Reality Check: Majority of Companies Fall Short on ESG Promises, Fidelity Reveals
The past week has seen a flurry of activity in the ESG space, with significant developments in the areas of ESG data and ratings, corporate sustainability claims, Scope 3 emissions disclosure, sustainability-linked bonds, and emissions targets for the shipping industry.
Regulatory Pressure Spurs ESG Data and Ratings Code of Conduct: The European Federation of Financial Analysts Societies (EFFAS) and the International Organization of Securities Commissions (IOSCO) have launched a Code of Conduct for ESG data and rating providers. The move aims to enhance transparency and reliability in ESG ratings and data, amid growing regulatory scrutiny.
Fidelity Survey Reveals ESG Claims-Actions Gap: A Fidelity analyst survey has found that 60% of companies are not matching their ESG claims with actions. The findings underscore the need for greater transparency and accountability in corporate sustainability efforts.
Scope 3 Emissions Disclosure Emerges as Key ESG Trend Sustainable Fitch has highlighted Scope 3 emissions disclosure as a key ESG trend in the short to medium term. The report notes that the lack of alignment across international standards and frameworks is complicating Scope 3 disclosure, leading to diverging approaches and potential confusion among investors and stakeholders.
Aeroporti di Roma Issues €400 Million Sustainability-Linked Bond: Aeroporti di Roma has successfully placed a €400 million sustainability-linked bond, linking the cost of debt to sustainability results. The move forms part of the company's strategy to increase the share of sustainable debt in its financial structure, which now exceeds 60%.
UN Chief Calls for Net Zero Emissions Agreement for Shipping by 2050: UN Secretary-General Antonio Guterres has urged the shipping industry to commit to net zero emissions by 2050. The call comes amid ongoing discussions at the International Maritime Organization (IMO) and resistance from China to the proposed targets.
These developments highlight the growing importance of ESG considerations in various sectors and the increasing pressure on companies and industries to align their operations with sustainability goals. As the ESG landscape continues to evolve, the need for transparency, accountability, and action in sustainability efforts is becoming ever more apparent.
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ESG Data and Ratings Providers: New Code of Conduct Unveiled Amid Regulatory Pressure
The ESG Data and Ratings Working Group (DRWG), established by the UK's Financial Conduct Authority (FCA), has introduced a draft voluntary Code of Conduct for ESG ratings and data providers. This move comes as demand for ESG services escalates and calls for regulation of these providers intensify.
The Code aims to enhance the quality and availability of information for investors, improve transparency, governance, and systems controls to boost market integrity and foster better comparability of products and providers to enhance competition in the ESG data and ratings space.
The Code's introduction coincides with growing regulatory pressure on ESG ratings and data providers, whose activities are generally not covered by markets and securities regulators.
The Code is built around six key principles, including Good Governance, Securing Quality, Conflicts of Interest, Transparency, Confidentiality, and Engagement.
The DRWG, co-chaired by M&G, Moody’s, London Stock Exchange Group (LSEG), and Slaughter and May, includes investors, ESG data and rating providers, and rated entities.
The unveiling of the draft Code of Conduct marks a significant step towards enhancing transparency and trust in the burgeoning ESG data and ratings market. Developed with international consistency in mind, the Code could play a crucial role in shaping consistent global standards for ESG ratings and data product providers. The impact of this initiative on the ESG landscape will be closely monitored.
The ESG Mirage: 60% of Companies Overstate Sustainability Actions
A recent survey by Fidelity International reveals a concerning gap between the environmental, social, and governance (ESG) claims of companies and their actual actions. The study, involving 123 in-house analysts across various teams, suggests that approximately 60% of companies may be overstating their ESG credentials.
Despite a growing trend of companies embedding ESG considerations into their operations, many are not on track to meet their sustainability goals. The survey indicates that fewer than 60% of companies are on track to achieve net-zero emissions by 2050.
Analysts estimate a decline in the number of companies expected to achieve net-zero emissions by 2030, with only 24% forecasted to reach this goal, compared to 25% last year.
The survey reveals that while 73% of analysts report their companies as responsive to ESG issues, nearly 60% believe their companies promote better ESG credentials than their actions justify. This discrepancy is particularly pronounced in the energy sector.
