ESG round-up: US Treasury publishes net zero principles for financial institutions

The latest developments in sustainable finance: California governor Newsom to support climate disclosure bill; US politicians call on Fed to require FIs to stop financing fossil fuels.

The US Department of the Treasury has published a set of best practice principles for financial institutions with net zero commitments. The nine principles include: accompanying net zero targets with a transition plan; establishing credible metrics and targets for all relevant financing, investment and advisory service; and aligning engagement practices with clients, portfolio firms and other stakeholders to their commitments. One principle also covers environmental justice and biodiversity, warning that firms with targets should demonstrate understanding of how transition planning may have an impact on issues including access to resources and rights, especially for Indigenous peoples. It recommends proactively engaging excluded and marginalised populations, as well as putting safeguards in place to account for unintended consequences for biodiversity.

California governor Gavin Newsom has said he will support the climate disclosure legislation bill SB 253. The announcement was made on Sunday at New York Climate Week. The bill would require companies earning a minimum $1 billion per year and operating in California to disclose their Scopes 1, 2 and 3 emissions. The climate disclosure bill passed the California Assembly last week, receiving majority support, and was passed by the Senate earlier this year.

Staying with California, the state is suing oil giants including ExxonMobil, BP, Chevron, Shell and ConocoPhillips for climate change risk. The lawsuit, led by governor Newsom and attorney general Rob Bonta, cites “decades of deception” about the dangers of fossil fuels, and accuses the companies of “intentionally suppressing” the information from the public and policymakers to protect their profits. The state has asked the court to order the oil companies to pay for the costs of their impacts on the environment and human health, to prohibit oil companies from engaging in further pollution, and to “award punitive damages to the state for misconduct”.

A Shell spokesperson said: “Our position on climate change has been a matter of public record for decades. We agree that action is needed now on climate change, and we fully support the need for society to transition to a lower-carbon future. As we supply vital energy the world needs today, we continue to reduce our emissions and help customers reduce theirs. We do not believe the courtroom is the right venue to address climate change, but that smart policy from government and action from all sectors is the appropriate way to reach solutions and drive progress.”

Several members of Congress and US senators from California, Hawaii, Indiana, Massachusetts, Michigan, New Mexico, Oregon and Vermont have written to Federal Reserve chair Jerome Powell to urge the board of governors to “implement measures to adequately address climate-related financial risk”. The signatories have called on the Fed to protect the stability of the financial system by “fully understanding climate risks” and also requiring financial institutions to stop financing fossil fuels. In a letter, they said that the most concerning factor for financial stability is climate disasters “driving up the cost of insurance” and leaving people with no insurance or higher premiums. They added that the Fed’s pilot climate scenario analysis and the proposed principles for managing climate-related risk “fall short” in responding to the climate crisis.

Norway’s trillion-dollar sovereign wealth fund Norges Bank Investment Management (NBIM) has published its expectations on climate change for portfolio companies. They include board oversight, climate risk disclosures, greenhouse gas reporting across Scope 1, 2 and 3 (with reasonable assurance on Scope 1 and 2), net zero 2050 commitment, interim emission reduction targets and transition plans. NBIM has also asked that companies disclose in line with the International Sustainability Standards Board’s (ISSB) IFRS S2, and submit their emission reduction targets for validation by the Science Based Targets initiative (SBTi).

UK asset owners including Brunel Pension Partnership, Church of England Pensions Board, Nest, Railpen, Scottish Widows and the Universities Superannuation Scheme have collaborated with the High Pay Centre to launch a proposed Fair Reward Framework (FRF). It is designed to “assess how value creation is rewarded” across a company’s multiple stakeholders (board members, executive, workers, shareholders, society) and is intended to inform investor stewardship and dialogue with companies on pay. The consultation on the framework closes on 23 October.

The German government’s sustainable finance advisory council set its priorities for the next 12 months at a meeting last week. The group, made up of industry experts, said it would focus on transition finance, sustainable finance regulation and international engagement, with working groups looking at various areas within the three topics. It also said it aimed to conclude some of its existing work streams to free up capacity. Chair Silke Stremlau said the group would also develop goals for the state of sustainable finance in 2030. Stremlau also told Responsible Investor that the council’s work on real estate and ESG ratings will likely be concluded by the end of the year, and that it would have preliminary results for its work on an ESG scale and engagement platform.

Societe Generale has committed to reducing its upstream oil and gas exposure by 80 percent by 2030. In its 2026 strategy, the French bank has pledged to cut its exposure by 50 percent by 2025, revising its previous commitment of 20 percent reduction. It will stop providing financial products and services dedicated to upstream oil and gas greenfield projects. It also plans to launch a €1 billion transition investment fund with a focus on energy transition solutions and nature-based and impact-based projects supporting the SDGs.

Nykredit, one of Denmark’s largest lenders, has unveiled a new fossil fuel policy which will see it cease lending to activities linked to “exploration, extraction or production of fossil fuels unless it involves separated green activities”. The policy will also require the financial firm to divest more than 60 oil, gas and coal companies and exclude 483 from its investment universe.

Shareholders for Change has partnered with Germany’s Bank für Kirche und Caritas and Union Investment, the investment arm of DZ Bank Group, to publish a series of key points for credible engagement activity. The trio said there was a need to work towards a common industry standard for credible engagement and that they wanted to enter into dialogue with market participants on the topic. The points include a clearly defined escalation framework, set time limits for activities and setting tangible changes as the objective of engagement. The group also advocates engagement with governments and other financial market participants, both through engagement holdings and independently of holding investments.

The US Securities and Exchange Commission (SEC) has issued its strategy for diversity, equity, inclusion and accessibility for 2023-26. The plan aims to “support a skilled workforce that is diverse, equitable and inclusive, and is fully equipped to advance agency objectives”.