EU Commission's be Regulating ESG Ratings and Expanding Taxonomy for a Sustainable Future

This week in ESG policy, we saw significant strides in sustainable finance, decarbonization efforts, and sustainable investment data solutions. From the European Commission's proposed regulations for ESG ratings providers to BlackRock's innovative "Brown to Green Materials Fund", the global commitment towards a sustainable future is evident.

• EU Commission's Regulatory Push for ESG Transparency: The European Commission proposed a regulation to supervise ESG ratings providers, ensuring the quality and reliability of their services. The proposal is part of a broader sustainable finance framework aimed at achieving the European Green Deal's ambitions. The Commission estimates that achieving these goals will require investments of around €700 billion per year, primarily from private funding. The regulation of ESG ratings providers is a significant step towards enhancing transparency in the ESG sector.

• Decarbonizing the Steel Industry: A Green Partnership: Rio Tinto and China Baowu, the world's largest iron ore producer and steelmaker respectively, announced a partnership aimed at decarbonizing the steel value chain. The partnership will focus on projects in China and Australia, including an electric melter at one of Baowu's steel mills in China for low carbon steelmaking. This partnership signifies a significant step towards the decarbonization of the steel industry, setting a precedent for the global steel industry.

• EU Commission Eases Sustainability Reporting Rules: The European Commission proposed changes to the European Sustainability Reporting Standards (ESRS), aimed at easing the burden on smaller companies and first-time reporters. The proposed changes include extended phase-in times for key sustainability factors and rules enabling all companies to focus specifically on material sustainability factors. The changes aim to balance compliance requirements and materiality in sustainability reporting.

• BlackRock's Brown to Green Materials Fund: BlackRock launched the "Brown to Green Materials Fund", targeting undervalued carbon-intensive companies that produce the raw materials and products driving the energy transition. The fund focuses on industries such as metals and mining, cement, and construction, which collectively produce over 17% of global greenhouse gas emissions. The launch of this fund is a significant step towards promoting the greening of the materials sector.

• J.P. Morgan's Sustainable Investment Data Solutions: J.P. Morgan Securities Services launched its Sustainable Investment Data Solutions for institutional investors. The solution leverages technology-enabled normalization, management, calculation, and screening capabilities to handle sustainable investment data. The launch of this solution signifies a significant step towards enhancing the sustainable investment process.

This week's developments highlight the global commitment to sustainable practices and the importance of transparency, collaboration, and innovation in achieving sustainability goals. As we move forward, these initiatives set the stage for a more sustainable and resilient future.

 

EU Commission Proposes Regulation of ESG Ratings Providers: A Step Towards Transparency

The European Commission has released a series of measures to strengthen its sustainable finance framework, including a proposal to regulate ESG ratings providers and introducing new criteria for sustainable economic activities under the EU Taxonomy.

• The sustainable finance framework aims to facilitate capital flow needed to finance the EU’s sustainability goals, including the European Green Deal's ambitions such as reducing net greenhouse gas emissions by at least 55% by 2030 and achieving climate neutrality by 2050.

• The EU Commission estimates that achieving the objectives of the Green Deal will require investments of around €700 billion per year, with the majority coming from private funding.

• The new proposals will supervise ESG ratings providers through ESMA to ensure the quality and reliability of their services. Providers will be required to use methodologies that are “rigorous, systematic, objective and subject to validation.”

• The EU Taxonomy, a classification system enabling the categorization of economic activities contributing to defined environmental objectives, has been expanded to include objectives such as sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystem.

The EU Commission's proposal to regulate ESG ratings providers is a significant move towards enhancing transparency and reliability in the ESG sector. The expansion of the EU Taxonomy further underscores the EU's commitment to a comprehensive and robust sustainable finance framework. The impact of these measures will be closely watched by stakeholders in the ESG landscape.

Decarbonizing Steel: World's Largest Steelmaker and Iron Ore Producer Forge a Green Partnership

Rio Tinto and China Baowu, the world's largest iron ore producer and steelmaker respectively, have announced a partnership aimed at decarbonizing the steel value chain, a sector responsible for 7%-9% of direct emissions from global fossil fuel use.

• The partnership will focus on projects in China and Australia, including an electric melter at one of Baowu's steel mills in China for low carbon steelmaking using Direct Reduced Iron (DRI) produced from low and medium grade ores.

• The collaboration will also optimize pelletisation technology for Australian ores as a feedstock for low-carbon shaft furnace-based direct reduction and expand the development of China Baowu's HyCROF technology aimed at mitigating carbon emissions from blast furnaces.

