Listing

With the escalating buzz around AI & ChatGPT, the interest in our China ICT Transition report exceeded our expectations. CWR's Mirando & report co-author share 5 things we've learned since its release.

• "We were correct, finance had not fully appreciated how carbon intensive ICT sector is but after the report, banks now excited for big green finance opps though challenges remain"
• "Asia set for double digit data centre growth = stymy early retirement of coal-fired power plants; plus, ICT not incl. in Scope 3 reporting = no incentive for “green” data centres"
• "Our engagement with top ICT co's in China found they are on track on carbon & starting to look at water; there is clear momentum, we will continue working for ICT's transition"

Executive summary

Growing demand for sustainability data from investors presents an opportunity for corporate leaders to earn investor trust.

Investors are increasingly incorporating sustainability factors into investment decisions:

• 83% of surveyed investors incorporate sustainability information into fundamental analyses.
• 79% of respondents have sustainability policies in place, compared to 20% five years ago.

Investors are seeking to minimize risks and capitalize on opportunity, with an estimated US$43 trillion in global economic growth projected between 2021 and 2070 if the world economy transforms to achieve net-zero emissions.

Despite growing demand for sustainability data, investors struggle with often inconsistent, unclear, and unreliable information:

• Unclear corporate sustainability strategies
• Incomparable data from ratings agencies
• Frequent lack of measurable outcomes from corporate reports

While regulations and standards are emerging globally to drive data consistency, they are not yet implemented broadly enough to provide fully reliable data to investors.

During this period of transition and beyond, organizations can build investor confidence in their sustainability initiatives through better data— and potentially drive more cost-efficient access to capital and stronger valuations.

United Nations Office for Disaster Risk Reduction, Standard Chartered Bank, KPMG International

The Guide for Adaptation and Resilience Finance sets out what constitutes adaptation and resilience finance. It includes a practical roadmap for financing and over 100 investable activities, including climate-resilient crops, public hospital infrastructure investment, and mangrove conservation and replanting.

To mobilise finance for adaptation and resilience — and help investors, commercial banks, and other financial institutions consider these themes in financial decision-making — the investment potential needs to be understood and recognised. This Guide seeks to provide confidence to investors looking to allocate capital to adaptation projects, as well as to companies looking to raise capital for adaptation and resilience products, solutions, or other investment opportunities.

The Guide maps over 100 investable activities across adaptation and resilience, including: climate-resilient crops, vertical farming, natural flood protection, water conservation and efficiency measures, public hospital infrastructure investment, renewable energy storage solutions, and mangrove conservation and replanting. Indicators to assess the adaptation and resilience impact of a specific investment are also available in the document.

Key findings from Accela’s research

Shell’s strategy is closer to reality but falls short of delivering on customer decarbonisation

Shell scaled back its FY30 Net Carbon Intensity (NCI) target, and is now aiming for a reduction of 15-20% vs 20% prior (2016 baseline). Despite Shell’s newly disclosed FY30 portfolio mix (~14% bioenergy and power, from 9% today), it appears insufficient to meet its FY30 target requiring ~25% of reductions to come from offsets. We estimate this is equivalent to offsets from a mature forest up to 3x the size of Denmark. Between FY22-23, offsets comprised ~50% of Shell’s progress in reducing its NCI.

Shell's LNG ambition exceeds European peers

Across European majors, Shell currently sells the most LNG (67 Mt) and is expected to maintain its leading position with the ambition to grow LNG sales by 20-30% (86 Mtpa) and LNG production (25-30%) between FY22-30. Shell’s commitment to LNG as a transition fuel is underscored by including LNG equity volumes in its energy transition metric within its annual bonus scorecard.

Low-carbon capital allocation trailing European majors

Shell's new plan delivers a narrowed focus on low-carbon, centred on EV charging infrastructure, biofuels and renewable energy solutions to commercial customers. By FY25, Shell plans to allocate ~ 19% of its capex to low-carbon initiatives. This is less than peers, with BP planning to allocate ~50%, TotalEnergies 33%, Equinor 30%, and Eni 28% by FY25.

BP demonstrates greater ambition for low-carbon

As of FY23, Shell has outpaced BP in low-carbon capex together with building a larger EV network, It has however trailed BP on its renewable capacity (0.9x), renewable pipeline (0.7x) and biofuels production (0.8x). To FY30, BP demonstrates greater ambition in establishing low-carbon offerings, with higher EBITDA outlooks and capex for low-carbon.

ArcelorMittal: 2023 Integrated Annual Review 

The 2023 IAR, ‘Preparing for the future’, is structured in nine main chapters:  

• Our business and material issues   
• Driving change in our safety performance 
• Responsible energy use and lower-carbon futures 
• Air, water, land, biodiversity and ecosystems 
• Delivering a circular economy through innovation 
• Value chains our stakeholders trust 
• Attracting, retaining and developing our people 
• Communities and Just Transition 
• Governance and risk management  

New disclosures include: 

• An update on further work done to evaluate physical and transition climate-related risks and opportunities, aligned with current and upcoming regulation. 
• The progress made to better understand our scope 3 emissions and our engagement with suppliers. 
• An update on the certification of our sites to leading third party multi-stakeholder ESG standards such as ResponsibleSteel™. 
• Progress we have made in advancing our Diversity and Inclusion (D&I) roadmap.  
• Our Just Transition framework including the approach and principles for a just transition. 
• The EU Taxonomy report where we are reporting “substantial contribution” to climate change mitigation for revenues, capex and opex for the first time.  

Executive summary

This report provides the most comprehensive stocktake to date of investor climate progress across Asia. It draws on data from 58 investors who responded to the AIGCC Net-Zero Investment Survey, supplemented with a desktop review of key metrics and aggregated progress from more than 200 Asset Owners and Managers, 186 of which are headquartered in Asia. The report therefore reflects the ownership and management of most mainstream capital in Asia.

Many investors in Asia are positioning themselves for a climate-resilient net-zero economy, but not at the required speed.

