ESG Update May 2022

Go back 18 May 2022

 

This blog is part of a regular series of blogs on the wide topic of Environmental, Social and Governance and covers items that have caught our attention. 

Official announcements

  • In the US, the SEC proposed new rules for climate change disclosures which are open for public comment. The rules would require disclosure of:

    • prospective risks and material impacts on the business, strategy and outlook caused by climate change, generally consistent with the Task Force on Climate-Related Financial Disclosures (TCFD) disclosures (e.g. asset risks at a zip code level)

    • Scope 1 and 2 greenhouse gas (GHG) emissions

    • Scope 3 emissions if material or if the registrant has set a GHG emissions reduction target that includes Scope 3 emissions

    • additional qualitative and quantitative climate risk disclosures, including the financial impacts of climate related events and transition activities on line items of the financial statements

    • governance of climate-related risks and risk-management processes

    • support plans to comply with companies’ advertised environmental claims (e.g., net-zero commitments)

    • assurance on a phased-in period for accelerated filers and large accelerated filers

  • In the UK, HM Treasury has launched the UK Transition Plan Taskforce (TPT), a new initiative aimed at establishing a framework and standards for companies to disclose their climate transition plans. Set up with a two-year mandate, and co-chaired by Economic Secretary to the Treasury John Glen and Aviva Group CEO Amanda Blanc, the TPT aims to deliver its initial recommendations by the end of 2022 for a Transition Plan Disclosure Framework. This is expected to deliver “science-based, standardised and meaningful transition plans,” regulatory templates and guidance for finance and key economic sectors, the role of assurance and third-party verification for reporting, and for the preparation of accurate and accountable plans and the avoidance of greenwashing.

  • The UK’s Financial Conduct Authority (FCA) finalised rules for listed companies to disclose on diversity and inclusion at the board and executive committee level, beginning from financial periods starting from April 1, 2022. This includes a statement in their annual financial report setting out if they have met specific diversity targets set by the regulator which includes having women make up at least 40% of the board, with a woman in at least one senior board position, such as Chair, CEO, CFO or Senior Independent Director, and at least one board member from a Non-White ethnic minority background.

  • The Platform on Sustainable Finance, an expert group of the European Commission tasked with advising on the development of sustainable finance policies, published new recommendations proposing a major expansion of the EU Taxonomy, adding categories for economic activities with significantly harmful economic impact, as well as for those with intermediate performance or low overall impact. The report noted that:

    • an expanded framework could attract investment to help fund improvements in areas that are currently harmful

    • for economic activities that have little positive or negative economic impact, not being classified under the current system may falsely generate a negative signal of being “not green”

  • and recommended:

    • classifying unsustainable performance requiring an urgent transition to avoid significant harm, in order to enable Taxonomy-recognised investment as part of a transformation plan to less harmful performance, and to identify which of these activities cannot be improved and access financing to fund exiting or decommissioning
    • introducing an “Amber,” or intermediate category for activities that operate between significantly harmful and substantial contribution performance levels, and a category for low environmental impact, or “LEnvI” activities, enabling entities to demonstrate that their activities do not cause environmental or social harm.

 

  • The EU’s Platform on Sustainable Finance published recommendations for the development of a social taxonomy to promote sustainable investment in Europe, putting the focus on the protection of human rights and on the social impact on the main stakeholder groups of businesses: employees, customers and communities. 

The social taxonomy is geared toward banks, businesses and regulators in order to classify and guide sustainable investments and proposes three social objectives. 

Objective 1: Employees:

  • to promote equality and human rights throughout the value chain through equal pay, social protections, the elimination of job instability, etc.
  • to promote equality and non-discrimination in the workplace: salary gap, employment for women, employment for disadvantaged groups, etc.
  • to guarantee the human rights of employees in the entire value chain.

Objective 2: Customers. Suitable quality of life and well-being for end users:

  • data protection and cybersecurity for users.
  • clear and responsible marketing and communications practices.
  • accessibility to quality products and basic services, such as food, healthcare, housing, education, water and support services.
  • design of durable, safe and repairable products.

Objective 3: Sustainable and inclusive communities:

  • basic economic infrastructure: transportation, telecommunications (including Internet), financial services, electricity and waste removal.
  • creation and preservation of decent jobs, particularly in the context of digital transition, and a green and just environment.
  • promotion of gender equality.

 

Resources, Reports and Announcements

1.    According to a recent survey from the IBM Institute for Business Value, supply chain executives view sustainability as a business priority, and are planning initiatives to incorporate sustainable business practices. It includes the following analysis:
 

2.    In response to pressure on the private equity sector, the Initiative Climate International (iCI) Carbon Footprint Working Group has been established to develop a harmonised approach to GHG emissions accounting and reporting in partnership with specialist consultancy firm ERM. The guidance can be found here. It includes a number of tools and resources including the following:

3.    Sustainable Fitch released their Q1 2022 report. It expects that a much clearer picture will emerge this year on what climate and sustainability disclosure standards will entail. It includes the following useful infographic on the current state of regulations:

 

Authors: Naresh Aggarwal & James Winterton

technical@treasurers.org

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