ESG round-up: France becomes first EU member state to transpose CSRD

The latest developments in sustainable finance: JP Morgan climate metric in line with NZBA protocols, says alliance; GFANZ APAC chapter issues guidance on coal phase-out.

France has transposed the Corporate Sustainability Reporting Directive (CSRD) into its national law, becoming the first EU member state to do so. All member states are required to transpose the directive into their national laws and bring into force the necessary regulatory and administrative provisions by July 2024. France has been one of the leading countries on efforts to implement the EU’s new sustainability reporting rules, with the parliament authorising the government in March to proceed with work on transposing the directive into law over a period of nine months.

JPMorgan’s adoption of an unconventional climate metric does not contravene Net Zero Banking Alliance (NZBA) protocols, a spokesperson from the green banking group has clarified. The US bank recently replaced its oil and gas emissions target with an “energy mix” target, which measures reductions in fossil fuel financing in combination with increases in clean energy financing. The move has raised concerns that the metric would allow the bank, which is a member of the NZBA, to avoid making significant cuts to its fossil fuel lending. “Our expanded target recognises a singular focus on fossil fuels will not successfully achieve the necessary transition of the global energy system,” the bank said in a statement explaining the decision. “Therefore, our targets should aim to reflect the reality that we also need to prioritise a significant buildout of clean energy sources.”

The NZBA has separately responded to a recent European Central Bank-commissioned paper that criticised banks for joining net-zero initiatives without clear plans for decarbonisation. This approach “results in many banks overplaying their net-zero commitment in this initial period, despite lacking a clear view and strategy on the operationalisation of their net-zero strategy”, the paper’s authors said. They called on market initiatives like the NZBA to push for “more short-term targets to improve the perceived reliability of such commitments”. A spokesperson for the banking body said: “Many banks feel it is useful to sign up and announce their commitment to do this to signal to the market that they are taking climate issues seriously and doing work on this which may not be visible for a while until their targets are ready for publication.”

The APAC chapter of the Glasgow Financial Alliance for Net Zero (GFANZ) has published long-awaited guidance on how financial institutions can rewrite their climate policies to support the managed phase-out of coal plants. The topic has emerged as a priority for Asian supervisors such as the Singapore central bank, development banks and philanthropic groups over concerns that widespread coal divestment by banks and investors for environmental reasons could limit the capital needed to speed up coal retirement. The guidance includes a menu of metrics and safeguards that the GFANZ offshoot believes will “ensure that only responsible and credible phase-outs will be eligible for financing” and provide a way to generate time-bound returns from coal, while continuing to align with broader institutional climate goals.

Staying with GFANZ, the initiative has announced plans to focus on index-based investment in its 2024 workplan. It will support a cross-alliance workstream for developing the next generation of net-zero indices and to help investors better align index-based investment with the net-zero transition. In its latest progress report, GFANZ reported 100 new financial institutions as signatories this year, and said it achieved progress on its three key priorities for this year including mainstreaming transition planning, closing the investment gap, and closing the data gap. In 2024, GFANZ will also focus on measuring impact on emissions, real economy decarbonisation, nature in transition plans, carbon markets, country platforms, and the Brazil ecological transition plan.

The Net-Zero Asset Owner Alliance has published policy engagement guidelines and a tool for developing credible transition plans to support asset owners with their net-zero commitments. The policy engagement guidelines encourage the alliance members to integrate four principles: accountability, active engagement, consistency and transparency.

The Taskforce on Nature-related Financial Disclosures (TNFD) has released a discussion paper on biodiversity footprinting approaches for financial institutions. The report, produced in Partnership for Biodiversity Accounting Financials, lays out the current biodiversity footprinting landscape, including the limitations and steps for market participants to select and disclose biodiversity footprinting approaches appropriate for their requirements. The paper is open for feedback until 29 March.

Bank Negara Malaysia and the World Bank have announced a partnership to produce two nature initiatives for Malaysian financial institutions and companies: a financial risks assessment guide to assess nature-related risks and impacts; and private capital mobilisation for nature-based solutions. The risk assessment guide – set to be developed in consultation with the TNFD Secretariat – aims to provide guidance for financial institutions and companies to assess their nature-related dependencies, risks and opportunities.

