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Emy Fraai


We face a twin crisis of climate change and declining biodiversity, and both need to be tackled without delay. Climate change and nature loss are fundamentally linked. One cannot be solved without solving the other. But navigating the climate transition is already challenging enough, let alone addressing the myriad impacts of investments on ecosystems and species. The dilemma for investors is how to take concrete actions on both fronts without being overwhelmed by complexity.


  • How to solve climate and biodiversity issues without complexity overload
  • Insisting on an integrated approach could lead to analysis paralysis
  • Ensuring that the work done on both topics is compatible will work best

Emy Fraai


Investors are keeping the faith in trying to combat global warming, despite growing headwinds, the 2023 Robeco Global Climate Survey has revealed. The number of investors for whom climate change is a significant part of their investment policy has remained stable at above seven in ten.


Indicators used to measure progress in addressing challenges such as climate change and nature loss can be counter-productive if the metrics themselves become the focus. To address the expectations set down in the latest IPCC report, responsible finance needs to focus on how it can influence the actions of customers and other financial institutions.

  • The pace of action on climate change since the Paris Agreement has been substantial, although the results have fallen short of what is needed to reach global climate goals
  • Financial institutions that target investment or financing for portfolio greenhouse gas (GHG) emissions alone may find it easier to meet their targets, but the underlying climate and nature risks will continue to grow
  • The financial sector can only start to address the underlying sources of risk if they understand and respond to the systems-wide risks that require changing underlying economic behaviors

During the nearly eight years since the Paris Agreement was reached, there has been huge progress on building awareness of the relevance of climate-related risks to the economy and to finance. However, the frame of reference for this understanding has often been very narrowly defined in reference to emissions sources and the financial risks facing emitters during the transition to a low-carbon economy. The latest IPCC report on climate change reiterates what has been previously mentioned in relation to climate change and amplifies the concerns about nature loss, especially relating to oceans and water

Natural capital and biodiversity have also risen on the agenda, but this has often been obscured behind the financial sector’s focus on climate risks, which is viewed on a binary sliding scale of higher transition risk, lower physical risk or lower transition risk, higher physical risk. The assumption underlying the focus on GHG emissions has been that a cost can be attached to a single item (emissions) to represent the driver for a ‘systemic’ risk, and that by providing the ‘missing price’ this can align financial institutions’ actions in the right direction.

Understanding the sources and full cost of the emissions that are driving climate change is undoubtedly important because it is integral to the worsening climate crisis. Great strides have been made in producing frameworks for integrating GHG emissions into decision-making, along with a lot of other sustainability-related data. But as the latest report from the IPCC makes clear, the impacts of climate change are permeating humanity through channels that are much more diverse than just climate transition risk or direct physical risks.

The overwhelming focus on GHG emissions is useful, and often favored because it is a tangible output of economic activity that is also a key input in climate change. It is also a datapoint that is readily quantifiable. However, it has also become a bottleneck for action on issues that transcend just climate change such as biodiversity and the blue economy. The possibility for GHG emissions to be measured makes them more appealing for financial institutions to manage and target, even if that leads to incomplete action, even judged on financial grounds.

Focusing so strongly on a single metric can create a short-sightedness that obscures other types of risk. For example, the crisis unfolding in some American regional banks began from a focus on data about what was immediately available and impacted near-term profitability. Banks and their investors were concerned that in a zero-interest rate environment, their profits were constrained by narrow margins.

Banks responded with strategies to marginally increase returns on their investments in a way that wouldn’t add credit risk. Yet, in the process they locked themselves into strategies that, as interest rates rose, became very brittle. They had replaced low but flexible profit margins with a structurally unprofitable set-up where they were paying out more on deposits then they were collecting from their investments. And when they acknowledged the issue, this created a crisis of confidence that created a cascade of losses, including some bank failures.

The way this relates to the issue of GHG emissions and financial institutions is that, when financial institutions take a ‘portfolio decarbonization’ approach, they try to calibrate their exposures to a specific climate trajectory independent of the bigger picture. In so doing they swap one type of measurable risk (emissions) for another that is more opaque and uncertain (long-term physical climate and nature risks).

The risk that financial institutions taking this approach are trying to mitigate is the direct financial cost from the price of a ton of GHG emissions rising towards its full value. The source of financial loss being managed is customers facing rising direct emissions costs in their operations that incrementally lower credit quality and could impair profitability. 

The more opaque and uncertain risk that’s being replaced through this strategy is more complex than the asset-liability mismatch outlined in the recent example of the banking sector’s duration risk, but it provides a basic structure, instead of a structural challenge of higher costs and lower income due to interest rate policy and the bank’s yield on its investment. In the case of climate and nature risk, the potential is for structural changes that impair the ability of the economy to produce the same level of returns with the same regularity as in the past.

From this perspective, the realization of more uncertain outcomes will require higher returns to deliver the same risk-adjusted returns or else result in lower risk-adjusted returns across the board. The impact is likely to be discontinuous at the customer level compared to aggregate impacts. More expectations of higher risk-adjusted returns by investors will coincide with a greater challenge for individual financial institutions to manage the full scope of climate and nature risks that will assert themselves as long as the ‘business-as-usual’ approach continues.

The IPCC report describes this in terms of: “Adverse climate impacts can reduce the availability of financial resources by incurring losses and damages and through impeding national economic growth, thereby further increasing financial constraints for adaptation, particularly for developing and least developed countries”. 

No amount of just calibrating financing & investment portfolios around GHG emissions, or refining a more and more granular reporting framework of the emissions, will mitigate this type of risk on its own. It requires a much more systems-wide analysis of how climate and nature risks translate into future economic risks, and how to translate this understanding into actions that produce deep change across the economy. 

Want to learn more about responsible finance in Islamic markets & Islamic finance? Subscribe to RFI’s weekly email newsletter today!



Environmental Defense Fund: Companies show historic levels of support for EPA oil & gas methane rules

EPA’s recent comment period for proposed regulations to address methane emissions from the U.S. oil and gas industry resulted in historic industry support to reduce this extremely potent greenhouse gas.

Check out this recent blog to see how company comments stacked up and what comes next.


Hodgson's Choice: Anti-ESG movement dials up the drama in the US

The “anti-ESG” brigade is in force. However, indications are the US may not be, to paraphrase Florida Governor Ron DeSantis, “where ‘woke’ goes to die”.

J.P. Morgan Chase, Mastercard and Wells Fargo are attempting to block shareholder resolutions that target what two right-wing think tanks allege is anti-conservative bias in their businesses.

Two oil service firms and an industry association have signed on to a lawsuit by 25 Republican state attorneys general to block a US government rule which allows managers to consider ESG risks in their investment decisions.

But in February, red state North Dakota voted overwhelmingly against a bill to bar state investment with alleged energy firm boycotters, similar to the bills passed in Texas and other Republican states last year.


Hodgson's Choice: US pay gap resolutions hit mainstream

Shareholder resolutions requesting US firms disclose the pay gap between white male employees and women and ethnic minorities is on the up.

