Mastercard’s will use only recycled or bio-based materials for its cards by 2025

Welcome to this week’s ESG policy roundup. A home to find out some of the week’s headlines in the ESG world. This week saw several developments in the field of environmental, social and governance (ESG) policy and regulation, both at the global and regional levels. Here are some of the highlights:

• The International Sustainability Standards Board (ISSB) announced that it will give companies an extra year to comply with its general sustainability reporting standards, which are expected to be finalized by November 2023.  

• Mastercard, one of the world’s largest payment networks, announced that it will eliminate first-use plastics from its cards by 2025. The company said that it will use recycled or bio-based materials instead, and that it will work with its partners to ensure that the new cards are compatible with existing payment infrastructure.

• The Nigeria Sovereign Investment Authority (NSIA) and Vitol, a global energy and commodities company, agreed to invest $50 million in carbon removal and offsetting projects in Nigeria.

• Citi, one of the leading global banks, launched a new sustainable time deposit solution for its U.S. institutional clients. The solution allows clients to link their deposits to ESG-themed projects or initiatives, such as renewable energy, green buildings, affordable housing, or financial inclusion.

• A report by ESG Investor, a media platform for sustainable finance professionals, revealed that ESG ratings agencies have increased their downgrades of companies’ ESG performance in 2022, reflecting the growing scrutiny and expectations from investors and regulators.  

These are some of the most important ESG policy and regulation news from this week. Stay tuned for more updates on how ESG is shaping the world of finance and business.

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ISSB Extends Reporting Deadline for Sustainability Risks, Allowing Focus on Climate Disclosure

The International Sustainability Standards Board (ISSB) has announced that companies reporting under the newly developed climate disclosure standards will have an additional year to provide disclosure on some sustainability-related risks. This move is intended to enable companies to first focus on climate-related reporting. The new transitional relief follows ISSB's earlier announcement that companies would be given an extra year to report on Scope 3 emissions.

• The ISSB was launched in November 2021 at the COP26 climate conference, aiming to develop IFRS Sustainability Disclosure Standards to create a global baseline of disclosure requirements. The board released the first exposure drafts for its first two reporting standards, covering general requirements for sustainability-related financial information and climate-related disclosures, in March 2022. The new standards will be effective as of January 2024, with companies starting to issue disclosures against the standards in 2025.

• The ISSB said that investors have indicated that disclosures about climate-related risks and opportunities are the most urgent. Therefore, companies using the new standards will be required to report on climate-related risks and opportunities in the first year of reporting but will have an extra year to provide disclosure on other sustainability-related risks. They will also have to provide annual sustainability-related disclosures simultaneously with related financial statements, disclose Scope 3 emissions or measure emissions using the Green House Gas Protocol.

• At its meeting, the ISSB also decided to give an extra year to companies reporting on climate-related risks and opportunities to provide comparative information on their sustainability-related risks and opportunities beyond climate.

Emmanuel Faber, Chair of the ISSB, said the transitional relief ensured companies could initially focus on the quality of climate-related information. The move is expected to help meet investors' information needs urgently while also providing consistent and comprehensive sustainability-related information across all risks and opportunities.

Mastercard Makes Bold Commitment to Eliminate PVC Plastics from Payment Cards

Mastercard, the global payment technology company, has announced that it will remove first-use PVC plastics from payment cards on its network, with a new rule requiring all newly produced Mastercard plastic payment cards be made from more sustainable materials, such as recycled or bio-sourced plastics, by 2028. The company has also pledged to support its global issuing partners in the transition away from first-use plastics.

• Under the new rules, all newly made cards on the network will have their composition and sustainability claims certified by Mastercard, with certification then validated by an independent third-party auditor. Mastercard launched an Eco-Certification (CEC) scheme in 2021, which applies a badge that identifies cards made from sustainable materials such as recyclable, recycled, bio-sourced, chlorine-free, degradable, or ocean plastics.

• Mastercard's Ajay Bhalla, President of Cyber & Intelligence, said that as customers respond to increased consumer desire to make more eco-friendly choices, the company is making a firm commitment to reducing its environmental footprint for the benefit of people, planet, and inclusive growth.

• This announcement marks the latest in a series of sustainability-related initiatives at Mastercard, including environmental sustainability efforts. The company established its ESG efforts over ten years ago, initially focused on areas such as financial inclusion, inclusive growth, and data responsibility. In recent years, Mastercard has expanded its initiatives to include environmental sustainability, setting a net-zero target in 2021 and launching the Priceless Planet Coalition to contribute to the goal of restoring 100 million trees by 2025.

Mastercard is committed to advancing climate action and reducing waste by driving its business toward net-zero emissions and leveraging its network and scale to accelerate the transition to a low-carbon, regenerative economy. This move is expected to help meet the increased consumer demand for eco-friendly choices while reducing the company's environmental impact.

