ESG round-up: NGOs call on EU to mandate double materiality for ESG ratings

The latest developments in sustainable finance: ECB’s Elderson threatens daily fines for banks which fail to meet climate change supervisory expectations; NZAOA sets out expectations on AMs for climate engagement.

WWF, Reclaim Finance, Frank Bold and other NGOs have called on the EU to mandate a double materiality approach to ESG ratings and ensure their alignment with other EU sustainable finance initiatives. The coalition has written to the parliamentary ECON committee, which is responsible for drafting an overall position for EU lawmakers before they enter tripartite negotiations over the bloc’s draft ESG ratings legislation. The groups have argued that at least 50 percent of ESG ratings should be derived from how well organisations manage their external ESG impacts, and that E and S ratings should be benchmarked to approved 1.5C pathways and international labour and human rights standards, respectively. Ratings products should also assess organisations against EU initiatives such as the taxonomy and CSRD, they said. However, the NGOs did not address some of the other key changes being considered by ECON, including a requirement for users to source ratings from smaller providers.

European Central Bank (ECB) supervisory board vice-chair Frank Elderson has threatened banks with daily fines if they do not meet supervisory expectations on climate change. European banks currently have until the end of next year to comply with guidance on managing climate and environment risks published by the ECB in 2020. According to Elderson, the deadline was set based on what “banks themselves considered reasonable” but many are yet to deliver the necessary improvements. “Therefore, it should come as no surprise that, in line with what we have communicated many times in the past, we have started to adopt enforcement measures,” said Elderson in Brussels this week. “If they don’t comply, they will have to pay a penalty for every day the shortcoming remains unresolved.”

The Net Zero Asset Owner Alliance has published a new document with its recommendations to asset managers on how to integrate climate into their engagement strategies. The expectation document sets out four key principles for managers on governance, setting and publishing a strategy, engagement practices and transparency and accountability. Among the recommendations is disclosing how managers address systemic hurdles via policy engagement and ensuring board- or executive-level oversight of annual engagement strategy reviews. Alliance members are encouraged to integrate the principles into their own manager selection, appointment and monitoring processes.

LGIM, Aviva Investors, Nest and Storebrand Asset Management are among the 136 institutional investors which have called on US companies – particularly those in low-wage sectors such as the retail, restaurant, hospitality and gig sectors – to pay a living wage to direct and contract workers. The statement, coordinated by the Interfaith Centre on Corporate Responsibility (ICCR), claims that long-term investments in the workforce are “good for business, helping companies attract and retain talented employees, increase job satisfaction and improve worker performance”. Moving forward, the investors will use the call to action in engagements to advance worker rights as part of ICCR’s advancing worker justice program, which also focuses on paid sick leave, protecting workers’ right to organise and ensuring workplace health and safety.

AXA Investment Managers has said it has “limited” expectations for COP28 given the “lack of international consensus over priority actions” and the “increased multipolarity of the world that is slowing international collaboration”. In a market commentary, head of ESG research Virginie Derue, said that AXA IM hoped the concerns related to the UAE’s presidency are proven wrong and that even if there is no decisive move towards a decline in fossil production, there will be critical progress towards investment in wind and solar.

Euronext has launched its ESG Profile tool, making more than 60,000 ESG-related datapoints available across the 1,900 issuers listed on its exchanges for free. The tool covers a series of figures including nine mandatory PAI indicators under SFDR and a number of other CSRD and Taxonomy datapoints, pulling data automatically from company reporting. Issuers can also upload their own climate reports or share ESG ratings, and Euronext said more than 800 issuers had already interacted with their profiles.

ISS ESG has revised its EU Taxonomy Alignment Solution to include the new technical screening criteria for 45 activities related to the four non-climate objectives, as well as the amended criteria for 26 existing activities related to the existing two objectives (climate change mitigation and adaptation). The revisions have been made to “support clients in meeting the immediate and medium-term reporting deadlines” for their product alignment with the six EU Taxonomy objectives, starting in January.

Canadian banks Royal Bank of Canada (RBC) and Bank of Montreal (BMO) have committed to racial equity audits in 2025 and 2024 respectively, following pressure from shareholders. Both banks confirmed last week that they would conduct a third-party audit of employment practices. Shareholder advocacy group SHARE and the British Columbia General Employees’ Union filed a joint resolution at RBC’s AGM, which received 42 percent shareholder support, and one at BMO which received 37 percent support.

The Court of Appeal has refused to hear ClientEarth’s lawsuit against Shell’s board of directors, following an appeal the law firm launched in July. ClientEarth was granted a hearing at the High Court in May to request the reconsideration of the dismissal of its lawsuit against Shell. The lawsuit was first filed in February on the grounds of climate risk mismanagement.

Almost all UK investment firms (96 percent) collect data on two or more DE&I characteristics, with 71 percent collecting four or more, according to a survey by The Investment Association and Thinking Ahead Institute. The research – which surveyed 52 UK investment and fund management firms which represent 75 percent of total UK AUM – found that age, gender and ethnicity have the highest reporting rates. According to the survey, 55 percent of industry employees are male, 39 percent women and 7 percent did not disclose. The sector remains predominantly white (60 percent), with 10 percent Asian and 2 percent Black employees. One third of responding firms also indicated that they plan to start collecting data on socio-economic background, caring responsibilities and neurodiversity.

The UK’s net-zero targets are “in jeopardy” due to a lack of long-term planning from the government, according to a report by the Public Accounts Committee. The research found that the government did not consider what levels of longer-term investment might be required up to 2050 to support net-zero technologies, putting at risk the large amounts of private investment needed to achieve the goal. To reach the 2050 target, new low-carbon investment in the UK from both public and private sectors will have to increase by two to three times each year from last year’s estimated total of £23 billion. The report also identified a lack of clarity and support from the government and businesses for businesses to reach net zero, and that there is “no clear mechanism” for publicly reporting progress on government support for net-zero technologies.

Triodos Bank has joined the global campaign for a proposed fossil fuel non-proliferation treaty, meant to help phase out the use of coal, oil and gas. It is the first bank to join the initiative. In a public letter, the organisation has called on European governments and policymakers to commit themselves to a legally binding, international treaty at the upcoming COP28 in Dubai. Triodos has urged other financial institutions to join the initiative.