1. There is movement and momentum toward net-zero. Leading investors see effective monitoring and managing climate change as increasingly essential to long-term value preservation and creation by:
• working to set climate strategies, short[1]term targets, and climate governance for decarbonization and to allocate more capital to climate opportunities
• increasingly working to incentivize companies and governments to go further with credible transition plans in their key markets and to build resilience to physical climate risks
• increasingly financing Asia’s energy transition, recognizing capital must flow to climate-aligned activities and opportunities set to succeed in a net-zero world.
2. However, of the 200+ Asia Investors included in the data review, most fall short of actions needed to effectively manage climate risks and opportunities in line with global climate goals. High-impact areas like fossil fuels and deforestation remain a challenge.
3. The 100 Asia Asset Owners reviewed trail Asset Managers on nearly every key climate metric surveyed, stressing the importance of progress for Asset Owners. Meanwhile, AIGCC members well outperform the market when evidencing climate progress and engagement across the areas reviewed.

The progress outlined in this report is benchmarked against the Investor Climate Action Plans (ICAPs) Expectations Ladder, which provides a pathway for investors’ transition plans to a net-zero economy – a key framework for investor climate action regardless of where they are at on their climate journey, and the structure from which this paper is modelled and actions assessed. 

Executive summary

• The transition to a cleaner steel industry is underway, enabled by low-carbon technologies, industry commitments and supportive government policies.
• While reuse of scrap metal is reducing the sector’s carbon intensity and meeting rising demand, the production of primary steel must be fundamentally transformed in order to align the industry with net zero.
• In the short term, steel producers employing electric arc furnaces (EAF) constitute an immediate and durable investment opportunity. Longer-term, emerging technologies and processes, such as direct reduced iron (DRI), need to be scaled up to become cost competitive.

At a glance:

• As the world moves towards net zero, a “green skills” gap is emerging, with the number of people with skills useful in transforming the economy growing more slowly than the job vacancies requiring these skills.
• A lack of skilled workers is already having operational and financial impacts for companies and may even lead to a temperature rise of 0.1C by delaying progress on the construction of renewable assets for clean energy.
• Columbia Threadneedle Investments is engaging with sectors critical to the transition to net zero to understand how they are managing their human capital. Here we look at mining, utilities and industrials to see how they are attracting, hiring and retaining workers with appropriate green skills, as well as their plans to retrain and equip existing employees with the skills required for roles that underpin their transition strategies.

Rockefeller Capital Management: Ocean Engagement: Shifting Tides Rising 

Need for Investments and Engagement in the Blue Economy

Rockefeller Asset Management has over a quarter of a century of experience in thematic investing. In recent years, we turned our focus to the ocean: the world’s largest ecosystem and seventh largest economy. We believe that the “Blue Economy” is an emerging investment opportunity due to increased regulations, changes in consumer buying preferences, and technological advancements.

Through our decade-long partnership with The Ocean Foundation, we have created a framework to identify and gain relevant exposure to blue economy investment opportunities, while also seeking to catalyze positive impact through engagement. This paper dives deeper into our investment framework, the ocean investment opportunity, and our main investment themes of pollution prevention, carbon transition, and ocean conservation.

GMO: Sustainability or Bust: The sheer impossibility of eternal compound growth 

The blunt and unpleasant truth is that our civilization is already living beyond its means. We have overshot any possibility of a sustainable level. We are using up finite resources more quickly than technology is creating substitutes. We are crowding out nature and undermining its ability to provide us with hugely important services such as clean water, air, fertile land, biodiversity, and a generally healthy environment. In terms of the remaining “sugar” – energy and other natural resources – still available to our ongoing economic experiment in perpetual growth, we are beginning to notice increasing shortages and are feeling a little hungry. In the distance we can just about make out the rim of our petri dish.

This paper and the four follow-ups, parts 2 through 5, will establish what a severe battery of long-term issues are now upon us. In this sense, the long term has become now. Problems we felt we had a few years to worry about have quite suddenly caught up with us.

Given the rate at which our current environmental damage compounds and our safety margins narrow, we would seem to have about 100 to 150 years to solve our problem: the need to establish an economy that could be sustained indefinitely. If not solved by then, I believe we are highly unlikely to be able to maintain a stable enough society to ever solve these problems.

Brookfield AM: What It Takes to Catalyze the Transition in Emerging Markets

Key Takeaways

LGIM: How private credit can drive the net zero transition 

Executive summary:

• Over the coming decades, the transition to net zero is likely to require tens of trillions of dollars of investment.
• This investment is set to span a wide spectrum of sectors, geographies and risk profiles.
• The nature of the assets means that, for the foreseeable future, the majority of investment opportunities will be found in private markets.
• Private credit has been funding transition-related assets in Europe, North America and Australasia for many years. We expect the investment universe to expand to include more emerging sectors as they mature.
• Transition credit represents a potential opportunity for investors to:

1. Invest at scale
2. Seek potentially attractive risk-adjusted returns by taking a strategic view of a broad opportunity set
3. Aim to diversify risk drivers with assets not readily available in public markets
4. Support construction of the infrastructure of the future while potentially mitigating downside risk through structural protections.

A white paper using stock examples and themes drawn from the SDGs, please see link below.

'It used to seem simple. The early days of responsible investing were mainly characterized by avoidance of so-called sin stocks, such as tobacco. Since then, responsible investing has evolved into a much more sophisticated and robust understanding of the environmental, social and governance (ESG) issues affecting investment risks and opportunities. Every year seems to bring new insights, as well as new challenges for investors. 

At AllianceBernstein, our research agenda aims to bring rigor and clarity to responsible investing. Below are four themes we’re covering closely in 2024 through our research and partnerships. We think investors should pay close attention too.'

FTSE Russell: Evaluating national climate commitments using implied temperature rise

Tracking national greenhouse gas (GHG) reduction commitments is key to enabling alignment with the objectives of the Paris Agreement. The Implied Temperature Rise (ITR) metric, which uses countries’ past and projected future GHG emissions to estimate their contribution to global temperature rise, is an important progress indicator.