The Fidelity International survey underscores a critical challenge in the ESG landscape - the gap between companies' sustainability claims and their actual actions. This discrepancy highlights the need for greater transparency and accountability in corporate sustainability reporting. As ESG considerations continue to influence investment decisions, the pressure on companies to bridge this gap will likely intensify.
Scope 3 Emissions Disclosure: The Emerging ESG Trend Amid Regulatory Complexity
Sustainable Fitch, a leading credit rating agency, has identified the disclosure of Scope 3 emissions as a key ESG trend in the short to medium term. Scope 3 emissions, which are greenhouse gases emitted from a company's value chain and beyond its direct control, are becoming increasingly important in corporate sustainability reporting.
The disclosure of Scope 3 emissions is complicated due to a lack of alignment with corporate preferences across various international standards and frameworks on disclosure and climate-related financial risk. This misalignment is leading to divergent approaches.
The regulatory landscape regarding Scope 3 emissions disclosure is still evolving and varies across jurisdictions, standards, and sectors. Most climate disclosure-related regulations refer to the Task Force on Climate-related Financial Disclosures (TCFD), which recommends all organizations consider disclosing Scope 3 emissions.
The most common regulatory approach mandates Scope 3 emissions disclosure under certain conditions, such as a materiality assessment. However, without clear guidance on how to assess the materiality of the 15 categories of Scope 3 emissions, this could lead to confusion among investors and other stakeholders.
The increasing focus on Scope 3 emissions disclosure represents a significant shift in ESG trends. However, the lack of clear guidance and regulatory alignment poses challenges for companies and investors alike. As the regulatory landscape continues to evolve, the need for standardized and transparent Scope 3 emissions reporting becomes more pressing. The impact of these developments on corporate sustainability practices and investor decision-making will be closely watched.
Aeroporti di Roma's Leap into Sustainable Finance with €400M Bond
Aeroporti di Roma (ADR) has successfully issued a €400 million sustainability-linked bond, linking the cost of debt to actual sustainability outcomes. This 10-year operation is aimed at institutional investors and marks ADR's continued commitment to sustainable development.
This bond issuance follows ADR's 2021 sustainability-linked bond and its inaugural Green Bond in 2020, pushing its "sustainable" debt to over 60%.
The bond links the cost of debt to specific sustainability targets (SPTs) related to both direct and indirect CO2 emissions, and the maintenance of ACA4+ certification.
The bond issue will be listed on the Irish Stock Exchange and is expected to be rated in line with ADR's current ratings.
In case of failure to achieve one or more SPTs, a step-up on the coupon is envisaged starting from the coupon payable in July 2031 and up to maturity.
ADR's issuance of a €400 million sustainability-linked bond underscores its commitment to sustainable finance and development. This move not only optimizes ADR's financial structure but also enhances the weight of sustainable finance in its total sources of financing. The success of this bond issuance could inspire other organizations to adopt similar sustainable finance strategies.
UN Secretary-General Advocates for Zero Emissions in Shipping by 2050
United Nations Secretary-General Antonio Guterres has urged for a consensus to achieve net-zero greenhouse gas emissions in the shipping sector by 2050. This call was made during crucial shipping discussions held in London.
Shipping, responsible for nearly 3% of the world's carbon dioxide emissions and 90% of global trade, is under pressure to take definitive action, including implementing a carbon levy.
Guterres emphasized the need for ambitious science-based targets starting in 2030, focusing on absolute emissions reductions and the use of clean fuels.
The International Maritime Organization (IMO), a UN agency, is currently discussing an upgraded greenhouse gas emissions strategy, including proposals for a global carbon dioxide emissions levy on shipping.
Despite resistance from China, Guterres insisted that such targets would provide the certainty the industry and investors needed.
The call by the UN Secretary-General for net-zero emissions in the shipping sector by 2050 is a significant step towards global decarbonization. However, the success of this initiative hinges on the consensus of member countries and their commitment to implementing stringent emissions reduction strategies. The outcome of these discussions could set a precedent for other sectors and significantly impact global efforts to combat climate change.