The International Public Sector Accounting Standards Board (IPSASB) has published a proposal for a climate-related disclosure standard to be used by governments around the world. “The rapid progress needed to address climate change requires public sector action,” said IPSASB Chair Ian Carruthers. Supported by the World Bank, SRS ED 1 aims to promote global consistency and comparability, building on the global baseline established by the International Sustainability Standards Board’s (ISSB) reporting standards. To complement the ISSB’s focus on companies and financial institutions, the IPSASB standard proposes principles for public sector entities that have responsibility for climate-related public policy programmes and their outcomes. “The scale of the investment involved and the need for coordinated action across all sectors of the economy mean that only governments are equipped to lead the changes required,” said Carruthers. “Using policy tools, such as taxation, regulation, and subsidies, governments can influence behaviors across entire economies. IPSASB’s proposed standard on climate-related disclosures will be help governments provide consistent, comparable, and verifiable information and will ultimately help them maintain access to capital markets.” IPSASB has urged public sector stakeholders – including regional and national sustainability reporting standard setters – to share their feedback on the proposed standard by 28 February 2025.
Sustainable Investor
News in Brief
European growth equity investor Verdane has closed its Idun II fund at its €700 million (US$762.8 million) hard cap, which will be channelled into economy-wide decarbonisation investments. The Article 9 Sustainable Finance Disclosure Regulation fund, which will invest in the energy transition and resource efficiency in Europe, has been backed by investors from 13 countries. The Idun II fund has more than doubled the size of predecessor Idun I, which closed at €300 million, and marks Verdane’s third final fund close in 12 months. Since launching in 2003, Verdane has invested in 42 sustainable businesses with the Idun funds injecting between €20 and €100 million. Verdane has backed 16 European businesses over the past 12 months with more than €600 million in capital. All investments made specifically by Idun II must pass sustainability criteria to measure their positive environmental impact, such as a carbon avoidance target of a minimum of 5,000 tonnes of CO2 avoided per €1 million invested. “The mobilisation of private capital at scale in 2024 to help create a more sustainable economy is a positive development for both our industry and the planet,” said Frida Einarson, Partner, Investor Relations at Verdane. “We are grateful to welcome existing and new investors into Idun II and look forward to delivering both strong returns and positive climate impact, which they can quantify and track, for their programmes.”
The UK’s Financial Conduct Authority (FCA) has issued examples of good practice to help asset managers prepare disclosures for funds using its new sustainability-related investment labels. Under the FCA’s Sustainability Disclosure Requirements (SDR) regime, asset managers have been able to apply the four labels – Sustainability Focus, Sustainability Improvers, Sustainability Impact and Sustainability Mixed Goals – to funds since the end of July. Issuing the guidance, the FCA acknowledged that market practice was still evolving, but emphasised that specific criteria are required to be met and supported by disclosures for funds to qualify for a label. The guidance provides examples of good practice in complying with requirements including clear and measurable sustainability objectives, links between a fund’s sustainability objectives and outcomes, and policies and procedures to monitor the performance of a fund in achieving its objective. The regulator also highlighted examples of poor disclosure based on it experience to date including disclosure of an asset selection process that does not link to the specified sustainability objective of a product, and failure to disclose a manager override for asset selection. Specific to use of the Sustainability Improvers label – which typically includes assets transitioning to a low-carbon business model – the FCA also cited failure to disclose the types of evidence the manager relies upon “to satisfy itself that assets have the potential to meet the robust, evidence-based standard”. The new rules enter force in December but the FCA said it would give asset managers temporary flexibility to comply with the naming and marketing rules until April next year. “We hope to see the regulator build on this over time, including providing more detail on where firms may be falling short in their fund disclosures,” said UKSIF CEO James Alexander. “We remain confident that in time the SDR can give investors greater confidence in their investment decisions on sustainability, while helping reinforce the UK’s position as a global leader in green and sustainable finance.”
