In the Loop: PRI puzzle, Singapore conversations, and the anti-ESG outlook

We are a little confused at RI. Previously, many of you have told us how burdensome you find PRI reporting, and how you would like to see it changed.

One of the ideas floated during the PRI’s consultation last year on the network’s future direction was equivalency of reporting – in other words, that signatories should be allowed to reduce their PRI reporting requirements by pointing to relevant disclosures elsewhere.

And a range of leading asset owners have suggested or voiced support for various ways to streamline or improve PRI reporting in the past year or so.

Yet the news this week that the PRI is planning to do just that seemed to elicit little excitement among market participants.

Investors contacted by RI largely praised the PRI for “working with signatories” but would not comment specifically on the idea that mandatory reporting would be significantly reduced.

Others declined to comment, or said they hadn’t had time to look at the PRI’s publication.

This last seemed particularly surprising, given that it was only a 23-page document. We also understand that at least some investors had sight of it two weeks earlier, and that workshops had been held ahead of the announcement.

So what are we missing? Is it to do with the fact that the plan to reduce mandatory reporting was floated as part of a broader announcement of the PRI’s plans to introduce voluntary “progression pathways”?

According to the document, this will also result in a reduction in the reporting burden – but we have to admit that we’re not entirely clear how this relates to reporting equivalency. Are we the only ones?

We have no doubt that things will become clearer in due course – and we should mention that the response to the progression pathways proposal has been largely positive.

But in the meantime, we would love to hear from anyone who could help us to understand the significance – or lack of it – of this week’s announcement. Contact us at the usual address, edit@responsible-investor.com.

The week in RI

The muted reaction to PRI’s proposed reporting changes was reflected in our readership stats.

Our coverage of the announcement was only the second most popular story of the week. Perhaps reflecting the market’s shifting priorities, the top spot was taken by Australia’s publication of ISSB-inspired draft sustainability reporting standards.

Also from APAC, we reported on plans by the regional division of GFANZ to back a review of financial institution coal policies to support phase-out of power plants, as well as NZ Super Fund’s curious decision to assign zero carbon footprint to its bond holdings.

Moving to North America, a senior US lawyer told our reporter Dominic Webb that recent legal developments were undermining anti-ESG efforts by Republican lawmakers.

And speaking at RI Canada, SFAC chair Kathy Bardswick expressed her frustration with the slow pace of government progress on sustainable finance.

Back in the UK, we obtained details of a meeting convened by the government at which ministers encouraged asset managers to review their approach to ESG and the defence industry.

Finally, in nature news, we reported on research showing that biodiversity is still being largely overlooked by green bond issuers, or treated purely as a means of reducing carbon emissions.

And the Valuing Water Finance Initiative, a collective engagement project set up last year to engage the world’s biggest corporate water users and polluters, published its inaugural benchmark analysis.

Quote of the week

“If the SEC had come out with California’s disclosures, I think it’s fair to say our lawyers would be meeting in court”

Tom Quaadman, executive vice-president at the US Chamber of Commerce’s Center for Capital Markets Competitiveness, in conversation with SEC chair Gary Gensler

Heard at RI Asia

We are delighted to have hosted a diverse group of investors and other sustainability practitioners at our Asian conference in Singapore this week.

The event is only in its second year, but the thought leadership onstage and in attendance saw robust debates on the complex challenges that the region faces.

Here is a small selection of those conversations:

“Listen, we are never [going to] get global credibility around Asian coal phase-out, but it is something we have to do, and do the best way that we can.”

Mushtaq Kapasi, managing director, chief representative APAC, ICMA

“We should think about AI as a research assistant who only knows what we have taught them – not like some all-knowing entity without any biases.”

Julia Bingler, fellow, Council of Economic Policies

“I would rather have an inefficient voluntary carbon market than no carbon market at all.”

Neha Khanna, senior manager, Climate Policy Initiative

“There are certain elements in values-based investing that will cause polarisation in society, but this can be avoided if ESG focuses on enterprise value.”

Satoshi Ikeda, chief sustainable finance officer, Financial Services Agency Japan

“We are seeing all these AI ESG data companies spring out of nowhere and offer products at rock bottom prices. We just can’t compete!”

Global sales head, financial and ESG data provider

Backlash for good?

The anti-ESG movement still features prominently in our discussions with the responsible investment industry, but we are increasingly being told that investors are less concerned about it.

As previously reported, at New York Climate Week in September – one of the most recent big industry events in the US – the impact of the movement was played down both on and off-stage by a range of participants.

And when Bob Eccles spoke to RI earlier this month, he said he did not believe the ESG backlash would be a long-term issue. “When you talk to these people in the big asset managers and you say, ‘How much time is this taking up?’, it’s not much.”

But when RI put this to a market observer in the regulatory space this week, the response was: “That’s not what I’ve been told.”

Referring to conversations with those “well-connected in Republican circles”, the person said the anti-ESG push is “pretty net-positive for the Republicans”.

“You have to remember, which I think Europeans often forget, that the Republicans got very badly bruised at the mid-terms last time,” they said. “The position on abortion gained votes in the very conservative base, but lost votes in the middle.

“ESG gains conservative voters, and doesn’t lose the middle. So, it’s pretty net-positive.”

The person warned that the backlash could gain further ground in Europe, with elections for new MEPs taking place in June next year.

“Europe has to be ready for a backlash – I’m still amazed it hasn’t happened. But I think you’ll see significant pressure on the CSRD and the taxonomy because of competitiveness. There will be serious and tough questions from the business lobby.”

Funding engagement

The UK’s All Party Parliamentary Group (APPG) on ESG found itself in hot water this week after a story in The Times revealed that Green Party MP Caroline Lucas had quit after discovering the secretariat was funded by a group of firms including BAE Systems, Bayer and KPMG.

While the exact quality and activity of APPGs varies, they can broadly be defined as lobbying groups for niche issues (there are APPGs for the Faroe Islands and for cats). So it is no surprise that funding comes from interested corporates.

Alexander Stafford, chair of the APPG on ESG, hit back against the claims after the story was published. Commenting on the need “to counter divestment culture, including APPG sponsorship”, he said the energy transition required support and attention from all sectors of the economy.

“Divesting ourselves of firms with a contentious ESG status will neither encourage those firms to engage helpfully, nor address the issue of how to encourage firms who might be, externally, viewed as in opposition to ESG as a whole to improve,” he said.

“It should, therefore, be part of the purpose of these groups to engage with such firms – as well as more traditionally ESG-friendly firms – to continue to support this transition.”

RI understands that the lively debate around engagement and divestment continues. We are not convinced, however, that arguments about retaining voting power and ensuring assets remain in climate-friendly hands can be extended to secretariat funding…

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