We apply the ITR metric to assess and quantify 132 countries’ commitments with respect to global climate goals, and to estimate corresponding transition risks for sovereigns. This paper explores the most recent updates to the robust methodology driving our analysis.

What does our research mean for investors? 

The implications of our research extend beyond academic circles to impact investors and financial stakeholders. By providing a robust methodology for assessing implied temperature rise and climate alignment across countries, our research offers critical insights for investors seeking to incorporate climate risk into their decision-making processes.

Understanding the gap between countries' projected emissions and their commitments can inform climate-focused investment strategies. Investors can harness our ITR data to identify regions that are either leading or lagging on climate action, thus assessing risks and opportunities associated with climate change mitigation and adaptation efforts.

Responsible investing. Meeting the challenge, together

Royal London Asset Management's latest report covers key areas of their activities, including:

• Stewardship and responsible investment
• Stewardship activities
• ESG Integration

At a glance

• The transportation sector has a significant impact on global emissions, but technology innovations, policy changes and shifting behaviours can reduce this
• Government regulatory timelines and international treaties are adding some urgency to the process, with many firms committing to net zero emissions by 2050
• As part of this energy transition, it is essential that companies in this sector adapt their products to serve clients effectively while remaining commercially viable

Columbia Threadneedle Investments: Decarbonising steel: redefining the value chain  and the role of iron ore miners

• Steel production is highly greenhouse gas-intensive, making up between 7% to 9% of annual global emissions; reducing its environmental impact is technologically and economically challenging.
• The need to decarbonise is driving innovation in the steel sector, which in turn is reshaping the global value chain for one of its key inputs – iron ore.
• Higher-grade, lower-impurity, iron ore, which only makes up a tiny fraction of the market today, is needed to produce green steel. A potential shortage of suitable ores threatens the scalability of low carbon production routes.
• In October 2023 Columbia Threadneedle visited Fortescue Metal Group’s new high-grade iron ore mine in Australia. Here they draw from that experience to discuss how iron ore miners can position themselves to benefit from, and contribute to, the steel sector’s decarbonisation.

Columbia Threadneedle Investments' latest stewardship report details key areas of their activities, including:

• ESG Integration
• Engagement 
• Voting and corporate governance 
• Governance and oversight
• Conflicts of interest

Creating Sustainable Value Through Active ESG Integration

ClearBridge's latest stewardship report covers key areas of their activities including:

• The ClearBridge Model for ESG Integration
• Tackling Urgent Sustainability Challenges
• Engagements and Impactful Active Equity Opportunity
• Shareholder Advocacy - making each vote count 
• Understanding ClearBridge's portfolio alignment with SDGs 

MFS's latest Sustainability Report details their 2023 stewardship activities, including:

• Sustainability Overview - resources and governance
• Research and Investment Outcomes - ESG data and tools
• Update of Industry Initiatives - proxy voting
• Client and Industry Alignment - assessing effectiveness
• Corporate Sustainability - diversity, equity and inclusion

Creating a sustainable future through the power of investment

Asset Management One's latest Sustainability Report covers key areas of their stewardship activities including:

• Representing the Future with Materiality Map - Climate Change, Biodiversity and Nature
• Fulfilling Our Stewardship Responsibilities - Engagement and voting activities
• Co-creating Sustainable Investment - ESG Integration and Research
• Moving Forward Together with Stakeholders - Client survey 2023
• Our Own Actions - Sustainable governance and risk management

It’s been a busy year for advocating sustainable investing in the face of many headwinds. The steps taken to continue combatting climate change, along with spreading our knowledge on SI, are among the highlights of Robeco’s Stewardship Report detailing the progress made in 2023.

Summary

• Focus on our key priorities climate change, biodiversity and human rights
• SI Open Access available on our corporate website
• Full report on Active Ownership and related SI activities

RFI Foundation: ICMA sustainable sukuk guidance brings flexibility and risks for issuers with limited green assets

The International Capital Markets Association (ICMA), Islamic Development Bank (IsDB) and LSEG have released guidance on sustainable sukuk, reflecting the growing contribution of Islamic capital markets to the wider sustainable fixed-income market.

Through the first quarter of this year, sustainability-labelled sukuk have been dominated by core Islamic finance jurisdictions including Malaysia, Indonesia, the UAE, Saudi Arabia and the IsDB, but the new guidance has been purposely developed for issuers coming from either sukuk or green bond markets to issue green, social, sustainable, transition or blue sukuk.

This is generally supportive of market development because there has been particular growth of labelled sukuk rather than bonds within the GCC market to accommodate the widest investor base within the region’s financial markets. The guidance focuses on asset-based use-of proceeds bonds where “proceeds are intended to be allocated towards eligible green and/or social projects”.

One element of the market that isn’t directly addressed in the review process specifically is the sustainability characteristics of the underlying asset referenced in the sukuk transaction. The guidance clarifies that the asset-based structure involves transfer of beneficial ownership interest in the underlying portfolio “with no recourse to the assets and their credit quality”. In addition to no recourse, investors are not always provided detailed disclosure about the underlying assets.

The guidance notes that the contribution of Islamic finance to sustainable development provides “an additional layer of governance (Shariah) that helps in the allocation of issuance proceeds and directs them towards projects/companies that are aligned with both Shariah standards and ESG/sustainability criteria”. It is silent, however, on whether the underlying assets used to structure asset-based sukuk would be subject to similar consideration against ESG/sustainability criteria.

This is an important consideration because it affects the specific structural difference between use of proceeds sukuk and bonds. It could become particularly relevant in countries or for issuers with a need for finance who lack green assets but have a large domestic investor base that requires Shariah-compliant options.

Consider, for example, three types of projects: refinancing a coal-fired power plan as part of a transition plan for early retirement; financing a new solar power plant; and financing a program supporting the retraining of workers from fossil fuel production to renewable energy.