  • Since 2016, investment management firm Arjuna Capital has persuaded 28 Fortune 500 companies to disclose racial and gender pay gap data.
  • In the US, black workers’ median earnings represent 64% of white workers’ earnings and women’s earnings represent 83% of men’s earnings.
  • Walt Disney published statistically adjusted racial and gender pay gap data last September after a historic majority vote by investors at the company’s AGM.


Shareholder campaigns to get Wall St banks to live up to their net-zero commitments intensify, with many resolutions filed this year. 

  • 17 new shareholder resolutions calling on US members of the Net Zero Banking Alliance to stop financing fossil fuel expansion have been filed for the 2023 proxy season.
  • A set of similar resolutions filed last year fared poorly, some with just single-digit support, because many of the large, mainstream asset management firms felt they were too prescriptive.
  • While none of the banks have challenged the resolutions this year at the SEC, most did in 2021.


“The ESG Performance Report includes our performance across our six environmental, social and governance (ESG) priority areas, and includes ESG data for current and previous years. Within the Responsible Business section of our Annual Report, we provide a summary and highlights of our progress in 2022.”


Hodgson's Choice: U.S., Canada Press Contractors for Climate Disclosures

As the global conversation on decarbonization and the responsibility of companies to achieve a Net Zero future continues to heat up, the federal governments of both the United States and Canada are attempting to leverage their procurement power to drive action.


Planet Tracker: Nature’s role in a liveable future for all – a commentary on the latest IPCC report

The IPCC Sixth Synthesis Report published on 20th March 2023, underscores the urgency of taking more ambitious action and shows that, if we act now, we can still secure a liveable sustainable future for all”.  

This report is regarded as particularly significant, as AR6 is expected to be the last IPCC report released while limiting the Earth's warming to a 1.5°C (2.7°F) increase still remains possible.

But what does this Synthesis Report say about nature? A close inspection demonstrates a clear recognition of the interconnection between nature and climate.

The UN Secretary-General, António Guterres, commented that the “IPCC report is a how-to guide to defuse the climate time-bomb…In short, our world needs climate action on all fronts — everything, everywhere, all at once”.

To achieve this goal, a number of intertwined factors need to be addressed by policymakers alongside climate change. This includes nature and its ecosystems.


Environmental Defense Fund: MethaneSAT - A New Era of Transparency for Methane Measurement

MethaneSAT: A New Era of Transparency for Methane Measurement will take you through how a new generation of satellites is paving the way for vast improvements in methane emission detection and quantification on a global scale. MethaneSAT, a satellite mission and wholly-owned subsidiary of Environmental Defense Fund, will join this satellite ecosystem and usher in a new level of transparency into methane emissions through regular, frequent data accessible to companies, regulators, investors, and the public.

MethaneSAT’s key capabilities are:

  • Quantification of total regional emissions
  • Automation of computations used to measure emission rates, cutting a process that can take months down to days
  • High precision & resolution - detects excess methane concentration at 3 ppb and has 100m x 400m native pixels
  • Broad area coverage - orbits Earth in 95 minutes, with a swath width of 200km
  • Free public data access
  • Operators around the world will be able to find and fix problems faster, and stakeholders will be able to evaluate performance against methane goals, commitments, and legal obligations.


As You Sow: Carbon Clean 200

Just a few years ago, much of the business community viewed climate advocates with indifference or skepticism. Today, companies representing 40% of the global stock market have committed to science-based targets around reducing their greenhouse gas emissions in line with the Paris Agreement.

In many cases, these businesses are already making billions of dollars supplying climate solutions to the market. Even corporations that are less directly implicated in the economic upside of climate action recognize the imperative for a low-carbon economy because no business can profit in an environment of climate chaos.

The Clean200 lists the 200 major corporate players from 35 countries around the world that are at the forefront of this transition. 


Klement on Investing: The impact of ESG scandals

ESG scandals are (luckily) a rare thing. If we rely on the RepRisk Relative Risk Indicator, then risk ratings in excess of 25 points happens only in one in 200 companies. And as I have reported here, RRI readings of 35 or above become existential threats for the CEO of a company. But once a company experiences an ESG scandal, it has significant and lasting consequences for the company, but also its peers.

One such ESG scandal that still looms large in many UK investors’ minds are the sweatshop practices in factories of UK fast fashion retailer boohoo. I have described it in some detail here, so I won’t go into the details. Suffice it to say that even today, almost three years later, the first thing investors think about when they think about boohoo tends to be that scandal. It’s akin to asking you what the first thing is that comes to mind when you think about BP…


Trase: Beyond forests: traders face EU regulatory risks from soy expansion in Brazil

Soy traders are more exposed to the conversion of Brazil’s savannah and grassland habitats than they are to forests. As the EU considers including other ecosystems in its new due diligence legislation, Trase analysis reveals which traders face the biggest regulatory risks.

Under the incoming EU regulation on deforestation-free products , commodity traders will soon have to prove that products such as soybeans and palm oil destined for the EU market are not linked to the conversion of forests. In future, this may be broadened out to include other ecosystems.


Sustainability/ERM: Mining and Metals Supplement – 2023 Trends Report

The ESG risks and opportunities facing the mining and metals sector are transformational, with decarbonization as the most immediate challenge. Companies are grappling with the conflicting investor demands to reduce fossil fuel use, decrease emissions, and minimize the environmental footprint of operations, while maintaining their profitability.

As nations and non-state actors increase their climate commitments, consensus has emerged on the need to transition asset portfolios away from thermal coal towards critical materials that are essential for the transition to a low carbon economy such as copper, nickel, cobalt, lithium, and aluminum. Furthermore, biodiversity and water stewardship are rapidly becoming the next most pressing ESG focuses after carbon.


Ceres: Hot and Cold: How Asset Managers Voted on Climate-Related Shareholder Proposals in 2022, and What It Means for 2023

This report forecasts what to expect in the 2023 proxy season for climate-related shareholder resolutions based on trends in 2022’s record-breaking but complicated season.

It highlights the significance of 115 agreements reached between shareholders and companies in advance of voting, with companies committing to take actions sought, such as setting greenhouse gas reduction targets, in exchange for shareholders withdrawing resolutions. It also looks at the trendlines of how the largest asset managers voted on climate-related proposals in 2022 compared with the previous year. 


Nestlé: 2022 Creating Shared Value and Sustainability Report

Nestlé is publishing its 2022 Annual Report alongside its Creating Shared Value and Sustainability (CSV) Report. As the publications highlight, Nestlé’s results were resilient in a year defined by many challenges. Staying on course required a constant rebalancing between forward-looking investments, affordability, and meeting its commitments to shareholders and other stakeholders. The company continued to deliver fast-paced innovations, advanced its digital capabilities and maintained its rigorous focus on strategic portfolio management.

For the first time, the reports provide an overview of the nutritional value of Nestlé's global portfolio. They also provide an update on the company's progress of its Net Zero roadmap.


