September: The month’s “Hm!” moments

By Nicole Martens, head of impact investing research, Krutham

Initially, when I sat down at my desk to put together this month’s round-up, I wasn’t sure what I was going to write about. Sure, there is always a lot happening in the ESG and impact space, but there didn’t seem to be a clear theme this month (as there was, for example, last month with greenwashing). On reflection, there were, however, quite a few developments that crossed my newsfeed that made me go “Hm!”. So, this month, I figured I’d share them with you. While these are not nearly all of the headlines that grabbed my attention this month (probably not even half), they are the ones that have made a lasting impression.

First, because it is still top of mind even weeks later, I have to share with you this article about an Idaho fund being fined $300,000 for “God-washing”. At first, I thought it might be a parody. I was surprised and, if I’m honest, rather amused to see the headline. But yes, it seems God-washing is now a thing with the US Securities and Exchange Commission (SEC) clamping down on funds that pitch “biblically responsible investing” while continuing to invest in “sin” companies such as alcohol and tobacco, abortion services or stem cell research.

Less amusing though is the SEC’s decision to disband its ESG enforcement taskforce, especially given cases like that of Vanguard, which the Australian authorities recently fined a record $12.9m for misleading investors regarding ESG investment product design. Of course, as I’ve previously argued, as we tighten the screws against greenwashing, we’re set to see product standards improve, which is positive. I can’t help thinking, though, that there may also be a growing risk of altogether disincentivising the development of sustainable finance products. Worth a ponder.

Next to pique my interest was the announcement by Australian policymakers around mandatory climate reporting for large and medium companies as early as 2025. Australia has long been considered a laggard in its approach to climate action and so it was surprising to see this progressive step. At the same time, the development is an interesting one for us here in SA, given that Australia is often a bit of a looking glass for our own policy developments. Does this mean that we should be preparing for similar amendments to the Companies Act? I don’t think it’s unreasonable to expect as much. Worth watching closely.

Of course, my ears pricked up when I heard about Verizon’s acquisition of Frontier, which would result in combined pension fund assets of around $50bn. Can you imagine the potential for real-world impact if that investment mandate could be directed towards sustainable finance? It might be a little tricky to get there though, given that the two companies operate out of two states with very different views on ESG integration into pension fund investments. How this develops may set an interesting precedent for other funds in the US and beyond.

The ISO/UNDP Guidelines on the SDGs were released this month, and I was pleased to see the practical nature of the recommendations. Though the document is incredibly dry (as one would expect from ISO standards), it made me smile to see that efforts had been made to make the content more accessible, including through videos like this. In a similar light, it was also good to see the IFRS release its guidance for voluntary adoption of ISSB. Policymakers, regulators and standard-setters really are going out of their way to encourage adoption of best practice.

It was also interesting to see just how much attention was given to biodiversity and nature finance this month – more than likely given that the month marks the first anniversary of the Taskforce for Nature-related Disclosures (TNFD). It’s heartening to see that, though nascent, the response from investors to the biodiversity crisis is gaining traction. Companies like Total and Tokyo Gas are dedicating millions to nature-based projects and funds while investor-led initiatives to encourage disclosure and action are emerging and growing.

Included on the list of such initiatives is the PRI’s Spring collective engagement which represents $15tn in assets. This month, Climate Asset Management (formed in 2020 as a joint venture of HSBC Asset Management and Pollination) announced the final close of its Natural Capital Fund and Nature Based Carbon Fund. Alongside Apple’s Restore Fund, the platform has raised more than $1bn for natural capital projects. Investors like M&G are shifting their focus from climate alone to approaches that incorporate nature and biodiversity. Closer to home, African investors have come together through the African Natural Capital Alliance to mobilise $10m in nature-based solutions.

Of course, with all this focus on the “E” we can’t forget about the “S”, which is why it was also exciting to see the launch this month of the Taskforce on Inequality and Social-related Financial Disclosures. Related to this is the debate around the inclusion of defence stocks in ESG portfolios, which caused me pause and is still something I’m wrestling with.

Finally, I liked this piece from the World Benchmarking Alliance that draws attention to the challenges that emerging markets face with respect to traditional approaches to ESG integration that tend to unfairly prejudice them. It’s something that I’ve long felt was an injustice and it’s great to see the issue getting some attention. I’m sure also that these kinds of debates received some attention at the UN Summit of the Future that took place this month, where member states (including South Africa) negotiated an inter-governmental, action-oriented Pact for the Future, focused on catalysing finance for sustainable development.

By all accounts, it was a jampacked September and it’s left me looking forward to what October will bring!

If you’re interested in being kept up to date on the latest news in ESG, coupled with analysis of what it means for your organisation, take a look at Krutham’s ESG service offering, which includes a tailored monthly ESG digest.