ESG round-up: Investors slam ESMA proposals on ESG fund requirements

The latest developments in sustainable finance: BSI issues guidance on embedding sustainability; court dismisses TotalEnergies EACOP case.

The Alternative Investment Management Association has claimed that the EU does not have the necessary “solid legal basis” to introduce minimum portfolio thresholds for ESG firms, according to media reports. The hedge fund association was responding to proposals made by ESMA to introduce an 80 percent hurdle for ESG assets and mandatory exclusions.

The British Standards Institution (BSI) and the International Standards Organisation have released a globally applicable standard to integrate sustainability principles into the operations of financial firms and other organisations. The standard, titled BS ISO 32210, contains advice on governance and culture, sustainability policies, strategy and alignment, and risk management. It comes a few years after BSI released the first UK-based standard for sustainable investment management.

A French court has dismissed a case brought against TotalEnergies regarding the development of the East African Crude Oil Pipeline. The lawsuit – filed by six French and Ugandan NGOs in 2018 – accused the energy giant of failing to adhere to the French Duty of Vigilance Act, which requires companies to prevent risks to human rights and the environment. The court ruled the case “inadmissible”, stating that the plaintiffs had not followed the correct court proceedings against TotalEnergies.

Investors should consider how forced selling by ESG index funds affects sustainability-linked bonds that miss their targets, according to analysis by the Anthropocene Fixed Income Institute. Two index-eligible SLBs issued by Nobian and PPC are widely expected to miss their linked targets, which could lead to them being dropped by ESG funds and indexes, leading to a negative price impact. It is unknown how the market will react to SLB “fallen angels”, but in the event of forced selling, “anticipation of this flow should form part of future SLB risk management around observation dates”, the AFII said.

The independent body reviewing standard setting in Canada has suggested that the creation of a dedicated board to set assurance standards for sustainability reporting could be an “effective way to better address sustainability assurance in the future”. The Independent Review Committee on Standard Setting in Canada (IRCSS), which was launched in 2021 and includes well-known figures such as Michael Jantzi and Stéphanie Lachance, put out its 26 recommendations on Wednesday. IRCSS also stated that it sees “logic” in Canada’s sustainability corporate reporting standards being developed “in step with the ISSB’s emerging global framework”.

Less than 1 percent of companies globally have closed the gender pay gap, according to research by gender diversity data provider Equileap. The analysis – which looked at 23 countries – found that only 28 companies globally have closed the gender pay gap, 12 of which are UK firms. The UK ranked fifth globally for disclosing on the gender pay gap, behind France, Spain, Italy and Norway. However, the UK is lagging on anti-sexual harassment policies, with more than 50 percent of firms still not publishing any.

The New Zealand Exchange has revised its corporate governance code and listing rules, with more stringent guidance on director independence, pay policies, 30 percent women on boards target, disclosing gender pay gaps, and ESG and climate reporting. The changes will come into force in April as a result of the consultations conducted last year.