The macro picture has been challenging, particularly with uncertainty on the likely peak of the interest rate cycle. Company specific fundamentals remain positive, supported by stable earnings and corporate activity.

Equity market see-saw continues

After having a tough 2022, global equity markets started 2023 on a strong footing. Signs of easing inflation supported sentiment and the market started to weigh in on expectations of a peak in interest rates. Sentiment also got a boost from China dropping its zero-Covid policy.

Given the backdrop, growth-oriented sectors like consumer discretionary and technology led the rally, significantly outperforming more traditional defensive sectors like healthcare, utilities and consumer staples. This was a reversal trade of what had happened in the full-year 2022. The seesaw pattern continued in February 2023, as global equity markets fell during the month.

The old adage of ‘good news’ is ‘bad news’ continued in the market…


This report includes commentary on:

  • Russia's war in Ukraine
  • The effects of the pandemic
  • Developments in organised labour
  • Deepening climate crisis
  • Zevin's in-house research on ESG-related risks and opportunities


Emy Fraai


Robeco: Confusion and noise require constructive dialogue for AGM season

Opposing shareholder proposals and an anti-ESG backlash will make for a confusing AGM season, Robeco’s Active Ownership team believes. While the public debate will become more polarized, constructive engagement between management and their shareholders will become more necessary.


  • Growing number of resolutions aim to frustrate companies’ ESG efforts
  • Climate change preparedness expected to come under scrutiny
  • Thorny issue of executive pay in focus as Covid-era share options vest


GIB Asset Management: Value unlock in Korea & Taiwan: Rabbits, Hidden Treasure & Winds of Change

"Our Active Engagement approach leans on identifying hidden value in businesses and using the tool of Engagement to unlock and drive its greater market recognition. Two markets stand out with an abundance of potential material engagement outcomes – Korea and Taiwan.

In our inaugural Engagement trip after COVID restrictions were lifted, we walk through our work with a series of portfolio companies. We focus on the way we hope to deliver change, how we believe these changes can manifest and the impact of such enhancements to propel forward returns for our investors.

As we enter the Year of the Rabbit in the new Chinese Lunar Year, astrologists point to a year blessed with ‘wealth, partnership and successes’. An auspicious and apt backdrop for our portfolio wide approach to friendly Active Engagement.

Gong hei fat choy!"


"The macroeconomic, political and capital cycle backdrop is particularly supportive for a resurgence in corporate profits. A ‘once in a generation’ opportunity has arrived that provides a fertile environment for a sharp improvement in Return on Equity (ROE). This in turn can finance the throes of a new investment cycle. Exciting times are ahead.

But investors have always stymied such exuberance through unpalatable valuations. India’s relative valuation premium versus peer markets across wider Emerging Markets have touched all[1]time highs. For us though, much of this can be justified through the power of peerlessly predictable, consistent and high ROE growth.

As a result, our Engagement approach in India differs to Korea and Taiwan. Our primary focus in India aims at introducing measures, incentives and suggestions that protect and improve businesses’ free cash flow profile. By extending the durability of a company’s compounding power, we argue there exists further margin for valuation growth; implied expectations from current (albeit high) valuations underestimate the true tenacity of business models and its barriers to competitive entry.

A number of well-trodden Indian adages have been upended in recent times – in particular, “The shortest distance between A to B in India is never in a straight line”; “India grows fastest at night” and “In India, it is not because of the government, it is in spite of the government”.

That said, “diamonds are forever” might have some life left in it just yet… "


GIB Asset Management: Impact and Engagement Report 2022

GIB Asset Management’s impact and engagement report covers its two equity funds: GIB AM Emerging Markets Active Engagement Fund (Article 8) and GIB AM Sustainable World Fund (Article 9), as well as its Fixed Income Fund: GIB AM Sustainable World Corporate Bond Fund (Article 9)

The report explains how each Fund approaches impact and engagement, and provides information on both over 2022.


Nomura: Why Cybersecurity Is the Biggest Hidden ESG Risk

Cybersecurity is fast becoming the top global risk by impact and likelihood along with climate change and geopolitical conflict. In response, investors need an efficient model to integrate cybersecurity into their investment decisions.

Cybersecurity is emerging as a major next generation ESG consideration for investors, with strong alignment to financial and investment risk, growing regulatory scrutiny, and the potential for real-world impact.

Financial Materiality of Corporate Cybersecurity Risk

Investors have a growing interest in assessing the underlying cybersecurity risk inherent in their corporate investment portfolios. Cybercrime affects individual enterprises through increased frequency of data breaches and ransomware attacks, higher corporate cyber defense and insurance spending, and reputational damage. Large-scale cyberattacks can cause operational and business disruption, and generate significant litigation risk.

Cybercrime rates are growing in severity and frequency as economic digitalization expands the cyber “attack surface” available for hackers to exploit. Estimates of the rate of cyber-attacks per company are 31% higher in 2021 compared to 2020 with the average cost for individual data breaches in 2022 reaching $4.35 million.

HSBC: ESG Sentiment Survey

  • “Our fourth ESG survey shows that regulations are increasingly driving investors and companies to integrate ESG
  • Regional differences remain - Europe is ahead of North America, but Asia has strong momentum as it plays catch-up
  • Interest is growing in both biodiversity and carbon credits, but investors remain cautious about actually investing in them

Clients of HSBC Global Research can access the full report via the HSBC Global Research website or by contacting Wai-Shin Chan

We are always being asked what clients are thinking and doing when it comes to ESG. So, last year, we launched a regular ESG survey. This is our fourth edition, and it captures the impact of tightening regulations as global regulators work to tighten up all parts of the ESG ecosystem. Here are a few of our major findings:

  • There was a balance between general fund inflows and ESG inflows that shows ESG is a significant part of fund inflows, not a driver of fund inflows.
  • One of the biggest surprises was that only a small proportion of funds are using ESG indices as a benchmark. More use traditional indices. Most use absolute returns.
  • ESG incorporation across decision-making is lower than a year ago given the events of 2022 - but most respondents expect it to increase in 2023.
  • Climate change continues to dominate environmental issues, with water and pollution the themes to watch.
  • Diversity and inclusion remain a key social focus, but supply chains have risen to be almost on par.
  • Some three-fifths of respondents expect ESG to become mainstream within a decade; only one-fifth believe this may never happen.

The respondents represent USD11.5trn in assets under management (AUM) across 390 institutions.

HSBC: Waste - Reduce, Reuse and Recycle

  • "Over the past ten years, the number of waste companies in the HSBC Climate Solutions Database (HCSD) has risen >3.0x
  • The growing share of waste companies demonstrates positive revenue momentum and rising climate integration
  • An increasing focus on recycling and circularity should be supportive for the waste companies in our proprietary HCSD

Clients of HSBC Global Research can access the full report via the HSBC Global Research website or by contacting Wai-Shin Chan

Climate Alpha (α) highlights emerging trends across various climate themes using our proprietary HSBC Climate Solutions Database (HCSD) and Framework. In this edition, we highlight the Waste theme. Please see page 2 for our detailed definition of the Waste theme under our framework.

