The Taskforce on Nature-related Financial Disclosures (TNFD) and Glasgow Financial Alliance for Net Zero (GFANZ) have each published draft guidance on nature transition planning for companies and financial institutions. The TNFD’s discussion paper builds on existing market practice and experience with net zero transition planning, outlining guidance for both companies and financial institutions. It is open for feedback until 1 February 2025, with finalised guidance published due later in the year. “Every business has impacts and dependencies on nature,” said Emily McKenzie, TNFD’s Technical Director. “They also face growing physical, transition and systemic risks as the resilience of nature underpinning our economies and societies continues to erode. It is now critical for organisations to consider the concrete actions they are going to take to address those issues – for [their own] benefit and to contribute to the achievement of nature-positive outcomes as called for by the Global Biodiversity Framework.” Meanwhile, the GFANZ guidance – open to feedback until 27 January 2025, with a final report expected by end of Q1 next year – focuses on incorporating nature into the net zero transition plans of financial institutions only. It builds on GFANZ’s existing guidance on climate transition plans, in a bid to “fast-track” awareness of nature as a critical tool to effectively contribute to combatting climate change. The guidance focuses on three main actions: the reduction of nature-related greenhouse gas (GHG) emissions; the protection and increase of nature-related GHG sinks; and embedding nature-related considerations into approach and planning. “We feel that the [TNFD and GFANZ] reports are complementary and will be excellent strategic resources for investors and the private sector,” said Hans Mehn, Partner at Generation Investment Management. “Investors have many reasons for taking action on nature to manage risks and opportunities in their portfolios, including: net zero commitments, adoption of TNFD recommendations, emerging legislation and requirements under disclosure standards [like the International Sustainability Standards Board].”
Sustainable Investor
News in Brief
Market operator and data provider Intercontinental Exchange (ICE) has unveiled a climate data and analytics service in partnership with Dun & Bradstreet (D&B), a business information supplier. The new offering will provide transition risk data, including Scope 1, 2 and 3 greenhouse gas emissions, and physical risk data on tens of millions of public and private companies globally. “By combining D&B’s business intelligence, supply-chain and asset location data with ICE’s geospatial and climate capabilities, and leveraging ICE’s distribution channels, this new service will offer the broader investment community a single source of climate data for virtually all business entities globally,” said Chris Edmonds, President of ICE’s Fixed Income and Data Services. The new service will combine D&B’s large private company database, as well as its proprietary utility spend, shipping and supply-chain datasets, with ICE’s geospatial intelligence platform and climate data models. The latter includes multi-asset class transition emissions and physical climate data on over 110 million US properties, global public companies, municipalities, and more than 4.2 million fixed-income securities across corporates, municipals, sovereigns and mortgage-backed securities. “Utilising the Dun & Bradstreet D-U-N-S Number allows us to bring many sources of data together that are already deeply embedded in the business and investment communities, while allowing for smooth integration into existing workflows,” said Ginny Gomez, President of Dun & Bradstreet in North America. The data solution will be part of ICE Climate, which provides data and analytics that help quantify investment impacts posed by transition and physical climate risks, such as extreme weather events.
The total number of companies and financial institutions having pledged to start voluntary reporting in line with Taskforce on Nature-related Financial Disclosures (TNFD) recommendations now stands at 502. This marks a 57% increase since the first adopters were announced in January. Committed firms include publicly listed companies representing more than US$6.5 trillion in market capitalisation – an 8% increase since London Climate Action Week (LCAW) in late June – spread across 54 jurisdictions, including 25 emerging markets. In addition, 129 financial institutions are now registered as TNFD adopters, representing US$17.7 trillion in AUM – an 11% increase since LCAW – including 25% of the world’s systemically important banks. Notable new adopters include abrdn, KPMG and Manulife Investment Management as well as a diverse range of companies across sectors, who have all signalled their intention to begin adopting TNFD recommendations and publishing aligned disclosures as part of their annual corporate reporting for financial year 2024 or 2025. “The speed of voluntary market adoption over the past year since the release of the TNFD recommendations highlights the growing appreciation across sectors and geographies that nature is a material risk issue for their business and a new source of opportunity and potential competitive advantage,” said TNFD Co-chair David Craig. “We have seen significant uptake across sectors – in particular from asset managers, as they address climate and nature risk in their portfolios. The growth in these assessments and public disclosures is helping direct financial flows towards more resilient business models and nature-positive outcomes.” The TNFD’s approach to assessment and disclosure is aligned with the Global Biodiversity Framework, and specifically Target 15 – calling on governments to introduce requirements by 2030 for corporate reporting on nature-related dependencies, impacts and risks. “Today’s announcement demonstrates that the market is already moving quickly to embrace better nature-related risk management and disclosure aligned with global policy goals,” the TNFD said.
