ESG round-up: Four UAE financial regulators adopt climate risk principles

The latest developments in sustainable finance: GRI consults on climate change and energy standards; French AMF finds poor alignment on taxonomy climate change adaptation objective.

Four financial regulators in the UAE have adopted a set of principles for climate risk management and disclosures which will set minimum standards on the subject for all financial institutions operating in the country. The principles were developed by the UAE Sustainable Finance Working Group, of which all four regulators are members, and are largely in line with the TCFD framework. It is up to each individual regulator to decide how it will apply the principles to regulated companies by a November 2023 deadline. The regulators are the Central Bank of the UAE, the Securities and Commodities Authority, the Dubai Financial Services Authority and the ADGM Financial Services Regulatory Authority.

The Global Reporting Initiative (GRI) has launched a consultation on two standards, one on climate change, and one on its updated energy standard, as part of a review of its standards commissioned and overseen by the Global Sustainability Standards Board. The climate change standard would serve for organisations to disclose climate change transition and adaptation plans; detail annual progress on emissions reduction targets; and be transparent about their use of carbon credits and GHG removals. It also has a new disclosure on the social aspect of climate change. The revised energy standard focuses on how organisations are reducing energy consumption, achieving energy efficiency, and sourcing renewable energy. The consultation is open until 24 February, with the final standards due to be published before the end of 2024. The GRI said “cooperation and review of the drafts has taken place with EFRAG, some national standard setters, and the ISSB to achieve alignment with their respective climate-related disclosures”.

In a study of 31 non-financial companies and their alignment with the EU taxonomy, the French AMF found almost all companies are only analysing the contribution of their activities to the climate change mitigation objective, and are not giving enough consideration to the climate change adaptation objective. For the companies analysed, the average turnover alignment KPI is 15.3 percent, the average capital expenditures alignment KPI is 20 percent, and the average operating expenditure alignment KPI is 12.8 percent. The French financial regulator also stressed the need for companies to explain changes on the eligibility rate from one financial year to the next.

Schroders subsidiary BlueOrchard has launched an emerging markets impact credit fund. The Article 9 fund will invest in smaller financial institutions active in areas including SME lending, adaptation solutions and energy efficiency, as well as lending directly to SMEs. In other fund news, Columbia Threadneedle has upgraded its Social Bond fund and a global equity fund to Article 9, as well as upgrading eight funds to Article 8. The firm said that 84 percent of the assets in its Luxembourg SICAV range were now in funds classified as Articles 8 and 9.

T Rowe Price has partnered with the IFC to launch the first ever blue bond fund. The fund, which will buy blue bonds from financial institutions and corporates, is complemented by a technical assistance facility managed by the IFC which will aim to increase issuance levels. The two have also developed blue impact investment guidelines which will be implemented in the fund’s investments.

Fidelity International has put out a report on workplace misconduct and the “underestimated systemic implications” for investors. The research looks at how poor behaviour, such as bullying or sexual harassment, can create a ripple effect across a whole industry and generate negative externalities for the broader economy. The report coins the term “culture-based financial risk” to explain the multiple ways culture can represent a risk for investors and influence shareholder value. The asset manager has proposed a framework with three levels – operational, societal gap, and systems-level – to understand how harmful behaviours can create risk.

Performance on gender equality in companies has been deemed “dismal” in the latest World Benchmarking Alliance gender benchmark. The assessment – which analysed more than 1,000 companies – found that in most companies, women are underrepresented, and their concerns are not heard. It also said that companies treat parental leave as benefits offered to some, but not all, and that while most companies have taken a public stance against violence and harassment, few take steps to prevent and remediate it.

Separately, in its corporate human rights benchmark, the WBA said that some companies have shown promising change within five years, but added that most fail to include rightsholders in their human rights due diligence processes. It also found access to grievance mechanisms without ownership to be a hinderance.

The Australian Securities and Investments Commission (ASIC) has retained its enforcement priorities relating to greenwashing for 2024. It comes as the financial watchdog received A$4.3 million ($2.7 million; €2.6 million) from the government as part of its sustainable finance strategy to further expand its surveillance and enforcement activities relating to greenwashing. It will also continue to focus on governance and directors’ duties failures next year.

Fewer than one fifth of companies are on track to reach net zero by 2050, according to research from Accenture. The report found that around  one-third of surveyed companies said they could not make any further investments in decarbonisation in the current economic environment.

The Monetary Authority of Singapore (MAS) has launched a digital platform for ESG data help companies automate their ESG reporting process and allow investors to access relevant data to support their sustainability-related decision making. The tool Gprnt (pronounced “Greenprint”) is currently being tested by selected banks and SMEs, and is due to be progressively rolled out from Q1 next year.

The Institutional Investors Group on Climate Change (IIGCC) has published guidance on climate solutions to help investors identify and measure their allocations. The advice covers listed equity and corporate fixed income and complements the Net Zero Investment Framework (NZEF).

Senior executives and investors have ranked legal action for failing to comply with sustainability regulations as their biggest sustainability-related concern, according to a Simmons and Simmons report. The research – which surveyed 700 global senior executives and investors – found that more than half of respondents regard the prospect of reputational damage from legal action as a greater concern than facing legal penalties, while 60 percent said they were confident their organisation can comply with greenwashing rules.