Geography and revenue momentum: According to our 2021-22 annual revenue analysis of global companies, 178 stocks in the HCSD were identified under the Waste theme. The Asia Pacific region leads with the largest share (58%) of waste companies, followed by Europe at 24% and the Americas at 16%. More than half (53%) of all waste companies in HCSD are pure-play climate stocks, as they derive > 50% of their revenues from climate-related business. In aggregate, the theme's revenue has risen c3.5x since 2015, and the Americas region accounts for the highest share of revenue.

Rising waste generation - a growing concern: Waste accounts for roughly 5% of global GHG emissions; amid a rising population, rapid urbanisation and economic growth, global waste generation is expected to surge by 73% by 2050, according to the World Bank. Moreover, the rise of new technologies, such as battery operated transport solutions, are growing areas of concern from a waste perspective. Significant effort, therefore, is required to accelerate waste reduction, management and recycling, to achieve global climate goals. In terms of investment opportunities, we think companies that offer sustainable waste management solutions could gain from a growing emphasis on this sector and our HCSD could help investors to identify those opportunities.”


Creative Investment Research: The Fed and SVB

By quickly ring-fencing SVB and saving depositors, the Fed showed it is becoming more of a learning organization. Combined with its excellent performance managing the worst inflation spike in 40 years, instigated by the worst pandemic in 100 years, the Fed demonstrated an ability to quickly adjust when circumstances demand flexibility. This is new behavior.


Creative Investment Research: Is Your Money Safe at a Minority-owned Bank?

Yes. By quickly ring-fencing SVB and saving depositors, the Fed showed it is becoming more of a learning organization. Combined with its excellent performance managing the worst inflation spike in 40 years, instigated by the worst pandemic in 100 years, the Fed demonstrated an ability to quickly adjust when circumstances demand flexibility. (See here)

Their new Bank Term Funding Program (BTFP), a key protection (or bailout) for depositors, sounds like the fund we suggested for Black banks in October 2019: Economist Offers $50 Billion Federal Solution to the Black Banking Crisis

Also see: National Bankers Association Assures Consumers Their Money Is Safe At Minority Banks Amid Financial Meltdown


Planet Tracker: Net Zero Transition Plan Assessment Template For Investors in Consumer Goods Companies

A Credible Plan in Five Steps

Decarbonisation is a business imperative for companies looking to remain competitive in the long term. As such, organisations must develop a clear understanding of their current carbon footprint and devise strategies for reducing and ultimately eliminating their emissions.

Planet Tracker has developed a disclosure assessment template which can be used by investors and lenders to determine the credibility of  a company’s climate transition plan.

The template synthesises key elements of existing frameworks to enable investors to check a company’s climate transition plan to see if it provides information for the following five sections – company overview, climate alignment, policy & governance, risk assessment and strategic analysis – to provide a credible summary of the company’s decarbonisation strategy.

Please download and use our attached Net Zero Transition Plan Disclosure Guidance Template for consumer goods companies.


Environmental Defense Fund: Plugging the Leaks: An Investor Guide to Oil and Gas Methane Risk

I'm excited to announce the launch of Plugging the Leaks: An Investor Guide to Oil and Gas Methane Risk, a new report from the Environmental Defense Fund that gets investors up to speed on company best practice on credible methane management.

Climate-warming methane emissions are posing material financial risks to the oil and gas industry, especially as global policy, data, and investor pressure heats up.

Promisingly, investors have been incredibly successful in engaging companies to join the Oil and Gas Methane Partnership (OGMP), an industry-leading framework to credibly measure and report methane emissions. With engagement season coming up, continued shareholder pressure can accelerate the industry's decarbonization efforts, by eliminating routine flaring, setting ambitious targets across all assets, and leading on policy advocacy.

As it stands, the oil and gas supply chain is losing far too much methane - the primary component of natural gas, and a powerful short-term greenhouse gas. But 75% of emissions are technically feasible to reduce - and half (or even more) of which are cost-effective.

The business case for credible methane reductions - to seize a leadership opportunity, to address material risks, and to counter short-term climate impacts - has never been so compelling.


Environmental Defense Fund: Tackling Transferred Emissions (Webinar |  21 March)

Tuesday, March 21 at 11am ET (US) / 5pm CET

Register here

Tackling Transferred Emissions: Climate Principles for Oil and Gas Mergers and Acquisitions

Oil and gas M&A have taken on new significance not just as a key element of business strategy but as a potential source of climate risk. Traditional oil and gas dealmaking help companies reach their own emissions reduction targets, but they do not contribute to global greenhouse gas emissions reduction. These transactions may not be compatible with global net zero efforts that demands sustained and proactive climate stewardship.

Join Environmental Defense Fund, Ceres, and our key partners as we discuss the importance of Transferred Emissions, an introduction to the Climate Principles for Oil and Gas Mergers and Acquisitions, and ways to take advantage of opportunities by using the principles.


FTSE Russell: Sustainability in the UK: A year on

Last year, we investigated the sustainability profile of the FTSE UK index and its peculiarities in the context of challenges in creating a sustainability index in the UK. In this paper, we review and update the changes over the last twelve months.

Although there were changes in the structure of the index, the broader picture remained the same. Natural resources companies continue to dominate the FTSE UK Index, which resulted in a relatively high carbon emissions and carbon reserves intensity score.

At the same time, the UK index still has a fairly high ESG score overall, with very few stocks averaging a higher ESG score and low carbon emissions intensity at the same time, and they are limited to very few specific industries.

This feature of the UK market remains a challenge for investors looking to construct benchmarks that have a high ESG score, and a low carbon reserves and carbon emissions intensity. The FTSE Russell multiple tilt approach, however, provides a solution to this conundrum


FTSE Russell: Rethinking the sovereign environmental score assessment - Sovereign ESG revisited

The current sovereign environmental, social and governance (ESG) scoring framework is far from perfect. Disparate methodologies and assessment criteria have created different mixed sets of Environmental scores (E scores), resulting in difficulties when comparing and contrasting country rankings across ESG providers.

What constitutes good and meaningful environmental assessment remains unclear, however, and it remains questionable whether assessment is being done accurately, rigorously and transparently.


Global Canopy: Forest 500 analysis – companies unprepared for incoming EU deforestation regulation

We are three years past the 2020 deadline that many organisations set themselves to halt deforestation, and just two years away from the UN’s deadline of 2025 for companies and financial institutions to eliminate commodity-driven deforestation and conversion. Yet globally, deforestation and demand for commodities linked to it is still growing. Approximately 9 million hectares of forest is lost due to agricultural expansion every year. This agricultural driven deforestation is adding to climate change, causing biodiversity loss and is linked with human rights violations against Indigenous peoples and local communities.

The new EU regulation on deforestation-free products (EUDR) is a welcome and significant step in the efforts to eliminate deforestation. Without this intervention, the EU’s consumption and production of wood, cattle, soy, palm oil, cocoa and coffee would rise to around 248,000 hectares of deforestation annually by 2030.

