Legal & General Investment Management (LGIM) engaged with more than 2,800 companies on climate last year according to its latest Climate Impact Pledge (CIP), a new high for the organisation. The CIP is an annual engagement programme assessing more 5,000 companies across 20 ‘climate-critical’ sectors, with the objective of raising market standards and encouraging companies to play their part in achieving the goals of the Paris Agreement. A total 492 companies were identified as being subject to voting sanctions against their board chair, up from 342 in 2023, while 106 companies were subject to sanctions for not meeting the CIP’s new baseline expectations. An additional 349 companies were sanctioned for not meeting LGIM’s minimum climate change standards. The CIP covers 86% of the total carbon emissions attributable to LGIM’s corporate debt and equity holdings. “I have been encouraged by progress over the last 12 months, with many of the companies with which we have engaged making significant strides in important areas,” said Michelle Scrimgeour, CEO of LGIM. “However, it is clear that the pace of the transition is neither smooth nor fast enough. It is not the role of the asset management industry alone to tackle climate change: this is a whole-of-system transition, the pace of which is influenced by global public policy, regulatory standards and the nature of energy demand.” Radical collaboration is key to drive aligned action and decarbonisation on a global scale, Scrimgeour added. Meanwhile, engagement on climate themes was also a key focus for French asset manager Amundi, which engaged 1,471 issuers on climate, according to its 2023 engagement report. Amundi has committed to engaging with 1,000 additional companies on their climate strategy by 2025, compared to 2021 levels. As of December last year, the asset manager had already engaged with an additional 966 additional companies. The number of unique issuers it engaged last year also increased by 20% – including 618 on natural capital preservation, and 795 on human capital and rights. Legal & General (L&G) has also launched the L&G Private Markets Access Fund, offering its 5.2 million defined contribution members exposure to the benefits of diversified private markets. The fund will aim to provide investors with access to long-term growth potential and greater diversification through investments that are not typically accessible through public markets. Covered sectors will include clean energy, affordable homes and critical infrastructure.

EU leaders have reaffirmed their commitment to a just transition through the adoption of the 2024-2029 strategic agenda, aiming for climate neutrality by 2050. According to the World Wide Fund for Nature (WWF), the agenda highlights the “essential” nature of the transition for European prosperity and competitiveness, reiterating the “unprecedented challenge of climate change, biodiversity loss and pollution”. It sets out several priorities for Europe’s transition and proposes new measures, such as reducing the regulatory burden and reforming administrative procedures – including permitting for renewable energy projects. “With the recent adoption of the Nature Restoration Law, [European leaders] have committed to continue to protect nature and reverse the degradation of ecosystems,” the WWF said. “These commitments send strong signals to the European Commission and its future president. In particular, the emphasis placed by leaders on oceans and water resilience must now be followed up.” The approval of the strategic agenda was concomitant with the reindorsement of Ursula von der Leyen as the European Council’s preferred candidate for the commission’s presidency – giving hope for the EU Green Deal, a flagship initiative of her past mandate. To secure a second term, she still needs to secure an absolute majority during next month’s vote at the European Parliament of 361 out of 720 MEPs. According to the WWF, the number of MEPs critical of the EU Green Deal has grown following the latest EU elections. “Despite ongoing concerns over a more anti-environmental parliament, [our] analysis … shows that a large political majority remains supportive of continued action on climate and nature,” it added. Overall, the EU’s new strategic agenda is broader and less detailed than the previous one – including on climate and environmental policies – and more specific initiatives will need to be outlined by the commission’s incoming president, the WWF suggested. “Von der Leyen should now demonstrate consistency in order to find support in the parliament,” said Ester Asin, Director of the WWF European Policy Office. “She must provide ironclad guarantees that the Green Deal will remain central to her policy agenda and resist any calls … to regress on environmental standards – in particular those on nature protection and restoration.” Previous attempts to simplify legislation have often weakened environmental rules and standards designed to protect people and nature, she added.