Investec Alternative Investment Management (IAIM) has partnered with sustainability services provider Holtara to embed sustainable lending best practices via enhanced data capture and evaluation. The partnership aims to deliver positive outcomes for IAIM investors, borrowers and private equity sponsors through enhanced sustainability-linked financing options and data analysis. It will serve as an important component in aligning Investec’s portfolio with net zero by 2050, accelerating the firm’s progress on sustainable lending and investing by incorporating new data and insights within its direct lending activities. By leveraging the origination and proprietary deal flow capabilities of its parent, Investec Bank, IAIM’s direct lending strategy provides institutional investors and family offices with access to high-growth, lower mid-market corporate lending opportunities. The platform manages more than €3 billion of assets across private market credit strategies. Alicia Forry, who leads ESG for alternative investments at IAIM, will work with Holtara to maximise value from the partnership, having been appointed earlier this year to embed responsible investing frameworks and processes across private market credit strategies. “Clients rightly demand sustainable investment solutions, and we must continually enhance our understanding of the opportunities and risks inherent in our portfolios, through a strong understanding of data,” said Callum Bell, IAIM’s Head of Direct Lending. “We believe partnering with Holtara […] provides us with a competitive edge as we leverage their expertise in an area that is continuously expanding and evolving.” Holtara is owned by global financial services provider Apex Group.
Global investment manager M&G has launched a sustainable corporate bond strategy in collaboration with Swiss impact-focused asset manager responsAbility, which it acquired in 2022. Classified as Article 9 under the Sustainable Finance Disclosure Regulation (SFDR), the Sustainable Solutions Bond Fund was designed following engagement with institutional and wholesale investors seeking sustainable active fixed-income strategies. Leveraging M&G’s credit expertise and responsAbility’s long-standing track record on impact and sustainable investing, the team will follow a fundamental credit strategy, constructing a diversified portfolio of global investment grade bonds driving positive change in six areas: better health, better work and education, social inclusion, circular economy, environmental solutions, and climate action. Investments will also be mapped to the UN Sustainable Development Goals (SDGs), with portfolio bonds classified either as ‘project financing bonds’ – funding a specific project targeting either environmental (green bonds) or social outcomes (social bonds) or a combination of both (sustainability bonds) – or as ‘solution provider businesses’, designating bonds issued by companies that actively address problems linked to environmental or social challenges through their core products and services. The fund will be co-managed by Mario Eisenegger and Ben Lord – long-standing members of M&G’s €161 billion (US$173.9 billion) fixed-income investment division. responsAbility will act as investment adviser. “One of the most effective ways for bond investors to contribute to the SDGs is by directly funding environmental and social projects, and providing financing to businesses that make a meaningful, positive contribution to the planet or society,” said Eisenegger. “This fund does exactly that, giving the team a clear mandate to be laser-focused on these urgent priorities when putting clients’ money to work.” Ten years after the first corporate green bond was issued in 2013, global ESG corporate bond issuance reached US$306 billion across the first three quarters of 2024, accounting for 23% of the current total corporate supply in the European investment grade space.
Global ESG funds have generated increased interest, with net new money increasing from US$6.3 billion to US$10.4 billion over the past quarter, according to Morningstar Sustainalytics. The US$4.1 billion uptick was largely driven by decelerating outflows in Canada, Japan and the US. Redemptions from sustainable funds in the US totalled US$2.3 billion – less than half of the US$4.7 billion registered in Q2 – while Japan saw outflows decrease from US$1.3 billion to US$590 million. Canada saw the most dramatic change, with redemptions falling to just US$69 million in Q3, down from US$1.4 billion the previous quarter. However, Europe saw its ESG fund inflows take a US$800 million hit, sliding from US$11.1 billion to US$10.3 billion – a disquieting trend, according to Morningstar. Asia, excluding Japan, also fell from US$3.1 billion to US$2.5 billion. Europe saw 102 sustainable funds being either closed or merged in Q3, bringing the total to 349 so far this year, while 113 products changed names – including 50 dropping ESG terms – with regulation driving the alterations, including the UK’s Sustainability Disclosure Requirements. “The global flow picture for ESG funds is improving, but it hides nuances across geographies,” said Hortense Bioy, Head of Sustainable Investing Research at Morningstar Sustainalytics. “Redemptions are declining in the US, Canada, and Japan, which can be seen as a positive development, but net inflows into ESG funds aren’t increasing in Europe – the leading market.”
