RI ESG Briefing, Dec. 19: Finland’s central bank signs Principles for Responsible Investment

The latest ESG market developments

The Bank of Finland has signed the UN-backed Principles for Responsible Investment (PRI), committing to “recognising environmental, social and corporate governance (ESG) issues in our investment practices”. It follows the Dutch central bank DNB in becoming a signatory. Also signing up is the Phi Beta Kappa Foundation, the venerable US academic society.

Companies that are listed in Hong Kong will have to disclose “significant climate-related issues which have impacted and may impact the issuer” according to the Hong Kong exchange.

The Danish and Norwegian regulators are looking to crack down on greenwashing, according to media reports. Denmark’s FSA said in a note that it would tighten supervisory efforts to protect invests and confidence in the market from increased risk of products misleadingly marketed as green, as well as reinforce its supervision of how companies manage climate risk. Norway’s Finanstilsynet, meanwhile, said in its financial outlook that it is necessary to have set standards for financial assets classified as green or sustainable, in order for investors to be able to consistently assess climate risk at a company level.

Shell has secured a $10bn revolving credit facility which links interest and fees to the oil major’s Net Carbon Footprint (NCF) intensity target, in what may be the largest sustainability linked loan (SLL) on record. The Anglo-Dutch giant is targeting a 2-3% reduction of its NCF by 2021, 20% by 2035 and 50% by 2050. Bank of America and Barclays Bank acted as joint arrangers for the facility – consisting of an $8bn five-year tranche and a $2bn one-year tranche – which is provided by a syndicate of 25 banks.

The UK’s Green Finance Institute (GFI), launched earlier this year with government backing, is forming a Coalition for the Energy Efficiency of Buildings (CEEB) to help develop the market for financing net-zero carbon and climate-resilient buildings in the UK.

Goldman Sachs has become the first bank to rule out further financing for Arctic oil drilling or exploration as well as new thermal coal mines and coal-fired power plant projects. The US bank also said it would issue more CAT bonds to help its clients manage the heightened frequency of extreme weather events. 

The 2° Investing Initiative (2dii) has published a discussion paper on shareholder resolutions requesting companies to align with climate goals. The report, called Passing the baton: Climate-related shareholder resolutions and their contribution to investor climate pledges, found that among 500 climate-related resolutions, only 11 resolutions requested consistency with a 2°C pathway or better. Read the full report here.

PIMCO, Moody’s, Sompo Japan Nipponkoa Asset Management and the Global Impact Initiative are among those planning to create a set of Principles for SDG-aligned Corporate Finance as part of a new CFO Taskforce for the Sustainable Development Goals. 

Japan’s Government Pension Investment Fund has announced a partnership with the Council of Europe Development Bank (CEB) to promote social bonds and ESG integration in fixed income investments. It will see the CEB issue social bonds which GPIF managers can then invest in at their discretion.

GPIF has also joined the Japan group of the 30% Club – an investor initiative aimed at achieving a minimum of 30% women on FTSE 350 boards by 2020. It has been a member of the initiative’s UK and US groups since 2016, through which it said it had been gathering information from countries with advanced diversity in business and investment. 

Eighty percent of global asset owners are investing to increase their ESG knowledge, according to a new study from Franklin Templeton looking at ESG adoption, implementation and development across institutional and wholesale asset owners in North America, Europe and APAC. Seventy-three percent were expanding capabilities in ESG. These figures put ESG ahead of other categories such as investment strategy (57% and 50%) and technology (59% and 48%).

The number of female directors grew to 20% this year, up from 17.9% in 2018 and 17.3% in 2017, according to an MSCI review of the board and executive management structure of the 2,765 constituents of the MSCI ACWI Index. The growth was primarily driven by US constituents of the index. MSCI said, at the current pace, a 50/50 gender split among global directors might be reached by 2044.

Uniqlo, Adidas, Hennes & Mauritz, Kraft Heinz and Coca-Cola have been reportedly linked to forced labour within state-run detention camps in Western China. The UN estimates that a million of the Muslim Uighur minority are detained in the so-called ‘re-education’ camps where inmates have been allegedly subject to torture, organ harvesting and forced religious conversion.

EU member states have backed an ambitious forestry policy package which include requirements for corporate boards to disclose sustainability strategies including supply chain due diligence and forward-looking sustainability targets. Companies may also face requirements to disclose their impacts on deforestation in future revisions of the Non-Financial Reporting Directive (NFRD). These proposals will be the basis of the EU’s revised Forestry Strategy due in March.

 Apple, Alphabet, Microsoft, Dell and Tesla have been reportedly named in a suit over the use of child labour in their supply chains. The legal action was brought by non-profit Rights Advocates on behalf of the families of children killed or injured while mining for cobalt in the Democratic Republic of Congo, where most of the world’s supply of the mineral is found. Cobalt is a key component of rechargeable batteries.

Danmarks Nationalbank, the central bank of Denmark, is to assess the resilience of Danish banks to transition risks associated with climate change by mid-next year. According to an analysis published earlier this month, the stress test will look at the adequacy of current capital requirements – which dictate the amount of capital banks must reserve as a buffer against systemic shocks – across a number of climate scenarios.

Climate lobbying resolutions at Australia and New Zealand Banking Group (ANZ) and the National Australia Bank (NAB) garnered 17% and 15% support, respectively, this week, according to filer the Australian Centre for Corporate Responsibility (ACCR). Both banks are full members of the Business Council of Australia (BCA), while ANZ is also an associate member of the Australian Petroleum Production and Exploration Association (APPEA).