The sustainability revolution keeps spreading into new places. Even to ski mountains. Last week I visited Jiminy Peak resort in the US Berkshires region that is dotted with wind turbines. The resort has happily been using some of that energy to power its ski lifts for several years. This year it is proudly proclaiming its energy sources to be 100 per cent renewable, and it has apparently cut its operating costs as a result.
Will others follow? Not yet, it seems; Moral Money could not uncover any other wind-powered resorts. (Please email us if you know of any.) But that could change as the cost of turbines declines — particularly since US president Joe Biden gave his blessing to wind power this week.
And if you need another sign of how sustainability is reaching new corners, today’s newsletter also explains how new accounting and reporting developments might create more clarity and consistency for ESG standards. No, that is not as photogenic or thrilling a topic as wind-powered ski lifts; but it matters far more, given the slushy mess of ESG reporting right now. (Gillian Tett)
Beginning today, investment managers in Europe claiming to be green must also include new, black-and-white disclosures.
The Sustainable Finance Disclosure Regulation (SFDR), which comes into effect today, requires financial companies and big investors to disclose the risk they face from environmental, social and governance (ESG) issues — such as climate change and human rights — as well as how their investments impact these same issues (a concept known as “double materiality”).
This regulation is a big part of the EU’s plan to promote responsible investing, and is likely to have a ripple effect that extends far beyond the continent. But there is still one big problem that needs to be solved.
To make these disclosures, asset managers need data from companies — and as long as there is an “alphabet soup” of different ESG standard setters, companies will not have a clear picture of what they should report or how they should report it.
There are some encouraging signs that this may soon change, however.
This week, the IFRS Foundation (the influential non-profit group that oversees the International Accounting Standards Board) indicated that it was on track to launch its long-awaited “sustainability standards board” in conjunction with the UN’s COP26 climate summit. This project is expected to provide a gold standard for ESG reporting.
After reviewing more than 500 comments from market participants, the IFRS said it intended to create a blueprint for corporate climate reporting that builds on the work done by the Task Force on Climate-related Financial Disclosures and the framework provided by the Sustainability Accounting Standards Board, Global Reporting Initiative, CDP and Climate Disclosure Standards Board.
There is still a long way to go, but Larry Bradley, global head of audit at KPMG, believes the IFRS initiative could be the “unifying force” that finally makes universal ESG standards a reality. The IFRS’s plan also won an endorsement from the International Organization of Securities Commissions, which represents most of the world’s largest securities regulators, including the US Securities and Exchange Commission.
There was one more big sustainability disclosure announcement this week: the European Financial Reporting Advisory Group (EFRAG) published recommendations for the European Commission’s non-financial reporting directive (NFRD), outlining what information companies must disclose beyond traditional assets, liabilities and balance sheet data.
If implemented, the recommendations could “put forward a vision for future sustainability reporting in the EU”, said Mairead McGuinness, European commissioner for financial services, financial stability and capital markets union.
As ever, there will be devils in the detail — and (brace yourself) the acronyms are complex. The IFRS and European Commission have both indicated they intend to work together (the last thing the market needs is another set of competing standards). But it may not be simple.
One big difference between the two is that the IFRS is planning to start with climate disclosures, and the European Commission is looking across the full spectrum of ESG.
The more detailed disclosures required by SFDR are set to become mandatory in January 2022, (Check out the FT’s preview of the rule — and a handy timeline). And it seems unlikely that either the IFRS’s plan or the NFRD update will be in place in time to alleviate the pain coming for the investment industry.
But for investors who have got used to scrounging for ESG information, the days of wading through the miasma of ESG’s alphabet soup may soon come to an end. (Billy Nauman and Patrick Temple-West)
As Europe unveils new rules to combat greenwashing, 35 big investors have come together to establish what it means for asset managers to make net-zero carbon emission pledges.
This morning, the group of investors, which includes BlackRock, Aberdeen Standard Investments, Pimco and others, debuted a blueprint to decarbonise portfolios in a way that is consistent with 1.5C net-zero emissions.
The plan calls for portfolio construction to favour investing in climate solutions, tougher engagement with companies about their carbon emissions and selective divestment. The engagement component includes publishing voting records and a rationale for deviating from a policy. For corporate bonds, investors should secure agreements with companies so that sustainability-link debt criteria are met during the lifetime of the bond.
While the framework creates its own reporting standard, investors using the guidelines are encouraged to disclose their targets, and report annually on progress towards these targets.
The investors’ plan comes as companies are grappling with how to make authentic carbon reduction commitments.
Wells Fargo on Monday became the sixth of the largest US banks to unveil a net-zero climate pledge. The San Francisco bank said it would disclose its approach to measuring scope 3 financed emissions within a year, but did not include explicit details about how it cut its financed emissions — a move that appears to allow the bank to continue financing fossil fuels, the Sierra Club said.
“We will be looking to Wells Fargo to fill in the details of its climate plans by setting interim targets and transparently reporting progress toward those goals,” shareholder advocacy group As You Sow said. (Patrick Temple-West)
Nikkei’s Tamami Shimizuishi helps you stay up to date on stories you may have missed from the eastern hemisphere.
Ten years ago, on March 11 2011, a magnitude 9.0 earthquake and subsequent tsunami hit Japan’s north-east coast, leaving more than 20,000 people dead or missing — and in the initial disaster’s wake came the prolonged effects of the Fukushima nuclear meltdown.
The anniversary has triggered a new round of debates about whether Japan should keep nuclear as a key energy source.
Globally, nuclear energy has been in the spotlight as a great alternative to high emission power sources such as coal and oil. Bill Gates argues that nuclear power could be a safer, greener and more economical energy source with innovations. China included a nuclear capacity increase in a new five-year plan to achieve its net-zero target by 2060.
But public confidence in nuclear power remains low in Japan, despite a push from businesses and industry groups to maintain investment in the sector.
A poll shows that nearly 70 per cent of respondents want fewer or no nuclear plants in Japan. Most of the country’s nuclear power plants have remained shut since the earthquake due to local opposition and strict regulations.
“How can we push [nuclear power] after observing such a horrible disaster,” former prime minister Junichiro Koizumi said in a rare joint press conference with another former prime minister Naoto Kan.
Kan raised a concern on the problem of nuclear waste. Koizumi’s son, Shinjiro Koizumi, is a current environment minister.
How should ESG investors approach the matter of nuclear power — which has a high potential in the field of “E”, but is controversial regarding “S”? If you have any thoughts, please send them to us at
The FT has launched a new series about hydrogen fuel and its efficacy as a tool to combat global warming. Hydrogen has had its moment in the limelight before, but can the fuel be scaled up to contribute a meaningful source of fuel?
Many companies and investors say they try to “do well by doing good”. As a reminder that many still fall short, here’s a little grit in the ESG oyster.
Stephen Morris, the FT’s Banking Editor, had a great piece this weekend on how Standard Chartered was struggling to reconcile its values with its business in China.
As one StanChart insider put it:
The issue has sparked a series of internal debates for the bank, but so far there has been little resolution.