Taiwan’s Financial Supervisory Commission (FSC) has published a green and transition finance action plan to increase financial support for and the effectiveness of the country’s net zero transition. The new plan takes into account international trends to increase focus on transition finance, the FSC said, noting that the EU, Japan, and Singapore have already introduced transition finance policy frameworks or related guidelines and plans. It includes five core strategies, six areas of focus, and a total of 30 specific measures (including seven continuing measures from the Green Finance Action Plan 3.0). The new plan’s areas of focus include providing financial support for companies’ net zero transition by incorporating businesses’ voluntary emission reduction plans, commitments and offset projects into investment evaluations, and developing green and sustainable finance products. In addition, the FSC strategy aims to improve the collection and management of corporate climate emissions data, promote financial institutions’ disclosure of carbon reduction targets and strategies, and improve sustainable finance evaluation and cooperation mechanisms. The strategy further emphasises the importance of enhancing Taiwan’s international influence, including strengthening sustainable governance mechanisms and collaborating with international organisations to jointly promote related projects. “The financial market [since 2017] has moved from supporting investments in green industries to incorporating ESG factors into investment decisions and risk management strategies, promoting the flow of capital towards low-carbon industries and sustainable development,” the regulator said. The FSC added it will leverage government agencies, financial industry associations, financial training institutions, and non-profit organisations to help promote the development of Taiwan’s green and transitional finance.
Swiss-based non-profit NatureFinance has named Julie McCarthy as CEO, switching from a co-CEO model following Simon Zadek’s decision to step down. McCarthy initially joined NatureFinance in 2022 as managing director before becoming co-CEO in October 2023. With more than two decades of non-profit experience, McCarthy founded and was co-director of the Open Society Foundations’ Economic Justice Program, a US$100 million per annum global grantmaking and impact investment initiative focused on fiscal justice, workers’ rights, and corporate governance. She also was founding director of the Open Government Partnership, a multilateral initiative aimed at securing commitments from national and sub-national governments to promote open government, combat corruption, and improve governance. “Julie is a proven and respected leader who brings a track record of success, strategic insights, and deep knowledge at the intersection of financial and economic governance, equity and sustainability, a combination that positions her well to steer NatureFinance in this next chapter,” said Marianne Haahr, Chair of NatureFinance. Founded by Zadek in 2019, NatureFinance expanded into a 40-person strong global organisation focused on driving a nature positive financial transition, accelerating sustainability-linked sovereign finance, and advancing a sustainable global bioeconomy. “Beyond incubating NatureFinance into the dynamic global organization that it is today, [Simon] leaves an extraordinary legacy in helping shape and advance the field of nature finance during its most formative phase,” added Haahr.
Private markets managers are adopting diversity polices at a faster pace than public markets counterparts, but are unlikely to be rewarded due to client reluctance to prioritise the issue during selection. Analysis of recent manager searches by investment consultancy bfinance found that diversity was rated a significant or relevant criterion in just 22% of cases, despite 36% of investors telling the firm they would be unlikely to appoint a manager which lacks gender or ethnic diversity in its global asset owner surveys. bfinance said the disparity could stem from some investors needing to hire managers in niche asset classes, meaning they may be primarily concerned with identifying a sufficient number of credible candidates, and less focused on diversity than when selecting managers for a broader strategy. The bfinance report also found that 88% of private markets firms had adopted diversity, equity, and inclusion (DEI) policies compared with 77% of public markets managers. Across all asset managers, diversity in ownership or leadership roles remains very low, with just 4% of firms majority-owned by ethnic minorities, and only 3% by women. In management, only 11% of firms report that more than 30% of their senior team comes from under-represented ethnic backgrounds. bfinance said institutional investors should look beyond headline diversity features and metrics when considering asset managers. “A DEI policy may be a largely symbolic and superficial gesture or can feature clear measurable goals and timelines,” it said. “Mentoring programmes, recruitment practices, employee engagement surveys and strategy-level investment practices can give deeper insights.”
UK-based independent master trust The People’s Pension has more than halved the carbon emissions of its main investment fund over the last 12 months. Its latest Task Force on Climate-related Financial Disclosures (TCFD) report noted that the scheme’s emissions have fallen by 53% – or 400,000 tonnes of CO2 equivalent – while its assets have increased by £8 billion (US$10.3 billion).This follows an announcement by The People’s Pension earlier this year that it was moving £15 billion of its assets under management into climate-aware investment strategies. This allocation has since risen to £18 billion. “This report tells a compelling story about how we use our size and influence to ensure our members’ savings are allocated and managed responsibly and reinforces our commitment to tackling climate change through investing,” said Mark Condron, Chair of The People’s Pension Trustee. Three sectors are responsible for over 70% of the fund’s remaining emissions: materials, utilities and industrials. However, through engagement efforts, between 40-60% of investees within these sectors have now set science-based targets to reduce their emissions, the firm said. “With great size [£30 billion in AUM] comes greater responsibility,” said Dan Mikulskis, the firm’s Chief Investment Officer. “We are committed to doing what we can to make sure the companies we invest in follow certain standards, particularly in material sectors and in our priority areas of climate, nature and human rights. The TCFD report has become a useful reporting vehicle across a range of climate and responsible investment areas.”
