ESG Update September 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

•    The IFRS Foundation is holding two live webinars on Monday 12 September on the Staff Request for Feedback on the IFRS Sustainability Disclosure Taxonomy to inform the development of an IFRS Sustainability Disclosure Taxonomy for digital reporting. The staff recommendations, detailed in the staff request for feedback, focus on fundamental matters that need to be considered early to enable the ISSB to publish an IFRS Sustainability Disclosure Taxonomy on a timely basis. 
A recording of the webinar will be available on the project page and on their YouTube channel after the live discussion.

•    The International Sustainability Standards Board provided an update following its meeting in Frankfurt in July. The purpose of the meeting was to:

• review a summary of preliminary feedback gathered during meetings with stakeholders on the exposure drafts, IFRS S1 General Sustainability-related Disclosure Requirements and IFRS S2 Climate-related Disclosures (comment period for both exposure drafts ended on 29 July 2022)
• establish the process for setting priorities for the ISSB's two-year work plan.

•    The FCA announced the setting up a new ESG Advisory Committee as part of efforts to meet a government objective for the watchdog's policies to help Britain create a net zero economy by 2050. The committee will include a small number of external experts and provide advice on supervising how firms apply ESG rules, and on developing the watchdog's ESG strategy. Experts interested in joining the committee should apply by September 16, with the first meeting expected in the fourth quarter.

•    In the UK, the newly launched government’s UK Transition Plan Taskforce (TPT) held a webinar in June explaining the structure and aims of the TPT as part of its plans to deliver initial recommendations by the end of 2022 for a Transition Plan Disclosure Framework. The accompanying slides provide guidance for organisations on setting their own transition plans. The Framework 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) has delayed until autumn 2022 its consultation on initial views on new sustainability disclosure requirements for asset managers and FCA-regulated asset owners, as well as a new classification and labelling system for sustainable investment products (DP21/4).

•    The EU’s Platform on Sustainable Finance 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, has been shelved indefinitely due to difficulties in agreeing on a conceptual framework and measurement system that would work at both the EU and global level.
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

•    The UK Infrastructure Bank has announced that it will act as a cornerstone investor in the NextPower UK ESG (NPUK ESG) fund, which aims to double the amount of subsidy-free solar power in the UK. The fund will invest exclusively in solar plants based in the UK and will enable the construction of up to 60 subsidy-free solar plants across the country, with the capacity to provide up to 2 GW of clean electricity annually - the equivalent of powering around 500,000 households each year.

•    The Association for Financial Markets in Europe (AFME) issued its European ESG Finance quarterly data report for the second quarter of 2022. Key highlights include:

• ESG bond and loan issuance volumes in Q2’22 declined 20.7% year-on-year (YoY) but increased 16.5% quarter-on-quarter (QoQ).
• ESG bond issuance, including ESG-labelled, sustainable-linked and transition bonds, represented 19.1% of total European bond issuance during H1'22 (19.5% in 2021FY and 14.1% in Q1’22).
• Following a record Q1, the sustainable-linked bond market decelerated in Q2’22 with a decline in issued amount of 47% YoY and 59.3% QoQ, reversing its previous upward trend.
• ESG-labelled bond issuance continued resilient in Q2’22 with a 6% YoY increase, predominantly driven by the green bond segment which grew 47.9% YoY.
• The sovereign sector led the green bond expansion. Market conditions may have prevented a more significant participation by the corporate sector, which declined 2% YoY in green bond issuance in Q2’22.
• Carbon prices: the European Union Allowance (EuA) price per metric tonne finalised H1'22 at €88/Tn, from €80/Tn at the end of 2021. During the first months of Q3’22, EuA spot prices have fluctuated around €80/Tn with EU and UK forward curves continuing to anticipate long-term price increases.
• Global ESG Funds decreased during Q2’22 driven predominantly by valuation losses. Net outflows from ESG funds totalled $37.5bn in Q2’22 which represents less than 5% of the decline in the total amount of Global ESG funds.
• ESG price premia: spreads of corporate ESG bonds against non-sustainable benchmarks have widened in Q2’22 however continuing to fluctuate between 2 to 3 bps. The greenium varies by issuer and by instrument, suggesting that in addition to the sustainability features, other technical factors such as liquidity may influence yield premia against conventional bonds.

•    The recent Harvard Business Review includes an article titled “The Essential Link Between ESG Targets & Financial Performance” which considers the value of measuring the Impact Intensity of Profits by reviewing the ESG performance of a number of companies including ExxonMobil and Mars Wrigley. There is a useful summary produced by FSG. 

Don't miss the ACT ESG Conference: a practical guide for treasurers in London, 7 December 2022, to make sure you are up to date on the evolving world of ESG. Book here.