Staying in Malaysia, carbon offsets provider and standard-setter Gold Standard has signed an MoU with Bursa Malaysia to participate in the stock exchange’s carbon trading market. The Bursa Carbon Exchange hosts Malaysia’s first voluntary carbon market and began trading in September. It signed a similar partnership agreement with offsets market leader Verra in 2022. Under the MoU, Gold Standard will work with local project developers and help develop validation and verification bodies in the Malaysian market.

Separately, Bursa Malaysia has launched an ESG reporting platform for listed issuers. It will act as a repository for disclosures conforming to the prescribed format mandated under the stock exchange’s enhanced sustainability reporting requirements.

Finnish audit committees have identified several challenges in preparing for sustainability reporting, as part of the incoming CSRD. Almost half of the 87 audit committees surveyed by the Finnish FSA saw the timeline for implementation and reporting as a challenge. A quarter of respondents also flagged the number of regulations and their incompleteness and interpretation as an issue. Other issues cited included workload and inadequacy of resources.

The Asian Development Bank, Monetary Authority of Singapore, and Global Energy Alliance for People and Planet have signed an MoU to set up a blended finance partnership to accelerate the energy transition in Asia. The initiative will aim to mobilise $2 billion in concessional capital from the philanthropic and public sectors, de-risk projects, and crowd-in private capital from around the globe to finance energy transition projects in Asia. Projects could include the early phase-out of coal assets to be replaced with renewable energy, and decarbonisation projects in hard-to-abate sectors. The partnership will also explore using high-integrity transition carbon credits to improve the commercial viability and sustainability of retiring and replacing coal assets with renewable energy.

Amundi has launched an Asia Income ESG Bond that will invest across all Asian fixed income segments with a focus on both credit and local rates markets. The Article 8 fund will target high income generation with an optimised risk-return profile, and employ a “robust ESG framework” to reduce extra-financial risk, while also seeking ESG opportunities. The fund will be managed by Joevin Teo, head of Asian fixed income, and the EM debt team.

The International Capital Market Association (ICMA), in partnership with the Islamic Development Bank and the London Stock Exchange Group, has announced the development of a practitioners’ guide on the issuance of Islamic bonds (Sukuk) in line with ICMA’s green bond principles and sustainability bond guidelines. The work will provide guidance on how Sukuk can be labelled as green or sustainability in line with the principles through examples, case studies and best practice.

IDB Invest and IFC have launched the Amazon Finance Network, an alliance for financial institutions to increase investment flows and mobilise capital across the Amazon region. The network is composed of 24 founding signatories including Bolivia, Brazil, Colombia, Ecuador, Guyana, Peru, Suriname, Spain, Switzerland and the US. One of its main goals will be to create employment opportunities through sustainable financing for SMEs in the region.

The European Bank for Reconstruction and Development has said it will include climate resilient debt clauses (CRDC) in new loan agreements with sovereign, sovereign-guaranteed and municipal clients from lower and middle-income countries where it works. The bank’s CRDC will enable loan repayments to be deferred by two years in the event of an extreme natural disaster, with eligible clients expected to be able to start opting for the clause in their loan agreements by mid-2024.

An independent climate commission set up by South Africa’s president has proposed the creation of a Just Transition Financing Mechanism within one of the country’s public finance bodies to “provide a cohesive strategy for raising and channelling funds towards the Just Transition”. Such a vehicle would address the current inability for the “financial ecosystem to channel funding towards South Africa’s Just Transition”, the multi-stakeholder body wrote in a draft report published Monday for public comment.

Staying on Just Transition, EIB Global – the development arm of the European Investment Bank – is due to increase financing and advisory services in support of a “just resilience” and Just Transition approach from the start of next year. The bank will work with public and private partners to identify opportunities and address challenges related to a Just Transition and just resilience. EIB Global is also seeking to build financial, technical and knowledge partnerships to help prepare Just Transition and just resilience projects worldwide. It will initially focus its Just Transition activities on nine pilot countries: Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, Serbia, Ukraine, South Africa, Indonesia and Vietnam.