ESG round-up: SEC cracks down on ESG fund names

The latest developments in sustainable finance: GFANZ launches consultation on transition finance strategies; NZAOA call for clear climate policy frameworks.

Funds with ESG or sustainability in their title will be required to have such claims supported by at least 80 percent of assets, following an amendment to the US Securities and Exchange Commission (SEC) “Name Rule” signed off on Wednesday by the financial regulator. “Today’s final rules will help ensure that a fund’s portfolio aligns with a fund’s name,” said SEC chairman Gary Gensler. “Such truth in advertising promotes fund integrity on behalf of fund investors.” Funds will be required to review assets quarterly and will in most instances have 90 days to address any non-compliance with the 80 percent threshold.

The Glasgow Financial Alliance for Net Zero (GFANZ) has launched a consultation on its transition finance strategies to “further refine” definitions. GFANZ is seeking market feedback on a principles-based approach to segment portfolios by the four key strategies. They include: the development and scaling of climate solutions; assets or companies already aligned to a 1.5C pathway; assets or companies committed to transitioning in line with 1.5C; and the accelerated managed phaseout of high-emitting physical assets. The principles outlined in the consultation document are designed to be voluntary, pan-sector and globally applicable. They build on previous GFANZ publications, existing practices, transition finance frameworks and potential decarbonisation contribution methodologies. The consultation will close on 2 November, with a final report due to be published by COP28.

The Net-Zero Asset Owner Alliance has called on policymakers for clear policy frameworks, strong government commitment, ambitious targets and detailed transition plans “that can help overcome the barriers to net zero”. It said that the removal of political barriers to scaling net zero could unlock up to $275 trillion in climate investment opportunities by 2050 and argued that clearer transition plans are needed “to reduce uncertainties about the demand and supply of green assets”. AOA has proposed solutions to the adoption of new technologies, such as financial support in the form of subsidies, grants and tax credits, upgrading public infrastructure and increasing sourcing capacity, as well as phasing out government support for brown assets. It also pointed to new regulations and standards which could encourage stakeholders to mobilise capital.

The Inevitable Policy Response’s (IPR) latest forecast of policies due to be implemented across major economies by 2050, has found that the world will “likely achieve” the Paris Agreement goal of limiting temperature increases to “well below 2C” and will continue to make efforts towards 1.5C. The analysis is based on live tracking of more than 300 climate policies over the past two years, as well as input from more than 100 climate policy experts. The scenario predicts that concerted policy action will lead to net-zero CO2 emissions by 2060, and net-zero GHG emissions by 2080, which is consistent with the Paris goals. Temperatures are expected to peak between 1.7C and 1.8C, with the IPR forecasting that the breaches in temperature will “increase systemic risks for investors”.

The European Parliament and Council have reached a provisional agreement on new rules to ban misleading advertisements. The parliament voted in May in favour of new legislation for general and unsubstantiated environmental claims to be banned. Generic environmental claims such as “environmentally friendly”, “natural”, “biodegradable”, “climate neutral” or “eco” will be prohibited when there is no “proof of recognised excellent environmental performance relevant to the claim”. The ban will also apply to claims that a product has neutral, reduced or positive impact on the environment based on emissions offsetting schemes, as well as to sustainability labels not based on approved certification schemes or established by public authorities. The final vote by MEPs is expected to take place in November. Once the directive comes into force, member states will have 24 months to adopt it into their law.

The Reserve Bank of Australia (RBA) has found evidence of “a small greenium” for AAA-rated green bonds sold in Australia by foreign issuers, the central bank said in an assessment of the country’s sustainable finance market. The domestic green bond market is dominated by foreign issuers and state treasuries, according to the supervisor. In contrast, it noted that Australian financial firms have primarily issued green bonds in offshore markets. In the first half of 2023, issuance of green bonds surpassed the highest previous annual total, hitting around A$13.0 billion ($8.33 billion; €7.82 billion).

Bursa Malaysia, the Indonesia Stock Exchange (IDX) and the Stock Exchange of Thailand (SET) have signed a memorandum of understanding to commit to establishing an inter-regional ESG-linked ecosystem to “foster sustainable development” across ASEAN. The stock exchanges have collaborated to combine their expertise and resource with the aim of “adopting good ESG practices” and “driving responsible growth” across their respective markets.

Kerrie Waring will step down as CEO of the International Corporate Governance Network (ICGN) in July next year. She joined the organisation in 2008 as chief operating officer and has lead it for the past nine years. She will continue as a member of the council of experts at Japan’s Financial Services Agency. A committee at ICGN has initiated a CEO succession plan.

The Climate Bonds Initiative has published a guide to advise stakeholders on how best to assess the quality of transition plans. It suggests five markers of a good transition plan: clear, measurable and ambitious targets; targets which cover the short, medium and long-term with “steep front-loaded emission cuts” in the near-term; no use of carbon credits or offsets for short or medium-term targets; clearly identified and costed levers for change; and supply chain and consumer engagement for industries with large Scope 3 emissions. The CBI has stressed that the guide cannot replace independent in-depth verification and certification.

More than 50 financial institutions with $2.9 trillion in assets, including ABN Amro, Australian Super, BNP Paribas Asset Management, and Cbus, have called on the member states of the UN to accelerate progress on implementing the WHO framework convention on tobacco control, as outlined in the SDGs. The institutions said they “recognise the profound detrimental impact of tobacco on human and planetary health worldwide”, adding that it is “fundamentally unsustainable”. They have called on all member states to sign the framework and to monitor and report on its implementation progress.

Nearly 70 percent of investors with more than $100 billion in assets working on nature plan to increase their investments, according to research from Pollination. The investors surveyed were from across the UK, France, USA, Australia, Japan and Singapore. The US topped the list, with 87 percent of asset owners set to increase their investments in nature, despite a high number of respondents flagging the politicisation of ESG impacting their strategy or desire to invest in nature. The survey also found that just over 41 percent of investors are also seeking nature experts for their teams.

CDP and the Net-Zero Data Public Utility (NZDPU) have announced a partnership to launch a proof of concept for the latter at COP28, which will provide an initial set of companies’ Scope 1, 2 and 3 GHG emissions and emissions reduction targets. CDP will provide NZDPU with access to climate data from around 400 high-impact companies to carry out the proof of concept.