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March 10, 2022

Regulatory round-up

By Victor Smart and

A total of 74 firms have joined the UK’s stewardship code governing how investors report on their engagement with companies, brining the total number of signatories to 199 with £33tn in global assets under management.

The Financial Reporting Council, the supervisory body that sets the code, said it was encouraged by the level of applications from organisations that were previously unsuccessful. Many, it said, “have addressed the feedback given by the FRC and have provided better quality reporting of their stewardship activities.” Some 31 new applications it received in the latest round were rejected. In November 2021, the FRC published guidance on good practice reporting.

Among the new members are State Street Global Advisers, Goldman Sachs and Morgan Stanley, noted the Financial Times. Signatories include asset managers, asset owners and service providers.

What the FRC said: “We are pleased that many previously unsuccessful organisations have provided stronger and better tailored explanations on how they apply the [code] to more effectively demonstrate their stewardship activity and outcomes,” said Mark Babington, FRC’s executive director of regulatory standards commenting on the news.

“Ultimately, what we want to see are concrete examples of stewardship activities and outcomes. Otherwise, its just a bland policy statement of intentions without application,” said the FRC’s head of stewardship Claudia Chapman to the Financial Times. “We’re keen to narrow the gap between what is reported and what is done, and for the most part we are comfortable that those included on the list are doing what they say.”

 

The UK government is preparing to set rules on environmental, social and governance (ESG) reporting standards. Speaking on the morning of the Pensions and Lifetime Savings Association’s two-day ESG conference, Conservative MP Alexander Stafford said that the Department for Work and Pensions, the Treasury and the Department for Business, Energy and Industrial Strategy are working to harmonise common reporting standards, adding that the All-Party Parliamentary Group for ESG he chairs will feed into the process, reported Pensions Expert.

The DWP’s Task Force on Climate-related Financial Disclosures consultation closed in January. It suggested that trustees be required to report on a new “portfolio alignment” metric, designed to inform scheme members of the extent to which their portfolios are aligned with Paris Agreement targets.

In his words: “From pension funds, I call for greater, meaningful engagement with ESG investing and ESG projects,” said Stafford, pressing for regular reporting from schemes. “From the government, I would consider the introduction of mandatory reporting standards for pension funds and companies of all sizes.”

 

The European Commission has launched a survey on the merits of the EU creating its own standards for ESG benchmarks in order to combat greenwashing.

Many investors are currently relying on ESG-benchmarks to justify the sustainability-related features in their portfolios, says the Commission. However, it adds, “the comparability and reliability of existing ESG benchmarks is affected by a lack of harmonisation of their methodologies and the diverging levels of ambition of the objectives pursued”.

The EC needs you: In particular, Brussels is inviting views from administrators of ESG-related benchmarks; ESG research, ratings and data providers; financial regulatory authorities; financial associations; sustainability-related NGOs; and investors’ and issuers’ organisations and associations. The survey closes on March 31.

 

Eurosif, the EU green investment advocacy group, told Sustainable Views it is dismayed that a European Parliament committee has voted down changes in the EU’s Corporate Sustainability Reporting Directive proposal that would have forced companies to be more transparent about their climate objectives. Eurosif says it is now highly unlikely that the European Parliament and the European Council will agree to tough disclosure rules in the final version of the CSRD.

The advocacy group insists companies that publicly commit to a net-zero target pledge should be required to disclose how they intend to achieve this. It wants firms to reveal the scenario they adopt, the transition assumptions used for their industry, and how far offsets are relied on to achieve this target.

“It is essential that any company that makes a net-zero commitment is subject to transparency obligations on the trajectory used,” Eurosif executive director Victor van Hoorn told Sustainable Views. “If there is no transparency on a net-zero commitment, there will be no way of knowing whether it is credible and realistic.”

Good intentions, bad execution: The Green members on the Parliament’s environmental committee rejected the changes because they saw them as lacking ambition, noted Eurosif, as they were binding only on companies willing to commit to a net-zero target. Also, the Greens don’t see carbon offsetting as leading to net zero emissions. While understanding these concerns, Eurosif said it worries that the changes rejection may have effectively stopped progress on the rules.

 

The European System of Central Banks, comprising the 17 eurozone central banks, has taken a key step towards harmonised use of a common set of climate change data. This should make central banks’ analyses on issues such as climate stress tests comparable.

The ESCB has agreed a procurement deal on the supply, use and disclosure of climate-related data with two external data providers. This could represent a milestone in the European Central Bank’s action plan to incorporate climate change considerations better.

The German Bundesbank negotiated the deal on behalf of the other central banks. “The availability of comprehensive, consistent and timely data is the key to everything we do,” says Sabine Mauderer, the member of the Bundesbank’s executive board responsible for markets. “The better the data situation, the more targeted our actions can be.”

Coming soon(ish): The ESCB has agreed on a common stance for sustainable and responsible investment principles in non-monetary policy portfolios, and on plans for climate-related disclosures. It aims to start disclosing information based on the new data in the first quarter of 2023.

 

The US Securities and Exchange Commission may announce its long-awaited climate risk rule as early as next week, according to Reuters. The new measure would require US-listed companies to provide investors with detailed disclosures on how climate change could affect their business.

The SEC had said it would publish a draft in October 2021 but its chair, Gary Gensler, subsequently pushed that deadline back to this January. The commission has been deciding whether it should require companies to disclose not only their own greenhouse gas emissions, but those generated by their suppliers and other partners.

Lobbying for less: Corporate groups have said they will continue to push for a narrower final rule that will make it easier and cheaper to gather and report emissions data, and which will protect them from being sued over potential mistakes. The SEC declined to comment.

 

In other policy news

France, which currently holds the EU’s rotating presidency, is attempting to broker a deal on the bloc’s proposed carbon border adjustment mechanism, according to Carbon Pulse.

In case you missed it, the second part of COP15, the UN biodiversity summit hosted by China, which was meant to start at the end of April, is set to be delayed for a fourth time.

A service from the Financial Times