Nigeria Sovereign Investment Authority and Vitol Pledge $50 Million for Carbon Removal Projects

The Nigeria Sovereign Investment Authority (NSIA), Nigeria's sovereign wealth fund, and energy trading company Vitol have announced a joint venture agreement to invest in a range of carbon avoidance and removal projects. The partners are finalizing the first investment decision for a household energy efficiency programme, including clean cooking and water filtration devices.

• The initiative will begin with an initial investment of $50 million and will focus on the infrastructure, agriculture, and energy sectors. The NSIA and Vitol aim to attract new investors as they develop the project pipeline, mobilizing capital from funding partners to the voluntary carbon market in support of Nigeria's efforts toward a more equitable energy transition for Africa.

• The carbon removal projects will combine carbon offsetting with social outcomes contributing to the attainment of UN Sustainable Development Goals. The household energy efficiency programme aims to deploy up to 200,000 clean cooking and water filtration devices, reducing wood fuel consumption and related greenhouse gas emissions while saving communities money and time.

• NSIA's Managing Director and CEO, Aminu Umar-Sadiq, said that without incremental steps to address fundamental issues like water security and household energy access and consumption, achieving Nigeria's Energy Transition Plan goals may remain unrealized and further exacerbate climate risks. Michael Curran, Vitol's Head of Environmental Products, said that the JV would ensure social benefits alongside the highest carbon offsetting standards, contributing toward the UN Sustainable Development Goals, and meeting the Paris Climate Agreement objectives.

This partnership marks a significant step toward a more sustainable and equitable energy transition for Africa, highlighting the potential of mobilizing capital from funding partners to the voluntary carbon market to support sustainable development goals.

Citi Unveils Sustainable Time Deposit Solution to Help U.S. Institutional Clients Meet Sustainability Goals

Citi has announced the launch of a new sustainable time deposit solution to support U.S. institutional clients in investing excess cash while meeting their sustainability goals. The Sustainable Time Deposit solution will deliver competitive yields and expand the program launched in Europe, the Middle East, and Asia last year.

• The solution supports green and social bond frameworks projects identified under Citi's initiatives. The funds deposited into Sustainable TDs are allocated toward financing or refinancing assets in a portfolio of eligible green and/or social finance projects, including renewable energy, energy efficiency, water quality, conservation, and social projects.

• The Sustainable Time Deposit also enables the funds to be allocated to affordable housing projects in the U.S., including the construction, rehabilitation, and preservation of housing for low and moderate-income populations.

• Stephen Randall, Global Head of Liquidity Management Services, Treasury and Trade Solutions, Citi, said that the new solution reflects Citi's commitment to providing tools that help clients reach their sustainability goals with their organizations and communities. Citi's frameworks for sustainable investments align with the recommendation of the International Capital Market Association's Green Bond Principles and Social Bond Principles.

Citi's Sustainable Time Deposit solution is available in the U.S., U.K., Ireland, Abu Dhabi, Hong Kong, and Singapore, and the company is working to expand this capability to additional countries. The expansion of Citi's sustainable product suite is an essential step toward providing comprehensive sustainable cash management solutions to clients. This new solution highlights Citi's efforts to support sustainable development, and the partnership between finance and treasury teams to support organizations in achieving their ESG goals.

ESG Ratings: Facing the Challenges of Declining Confidence and Upcoming Downgrades

• ESG Ratings Face Uphill Battle Despite Downgrades, as report by think tank ERM finds moderate investor confidence in ESG rating products. ESG rating agencies are at a crossroads, as regulators in the UK and Europe consult on tougher rules for the industry, and MSCI prepares to downgrade the ESG ratings of thousands of exchange-traded funds (ETFs).

• Investors' discontent and confusion persists in the market as black box rating methodologies and questionable data accuracy are concerns. The recent report, Rate the Raters 2023, published by think tank ERM found that investor use of ESG rating products was growing, with 43% of investment professionals saying they were required by their employer to integrate ESG ratings and data into their investment strategies compared with just 12% in 2018/19.

• Meanwhile, MSCI is set to downgrade 31,000 ETFs from their existing ‘AA’ or ‘AAA’ ESG rating after consultation with clients on changing its methodology. The proposed shake-up will see the number of ETFs with an ‘AAA’ score plummet from 19.1% of the market to just 0.2%, and ‘AA’ from 32.8% to 22.4%, according to an MSCI note.

• Innovation and progress are being made in the market, however, as EcoVadis believes investment houses need external ESG ratings to provide an independent and objective evaluation alongside their in-house ratings. The UK government recently announced a consultation on regulating ESG ratings agencies as part of its new Green Finance Strategy.

The proposed regulations include forcing ESG raters to be transparent about their methodologies, governance, and processes. ESG ratings are gaining prominence as there is increasing pressure from investors, public opinion as well as regulators for companies to move towards sustainability practices.