ESG Briefing: Brown taxonomy would have greater credit implications than green, Fitch says

The week’s responsible investment news

Defining environmentally harmful "brown" activities could have greater credit implications than labelling “green” activities – as currently seen in the EU taxonomy – Fitch Ratings has said in its ESG Credit Quarterly report. The paper said defining “brown” would be more challenging, given the starker economic trade-offs for more carbon-intensive economies, but could have potentially greater credit implications if labelled activities become the target of disincentive policies, such as tougher prudential regulation. The brown taxonomy could also inform how banks and asset managers screen for other fossil fuels or environmentally harmful activities, the paper said. It also found that ESG factors are increasingly affecting credit-rating decisions. The report used the US-based credit rating agency’s ESG Relevance Scores and broader research.

Treasurers have identified that a broader investor base, enhanced visibility, strengthened stakeholder relationships, and catalysing new business lines are amongst the benefits of green bond issuance, according to a new report by the Climate Bonds Initiative. 86 treasurers from 34 countries were interviewed, representing 44% of the green bond universe and with a total of $222bn of green bonds outstanding. For the full results of the study see here.

US charitable organisation the William and Flora Hewlett Foundation is offering up to $1m for solutions to help align passive asset management with the Paris climate goals. Applicants are asked to put forward ideas in areas including: switching the menu of default investment options towards climate-friendly funds; creating a taxonomy of climate-friendly investment options; aligning commonly-used indices and benchmarks with a well-below-two-degrees scenario; and investigating legal fiduciary duty questions and strategies. The foundation said the growing wave of passive investing, where a fund’s portfolio mirrors a market index that is not low carbon, “is setting our economy on autopilot and is feeding the climate crisis”. The deadline for submissions has been extended to April 24th. 

The Global Compact Network UK has published its report, ‘Debating Disclosure: the pros and cons of corporate transparency’, exploring the tension within companies regarding ESG reporting. While stakeholder demand and public rankings of company performance based on public disclosures both create incentives for transparency on ESG performance, financial barriers remain, the report says. These include the costs of data collection, requirements for assurance, exposure to legal jeopardy and legitimate perceptions of reputational risk. These problems are furthered by the blurred lines between mandatory and voluntary, compliance and non-compliance, financial and non-financial frameworks. 

Companies will face heightened environmental and social scrutiny this proxy season, according to Nuveen’s 2020 Proxy Season Preview. Such proposals already account for 66% of proposals so far in 2020 and are expected to hit an all-time high for the fourth consecutive year, the the US-based investment management company said.

Deutsche Bank AG has formed a sustainable finance team for its capital markets division, in response to the growing focus on ESG issues among its clients. The team will be led by ESG expert Trisha Taneja, who previously headed Sustainalytics’ award-winning green and social bond service.

Aviva Investors has confirmed it will publish an updated climate change strategy in the summer, in light of its 2050 net-zero carbon target. In its Climate-Related Financial Disclosure 2019 report, published this week, it says the strategy will be reviewed every two years to “ensure we are on target as well as able to take corrective action, accommodate new scientific thinking and data, and incorporate further findings from our TCFD work”. The asset manager will also publish the net-zero pathway for its Real Asset platform this year, renewing carbon and energy targets to align with the 2050 target.

Refinitiv will set science-based carbon emissions reductions targets, the news and data provider announced today as part of a string of climate commitments. It also said it would align its reporting with the TCFD recommendations and join the RE100 initiative to source 100% of electricity from renewables. Earlier this year Refinitiv helped launch the Future of Sustainable Data Alliance, alongside the likes of the United Nations and the Climate Bonds Initiative.

Only 2% of financial leaders in Singapore plan to invest time or resources into improving ESG reporting over the next year, according to a recent survey by fintech firm Workday. Meanwhile, 45% said they don’t think their companies are doing enough to disclose their sustainability metrics and 84% said they believe triple-bottom-line reporting is important. The news comes amid marketing efforts in the city-state promoting the idea that sustainability in business positively affects share price performance.