The World Benchmarking Alliance’s (WBA) Urban Benchmark has found that 300 of the world’s “most influential” firms in urban areas are failing to protect residents’ health and provide affordable housing. The benchmark revealed that only 3% of the 300 companies assessed have taken action to reduce air pollution, while 75% had fail to act on issues including affordable housing, transport, and basic utilities. According to WBA, companies are failing on two fronts: reducing emissions and preparing for “disasters that could follow”. The report remarked that many companies operating in high-risk urban areas are poorly prepared for natural disasters, with 63% failing to conduct proper risk assessments and 69% not disclosing emergency plans. The increased frequency and severity of disasters driven by climate change means the gaps in preparedness leave cities and companies vulnerable. WBA encouraged companies to act urgently to reduce emissions and strengthen disaster resilience. London Stock Exchange Group’s COP29 Net Zero Atlas released earlier this week found that half of the world’s largest 49 cities will be at high risk of one or more climate hazards – such as cyclones floods, heatwaves and water stress – by 2050, an increase from just one in five today. “If [companies] fail to prioritise affordability, they risk deepening inequality in rapidly growing urban areas,” said Tony Widjarnarso, World Benchmarking Alliance’s Urban Transformation Lead. “We need urgent action, transparency, accountability and collaboration from businesses, who must work alongside policymakers to ensure that cities become more inclusive, affordable, and sustainable for all. The health of billions of people depends on it.”
📢Our 2024 Urban Benchmark is out! Findings reveal that only 3% of the 300 companies assessed have taken action to reduce air pollution, and a staggering 75% fail to address the issue of affordable housing, transport, and basic utilities.
Read more: https://t.co/MFTchL6JcH pic.twitter.com/afljKhmBxc
— World Benchmarking Alliance (@SDGBenchmarks) October 31, 2024
A new toolkit developed by environmental charity World Wide Fund for Nature (WWF) and financial crime software company Themis aims to minimise financial institutions’ exposure to environmental financial crime. Launched at COP16, the Environmental Crime Financial Toolkit is an open access platform that seeks to equip firms to detect and monitor illicit activity related to land conversion and deforestation by highlighting red flags and risks connected with different types of environmental and financial crimes. Designed to be integrated with existing systems, the platform aims to help financial institutions strengthen their screening capacity when reviewing existing clients, onboarding new ones, and assessing risks across the whole financial sector. According to Interpol, environmental financial crime is the third largest illegal activity globally, worth US$110-281 billion annually. In a recent survey by WWF and Themis, more than 60% of financial services professionals said that a land conversion risk policy was either non-existent (45.7%) or not yet developed or in place (18.6%) at their firm. Almost half of financial institutions sampled reported operating with or in high-risk sectors or areas, yet over a quarter said they did not undertake specific related due diligence, with only 17% monitoring or screening companies and clients on a periodic or ongoing basis. “Despite its rapid growth, environmental crime is rarely seen as a serious risk by financial institutions, but it in fact poses significant reputational and material risks to their operations, such as the potential of sanctions for enabling illegal activity,” said Tanya Steele, CEO at WWF-UK. “Environmental crime is therefore very much an economic as well as a conservation issue.”
Members of the Net Zero Asset Owner Alliance (NZAOA) have set more ambitious sub-portfolio emission reduction targets across bonds, equities, real estate and infrastructure in their latest progress report. With the alliance now reporting average reductions in absolute financed greenhouse gas emissions of at least 6% annually, 79 of 81 NZAOA members have also chosen to implement sub-portfolio target-setting methodologies which cover 48% (US$4.3 trillion) of the alliance’s total AUM – up from 42% the previous year. On average, members are targeting a 26% emissions reduction by 2025 for bonds, equities, real estate and infrastructure. Sub-portfolio target coverage is expected to increase further once private assets are phased in. The 12 new members of the alliance that have set their targets for the first time in 2024 have all set both their sub-portfolio and climate solution investments targets, together with mandatory engagement targets. “The alliance sets a powerful example for meaningful progress,” said NZAOA Chair Günther Thallinger. “To maintain momentum, governments must implement bold climate policies and define concrete sector-based and investible transition plans with short-term targets to meet their Paris commitments.”
