ESG Essentials: Scope 3 in meat, SLLs, new UK ESG regulatory regime

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New analysis from FAIRR finds meat emissions are on the rise

New analysis from the latest Coller FAIRR Protein Producer Index found greenhouse gas emissions from the world’s top meat and dairy producers rose 3.3% from 2022 levels. The report highlights the urgent need for the food sector, responsible for around 14.5% of greenhouse gases, to clean up its practices to curb global warming. FAIRR’s analysis found that some companies have managed to reduce emissions, including Tyson Foods and Danone

But overall, meat companies are far off track to meet the Science Based Targets Initiative’s recommendation for the food and agriculture sector to reduce emissions by 3% a year between 2020 and 2030. Additionally, nearly two-thirds of companies included in the analysis did not disclose Scope 3 emissions across the supply chain, which accounts for the largest portion of the sector’s emissions output.

Jeremy Coller, Chair and Founder of the $70 trillion-backed FAIRR network, said: “We’ve long known that humanity can’t fix climate change without fixing the way we feed the world”, and with the COP28 agenda featuring the first ever ‘food day’, these findings show it’s more important than ever for policymakers and business leaders to give food some thought.

Banks move to toughen terms of Sustainability Linked Loans (SLLs) amid greenwashing fears

New reporting from Reuters has revealed that major banks are moving to tighten the terms of their Sustainability Linked Loans (SLLs) out of fears they might be exposed to reputational risks if borrowers fail to meet climate goals. 

SLLs are loans that allow borrowers to acquire capital at a lower interest rate in exchange for achieving certain climate goals and include punitive interest rate increases if they fail them. In theory, these create a market incentive for companies to meet their goals but can be abused by banks that set vague or already achieved goals in order to guarantee they can be placed along their sustainability obligations. Increasingly SLLs have been linked with greenwashing, as outside observers suspect both lenders and borrowers are using SLLs to falsely boost their sustainability credentials. 

Banks will be looking to set terms that more explicitly outline sustainability deliverables, and more punitive measures if borrowers fail to deliver them in order to combat these accusations. However, with SLLs declining in overall popularity, banks are keen to balance this approach without killing demand.

UK to introduce new regulations for the ESG ratings sector 

The UK government is set to introduce regulations on agencies that evaluate organisations’ ESG performance over rising concerns that the sector is widely unregulated.

The push for stricter regulations follows the rules proposed by the European Commission in June. At present, the Treasury is assessing whether new legislation needs to be introduced, or if existing laws can regulate the sector to disclose more transparent ESG ratings and data whilst the FCA develops a voluntary code of conduct in accordance with international finance regulations.  

The introduction of regulations has been well received by the sector so far but must be flexible enough to allow for innovation and independence.

Ex-BlackRock research head calls for a rethink of green finance

Former head of fundamental research at BlackRock Sustainable Investing, Carole Crozat, has advocated for a re-evaluation of sustainable finance, calling the present theory of change an “illusion”. According to Crozat, sustainable finance must clarify the objectives of those who invest in it, as well as the distinctions between risk-adjusted financial performance, ethics, and the pursuit of impact. She argues the sector’s greatest shortcoming over the last 10 years has been to uphold the illusion that these objectives could always go together.

Crozet’s opinions are in line with the Principles for Responsible Investment, which asks signatories to explain why they take social and environmental issues into account when making decisions. 

Analysing sustainable finance,  Stephanie Maier, head of sustainable and impact investing at GAM, echoed Crozat’s thoughts and urged the industry to take stock. Over the last 10 years, investors have been investing sustainably in anticipation of regulation, but the lack of progress is making this harder to justify. Maier argues that stricter regulation and policy are needed for further progress.

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