Within a conventional green, social or sustainable bond issuance, many financial institutions and investors are struggling to incorporate early-phase out financing into their sustainable finance frameworks despite the importance of credible transition finance for climate mitigation. Financing most renewable energy projects fits cleanly within definitions of green projects so long as they don’t produce significant harm such as population displacement or contravening the land rights of indigenous communities.

For conventional bonds, it would be relatively uncontroversial to train transitioning workers to use skills developed in fossil fuel-related industries to be able to adapt and apply these skills for renewable energy. For example, training drilling engineers for geothermal energy or offshore platform workers for offshore wind. However, similar financing through a social sukuk would face limits in the structuring process because it would require Shariah-compliant tangible assets owned by the originator to be included. The requirement to link the transaction to a tangible underlying asset may impede the efforts of some companies, or lead to situations constraining investors who may have strict and narrow limits for what they can finance (for example, excluding finance of any fossil fuel investments).

In some cases, these financing requirements may be combined in a way that makes it more difficult for Islamic finance compared to conventional finance. This is relevant as many OIC countries have substantial financial assets held by institutions that can only invest in Shariah-compliant structures into which conventional investors are also able to invest.

Consider a project that involves the early retirement of a coal-fired power plant, eventual replacement of all or part of the electricity supply with renewable capacity, and a Just Transition plan to maintain overall employment through retraining. A conventional transition bond could be issued to refinance the power plant while a social bond is issued for worker retraining, and over time successive green bonds could be issued to finance new renewable capacity as part of the transition plan for the originator.

In the conventional case, each dedicated investor base could have different financing structures to maximize the range of investors who participate. Financial institutions wishing to finance Just Transition but not able to finance or refinance fossil fuel assets could invest only in social or green bond issuance, while development banks actively supporting early phase-out of fossil fuel assets (such as through JETPs) and investors with fewer restrictions on financing the transition away from fossil fuel could provide support only to those elements that need some degree of concessional financing to pencil out.

That same series of transactions would be more complicated to issue as a sukuk with the same ability to meet the requirements of all investors, but it doesn’t appear to be ruled out under the new ICMA guidance. The difficulty of financing a worker retraining program on a standalone basis would be more challenging in the absence of a clear underlying asset owned by the obligor.

Financing through a sustainable sukuk along with a solar plant could be possible, but if the workers need to be trained before the new renewable capacity is installed, then it may not be able to be attached to that part of the financing. This either means the transaction cannot be done using sukuk for all elements, or the training component needs to be financed with the coal-fired power plant as the underlying asset, endangering the participation of green investors.

There may not be a way to fully replicate each element of the example above. However, the guidance wouldn’t clearly rule out the potential for an asset not directly involved in fossil fuel combustion (such as an office building at the coal-fired power plant) being used for structuring a social sukuk alongside a refinancing with transition finance of the remainder of the plant as part of an early retirement plan and later issuance of green solar sukuk to finance construction (or refinance bank financing) for the new renewable capacity.

This is just a hypothetical example. But it highlights both risks and opportunities connected with expanding the application of Islamic finance for sustainable finance purposes. The risks are clear where there is a division between underlying assets and use of proceeds where there is not ESG/sustainability evaluation screening of the underlying assets.

The opportunity may nonetheless be needed to allow for structuring flexibility in markets – such as many of the OIC countries – lacking in green assets and needing substantial and phased investment to support the transition where the supply of green assets may lag the requirement for finance. Notwithstanding that important need for flexibility, the lack of ESG/sustainability evaluation of underlying assets in the process of receiving a second-party opinion may introduce a risk that needs a response to mitigate. For example, a second party review could include additional disclosures about the ESG/sustainability characteristics of the underlying assets. This would avoid controversy in the future about the sustainability characteristics of underlying assets used by issuers of green, social and sustainable sukuk.

EthiFinance has published the first edition of the "SRI study on the Spanish Private Equity market" presents the developments in the ESG (Environment, Social and Governance) maturity of Spanish Private Equity Asset Managers, highlighting new ESG trends in the market and identifying areas for improvement for Asset Managers.

Four main aspects are analysed: ESG approach, exclusions, resources dedicated to ESG and SFDR classification of the funds.

This study is based mainly on public information made available by the Asset Managers on their website and the information contained in the pre-contractual fund documents, available on the Spanish National Securities Market Commission (CNMV) website.  The data was collected from 112 Asset Managers (and independent investment funds) active in Private Equity in Spain.

Download report - In English (EN) | In Spanish (ES)

Cement is a critical ingredient for concrete – the most used material in the world behind water. However, cement production is emissions heavy, leaving the industry and its investors exposed to transition risks. Robeco’s proprietary decarbonization model concretely quantifies that risk and provides an early signal for cement’s transition-ready leaders.

Summary

• Cement is critical for buildings and infrastructure construction
• Production is emissions heavy, intensifying transition risk for cement makers
• Decarbonization models quantify transition risks for cement companies

Trillium’s shareholder advocates are in the thick of the proxy voting season in the first quarter of 2024 and are pleased to share updates on several issues – including excitement about Starbucks agreeing to negotiate a collective bargaining agreement with their employees’ union, a major success after more than two years of investor pressure.

Trillium has withdrawn several shareholder proposals after reaching satisfactory agreements with several portfolio companies on issues ranging from improved reporting of workforce diversity data and access to paid sick leave. They also have an update on firm-wide work to encourage companies to set science-based targets. See the Advocacy Impact Report for more details.

Climate change has taken center stage during the annual general meeting (AGM) season for many years, offering investors the chance to vote on how well companies are transitioning toward net zero. But it’s not a simple matter of voting yes or no.

Climate change cost the U.S. over $90 billion in 2023. Last year was the hottest year in recorded history and had a record physical impact. Swiss Re warns that rising temperatures are likely to reduce global wealth significantly by 2050 as crop yields fall, disease spreads, and rising seas consume coastal cities, among a host of other harms.  

Linking greenhouse gas emission reduction targets to executive compensation is one important lever by which CEOs can be incentivized to achieve timely and systematic progress on climate. This second edition of the Pay for Climate Performance report analyzes how effectively 100 of the largest U.S. companies by market capitalization, across 11 sectors of the economy, are currently linking GHG emissions reduction incentives to CEO remuneration.

