ESG essentials… in the news this week

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Climate graph of the week

Global Footprint Network, which calculates the Earth Overshoot Days, has been marking the occasion every year since 1971. This year, Earth Overshoot Day landed on July 28, the earliest date yet. But how can the private sector ramp up efforts to create a circular economy and overcome related challenges? Edie suggests four interventions that businesses should apply to help push Earth Overshoot Day back.

ESG under fire in US state capitols

Last week’s Essentials touched on The Economist’s special report on ESG investing, which argued that the approach is “deeply flawed”, and claimed it had become an “unholy mess that needs to be ruthlessly streamlined”.

We were interested to read the FT’s response, which agreed ESG “needs a good bit of pruning.” The authors argued that one of ESG’s main problems is that it means different things to different people. It is perceived by some to be the work of activists who file shareholder proposals calling for corporate change, whereas others see it as a big data project for investors who are desperately trying to gather more information about their holdings.

The piece also echoes our view that ESG is not, and must not be perceived as a ‘fix-all’ solution to the climate crisis, we desperately need government action to see tangible results. But in the absence of any reforms, and looking at the current state of climate policy in the US, ESG investing is an effective tool in influencing climate action and has clearly had a good level of impact thus far.

Read the full story here. 

Banks far from hitting Paris climate targets, groups warn

As we plunge deeper into an ecological and climate crisis, the world’s largest banks are still far away from achieving the Paris Agreement’s targets. The Institutional Investor Group on Climate Change (IIGCC) and Transition Pathway Initiative (TPI) analysis of 27 global banks reveals that no major bank has committed to ending new oil and gas exploration financing at a critical time when nature should be invested in rather than exploited.

A number of progressive banks exist – many of which will be motivated to ensure that more progress is made on climate action, whilst also insulating themselves from the systemic risks that their banking peers face.  It is important that global banks begin to move in the same way, as despite ever-increasing evidence around ESG risk, they have given the market little to be optimistic about so far.

Read the full story here. 

Unlocking Emerging Markets

Mobilising sovereign debt for clean energy projects in emerging markets (EMs) can have a big impact, but it’s not without its challenges. 

ESG-labelled bonds have been effective in attracting investors and issuers, whilst also helping EMs meet Sustainable Development Goals (SDGs). Projects that can be deemed “pure green” are limited, so the sustainability bond format mitigates the need to find all-green or all-social assets to be financed by ‘use of proceeds’ bonds, as they can fund a combination of identified activities. 

As the labelled bond market develops, projects are underway to provide investors with the transparency they need, such as the Assessing Sovereign Climate-related Opportunities and Risks (ASCOR) project.

“Investors are concerned about the implications of climate change because of the cost of transition and because of the fiscal impact of climate change,” says Dr Rory Sullivan, CEO of Chronos Sustainability. “Yet there isn’t a standard assessment framework that all investors can use.”  

As EM borrowers become increasingly reliant on bond markets to finance their SDG ambitions, improvements to sustainable finance will require a collaborative effort.  As with all things ESG, information and transparency are essential, and we need universal ESG standards to help investors and borrowers navigate the space and align their sustainability goals and reporting. 

Read the full story here. 

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