Take Five: No Half Measures

A selection of the major stories impacting ESG investors, in five easy pieces. 

Whole-economy transformation was high on the agenda at London Climate Action Week and beyond.

Silent crisis – Among the more significant announcements made at London Climate Action Week (LCAW) was the unveiling of its draft ‘Global Roadmap for a Nature-positive Economy’ by the World Wide Fund for Nature (WWF). Avoiding the nature crisis requires the same whole-economy transformation needed to avert the climate crisis, the conservation organisation contends – and similar tools too, such as sector-specific pathways that plot the path to a sustainable future for governments, companies and investors. Due to be finalised and presented at the biodiversity COP16 in Colombia, the framework focuses on five pillars needed to underpin national plans for the nature-positive transition. While companies and investors are beginning to factor nature-related risks, impacts and opportunities into their decisions – as reflected in updates this week from the Taskforce on Nature-related Financial Disclosures and the UN Principles for Responsible Investment’s (PRI) Spring engagement initiative – their actions are limited by prevailing policies. To transform economies and redirect capital to nature-positive projects, resource-strapped governments need help, especially in the Global South. Speaking at the launch, Mahmoud Mohieldin, UN Special Envoy on Financing the 2030 Agenda for Sustainable Development and UN Climate Change High-Level Champion at COP27, said many are already struggling with the “silent crisis” of unsustainable debt levels. Governments that are already slashing health and education budgets rather than entering restructuring negotiations are not best-placed to realign their finance flows with the Global Biodiversity Framework. For this reason, the WWF’s draft roadmap seeks to provide that technical policy support, but it also expects change among those with the most power to influence, calling for multilateral development banks to “mainstream” nature into their decisions – especially around debt.

Plan to succeed – Transition pathways was a key theme throughout LCAW, in recognition of the work still needed to guide businesses and economies toward credible decarbonisation. The International Sustainability Standards Board (ISSB) confirmed it was assuming oversight of the transition plan disclosure resources developed by the UK’s Transition Plan Taskforce, taking the initiative a step closer to its original remit of establishing a ‘gold standard’ framework to be used across jurisdictions. For good measure, the ISSB also announced closer collaboration with other sustainability standards and reporting bodies, partly to build on its recent commitment to

ISSB Takes Reins on Transition Reporting

Chair Emmanuel Faber reflects on two years of rapid standard-setting progress at this year’s IFRS conference, as NBIM chief compliance officer warns against “regulatory soup”. 

The IFRS Foundation’s International Sustainability Standards Board (ISSB) will continue to push for cohesion across the sustainability reporting space, as it extends its reach to transition plan disclosures and deepens partnerships with other standard-setting bodies.  “It’s critical that there is one way of doing [transition plans] disclosure and not 20…

Subscribe

Subscribe to ESG Investor to gain access to the leading platform for news, analysis, and interviews across sustainable investing. Select subscribe below to view our subscription packages or you can email us at subscriptions@esginvestor.net to discuss your options.

Subscribe

Request a Trial

Get in touch today to discuss a trial giving you unrestricted and unlimited access to ESG Investor for you and/or your team(s) for a limited period. Email us at subscriptions@esginvestor.net

Related Items:, , , , , , , , , , , , Recommended for you

Standards Review Puts Labour Issues Centre Stage

GRI takes a human-rights based approach that will form the basis for the wider revision of its Labor Topic Standards.

Inconsistent and insufficient reporting from companies on workforce pay and conditions is a long-term source of frustration for investors, but standards-setters’ and policymakers’ increasing focus on the issue could change the game. Last week, the Global Reporting Initiative (GRI) published exposure drafts for the first phase of its Topic Standard…

Subscribe

Subscribe to ESG Investor to gain access to the leading platform for news, analysis, and interviews across sustainable investing. Select subscribe below to view our subscription packages or you can email us at subscriptions@esginvestor.net to discuss your options.

Subscribe

Request a Trial

Get in touch today to discuss a trial giving you unrestricted and unlimited access to ESG Investor for you and/or your team(s) for a limited period. Email us at subscriptions@esginvestor.net

Recommended for you

Data in Financial Analysis and the Use of AI

Rhodri Preece, Senior Head of Research, CFA Institute, says emerging technologies can help investment professionals draw insights from unstructured ESG data.