The regulation means companies will need to know if and how they are exposed to commodity-driven deforestation, and mitigate that risk if they want to place a product on or export products from the EU market. And it has global implications too, because all companies that wish to access the EU market through their buyers or suppliers will also have to comply with this legislation.

The 350 companies included in the Forest 500 are the most exposed to the forest-risk commodities driving over two thirds of tropical deforestation (palm oil, soy, beef, leather, timber, pulp and paper), and with that comes a responsibility and opportunity to drive change through these supply chains.



World Benchmarking Alliance: Digital Inclusion Benchmark

This third iteration of the Digital Inclusion Benchmark assess 200 of the world’s top telecommunication, digital hardware and IT software and services companies.

This is the first iteration that includes the Core Social Indicators (CSI). These indicators form part of the way companies can build positive impact and people-centred transformation More specifically, the benchmark measures what companies are doing to:

  • enhance universal access to digital technologies
  • improve all levels of digital skills
  • foster trustworthy use by mitigating risks and harms
  • innovate openly, inclusively, and ethically.

HSBC: Investor questions on board and executive pay

  • “We answer eight common questions from investors on board and executive remuneration design, trends and best practice
  • Questions focus on pay alignment with investor interests, specific metrics, mega grants, clawbacks and pay levels
  • We think an improved focus on pay methodologies is needed to avoid poor outcomes and promote right behaviours

Clients of HSBC Global Research can access the full report via the HSBC Global Research website or by contacting Wai-Shin Chan

Why it is important: Pay is a critical tool for driving behaviours and motivating executives to focus on the factors that are of key importance to a company and investors. We think only appropriately structured and implemented compensation policies have the potential to enhance company value.

Eight common questions: Over the past several weeks, we have spoken with investors around the world about ESG pay metrics, as we discussed in our previous note ESG-linked pay: value driver or peril?, 18 January 2023. Some questions also touched on financial metrics and other compensation practices. In this report, we address eight common questions asked by investors:

  • How can executive pay be aligned with investor interests?
  • Are there any concerns about using total shareholder return (TSR) in variable pay?
  • Are front-loaded awards (mega grants) only relevant for IPOs?
  • Do ESG metrics in executive pay drive company value?
  • Are there any common market or sector-specific trends in ESG-linked pay?
  • Should the company use a health and safety/emissions/culture-related/etc metric in a CEO's pay?
  • Are malus and clawbacks only applicable in cases of material misstatement in the company's accounts?
  • Remuneration of non-executive directors in some companies seems to be much higher compared to peers within the same sector. What is the reason for that?

In our view, there is an opportunity for investors to enhance their analysis of remuneration practices. Investors should consider how executive pay is linked to a company's purpose and strategic objectives, as well as tailored to its needs and challenges. Remuneration policies should be assessed along with other governance practices to ensure alignment between director priorities and investor expectations. For more information on our governance assessment framework, see Spotting good governance...and red flags, 28 April 2022.”


ESG ratings are commonly used to evaluate risks associated with equity and fixed income securities. As financial markets wobble again this month - with some fall out felt by crypto investors - could ESG ratings be a useful tool for analysing cryptocurrencies and underlying blockchains?

Can ESG rated cryptocurrencies save the industry?

2022 was a very difficult year for cryptocurrencies. Many of the industry’s woes have been linked to a lack of faith in the market following some high profile implosions, among them FTX. More recently, the collapse of SVB has been linked to a dollar ‘de-pegging’ of USDC, previous hailed as a ‘stablecoin’. Signature Bank of New York which has also just collapsed reportedly had many crypto clients. Lack of regulation, theft from cyber-attacks and speculative sentiment driving price movements erratically have contributed to investor distrust and a devaluation of the global crypto market, which lost 63% of its value in 2022, according to CoinMarketCap. In January 2022, the cryptocurrency market was valued at more than US$2 trillion, and by the end of December it hit an all-year low of about US$800 billion. Since these implosions have largely been linked to failings of corporate governance and a lack of regulation, could cryptocurrencies rated according to environmental, social and governance (ESG) values provide some protection? Could a more ethical approach, the transparency of blockchain technology and ESG checks and balances restore credibility? ESG has been used to good effect for other asset classes, with one ESG rating agency anticipating the sub-prime financial crisis 15 years ago.[1]

The current situation

The idea behind cryptocurrencies was to have a decentralised value transfer not dictated by a government or a central authority. But community-centric guidance alone cannot replace the role of regulators to hold companies accountable. The regulatory regime for cryptocurrencies is patchy, however. Applying existing regulatory frameworks to crypto assets, or developing new ones, is challenging for several reasons. The crypto world is evolving rapidly. Regulators are struggling to acquire the talent and skills to keep pace given stretched resources and other priorities. Monitoring crypto markets is difficult because data are hard to obtain, and regulators find it impossible to keep track of the thousands of actors who may not be subject to typical disclosure or reporting requirements. This situation suggests that other tools, such as ESG ratings, could be valuable in the absence of a fully-fledged regulatory regime.

To complicate matters, terminology used to describe the many different activities, products, and stakeholders is not globally harmonised. The term “crypto asset” refers to a wide spectrum of digital products that are privately issued using similar technology and stored and traded using primarily digital wallets and exchanges. The actual or intended use of crypto assets can attract the attention of multiple domestic regulators - banks, commodities, securities, payments, among others - with different frameworks and objectives. Some regulators may prioritise consumer protection, others safety and soundness or financial integrity. There is a range of crypto actors - projects, exchanges, blockchains, investors, miners, validators, protocol developers, energy sources and intensity etc - that are not easily covered by traditional financial regulation and not easily understood by a majority of investors. Not fully understanding complex financial instruments has caused investors trouble in the past. An ESG toolkit can encompass a wide range of KPIs that can be applied across the full spectrum of the crypto asset value chain for better understanding of where there could be a risk.


Social media has an influence on cryptocurrency valuations, perhaps much more so than for other asset classes. Recent research[2] suggests consumer reviews, feedback, social media posts, or blog posts correlate with market price movements. For example, when Elon Musk added the Bitcoin hashtag to his Twitter biography, Bitcoin prices rose from 32,000 to 38,000 in a couple of hours. As the cryptocurrency market does not have a central governing authority, prices can change depending on the sentiment of the general public. According to a number of research papers, we can conclude that the usage of Twitter, the Bitcoin forum, and Reddit data have influenced the market. Reliance on social media platforms or the prevailing view may not be the best way to evaluate cryptocurrencies; history suggests that over-reliance on sentiment and a ‘herd mentality’ can be a problem for securities generally, the bubble in equities being a prime example.

Partly for that reason the market for ESG rating products has grown across other asset classes over the past twenty years. Investors want a more rounded view of the securities in which they invest, and a need to understand all the risks, and opportunities, associated with an investable instrument. For crypto, these risks and opportunities focus on climate change and business behaviour. Climate change (in the form of energy use – headlines such as ‘Bitcoin uses more electricity than Argentina’ are not uncommon) and business behaviour (in the form of governance, management quality and disclosure) are critical drivers of cryptocurrency risk. Declines in the cryptocurrency market have happened due to the absence of transparency and an over-reliance on community involvement.