These 100 companies collectively represent a market capitalization of $28 trillion. Building upon the 2022 Pay for Climate Performance report’s analysis of 47 U.S. companies, this edition enables year-over-year comparisons and provides broader coverage across industries.

This report also provides a succinct overview of best practices and investor expectations, evaluates the 100 companies on how they incorporate climate metrics into CEO compensation, and considers the associated investor challenges in assessing climate-related CEO compensation incentives.

Summary: 
 
- ESG ratings have started to address shortfalls in scoring methodology and overall transparency. 
- Key improvements include clearer definitions, more transparent scoring methodology, and public access to ESG scores.
- Looming ESG regulations are a key driver of change, with initiatives underway in Japan, the UK and India. 
- Greater ESG ratings transparency is paving the way for expanded data collection that companies will need to monitor. 

To help business understand emerging trends, frameworks and reporting requirements – and how they can respond to these by taking some decisive first steps towards positive action on nature – the report is broken down into four main chapters:

- Why the nature agenda is shaping business strategies examines the need for action with a particular focus on the agri-food sector as one of the industries most reliant on healthy natural systems.
- The farming and nature nexus looks in more depth at the structure of agricultural value chains and the challenges existing structures pose to greater action on nature.
- What this means for business – how to prepare focuses on nature targets under the TNFD and SBTN, two of the most prominent assessment and disclosure frameworks.
- Key success factors for becoming nature positive examines the three areas identified as critical to addressing nature issues for agri-food businesses:

• Getting the right nature-related data
• Engaging with key stakeholders across the value chain
• Embedding nature action within a wider holistic strategy

This World Earth Day, RBC BlueBay Investment Grade Fixed Income Portfolio Manager, Harrison Hill reflects on the investment potential for fixed income within a circular economy.

Discussions around sustainable finance often centre around private equity and venture capital, however, fixed income has an equally large part to play. However, to-date this asset class has been arguably underutilised within this space.

The concept of a ‘circular economy’ is rising in prominence as the impact of climate change and resource scarcity increasingly pose risks around the globe.

For investors, this concept represents an opportunity to gain an exposure to sustainable business models that can potentially lead to reduced costs, improved efficiencies, and reduced dependence on finite resources. Despite this, investment in the circular economy from a private sector standpoint remain subdued despite a growing arsenal of ways to invest within the space.

"In our view, high-impact companies should prioritize the protection of biodiversity alongside their transition to a net-zero economy. We would like this publication to serve as a call to action for high-impact companies to address the challenges related to land use, deforestation, water conservation, climate change mitigation, waste management and species conservation.

In this report, we present the findings of a survey we received from 70 respondents (out of more than 220 surveys sent) from high-impact industries to understand their approach to biodiversity and assess the actions they have taken to address biodiversity-related concerns. We selected companies that have a significant impact on the reduction in biodiversity, as well as those that are highly dependent on it."

Financial risk and opportunities for investors related to processed foods

There is increasing emphasis on the need to align financial interests with public health objectives. There is a growing awareness around the adverse impact of the financialization of UPF and how this impacts diets.

Overall, the investment case for considering nutrition when investing in the food sector is strong and the majority of ATNI’s 80-plus Investors in Nutrition and Health have integrated nutrition in their responsible investment approaches – thus aiming to leverage the healthiness of processed foods for both business and society. However, the topic of food processing is relatively newfor the investment community. For investors who are interested in nutrition and health, the level of food processing and its effects on health is a logical issue to consider in relation to their responsible investment strategies.

Banks such as Rabobank and Barclays are already explicitly paying more attention to processing, outlining in their consumer trend reports that food companies should look at the potential risks that processed foods pose to financial returns over the long term, and opportunities to mitigate them.

For example, one opportunity recently highlighted by Rabobank involves reverse engineering and redesigning food production processes to retain the positive aspects of food processing without being linked to adverse health outcomes.

Cutting aluminum emissions is a challenging but vital step toward industrial decarbonization as demand is expected to grow sharply in coming years.
 
Producing “green aluminum” and securing a climate-safe economy while meeting rising demand will depend on significant collaboration across governments, international organizations, and industry. In this report Climate Advisers developed in partnership with the Atlantic Council, we dive into the complexities of decarbonizing the global aluminum market, how actors are working to produce the metal with cleaner methods, and recommendations for stakeholders to advance industrial decarbonization.

Aluminum production accounts for 3 percent of the world’s climate change emissions. This is set to increase with demand projected to rise by nearly 38% from 2020 to 2030. To learn more about how meeting growing demand for aluminum can be decoupled from climate emissions and how various countries are implementing the solutions listed below, download this report. 

In September 2023, FirstRand published its annual climate-related disclosures across the following reports: climate change strategies report 2023 (climate report), Basel Pillar III disclosure 2023 (Basel III), governance report 2023, and remuneration report 2023. These are read with the bank’s climate change policy 2022 and its policy on energy and fossil fuel financing. Although the bank has published a document setting out its policy statements relating to restrictions on the financing of certain sectors/activities, this does not deal with fossil fuels, merely referencing that thermal coal is addressed in a separate policy. 

Just Share has also engaged with FirstRand on several issues arising from its 2023 disclosures.
This briefing draws on the bank’s published disclosures and on clarifications provided by FirstRand during these engagements.

FirstRand has produced a clear and useful set of climate disclosures. It has attempted to address most elements of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and its disclosures make it possible for stakeholders to identify the gaps and challenges that it is facing in fully integrating climate risk into its decision-making. This briefing addresses someof these gaps, to focus investors and the bank on the issues that will help or hinder FirstRand’s ability to meet its long-term climate commitments.

Solactive: EU Taxonomy-Aligning Benchmarks 

EU Taxonomy-Aligning Benchmarks are proposed investment strategies that center on the EU Taxonomy for Sustainable Activities. These benchmarks would strategically leverage companies' disclosed capital expenditure aligned with environmentally sustainable economic activities.

