ESG round-up: UBS flags ESG regulatory divergence as ‘top and emerging risk’

The latest news in sustainable finance: German court issues judgement in Commerz Real sustainability advertising case; cost of capital for renewables utilities lower than for fossil.

UBS listed the divergence of ESG regulation as one of the “top and emerging risks” in its annual report published on Monday. The report, which also mentions reputational risk from greenwashing as a top or emerging risk, notes that, with new standards and rules developing in several jurisdictions, the risk of divergent rules is increasing. This could in turn lead to “an increased risk that UBS may not comply with all relevant regulations”, the report warns.

German consumer watchdog Verbraucherzentrale Baden-Württemberg (VBW) has called for regulation of claims around avoided emissions, after a regional court in Stuttgart said that Commerzbank’s real assets wing must include a link to calculation methods and assumptions used when advertising a “measurable” ecological impact from its klimaVest fund. A spokesperson for Commerz Real said the “explanations put forward by the court are appropriate and comprehensible” and noted that the court had still permitted it to use the terms.

In response to the result, the VBW called for “binding and comparable rules for the calculation of avoided emissions”. Niels Nauhauser, head of its pensions, banking and credit division, said: “Just as consumers can compare investments based on returns, so should they also be able to compare them based on proven sustainable impact.”

Electric utilities focusing on renewables have a lower cost of capital for both debt and equity than utilities relying on fossil fuels, according to new research from the Oxford Sustainable Finance Group. The research builds on a report from 2021 tracking the cost of debt in the energy sector and found a 70 basis point difference in cost of debt between renewables-focused utilities and those involved in fossil fuels. Looking specifically at North America, the authors found no consistent trend in the relative cost of capital. Lead author Gireesh Shrimali noted: “What remains to be seen is whether the policy landscape can shift, particularly with big changes such as the recent Inflation Reduction Act.”

The Investor Group on Climate Change has called on Australian investors to accelerate progress on decarbonisation after its annual report into net-zero investment found that just 35 percent have set 2030 targets. While 70 percent of the 53 institutions managing A$2.1 trillion ($1.4 trillion; €1.3 trillion) between them have set a net-zero target, only half of those have set 2030 targets, and asset owner mandates “tend not to reflect the appetite for a net-zero emissions future”.

Rebecca Mikula-Wright, the group’s CEO, said: “Each year investors are making more progress, but we know that acceleration is crucial for meeting climate goals and serving their beneficiaries. The good news is that there are now excellent tools and collaborative initiatives that investors can and must use to move faster than ever before.”

Canadian pension fund Bâtirente and Aequo Shareholder Engagement Services have claimed an engagement win after CIBC committed to publish a climate-focused report this month. The progress, which Bâtirente said was made as part of a shareholder dialogue lead by Aequo, will see the bank commit to publish more information on its carbon-scoring methodology and the performance of its oil and gas, and power generation customers.

In other banking news, Green Century Funds has withdrawn a shareholder proposal at Morgan Stanley after the banking group committed to strengthen its deforestation policies. In exchange for the proposal being withdrawn, the US lender agreed to align standards for palm oil and forestry with best practices, as well as create new policies for soy and beef clients in high-risk areas.

The Global Alliance of Securities Lending Associations has published an update to its framework for ESG and securities lending. The updated framework offers practical guidance as well as commentary on legal and regulatory contexts for the five main “touchpoints” between securities lending and ESG: voting rights, collateral, lending over record dates, facilitating participation in the short side of the market, and transparency in the lending chain.

Impax Asset Management has announced plans to open a new Tokyo office after it was selected to recieve money under the Tokyo Metropolitan Government’s Green Finance Subsidy Programme. Impax, which recently won a mandate from the country’s Government Pension Investment Fund, said the office would open this month.