Data and research provider Sustainable Fitch has suggested more use of proceeds bonds could be issued by mining firms under recently introduced guidance from the International Capital Markets Association (ICMA). Described by Fitch as a “significant expansion”, the new guidance enables green value chain activities to be financed within green bond frameworks, even if the activity itself is not necessarily environmentally sustainable. Examples of activities include equipment needed for renewable energy, batteries, electricity transmission, as well as the production of inputs such as critical minerals and chemicals. ICMA’s new guidance recognises the contribution of inputs from production processes which cannot currently be made net zero to green activities by considering environmental impact on a life-cycle emissions basis, rather than just at the point of production. Last year, green and sustainability bonds from issuers in ICMA’s indicative list of green enabling sectors – chemicals, industrial machinery and equipment, manufacturing, mining and metals, and technology – accounted for only around 5% of total issuance value. However, Sustainable Fitch pointed to examples of growing investor interest in broader sustainability engagement with the mining sector, such as the Global Investor Commission on Mining 2030, which has been backed by asset owners, asset managers and banks. There has also been action at a national level in some jurisdictions, with Australia potentially becoming the first developed economy to classify mining as sustainable by including copper, lithium, nickel and iron ore mining as eligible green and transition activities in its draft sustainable finance taxonomy.

Asset owners and businesses are a step closer to being legally required to report on climate-related financial risks, after Australia’s Senate passed landmark amendments to the nation’s Corporations Act. The bill, which passed the upper house on Thursday and applies to asset owners with more than A$5 billion (US$3.37 billion) in assets under management, will now face a vote in the lower house. The law will bring Australia in line with other jurisdictions with mandatory climate reporting including the UK, the EU, New Zealand and Japan. Under the regime, which adapts the International Sustainability Standards Board (ISSB) IFRS S2 climate-related disclosures standard, organisations must publish an annual sustainability report that includes a climate resilience assessment as well as disclosure of Scope 1, 2 and 3 emissions. Roll-out will be staggered, starting in July 2025 with larger businesses meeting two of three criteria: revenue of A$500, more than A$1 billion in assets, and 500 or more employees. Asset owners above the A$5 billion threshold – which includes the nation’s many large pension funds – will come under the regime in July 2026.  The Investor Group on Climate Change (IGCC) welcomed the news, saying the new rules would help Australian companies “remain attractive in global capital markets”. “Before you buy a house you want to make sure it can weather the increasing storms to come,” IGCC CEO Rebecca Mikula Wright said. “Investors apply the same principle to climate investment in the economy because they want to invest in companies prepared for the transition to net zero emissions and deliver stronger returns for millions of superannuation holders.”

Global investment managers expect ESG elements to play a much smaller role in their portfolios over the next one-to-three years than earlier surveys suggested, a new report by the Index Industry Association (IIA) has found. The fourth annual Survey of Global Asset Managers found just 27.5% of asset managers expect their portfolios to contain ESG elements in 2025, rising to 33.9% in 2027. This dramatic fall on the last survey, when the figures were 48.2% for 2023 and 57.4% for 2027, was ascribed to managers being “overoptimistic” about the path of ESG investing previously. Still, more than half (51%) of respondents said sustainable investing was the topic most frequently mentioned by the firm over the last year, while 39% considered it an opportunity for the business. Only 17% said it was a challenge. UK and German asset managers were among the most bullish about the outlook for ESG investments, with 56% and 47% respectively considering it an opportunity. US managers were the least interested, with just over 30% listing it as an opportunity. The survey also focused on attitudes to AI and the rising prominence of private markets. It found managers were “enthralled” with the opportunities of generative AI, with two-thirds listing it as the topic raised most frequently by their firms and colleagues over the past 12 months. But they were divided over whether private markets were an opportunity (37%) or a challenge (29%).

The Securities and Exchange Board of India (SEBI) has included social bonds, sustainable bonds and sustainability-linked bonds (SLBs) in a proposed expansion its sustainable finance framework, focused on green debt securities. SEBI said in a consultation paper – which is open for comments until 6 September – that the expansion will provide issuers increased flexibility to raise funds for projects aligned with their ESG objectives, and assist in closing the funding gap for the sustainable development goals. The regulator proposes that the new category would be known as ‘ESG Debt Securities’ – comprising green bonds, social bonds, sustainable bonds and SLBs. This would build on the existing regulatory framework which just covers only projects related to environmental sustainability such as renewable energy and water management. The consultation paper also proposes that issuers of ESG debt securities and sustainable securitised debt instruments be required to appoint an independent external reviewer or certifier, to improve transparency and credibility. The reviews could take various forms including second-party opinions, verification, certification, or scoring or rating.

