In the Loop: CSDDD delayed, the French question, and Women in Finance

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CSDDD delayed

Today was labelled CS5D day – Corporate Sustainability Due Diligence Directive D-Day – by one market observer, as a highly anticipated vote on the EU directive was set to take place today in a meeting of member state representatives.

However, it has just been confirmed that the vote has taken off today’s so-called “Coreper” agenda and will be rescheduled for a later date, yet to be announced.

The surprise delay is somewhat symbolic of the difficult journey of the directive – which will introduce mandatory human rights and environmental due diligence requirements on companies in scope – through the various EU legislative hoops.

Today’s vote was going to be a nail-biter, as Germany was expected to abstain, Italy is reportedly undecided, and Sweden and Finland have indicated that they will not support the directive.

At the time of writing, it is unclear what this will mean and if extra time could convince additional member states to back the rules.

Isabella Ritter, EU policy officer at ShareAction, blasted the decision to postpone the vote as “outrageous”.

“This delay is a leadership failure, jeopardising lives and the wellbeing of the planet. The stakes are too high, and we urge all EU member states to move beyond self-interest, return to the table and ensure the passage of this crucial law as soon as possible,” she added.

Other commentators also saw the delay as negative, although Climate Action Network Europe took a glass half-full approach, noting “at least this is NOT a rejection”.

If the text is eventually greenlit by member states, the approval vote of the Legal Affairs Committee of the European Parliament should follow. The final vote by MEPs is expected in April at the last plenary session before the elections.

SFDR: The French question

The ‘great reclassification’ of Article 9 funds under the SFDR was driven in large part by funds tracking the EU’s Paris-aligned and Climate Transition Benchmarks (PABs and CTBs), which were uncertain whether their assets automatically qualified as “sustainable investments”.

The European Commission belatedly clarified that they did, but this came after tens of billions of euros in these funds had been reclassified as Article 8.

However, in the finest spirit of requiring clarifications of previous clarifications, a spokesperson for the French regulator AMF told Responsible Investor that it was not satisfied with the Commission’s answer.

The first question is whether an actively managed fund that also has similar emission-reduction requirements could claim that its assets are sustainable investments, the spokesperson said, warning that a different treatment of passive and active products could inadvertently ensue.

The other query concerns whether every constituent of a PAB or CTB is automatically a sustainable investment.

According to the AMF, if the answer is yes, that would imply “that some constituents will be considered as sustainable in the meaning of SFDR, but no one will check whether they actually meet the conditions laid down”. On the other hand, if the answer is no, then they cannot qualify as Article 9.

Responsible Investor was disappointed to see nobody propose in their responses to the consultation that the D of SFDR should be changed from “Disclosure” to “Difficult”.

Quote of the week

“Sometimes engagement works, sometimes it doesn’t. It all depends on who is asking what (and when)… For the investors that wanted Shell to slow down its transition, in the backdrop of high oil and gas prices, engagement worked”

Colin Tissen from PGGM’s responsible investment team adds useful nuance to the engagement-divestment debate

The week in RI

CSDDD was top of mind for much of the sustainability community this week, and this was reflected in our coverage.

We reported on the divisions in Germany ahead of the now-delayed vote and also published two comment pieces. One set out concerns about the legislation from a US perspective, while a response from the European side made the case for CSDDD.

In other regulatory news, EU authorities signed off on a new regime for overseeing the ESG ratings industry, and France’s AMF proposed adding a fund category based on the SRI label to the SFDR.

In the UK, an independent legal body published a groundbreaking review on fiduciary duty and sustainability, while across the Atlantic, the SEC ruled that shareholders have the right to raise the question of LGBTQ+ employee healthcare benefits with investee companies.

On the nature side, the big news of the week came from the PRI, which announced the endorsers and target firms for its Spring engagement initiative. We also spoke to CalSTRS about the fund’s increasing focus on nature stewardship.

In climate news, the Net Zero Asset Owners’ Alliance published a “call to action” for asset managers, PGGM said it would step down as Climate Action 100+ co-lead for Shell following PFZW’s divestment of energy companies, and NBIM revealed the profits made by exiting firms on ESG risk grounds.

And finally, a study by ESMA found that SDG-badged funds are no more aligned with the UN goals than non-SDG equivalents.

AI at AGMs

AI has quietly shot up the agenda of shareholders. RI reported this week that trillion-dollar investor NBIM had discussed AI in more than 600 meetings with corporates in 2023.

By comparison, human rights and biodiversity only made it onto the agendas of around 100 meetings apiece for the Norwegian fund.

AI is also increasingly going public. Six companies across the tech and entertainment sectors were hit with AGM filings last year relating to disinformation risks and the implementation of safeguards.

A more recent filing could see the largest US health insurer UnitedHealth required to report on its use of AI after being sued for allegedly using algorithms that wrongfully denied claims made by elderly patients.

As further proof that the topic is here to stay, a group of 33 investors is due to start work on principles for responsible AI later this month.

If those principles are anything like the vaguely futuristic ones that Bain put out last year, which include “be human-centric” and “act with intention”, this could well become one of the most interesting areas of investment stewardship.

Women in Finance survey 2024

We are rapidly approaching the half-way point for our annual Women in Finance Survey, and would like to thank everyone who has already taken the time to respond.

Just over one week since launching, we have already received more than 160 responses, with more than 50 percent of these coming from people working at asset managers.

Once again this year, some of the comments have made for a sobering read.

One person said their head of department suggested that rather than demanding fairer parental leave and caregiving policies, women should have children at a younger age and start their careers in their late twenties.

Another respondent said they feel the qualities required to be in a more senior role typically play to masculine traits, with another flagging a lack of effort to ensure promotion of women in the senior management pipeline.

On a more positive note, some respondents have reported better efforts to recruit women by male-dominated senior leadership, and the introduction of good equal parental leave policies.

The survey is open until 29 February, and the results will be published on International Women’s Day (Friday 8 March).

The article and survey are free to access, so please do share with anyone who might be interested.

Today’s letter was prepared by the RI editorial team.