ESG round-up: Malaysia to consult on ISSB standards in February

The latest developments in sustainable finance: Morningstar predicts SDR Sustainability Focus label ‘will dominate’ in UK; Robeco announces ocean life and hazardous chemicals as new engagement topics.

Malaysia’s Advisory Committee on Sustainability Reporting has announced a public consultation on the use of the International Sustainability Standards Board (ISSB) disclosure standards. The online consultation will kick off in February and be open for six weeks. Respondents can provide views and feedback on implementation approach, timing and assurance of sustainability disclosures.

Morningstar has predicted that the Sustainability Focus label will “dominate” SDR when asset managers start classifying their funds later this year under the new UK regime. In a research note published on Tuesday, the firm said that based on the universe of ESG-labelled funds in the UK, it would expect 46 percent of products to go for the Focus label, followed by 31 percent for Mixed Goals, 12 percent for Improvers and 11 percent for Impact. The universe of labelled funds will likely be concentrated around equity and active funds, Morningstar said, as most passive funds available in the UK are domiciled overseas.

However, the note also raises the prospect that managers may adopt a “wait and see” approach, seeing how both the UK market and the EU’s Sustainable Finance Disclosure Regulation reforms evolve.

Robeco has announced ocean life and hazardous chemicals as its two new engagement themes for this year. The engagement process for both topics will run for three years with selected investee companies. Robeco said it will be engaging with around six companies that have a significant impact on sea life, and look at deep sea mining for the first time. It added that much of the work will be done with Nature Action 100, and that it plans to send out a letter outlining investor expectations to 100 companies likely to become involved in the sector. For hazardous chemicals, it will target around six companies, with a view to phase out their use of PFAS or so-called forever chemicals.

The manager has also launched a traffic light system as part of its continuing “Acceleration to Paris” climate theme. In 2024, minimum standards will be introduced for 42 companies (those falling below minimum standards), with a 2026 deadline for companies in developed markets, and 2028 for emerging market companies. One of the minimum standards will be reporting emissions data for Scope 1 and Scope 2, as well as setting targets for emissions reductions. Robeco also expects oil and gas companies to set methane targets, and for companies to commit to no new coal expansion.

Impax Asset Management has acquired Absalon Corporate Credit (€405 million AuM), which is part of the Formuepleje Group, based in Copenhagen. The Absalon team manages two fixed income strategies in Global High Yield (launched in 2006) and Emerging Market Corporate Debt (launched in 2010), available as Luxembourg-based SICAV funds and as Denmark-based funds. The team was established by Klaus Blaabjerg, who, along with three portfolio management colleagues, is joining Impax AM as part of the acquisition.

Corporate ESG-labelled bond issuance fell 8 percent year-on-year to $332 billion in 2023, according to Barclays’ final count, largely driven by a fall in US and Asian issuance. Sustainability, sustainability-linked and social bonds fell by 35 percent, 21 percent and 13 percent, respectively, while green bond issuance saw a 2 percent rise. The bank forecasts that total ESG-labelled issuance will see a rebound of 5 percent in 2024.

The Climate Bonds Initiative (CBI) has launched a consultation on its deforestation and conversion free sourcing criteria. The new guidance provides advice for assessing the alignment of all food commodity procurement and sourcing strategies with 1.5C transition for the land sector, to enable food retailers to “issue credible finance”. The guidelines will focus on climate and biodiversity impacts, and on ensuring a Just Transition. CBI said that the criteria will be consistent with EU deforestation regulation, and guide those aiming for early awareness and adherence.