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ESG round-up: Munich Re joins insurers in rejecting controversial pipeline

The latest developments in sustainable finance: new industry collaboration to develop biodiversity targets for financial institutions; British pension savers will have access to more educational resources through new campaign; the Economist launches ESG rating service.

Munich Re has ruled out insuring the East African Crude Oil Pipeline (EACOP). The German firm joined Hannover Re, SCOR, Swiss Re, Axa and Zurich in publicly committing not to underwrite the pipeline. An alliance of environmental and human rights organisations launched the campaign #StopEACOP against the project. They are calling on other members of the Net Zero Insurance Alliance to “choose climate leadership” and rule out EACOP before their annual general meetings, a spokesperson told RI.

UNEP FI and the Finance for Biodiversity Foundation have announced a collaboration to develop biodiversity targets and metrics for financial institutions at portfolio level by 2023. On whether a double materiality or enterprise value approach will be taken, a spokesperson for the pair told RI: “To be decided, but likely to align with the direction of TNFD, which has a more nuanced way of handling this topic, recognising how impacts and dependencies can evolve into financial risks and the lines are more blurry than a dichotomy between single and double materiality.”

The Association of British Insurers (ABI) and the Pensions and Lifetime Savings Association (PLSA) have launched a coordinated industry campaign to boost people’s understanding and engagement with their pensions. Research by PLSA suggests that only 20 percent of pension plan holders in the UK are confident they are saving enough for retirement, meaning millions risk not having enough money to meet their needs, the association warns. The campaign, which will run in autumn/winter 2022, aims to improve understanding of pension basics by sharing tips on how to identify pension providers, make sure contact details are up to date and check how much to save towards retirement. Fifteen providers and schemes representing around 41.5 million savers have committed to support the campaign, with a collective investment of at least £1 million ($1.3 million; €1.2 million) for its organisation over the next three years, and a multiple of this amount in scheme- and provider-specific resources to further amplify the campaign.

The EU financial regulator ESMA has proposed introducing position limits on derivatives trading of EU carbon allowances and new transparency requirements in its assessment of the EU ETS carbon market, according to its final report published last week. The analysis was commissioned by EU authorities following a period of volatility where carbon prices reached record highs within the ETS, which some feared were a result of market manipulation and speculative trades. However, ESMA concluded that the market was broadly functioning as expected and found no evidence of “any major abnormality or fundamental issue… from a financial supervisory perspective”.

Also in Europe, market participants have until the end of the week to provide feedback on the development of a new EU label for ESG benchmarks. The initiative “builds on the success” of the EU Paris-aligned benchmarks and EU climate transition benchmarks, which created a new class of climate-focused investment benchmarks based on an EU-developed methodology. It aims to channel investment flows towards more sustainable activities, in addition to stamping out greenwash. The commission is seeking feedback from research bodies, ESG service providers, regulators, NGOs, investors, benchmark providers and others.

The Economist Intelligence Unit (EIU), the business-to-business arm of The Economist Group, has launched a new ESG rating service. The model consists of 90 indicators across nine different categories, from environmental stewardship to civil rights and corporate governance across 150 countries, which will be updated quarterly. It will also show historic ratings and indicators dating back to 2015.

The Principles for Responsible Investment (PRI) has published a new paper on sustainable development in emerging markets. Although some progress has been made since 2015, a lack of financing remains a major barrier for emerging markets, according to the report. It argues that, while a robust policy landscape is vital, investors can also take steps to adjust their own asset allocation towards emerging markets by articulating the value that active ownership brings to growth companies as well as acting in concert with other active owners as part of stewardship programmes. Key to affecting long-term systemic change is increasing the number of investable opportunities in emerging markets, the authors add. The investment products already exist to support this effort, such as green/sustainable development bonds and blended finance, but the report calls for the supply and use of these and other products to be expanded.

The Inter-American Development Bank (IDB) financed a record $4.5 billion in activities related to climate change, according to its 2021 sustainability report. These resources are contributing to the IDB’s region, Latin America, and Caribbean region through loans, grants, technical cooperation, guarantees and equity investments. At COP26, the bank committed to align all operations with the Paris Agreement starting in 2023 and to provide $24 billion in climate and green financing during the 2022–2025 timeframe. IDB is also leading the development of a regional platform on climate change for finance ministries, which promotes a shared understanding of their role in the climate agenda. The bank’s board of directors also approved the Amazon Initiative, which aims to mobilise public and private resources to implement sustainable development models based on human capital, natural wealth and the cultural heritage of the Amazon region.

New York City comptroller Brad Lander and trustees of the New York City Retirement Systems disclosed that investments in climate solutions reached more than $7 billion across all systems and asset classes at the end of 2021. These investments in companies that are helping to facilitate a just transition to a low-carbon economy build on the $4 billion divestment by three of the five New York City funds from companies that own fossil fuel reserves, which is expected to be completed later this year.