Essentially, their overarching objective would lie in prioritizing companies directing capital towards pivotal sustainable initiatives, serving as a complementary framework to EU Climate Benchmarks.

Action is urgently needed by UK policymakers to tackle the causes of obesity and diet-related disease, as well as acting to reduce the environmental impact of our food system. 

This policy briefing summarises research by Sustainable and Healthy Food Systems (SHEFS) which models the possible effects on food choice of a salt and sugar tax, as recommended in the 2021 National Food Strategy (NFS). It looks at the impact of consumers substituting frequently consumed foods for lower salt and sugar alternatives within the same food category, assessing the affordability of such swaps, and modelling the impact they might have on healthy weight and the environment. 

The research finds that even very small swaps within just eight commonly consumed food categories (therefore likely to be realistic for the general population) can have notable impacts on both healthy weight at a population level and several environmental impact outcomes. 

The findings support the introduction of targeted fiscal incentives for reformulation, such as a salt and sugar tax, ensuring that any potential risk to people on low incomes is minimised. 

William Nicolle and Leland Werden discuss the white paper's key highlights. They explain the urgent need for a more holistic approach to reversing global biodiversity loss by 2030 and to achieving a nature-positive world by 2050.

Associated white paper available here

Key Takeaways
- Long-term investment in Novo Nordisk, a Denmark-based pharmaceutical company whose research and development has pioneered a leading class of diabetes drugs, has provided actionable insights into the blockbuster global market for diabetes and obesity treatments.
- While Novo and Eli Lilly are making substantial investments to produce their leading diabetes and obesity treatments at scale, current production challenges could allow another biopharmaceutical player to gain market share.
- We view diabesity as a dynamic market that will create not only investment opportunities across the health care sector but also second derivative demand in other industries where international companies maintain leadership positions.

Merck's latest sustainability Report covers key areas of their activities, including:

• Business ethics - human rights, animal welfare, bioethics and corporate governance 
• Products - sustainable innovation & technology, health for all and products & packaging 
• Employees - corporate culture, diversity, equity and inclusion 
• Environment - climate action, resource efficiency 

Mercedes-Benz's latest report details areas of their sustainability activities, including:

• Governance - sustainable business strategy, integrity, and compliance and integrity 
• Environment - climate protection, air quality, and resource conservation 
• Social - diversity and inclusion, vechile and environmental safety, and human rights

Kenmare's latest report "Responsibly meeting global demand for quality-of-life minerals" covers key areas of their activities, including:

• Safe and engaged workforce - diversity and inclusion, labour practices and security 
• Thriving communities - socio economic development, land use and community relationships 
• Healthy natural environment - climate, energy use, biodiversity, waste and radiation 

• The recent Spring Meetings in Washington DC have set the tone for the next rounds of global forums, notably the G20 and COP29, where scaling up climate finance for emerging markets (EMs) will be high on the agenda.

• A new global climate finance goal is under discussion to replace the previous USD100 billion target – indications are that the new target will need to be several multiples higher.  

• EMs face challenging economic conditions and their issuance of labelled debt, a key source of finance for sustainability projects, has stagnated compared to developed markets over the past few years.

• With EM sovereigns’ own fiscal space increasingly squeezed, MBDs look set to play a larger role in addressing EM’s climate financing shortfall, with reforms aimed increasing climate-related lending as a share of MDBs’ overall activities.   

• The largest MDB, the World Bank, has taken a number of important steps, including revising its equity/loan ratio to free up an additional USD40 billion in lending capacity. It has also launched a new, streamlined set of 22 impact metrics to guide and assess all its activities, many of which are climate-related.

• The Spring Meetings highlighted that private sector investment will be essential for increasing climate finance to EMs. Again, MBDs will play a key role in providing solutions, including through blended finance mechanisms.

• At the Spring Meetings, the World Bank highlighted its plans to triple the guarantees it provides to USD20 billion by 2030.

The concept of the polycrisis , popularised by the World Economic Forum (WEF) in its Global Risks Report 2023, refers to a state where multiple crises intertwine - their causes and processes inextricably bound together to create compounded effects.

The report warned that the world faced the risk of an emerging polycrisis in relation to “shortages in natural resources such as food, water and metals and minerals” by 2030.

A year later, the complexities we face in the world today remain as challenging, if not more. Roughly 10% (783m people) of the world’s population is undernourished as of 2023  and the number of people living in extreme poverty has risen to nearly 700m , a significant share living in conflict-affected areas. From wars in Gaza and Ukraine to hostilities in the Middle East, conflicts and violence have led to mass migrations, food and energy insecurity and disruption in trade which has caused ripple effects through society. The entire 2.2m population of Gaza is faced with the risk of famine as the war continues . Geopolitical risks have also increased the probability of recession in Europe and the US , while the economies of several emerging countries like Lebanon, Argentina, Sri Lanka and Bangladesh are already holding on by a thread.  

Around the globe, unforeseen climate emergencies in 2023 – like torrential rains in Southeast Asia and droughts in Africa - have taken thousands of lives, caused billions in infrastructure and economic damage and have displaced vulnerable populations.  During the wrap up of COP28, the United Nations (UN) issued an appeal for $46.4bn for 2024, in order to bring aid to 181m people worldwide, suffering from famine and disease or subject to mass displacement, stemming from conflicts, climate emergencies and collapsing economies. People, planet and profit – all three P’s have been put under threat in this age of polycrisis.

Investing based on systems – a case for transformative investing

Big problems require strong actions. To address the polycrisis that we are experiencing, society needs to invest in transformative change across multiple planetary, societal and economic ecosystems. Systems-based investing or transformative investing is a school of investing that is theoretically guided by a systemic theory of change  and that applies a comprehensive systems intervention approach. 

Although there is no technical definition yet, under the umbrella of sustainable investing, transformative investing should aim to direct financial resources systemically towards supporting the transformation from one way of doing things to another. This is opposed to impact investing, which is usually focused on individual enterprises. Investing in systems change is also different from traditional thematic investing as it follows a holistic investment approach - considers the trade-offs and synergies between multiple sustainability themes, vs just one (for eg. climate change). Society, climate, economy and nature form a nexus that is highly interconnected – we cannot overlook one to the beneift of another.