How ESG rated crypto assets could help

In most jurisdictions cryptocurrencies are not legal tender. They are often regarded as having no intrinsic value. Investor Warren Buffett said at the Berkshire Hathaway annual shareholder meeting in 2022 that Bitcoin is “not a productive asset and it doesn’t produce anything tangible”. Not all investors will subscribe to this view; and not all productive assets benefit people or planet – Berkshire Hathaway has itself received a poor rating on climate investing…[3] Some projects may be developed with a sustainable purpose in mind. For example, the Blockchain for Social Impact Coalition (BSIC) is a not-for-profit organization that incubates, develops, and collaborates on blockchain products and solutions that can address social and environmental challenges across the United Nation’s Sustainable Development Goals.

Some will see crypto funds as part of a diversification strategy, especially as they become more regulated.[4] Despite recent headwinds, the number of daily transactions has gradually risen over the past two years as the chart below shows.[5] The digital currencies that make up those transactions can now be evaluated according to multiple areas of risk, including network security, energy consumption, and most importantly, safeguards against corrupt business practices and due diligence on management.

These key performance indicators can be used to generate a sustainability rating – the example below is the first of its kind, by a new firm called Greencryptoresearch, based in Switzerland. A stronger focus on ‘ESG’ seems especially important to protect crypto investors, who are largely from a young retail base and potentially vulnerable to unregulated securities. Provision of ESG ratings on crypto exchanges and trading apps might be a good start.


Disclaimer: Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by the writer to invest in cryptocurrencies or ICOs








Planet Tracker: Stressing about water footprints

The United Nations (UN) 2023 Water Conference in New York from 22 to 24 March 2023 will be the first UN Conference to focus strictly on water since 1977. It builds on the momentum generated by frameworks such as the Paris Agreement and the Global Biodiversity Framework.

Commonly traded food products consume vastly different amounts of water.

This blog examines how much water major food products require and exposes this hidden trade network. For example, cocoa beans consume 100 times as much total water as sugar crops. Beef, the most water-intensive animal derived product, consumes about 3 to 4 times more than chicken or pork.

Climate change raises concerns about those which have a larger water footprint. The world’s largest importers and exporters of these crops need to be particularly mindful of such issues. This is not just an economic matter but a humanitarian one as well.

Two of the top three food exporters are facing water stress in major crop categories such as cereals and seeds & vegetable oils. Food security issues and the associated water risk are not going away.


Planet Tracker: Red Carpet Fashion Needs to be Green

Perhaps the most discussed fashion event of the year will be the Oscars – the Academy Awards - red carpet parade on 12 March 2023, with live streamed blogs of the fashion choices on show and much discussion in subsequent press coverage.

But one of the biggest challenges facing the fashion industry in its move towards greater sustainability is changing the way we consume fashion and a red carpet outfit is often the antithesis of a sustainable fashion choice.

It could be argued that the very term fashion implies unsustainable behaviour with its emphasis on regularly changing tastes and the need to discard garments as soon as they are “out of fashion”, rather than because they are no longer fit to wear.

Fortunately, there is a growing number of broader efforts to promote more sustainable fashion choices at the academy awards, such as The Red Carpet Green Dress initiative which works with designers and actors.

We hope to see the trend towards more sustainable fashion choices on the red carpet continue and that this starts to receive as much coverage as does “best” or “worst” dressed opinion.



Planet Tracker: PepsiCo’s operating profits at high risk due to climate change and transition

Analysis from Planet Tracker shows that the food and beverage giant’s transition plan fails to align the company with its goal of a 1.5°C pathway by 2030.

  • PepsiCo is exposed to a potential financial risk of USD 4.4 billion per year, by the end of the decade, or 42% of its three-year annual operating profit.
  • Current emissions trajectory and sparse data reporting aligns the company with a 2°C warming scenario by 2030.
  • PepsiCo is on a path to miss crucial targets set by the Science-Based Targets initiative by 58%

Download the Investor Engagement Sheet


Planet Tracker: Biocrastination

The World Economic Forum’s 2023 Global Risks Report has revealed that six of the world’s top 10 risks are related to the environment.

Biodiversity loss and ecosystem collapse only ranked 18th in the upcoming 2-year period, as opposed to fourth in the 10-year period, suggesting the issue is perceived as a rising future risk rather than an immediate challenge.

Defining biodiversity loss as a future risk increases the likelihood that action will not be taken to address the serious and significant short-term threats. Waiting another 10 years for further confirmation of these negative trends is not acceptable.

The vast majority of business leaders do not see how they can effectively manage biodiversity risk. Only two countries’ corporate leaders (Chad & UK) place biodiversity loss and ecosystem collapse as a top five risk within the next two years.

Investors and lenders across the world should demand a rethink from the executives of corporates and put an end to biocrastination”.


Planet Tracker: Valuing the global food system

Planet Tracker has created an interactive dashboard to enable users to value the global food system by adjusting various valuation variables.

Planet Tracker defines the food system as commencing with input providers (e.g. agricultural chemicals and machinery) through to producers and traders, food & beverage manufacturers and distributors, and ending with the retailers, food service and waste companies.

Planet Tracker estimated the enterprise value of the global food system to be around USD 14 trillion with revenues in the region of USD 15 to 19 trillion. This is equivalent to between 16 and 20% of GDP. It’s noteworthy that up to 70% of revenues come from 0.06% of all companies. For further details please see How much is your food worth?.

The Planet Tracker Valuing the Food System dashboard provides two main valuation approaches: Scenario 1 (S1) based on the number of businesses and Scenario 2 (S2) based on the protein price (both discussed in more detail in ‘How much is your food worth?’).


Planet Tracker: EU Regulation to cause log jam in commodity flows

Financial Institutions are potentially in scope at first review

Deforestation regulation in the EU is likely to be adopted in the next 12 months requiring EU importers to confirm that cattle, cocoa, coffee, oil palm, rubber, soya, wood and derived products are deforestation-free.

China, Brazil and Indonesia are the biggest non-EU exporters of commodities covered by the Regulation and, as a percentage, are also the largest countries to be subject to the Regulation.

The impacts are likely two-fold. Firstly, this Regulation asks a major question of importing corporates as to whether they have traceability within their supply chains. Secondly, it has the potential to disrupt corporates which do not have traceability and responsible sourcing embedded within their supply chain (and it is clear that many companies exposed to this risk are unprepared to tackle deforestation).

Looking ahead, there have been calls for Financial Institutions to be included within the Regulation and this is a possibility at the first review in two years (2025). This will put further pressure on potential violators and provide recourse and liability to those funding deforestation and land use change.



Please click here to read the Blog

One indicator of the importance of a topic to investment managers is whether it features on the agenda at annual shareholder meetings.

So where does biodiversity rank? How does it compare with the climate agenda?

