Daily ESG Briefing: Japanese FSA advised to tighten rules for providers of ESG ratings and data

The latest developments in sustainable finance

Experts advising Japan’s Financial Services Authority on integrating sustainability into financial markets have said the regulator should consider creating a code of conduct for ESG rating and data providers, citing a need for more transparency and fairness in data, issues around governance and neutrality, a lack of adequate human resources, and a heavy burden on companies to verify ratings. Members of the Sustainable Finance Expert Panel will discuss the recommendations, which were released today, in more detail at an online event hosted by RI on 1 July. Click here to register.

The UN Environment Programme Finance Initiative has released a recommended ‘blue’ exclusions list, providing financial institutions with an overview of activities considered harmful to the ocean across five sectors: seafood, ports, maritime transportation, marine renewables and coast and marine tourism. Excluded practices include blast or pulse fishing, shipping firms using heavy fuel oil in the Arctic, and wind farms sited in areas of high ecological value.

The Bank of England is exploring whether to “look directly at corporates’ decarbonisation plans, rather than incorporating them into warming metrics” in a bid to overcome challenges with forward-looking climate information. In its latest TCFD report, the central bank said the unnamed data provider that helps it calculate the climate trajectory of its Corporate Bond Purchase Scheme (CBPS) had “significantly refined” its methodology since last year, in part by factoring in companies’ decarbonisation targets and addressing indirect emissions. Under the new methodology, the implied temperature alignment of the CBPS is 3.0°C. The bank said that such assessments “require a large number of assumptions, in particular about the nature and credibility of constituent firms’ future emissions paths, and can be sensitive to small changes in these assumptions”, prompting it to explore “simpler and more transparent approaches” including “look[ing] directly at corporates’ decarbonisation plans, rather than incorporating them into warming metrics”.

The US Supreme Court has reversed a ruling which would have allowed six men to sue Nestle and Cargill over claims they were trafficked as child slaves to Ivory Coast cocoa farms used in the two firm’s supply chains. The court ruled that the claim could not be brought in the US because the plaintiffs did not show that any of the misconduct took place in the country. 

The World Benchmarking Alliance has released a draft methodology for its financial system benchmark, which will assess 400 financial institutions across the world against key ESG expectations including pay, human rights and Paris-alignment. The Alliance is running a consultation on the draft methodology, which closes in September, and aims to have the final methodology released by December.