Solving the Rubik’s cube

The solution to dealing with a polycrisis is best understood as solving a Rubik’s cube – all six faces of the puzzle must be solved, which requires making trade-offs and backtracking, all the while keeping an eye on the end result. 2023 was a hallmark year for making “carbon tunnel vision” a thing of the past. More companies and investors have recognized that holistic social and environmental solutions will bring society closer to a resilient future as opposed to just optimizing for carbon sequestration. The health implications of climate change were considered in the climate proposals of 91% of governments in their Nationally Determined Contributions (NDCs) 9 , although most of these health-promoting proposals remain unfunded. The giant leap in Generative AI is considered as transformative as the invention of the printing press10 , but the industry has also faced essential questions on its potentially negative social and environmental impacts11 .

Regenerative agriculture12 is occasionally considered a one-stop solution to addressing climate, food and nature crises. However, corporate-sponsored regenerative agriculture programs that pay farmers to implement sustainable practices do not always benefit native communities, as these programs usually run within the firm’s own supply chain. In some cases, regenerative agricultural practices have also been found to unknowingly contribute to crop yield decline (endangering food security), and negatively affecting off-farm biodiversity or climate change mitigation. Contextual variations such as soil type and topography have been found to be key determinants of the outcomes in different geographies.13 Companies, in partnership with farmers, need to set an outcomes-based approach to determine the effectiveness of regenerative agricultural practices and adopt methods that are suitable to local contexts, while tackling issues at landscape and global levels. Diversity and inclusion have been increasingly important topics since the death of George Floyd in 2020. Over the course of 2023, the role of local communities and indigenous populations in addressing biodiversity loss14 and transforming socio-economic systems15 came into particular focus. Society can lean on indigenous populations in addressing systemic crises locally, addressing their own needs and priorities16 – solving faces of the rubik’s cube in isolation – before, or even instead of, looking for a universal solution. Indigenous populations are experts at living with uncertainty and making the most of it. From them, society can learn how to live in an increasingly uncertain world.

It is also important to note that one cannot systematically prioritize one crisis over another, nor assume that everyone shares the same priorities. Policymakers from the global North might articulate very different crises than those from the global South, affecting how responses are formulated. The one-size-fits-all approach can, sometimes, inadvertently, lead from one crisis to another. Research17 has shown that actions to contain Covid-19 had a devastating economic impact on the poor around the world. In preparing for future pandemics, infrastructure systems and policy responses have to be carefully adapted to local and regional considerations. However, these considerations can also prevent and/or delay interventions on a potentially dangerous, and even urgent, “single crisis”’; for example, refraining from acting immediately on one, in fear of exacerbating another – being afraid to mess up a solved face. This scenario played out at the recently concluded COP28 where the official global consensus advocated for a phase away approach to fossil fuels as opposed to a phase out, partly out of concern for energy security for the masses. Trade-offs must be made but is there enough time?!

Transformative or systems-based investing is still an underdeveloped financial and sustainability practice. The investment industry needs to be creative and innovative in developing the concept, processes and infrastructure systems that will enable it to take a systems-based approach and present viable financing solutions for the polycrisis. Innovative financing mechanisms, such as debt-for-nature swaps, nature-based solutions and credit enhancements, were a key part of the discussions at COP28 to address the multi-crisis of nature, climate and economic collapse in vulnerable countries/communities. According to Sustainable Fitch18, the sustainable bond market in 2024 is expected to increasingly require social co-benefits in nature or climate related issuances. For example, issuance could focus on areas linked to nature in which social co-benefits are specifically identified, such as food security, or on climate projects that also bring benefits to public health. Our hope only grows for this trend to become the norm, not an exception.

At the United Nations Water Conference in 1977, the first Action Plan for addressing the water crisis was created, recognizing that, “all peoples, whatever their stage of development and social and economic conditions, have the right to have access to drinking water in quantities and of a quality equal to their basic needs.”

Almost five decades later, we are nowhere close to ascertaining this basic human right. According to the United Nations University Institute for Water, Environment, and Health  (the Think Tank on Water), approximately 72% of people worldwide live in water-insecure countries, c. 2bn people do not have access to clean and safe drinking water and approximately 3.6bn people (46% of the world’s population) lack adequate sanitation services. Many of these issues are attributed to unprecedented population growth in many countries, but there are other reasons. Most notably, our consumption patterns have become highly water intensive - everything from the production of clothing to harvesting crops for food to the manufacturing of electronics requires an immense amount of water. 

Water on Earth is scarce – despite 70% of our planet’s surface being covered by water, only 1% of it is potable. Additionally, water is not an easily renewable resource – replenishing ground water can take decades, if not centuries. Water availability is further compromised by extreme weather events, pollution and aging infrastructure. Water contamination from chemicals, drugs, agricultural run-off, microplastics and ‘forever chemicals’ add to water insecurity across the world. This affects not only people and society but our investee companies as well. The Panama Canal backlog created by historic droughts and low water levels raised costs for countless firms in 2023. Drought is the third highest risk identified in India, and 59% of Indian firms reported as being affected . Companies are exposed to water-related physical climate risks in one way or another - through their own operations or their supply chains.

The water sector provides public and private benefits. However, many of these benefits cannot be easily monetized, thus limiting revenue streams from investments. The water sector requires a considerable amount of financing, with estimates ranging from $182bn to $664bn annually (2019). This gap includes various areas such as water supply and sanitation ($116bn to $229bn per year), flood protection ($23bn to $335bn per year) and irrigation ($43bnto $100bn per year), as well as funding for the implementation of water resources management.  Our existing water infrastructure is not well adapted as necessary investments have been neglected for decades. Utility companies report that one out of every six gallons of water is lost between the water treatment plant and the end customer – termed as ‘non-revenue water’. Without investments and proper water governance, there is likely to be increased competition for water between public and private sectors and an escalation of water crises of various kinds, triggering emergencies in a range of water-dependent sectors. Regulatory barriers can also limit innovation and prevent the adoption of new technologies or approaches.

