ESG round-up: Regulators lack green-hushing and bleaching frameworks, IOSCO finds

The latest developments in sustainable finance: Australia launches nature advisory council; Financial watchdog ASIC issues infringement notices to Morningstar.

IOSCO has found that no regulator it surveyed has a specific framework to deal with “green-hushing” and “green-bleaching” despite the growing prominence of the issue. The global regulatory body on Monday published an overview of initiatives undertaken in various jurisdictions to address greenwashing. It also found that most jurisdictions do not have a definition for greenwashing, “especially in legally binding provisions”, although many have provided guidance on the topic.

The Australian government has launched a nature finance council. The advisory body will provide advice on how policymakers can increase finance into “transparent and real benefits for nature”, position Australia as a global leader in nature finance, and commercialise credible emerging nature markets, officials said. The council will be chaired by economist and former secretary of the department of the treasury Ken Henry, and include finance, business, environmental science and First Nations experts.

Australian financial watchdog ASIC has issued infringement notices to Morningstar for statements regarding exposure to weapon investments, after the data provider self-reported the incidents. Morningstar has paid $29,820 to comply with two infringement notices in which ASIC found that its investor funds were exposed to controversial weapons investments, despite Morningstar’s ESG policy stating that such investments would be excluded. The fund was directly exposed for short periods of time to weapons companies including Honeywell International, General Dynamic, Leidos Holdings, Northrop Grumman and Raytheon Technologies.

A spokesperson for Morningstar said: “The error was identified in the ordinary course by processes implemented by Morningstar, and there were no adverse financial impacts to fund investors. We take our commitment to investor transparency and regulatory compliance seriously, and our systems and processes were enhanced and updated after we discovered the errors.”

Staying in Australia, 42 percent of super funds now have portfolio targets aligned with the Paris Agreement or net zero 2050 commitments, compared to just 34 percent in 2021, according to a Responsible Investment Association Australasia (RIAA) report. Australian Super, Aware Super, Cbus Super, Future Super, Hesta, Rest and UniSuper were named as “responsible super fund leaders” for this year by RIAA, owing to their commitment to good governance, responsible investment approaches through engagement and ESG integration, and high degree of transparency. There was also 100 percent disclosure of companies the super funds invest in, after regulation making this mandatory came into effect in March 2022.

Norges Bank Investment Management (NBIM), manager of Norway’s trillion-dollar sovereign wealth fund, will serve as co-lead plaintiff, along with Swedish state pension fund AP7, in the ongoing US securities class action against Silicon Valley Bank (SVB). “We manage money on behalf of all Norwegians. I see it as our duty to take legal action to both maximise our recoveries after the SVB collapse and to signal that this is not acceptable market behaviour,” said Nicolai Tangen, NBIM’s CEO.

The Monetary Authority of Singapore (MAS) has launched its Singapore-Asia taxonomy for sustainable finance. Following four rounds of consultation and a decision in June to push back the completion of the framework at the last minute to accommodate new provisions for coal phase-outs, MAS launched the taxonomy last week. It said it plans to “enhance interoperability” with global taxonomies and that it is mapping the taxonomy to the International Platform for Sustainable Finance’s (IPSF) common ground taxonomy (CGT), which currently covers the EU taxonomy and People Bank of China’s (PBOC) green bond endorsed project catalogue.

Staying with taxonomies, Rwanda has also published the first draft of its taxonomy. Launched in partnership between the ministry of finance and the German development agency GIZ, the framework is now out for consultation and will be developed in phases. The first phase will cover four key economic sectors: agriculture, construction, transport and energy.

Central banking climate group NGFS has set out recommendations for addressing “key barriers” hindering the scaling up blended finance in emerging and developing economies. The “technical document”, which focuses on climate mitigation and adaptation, was informed by insights from NGFS members. Among the recommendations was the need to “bridge the knowledge gap between public and private sectors”, by requiring all stakeholders in the “blended finance ecosystem” to work collaboratively.

The United Arab Emirates’ new $30 billion private market fund ALTÉRRA has committed $6 billion to climate funds managed by BlackRock, TPG and Brookfield Asset Management. According to RI’s sister publication, New Private Markets, the allocation includes the largest ever single LP commitment to an impact fund ($2 billion to Brookfield’s Global Transition Fund II) and anchor commitments to new emerging markets focused funds by the trio of investors.

Triodos Investment Management has bucked the trend of market participants coming out in favour of the European Commission’s proposed labelling regime as part of its reforms of SFDR. In a release published on Monday, the €5.7 billion investment arm of the Dutch sustainable bank proposed a five-tier categorisation system for funds to demonstrate consideration of sustainability. Funds at the lowest level would only disclose on key principal adverse indicators (PAIs), while tier two funds would also apply the minimum exclusions of the Paris-Aligned Benchmarks. Tier three funds would further incorporate PAIs into their investment selection or engagement process, while tiers four and five would also set a minimum sustainable investment share of 50 percent and 90 percent, respectively. Triodos IM said this system would be “simple, clear and comparable”.

Dutch pension fund PMT has sold its shares in 40 oil and gas companies, but has kept its investments in nine companies it believes have strong transition plans, including Shell, BP and Eni. This follows the pension fund’s engagement with all companies in the sector to commit to the Paris Agreement and set ambitious emissions reduction targets.

The International Auditing and Assurance Standards Board (IAASB) has concluded a consultation on its global sustainability assurance standard, ISSA 5000. The standard was welcomed by ESMA, IOSCO, and Norges Bank Investment Management (NBIM). However, the European Commission Platform on Sustainable Finance expressed concerns over leaving materiality assessment “at the discretion of either assurers of corporates”. It added that the current proposal “lacks guidance on how to assess materiality and leaves room to differing interpretation and denotes ambiguity”. The Global Reporting Initiative (GRI) called for sustainability matters to be clearly defined, and to clarify that the proposed standard is applicable to both voluntary and mandatory reporting standards.

The Taskforce on Nature-related Financial Disclosures (TNFD) has published a discussion paper which outlines approaches to advanced nature scenario analysis for financial institutions and corporations. In particular, the paper provides an overview of four different scenario approaches, ranging from qualitative risk assessments examining future exposure to a single risk, through to quantitative assessments that span many different risks. In September, the TNFD published foundational guidance on scenario analysis which it said would “likely be sufficient” for many organisations “looking to use scenarios to inform their assessments and disclosures”.

SIX, the Swiss and Spanish stock exchange operator and global financial information provider, has announced a tie-up with ESG reporting provider Greenomy. The two entities will work together on solutions to help financial institutions and companies collect, manage and report on ESG in alignment with European mandatory frameworks such as the Corporate Sustainability Reporting Directive (CSRD) and EU taxonomy, as well as international frameworks such as ISSB and GRI.

The US Commodity Futures Trading Commission (CFTC) has released proposed guidance on the listing of voluntary carbon credit derivative contracts for public comment. “Our goal all along has been to help shape standards in support of integrity, which will lead to transparency, liquidity, and ultimately price discovery – all established hallmarks of CFTC regulated markets,” CFTC chairman Rostin Behnam said.