Insurer Zurich and broker Aon have teamed up to offer a clean hydrogen insurance facility, which they say will make it easier for firms to develop zero-carbon fuel. The service will underwrite projects with capital expenditure of up to US$250 million, and will cover both ‘blue’ and ‘green’ forms of the fuel. Hydrogen is seen as a promising alternative to fossil hydrocarbons, because it is energy-rich, combustible, and emits no carbon dioxide. So-called ‘green’ hydrogen is made by splitting water molecules using renewable energy. Blue hydrogen, meanwhile, is made by extracting the fuel from natural gas, and capturing and storing the carbon dioxide produced in the process underground. But both methods are new and pose novel risks. Zurich and Aon said they had spent two years talking to developers about the specific needs and challenges of developing blue and green hydrogen projects. The new facility will cover construction, delay in start-up, operational cover, business interruption, marine cargo limits, and third-party liability. It will also cover carbon capture and storage (CCS) technology. “Many developers and their capital providers have found it challenging to de-risk and secure adequate insurance coverage for the various phases of global hydrogen projects,” said Joseph Peiser, Global CEO of Commercial Risk at Aon. “This new solution caters to their unique needs, providing comprehensive coverage addressing the complex risks associated with hydrogen projects across the entire project life cycle.” The two firms said the facility was already oversubscribed by insurers.

The global carbon dioxide removal (CDR) market could reach up to US$100 billion a year between 2030-2035 if barriers to scale are addressed, new research has shown. A joint report from global consultancy Oliver Wyman, the City of London Corporation and the UK Carbon Markets Forum argued that without targeted intervention, the CDR market may only reach 10% of its potential size. CDR projects, which aim to remove and store carbon dioxide from the atmosphere, have been gaining interest from corporate purchasers, investors, and project developers due to their potential to address hard-to-abate greenhouse gas emissions. Climate authorities have also emphasised the need for substantial scaling of CDR projects to limit global warming, with over US$30 billion already invested globally in anticipation of this growth. “While demand for CDR credits is growing, it is not yet at a scale to support the level of investment being made in underlying carbon removal projects, and far below the level experts say is required to achieve net zero,” the report mentioned. Following discussions with over 30 companies, the report identified major barriers to CDR demand, including lack of guidance on removals in decarbonisation targets and the absence of universally agreed standards on quality. It highlighted key actions that the industry can take, such as articulating the role of removals in the UK’s net zero strategy, providing guidance to companies on their appropriate role, establishing clear thresholds for monitoring, verification, and reporting, and supporting the development of the CDR financial market ecosystem. “We are witnessing a significant increase in attention and investment towards CDR projects, highlighting the growing recognition of their role in the transition,” said James Davis, Partner and Co-head of Climate and Sustainability for Europe at Oliver Wyman. “However, the demand for carbon credits generated by these removal projects is not yet sufficient to support even current levels of investment – let alone the level required to meet climate goals. The UK is well-positioned to establish itself as a major hub for carbon removal activities, creating new job opportunities and driving economic growth, but action will be needed to overcome the barriers to scaling and accelerate progress.”

The UN Environment Programme Finance Initiative (UNEP FI), Climate Bonds Initiative (CBI) and Principles for Responsible Investment (PRI) are collaborating to support the implementation of sustainable finance taxonomies and other frameworks globally. “Taxonomies of sustainable finance are the building block of sustainable finance markets – they are, essentially, ‘shopping lists’ for investments for a sustainable future,” said Sean Kidney, CEO of the CBI. “They provide simple guidance for investors, banks and corporates, making easier for capital to flow to climate solutions.” To ensure global interoperability, the three bodies aim to build consensus around taxonomy definitions and concepts among taxonomy users, standard-setters and policymakers. The organisations will continue to support the development of taxonomies that cover themes such as climate resilience and emissions reduction, as well as the provision of tools that assist interoperability and usability. In addition, the collaboration will result in the development of a taxonomy resource centre that will provide support tools for taxonomy developers and users. “The PRI has been engaging with investors on the implementation and use of sustainable finance taxonomies since their early inception, most notably for the EU Taxonomy,” said Nathan Fabian, PRI’s Chief Sustainable Systems Officer. “Enhancing the usability and interoperability of sustainable finance taxonomies is crucial to ensure well-functioning financial markets that collectively contribute to climate and broader environmental goals.”