Nevertheless, there is still hope. Co-operation and innovation are key – between companies, investors, communities and countries. The development of sustainable financing models can be enabled by public sector backing. For the sustainable management of water resources, in addition to constructing new infrastructure, investments are necessary to maintain, operate and enhance the resilience of current facilities (especially ageing infrastructure). In addition, effective incentives and regulation can redirect funding towards climate-smart, resilient and nature-positive investments. We need public and private finance to work hand in hand. In Ghana, different actors, including the private sector, non-governmental organizations, charities and development partners, financed the increase of coverage of safely managed drinking water services by 28 percentage points from 2000 to 2020, totalling 41% of the population in 2020 . At the global level, it is also necessary for increased data sharing and improved interoperability of all Sustainable Development Goal global databases. On the industry level, CEO Water Mandate brings together 240+ companies to share good practices and forge partnerships to address urgent water challenges related to scarcity, quality, governance and access to water and sanitation. 

The water sector sits comfortably at the intersection of climate, nature and social themes creating opportunities for investments for all sustainability-focused investors. However, most water investments till now have been focussed on water utilities which address the public demand/need for water. But there are many well established companies as well as new start-ups that are now working to solve water security issues using innovative technology and solutions. According to some analysts, the global addressable market opportunity for the water and wastewater industry is estimated between $700 and $800bn. In-sourced OEM (original equipment manufacturers) and Construction/EPC (engineering, procurement & construction) cover over half of the market while the remaining is covered by enablers, including general equipment, such as pumps, valves and meters, outsourced operations & maintenance services, water treatment and various parts & consumables. Earth observation technologies, including satellites and drones, present a transformative opportunity for both the public and private sectors to enhance water resources management. Governments can also use innovative methods, such as offering tax reductions for nature-based solutions and conservation spaces or payments for ecosystem services to preserve water-critical green infrastructure, making it lucrative for private finance to kick in. 

The theme of World Water Day 2024 is ‘Water for Peace’. On this World Water Day, public and private sectors need to come together to govern, innovate and finance a water resilient future in which people and businesses can thrive in peace and harmony.

This commentary is provided for informational and educational purposes only. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, 326 817 467 R.C.S. Paris, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management (314 024 019 R.C.S. Paris; 128 bld Raspail, 75006 Paris) was approved by the AMF under no. GP97076 on 1 July 1997.

A passion for fashion has kicked off a new year for Robeco’s Active Ownership team as they engage to improve sustainability in the industry.

Summary

• Fashion engagement theme runs in tandem with new investment product
• Reports on successes seen in water use and gaming engagement themes
• Tax transparency and corporate governance work also highlighted

JobPost: PRI - Research Associate Responsible Investment Ecosystems - Canada (Temp) | Closing: 8:00pm, 19th May 2024 BST 

Job Description
The Research Associate, Canada RI Ecosystems will be responsible for conducting research on leadership in the field of sustainable finance within the province of Quebec. The Research Associate will investigate practical examples of local responsible investment and stewardship best practices from Quebec-based PRI signatories, in order to produce written materials that highlight examples of such leadership in action.

Through this research, the Research Associate will contribute to PRI’s body of thought leadership by ways of a process that is informed by signatories and of value to the local – as well as the global – RI ecosystem that underpins the PRI.

The role requires an understanding of the investment industry, the sustainable development agenda, as well as the relevant local and regional policy and regulatory environments.

Apply here

Executive Assistant, Chief People Officer and one other Executive (10 Month Family Leave Cover) - Principles for Responsible Investment - Applied (beapplied.com)

JobPost: Sustainalytics: ESG Research & Methodology Senior Analyst, Risk Products (Amsterdam / Frankfurt | CloseDate: Unknown)

JobPost: Sustainalytics: ESG Analyst, Indicators & Metrics Team (Timisoara / Bucharest | CloseDate: Unknown)

JobPost: GIIN: Director, Impact Measurement & Management Engagement (New York / Hybrid | CloseDate: 28 July)

JobPosts: 5 New @ PRI (Hybrid; London & Singapore)

Senior Responsible Investment Manager, Responsible Investment Ecosystems UK & Ireland - Principles for Responsible Investment

Senior Specialist Stewardship (Nature) - APAC - Fixed Term Contract - Principles for Responsible Investment

Operational Resilience Analyst Technology and Infrastructure - Principles for Responsible Investment

Junior CRM Administrator Technology and Infrastructure - Principles for Responsible Investment

Senior Data Specialist - Principles for Responsible Investment

JobPost: PRI - Manager, Responsible Investment Ecosystems UK & Ireland (Hybrid/London | Closing: 8:00pm, 5th May 2024 BST)

JobPost: M&G plc - Sustainability Risk Analyst (Edinburgh | CloseDate: 5th May)

JobPost: S&P Global - Associate ESG Client Services (Location: London | CloseDate: Unknown)

JobPost: S&P Global - Environmental Sustainability Intern (Location: Virtual, California | CloseDate: Unknown)

JobPost: S&P Global - Sustainability Sales Specialist, Financial Institutions (Location: New York | CloseDate: Unknown)

JobPost: Global Impact Investing Network - Director, Impact Measurement & Management (IMM) Engagement (Location: New York | CloseDate: 28th July)

JobPost: Group Director Of Sustainability & Impact (Location: Singapore | CloseDate: Unknown)

JobPost: ISS: Sustainability & Climate Sales Specialist (Rockville / Washington | Posted 17 April)

JobPost: ISS STOXX: Index Specialist – ESG/Sustainability, R&D (London | 12 April)

JobPost: Scientific Infra & Private Assets Ltd: Product Specialist – ESG and Climate Data, Infrastructure (London | Posted: 16 April)

JobPost: Tikehau Capital: ESG Analyst - Private Debt & Tactical Strategies (London | Posted 11 April)