ESG Fund Launches Hit a Low Point amid European Regulatory Challenges and Greenwashing Scrutiny
Weekly ESG Policy Roundup: Challenges and Progress in Sustainability, Climate, and Finance
This week's ESG policy roundup covers a range of developments from addressing the ESG reporting crisis to the launch of ambitious clean energy strategies and regulatory moves in both the US and EU.
ESG Reporting Crisis: A Deloitte survey highlights a potential ESG reporting crisis, with less than half of professionals trusting their organizations' ability to report on ESG financial metrics.
Apollo's $4B Clean Energy Transition Strategy: Apollo has unveiled a $4 billion investment strategy, Apollo Clean Transition Capital (ACT Capital), aimed at financing companies transitioning to clean energy and sustainable industries.
US DOE Launches Energy Savings Hub: The US Department of Energy has launched the Energy Savings Hub, an online platform designed to help American families access clean energy tax credits, rebates, and tools to reduce energy costs.
EU Targets Methane Emissions in the Energy Sector: The European Parliament's Environment and Industry Committees have adopted new legislation focused on reducing methane emissions in the energy sector.
ESG Fund Launches Slow amid European Regulatory Uncertainty: A Morningstar report reveals a sharp decline in new sustainable fund launches in Q1 2023, primarily due to regulatory uncertainty and greenwashing concerns in Europe.
This week's ESG policy developments emphasize the importance of addressing challenges in ESG reporting, promoting clean energy transition strategies, and adapting to evolving regulatory environments. These initiatives highlight the ongoing efforts by governments, investment managers, and organizations to advance sustainability, climate action, and responsible finance.
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ESG Reporting Crisis: Professionals Doubt Organizations' Capabilities
A recent Deloitte survey reveals that less than half of professionals trust their organizations' finance teams to effectively report on environmental, social, and governance (ESG) financial metrics, signalling a potential ESG reporting crisis amidst increasing regulatory requirements.
Data collection and staffing shortages are cited as the main challenges for ESG reporting, with 26.3% of professionals identifying data collection as the greatest challenge, followed by a 17.6% citing staff shortages in ESG expertise.
Despite the benefits of dedicated ESG professionals, less than one in five organizations (16.4%) have an ESG controller, while 41.6% have no plans to hire one, and only 7.2% plan to add such a position in the next year.
Confidence in ESG reporting capabilities increases significantly if organizations have dedicated ESG staff or finance teams involved in ESG matters; 75.5% confidence is reported with an ESG Controller in place, and 60.7% confidence when finance teams have some influence on ESG matters, compared to 27.2% confidence without such involvement.
As organizations face mounting pressure to meet increasingly stringent ESG disclosure requirements across jurisdictions, the lack of confidence in ESG reporting capabilities is concerning. To address this issue, organizations must invest in dedicated ESG professionals, involve finance teams in ESG matters, and focus on building a solid foundation for data sourcing, cleaning, and assurance to support successful and confident reporting.
Apollo Unveils $4B Strategy for Clean Energy Transition
Global alternative investment manager Apollo has announced the launch of Apollo Clean Transition Capital (ACT Capital), a $4 billion investment strategy designed to finance companies transitioning to clean energy and sustainable industries.
ACT Capital aims to provide "competitive, flexible, and patient financing" through yield and hybrid investments, targeting opportunities in energy transition, industrial decarbonization, sustainable mobility, sustainable resource use, and sustainable real estate.
The launch follows Apollo's establishment of a sustainable investing platform last year, with a goal to deploy $50 billion in clean energy and climate capital by 2027 and over $100 billion by 2030.
To date, Apollo's sustainable investing platform has deployed more than $6 billion, and the new ACT Capital strategy will work in conjunction with other strategies to support the achievement of the 2027 target.
Apollo's ACT Capital aims to address the significant gaps in the capital markets for climate and transition financing. By deploying capital at scale across various sectors and strategies, the investment manager seeks to offer attractive, diversified exposure to the urgent challenge of combating climate change while meeting the underserved needs of both investors and industry participants.
US DOE Unveils Energy Savings Hub to Boost Clean Energy Adoption
The US Department of Energy (DOE) has launched the Energy Savings Hub, an online platform designed to help American families and consumers access clean energy tax credits, rebates, and tools to reduce energy costs, as part of President Biden's Investing in America agenda.
The Energy Savings Hub (Energy.gov/Save) offers information on clean energy incentives for homeowners, renters, and drivers, aiming to make cleaner and more efficient options easily accessible.
The Inflation Reduction Act, signed by President Biden in 2022, includes $391 billion to support clean energy and address climate change, with $8.8 billion in rebates for home energy efficiency and electrification projects.
The DOE estimates that the home energy efficiency and electrification consumer rebates will save households up to $1 billion annually, contributing to the US goal of reducing economy-wide greenhouse gas emissions to 40% below 2005 levels by 2030.
The launch of the Energy Savings Hub signifies the US government's commitment to promoting clean energy adoption and helping consumers access incentives under President Biden's Investing in America agenda. By providing a comprehensive and easy-to-use resource, the hub aims to empower American households to make informed decisions about clean energy technologies, thereby driving the nation towards its ambitious emissions reduction goals.
EU Moves to Aggressively Tackle Methane Emissions from Energy Sector
The European Parliament's Environment and Industry Committees have adopted a new legislation focused on reducing methane emissions in the energy sector to achieve EU climate goals and improve air quality.
The legislation, which received 114 votes in favour, covers direct methane emissions from the oil, fossil gas, coal, and biomethane sectors, and also includes the petrochemicals sector.
MEPs call for a binding 2030 reduction target for EU methane emissions to be proposed by the end of 2025, with national reduction targets set by member states in their integrated national energy and climate plans.
The new rules would require operators to submit a methane leak detection and repair program and strengthen obligations to repair leaks, as well as ban venting and flaring of methane by specific dates.
Importers of coal, oil, and gas will need to demonstrate compliance with the regulation, as imports account for over 80% of oil and gas consumed in the EU.
The adoption of the new legislation marks a significant step towards achieving EU climate goals and reducing methane emissions, which contribute to about a third of current global warming. By targeting the energy sector and establishing ambitious targets and stricter measures, the EU is demonstrating its commitment to combating climate change and promoting energy sovereignty.
ESG Fund Launches Plunge amid European Regulatory Uncertainty
A Morningstar report reveals a sharp decline in new sustainable fund launches in the first quarter of 2023, primarily due to regulatory uncertainty and greenwashing concerns in Europe.
With only 113 new sustainable funds launched worldwide, Q1 2023 saw the weakest quarter since at least 2020, after consistently exceeding 200 new launches per quarter since mid-2020.
The decline is partly attributed to market sentiment dampened by a challenging macroeconomic backdrop, greenwashing accusations, and the evolving regulatory environment.
Investment managers have been rebranding their sustainable funds in Europe following EU regulators' attempts to clarify the application of new regulations aimed at addressing misleading sustainability claims.
Global sustainable fund flows reached $2.74 trillion at the end of March 2023, after net inflows of $29 billion in Q1 2023, down from $38 billion in Q4 2022.
The slowdown in ESG fund launches, particularly in Europe, highlights the impact of regulatory uncertainties and concerns over greenwashing on the market. As the regulatory environment evolves and investors become more discerning about sustainability claims, it remains crucial for the industry to establish clear guidelines and maintain transparency to regain investor confidence and promote responsible investments.