A new category of financial instruments, ‘ESG Debt Securities’, will comprise green bonds, social bonds, sustainable bonds and SLBs. @SEBI_India https://t.co/BsgBgcmuQa

— Regulation Asia (@RegulationAsia) August 21, 2024

Nearly three quarters of private equity managers have ESG processes in place – almost three times the proportion seen 10 years ago, according to a new survey by LGT Capital Partners. The survey of 300 general partners and 1,800 portfolio companies found that 73% of surveyed firms had “robust ESG processes” in place, compared to 27% in 2014. Over the past year, 33 private equity managers have significantly improved their ESG efforts, resulting in improved ratings, said LGT. However, the study showed the percentage point increase had stagnated on previous years – a trend attributed to “challenges of improving further on already advanced baselines and the increasing complexity of ESG”. LGT also said this may be due to a shift from “pledges to actions”. European funds led the way, with 51% now rated as “excellent” on ESG processes. In Asia, the figure was 34%, and in the US – a paltry 16%. Climate also remained the top priority among ESG topics, but diversity, equity and inclusion (DEI) processes have also improved across the board. “ESG practices significantly enhance commercial value by aligning portfolio companies with industry transitions toward net zero, securing advantages through proactive regulatory compliance, and improving operational efficiency, talent acquisition and customer engagement – thereby increasing market share and competitive positioning,” said Tycho Sneyers, Managing Partner at LGT Capital Partners and Board Member at the Principles for Responsible Investment.

Heavy carbon emitters are increasingly subject to higher interest rates from banks, according to new research. In a new report, the European Central Bank (ECB) found that eurozone banks were charging companies in the top 25% of carbon emitters monthly interest rates14 basis points higher on average than those in the lowest 25%. In parallel, two studies conducted by Dutch central bank De Nederlandsche Bank (DNB) used companies’ carbon emissions as an indicator of their exposure to transition risks, comparing the data to bond yield spreads. The DNB identified a clear price difference (up to 40 basis points) between the costs of borrowing for companies with relatively high emissions, compared to those with low or no carbon emissions, since 2020. DNB attributed this in part to the introduction of stricter climate policies in the EU, such as the European Green Deal and the Fit for 55 package. The combined research demonstrates that Europe’s financial markets are increasingly pricing in climate-related risks, which should bolster incentives for companies to decarbonise their operations and develop clear transition plans. Separately, The People’s Bank of China (PBOC) has announced it would extend a programme providing financial institutions with low-cost loans to support emissions-reduction projects by companies to the end of 2027. The scheme was first launched in 2021. The PBOC also said it would develop tax and investment policies to support China’s climate transition efforts, including the promotion of electric vehicles, energy- and water-saving home appliances, and the use of more environmentally friendly building materials.

Environmental, social and governance issues remain a key focus for US companies, according to global law firm Morrison Foerster. However, shifts in public sentiment over the past two years have prompted organisations to adapt their approaches. This is according to the firm’s third survey of in-house counsel on organisational, individual, and departmental attitudes to ESG. The annual study measures shifts, values and best practices used by US corporations, governmental agencies and nonprofit organisations.  This year, the survey asked senior in-house counsel how their organisations were balancing internal and external ESG mandates. Areas explored included leadership roles of organisational ESG initiatives, company and board leadership’s depth of focus on individual ESG components, legal department involvement in ESG strategy, and personal opinions and observations of ESG programmes. The findings revealed that ESG as a risk-assessment tool continued to be used beyond regulatory compliance, with more than half of respondents (52%) reporting that the subject had driven their organisation to alter strategic business decisions, compared with 37% last year. Motivations behind ESG adoption have also shifted, with a drop in public perception as a reason for adoption, and risk management and regulatory compliance now being stronger drivers. In addition, some organisations have scaled back voluntary disclosures due to potential negative publicity and unwanted government regulatory scrutiny. “Smart organisations are preparing beyond regulatory disclosure requirements and looking past the external ESG scrutiny to assess how their ESG programme can help with risk management, operational efficiencies, and shareholder value creation,” said Susan Mac Cormac, Global Co-chair of Morrison Foerster’s ESG, Sustainability and Social Enterprise, and Impact Investing practices. “As we see in the survey results, ESG is here to stay and the keys to success will be internal collaboration, good governance, and new technologies.” Increasingly, organisations are turning to c-suite leaders and chief compliance officers to lead their ESG programmes, the study also showed. Governance has grown in prominence among companies, with 61% above-average scores on the subject compared to 53% last year. In addition, priorities among individual components of ESG have shifted, with a decrease in priority for diversity, equity, and inclusion (DEI) and climate change issues, coupled with a rise in importance of community involvement, charitable giving and supply-chain management.