ESG is making an increasingly bigger influence in the financial markets. With this, the regulatory landscape is getting more complex, and firms are having to navigate a variety of legislative requirements.
Things are even harder in the US, where a war between the Republicans and Democrats has started. In Florida, Governor of Florida Ron DeSantis has barred fund managers for state and local entities in the state from considering ESG factors in investment decisions. While in Arizona, it will no longer investigate banks and other financial institutions over ESG investing practices,
Looking at the biggest ESG trends of this year, Joachim Nahem – CEO at Position Green – stated that investors and regulators are coming for corporate climate targets. “Companies with vague net-zero claims and climate targets that lack credible transition plans are being put on notice this year by investors, regulators, and organisations such as the CDP and the Science Based Targets initiative (SBTi).
“This reflects the growing need for reliable data on corporate climate targets from institutional investors that have their own portfolio net-zero targets and sustainable finance reporting requirements to meet, as well as a significant wave of ESG disclosure regulation set to take effect in Europe, the UK and US by mid-2023.”
He added that for a company’s net-zero claim to be credible, it needs to align with climate science recommendations. They must also be backed up by detailed climate transition plans that have tangible, time-bound actions, clear capital allocations, integration into firm-wide strategy and metrics to monitor progress.
“However, there is growing evidence that many of the net-zero commitments made by companies are ambiguous and unachievable.”
The importance of transition plans
Nahem emphasised the need of climate transition plans. These are crucial to demonstrate to investors and stakeholders how a company is committed to achieving a 1.5°C pathway and how it’s business will remain profitable on that journey. They are such a valuable tool that they will soon become mandatory in the EU and UK.
In the EU the European Sustainability Reporting Standards (ESRS) will include requirements for companies to disclose details of their transition plan. While in the UK, the government is planning to mandate listed companies and financial institutions to develop and disclose transition plans.
The US is also exploring regulations around transition plans. Nahem stated that the SEC has proposed framework that would require companies to disclose their target and whether it is based on intensity or absolute reductions.
Finally, the SBTi is looking to update its Commitment Compliance Policy to make it easier for investors and stakeholders to see which companies and financial institutions are sticking to their commitments.
Nahem concluded, “The message is clear. Companies can expect increasing pressure in 2023 on their corporate climate targets from investors and from tightening disclosure regulations. Over the next 12 months, work to ensure that your company’s net-zero target is verified as being backed by science and is supported by a credible climate transition plan. Reliable data is also key.
“Use sustainability reporting software to collect, analyse and report your company’s emissions data. Above all, deliver results that show progress against the climate transition plan. Anything short of this risks being labelled as greenwashing.”
Read the full article here.
Position Green’s commercial lead for investment monitoring Christopher Wallin recently commented on the current state of ESG data.
To improve the access to ESG data, the EDCI (ESG Data Convergence Initiative) launched in 2021. The mission of the partnership is to create a meaningful, comparable and performance-based set of ESG data from private companies. ESG companies, like Position Green are able to integrate with the data portal to empower automated data reporting and validation.
On this, Wallin said, ““We at Position Green are proud to have this integration in place and to contribute to the automation processes for our clients. The goal is to streamline the reporting to the Initiative for the upcoming reporting period and for future disclosures.”
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