ESG round-up: Poland challenges EU on three major climate policies

The latest developments in sustainable finance: Australia settles lawsuit over climate risks to government bonds; Verra to align standards with ICVCM criteria.

Poland has filed a lawsuit against the European Union to quash three EU climate change policies after saying it would worsen social inequality. The policies include a ban on new CO2-emitting cars in the EU from 2035, a requirement to set national emissions-cutting targets, and reforms to the EU carbon market. A spokesperson for the European Commission said it is “analysing the Polish legal actions and may request to intervene in the case”, and that the measures in question are “fully compliant with EU Treaties and law”. The European Council declined to comment and the European Parliament did not respond to a request for comment.

Australia has settled a climate lawsuit after being sued for allegedly not disclosing climate-related risks to its sovereign bond investors, according to reports. The Australian government will be required to publicly acknowledge climate change as a systemic risk that may affect bond valuations, if settlement terms are approved by a federal court. A hearing is scheduled for 11 October. Matt Burke, a researcher at the Oxford Sustainable Finance Group, said that the lawsuit is unlikely to immediately impact the credit ratings of Australian bonds but could facilitate increased disclosure or scrutiny which could lead to downgrades, or repricing of debt securities, in the future.

Verra, the world’s largest producer of carbon credits, has published a “significant update” which will align its standards with global baseline criteria developed by the Integrity Council for the Voluntary Carbon Market (ICVCM). The new rules, which were released in July, are a milestone for the sector and aim to address longstanding concerns over the quality of carbon credit products. Verra had previously slammed the ICVCM during earlier stages of development, describing it as setting “impossible standards” and being “unworkable from an administrative standpoint”.

Indonesia’s financial regulator has announced rules for its cap-and-trade carbon market which has been under development since 2021, with trading expected to commence by the end of this year. An operator for the market has not been selected. The country previously pledged to implement a carbon tax in April last year but that has been delayed partly due to economic concerns, according to local news reports.

The secretariat for Indonesia’s Just Energy Transition Partnership’s (JETP) climate finance fund is planning to launch a consultation on its investment plans, according to documents seen by Responsible Investor. The plans were initially due to be published earlier this month but have been delayed due to data shortages. Reports have also described tense behind-the-scenes disagreement over financing terms and amounts. The JETP is a public-private initiative, led by Japan and the US, which aims to crowd in private investment capital to finance a transition away from coal for economies dependent on the commodity.

Thirty-six investors including AXA Investment Managers, Danske Bank Asset Management, Federated Hermes, PGGM and UBS Asset Management, have called on ISS to further integrate climate into its proxy advice service. The letter, coordinated by the Institutional Investors Group on Climate Change’s (IIGCC) proxy adviser working group, calls for ISS to provide a speciality net-zero policy for the 2024 proxy season. It also asks for the proxy adviser to further integrate climate into its voting recommendations on a “more robust and consistent basis” via its benchmark policy.

ISS has separately launched its annual benchmark policy survey. This year’s survey begins with governance and stewardship topics specific to certain markets including US non-GAAP incentive pay programme metrics, return on equity as a factor in director elections in Japan, and director accountability for material governance failures in South Korea. The survey also seeks views on two global governance topics: director independence classification regarding professional services, and cross-market and foreign private issuer policy. It invited respondents to comment on several global environmental and social topics against a backdrop of increasing ESG-related shareholder proposals. The survey will close on 21 September.

The Glasgow Financial Alliance for Net Zero (GFANZ) has announced a Hong Kong Chapter to support the APAC net-zero transition. Hong Kong joins the Japan Chapter, launched in May, as part of the broader GFANZ APAC network. The Hong Kong Chapter will engage with financial institutions in Greater China on net-zero efforts, transition planning and scaling transition. It will be advised by chief executive of the Hong Kong Monetary Authority, Eddie Yue, who is a member of the GFANZ APAC Network Advisory Board, and Ma Jun, chairman of Hong Kong Green Finance Association and former co-chair of G20 Sustainable Finance Working Group.

The Reserve Bank of Australia (RBA) is to adopt a net-zero-by-2030 target for its scope 1 and 2 emissions, according to a speech by incoming governor and current deputy governor Michele Bullock. The bank is also “considering what sustainability and climate-related financial disclosures” it can make, having already decided to start reporting its carbon emissions from 2023 onwards. On the supervisory side, the RBA will conduct an inaugural climate scenario analysis with insurers later this year, said Bullock. It is separately developing a “a framework for financial system participants to manage their climate-related risks and opportunities” together with other Australian regulators.

The Asian Infrastructure Investment Bank has partnered with Bloomberg Philanthropies to advance clean energy investments in Asia. They will look at co-financing the development of renewable energy projects, and develop blended finance structures that leverage MDB and philanthropic assets to mobilise large-scale private and institutional capital into green energy transition investments.

Eighteen investors have joined a global investor coalition seeking to engage with governments on climate change risks and opportunities. The Collaborate Sovereign Engagement on Climate Change was launched in September last year, with a pilot focused on Australia. The $8 trillion investor coalition, coordinated by the Principles for Responsible Investment (PRI), is seeking engagement with sovereigns to reduce their exposure to risks associated with a failure to rapidly transition to a net-zero global economy. New investors include Fidelity International, IFM Investors, Morgan Stanley Investment Management, Neuberger Berman, Rest and Sumitomo Mitsui Trust Asset Management. They join existing members of the engagement’s advisory committee: Aviva Investors, BNP Paribas Asset Management, Brandywine Global, HESTA, Nordea, Robeco and Schroders.

Just eight asset managers have been awarded the Morningstar ESG commitment level of “leader” for 2023. The managers include Affirmative Investment Management, Australian Ethical, Boston Trust Walden, Domini, Impax, Parnassus, Robeco and Stewart Investors. Wellington Management and Brown Advisory were upgraded to advanced from basic, and Franklin Templeton and BetaShares were upgraded to basic from low, while UBS Asset Management was downgraded to basic from advanced.