Data provider MSCI has designed a new tool to enable buyers, investors and developers of carbon credits to better assess the quality and integrity of carbon projects. MSCI Carbon Ratings will assess over 4,000 projects in the global carbon credit market, providing comprehensive, independent and investment-grade analysis of the associated integrity and risks involved in each of them. Projects will be assessed against six criteria and 50 sub-criteria broadly categorised under emissions impact and implementation integrity, across themes such as climate, environment, society, legal and ethical risks – which includes financial crimes, fraud and sanctions. “Carbon markets are critical to accelerating decarbonisation and meeting net zero goals, but only 5% of projects on the market are considered to be of very high integrity,” said Guy Turner, Head of MSCI Carbon Markets. “Lack of confidence in the quality and integrity of projects is causing some buyers, investors and developers to hesitate.” The rules-based methodology will leverage MSCI’s experience setting industry standards for climate investing, with projects awarded a rating on a scale from AAA to CCC. Projects rated AAA will have both a high likelihood of achieving one tonne of emissions impact per credit, while supporting positive social and/or environmental outcomes and upholding legal and ethical standards. “MSCI Carbon Project Ratings give clients the confidence to stake their strategies, capital and reputations on carbon credits while allowing them to compare credits across the entire market, mitigate risks from investment decisions, and fulfil disclosure requirements,” said Turner.
Sustainable Investor
News in Brief
Governance-focused shareholder resolutions were the only area of ESG for which support rose during the 2024 proxy season, while backing for environmental and social proposals continued to decline – albeit at a slower rate. Governance resolutions climbed from a low 30% last year to 36%, according to a Morningstar Sustainalytics report, with a growing focus on shareholder rights identified as a key driver behind this trend. Support for environmental and social resolutions fell from 22% last year to 20% – a less severe drop from the 29% received in 2022. Social resolutions were the only type to see an increase in the total number filed during the proxy season, rising to 300 up from 260 last year. Environmental resolutions remained the same at 100, but the proportion filed by those deemed to be ‘anti-ESG’ tripled. The number of ‘well-backed’ key resolutions also suffered a five-year low, plummeting to 37 from a peak of 103 in 2022 – which the report attributes to a contraction in large asset manager votes. BlackRock and Vanguard notably further cut their support for environmental and social proposals, while State Street significantly reduced its backing of such resolutions for the first time. However, asset managers with a pro-ESG voting history did not show the same decline in support. “While shareholder resolutions aimed at social outcomes have historically dominated the ‘E’ and ‘S’ category, they are the only ESG resolutions continuing to grow in 2024, primarily due to anti-ESG proponents,” said Lindsey Stewart, Director of Stewardship Research and Policy at Morningstar Sustainalytics. “Despite environmental resolutions previously leading in support over social proposals in 2022, this gap has narrowed.”
BlackRock and Vanguard cut support for shareholder resolutions again during Proxy season. This time, State Street joined them.
Here is what investors need to know about voting decisions made by the Big Three index fund providers. https://t.co/uLgir0HPsk
— Morningstar, Inc. (@MorningstarInc) September 19, 2024
Impact investment-focused advisory firm Veris Wealth Partners has released its Framework for Investing in a Just Transition, aiming to support an equitable migration to a low-carbon economy by providing examples of opportunities, engagement and potential policy changes. The report details Veris’ strategy for just-transition investing, identifying solutions that it believes address the intersectionality of racial and gender equity, inequitable access to economic opportunities, and the various impacts of the climate crisis. “Systems-level change is necessary to combat the disproportionate harm that people of colour, low-income communities, women, and coastal communities face because of climate change,” said Veris CEO Stephanie Cohn Rupp. “Impact investors can support systems-level change by identifying investable opportunities that support a just transition.” The firm’s just transition lens also addresses related societal needs including self-empowerment, gender and racial equity, democratic decision-making and workers’ rights and well-being – illustrating how these and other inputs (including policy, financial structures, community wealth) interrelate. Veris sees opportunities for just transition investments across the risk-return spectrum, including those with the potential to bring market-rate financial returns and impact-first returns, laying the groundwork for market-rate risk-adjusted return opportunities in the future. “There is an opportunity for impact investors to come together to assess the risk of not funding environmental and climate justice solutions and to create intentional investable solutions,” said Roraj Pradhananga, Co-chief Investment Officer, and lead author of the report. “Through our just transition framework, [we are] taking the first step to identify and invest in these solutions.”