Data is being generated at an exponential rate, and the technology powering the algorithms used to parse it is growing just as fast, opening up both new opportunities for investing and innovative ways to leverage alternative data. Investment professionals are now navigating a landscape supplemented by unstructured, alternative, and open-source data. A survey on alternative and unstructured data conducted by CFA Institute in July 2023 revealed that more than half of investment professionals are incorporating unstructured data into their workflow, and 64% indicated using alternative data. This shift has prompted a reevaluation of analytical methodologies and frameworks within the industry.

Over the past few decades, the predominant approach to financial analysis has centered on leveraging structured, numerical data. As the digital revolution continued, new alternative data providers sprouted up, capitalising on the notion of data being the ‘new oil’. The exponential growth of unstructured data boosted demand for methods to process and extract valuable insights, leading data science to emerge as a highly sought-after domain of expertise within investment firms.

Understanding data in financial analysis

The first level of distinction in defining the data used in investment decision-making processes is understanding the various generators of the data, which include companies, governments, individuals, and satellites and sensors.

Company data include, for example, financial statements, operational metrics, strategic plans, and data that arise when individuals or entities interact with the company’s products and services. Examples of such interaction data include credit card transactions, app download statistics, and email receipts. Government data include economic statistics on the health, performance, and status of a country’s economy, while government interaction data include data that are generated from the day-to-day functions of government activities, including business permits, patents granted, and public service usage, such as transport ridership and facility utilisation. Individuals generate data through their online activities, such as social media engagement, consumer reviews, and search engine queries. Lastly, technologies such as satellites and sensors generate data in the form of geolocation information, satellite imagery, and internet of things (IoT) devices, like manufacturing equipment usage patterns.

The second level of distinction is the type of data, which refers to whether the data is traditional or non-traditional. Non-traditional or alternative data is defined as any data that differs from traditional investment sources, such as financial statements,

Take Five: Twin Peaks

A selection of the major stories impacting ESG investors, in five easy pieces. 

Developed countries have belatedly reached a target for climate finance, only to be set a new one for nature.

Ten years after – It might have taken them a little more than a decade, but at last they got there. Developed nations mobilised US$115.9 billion of climate finance for developing countries in 2022, it was revealed this week, exceeding for the first time the US$100 billion annual level set in Copenhagen in 2009. According to the Organisation for Economic Co-operation and Development (OECD), last year saw a record 30% annual rise in climate finance, meaning the target – originally unveiled at COP 15 – was reached two years late. The total includes more than US$20 billion in attributable private finance, as well as bilateral and multilateral public sector funding, plus export credits. Importantly, adaptation finance accounted for US$32.4 billion of the total – three times the 2016 level. Discussions on a New Collective Quantified Goal (NCQG) on climate finance for the post-2025 period, which made little progress at COP28, should progress next week’s Bonn Climate Conference, where the agenda will also include carbon credits, adaptation finance and the Global Stocktake, ahead of COP29. In anticipation of the NCQG, the OECD released an analysis recommending use of public sector interventions to directly or indirectly finance climate action. But measures to support the goals of the Paris Agreement must now sit alongside those needed to realise the objectives of the Global Biodiversity Framework (GBF). At a Nairobi summit that concluded yesterday, the UN Convention on Biological Diversity called for investments of at least US$200 billion a year from all sources, and for reform of US$500 billion in harmful subsidies to achieve the GBF’s Goal D: invest and collaborate for nature. These and other recommendations will be discussed at COP16 in Colombia in October.

Gap analysis – A lack of progress on gender equality in the workplace has been underlined by the International Labour Organization (ILO) in a report reflecting fewer jobs and lower pay for women, especially in low-income countries. According to an update to the ILO’s annual World Employment and Social Outlook, the ‘jobs gap’ – which measures the number of persons without a job but who want to work – stands at 22.8% for women in low-income countries, versus 15.3% for men. This contrasts with a gap

ISSB Chair: Global Adoption is “Mission Possible”

Increased interoperability between developed and developing markets, as well as with other reporting rules, remains a priority. 

Adoption of the IFRS Foundation International Sustainability Standards Board’s (ISSB) climate and sustainability reporting rules is gathering pace, with 20 jurisdictions having announced plans to implement the standards.  “When standing on the main stage at COP26 [to announce the launch of the ISSB], not everyone felt this was possible,” said…

Subscribe

Subscribe to ESG Investor to gain access to the leading platform for news, analysis, and interviews across sustainable investing. Select subscribe below to view our subscription packages or you can email us at subscriptions@esginvestor.net to discuss your options.