London-based tech firm Unwritten has launched Unwritten 360, a private markets platform that helps assess and report climate risk across the investment process. ESG teams will be able to understand the climate transition and physical risks facing prospective investments through the platform’s pre-due diligence screening. In addition, investors can export portfolio-level analysis and data to expedite disclosure tasks, outline relevant climate policies and government programmes which can benefit or complicate portfolio companies’ business plans, and develop a roadmap to increase the net zero alignment of portfolio companies. In addition, investors can have a view of portfolio holdings’ potential to align capital expenditure with sustainable taxonomies, with a view to access more affordable, sustainability-linked debt. “We’re excited to be launching Unwritten 360, but it’s really just the starting gun,” said Unwritten Co-founder and CEO Amos Wittenberg. “Our goal is to empower ESG teams in a job that will always be demanding but is also uniquely influential, with the power to create climate value in every investment.” Unlike in public market, the timeframes, concentration, and illiquidity of private market portfolios mean their investors have greater exposure to the financial risks of climate change, Unwritten explained. But they also have the influence and mandate – gained through financial control – to drive portfolio companies’ alignment with climate-related goals, the firm noted.
UK pension scheme Railpen, the Pensions and Lifetime Savings Association (PLSA) and the Chartered Institute of Personnel and Development (CIPD) have called on FTSE 350 company CEOs to improve the quality of their workforce reporting, providing practical guidance. While evidence on the materiality of a motivated, fulfilled and engaged workforce is well-established, workforce-related topics – and how they are discussed by companies in investor-facing communications – will become more important for companies and their investors in the years ahead, the three entities wrote in a letter. Following new commitments from the Labour government in relation to the UK labour market, including likely workforce reforms, there is a greater need for more consistency and transparency in workforce reporting, they added. “While we often see companies stating that their workforce ‘is their greatest asset’, this is not always accompanied by concrete evidence of how employment practices relate to the firm’s wider strategy,” said Caroline Escott, Senior Investment Manager at Railpen. “Investors want to support and invest in companies that are well-positioned in terms of how they manage their people, and in turn, look to issuers to provide access to clear, comparable information on material and decision-useful workforce factors.” Railpen, PLSA and CIPD urged the companies to review and update disclosures across four key areas: workforce composition, employee relations and wellbeing, reward and recognition, and skills and capabilities. The letter builds on the publication of the Workforce Reporting Framework by Railpen, the High Pay Centre, Board Intelligence, CIPD and PLSA in 2022, which set out information that companies should consider disclosing.
New York City (NYC) Comptroller Brad Lander has proposed the exclusion of prospective private markets investments in downstream and midstream fossil-fuel infrastructure, further expanding the pension funds’ divestment from such fuels. The proposal would see fossil fuels entirely excluded from the portfolios of three of the City’s public pension systems – NYC Employees’ Retirement System, NYC Teachers’ Retirement System, and the NYC Board of Education Retirement System. “Climate risk is financial risk, and we have a fiduciary duty to our beneficiaries to take that seriously as we make long-term investment decisions,” said Lander. “Excluding pipelines and LNG terminals from future investments will help mitigate the systemic risks that climate change poses to the global economy and to New York City’s public pension funds.” NYC pension funds already started to exclude upstream fossil-fuel development from their private market investments last year. The additional step of excluding downstream and midstream fossil fuels makes them the first pension systems in the country known to do so. The three pension funds completed divestments from their public equities holdings in fossil-fuel reserve owners in 2022. The proposal was welcomed by a number of non-profits and NGOs, including US-based environmental non-profit Sierra Club. “[This] is another important milestone for the leadership of NYC’s pension systems, which have been setting an ambitious and necessary example for other pensions across the country to follow to confront the systemic threat of climate change,” said Loren Blackford, Acting Deputy Executive Director at Sierra Club. “With the impacts of climate change becoming ever-clearer, it’s never been more urgent to stop financing the industries that drive the crisis, which threatens our economy and so many people’s retirement security.”
ANNOUNCEMENT ⬇️
New plan stop to future investments by New York City public pension funds in midstream and downstream fossil fuel infrastructure.
This move is the first of its kind by a public pension fund in the US.
Grateful to @nychange, @FFF_NYC_, @ClimateFamsNYC, @350NYC,… pic.twitter.com/ZOTpVqXWGn
— Office of New York City Comptroller Brad Lander (@NYCComptroller) October 22, 2024
The Global Impact Investing Network (GIIN) has said that the impact investing market is now estimated to house US$1.571 trillion in AUM. This is an over US$400 billion increase from the US$1.164 trillion estimate in 2022, spread across 3,349 organisations. It also represents a 21% compound annual growth since 2019, indicating growing mainstream acceptance on impact investing. GIIN Co-founder and CEO Amit Bouri announced the finding at the GIIN Impact Forum, calling it is a “really significant number” that is helping to create real-world solutions that make deliver positive environmental and social outcomes. GIIN said the data indicated growing mainstream acceptance of impact investing in the face of global unrest, inflation and increasing impacts of climate change. “I’m so inspired to see how far the impact investing industry has come in the past fifteen years,” he said. “The scale of our ambitions is defined by the scale of the world’s problems. We’ll know that our work is done when the world’s problems are solved. Until then, I’m thankful for everyone working to make impact investing the default investment, putting capital towards solutions.”
