ESG Essentials: EU emissions hit record low and unprecedented ESG outflows

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Investor group pressure mining firms to sign up to tailings safety initiative 

A group of investors, with over $25 trillion in assets, are planning to challenge mining companies that have yet to commit to a tailings dam best-practice standard. The Investor Mining and Tailings Safety Initiative was launched in August 2020 in response to the Brumadinho disaster in Brazil.

77 listed companies, including mining giants BHP and Rio Tinto, have signed up to the code of conduct. However, 126 smaller companies have not yet responded to the standard, “leaving their shareholders, insurers, and banks facing greater risk”, says Adam Matthews, who chairs the investor group. 

The initiative wants these companies to commit within the next year and provide clarity on when they will implement the standard. 

Matthews, who is also Chief Responsible Investment Officer for the Church of England Pensions Board, a member of the investor group, said that the Pensions Board would vote against any companies not conforming or complying with the standard at any upcoming annual meetings.

Navigating nature reporting

106 financial institutions were unveiled as early adopters of the Taskforce on Nature-related Financial Disclosures (TNFD) at last week’s World Economic Forum in Davos. However, some anticipated names, including firms integral to the TNFD’s development and key investor members of Nature Action 100, were notably absent. 

HSBC and BNP Paribas expressed support for a harmonised nature disclosure framework but emphasised the importance of full understanding and preparation before TNFD adoption. Other investor groups highlighted that it was not a question of if, but when and how they could do so. 

For investors, this indicates a growing commitment to incorporating nature-related financial disclosures into their reporting frameworks. While some are not early adopters due to complexities and the need for thorough reviews, there is a shared recognition of the importance of these disclosures.

EU CO2 Emissions hit record low in 2023 

The EU released 8% less CO2 emissions from fossil fuels in 2023 than in 2022, bringing emissions down to 1960s levels.

The reduction was largely down to cleaner electricity sources, including record levels of solar panels and wind panels, as well as increased electricity production from damns and nuclear power plants. Over this period, the economy has tripled, showing that the EU can combat climate change without foregoing economic growth.

The EU has pledged to cut greenhouse gas pollution by 55% by the end of the decade, with net-zero emissions by 2050. The EU’s climate advisers have called for a faster pace of reductions to achieve its 2030 target, with 27 member states needing to cut emissions twice as fast as they have done over the last 17 years.        

The fall in emissions shows that the EU is moving away from fossil fuels, but renewables deployment and energy efficiency must keep pace with the expected increase in electricity demand.

ESG exodus: 2024 sees net outflows of sustainable funds

In a historic turn of events, ESG funds faced net outflows globally for the first time, according to an analysis by Morningstar published last Thursday. US investors led the significant retreat by withdrawing a net $5.1 billion in the last 3 months of 2023.

US outflows were exacerbated by $1.2 billion of withdrawals in Japan, which outweighed Europe’s $3.3 billion in net inflows. Europe now accounts for 84% of global sustainable fund assets. 

US scepticism of ESG resulted in a total of $13 billion in outflows from ESG funds in the country for the year. This provides evidence of the challenging landscape for sustainable finance in the US, influenced by political scrutiny of ESG, greenwashing concerns and doubts about financial returns. 

These outflows suggest a critical inflection point for the sustainable finance industry, with many investors looking to reassess the ESG landscape amidst the evolving dynamics. 

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