In the Loop: Faber doubling down, ESG funds, and heard in Amsterdam

It’s been quite the week in the world of sustainability standards. ISSB chair Emmanuel Faber questioning what he called a “simplistic” push for double materiality in an op-ed in Le Monde was nothing short of a bombshell.

Of course, the ISSB’s position is clear: its standards focus on financial materiality. But previous public comments by Faber and other senior people at the global standards body have not taken such a strong stance on the double materiality push.

Faber’s word choice is striking, flagging what he calls “illusions”, “unrealistic” ambitions and “dangerous” blind spots related to double materiality.

Doubling down on his comments, Faber on Thursday took to LinkedIn to publish further views and an English translation of his op-ed.

He wrote that double materiality “asks the company to report everything to everyone” and that “efforts to defend double materiality depict the capital markets materiality as negligible and inefficient”.

He added that the risk of “overpraising the second pillar of double materiality” is unrealistic.

At the same time, he was keen to emphasise that there will be “no battle” between the ISSB’s approach and the double materiality route that the EU has gone down when developing its sustainability standards.

However, judging from initial reactions, his comments have done little to change the perception of a battle between standards, and arguably added fuel to the fire.

The timing of Faber’s intervention has irked some market participants.

The EU’s European Sustainability Reporting Standards (ESRS) are not completely set in stone and the next few weeks are crucial. Both the European Parliament (EP) and council of member states have until 21 October to raise objections to the first set of sector-agnostic standards (this so-called scrutiny period can then be extended by another two months if requested by the EP or council).

We’re very interested in what investors think about this and will be working on a number of stories on the next steps for the ESRS and the future of standards. Please get in touch if you would like to talk to us on or off the record.

The week in RI

The week started on a strong footing with the UK’s Transition Plan Taskforce launching its final “gold standard” disclosure framework.

Our reporter Gina Gambetta also revealed that Canada’s collaborative engagement initiative had signed up its first international participant in Nordea Asset Management.

For the rest of the week, the focus was very much on Europe, as a group of financial institutions called for an EU social investment framework; France withdrew its Say on Climate amendment from a green industry bill and a cross-party MEP group tabled an amendment to water down ESRS.

Finally, the ISSB’s Emmanuel Faber questioned the “simplistic” push for double materiality, and Bob Eccles and Tina Mavraki shared their thoughts on the utility of climate transition plans for every firm.

Quote of the week

“When you talk to these people in the big asset managers and you say, ‘how much time is this [ESG backlash] taking up?’ it’s not much”

Bob Eccles spoke to RI this week and shared his predictions that the ESG backlash is unlikely to be a long-term issue, and is already becoming less of a worry for investors

False alarm?

While some media reports have suggested that the world of ESG funds is in trouble, with fund closures at a record high and managers ditching ESG and sustainability terms, a team of analysts at Barclays has claimed that the industry should not be alarmed.

According to the researchers, while there has been an uptick in the number of ESG funds shutting up shop, the actual assets being liquidated are relatively low amount. Only $1.5 billion in funds has been closed in the year to date versus $6.5 billion in 2020, for instance.

The research deals with a number of other statistics that are worrying when taken in isolation. For instance, there has been a sizeable decline in the number of ESG funds launched this year – but this is in line with the broader fund industry.

Similarly, slightly more equity and fixed-income funds have added ESG terms to their names than have removed them, and the vast majority of assets (95 percent of total name changer AUM) are in funds that have either added ESG terms or changed them.

Finally, the researchers said they were unable to find a trend of US funds dropping the term “ESG” to avoid backlash scrutiny, or European funds ditching the term “sustainable” to avoid breaking expected guidelines from the ESMA on fund names.

Toronto, here we come!

Our next conference gets underway next week: RI Canada takes place on Tuesday and Wednesday.

We’ve got a stellar speaker line-up including senior representatives from the Sustainable Finance Action Council, GFANZ, a range of asset owners and many more. To see the full agenda, click here.

Our reporter Gina Gambetta will be on the ground from Monday and is moderating a number of sessions at the conference. If you’d like to connect with her, please email gina.g@pei.group.

Out and about

Our reporter Fiona McNally will be attending the 2° Investing Initiative (2DII) Mainstreaming Finance for Biodiversity conference in Paris on Tuesday evening.

She will be in town for meetings on Tuesday and Wednesday, so if you’d like to connect with her, email her here.

Heard in Amsterdam

Our reporter Dominic Webb attended Morningstar’s Sustainable Investing Summit in Amsterdam this week.

As reported on Thursday, the PRI’s head of EU policy, Elise Attal, took to the stage to call for more detail on the enforcement regime for the UK’s sustainability disclosure regulation (SDR).

Disclosure grumbles were at the centre of many other conversations both on and off stage.

Here are some notable snippets from the two-day event:

“There are more and more shareholder proposals where it goes into such detail that it’s not really to the AGM to vote on, like putting in your report an additional three paragraphs. It’s very important to voice these needs, but then the shareholders probably find it a bit confusing. How could they know if it’s irrelevant or not?”

Kaisa Hietala, board member of ExxonMobil, discusses the last year’s proxy season

“We went for mostly Article 8 funds and a few Article 9 and our sales guys said ‘what the f*** are you doing’. We said ‘wait until the end of the year’”

 A senior figure at one European manager reflects on a bullet dodged

“The compliance department is definitely taking an increasing interest in our sustainability marketing”

A sales figure at one asset manager

“I was born in India, and I grew up in New Delhi, and the air in Chicago that day was worse than New Delhi”

Morningstar CEO Kunal Kapoor reflects on the day smoke from Canadian wildfires reached the city

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