Recognition of biodiversity and nature-related issues is well behind climate change. In the last five years only (2018 to 2022 inclusive) there were 15 proposals which Planet Tracker classified as related to biodiversity, compared to 174 proposals to create a climate change report.

A Planet Tracker analysis shows biodiversity is rarely discussed, but we are confident that it will rise up the corporate and engagement agenda, pushed by an agreement of 188 countries at COP15 United Nations Convention on Biological Diversity in Montréal, which agreed a Global Biodiversity Framework (GBF) at the end of 2022.

Furthermore, a rise in shareholder proposals on deforestation looks inevitable following the European Council and European Parliament’s recent political agreement on a new regulation which will ban products linked to deforestation being sold within the EU.

Corporates should prepare for a rise in biodiversity shareholder proposals as investors are going to require this information in the near future.

Having recently delivered a number of ESG comms mini-audits and worked with other companies on their broader sustainable investor communications plans, I am constantly surprised by how much time companies spend on reporting (months) and on data disclosure to ESG/sustainable investors (weeks) relative to the amount of time they spend finding out who all of this reporting and disclosure is actually for (typically, somewhere between no time and a few hours).

(If a company can’t put a name and a face to the 1, 2, 3, 10 … individual analysts and portfolio managers that it believes it is communicating with, how can they know that they are communicating the right stuff rather than just the stuff that conventional wisdom, standard setters and ESG ratings agencies assume might be relevant to investors?).

How many investors & analysts actually matter to each company?  I reckon it’s 58

For all of the talk about “what INVESTORS want on sustainability”, the reality is that – for any specific company, there are a specific group of individuals at investment firms and investment research providers.  For an average company, I reckon there are 58 individuals who can be identified as the primary target audience for the sustainability information provided by companies for material investment action.

Of course, there is no such thing as an ‘average company … of average size … in an average geography … with average exposure to sustainability issues’ … which is why we encourage all companies … before embarking on their sustainable investor communications in any given year to create / update their Register of SRI Interest.

However, the generic process discussed below should help all companies progress from the scary and paralysing prospect of “what capital markets want on sustainability” to the more accessible (and real) “what Lisa from Investor A, Iason from Ratings Agency B and Juan from Data Provider C want on sustainability’.

Here is how we identify the priority 58.

(NB - all of these analysts and investors can be identified for free using the SRI-Connect Directory)

Lead (sector) analysts at current major holders (7)

The first priority group is, of course, the specialist sustainability sector analysts at any current major holders.  These are the individuals who have nominated responsibility for covering your company’s sector within the investment firms that actually hold your shares.

If we assume that ‘Top 20’ is a workable cut-off for ‘major’ holders, European and North American firms should be able to identify between 8 – 10 of these analysts.  Outside those regions, the number may drop to 4-6.  So, we’ll take 7 as an average.

Issue analysts at major holders (+2 = 9)

Some asset managers (strangely IMHO) don’t allocate coverage responsibility based on sector (as they do for ‘mainstream’ research), instead they allocate by sustainability issue.  Let’s say there are 2 such investors within each firm’s top 20.

Heads of research at major holders (+4 = 13)

Then, in some cases, a company won’t be able to identify a sector- or issue-covering specialist.  In these cases, the company will need to use the Head of SRI/ESG research as a proxy contact until they can identify the right coverage analyst.  We have added 4 to our total as an average between an expectation of 6 such analysts in EU & NAM and 2 elsewhere.

(Heads of SRI/ESG Research … please take note.  Encourage your analysts to update their sector and issue coverage on SRI-Connect via here (and/or do it on your own website).  Otherwise, you inevitably become the de facto contact point for companies).

Overall, companies should be able to identify an average of 13 specialist analysts interested in their sustainability performance.  Yep, that feels about right.

Analysts at target investors (+10 = 23)

Then, I have never met a company that does not want to expand the pool of capital available to it.  So, all firms will want to include the relevant analysts from a target group of firms.  Let’s not be greedy, let’s say a company has a target list of 20 investors and half of these have an interest in sustainability.  (Again, companies should prioritise sector specialists over issue specialists and both over ‘Heads of SRI/ESG research’.

Sustainability specialist investors (+10 = 33)

Beyond the largest institutional investors, there are about twenty investors worldwide that have developed advanced and specialist expertise in sustainable investment that differentiates them from the broader approaches being adopted by other (often larger) institutions.  Such investors used to be identifiable as those with specialist and thematic funds; then they because the pioneers of fundamental integrated analysis and are now those most enthusiastically embracing ‘sustainable economic transition’ and ‘impact’.

If a given company wants to engage with at least half of these, that adds 10 individuals to the target list.

Issue-focused thought-leading investors (+3 = 36)

Beyond this, there are typically a few opinion-leader investors who are globally-vocal about the issues facing your sector even if they don’t and may never hold your company.  Their views are part of the sustainable investment debate; you want to be part of that same debate; add them to the list.  (NB this does not mean every investor with a perspective on climate change.  Rather it means the (typically two or three) driving forces behind research or campaigns of particular relevance to your company.

Analysts at research and engagement service providers (+22 in total = 58)

  • Finally, we come to the research providers – who probably should be prioritized at roughly the same level as investors.  Certainly not more (as it’s the investors that actually buy, hold or sell companies’ shares) … but not less either (as research providers reach (with their distribution) (smaller, non-target and quants) investors that companies can’t realistically expect to reach.

From these we suggest that companies need to identify (rationale below):

  • A => 10 x lead sector analysts from ESG Ratings Agencies’
    • (3 x ‘big guns’, 3 with regional focus, 3 from the CRAs + 1)
  • B = > 5 x sustainability specialists at sell-side brokers
    • … because they produce contextualized RESEARCH (as opposed to data and ratings), integrate into valuation and have broad distribution reach (including to ‘mainstream’ investors)
  • C => 3 x analysts at credit ratings agencies
    • … for the same reasons as sell-side brokers … but in fixed income
  • D => 1 x influencers from data providers
    • … because the analysts that work for ‘insights’ teams contextualise raw data in a way that makes it usable by investors
  • E => 2 x analysts at ‘engagement service providers’
    • … where these have a particular focus on issues of relevance to your company
  • FG => 1 x analysts at ‘for impact’ or ‘grant-funded’ research providers
    • … where these have a particular focus on issues of relevance to your company
  • Grand total = 58 …

… relevant individuals at significant organisations … all of whom have names and faces and parents and likes and dislikes … but may not be called Lisa or Iason or Juan.

In short, they are human beings whose specific sustainable investment needs and priorities can be understood and met by companies.


(Much as I abhor the Trumpian (Trumpish? Trumpesque?) capitalization, it is a big ‘BUT’)

… while these 58 individuals can usefully be identified as priorities in the communications purposes, I do not for so much as one second suggest that this should be done to the exclusion of other investors or research providers.  Having identified the priorities, companies should then take steps to ensure that all sustainability information is provided equally and openly for the benefit of all investment users and that all investors and research providers to participate in an annual sustainability performance update webinar.

