Reporting: Council gives final green light to CSRD
The EU Council has given its final approval to the Corporate Sustainability Reporting Directive (CSRD) regarding the establishment of new rules intended to increase companies’ accountability, prevent divergent sustainability standards, and facilitate the transition to a sustainable economy.
The new rules require companies to indicate the impact of their business model on their sustainability, and the influence of external attributes – such as climate change or human rights issues – on their activities. This, in essence, amounts to a double materiality requirement.
The Directive will be applicable to all large and to all listed companies in regulated markets with the exception of listed micro undertakings. All non-European companies with a net turnover of EUR 150 million in the EU will be required to publish a sustainability report from 2029, subject to meeting certain thresholds.
Reporting: UK unveils disclosure framework for net zero transition plans
The UK’s Transition Plan Taskforce (TPT), which officially launched in April, announced the introduction of a new framework to improve the quality and consistency of companies’ commitments to net zero.
The release includes: the TPT disclosure framework which makes recommendations on transition plans; the TPT implementation guide, which details the stages of developing a transition plan and guidance on the disclosure of a company’s plan; and a “sandbox” to allow for testing of the framework and guidance.
The TPT’s new framework, which will help shape future regulation in the UK, draws on existing and emerging standards and recommendations such as the International Sustainability Standards Board (ISSB), Taskforce on Climate-related Financial Disclosures (TCFD) and the Glasgow Financial Alliance for Net Zero (GFANZ).
Reporting: Survey suggests businesses and investors have different ESG priorities
A recent survey by EY, of 1,040 Chief Financial Officers, 320 institutional investors and other senior finance leaders, found a large gap between investors’ expectations and companies’ actions in the ESG investment and reporting space.
In the survey, 99% of investors stated that ESG considerations were a crucial part of their decision-making; however, 76% answered that organisations were highly selective about which data and information they provide, making decisions harder and increasing the likelihood of greenwashing.
Investors and businesses also disagreed on the prioritisation of ESG improvements; 78% of investors were in favour of investing in ESG-related improvements, even if these may reduce short-term profits, whilst only 55% of business leaders favoured this stance. Interestingly, 53% of companies responded that their attempts to effect long-term investments are currently impeded by investor demand to deliver short-term profits.
Ratings and data: FCA set-up focus group on ESG ratings
The Financial Conduct Authority (FCA) has set up a focus group to create a code of conduct for ESG data and rating providers that will be chaired by M&G, Moody’s, the London Stock Exchange Group, and Slaughter & May. The group will comprise investors, ESG data and ratings providers, and rated entities.
The FCA announced that providers of ESG ratings will be encouraged to apply a ‘voluntary best practice code’, the development of which will be led by the International Capital Market Association (ICMA) and the International Regulatory Strategy Group (IRSG).
At present the FCA is waiting for the Treasury to decide on whether to extend the FCA’s regulatory perimeter to cover certain ESG data and ratings providers. Should that be the case, the FCA will “focus on outcomes in areas highlighted in the International Organization of Securities Commissions’ (IOSCO) recommendations”, such as transparency, good governance, management of conflicts of interest and systems & controls.
Ratings and data: Morningstar Sustainalytics expands ESG risk ratings coverage
Morningstar Sustainalytics have increased their ESG risk ratings coverage to assess material ESG risks for more asset classes and regions; it now features fixed income and private equity asset classes and a more geographically diverse footprint, with a greater number of Chinese firms. This is partly in response to investor feedback, which highlighted the unavailability of consistent ESG data in certain markets.
With an increase of around 30% in issuer ratings, the Sustainalytics coverage universe has been expanded to include in excess of 16,300 analyst-based ESG risk ratings. A number of Chinese companies that are listed in Shanghai and Shenzhen and often have considerable weight in emerging markets indices are amongst the newest additions.
Furthermore, the coverage has been extended beyond public equities; this is due to trends such as greater allocation to sustainable fixed income funds and larger sustainability opportunities in the US
