ESG round-up: Dutch AFM supports regulating voluntary carbon markets

The latest developments in sustainable finance: IIGCC calls for final UK green taxonomy; Group launched to advise Defra on sustainability.

Dutch regulator AFM has said that there is a case for regulators to “define a supervisory view” in voluntary carbon markets (VCMs) given their links to supervised financial entities. In response the Integrity Council for the Voluntary Carbon Market (ICVCM), which is developing market rules for carbon credits, said it welcomed AFM’s support for its existing work on regulating the carbon credits market. It added that it is engaging with both regulators and policymakers – including the CFTC, SEC and IOSCO – on this, since the market “cannot afford” to wait for government and regulatory action.

The AFM report also argued that, while VCM credits may have environmental benefits, they should be excluded from the net-zero framework and that the focus for companies should be on carbon reduction rather than carbon offsets. The Voluntary Carbon Markets Integrity Initiative (VCMI) agreed that carbon credits should be “carefully defined” and that meeting net zero commitments should be mainly driven by decarbonisation. However it added that, when used as a complement to carbon reduction, investment in carbon credits can allow companies “to go further and faster”. VCMI issued an integrity code last June which limits the type of emissions companies are allowed to offset.

The Institutional Investors Group on Climate Change (IIGCC) has called on the UK government to finalise its green taxonomy by the end of 2023 and make it mandatory. The taxonomy was originally due to launch in December but has yet to be finalised. The IIGCC said the delay is “eroding the UK’s competitive advantage as a hub for green finance” and stressed the need for the taxonomy, given that nearly 80 percent of UK listed companies are in scope for EU taxonomy reporting under the Corporate Sustainability Reporting Directive (CSRD).

Staying with the UK, the Land, Nature and Adapted Systems (LNAS) Advisory Group has been launched to advise the Department for Environment, Food and Rural Affairs (Defra) on definitions of economic activities that can be defined as environmentally sustainable. The LNAS Advisory Group – a sub-group of the Green Technical Advisory Group (GTAG) – will expand on existing work, while GTAG advises the UK government on the implementation of the green taxonomy. In the first phase of its work, the group will develop criteria for sustainable agriculture and fisheries. In the second phase, it will look at developing the climate adaption elements of the taxonomy by considering the role of infrastructure and nature-based solutions.

The SEC has rejected requests from Walmart and PayPal to discard proxy proposals on diversity and anti-discrimination respectively. In letters sent on Tuesday, the US regulator said it would not permit the companies to exclude the proposals, adding that PayPal’s proxy proposal “transcends ordinary business matters” and rejecting Walmart’s claim that it had already dealt with the matter in a proxy proposal last year. Walmart will face a proposal for a third-party independent racial equity audit at its annual meeting on 31 May from the Organisation United for Respect. PayPal’s annual meeting has not yet been announced.

Dutch pension fund ABP has announced a focus on climate, human rights and biodiversity for this year’s shareholder meetings, as well as stricter voting requirements. The pension fund said that, if a company fails to disclose its carbon emissions or produce targets in line with 1.5C, it will vote against the reappointment of supervisory board and non-executive board chairs, as well as its climate strategy. It also plans to vote against remuneration proposals when sustainability objectives do not align with a company’s remuneration policy.

Several Australian super funds have backtracked on their climate commitments as regulators step up scrutiny. AustralianSuper, which has A$274 billion ($186 billion; €168 billion) in assets under management, has deleted the climate report and a net-zero by 2050 fact sheet from its website. Active Super removed its 70-page responsible investment report, which outlined how its portfolio was assessed for ESG risk, while UniSuper removed 16 pages from its climate risk report. The moves come just weeks after Mercer Super was sued by the Australian Securities and Investments Commission (ASIC) for allegedly misleading statements regarding the sustainable characteristics of some of its superannuation options.

A spokesperson for AustralianSuper said: “The fund continually reviews and updates its website content to ensure it is effective in communicating to members and in full compliance with the rapidly changing regulatory and investment environment. The updated disclosures on the website reflect the fund’s active stewardship of its assets in relation to climate change.” A spokesperson for Active Super said the fund had noted the updated ASIC guidelines and increased focus on ESG disclosures so is currently undertaking a process to review ESG-related materials. UniSuper did not respond to a request for comment.

Lloyds Banking Group has committed to doubling the representation of employees with disabilities in senior management roles by 2025. Currently 6 percent of the group’s employees at senior management level have reported that they have a disability. The new goal aims to double representation to 12 percent by 2025. Lloyds said it plans to do this through more accessible and inclusive recruitment, better support for colleagues with disabilities, and improving office space accessibility and technology.

Morningstar Sustainalytics has launched its notes on the transition to a low carbon economy. The ratings are designed to provide investors with a scientific assessment of a company’s current alignment with a carbon neutral strategy that limits global warming to 1.5C. The ratings are based on an overall assessment of the company’s strategy and steps taken to meet its carbon neutral commitments. The ESG ratings provider currently provides a low carbon transition score to around 4,000 large companies and plans to expand its coverage to more than 12,500 companies by 2024.