ESG round-up: GPIF outperforms in seven of eight ESG indexes, ups allocations

The latest developments in sustainable finance: NSW Audit Office blasts biodiversity offset scheme; Nasdaq and SEC defend proposed diversity rule.

Japan’s Government Pension Investment Fund, the largest pension fund in the world, had ¥12.1 trillion ($88.2 billion; €87.6 billion) invested in ESG index-linked assets at the end of March, according to its annual ESG report [in Japanese]. This represents a 15 percent increase over last year’s reported figure of ¥10.6 trillion, and follows a ¥760 billion investment in a domestic equities FTSE ESG index in March. Seven out of eight ESG indices adopted by the ¥196 trillion fund outperformed the market in the 12 months to the end of March. The MSCI WIN index posted the weakest performance, having trailed the TOPIX by 1.12 percent.

The Audit Office for New South Wales has blasted the Australian state’s biodiversity offset scheme in a new report that said key concerns around transparency, sustainability and integrity “are yet to be fully resolved”. The scheme, launched in 2017 to offset biodiversity losses from development by allowing landholders to generate and sell biodiversity credits from managing sites over a long period of time to “generate biodiversity gains”, was not effectively designed and lacked a clear strategy for development, the report continued. Demand cannot be matched to credit supply in 90 percent of cases, and there are both transparency and integrity risks in the scheme, it added.

Lawyers representing Nasdaq and the Securities and Exchange Commission have defended the former’s plan to require companies to disclose the diversity of their boards, MarketWatch reported. They were arguing in front of a three-judge panel of the US Court of Appeals for the Fifth Circuit in Louisiana on Monday after conservative activists challenged Nasdaq’s diversity rule. Approved by the SEC in August 2021, the rule requires listed companies to have at least two “diverse” board members. The plaintiffs claim that this violates the First and Fifth Amendments, by compelling speech and undermining equal protection, respectively. 

The SEC last year approved a Nasdaq NDAQ, -1.63% policy that asks companies to disclose the demographic make-up of their boards, and questions them if they fail to meet certain standards for diversity. Two conservative groups sued, claiming the rule is discriminatory and unconstitutional, similar arguments to an appeal that struck down California laws on the topic earlier this year, which the state is appealing.

A group of 65 organisations including corporates, investors and service providers have released a joint statement calling for stronger alignment of global efforts around sustainability disclosures. The signatories, which include Shell, Achmea Investment Management and the ‘big four’ accountancy firms, warn that “current draft standards and initiatives are not technically compatible in terms of concepts, terminologies, and metrics” and call on regulators and standard setters including the SEC, ISSB and EFRAG to avoid fragmentation.

The UK’s Financial Reporting Council has published a series of principles for corporates on collecting and using ESG data to support better decision-making. The report was produced by the regulator’s “lab”, an initiative to allow investors and corporates to “come together to develop pragmatic solutions to today’s reporting needs”. It sets out a recommended step-by-step approach to ESG data production and processes across three areas: “motivation, method and meaning”. The report also identifies a number of key challenges, including the volume and variation of data requests from market participants, with companies expressing concern that they may be penalised for leaving blank data points, even when the data is not relevant for them.

The Securities and Exchange Board of India has extended the deadline for comments on its consultation on blue and green bond guidelines by another month. Market participants will now have until the end of September to respond to the consultation. Concerns have already been raised over the inclusion of ocean mining in the blue bond guidelines.

In other India news, the Institute for Energy Economics and Financial Analysis has called on local policymakers to aim for a “truly green” taxonomy in order to drive foreign investment. The country, which is in the early stages of developing its own taxonomy, will be reliant on foreign investors to meet its renewable energy goals, but overseas capital “awaits more clarity on India’s green investment policies”, the think-tank said. It cautioned that India should “be mindful of how global sustainability-focused investors… have responded to watered down sustainable finance standards”.