ESG round-up: ESG funds to increase energy exposure, says JPMorgan

The latest developments in sustainable finance: HSBC to be warned for misleading green advertising according to draft judgment; BdF backs CDP disclosures.

JPMorgan analysts expect ESG funds to ease environmental criteria to allow investments in energy stocks amid soaring performance. According to a client note reported by Bloomberg, analysts led by the bank’s global head of equity research, Dubravko Lakos-Bujas, said: “With anti-energy constraints likely loosening given increasing ESG performance pressure and with many reconsidering how to define ESG, we expect a positive impact to energy equity flows in the coming months.”

It comes as investment flows into ESG funds dropped markedly in the first quarter of 2022 to $75 billion, their lowest point in seven quarters, according to the latest data from the Institute of International Finance. The IIF attributed this to increased volatility in tech shares, a mainstay of ESG funds, and investors channelling flows into energy stocks buoyed by high oil prices.

The UK advertising watchdog is set to warn HSBC to include information about its contributions to greenhouse gas emissions in future advertising, according to a preliminary decision seen by the Financial Times. The Advertising Standards Authority’s draft recommendation is reported to have sided with some 45 complaints made against recent HSBC advertising promoting its green initiatives published around the UK. “We considered that meant, despite the initiatives highlighted in the ads, HSBC was continuing to significantly finance and maintain its current investments in businesses and industries that emitted notable levels of carbon dioxide,” the ASA said. HSBC’s planned phaseout of those investments were slow compared with the UK and global peers, it added. The verdict may still be overturned by the ASA council, which will make the final decision.

Banque de France (BdF) has become the first central bank to request corporate environmental data via CDP’s voluntary disclosure system. This means that CDP’s annual letter requesting environmental data from company boards – it sent letters to 10,400 listed companies in 2022 – will include BdF as a signatory, in addition to at least 680 other current capital market signatories, from next year. Alexandre Gautier, BdF deputy general secretary for SRI, said the data would help investors allocate “green capital” and “foster our work to incorporate climate change considerations in BdF credit claims rating”.

The US chapter of the Investment Consultants Sustainability Working Group has voted to support an initiative which aims to improve ESG disclosures among privately held companies. The ESG Data Convergence Project was launched last year by private equity investors to develop a repository of ESG data that will be shared with directly invested LPs, and aggregated into an “anonymised benchmark” by Boston Consulting Group. Disclosed information will correspond to a core set of ESG metrics, including greenhouse gas emissions, renewable energy, board diversity, work-related injuries, net new hires and employee engagement.