Daily ESG Briefing: NBIM ‘questions feasibility’ of naming socially-harmful activities in EU taxonomy

The latest developments in sustainable finance

Norges Bank Investment Management has questioned the “feasibility” of identifying socially-harmful business activity under the EU’s taxonomy. Plans to expand the taxonomy from environmental activities to those that support or undermine the bloc’s social objectives have been out for consultation. NBIM said in its response that, while a social taxonomy could help to create useful metrics for social issues, the current lack of universal norms and standards could make creating set definitions difficult. “Where criteria can be established, it is our experience that – other than for some very specific products – company assessments must typically happen on a conduct basis,” NBIM said. 

The UK Pensions Regulator (TPR) should focus on working with trustees to improve climate-related reporting and not issue “fines and enforcement action unnecessarily”, said the country’s Pensions and Lifetime Savings Association (PLSA) in response to a consultation on guidance for trustees on incoming TCFD requirements. TPR launched in early July two consultations on the new rules, including proposed penalties for non-compliance. Under the proposed penalties, individual trustees could be fined up to £5,000 for failure to comply, rising to £50,000 for corporate breaches. The consultation closed yesterday. Overall, the PLSA said the draft guidance “strikes the right balance between encouraging ambitious governance standards and acknowledging the many challenges schemes face” but more clarification is needed, for example, around reporting expectations across different asset classes.

Meanwhile, UK-based consultancy firm Redington raised concerns that the rules could present “schemes with fewer resources, either due to size or structure” with “considerable challenges”. Its response to the TPR consultation included a request for case studies outlining the required resources, timelines and “lessons learned”, as well as how schemes can map climate risks to existing risk types on their risk register. “It should also be stressed that risk mitigation following assessment of climate risk does not have to come in the form of divestment or portfolio changes. This may be short term and promote unintended consequences, such as limiting the ability of the real economy to make the required decarbonisation transition,” Redington added. 

The Long-Term Stock Exchange (LTSE), which aims to offer companies and investors a longer-term alternative to traditional securities exchanges by discouraging short-term measures such as quarterly reporting, has announced project management company Asana and cloud communications platform Twilio as its first listings. LTSE launched just under a year ago and participants must consider stakeholders other than just investors and align executive compensation with long-term performance, among other things. 

ISS ESG has launched a number of reporting tools focused on EU sustainable finance regulation. They include the EU Taxonomy Report to help investors quantify their share of taxonomy-aligned investments, as well as the Sustainable Finance Disclosure Regulation Report to measure investments against the regulation’s Principal Adverse Impact indicators. 

The UN Global Compact is encouraging companies to apply for use of its SDG Ambition Accelerator. The project helps firms set targets and create strategies linked to the Sustainable Development Goals. 650 companies already use the tool, and the deadline for the latest round of applications is September 30.