ESG round-up: ESRS, GRI achieve ‘high level of interoperability’

The latest developments in sustainable finance: GTAG publishes two taxonomy reports; Martindale to leave Cardano.

The European Financial Reporting Advisory Group (EFRAG) and the Global Reporting Initiative (GRI) have issued a joint statement on the high level of interoperability achieved between the European Sustainability Reporting Standards (ESRS) and the GRI standards. The two bodies said the ESRS have adopted the same definition for impact materiality as GRI, and that ESRS and GRI definitions, concepts and disclosure regarding impacts are fully aligned, “or when full alignment was not possible due to the content of the Corporate Sustainability Reporting Directive (CSRD) mandate, closely aligned”. The statement said that existing GRI reporters will be “well prepared to report under the ESRS”, while entities reporting under ESRS will be considered as reporting with reference to the GRI Standards to avoid the burden of multiple reporting. EFRAG and the GRI are now looking to simplify the reporting processes by launching a digital taxonomy and a multi-tagging system for their respective standards.

The Green Technical Advisory Group (GTAG) has published two technical advice papers to the Treasury on the development of the UK green taxonomy and on KPI reporting. The first recommends the UK government to prioritise delivering a taxonomy which “clearly defines ‘green’ economic activities” and is viewed as a “credible, robust and usable tool” for the market. GTAG suggests that extending the taxonomy to cover transition and harmful activities should be considered only after the current suite of relevant sustainable finance policies, such as transition plans and sectoral pathways, has been embedded. Finally, it also recommended expanding the taxonomy to focus on the highest-emitting sectors and industries by developing criteria based on UK gross value added.

The second paper said that the sequencing of reporting requirements and the KPIs that should be used in taxonomy reporting are critical for it to be usable. GTAG has recommended that corporates report ahead of financial institutions, since the latter are dependent on information disclosed by clients and investee companies for their own reporting. The advice also suggested addressing challenges observed with KPIs used for reporting against the EU taxonomy.

Will Martindale has announced that he will step down as co-head of sustainability at Cardano to start his own sustainability consulting and analytics company alongside Ben Wilmot, a director in Cardano’s ESG and sustainability division. Martindale joined Cardano at the end of 2020, having previously worked as director of policy and research at the PRI for seven years.

The Central Bank of Egypt (CBE) has will allow green banks to be established in the country in order to support environmental protection and sustainable development. In its financial stability report, the CBE said green banks would operate under the provisions of the Central Bank Law, adding that sustainable financing is a key factor to address sustainable development goals. The CBE has launched several sustainable finance initiatives, including its guiding principles for sustainable finance, in line with the SDGs, for integrating ESG elements into the Egyptian banking sector.

Aussie investors led by super fund HESTA are pushing for ASX300 companies to set targets for gender balance in their leadership positions by 2030. In a recent survey, two-thirds of respondents said they would commit to increasing their advocacy for gender equality in the corporate sector in the coming year. Ninety percent said they are in active conversations with the boards of the companies they invest in, and 75 percent are using their voting power to drive change. However, a third of respondents said a lack of data on company gender diversity was a barrier to taking further action as part of their investment approach.

None of the world’s largest listed banks disclosed the share of total finance directed towards climate solutions last year, according to research by the Transition Pathway Initiative (TPI). The organisation found that only six of 26 banks have disclosed a commitment to end all on and off-balance sheet activities that finance coal immediately, while just five banks publicly disclosed the quantitative results of climate scenario analysis to shareholders. The data showed that European and Japanese banks were further ahead on climate change action, with ING scoring above average for eight out of 10 areas of the assessment framework. Meanwhile, JPMorgan and Morgan Stanley only scored above average on two areas. While the majority 20 banks have a net-zero commitment for part of their financed emissions, and 21 have set medium-term targets for their oil and gas and electric utilities lending portfolios, the analysis found that only three banks have linked financing policies to their sectoral targets.

The majority of G20 countries lack nature-related disclosure policies, according to CDP research. Currently, only Brazil, the EU and Indonesia have requirements for companies to report biodiversity-related data, despite the commitment made by 193 governments at COP15 to require companies and financial institutions to disclose their risks, dependencies and impacts on biodiversity by 2030. While the majority of G20 members have implemented climate-related disclosure requirements, only 40 percent have introduced requirements for water-related disclosure.

The CEO of one of the UK’s largest pensions consultancies has called for a “radical re-interpretation” of trustee fiduciary duty. Writing in Professional Pensions, LCP CEO Aaron Punwani warned that the ability of trustees to focus on responsible investment is being “crowded out” by TCFD reporting and compliance requirements. He called for fiduciary duty to be clarified to allow trustees to consider members’ best financial interests over the remainder of their lifetime and to have regard to the real-world impact of investment decisions. He argued that the focus on compliance was “having the effect of turning people off the subject rather than turning their attention to where it really matters”.

Investors need better climate data to deliver net zero, according to new research by the Principles for Responsible Investment (PRI). The initiative reviewed the requirements of the 17 major investor-led net-zero initiatives, as well as 62 climate data products provided by 19 data providers. It also interviewed 16 institutional investors on their climate data needs. The PRI recommends improved corporate disclosure through mandatory climate disclosure for companies, as well as improved coverage and quality of products through better data provider transparency and portfolio-level metrics. It has also suggested facilitating data comparability through common definitions, and sector and geographic transition pathways. The PRI said this will help to close the gap on investors’ data needs to “deliver and credibly report” on their net-zero commitments.