Bloomberg has expanded its climate solutions suite to offer an in-depth view of transition risk, including forward-looking assessments of revenue risks and opportunities under different climate pathways. Based on data from BloombergNEF, the Transition Risk Assessment Company Tool (TRACT) projects company revenue risk and opportunities for more than 70,000 companies, combining companies’ activities, supply-chain exposure and regional footprint with shifting demand for products and commodities projected under different climate scenarios. The suite aims to assist investors in assessing whether companies are on track to meet carbon emissions targets, evaluating the credibility of those targets and estimating how their revenues will be impacted under a range of transition scenarios – with the overall view to align their portfolio with net zero goals. TRACT contains data on policies, project pipeline, technology costs and bottom-up consumer adoption trends for 20 regions, with Network for Greening the Financial System scenarios set to be incorporated by the end of this month. “Our expanded suite of net zero solutions equips investors with valuable data that enables them to assess how companies are decarbonising,” said Edo Schets, Head of Climate Finance Solutions at Bloomberg. “Whether focused on portfolio alignment or identifying transition opportunities, investors now have the insights they need to set more informed long-term investment strategies.” Bloomberg’s tool enhancement release follows that of S&P Global Ratings’ Analytical Approach for Climate Transition Assessments back in July, which outlined the firm’s expectations of entities on aligning with a low-carbon and climate-resilient future.
Global NGO Disability:IN has partnered with White & Case and Thomson Reuters Foundation to publish a blueprint to help multinational companies navigate new disability-inclusive legislation under the EU regulatory framework. The new mandates, set to begin in early 2025, formally establish accessibility and disability inclusion as key components of ESG standards for the first time, according to Disability:IN. They will require companies to comply with accessibility requirements, as well as recognise the material financial impact of disability inclusion on long-term business success. This regulatory shift is outlined in three pieces of legislation: the European Accessibility Act (EAA), the Corporate Sustainability Reporting Directive (CSRD), and the Corporate Sustainability Due Diligence Directive (CSDDD). “Together, these directives redefine how corporations must report on, address and measure disability in all aspects of their operations,” Disability:IN said. The release of the blueprint follows the expansion of Disability:IN’s Equality Index into seven countries outside the US earlier this year, driven by a growing demand for “culturally appropriate” tools to measure disability inclusion efforts in multinational corporations leading up to the new EU regulations. “We are rapidly approaching a time where corporate accessibility and disability inclusion practices are no longer optional, but essential business imperatives,” said Jill Houghton, President and CEO of Disability:IN. “By adopting these practices, companies not only meet regulatory requirements, but unlock new avenues for innovation, customer loyalty and growth.” Carolina Henriquez-Schmitz, Director at TrustLaw – a pro bono legal network initiative under the Thomson Reuters Foundation – also spoke of an increasing demand for transparency on disability in corporate disclosure, with related voluntary and mandatory reporting standards proliferating.
A UK-based standard for purpose-driven organisations is being adapted for international use by early 2027, according to business improvement and standards firm BSI. The new International Organization for Standardization (ISO) standard will be designed to support businesses in aligning their purpose to the long-term wellbeing of people and the planet. PAS 808, the BSI standard on purpose-driven organisations released in January 2022, defined corporate purpose, setting out the principles and behaviours of successful purpose-driven organisations and explaining how they can align their decision-making with their stated mission. The announcement was accompanied by BSI research stating that nearly two-thirds of people globally (63%) and 55% in the UK consider a company’s social and environmental purpose when making purchasing decisions. To create the international standard, PAS 808 will be converted through the ISO process, involving an international committee of experts, supported by national delegations representing stakeholders across more than 170 countries. The BSI said the intention was to create a shared framework to ensure consistency and authenticity in purpose-driven practices to contribute to a sustainable future and address societal challenges. “When organisations invest in their purpose, they can make the shift from the traditional profit-first mindset to one where financial success is an outcome of focusing on innovating for societal and environmental impact,” said BSI Chairman John Hirst. “An international standard on corporate purpose offers the opportunity to help organisations and their global supply chains to embed public trust that they are genuinely committed to doing the right thing.”
The US Securities and Exchange Commission (SEC) has disbanded its Climate and ESG Task Force, part of its Division of Enforcement. First reported by Bloomberg, the decision was attributed to the anti-ESG backlash spurred by the Republican party in recent years, though no confirmation has been provided by the SEC. The taskforce was launched in 2021 and led by Acting Deputy Director of Enforcement Kelly Gibson, with 22 members drawn from the SEC’s headquarters, regional offices, and enforcement-specialised units. It led a number of high-profile enforcement actions, including against BNY Mellon, Goldman Sachs, and Brazilian nickel and iron and ore producer Vale. The taskforce webpage had been inactive since June, prior to a website update that was due to improve compliance, functionality and user experience – which didn’t include the ESG taskforce page. “The strategy has been effective, and the expertise developed by the task force now resides across the division,” an SEC spokesperson told Bloomberg. ESG has been subject to increasing controversy in the US, with several asset managers being targeted by lawsuits, resulting in some leaving climate-focused investor initiatives such as Climate Action 100+. Last year, the SEC had dropped ESG from its 2024 examination priorities list.
