ESG round-up: UK investors question government’s commitment to net zero

The latest developments in sustainable finance: fossil fuel subsidies reached record $7trn in 2022, finds IMF; Rize ETF launches two Article 9 sustainable thematic funds.

UKSIF has written to UK prime minister Rishi Sunak on behalf of some of the UK’s largest investors to “express concern” at the government’s recent policy signals, which it said “risk undermining the UK’s leadership” on net zero commitments. The letter argued that public debates over the phase-out of new petrol and diesel cars, the phase-out of gas boilers, reforms to the UK’s carbon markets, and plans to issue new oil and gas licences in the North Sea were “casting doubt” over the UK’s climate targets. The financial institutions – which manage a total of £1.5 trillion ($1.8 trillion; €1.7 trillion) in assets and include Aegon Asset Management, BTPS, Railpen and USS – have urged the government to provide long-term policy certainty to ensure its net zero objectives can be achieved.

Eighty percent of global coal consumption was priced at below half of its efficient level in 2022, according to data from the International Monetary Fund (IMF). Globally, fossil fuel subsidies reached $7 trillion in 2022, with explicit subsidies more than doubling from 2020, but still accounting for only 18 percent of total subsidies. Nearly 60 percent is due to undercharging for global warming and local air pollution, according to the data. The IMF said fossil fuel price reform would reduce global carbon dioxide emissions to an estimated 43 percent below baseline levels in 2030 (in line with the target of containing global warming to 1.5-2C), while raising revenues worth 3.6 percent of global GDP and preventing 1.6 million local air pollution deaths per year.

Thematic ETF issuer Rize ETF has launched two Article 9 sustainable thematic funds, the Global Sustainable Infrastructure ETF and the USA Environmental Impact ETF. The infrastructure fund targets companies contributing to global sustainable infrastructure development, while the USA fund targets companies contributing to one or more of the EU taxonomy’s six environmental objectives. The funds are listed on the London (LSE) and Frankfurt (Xetra) Stock Exchanges, with listing on the SIX Swiss Exchange expected in the coming weeks.

Canada Pension Plan (CPP) Investments has invested $30 million in the Amazon Reforestation Fund managed by Mombak Gestora de Recursos, a venture-backed carbon removal investment manager. The agreement will see CPP Investments make a $500,000 equity investment in Mombak and commit up to $30 million to the fund, which aims to reforest Brazilian pastureland using native and biodiverse tree species to rebuild the Amazon forests. The additional carbon abated from the atmosphere from these new forests will produce high-quality carbon removal credits, which will be sold globally via both spot sales and long-term customer offtake agreements.

The Global Environment Facility (GEF) launched a Global Biodiversity Framework Fund at its seventh assembly in Vancouver last week to support the implementation of the Kunming-Montreal Global Biodiversity Framework. The move was welcomed by the European Commission, which described it as a “crucial step forward”. The fund has been designed to mobilise and accelerate investment in the conservation and sustainability of wild species and ecosystems, whose health is “under threat from extreme weather and human activity”. The fund received initial contributions of C$200 million ($147 million; €136 million) from Canada, and £10 million from the UK.

CCLA Investment Management’s head of sustainability James Corah has described the Charity Commission’s updated guidance on investing charity money published at the start of August as a “missed opportunity”. The revised guidance said trustees should consider ESG factors for non-financial reasons and that this approach could “support delivery of your charity’s purposes more directly”. While Corah noted that the guidance sets out “much clearer criteria” that trustees can use to take action on sustainability issues, he added that it is “far from proactive” and “in contrast to new definitions of fiduciary duty”, as well as to the existing practices of many charity investment managers.

There is “almost no relationship” between a shareholder proposal’s specific features, or the structure of a company’s existing GHG targets, and its chances of success, according to research by the Centre for Active Stewardship, a US think tank. The research also found that the number of proposals on climate issues making it to a vote is increasing rapidly, up 24 percent year-to-date on the same period in 2022. However, success rates continued to fall, reaching a multi-year low of 32 percent, down 27 percentage points year-on-year.

The Australian Prudential Regulation Authority (APRA) has listed climate-related financial risks as a key priority for its 2023-24 corporate plan. The regulator said it will focus on rolling out a climate vulnerability assessment of general insurers, and look to embed climate risk in its approach to supervision. It also plans to use existing and new data collections for climate risk to prepare and develop insights on emerging issues and best practices.

The Australian Sustainable Finance Institute (ASFI) is seeking expressions of interest for its inaugural mentor programme for sustainable finance professionals, Limitless. The initiative will match mentees with experienced mentors via a digital programme to support the development of the next generation of sustainable finance experts. The deadline for expressions of interest is 22 September.