Sustainable finance summer update: What you might have missed

The summer of 2020 brought a flurry of news within the sustainable finance field, mainly within the sustainable disclosure and ESG data areas. We summarize the key developments and their significance for the sustainable financial market.

Despite the Nordic financial market summer slow-down, developments within sustainable finance did not take a breather over the summer months. Not only did the value of assets in sustainable funds shoot past the USD1 trillion milestone in June, but news also came in the ESG disclosure, data and broader sustainable finance areas.

ESG disclosure and data updates

Task Force on Nature-related Financial Disclosure (TNFD)

Summary and reflections

In July, an Informal Working Group on a Task Force on Nature-related Financial Disclosure was launched with the intention of planning a two-year programme for the Task Force, to be officially established early 2021. The purpose of TNFD is to create resilience in the global economy by redirecting flows of finance and scale towards nature-positive activities to allow nature and people to flourish.

The sustainable finance disclosure initiatives have historically focused on climate change, and a TNFD will now help shed light on the economic risks of biodiversity loss and environmental degradation, alongside the climate risks covered by the existing Task Force on Climate-related Financial Disclosures (TCFD). The TNFD is a positive sign that the market is ready to move into new areas within sustainable disclosure.

Highlights

  • The idea for the TNFD was developed at the World Economic Forum’s Davos meeting in 2019 and is run by a partnership between Global Canopy, the United Nations Development Programme (UNDP), the United Nations Environment Programme Finance Initiative (UNEP FI) and the World Wildlife Fund (WWF).
  • An informal Working Group will plan a two-year programme of work for the Task Force, to address the reporting, metrics and data needs of financial institutions that will enable them to better understand their risk, dependencies and impacts on nature.
  • In collaboration with the corporate sector, reporting frameworks will be developed in 2021, and tested early in 2022 before being made available on a global scale.
  • Earlier this week it was announced that the TNFD will get it’s own Technical Expert Group (TEG) to advice the informal Working Group.

SASB and GRI collaborate to clarify sustainability disclosure requirements

Summary and reflections

The disclosure initiatives within sustainable finance have exploded in recent years, which has brought a much-needed focus to the aera. At the same time, this has put pressure on the organisations behind such initiatives to identify what is required from them.

In July, two such entities, the Sustainability Accounting Standards Board (SASB) and Global Reporting Initiative (GRI), announced a collaborative workplan to provide guidance on how their two standards can be used together to help ease the reporting burden. The collaboration is a welcome development, which will help investors detangle one piece of the disclosure ball of yarn.

 Highlights

  • SASB and GRI will help entities reporting under both standards by demonstrating how companies have used both sets of standards together as well as the lessons learned, expected to be delivered before the end of 2020.
  • SASB’s standard is industry specific, with the purpose of identifying sustainability-related risks and opportunities most likely to affect a company’s financial state, performance and risk profile.
  • The GRI standards focus on an entity’s positive and negative economic, environmental and social impacts which are most material for the entity’s stakeholders.

Read our guide to unscrambling the alphabet soup of ESG reporting.

Bloomberg launches ESG scores

Summary and reflections

Bloomberg in early August announced it will launch its own transparent ESG scores. Initially, this will include environmental and social scores for 252 companies in the oil & gas sector as well as board composition scores for about 4,300 companies across multiple industries. The fully transparent ESG scores will enable investors to examine both the scoring methodology and the company reporting data underlying each score. During the last couple of months, discussion has grown over discrepancies in ESG score solutions. We hope Bloomberg’s market entry can continue to develop that discussion and promote further transparency in the field.

Highlights

Bloomberg’s current offering of ESG scores includes:

  • Board composition scores, which rank the relative performance of companies across industries on measures of diversity, refreshment, director roles and independence
  • Industry-specific Environmental & Social (ES) scores, which track corporate environmental and social performance on dozens of financially material and industry-relevant issues.
  • Environmental & Social News Sentiment scores, derived from news coverage, which provide daily insights into companies’ environmental and social behaviour.
  • ESG Disclosure Scores, which rate companies on their level of ESG disclosure.
  • Bloomberg Gender-Equality Index Scores, which assess company progress towards gender equality in the workplace.

A call for stock exchanges around the world to support environmental data reporting

Summary and reflections

Another initiative to facilitate investors’ need for consistent and relevant sustainability data is Mark Carney and the London Stock Exchange’s call on stock exchanges around the world to join a coalition that will commit to support climate disclosures in line with the Task force on Climate-related Financial Disclosures (TCFD).

“Exchanges can play a critical role to improve the data and reinforce global standards. I therefore welcome the initiative to generate action among exchanges to play their role in achieving better and more consistent climate data around the world,” Jack Ehnes, CEO at US pensions body CalSTRS, told Environmental Finance.

