ESG round-up: Germany’s sustainable finance board calls for transition finance principles

The latest developments in sustainable finance: UK green taxonomy further delayed to Q1 2024; Switzerland refines voluntary climate scores.

The German government’s sustainable finance advisory board has called for EU-level principles for transition finance to help resolve uncertainty and unclearness in the financing of company transitions. In a discussion paper published on Friday (in German), the group called for the development of suitable sectoral benchmarks, practical transition planning guidelines, and clear definitions of climate neutrality, including the use of offsets. The paper said these measures should be rooted in the existing Sustainable Finance Framework, and that they should allow flexibility for firms to take tailored approaches to the transition.

Hermann Klughardt, a board member at Forum Nachhaltige Geldanlagen (FNG), the German SIF, has resigned his position with immediate effect. Responsible Investor reported this month that the group had faced interpersonal disputes on its board which had put the future of Germany’s sustainable fund label in doubt. However, members voted last week in favour of a proposal to give it greater independence from the FNG. They also instructed the board to draw up a contract relating to the separation of the sustainable fund label by the end of the year. In a statement, Klughardt said he did not feel this could be done with the necessary care. Elections for new board members will be held at an undetermined date next year.

The UK green taxonomy has been further delayed to Q1 next year. A Treasury spokesperson told Responsible Investor that work on the initiative is continuing “at pace” and publication is due by end-March 2024. The government had been expected to legislate on the taxonomy by the end of last year, but said in December that it would miss the deadline. The green finance strategy, which was released in March, said consultation on the taxonomy would start in autumn 2023.

Climate Engagement Canada (CEC) has published the results of its inaugural Net Zero Benchmark, which aims to provide a set of common standards for investors to evaluate focus companies’ progress towards aligning with the Paris Agreement’s ambition. The $5.1 trillion collaborative engagement initiative said that, despite progress in some areas, the benchmark found that significant effort and further disclosures are required to demonstrate climate action plans “have positive social and economic impacts for communities and workers, and meet thresholds of Free, Prior, and Informed Consent for Indigenous communities”. Assessments were based on public disclosures from June 2022 to June 2023 by CEC’s 41 target companies. The firms were given an opportunity to submit additional feedback or disclosures to be considered as part of the assessment process.

The Swiss Federal Council has announced further developments to its voluntary climate scores. Introduced in 2022, the climate scores provide investors with comparable data on the extent to which their financial investments are compatible with international climate goals.

The updated climate scores, which will apply from 1 January 2025, have been refined to facilitate their implementation by the industry and increase their comprehensibility for investors. They include optional questions on climate-related investment goals, which will allow financial institutions to state and justify whether a financial product is climate-aligned or contributes to mitigating climate change. In addition, exposure to renewable energies must now be disclosed alongside exposure to fossil fuels. The council has recommended that Swiss financial market players apply the climate scores where appropriate. The Federal Department of Finance will examine the state of voluntary uptake next year.

The UK Competition and Markets Authority (CMA) has launched an investigation into consumer group Unilever’s environmental claims on a number of household essential items. The CMA is concerned that Unilever may be “overstating” how green certain products are, through “vague and broad claims, unclear statements around recyclability, and ‘natural’ looking images and logos”.

A spokesperson for Unilever said: “We are surprised and disappointed with the CMA’s announcement and refute that our claims are in any way misleading. Unilever is committed to making responsible claims about the benefits of our products on our packs and to these being transparent and clear, and we have robust processes in place to make sure any claims can be substantiated.”

The Taskforce on Nature-related Financial Disclosures has launched a capacity-building tool to support organisations in their adoption and implementation of the initiative’s disclosure recommendations. The tool, which is free to download, consists of five modules as well as a high-level overview aimed specifically at boards.

ShareAction has released a guidance paper on investor engagement with portfolio companies. The report says quality engagement from asset managers should include a “robust use of escalation”, adding that it is currently “difficult to see how, and to what extent” asset managers are escalating with their investee companies. ShareAction has proposed a standardised framework for escalation to help stakeholders assess and compare how asset managers are using escalation tools, companies understand how their choices will affect their relationship with investors and how it might impact access to capital, and investors and other stakeholders identify overlapping goals and common purposes.

Staying with ShareAction, its Workforce Disclosure Initiative (WDI) has launched an investor coalition to engage with the development of a global baseline for corporate social disclosures. The six-month initiative will see WDI work with its investor partners to identify and communicate investor priorities on social data.

Danish financial institutions are struggling to “demonstrate respect for human rights”, according to a benchmark by the Danish Institute for Human Rights. Financial institutions scored on average 34 percent across the eight benchmark indicators, derived from the UN Guiding Principles on Business and Human Rights.

No company was able to document full alignment. Financial institutions performed best on demonstrating that they identify human rights risk in financial activities (76 percent) and worst on showing that they engage with affected people, or their representatives, to inform their approach to managing human rights (6 percent). Pension funds on average scored highest on overall alignment (50 percent), followed by investment management companies (37 percent), insurance companies (31 percent) and banks (26 percent).

Euronext has excluded Italian car manufacturer Ferrari from the MIB ESG index following its quarterly review, which will be effective from 18 December. The index has now included Italian asset manager Anima Holdings. The next quarterly index review will take place in March, with full review of the index scheduled for June.