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Daily ESG Briefing: European ESG stocks are a ‘bubble’, warns asset manager

The latest developments in sustainable finance

The amount of investing into certain European ESG stocks “has far surpassed the fundamental outlook for the stocks, leaving investors’ at risk of losses,” according to asset manager RWC. Portfolio Manager Graham Clapp said: “Many companies at the heart of this trade are loss-making, and keep warning on profits, yet shares keep rising,” describing the trend for investing in ESG-related companies as a “bubble”. He said there was a risk of share price distortions as pension funds and other big buyers rush to become greener.

An OECD analysis on ESG ratings has found that companies with high ‘E’ ratings issued by two unnamed data firms generated higher carbon emissions and produced more waste than lower rated firms. The research is based on data sourced from Bloomberg, MSCI and Refinitiv. Researchers also found that companies ranked highly on E criteria by all three providers recorded higher water withdrawals than companies which ranked poorly. The findings were included in the OECD’s annual Business and Finance Outlook for 2020.

Oxford University has published its ‘The Oxford Principles for Net Zero Aligned Carbon Offsetting’, which seeks to ensure that offsetting is done in a way that credibly supports Net Zero byb 2050. The research says that offsetting can be useful, especially in hard-to-decarbonise sectors such as aviation and agriculture, but can also result in greenwashing and create negative unintended impacts for people and the environment. The multidisciplinary team behind the report provided four key recommendations: Prioritise reducing in-house emissions, ensure the environmental integrity of offsets and disclose how they are used; Shift offsetting towards carbon removal, where offsets directly remove carbon from the atmosphere; Shift offsetting towards long-lived storage, which removes carbon from the atmosphere permanently or almost permanently; and support the development of a market for net zero aligned offsets.

Impax Asset Management says the physical risks of climate change can now “be anticipated, measured, and incorporated into investment decisions” in a white paper titled ‘Physical Climate Risks: Designing a resilient response to the inevitable impact of climate change’. The asset management firm is encouraging asset owners, asset managers, corporates and policymakers to push a conversation on physical climate risk, rather than focusing simply on transition risk.  

Paris-based investor Ofi Group has announced it will divest from oil and gas extraction companies by 2050 in a three-stage plan. Firstly, the asset manager will exclude firms making more than 10% of their turnover from oil, shale gas, and tar sands extraction, removing those making more than 5% of turnover from the sectors by 2030. In the second phase from 2030, it will exclude firms starting new exploration projects in the Arctic, gradually removing all companies that extract oil and gas from the region by 2040. In the final stage, Ofi plans to exit the sector fully by 2050 at the latest. 

The Global Reporting Initiative has launched its Professional Certification Programme to offer training in sustainability reporting. The programme covers stakeholder engagement, materiality and integrating the SDGs into disclosure, among other topics.