Funds regulation and compliance services provider Ocorian has outlined expected changes to the EU’s Sustainable Finance Disclosure Regulation (SFDR) – currently subject to a review by the European Commission. Alternative asset managers should stay prepared and expect more stringent reporting rules, Ocorian said, which could take effect as early as next year. The consultancy identified five possible changes that may feature in the next SFDR update – including a requirement for more granular information on sustainability factors considered in investment decisions, portfolio characteristics and investment impacts. In addition, Ocorian expects the EU Taxonomy to play more of a prominent role in Article 8 and 9 funds classification, with fund managers asked to demonstrate stronger alignment with the taxonomy. “The concept of ‘sustainability risks’ is likely to receive more focus,” Ocorian said. “Disclosures might need to elaborate on how these risks are integrated into investment processes and risk management frameworks.” More emphasis could also be placed on disclosing principal adverse sustainability impacts and reporting on engagement activities, while existing SFDR categories could be revised or replaced altogether to offer more clarity and comparability between products – a change Ocorian said could be the most disruptive. The commission is expected to announce the amendments to SFDR later this year.
Sustainable Investor
News in Brief
Technology entrepreneur Emilie Meurk Demerud has joined the board of Swedish sustainability-focused fund selection and reporting platform Fundrella. The firm matches funds from more than 80 asset managers to Dutch and Nordic investors with €630 billion (US$701 billion) in total AUM based on ESG factors. Fundrella said the appointment was critical as it looked to leverage its growing ESG data set and offer actionable insights to clients. Fundrella closed a 6.7 million SEK (€590,000) venture capital-led funding round last year and has now secured an additional five million SEK, aimed at product development. New investors include Finnish VC company Gorilla Capital, investment company RadCap and the angel network Nyfikna Investerare, as well as new technology partner VNTRS. “At an exciting phase, Emelie’s tech knowledge and experience across product, engineering and AI will be a great addition to our board. Her vast competence is exactly what we need to take Fundrella to the next level in terms of developing our platform [through] the use of new technology,” said Wava Bodin, Founder and CEO. In an extensive career, Demerud has founded several companies, including Hedy, an innovation agency aimed at scaling up the ideas of impact entrepreneurs, and deb, a firm dedicated to increasing diversity in Swedish boardrooms.
French investment manager Rivage Investment, Copenhagen Infrastructure Partners (CIP) and Norwegian pension fund Kommunal Landspensjonskasse (KLP) have together provided €300 million (US$334 million) in debt financing to Estonia-based renewable energy producer Sunly. The fresh funding will help to strengthen energy security and supercharge renewable projects in the Baltics and Poland, supporting the construction of 1.3 gigawatts (GW) of solar, wind, storage and hybrid parks across the region. Rivage used infrastructure debt fund REDI HR2 for the investment, while CIP invested through its Green Credit Fund I. Additional participation from KLP was made through funds managed by CIP. The funding round comes amid ongoing efforts from the EU to reduce dependence on Russian gas, with the Baltic states and Poland particularly exposed to price fluctuations and supply disruptions. An upcoming desynchronisation from the Russian and Belarusian electricity grid in February next year, however, should stimulate regional energy independence and security. Sunly has received €765 million in capital support to date, with previous backers including French asset manager Mirova and the European Bank for Reconstruction and Development. Upcoming projects for Sunly include a 244-megawatt (MW) solar park in Estonia that will be expanded to include onshore wind turbines and battery storage, as well as the construction of four solar parks in Latvia with a combined capacity of 553MW. The 1.3GW portfolio should also include several large hybrid solar parks in Lithuania and Poland, to be built by end-2026. “We are yet again pleased to be invited as a co-investor in a renewable energy project in Poland and the Baltics through our longstanding relationship with CIP,” said Oliver Siem, Director of Investments and Operations at KLP. “This is one of many steps in reaching our goal of being Paris-aligned by 2050.”
