ESG round-up: EU sustainable finance platform consults on ‘taxonomy-aligning’ benchmarks

The latest developments in sustainable finance: UK launches voluntary code of conduct; Lack of ‘strong language’ on fossil fuels at COP28 ‘poses risk to progress’, say investors.

The EU Platform on Sustainable Finance has launched a three-month consultation on its new taxonomy-aligning benchmark (TAB) report, seeking market feedback and input into the development and use of the benchmarks. The report has put forward two proposals for voluntary TABs with the aim of “initiating a discourse” on the role the taxonomy could assume in shaping climate and environmental benchmarks. The consultation will close on 13 March.

EU financial watchdog ESMA has announced that it will work with national regulators to investigate ESG disclosures under the bloc’s benchmark regulation. As part of its sustainable finance push, the EU created two benchmark labels in 2020, the Climate Transition Benchmark (CTB) and the Paris-aligned Benchmark (PAB). The announced action will focus on “focus on supervised benchmarks administrators”. It will cover ESG and climate disclosures and will take place in 2024, with a deadline of Q1 2025. It is the first “Common Supervisory Action (CSA)” by ESMA in its role as a direct supervisor of benchmarks administrators. In July, ESMA announced a CSA to assess the compliance of asset managers with the EU’s anti-greenwashing legislation, SFDR, taxonomy and “relevant implementing measures, including the relevant provision in the UCITS and AIFMD implementing acts on the integration of sustainability risks”.

The International Capital Market Association (ICMA) and the International Regulatory Strategy Group (IRSG) have launched a voluntary code of conduct for ESG ratings and data products providers in the UK, following a three-month consultation which closed on 5 October. A draft version of the code was published in July. A parallel initiative to develop a formal regulatory regime is being undertaken separately by the Treasury.

Investors have said a lack of strong language on fossil fuels in the final COP28 text “poses a risk to progress” and falls short of the phase-out called for ahead of the conference. In a statement, the Institutional Investors Group on Climate Change (IIGCC) noted that the specific reference to fossil fuels has “set a new precedent” that national governments need to build on and implement. But IIGCC added that, while the text highlighted unanimous agreement on the required trillions in investment to reach a carbon neutral economy, the question of how this will be achieved “remains uncertain”.
The group also called for stronger signals and more detail in NDCs, carbon pricing, clearer sectoral pathways and reform of the multilateral development bank model.

Staying at COP28, MSCI and the International Emissions Trading Association (IETA) have expressed regret over the failure to adopt texts relating to Article 6 of the Paris Agreement covering carbon markets. Guy Turner, head of carbon markets at MSCI, said companies and countries have long been waiting for further detail of the rules for the carbon market mechanism. Failure to reach an agreement at COP28 will likely delay the timeline for implementing Paris-aligned carbon trading for another year and “push global emissions further off track”, he added.

Andrea Bonzanni, international policy director at IETA, said the organisation needed time “to reflect on the reasons and implications of this debacle”. In a separate statement, IETA expressed “deep regret” over the lack of consensus on Articles 6.2 and 6.4, and called for an end to the “politicisation” of markets.

More than a fifth of Microsoft shareholders (21 percent) backed proposals on tax transparency and artificial intelligence (AI) misinformation and disinformation at the tech giant’s annual meeting. RI reported last week that a number of big funds had thrown their weight behind the pioneering AI resolution put forward by US activist Arjuna Capital. Another proposal calling on Microsoft to commission a report assessing the siting of cloud data centres in countries of significant human rights concern was backed by one-third of shareholders. The proposal was put forward by campaign group Ekō (formerly SumofUS).

APG Asset Management has invested $30 million in the Women’s Livelihood Bond, a gender-focused issuance which will use 100 percent of proceeds raised to advance SDG5. The “orange bond” will provide access to capital for women entrepreneurs across several Asian and African countries. It will target six sectors: agriculture, water and sanitation, clean energy, affordable housing, SME lending and microfinance.

BNP Paribas has launched a Climate Impact Infrastructure Debt fund focused on finance climate change mitigation. The Article 9 fund is targeting €500-750 million, including a seeding commitment from insurer BNP Paribas Cardif. The strategy will support energy transition projects across continental Europe, including renewable energy, clean mobility, and the circular economy. Three investments have already been secured for the fund, with financing for a low-carbon energy producer, a green-sourced district heating platform, and a portfolio of onshore wind farms.

Morningstar has launched a Transatlantic Sustainable Development Goals Select 40 Index. The index, licensed by Citi, provides exposure to US and developed European companies whose business activities contribute positively to the SDGs. Index constituents must pass stringent ESG screens and derive at least 25 percent of their revenue from one or more of Sustainalytics’ impact themes: human development, climate action, healthy ecosystems, resource security and basic needs. Constituents are selected based on the highest total impact score, as measured by Morningstar Sustainalytics impact metrics.

Only 2 percent of oil and gas companies and 11 percent of energy companies are aligned with the Paris Agreement 1.5C target across the three timeframes of 2025, 2035 and 2050, according to research from the Transition Pathway Initiative (TPI) Centre. In an assessment of the credibility of companies’ carbon management and governance performance, including transition plans, the centre found that 96 percent of oil and gas, and electricity companies do not clarify the role played by offsets and negative emissions technologies, 92 percent do not quantify the key elements of their emissions reduction strategy, and 98 percent do not align future capital expenditures with long-term decarbonisation goals.