In the Loop: The road to CSDDD, BaFin’s taxonomy pushback and an ISSB teaser

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CSDDD: The winding road

The journey of the Corporate Sustainability Due Diligence Directive (CSDDD) through the EU’s governance machinery has been anything but smooth, and even at the eleventh hour this shows no sign of changing.

This week the final text of the directive was published, as informally agreed in negotiations between the EU Parliament, Commission and member states in December. No sooner had it emerged than the German finance and justice ministers indicated that they were not prepared to support it.

While Berlin has yet to come out with an official position, the pair – who are part of Germany’s liberal FDP party (Renew) – are pushing for their government to abstain from voting on the file when EU member state representatives meet on 9 February.

Insiders also tell Responsible Investor that the Italian government has raised concerns about Article 15, which relates to transition plans. Whether Italy will abstain or vote against the directive next week has yet to be confirmed.

Sweden, the Czech Republic, Estonia and Lithuania are also allegedly unhappy about the final text and could potentially abstain or vote against it.

On the other side, France, Spain and the Benelux countries are said to be firmly behind the directive.

If the text is greenlit next week, 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.

Look out next week in RI for a comment piece on the view of the CSDDD from the other side of the Atlantic. Spoiler alert: Americans are not happy…

BaFin’s taxonomy pushback

Given the rate at which national and supranational overseers are pumping out sustainable finance regulation, you could be forgiven for thinking that every regulator was on board with slapping labels onto every fund and taxonomising all investments under the sun.

In an interview this week with German publication Tagesspiegel Background Sustainable Finance, however, BaFin president Mark Branson said he saw little point in creating either a transition or a social taxonomy.

With regards to the transition “it would be the wrong approach to categorise this in a taxonomy and get ourselves lost in more data”, he said.

He added that a social taxonomy would “be an instrument of social policy from the start”, given that “what social is, is not a scientific question”.

Branson also warned investors about calling for more guidance on the transition.

Asked about an AFME recommendation for more regulatory guidance on transition financing, he said: “The industry often wishes for more rules. But with such calls you should be careful. If you want rules, you get rules!

“Additional rules for this area could introduce huge complexity. One can certainly develop a few useful principles but the plausibility of a transformation plan can only be considered on the individual level and based on concrete guardrails.”

Read the full interview (in German) here.

Quote of the week

“We have set ourselves three overarching priorities for the year ahead. Firstly, solve once and for all self-inflicted issues, which essentially means… leaving behind the legacy of our well-known ESG investigations so we can focus on the future of sustainability.”

DWS CEO Stefan Hoops issues an optimistic forward-looking statement in the German management giant’s Q4 earnings call

The week in RI

As sustainability regulation increases, so do concerns about unintended consequences and the burden it imposes on firms.

This was one of the key themes of our coverage this week. We reported on concerns raised by investment groups over the timing of the UK’s greenwashing rule, a call from finance associations for more co-ordination on SFDR reviews, and claims that the EU’s do no significant harm principle makes emerging markets ineligible for sustainable investment.

The admonitions were not all one way, however. Japan’s FSA showed that regulators are prepared to push back, warning against a tick-box approach to its ESG ratings code of conduct.

In other news, a draft of the first global standards on ethics in sustainability reporting and assurance was released, New York City pension funds filed a proposal asking US banking giants to disclose their green financing ratios, and the IMF called for the introduction of climate fund labels and impact scores in APAC.

And we revealed that the Canadian Sustainability Standards Board is set to approve its draft standards today and launch a consultation in March.

Also this week, we published the results of our net-zero stocktake survey, and then took a deeper dive into the responses from asset owners. Look out later today for the final article in the series, which focuses on asset manager feedback.

And finally, yesterday we launched this year’s Women in Finance survey. We’re asking women in the industry to tell us how their firms are doing on career progression, inclusivity, parental rights and more.

The results will be published on International Women’s Day (Friday 8 March).

ISSB: Nature or nurture?

The investment industry has been patiently awaiting news of the next focus for the International Sustainability Standards Board (ISSB), following a consultation that ended in September.

The choice for the next topical standard is between biodiversity and human capital/human rights, which stakeholders were generally split on.

The ISSB has told RI that initial decisions on its next priority should be made this month, but we started to wonder if it perhaps it has already given the game away?

We’ve found it is not unusual in the sustainability space for job ads and new appointments to appear on LinkedIn and reveal organisations’ plans long before official announcements are made.

So, when we saw that Charlotte Lush, former senior research lead at the Work Disclosure Initiative, was this week announced as the ISSB’s new human capital reporting lead (starting in mid-February) it certainly piqued our interest.

We may have got too excited: the ISSB said it had not yet made any decisions about its future work plan, and is currently reviewing the consultation feedback.

It added that it continues to strengthen its staff, including in response to “anticipated demand” to help companies disclose material information about human capital to investors, as required under IFRS S1 (the standard setting out general requirements for disclosure of sustainability-related financial information).

Interestingly, when asked whether the standard setter had, or is planning to, recruit for any nature-related roles, the ISSB declined to comment. But for full answers, it looks like the industry will have to wait a little longer to see what will come next.

The One Where the ECB ‘tries to make everyone understand’

There is a new climate sheriff in town… and it’s the ECB.

It’s no secret that big banks in the EU are growing wary about their regulator’s increasing focus on climate. Now it seems some of the unease has made its way inside the building.

ECB board member Frank Elderson spoke to reporters this week to explain a poll that revealed staff concerns over the central bank’s climate agenda.

“It will take a while for people to understand that climate and nature-related risks are part of our mandate,” he said, “but I’ve been trying to make people understand this.

“Everyone needs to make their own little journey – and we will keep explaining and giving examples so everyone understands.”

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