ESG round-up: IFRS to take over TCFD monitoring from next year

The latest developments in sustainable finance: Investor coalition targets tech on mental health; ESMA sets out expectations for sustainability disclosures in prospectuses.

Following the publication of the International Sustainability Standards Board’s (ISSB) two standards last month, the Financial Stability Board has asked the International Financial Reporting Standards (IFRS) to take over the monitoring of the progress on companies’ climate-related disclosures from the Task Force on Climate-Related Financial Disclosures (TCFD). This will take place from 2024, when the ISSB standards will start to be applied. Both ISSB standards fully incorporate the TCFD’s recommendations, with the FSB noting that they mark the “culmination of the work of the TCFD”, which was established in 2017.

A group of investors with more than $2 trillion in collective assets and led by AXA Investment Managers and Sycomore Asset Management have launched a coalition to engage with 15 companies operating in the hardware, media, internet, gaming, software, edtech and telecommunications space on mental health and wellbeing. The coalition is looking to engage with the sectors to help them define policies and implement measures to mitigate the negative impacts of technology. The investors will guide companies to implement good practices including policies, greater governance, transparency and disclosure on content to establish a commitment to keep children safe online, develop a mechanism to report harmful content and support educational initiatives for online safety.

EU financial watchdog ESMA issued a public statement today (11 July) on the sustainability disclosure expected to be included in the prospectus regulation (PR). The regulator said it will ensure that the bloc’s national regulators take a coordinated approach to the scrutiny of sustainability-related prospectuses, provide issuers and their advisers with an idea of what disclosures the regulators will expect them to include, and support investors in their investment decisions. ESMA emphasised how it is important for issuers to disclose their non-financial reporting under the Non-Financial Reporting Directive (NFRD), as well as under the upcoming Corporate Sustainability Reporting Directive, since disclosure may be material under the PR. Finally, the statement notes that sustainability-related disclosure should be included in prospectuses if it is material under the PR.

Barclays has slashed its 2023 target forecast for ESG bond issuance, with corporate ESG bond issuance seeing an 11 percent year-on-year decline at the end of Q2 this year. Year-to-date supply stands at $193 billion, 11 percent lower than the $218 billion issued during the same period in 2022, and 21 percent lower than in the first half of 2021, when $244 billion of bonds came to the market. The bank has lowered its FY2023 forecast from circa $460 billion to circa $360 billion, which would mean that end the year would be down 9 percent. Barclays analysis shows that the decline is driven almost entirely by the lack of dollar-denominated bonds issued this year. Dollar-denominated ESG supply was down more than 45 percent year on year, whereas euro, sterling and JPY-denominated supply were all up slightly this year.

Sustainability-linked bonds issued in 2023 have a larger proportion of step ups higher than 25 basis points than any year to date, according to analysis by Barclays. The Barclays research found just under 30 percent of SLBs issued this year had a step up of 25bps of lower while the proportion of 50bps step ups has massively expanded as well against 2022. However, 25bps remains by far the most common increase among bonds in the bank’s database. The proportion of bonds with a measurement date between 80-100 percent through the life of the bond is at its lowest since 2019, while the proportion measuring earlier than 60 percent of the way through the bond is at its highest.

BNP Paribas Asset Management (BNPP AM) has said it supported 88 percent of shareholder resolutions on environmental issues and 96 percent on social issues this year. The French manager rejected more than half of Say on Climate resolutions where there was a lack of focus on Scope 3 emissions. It also rejected 55 percent of executive compensation resolutions, noting that executive compensation plans should be aligned with long-term corporate performance and include demanding extra-financial objectives. BNPP AM voted against 48 percent of director appointment resolutions due to a lack of diversity, opposing the election of all male directors when its required 35 percent female board membership for Europe and North America, or the 20 percent minimum threshold for Latin America, Asia and the Middle East, was not met.

UK Sustainable Investment Forum (UKSIF) CEO James Alexander has written about his disappointment in the government’s lack of leadership from the government on ESG and sustainable investment, calling for faster action. He said the government needs to be “much more ambitious” if it is to realise plans laid out in its green finance strategy, adding that while the plan is sound, implementation is currently “far too slow”. Alexander also outlined how corporates and investors follow the government’s example on this front, and will only be as committed to ESG as the government is.

Nikko Asset Management and environmental quantitative investment manager Osmosis have entered into a non-binding agreement for a strategic partnership, under which Nikko AM intends to acquire a minority stake in Osmosis. Nikko AM – a subsidiary of Sumitomo Mitsui Trust Holdings – will gain exclusive distribution rights in the APAC region – except for Australia – and non-exclusive rights elsewhere for Osmosis investment products and strategies.