Increased investor focus on climate adaptation and biodiversity is encouraging the issuance of blue debt – especially blue bonds – to finance projects supporting freshwater resources and marine ecosystem health, Sustainable Fitch says. However, a major obstacle to the expansion of the blue debt market is the lack of comprehensive taxonomies to identify eligible ‘blue’ projects. Although projects involving freshwater – such as water infrastructure – are clearly defined within sustainable finance frameworks globally, the same cannot be said for a broader array of ocean-related activities, Sustainable Fitch noted in its report. It suggested this could be due to technical ambiguities and the nascent stage of understanding the potential environmental impact of eligible ocean activities. Issuers do also use green and sustainability bonds to fund sustainable water-related projects, such as wastewater management. Up until 2023, supranational entities and financial institutions were the main issuers of blue bonds, but local governments and agencies have been leading the way on blue label fundraising since. Sustainable Fitch expects more asset managers will start incorporating blue bonds into their fixed income strategies to diversify assets, while positively affecting sustainable water and ocean ecosystems. Blue bonds can provide investors with exposure to ESG-related investment opportunities in emerging markets, it said – noting that many projects financed by blue debt are based in less-developed coastal economies.
The Global Reporting Initiative (GRI) has launched a global recruitment call to appoint eight new members to three governance bodies it says have “underpin[ned its] continued success”. The GRI is looking for “experienced professionals” from diverse backgrounds to fill eight vacancies, starting 1 January 2025. The first body it is recruiting for is the Supervisory Board, responsible for overseeing long-term priorities and strategy, with one role for which applicants from the ASEAN and Latin America regions are particularly welcome. The GRI is also seeking to fill four positions on its Global Sustainability Standards Board (GSSB) – the independent entity responsible for developing and setting its standards. For these roles, applications are sought from all stakeholder constituencies – especially those representing investor institutions and civil society organisations. Finally, the GRI Due Process Oversight Committee – which ensures GSSB standard-setting activities are conducted in accordance with its due process – has three vacancies, which are open to applicants from the business enterprise, investor institution, and mediating institution sectors, particularly from the Latin America and ASEAN regions. “Bringing together diverse representation from across GRI’s global, multi-stakeholder communities is at the heart of our work, ensuring that our strategy is responsive and delivers maximum impact,” said Jessica Fries, Chair of the Supervisory Board. “It is also key to developing robust standards that respond to the needs of different audiences.”
Investors and corporates are using vague and interchangeable terms in their climate-related disclosures, according to a new greenwashing report by the Australian Securities and Investments Commission (ASIC). The regulator made 47 interventions during the 15 months to June 2024, issuing over A$123,000 (US$82,000) in infringement notices to companies such as Northern Trust Asset Management and Morningstar Investment Management. The report also listed civil penalty proceedings against superannuation fund Active Super trustee LGSS Pty Limited, Vanguard Investments Australia, and Mercer Superannuation. All three were found by the courts to have engaged in greenwashing, with Mercer handed a A$11.3 million penalty. ASIC found inconsistent and interchangeable use of key terms in listed companies’ disclosures, such as ‘net-zero emissions’ and ‘carbon-neutral’. It also noted insufficient disclosure of key inputs, assumptions, and contingencies used for climate-related statements. The regulator said superannuation trustees had used vague terminology when making claims, sometimes providing unsubstantiated representations or missing out detail on investments held. “A small number of superannuation funds held investments in companies that appeared to be breaching their own investment exclusion criteria,” ASIC said. To help regulated entities avoid greenwashing-related misconduct, the commission said they should consider relevant disclosure requirements in the Australian Sustainability Reporting Standards when disclosing climate-related metrics and targets voluntarily. Last week, the Australian Senate passed landmark amendments to the Corporations Act, introducing mandatory climate reporting aligned with the International Sustainability Standards Board’s S2 climate-related disclosures.
Norges Bank Investment Management (NBIM), the world’s largest sovereign wealth fund, has entered an agreement with Copenhagen Infrastructure Partners (CIP) to commit €900 million (US$1.005 billion) to the latter’s latest renewable energy vehicle. CI V – CIP’s fifth flagship fund – will invest in renewable energies, with a focus on offshore and onshore wind, grid and distribution, energy storage, and solar farms across North America, Western Europe and developed countries in the Asia-Pacific region. “The investment is a valuable addition to the portfolio we are currently building,” said Mie Holstad, Chief Investment Officer for Real Assets at NBIM. “It will provide further investment possibilities and exposure to other parts of the value chain, as well as the opportunity to continue building knowledge and experience with new markets and technologies.” The management mandate from Norway’s Ministry of Finance, which opened in 2019, allows NBIM to make both direct and indirect investments in unlisted renewable energy infrastructure. NBIM has closed six direct investments in solar and wind in Europe to date. “We have worked for a long time to map out the investment risks and non-financial risks and are pleased with our choice of CIP as a partner,” Holstad added. “Our evaluations have shown that CIP has created value for investors in an open and responsible way.”