Planet Tracker and the Access to Nutrition Initiative have co-published a report evaluating how healthier food can help drive better profits and outcomes for both people and planet. The report compared the healthiness of food product portfolios from 20 of the largest global manufacturers with their profits and market valuations. The results revealed a link between healthier food product portfolios and higher profitability, but that poor company disclosures have obscured this connection and present a risk to investors. The authors argued that companies with broader, healthier food portfolios tended to have higher average profit margins (15.2%) compared to those with unhealthy portfolios (13.4%). As such, investors would benefit from a switch to healthier foods, with profits potentially rising by nearly US$350 million and valuations by US$60 billion in a scenario where companies with unhealthy portfolios would switch to healthier products and achieve similar margins. “Unhealthy food products are costing society and employers, but the issue is being overlooked by financial institution,” said Peter Elwin, Head of the Food and Land Use programme at Planet Tracker. “Regulation presents an increasing threat to companies profiting from producing unhealthy foods, but poor disclosure is hiding the risks. Our analysis shows that there could be investment opportunities associated with producing healthy food, so there’s an incentive for investors to ask for change”.

🍎How can healthier foods drive healthy profits, people and planet? 🥕A new report by @ATNIndex and @planet_tracker, in association with @GAINalliance, sets the scene for a new conversation on this pressing topic: https://t.co/bv7aOTxFy1 pic.twitter.com/6aec0t2NNd

— Planet Tracker (@planet_tracker) June 26, 2024

The Cambridge Institute for Sustainability Leadership (CISL) has released a preview of COP29 policy asks, which outlines how the private sector can help push the international climate agenda forward. The institute chose to focus on four key areas of the negotiations: the new collective quantified goal on climate finance to developing countries, which will replace a previous goal of US$100 billion per annum set in 2009 and met in 2023; new nationally determined contributions (NDCs) encouraging countries to commit to more ambitious and extensive 2035 climate change targets and plans, due to be submitted by February 2025; developing more specifics on how countries will deliver on the Global Goal on Adaptation; and Article 6 of the Paris Agreement, which covers climate action cooperation both between countries and with and between non-state actors, like business. The latter also includes discussions on a potential carbon market structure. Scheduled to be held in Azerbaijan in November, COP29 seeks to build on the commitment to treble renewable energy capacity made at COP28 last December. However, UN Climate Change Executive Secretary Simon Stiell said only “modest steps forward” were taken at the recent preparatory Bonn Climate Change Conference. “We must keep up the pressure and ambition this year – this is now a critical COP in the run-up to 2030,” a CISL spokesperson told ESG Investor.

Investment fees and costs associated with ESG resourcing should be re-evaluated, according to a whitepaper published by independent investment consultancy firm bfinance. The research, which assessed more than 650 asset owners and managers, noted that nine in ten asset managers have increased their ESG-related spending relative to other spending over the past three years. This has likely been driven by factors such as costly climate-related data and mounting regulatory requirements, bfinance said. Although two-thirds of asset owners said ESG resourcing should not affect a strategy’s price, fewer than half of asset managers agreed. Meanwhile, 42% of asset owners said they were satisfied with the level of transparency from their asset managers on ESG-related costs. The report considered escalating ESG expenses alongside slow-to-adjust hurdle rates for alternative investments and a renewed focus on generating savings. More broadly, bfinance noted that fixed income fees in public markets have compressed since the pandemic, yet higher interest rates and positive flows into investment grade bonds have eased pressure on active managers. “For investors, improvements on fees and costs can deliver the ideal outcome: additional performance with zero additional risk; risk-free alpha, in other words,” said Duncan Higgs, Head of Portfolio Solutions at bfinance. “However, delivering savings is not straightforward, especially after more than a decade of cost scrutiny driven by both investors and their regulators. It can be difficult for investors to access cost comparisons that are suitably specific and customised: simplistic benchmarking can often be too generic.”