• The companies will study opportunities to produce low carbon iron in Western Australia, following the launch of a $2 billion joint venture in September 2022 to develop the Western Range iron ore project in the Pilbara, Western Australia.

This partnership between Rio Tinto and China Baowu signifies a significant step towards the decarbonization of the steel industry. By focusing on low-carbon technologies and practices, these industry giants are not only addressing their environmental impact but also setting a precedent for the global steel industry. The success of this partnership could potentially influence other sectors to follow suit, contributing to the global transition to a low-carbon economy.

 

EU Commission Proposes Easing Sustainability Reporting Rules: A Balance of Compliance and Materiality

The European Commission has proposed changes to the European Sustainability Reporting Standards (ESRS), aimed at easing the burden on smaller companies and first-time reporters. These changes are part of the upcoming Corporate Sustainable Reporting Directive (CSRD), which will significantly expand the number of companies required to provide sustainability disclosures.

• The proposed changes include extended phase-in times for key sustainability factors such as Scope 3 value chain emissions, and rules enabling all companies to focus specifically on material sustainability factors.

• The CSRD, set to apply from 2024, will expand the number of companies required to provide sustainability disclosures to over 50,000 from around 12,000 currently, introducing more detailed reporting requirements on company impacts on the environment, human rights, and social standards.

• The EU Commission's delegated act follows the European Financial Reporting Advisory Group's (EFRAG) submission of an ESRS draft in November 2022. The Commission's update considers the feedback from regulators, member state sustainable finance groups, and stakeholders.

• To ease the reporting burden for smaller companies, the Commission's proposal allows companies with fewer than 750 employees in the first year that they apply the standards to omit certain data. For all companies, the draft proposes allowing an extra year to disclose information on anticipated financial effects related to non-climate environmental issues.

The EU Commission's proposal to ease sustainability reporting rules is a significant move towards balancing compliance requirements and materiality in sustainability reporting. While the changes aim to reduce the burden on smaller companies and first-time reporters, they also underscore the importance of materiality in sustainability reporting. The impact of these changes will be closely watched by stakeholders in the ESG landscape.

BlackRock's Innovative Move: Launching 'Brown to Green Materials Fund

BlackRock, the world's largest asset manager, has launched the "Brown to Green Materials Fund". This fund aims to target undervalued carbon-intensive companies that produce the raw materials and products driving the energy transition.

• The fund focuses on industries such as metals and mining, cement, and construction, which collectively produce over 17% of global greenhouse gas emissions. These sectors are under increasing scrutiny from investors for their decarbonization efforts.

• BlackRock anticipates that the growing demand for lithium, copper, and other metals critical to the green energy transition will benefit the earnings growth of companies throughout the supply chain, especially if the adoption of lower carbon technologies exceeds expectations.

• The fund manager screened the MSCI’s All-Country World Index for the world’s highest emitting companies that are likely to see rising demand because of the transition over the next 10-20 years. The selected companies have the technology and finances to implement changes in a realistic timeframe.

BlackRock's launch of the "Brown to Green Materials Fund" is a significant step towards promoting the greening of the materials sector. By targeting companies with the potential to transition towards lower carbon technologies, BlackRock is not only driving investment towards sustainable practices but also setting a precedent for other asset managers to follow. The success of this fund could potentially influence the broader investment landscape, contributing to the global transition to a low-carbon economy.

J.P. Morgan Unveils Sustainable Investment Data Solutions for Institutional Investors

J.P. Morgan Securities Services has launched its Sustainable Investment Data Solutions for institutional investors, a new offering available through Fusion by J.P. Morgan. This solution is designed to help investors extract value from sustainable investment data provided by various providers.

• The solution leverages technology-enabled normalization, management, calculation, and screening capabilities to handle sustainable investment data.

• J.P. Morgan has partnered with leading data providers including Bloomberg, Equileap, FactSet, ISS ESG, MSCI, RepRisk, Revelio Labs, S&P Global, and Sustainalytics. This collaboration aims to reimagine the sustainable investment process, offering investors quick and seamless access to normalized data across providers.

• The solution also offers investors the flexibility to manage, screen, and create customized metrics with easy-to-use tools. This accelerates the ability for investors to perform analysis, scoring, stock-selection, compliance monitoring, and reporting.

• Key capabilities of the solution include data consistency, multi-hierarchy support, custom screening criteria, and metric calculation.

The launch of J.P. Morgan's Sustainable Investment Data Solutions signifies a significant step towards enhancing the sustainable investment process. By providing a platform that simplifies the extraction of value from sustainable investment data, J.P. Morgan is not only streamlining the investment process but also promoting sustainable investment practices. The success of this solution could potentially influence the broader investment landscape, contributing to the global transition to sustainable investing.