ESG round-up: EU bodies to start negotiations on ESG rating regulation

The latest developments in sustainable finance: ECB could consider lower interest rate for green lending, says Schnabel; EU managers showed high support for key ESG resolutions in 2023.

The European Parliament and the Council of the EU are due to open negotiations on the EU’s forthcoming ESG rating regulation on Thursday, according to a source close to the process. The parliament’s proposal, which was developed by the parliament’s Committee on Economic and Monetary Affairs, includes provisions to encourage investor demand for smaller ESG ratings providers and a number of other amendments, while the council’s position is much closer to the original proposals made by the European Commission. Due to the European elections in June, the talks must conclude by end-February if the rules are to be adopted in the current parliamentary term.

ECB executive board member Isabel Schnabel has said the European Central Bank could consider a lower interest rate for green lending “when monetary policy needs to become expansionary again”, during a Q&A session on social media network X on Wednesday. Schnabel had been asked to comment on Emmanuel Macron’s support for a European dual interest rate for green energy and energy derived from fossil fuels. The measure received the backing of ECB president Christine Lagarde in 2022, but there has not been any formal push for implementation in Europe.

EU managers maintained a high level of support for ESG-related shareholder proposals in 2023, compared with their US counterparts where support at companies fell to 50 percent for the first time in three years, according to Morningstar research. The report – which analysed 20 US managers and 15 EU managers – found 98 percent average support for key ESG resolutions from EU managers. Half of the US equity fund managers showed either low or very low support for key ESG resolutions last year, compared with just five based on average support for the past three years. By contrast, all 15 EU managers showed very high support for key ESG resolutions.

The UK’s Economic Activity of Public Bodies (Overseas Matters) Bill, which would restrict the country’s local authorities from taking “political or moral disapproval” of foreign state conduct into account when making investment or procurement decisions, has cleared its final hurdle in the House of Commons. The draft law, which aims to stop councils taking part in the Boycott, Divest and Sanction movement against Israel but would also impact divestment decisions by local government pension schemes, passed its third reading on Wednesday night. The next step will be a vote in the House of Lords. LGPS Pools Brunel and London CIV have raised concerns that the bill may prevent schemes from properly managing ESG risks, while industry body the Pensions and Lifetime Savings Association has called for an explicit mention of the Principles for Responsible Investment principles and the UN Guiding Principles to ensure schemes can pursue active ownership in line with international human rights guidelines.

Hong Kong’s Green and Sustainable Finance Cross-Agency Steering Group has established a new working group to develop a roadmap setting out the “appropriate” adoption of the International Sustainability Standards Board’s disclosure standards. The working group is led by the Financial Services and the Treasury Bureau, and the Securities and Futures Commission. The plan will cover four areas: sustainability reporting, assurance, data and technology, and capacity building. The working group will engage with stakeholders to understand what should be considered when implementing the reporting standards.