ESG round-up: ESMA releases study into market response to greenwashing

The latest developments in sustainable finance: ASIC fines Northern Trust AM; Tennessee AG takes legal action against BlackRock.

EU securities watchdog ESMA has found that investors and markets “did not pay close attention to greenwashing-related controversies in 2020 and 2021”, given the lack of financial impact on companies caught up in controversies. The analysis, which was published on Tuesday and leveraged data from RepRisk, found that 191 companies – or 32 percent of the STOXX Europe 600 constituents – were involved in a total of “933 misleading communication incidents” during that period, 70 percent of which were greenwashing-related. Three sectors – oil and gas, financial, and food and beverages – accounted for more than half of all greenwashing controversies, ESMA found.  

Staying with enforcement, Australian regulator ASIC has fined Northern Trust Asset Management’s Australia wing A$29,820 ($20,178; €18,400), over two infringements relating to its NT World Green Transition Index Fund. The fund invested in three firms that failed one of its exclusion thresholds relating to MSCI’s low-carbon transition management score after MSCI failed to flag them. A spokesperson for Northern Trust told Responsible Investor that the holdings were divested once identified and that at no point was any of the holdings greater than 5 basis points of the fund’s net asset value. “To mitigate the risk of similar errors occurring in the future, NTAM has implemented enhanced internal controls and oversight of the index and its constituents,” the spokesperson added.

The attorney general of the US state of Tennessee has filed a lawsuit against BlackRock, alleging that the firm made false or misleading representations to consumers in the state about how ESG considerations affect investment strategies. The complaint from Jonathan Skrmetti claims that the firm makes inconsistent statements on its climate ambitions and goals to maximise shareholder returns.

A spokesperson for BlackRock said it rejects the AG’s claims and will vigorously contest any accusations that it violated Tennessee’s consumer protection laws. “Contrary to the attorney general’s claims, BlackRock fully and accurately discloses our investment practices and our approach to proxy voting,” they said.

The New York City retirement systems increased their investments in climate solutions by 24.7 percent to $10.5 billion in the most recent fiscal year, with 4.14 percent of their collective portfolio now in climate solutions. Investments increased across all asset classes except real estate between December 2022 and June 2023, with a 292.5 percent increase in alternative credit and a 45.4 percent increase in passive equities.

The GRI’s global sustainability standards board has approved the standard setter’s updated biodiversity standard as well as its updated sector standard for mining, according to a letter from its chair, Carol Adams. Earlier this month, Responsible Investor talked to Elodie Chêne, senior standards manager at GRI, to discuss the process. The standards will now progress to the Due Process Oversight Committee for a final assessment.

Germany’s fund management industry body has backed the European Commission’s proposal to introduce new fund categories under SFDR. In a statement, a spokesperson for the BVI said categories should be created for products focused on impact, transition and sustainability that are generic enough to work for all asset classes. The spokesperson also called for simplification of entity-level reporting.

In its response to the Commission, Deutsches Aktieninstitut, an industry body for listed companies in Germany, said reporting requirements under SFDR should be aligned with CSRD and taxonomy disclosures to ensure financial institutions can find information they need, and to apply the materiality assessment of the CSRD to PAI disclosures. It also called for the Commission to set up a working group to analyse which data reported under the ESRS is really relevant for investment decisions.

Sasol has announced its reconvened AGM will be held virtually on 19 January. Last month, the South African chemicals firm abandoned its AGM after climate activists stormed the stage, holding signs with slogans including “Coal Kills” and voicing their discontent over the company’s climate record. Responding to the news, Kerrie Waring, CEO of ICGN, said the network “remains cautious about the effectiveness of virtual-only AGMs to fully allow shareholder participation in the meeting, particularly in relation to asking questions and making statements from the floor”. She added: “We encourage all companies to ensure that meetings are efficiently, democratically and securely facilitated to enable constructive interactivity with their shareholders.”

France’s pensions reserve fund, Fonds de Réserve pour les Retraites, has selected Morningstar to undertake an ESG analysis of its portfolio. The US financial services giant was the only firm that tendered for the contract, worth €356,000.  

Norges Bank Investment Management (NBIM), manager of Norway’s trillion-dollar sovereign wealth fund, has excluded Delek Group from its investment universe over ethical concerns due to the Israeli firm’s petroleum prospecting activities off the shore of West Sahara. NBIM also announced it has placed Japanese conglomerates KDDI Corp and Sumitomo Corp under observation for a period of three years due to human rights risks linked to the companies’ telecommunications business in Myanmar.   

The Net Zero Investment Consultant Initiative (NZICI) has published its first progress report. Launched in September 2021, the NZICI is a GFANZ alliance that brings together global investment consultants seeking to align operations and advisory services with the 1.5°C emissions trajectory in the Paris Agreement. Currently the alliance boasts 11 members, including new joiner XPS. According to the report, not all members reported in full against all of the initiative’s key performance indicators, though “several stated that they planned to do so next year, and intend to provide more quantifiable information in future”.