(Finally, please note that I don’t purport to represent what other stakeholders need.  There are lots of audiences that companies need to communicate with.  I don’t pretend to know about these audiences or what they need.  My focus is on understanding and communicating about the investment value chain.)


(Like almost all quantitative data in sustainable investment) … 58 is a meaningless number.

What is meaningful and interesting is the process by which it is generated.  Do you agree with this?  Have I missed any categories?  Have I over-prioritised some?  Do companies actually go through this process?  Do they need to?)

Discuss on SRI-C via here | Discuss via LinkedIn here

A survey of retail banking customers of Islamic banks shows wide-scale enthusiasm for sustainability and a belief that Islamic finance aligns well with the SDGs. However, the challenges posed by ESG risks and concerns about greenwashing make it increasingly urgent that Islamic banks maintain customer confidence. This should lead to an expanded focus on financing the climate transition and adaptation, and other investments that deliver ESG risk mitigation and support sustainable economic development.

  • A recent survey of retail Islamic banking customers from a range of countries found a shared interest in sustainability, even if it costs them more
  • Islamic banks will have to avoid the gap between retail customers’ priorities and corporates’ sustainability capabilities if they are to steer clear of greenwashing risks
  • Customer willingness to pay for sustainability – especially in the Global South – could help Islamic banks build their resilience to future ESG risks if they can show their impact

Retail banking consumers at Islamic banks identify strongly with their ethical promise, and that has created a customer base that values – and identifies as being willing to pay for – financial services that align with the Sustainable Development Goals. The findings, part of an Islamic Finance and the UN SDGs survey conducted by the Global Ethical Finance Initiative (GEFI), show an identification by retail Islamic banking customers with sustainability through Islamic finance, although priorities differ among customers in different part of the world.

There were differences among consumers from countries classified in the report as the ‘Global North’ (UK and Australia) when compared with the ‘Global South’ (Nigeria, Pakistan and Malaysia). Of the different issues addressed by the Sustainable Development Goals, the greatest proportion of survey participants selected ‘reducing poverty and hunger’ as an important focus.

The survey was conducted by GEFI and distributed with help from five Islamic banks in the UK, Australia, Nigeria, Pakistan and Malaysia to garner a wide range of opinions on the links between sustainability and Islamic finance. It included responses from consumers of all ages, although there were many more men (84%) than women, and by a much wider difference than the share of accounts held by each gender in the sampled countries according to the World Bank’s Global Findex database.

Digging into the details shared by GEFI in the new report, the shares of respondents from the Global North highlighting the importance of the environment & climate change, equality & justice, and sustainable economic development were about even. However, among respondents from the Global South, sustainable economic development was viewed as an important focus more frequently than the other two issues.

It’s unlikely that this means consumers there aren’t interested in equality, the environment or climate change, but they may see less of a potential trade-off between long-term outcomes and immediate opportunities from sustainable economic development, especially in the context of economic challenges experienced to varying degrees across the surveyed countries grouped as the ‘Global South’.

One indication that it is a degree of immediacy that takes precedence for consumers from the Global South is that more consumers were familiar with impact investing than were those in the Global North. Consumers in the Global South were also more willing to pay more for SDG-aligned products, and were on average willing to pay a larger premium for it than among consumers in the Global North.

One takeaway could be a continued willingness to pay a premium for Islamic finance, but with a stepped-up expectation about the degree of impact that it can deliver when compared to conventional finance. The continued growth of Islamic finance assets in US$ terms, despite the depreciation of several Islamic market currencies, would support the proposition that Islamic finance – and retail Islamic banking in particular – still has the opportunity for continued growth as a form of responsible finance.

However, another view that is consistent with the data is that many consumers of Islamic retail banks, especially those in the Global South, see Islamic banks as the closest available alternative to express their ethical and sustainability-related priorities. If this view explained some of the appeal for Islamic banks, then it could indicate both a current strength of Islamic finance and a future vulnerability.

As ESG expands to become commonplace across more of the world, there will be more options and more financial institutions providing ‘sustainable’ alternatives. This poses a challenge to Islamic banks, not on the basis of their Shariah-compliant status, but on how they demonstrate the differentiation of their contribution on important sustainability topics.

One issue that may present a risk is the prospect that Islamic banks’ appeal on sustainability is more limited when it comes to the customers to whom they provide financing than it is to retail banking customers. If Islamic banks see sustainability expectations rising from retail customers but don’t see sustainability-related financing demands coming from companies, they will need to walk a fine line in explaining the sustainability of their products over-and-above their Shariah governance processes and safeguards. At the same time, they will face commercial pressures to attract customers whose financing will support competitive deposit rates.

If the pricing advantage for SDG-aligned products among Islamic banks’ customers is as robust as the survey indicates, Islamic banks should use it to fortify their products against any questions about greenwashing. Greenwashing concerns have hit banks around the world, but Islamic banks stand more to lose because of their explicit ‘ethical’ orientation.

If Islamic banks can maintain their retail customer base while they build a range of offerings for customers who may not be as familiar with sustainability, then this could have a two-fold benefit. First, they may be able to move more aggressively than their conventional competitors, whose customers are less attached and more sensitive to price. And by moving more aggressively, they may stand to gain more of the benefit from mitigating ESG risks for their customers, which could expand on their competitive advantage without becoming reliant on a customer subsidy to them for sustainability.

Take climate change, for example. An Islamic bank, especially one in an emerging or developing country, may struggle to find ‘green’ assets to develop a climate-sustainability deposit product. However, the economy-wide risks from climate change are amplifying, and customers who are more at risk from climate-related physical or transition risks will see the risk premium they have to pay rise over time unless they make resiliency or transition investments today.

If Islamic banks can compete on adaptation or transition finance, they may end up in the future with a customer base that is otherwise similar to conventional banks but less susceptible to climate risks. In doing so, they would have shown a tangible positive outcome from a customer base held together around a shared belief in sustainability achieved through Islamic finance.

Want to learn more about responsible finance in Islamic markets & Islamic finance? Subscribe to RFI’s weekly email newsletter today!

NatWest Group: Climate Spotlight Event (30 March)

  • Date & time: Thursday 30th March 1:30 – 3:00pm followed by tea/coffee with the team
  • Venue: NatWest Conference Centre, 250 Bishopsgate, London EC2M 4AA

Event details

"Following the release of our Climate Transition Plan, Paul Thwaite (CEO Commercial & Institutional Banking) and James Close (Director, Climate Change) will host an update for investors and analysts on our progress to date and future priorities in this area.  We will then be joined by CEO Alison Rose for Q&A.

We encourage you to join in-person but a Zoom connection is also available.

This email address is being protected from spambots. You need JavaScript enabled to view it. specifying your preferred format.

Further information

  • Details of the event are also available on NatWest Group's Events & Presentations webpage.
  • For reference NatWestGroup's Climate Transition Plan is available within our Climate-related Disclosures Report.
  • For any questions, please contact the This email address is being protected from spambots. You need JavaScript enabled to view it. team on 0207 672 1758.”

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