Subscribe

Request a Trial

Get in touch today to discuss a trial giving you unrestricted and unlimited access to ESG Investor for you and/or your team(s) for a limited period. Email us at subscriptions@esginvestor.net

Recommended for you

Climate Data in the Investment Process

Despite imperfections, investors should not wait for regulation to offer more comprehensive solutions, says David von Eiff, Director of Global Industry Standards at the CFA Institute.

Climate change impacts, through direct and indirect channels, present us with tremendous economic risks and opportunities. While their complexity makes estimation difficult, cost estimates are generally staggering. A 2022 analysis by Deloitte projected that an increase in global warming to 3C could lead to global economic losses of US$178 trillion over the next 50 years. However, the study estimates that US$43 trillion of economic gains could be realised through a successful transition to a low-carbon economy in the same time frame.

Governments worldwide have begun adopting policies and regulations to fund the transition to net zero economies and address climate-related risks. Further, companies have begun evaluating physical and transition liabilities and opportunities. Banks and insurers are altering their businesses to address better climate change-related liability risk in their lending and underwriting decisions. Asset owners are seeking to understand how climate change may affect the value of their assets, and asset managers are increasingly analysing their investments’ climate risks and opportunities.

This increasing focus on climate-related risks and opportunities has highlighted the significance of having accessible, reliable, climate-related data to measure and analyse, which is key to understanding and effectively utilising climate data as a component of investment strategies.

Applications of climate-related data

Climate-related data are integral to investment processes, serving purposes such as risk assessment, asset valuation, and shareholder engagement. It is collected, analysed, and used not only by asset managers or lenders but also by the ecosystem that provides services to them:

Credit rating agencies, which incorporate climate risk exposure into creditratings; Index providers, which provide climate-themed indexes and often calculate climate-related metrics for conventionalindexes; Valuation service providers, which may incorporate climate considerations when valuing privateassets; ESG rating providers, which often incorporate climate-related data and opinions in their ESG ratings andscores; Sell-side research providers, some of which are integrating climate-related information into theiranalyses; and Climate-related data and research providers, which produce a wide range of company and sector-specific climate-related information, as well as a comprehensive range of market research, market intelligence, and thought leadership on climate-related

In 2022, PwC found that the data used as inputs for climate analysis as well as the level of incorporation differed significantly between service providers. This variability, coupled with limited transparency, makes comparisons difficult.

Challenges in

Listen to the Science

As the fallout continues over the Science Based Targets initiative’s approach to offsets, questions arise over the net zero target-setting landscape for corporates. 

In 2024, the number of listed companies with a climate commitment validated by the Science Based Targets initiative (SBTi) jumped to 20% from just 12% in 2023. In 2020, a mere 1% of listed companies had a decarbonisation target validated by the organisation.

According to SBTI’s website, the number of companies and financial institutions setting greenhouse gas (GHG) reduction targets and having them validated doubled to 4,204 by the end of 2023 from 2,079 in 2022.

This steep growth marks SBTi as a focal point of corporate climate action, said Guy Turner, Head of Carbon Markets at MSCI. “It holds a significant cachet among companies,” he explained.

But SBTi’s status as the gold standard for companies serious about decarbonising in line with the Paris Agreement took a serious hit last month after a highly public spat between staff and executives.

On 9 April, SBTi’s board of trustees released a public statement  announcing a consultation on allowing validated companies to use carbon credits to offset their Scope 3 emissions. Mere hours later, SBTi staff and advisors fired off a letter to management, calling for the statement to be withdrawn and for the resignation of CEO Luiz Fernando Do Amaral and any board members who supported the decision.

The incident reheats the long-running debate on whether credits are a credible way for companies to reduce their carbon emissions. But it also raises questions about whether organisations are fit to assess and accredit the decarbonisation strategies of corporates.

Cottage industry

MSCI’s Turner addressed this issue in a LinkedIn post that went viral, arguing that while NGOs have played a critical role in the creation of global decarbonisation frameworks and benchmarks to date, an update to their modus operandi was needed, given high stakes measured in degrees of global warming and investment dollars.

Using the voluntary carbon markets (VCMs) as an example, he noted that what used to be a cottage industry is now in the mainstream. Billions of dollars are dependent on decisions made by its ecosystem of verification bodies and carbon credit sellers. “I don’t think the organisations have grown up in line with the decisions they are making.”

SBTi, a UK-registered charity, is a collaboration between the UN Global Compact and NGOs CDP, World Resources Institute and the