The Interfaith Center on Corporate Responsibility (ICCR) has criticised the stance of trade association the Business Roundtable (BRT) on the US Securities and Exchange Commission’s (SEC) Climate Disclosure Rule. A letter from the ICCR said a recent amicus brief from the BRT makes arguments which contradict the positions of member companies that are active leaders in addressing climate change, with some having issued statements supporting the rule. The ICCR said the brief was “deeply concerning” to its members, which include institutional investors in BRT companies. The letter also questioned the BRT’s governance process around the submission of the brief, including whether there a board vote to authorise it and, if so, whether broader BRT membership was canvassed for input ahead of the vote. “In our experience, there is a corporate appetite for standardisation in disclosure and reporting regimes that will level the playing field and take the guesswork out of the process. That is what the SEC’s Rule is meant to do,” said Josh Zinner, CEO at ICCR. “It is hard to reconcile our experience with the strident opposition of business trade associations like the BRT and the US Chamber of Commerce who seem to be speaking only for a subset of its members seeking to thwart progress towards the clean energy transition we all know is inevitable.”
The Business Roundtable filed an Amicus Brief in opposition to the #SEC's Climate Disclosure Rule despite support for the Rule voiced by multiple companies represented on its board. Investors want to understand why. Read our letter: https://t.co/ZMMlzlLZik
— ICCR (@ICCRonline) August 22, 2024
As the shift away from fossil fuels towards clean energy minerals gathers pace, asset owners and managers have a key role in ensuring mining companies oversee a just transition, according to a new report by the London School of Economics and Political Science (LSE) Grantham Research Institute’s Just Transition Lab. The report focused on a dual trend in the mining world: the phase-out of coal, and the rapid growth in demand for ‘energy transition minerals’ (ETMs) such as copper, nickel, lithium and rare earths. “The scale and complexity of this task requires informed and proactive investor participation in shifting the mining sector towards more sustainable and equitable practices,” the report argued. On the coal side, the key challenge is protecting communities that have been economically dependent on coal extraction. On the ETM side, it meant ensuring the rush to extract these metals does not come at the expense of the local environment or communities. “A just transition agenda for investors would build on three priorities: respecting communities; protecting workers; and developing local economies,” the report said, arguing investors had two tools available: dialogue and capital allocation. Among its recommendations, the report said investors should seek to deepen engagement with mining companies; communicate expectations to governments as bondholders; encourage mining companies and governments to consult unions, Indigenous groups and local communities; and explore opportunities to contribute to regional economic development.
Guidelines on the use of ESG- and sustainability-related terms in the names of EU-domiciled funds to combat greenwashing are set to exclude several higher-emitting entities currently held in Article 8 and 9 funds. The rules were unveiled by the European Securities and Markets Authority (ESMA) in May for funds that have been categorised under the Sustainable Finance Disclosure Regulation (SFDR). Sustainable Fitch’s portfolio analysis indicates that 11% of nearly 800 entities fall under ESMA’s safeguard exclusions – this especially impacts sectors like electricity generation and oil and gas. These entities account for US$154 billion (9%) of the total labelled debt issued by corporates and financial institutions across EMEA and North America. Many of the entities demonstrate strong compliance with other exclusion criteria, such as no involvement or investment in controversial weapons and tobacco production, although some have limited exposure to hard coal and lignite sectors (0.25% of entities). “Entities deriving significant revenue from oil fuels (1.01%) and gaseous fuels (2.4%) indicate areas where compliance with ESMA’s guidelines may require strategic fund adjustments,” Sustainable Fitch said. North America has the highest number of entities falling under ESMA exclusions, reflecting a bigger sustainability compliance challenge. As such, there is concern that compliance with the guidelines may restrict investment options, particularly for higher-emitting sectors through the labelled bond market.