Norwegian sovereign wealth fund Norges Bank Investment Management (NBIM) has named Elisabeth Andvig as Senior Investment Stewardship Manager for Human Rights, sitting within the social team and active ownership department. Andvig brings more than a decade of industry expertise. In her new role, she will contribute to engagement with investee companies, performing qualitative and quantitative analyses of companies’ risk exposure, management and performance, as well as developing NBIM’s policies and practices on ownership activities. An NBIM spokesperson told ESG Investor she would be a “key resource on business and human rights for the fund”. Andvig joins from UNICEF, where she was a programme specialist on children’s rights and responsible business conduct, focusing on global supply chains and prevention of child labour. She previously was a senior advisor at Norway’s National Contact Point for the Organisation for Economic Co-operation and Development Guidelines. Andvig also served as a project specialist on anti-corruption at the World Economic Forum, and spent more than two years as an associate expert on business and human rights at the UN. She will report to NBIM’s Social Team Head, Caroline Eriksen, and will be involved in stewardship activities related to social topics, including human rights. Earlier this month, NBIM excluded Spain-based multinational security firm Prosegur Compania de Seguridad due to an “unacceptable risk” that it was contributing to serious and systematic human rights violations.
An assessment of 50 global brands has shown growing “addiction” to synthetic fibres and use of fossil fuel industry tactics in the fashion sector. Launched on the final day of London Fashion Week, a report published by US campaign group Changing Markets Foundation noted major brands were “doubling down” on fast fashion, warning that EU initiatives to reduce the sector’s impact on the planet were backfiring. Over 30 initiatives are due to come into force globally in the next few years, including a UN Plastic Pollution Treaty expected to be finalised later this year, as well as new EU product standards that could dramatically reshape the sector. “Despite mounting public and scientific concerns and a regulatory backlash, major brands are clinging on to synthetics and borrowing distraction and delay tactics from the fossil fuel industry,” the report noted. “The low quality and near-zero recycling rates make fast fashion a significant source of microplastic pollution and waste.” Around half (11 of 23) of the international clothing brands and retailers that responded to the survey said they had increased their use of fossil fuel-based fabrics – mainly polyester, while only three reported reduced use. Several also broke pledges to reduce synthetics made in the previous survey in 2022, and a growing number refused to respond. According to the European Environment Agency, textiles shed up to 500,000 tonnes of microplastics into the world’s oceans each year, while scientists are finding microplastics from polyester, nylon and other sources in a growing number of human organs – including the brain. With the fashion industry resisting change, lawmakers must strengthen regulations to curb synthetic use, the Changing Markets Foundation warned. “While regulators are beginning to act, they must remain vigilant,” said Senior Campaign Manager Urska Trunk. “We need strong, decisive action to steer fashion away from its dependency on fossil fuels and towards creating high-quality clothes that people want to keep for longer.”
The Taskforce on Nature-related Financial Disclosures (TNFD) has announced measures to simplify the presentation of TNFD-aligned recommended disclosures in existing voluntary and mandatory corporate reporting. The TNFD, which issued its final recommendations for nature-related disclosures last September, said it supported use of cross-reference tables to show the alignment of sustainability disclosures, including data points, with its recommendations and metrics. The announcement was a response to market calls for greater streamlining of corporate reporting, which also reflects existing market practice – including through the first generation of TNFD-aligned reporting that has emerged over the past 12 months. The TNFD said cross-referencing was permissible due to alignment achieved through ongoing collaboration with sustainability standards bodies, including the International Sustainability Standards Board (ISSB), Global Reporting Initiative (GRI), European Financial Reporting Advisory Group (EFRAG) and disclosure platform CDP. As a result of these efforts, much of the information recommended for disclosure by the TNFD is now included in standards overseen by the ISSB, GRI, and EFRAG, said the TNFD. “While each organisation needs to determine its own approach to presentation of material sustainability-related information – whether in combined or separate documents – the use of cross-reference tables can enable corporates and financial institutions to adopt the TNFD recommendations without the need to create a separate TNFD report,” it added. More than 400 organisations globally have committed to start reporting on nature-related issues aligned with the recommendations of the TNFD.
