Daily ESG Briefing: Regulators advised to consider biodiversity scenarios for financial sector

The latest developments in sustainable finance

Regulators should consider developing biodiversity scenarios to test the resilience of the financial sector against risks arising from the loss of nature and resources. The proposal was made by the Joint NGFS-INSPIRE Study Group on Biodiversity and Financial Stability, set up to help central banks and financial supervisors fulfil their mandates in the face of financial risks stemming from biodiversity loss, in its Biodiversity and financial stability: building the case for action report, released today. Such scenarios could “create a common language through which central banks and financial supervisors can assess the resilience of their financial systems to specific shocks and better understand interlinkages,” it said. The group will publish a final report early next year exploring the linkages between biodiversity loss, the macroeconomy and the financial system. 

Meanwhile, Federal Reserve Governor, Lael Brainard, has announced it is developing climate scenario analysis to model the resilience of individual financial institutions and the financial system to climate risks. Brainard made the announcement at the 2021 Federal Reserve Stress Testing Research Conference.

The pension scheme for HSBC's UK operations has committed to reach net zero across its £36bn assets by 2050. All of the scheme's bond and equity investments will be fully Paris-aligned by 2030, it pledged, and it is targeting a 50% emissions reduction by the same year. The scheme said it would enhance its engagement and stewardship efforts through its asset managers.

Shareholders at apparel heavyweight Nike did not approve a series of ESG resolutions at the company’s AGM earlier this week. The proposals requested disclosure on the firm’s political spending, and racial and gender pay gaps, as well as the commissioning of reports on the human rights impacts of its cotton supply chain and its efforts on diversity, equality and inclusion.

Aviva Investors, the UK’s Local Authority Pension Funds Forum, Nordea Asset Management, Robeco and Storebrand Asset Management are among 94 investors – representing $6.3trn in assets – to have called for the EU’s upcoming due diligence directive to cover all business enterprises and financial institutions offering products and services in the region. As it stands, the proposal, currently making its way through the early stages of the EU’s policymaking process, only covers Limited Liability Companies. European Parliament has already approved plans to expand it, however, to make it cover all corporations operating in the EU internal market, including banks and investors.

Japan is set to become the first G7 country to start using its foreign reserves to buy securities that meet ESG criteria. According to the nation’s Finance Minister, Shunichi Suzuki, “revitalising new ESG investment will help achieve a greener society and carbon neutrality in 2050”. He said he hoped other countries would follow suit, and will provide more information at a G7 meeting next week. Japan’s foresign reserves stand at $1.4trn.