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Daily ESG Briefing: Nearly half of Net Zero strategies fail to explain role of offsets

The latest developments in sustainable finance

Nearly half of corporate Net Zero plans fail to explain how they will use carbon offsets – a figure that rises to 91% for governments. Research by Net Zero Tracker shows that 43% of the world’s largest 632 firms plan to use offsetting to help achieve climate goals, but two thirds don’t specify “any conditions on the use of offset credits”. $19.5tn of revenues are currently covered by public company net zero targets, according to the analysis, which identifies “a trend amongst corporates to set targets lacking the necessary rigour to deliver a timely, effective arrival at net zero”. However, firms meeting both minimum standards and leadership practices has doubled over the past 12 months – from 11 to 22. Net Zero Tracker is a partnership between the Energy & Climate Intelligence Unit, Data-Driven EnviroLab, NewClimate Institute and Oxford University’s Net Zero Initiative.

The CEO of European banking group ING has called for the creation of a metric to measure banks’ transition-focused assets. Writing in a blog, Steven van Rijswijk said that the Transition Asset Ratio – which would “express the share of a bank’s assets that are linked to a credible climate transition scenario” – would offer a complementary alternative to the Green Asset Ratio (GAR) that Europe’s banks are now required to calculate. The GAR, unveiled earlier this year, gives banks until 2024 to disclose the proportion of loans and securities that align with the EU Green Taxonomy. “Benchmarking loans and other financial products to scientific sector pathways will provide a more realistic insight in the transition risks of banks,” said van Rijswijk. “Banks may finance clients/projects that are consistent with a credible pathway to the net zero targets, but that are not reflected in the GAR, as the GAR only reflects 100% taxonomy aligned assets.” He also proposed “the establishment of EU sectoral pathways and a disclosure requirement for corporates to show pathway alignment”.

The UK’s Financial Reporting Council has called for better reporting on diversity, board appointments and succession planning in its latest Annual Review of Corporate Governance.  “The best governance reporting offers transparency that goes beyond broad-brush declarations and sets out clearly and concisely how the Principles of the Code were applied and the nature of compliance with the Provisions of the Code,” said the regulator’s CEO, Jon Thompson. “As we emerge from the pandemic, companies should use this report’s examples of good corporate governance policies and reporting to deliver long term benefits for the company for all its stakeholders, the economy and society as a whole"

Nearly 80% of retail investors consider sustainability issues to be a focus for them, according to a study by Morgan Stanley, with the rate rising to 99% for millennials. The global pandemic has pushed public health and support for small businesses up the agenda, with around half of those surveyed saying they made – or plan to make – investment changes in response to social justice movements. 

However, research published by London-based broker HYCM this week concluded that “investors remain broadly sceptical about ESG and sustainable investors”, with less than half of the 850+ UK investors surveyed saying that sustainable investing is important to them. Just 19% of respondents consider ESG investments “to be a savvy financial strategy at present”, the research stated. 

Seven municipalities in Costa Rica have declared themselves “territories free of exploration and exploitation of natural gas an oil” as part of efforts towards a Fossil Fuel Non-Proliferation Treaty. Siquirres, Tilaran, Buenos Aires, Turrialba, Curridabat, Santa Ana and Montes de Oca have become the first municipalities to make such a commitment in Latin America.