack of action on ESG issues could result in their voting against an executive pay agreement – a third said they already have.