Daily ESG Briefing: UK mulls creation of new regulator and expansion of audits to cover climate in sweeping consultation

The latest developments in sustainable finance

The UK Government is proposing that company audits be widened to cover climate targets, alongside the creation of a new regulator, the Audit, Reporting and Governance Authority (ARGA). The plans were announced as part of a sweeping consultation on corporate governance and auditing, which in part seeks to break up the influence of the ‘Big Four’: KPMG, Deloitte, PWC and EY. The 16-week consultation asks for feedback on plans to replace the current Financial Reporting Council with ARGA; introduce “a voluntary scheme for the audit and assurance of more non-financial information over and above the statutory audits”; and force large firms to use “challenger” auditors. It also suggests introducing fines and suspensions for company directors involved in accounting and auditing failings, and giving more say to shareholders on auditing policies and focus areas. 

Aviva has partnered with fintech start-up Tumelo to pilot a tool that asks pension beneficiaries what they think about ESG issues in order to inform shareholding voting. Clients will be surveyed on topics like climate, gender equality, human rights, chemical pollution and political lobbying ahead of the AGMs of companies their pension is invested in. The feedback will be aggregated and anonymised before being sent to the fund manager to incorporate into its decision-making framework. 

The US Chamber of Commerce has written to Allison Herren Lee, the Action Chair of the Securities and Exchange Commission (SEC), urging the agency to proceed cautiously with its new Climate and ESG Task Force, which aims to step up the enforcement of disclosure of climate risks. “We are deeply concerned that using the SEC’s enforcement apparatus in place of notice-and-comment rulemaking will discourage companies from going public just as the economy turns its sights onto recovery from the pandemic through capital formation and job creation” said Tom Quaadman, Executive Vice President of the Chamber of Commerce. The comments come as the SEC’s Asset Management Advisory Committee prepares to discuss potential recommendations from its ESG Subcommittee. During the discussion, which is open to the public, the Diversity & Inclusion and Private Investments Subcommittees will provide their potential recommendations.

BlackRock has identified natural capital as one of its 2021 engagement priorities, saying it will look to ensure companies are “managing natural capital dependencies and impacts through sustainable business practices”. Alongside this, the firm has published a new commentary on the subject, which aims to reflect their increasing expectations of companies on how they manage their dependencies and impacts. BlackRock’s other engagement priorities for 2021 consist of: board quality and effectiveness, climate, strategy and financial resilience, incentives aligned with value creation, and company impacts on people/human capital.

Finland-based Upright Project has today released datasets on the net impact of the 500 largest companies and 25 global and US equity funds. Upright Project, which quantifies positive and negative impact, has released the data in its first Net Impact Report 2021, which finds ESG funds are not automatically net positive, and that “normal funds” can have above-average net value creation – regardless of the image the funds’ marketing materials or ESG metrics convey. Other datasets released include on top 30 European startups and country-level data. 

Facebook has launched a corporate human rights policy that seeks to align it with the UN Guiding Principles on Business and Human Rights. It will report on its “most critical human rights issues” to its Board of Directors, as well as publishing an annual report on how it is tackling human rights concerns linked to its products, policies and business practices. The move has been welcomed by John Howchin, Secretary General of Sweden’s Council of Ethics, who said on social media: “We need leadership within the tech industry on many of these thorny and difficult issues. This is a great start by Facebook and I hope more will follow from their peers in the industry.”