ESG round-up: EC launches SFDR review consultation

The latest developments in sustainable finance: NYU $5bn endowment fund to divest from fossil fuels; Taiwan tables ESG code of conduct.

The European Commission on Thursday kicked off a consultation on changes to the Sustainable Disclosure Regulation (SFDR). The Level 1 consultation will run until 15 December. As Responsible Investor exclusively reported on Wednesday, stakeholders will be asked to give their views on new potential categories for sustainable investment products, including transition and thematic fund categories – flagging that such an approach could see the current concepts of Article 8 and 9 disappear from the framework. In addition to the potential establishment of a categorisation system for financial products, the main topics covered in the 44-page questionnaire are current requirements of the SFDR, interaction with other sustainable finance legislation and potential changes to the disclosure requirements for financial market participants.

New York University (NYU) will divest from fossil fuels, following several years of campaigning from its students. The university has an endowment fund of more than $5 billion and is one of the largest private institutions in the US. In a letter written in August, chair of NYU’s board of trustees William Berkley reportedly made the commitment official and wrote that the university would commit “to avoid any direct investments in any company whose primary business is the exploration or extraction of fossil fuels, including all forms of coal, oil, and natural gas, and not to renew or seek out any dedicated private funds whose primary aim is to invest in the exploration or extraction of fossil fuels”. The university has also set a 2040 net-zero target.

The five New York City pension funds have filed a shareholder derivative lawsuit against the board of directors and officers at Fox Corporation, the parent company of Fox News Network, related to its 2020 election coverage and subsequent defamation lawsuit. The complaint alleges that the board knew that Fox News’s “promotion of political narratives without regard for whether the underlying factual assertions were true created defamation risk”. New York City comptroller Brad Lander said that a “lack of journalistic standards and a proper strategy to mitigate defamation has clearly harmed Fox’s reputation and threatens their bottom line and long-term profitability”. Fox didn’t reply to a request for comment.

An ESG code of conduct has been tabled by a Taiwanese market authority for public feedback. The framework builds upon a code of conduct developed by Japan’s Financial Services Agency (FSA) and high-level guidance by global regulatory body IOSCO. RI understands that service providers which have ratified Japan’s code will be deemed compliant with Taiwan’s rules. The code was developed and launched by the Taiwan Depository & Clearing Corporation, which functions as the sole back-end institution for Taiwan’s financial market.

More than half of respondents to FTSE Russell’s annual asset owner survey cited client demand as the key driver for implementing or considering sustainable investment. The overall figure of 52 percent (up 10 percentage points from 2022) masked large regional differences, with an 83 percent response from EMEA comparing with 29 percent from APAC. The main reasons given for implementing sustainable investment strategies were mitigation of long-term investment risk (51 percent), avoiding reputational risk (37 percent) and societal good (36 percent). Other findings included a major shift in sustainable investment towards passive strategies. Implementation of active strategies was down 11 percentage points year on year, while passive strategies jumped 15 percentage points. The survey was conducted in March and April, and received responses from 350 asset managers in the Americas, EMEA and APAC.

MSCI has launched a sustainability institute to “drive progress” on the role of capital markets in tackling global challenges such as climate change. It will leverage MSCI’s experience and expertise in the investment industry to spur collaboration across finance, academia, government, NGOs, think tanks and companies from different sectors. The institute will offer access to data, exploration of new approaches, research and a forum for debate. It will be led by Linda-Eling Lee, former global head of ESG and climate research at MSCI, who is also a director on US SIF’s board.

Investment banks are making less money from syndicating bonds issued by fossil fuel firms this year than in 2022, according to the Anthropocene Fixed Income Institute (AFII). Other notable findings in the NGO’s latest quarterly update on fees earned for syndicating fossil fuel bonds versus those for arranging green deals included a drop in the ranking for Goldman Sachs, which was down seven places year on year. The outperformer over the year to 11 September was Societe Generale, which jumped 11 places to number three. First and second places were also taken by French banks, respectively BNP Paribas and Credit Agricole.

The Australian Sustainable Finance Institute (ASFI) is calling for expressions of interest for its taxonomy advisory groups. This phase of work will run for the next 12 to 18 months and includes the development of taxonomy screening criteria for climate mitigation for a minimum of three and up to six priority sectors, associated technical work on data requirements, a methodology for incorporating transitional activities, minimum social safeguards and a “Do No Significant Harm” framework. The deadline for submitting EOIs is 27 September. Last month, ASFI convened a Taxonomy Technical Expert Group (TTEG) of 25 senior leaders to provide strategic direction over the taxonomy.

Gold Standard has for the first time certified carbon credits as “gender responsive”. The credits have been issued by the Lango Safe Water project, an initiative that rehabilitates boreholes to provide clean water in rural Uganda. The project is being run by UK-based developer CO2balance. In a statement, Gold Standard said that integrating gender considerations in its certification framework highlights “the growing recognition of the link between climate change and gender inequality”.

WWF has urged insurance companies to align their underwriting businesses with global climate and biodiversity goals and offer new products for nature-based solutions. Insurers should also review their environmental liability policies to eliminate harmful incentives and exclude the most environmentally harmful economic activities – such as fossil fuel supply and deforestation – from insurance policies, the NGO said in a report published this week on how the industry should address the climate and biodiversity crises.

The World Federation of Exchanges has issued a guidance note on the WFE green equity principles, the first global framework for designating listed shares as green. The principles are based on five pillars including the amount of a company’s revenues or investments that must be derived from “green” activities, use of a specified taxonomy, governance, annual assessment, and disclosure around the processes and reviews related to the green classification. The guidance note sets out practical considerations for exchanges which wish to establish offerings that align to the WFE green equity classification and covers the principles themselves, as well as operational matters, such as the designation of responsibility within the exchange for overseeing the classification, establishing relevant processes including criteria for revoking classification, development of the classification mark and provision of public information, and criteria for assessing the appropriateness of reviewers.

The City of London Corporate and PwC have published a report outlining how the UK could become a global centre for nature finance. The roadmap calls for the development of innovative tools and products for measuring and investing in nature, and for the UK to support the development of “high-integrity” nature credits. It also said the Bank of England and Prudential Regulation Authority should consider “necessary supervisory steps” to ensure that “the safety and soundness” of regulated firms are not impacted by nature-regulated financial risks.