In the Loop: US ESG month, ISSB, and Thames Water

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Brace yourselves for US ESG month

Capitol Hill (Source: Getty)

While the US enjoys a long weekend for Independence Day fireworks and barbecues, deep in the tunnels and offices under Capitol Hill Republican staffers are planning the House Financial Services Committee’s flagship “ESG month”.

According to a provisional copy of the schedule seen by Responsible Investor, the month will kick off with a full committee hearing on ESG on 12 July, before the various subcommittees hold their own examinations from 13 to 18 July. The grand finale will be a full committee hearing.

While the initial hearing will likely be a scene-setting exercise, the individual subcommittee hearings are expected to examine proposed bills that will put into practice areas of the anti-ESG manifesto published by the committee last Friday.

The 26 July session will see the full committee look to amend the bills and pass them on to the House, where they may appear in the autumn.

While the previous set of hearings held by the House Oversight Committee were broadly pointless and achieved little, ESG Month is set to be more focused and targeted.

However, don’t expect any anti-ESG legislation to pass this side of the presidential election. According to Bryan McGannon, managing director at US SIF, the bills may pass the House but will need to stack up 60 votes in order to pass the Senate.

While one or two Democrats in tough re-election campaigns may support some of the proposed measures, it’s unlikely that the Senate will take them up. “Everyone is operating [under the assumption] that these are messaging bills,” McGannon said.

Expect a robust response from the Democrats as well. Both the co-chairs of the Sustainable Investment Caucus – Illinois’ Sean Casten and California’s Juan Vargas – sit on the committee, and the caucus has been putting in the hours to educate other members of the House.

The week in RI

This week saw a raft of new announcements on sustainability disclosures, with the publication of the first two ISSB standards on Monday, followed by Australia kicking off a second consultation on the design of its reporting standards.

In Asia, Singapore’s MAS issued a number of sustainable finance-related updates, including an announcement that it is consulting on a code of conduct for ESG data and ratings.

In engagement-related news, Nature Action 100 outlined its investor expectations and target sectors, and Canada’s collaborative engagement initiative CEC appointed firms to assess target companies against its Net Zero Benchmark.

Finally, UK pensions giants came out in full force against the FCA’s listing reforms, which they say risk undoing stewardship processes.

Quote of the week

“The lack of moral courage from society’s most wealthy and powerful members in the face of political retaliation sure is fascinating—and depressing. I’m not calling the end of ESG. I am calling the end of the Fink era and its shallow, win-win rhetoric” 

Alison Taylor at New York University Stern School does not mince her words in a response to reports that BlackRock CEO Larry Fink said this week he is “ashamed” to be part of the ESG political debate

Europeans and the ISSB

This week saw a landmark moment in the world of corporate reporting, with the publication of the ISSB’s first two standards – the first pieces of the global baseline the body was mandated to establish by the IFRS Foundation.

US, Canadian and Australian investors were quick to welcome the development, as was the head of the Principles for Responsible Investment (PRI). David Atkin called on policymakers and regulators to make them mandatory within the next two years.

Arguably less conspicuous in their praise were European investors. The EU is pursuing its own corporate reporting regime, the CSRD, which, unlike the ISSB’s, will require companies to report on their impacts, not just how they are impacted financially by sustainability factors.

This divergence was the basis of a spirited critique by Philippe Zaouati, CEO of sustainable investment house Mirova, who described the “logic of simple financial materiality” as “mortifying”.

“Fortunately, the reporting standards that the European Commission is about to adopt are based on a double materiality, albeit somewhat watered down,” he added.

Standards and interoperability between the EU’s incoming corporate reporting rules and those of the ISSB featured in discussions at RI Europe earlier this month.

Unsurprisingly, when RI polled delegates on whether they preferred a double-materiality or single-materiality approach, the former received the majority of votes.

But, interestingly, when asked if they would be willing to sacrifice disclosures on double materiality in the short term to speed up the creation of global interoperable single materiality reporting, the majority said yes.

RI will be running a corporate reporting standards series later this summer – please contact us if you’d like to share your views.

Drained by debt?

Troubles at Thames Water have dominated UK headlines this week. The water utility, which serves London and surrounding areas, is reportedly struggling to repay its £14 billion debts and could be taken into temporary public ownership.

The company is owned by a group of institutional investors and sovereign wealth funds – the two biggest shareholders are Ontario Municipal Employees Retirement System (OMERS) and Universities Superannuation Scheme (USS). Hermes GPE and PFZW are also shareholders.

It looks as though what should have been a dull and stable regulated infrastructure investment could turn out to be the exact opposite. RI will be taking a closer look in the coming weeks and would be interested in thoughts from the market – please send them our way here.

For now, it is clear that the water utility’s shareholders are being asked to inject more equity into the business, having already done so to the tune of £500 million in recent months.

Thames Water said in a statement this week that it is “continuing to work constructively with its shareholders in relation to the further equity funding expected to be required to support Thames Water’s turnaround and investment plans”.

OMERS, USS and PFZW declined to comment.

Today’s letter was prepared by the RI editorial team