Highlights

  • In July, Mark Carney, the UN’s Special Envoy on Climate and Finance and former governor of the Bank of England, sent a letter to the CEOs of several stock exchanges, asking them to join a coalition that will commit to supporting climate disclosures in line with the TCFD.
  • The plan is to have a coalition established before the COP 26 climate change summit in Glasgow next year.
  • The coalition will be in partnership with the UN Sustainable Stock Exchanges Initiative (SSE) and is intended to encourage exchanges to do more to help their issuers transition to net zero carbon emissions.

Other developments within sustainable finance

TEG presents green recovery plan

Summary and reflections

The EU Technical Expert Group on Sustainable Finance (TEG) has proposed five high-level principles for sustainable recovery and resilience in response to the coronavirus crisis.

The five principles include:

  1. Plan a recovery that focuses on building back better
  2. Build resilience into everything, se we are better prepared for a volatile future
  3. Ensure that recovery investments, grants and spending at least do no harm
  4. Apply all these measures to both private and public sectors
  5. Collaborate internationally to better serve resilience

While some have argued that the focus on sustainability has cooled down during the pandemic, many have called for a sustainable pandemic recovery plan. The five principles provided by the TEG are clear, thought-through and emphasise the need to take guidance from the EU Taxonomy. The pandemic has affected financial markets deeply, but it has provided a chance to hit the re-start button which could put societies on a green and sustainable path.

Highlights

  • The European Commission set up a Technical Expert Group on Sustainable Finance (TEG) in 2018 to develop the EU Taxonomy, the EU Green Bond Standard as well as other initiatives under a legislative proposal by the European Commission.
  • Following the conclusion of the TEG’s work in September 2020, a Platform on Sustainable Finance will be created to continue the work previously conducted by the TEG.
  • In its April 2020 statement on the COVID-19 crisis, the TEG encouraged governments and the private sector to use the EU Taxonomy, the Green Bond Standard and the Climate Benchmarks as tools to ensure a resilient, sustainable and fair economy. This was followed up in July, when the TEG published a short paper outlining 5 high-level principles for recovery & resilience, focused on applying the Taxonomy.

Annual Impact Investor Survey released

Summary and reflections

In mid-June, the Global Impact Investing Network (GIIN) published the results from its annual impact investor survey. The key findings include:

  • The impact investing industry remains diverse.
  • Impact investing has grown in depth and sophistication over time in terms of:
    • market evolution over the past decade,
    • indicators of the market growth over the past decade,
    • motivations for making impact investments and
    • growth of realized gross returns and assets over time.
  • Impact measurement and management practices have matured, but opportunities for refining remain.
  • Impact investors hold a positive outlook for the future, despite headwinds.

The survey highlights the impressive decade of market evolution, seen by the growth in the number of survey respondents from just 24 in 2010 to 294 this year. It’s really an impressive development, which reveals the increased interest in impact investing as a format.

Highlights

  • The GIIN is a non-profit organization focused on reducing barriers to impact investment.
  • The 2020 Annual Impact Investor Survey is the 10th edition and provides a comprehensive overview of the impact investing market, capturing data from almost 300 of the world’s leading impact investors.
  • The report looks at investors’ investment activity during 2019 and their plans for 2020, market developments over the last decade, and the challenges facing the market going forward. Investors also shared insights on how COVID-19 might affect their activities. Read the Annual Impact Investor Survey.

Evli launches its first green corporate bond fund

Summary and reflections

The asset manager Evli has launched its first fund focused on green corporate bonds. The Green Corporate Bond fund will invest in green and sustainable bonds in the European IG and HY segments and in unrated bonds up to a maximum of 20%. The number of dedicated green bond funds have increased in recent years, driven by the growth in green bond issuance and investor demand encouraged by the growing size of the green bond market. For further information on the green bond funds market and its future, read “The growing importance of green bond funds”.

Highlights

  • Evli is a bank specialized in investments that help institutions, corporations and private individuals increase their wealth.
  • In January 2020, Evli made Responsibility a strategic focus area, in line with their push to increase their share of investments in the responsibility area. The green bond fund is a natural step within this strategic focus area.
  • Evli has a total of EUR 14.3 billion in client assets under management (net 12/2019).

 

About the authors:

Ebba Ramel, an analyst in Nordea's Sustainable Bonds team

 

Ebba Ramel is an analyst in Nordea’s Sustainable Bonds team.

 

 

Jacob Michaelsen, Head of Nordea Sustainable Finance Advisory

 

Jacob Michaelsen is Head of Sustainable Finance Advisory at Nordea.

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