There's ESG in everything

IPCC's Climate Change 2022: Impacts, Adaptation and Vulnerability

Must read. Without revealing anything truly “new” in my opinion, the report confirms that things are bad and getting worse and we need to do more, faster. It is thankfully getting the attention it deserves. No one can say we don’t have the data. There’s almost too much of it, but the IPCC does an outstanding job of summarizing and simplifying this data. For the non-scientists, I recommend the Summary for Policy Makers. Of course, it’s just a summary. The full report is 3,675 pages. I also recommend the FAQ, the Fact Sheets, and the Global and Regional Atlas. You don’t need to be a climate scientist or even a climate expert to understand that each of us needs to do more. Exactly what we need to do (even though we already know) will be the topic of another IPCC report expected out in April, dealing with the mitigation of climate change.

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EU's Final Report on Social Taxonomy

The European Commission has released its final Report on Social Taxonomy, proposing a structure for an EU social taxonomy in line with the current legislative body of work on sustainable finance and governance. This taxonomy would have three main objectives: (1) decent work (including for value-chain workers); (2) adequate living standards and wellbeing for end-users; and (3) inclusive sustainable communities and societies. These would be further broken down into sub-objectives, including health and safety, healthcare, housing, wages, non-discrimination, consumer health, and communities’ livelihoods. The social taxonomy would be similar to the current EU Taxonomy focused on environmental issues, in that it would develop social objectives, adopt a ‘substantial contribution’ principle, rely on the ‘Do no significant harm’ (DNSH) criteria, and include minimum safeguards. Interestingly, the report mentions two important distinctions between environmental and social issues: while economic activity typically generates mainly negative impacts for the first, it typically generates mainly positive impacts for the second, and while objectives and criteria for the first are generally based on science, they are based on international authoritative standards for the second. I find particularly noteworthy the interconnections with the existing legislative initiatives, including the Sustainable Finance Disclosures Regulation (SFDR) for investors, the Corporate Sustainability Reporting Directive CSRD) for companies, and the most recently proposed Directive on corporate sustainability due diligence, also for companies. No doubt, there is increasing attention being paid to human capital and social issues, not just in terms of the risks and opportunities they represent for companies – and therefore their investors, as this report points out – but also in terms of impact on society, where the focus shifts to system-level issues of human rights and wealth inequality. Turns out this, too, matters to investors, who are increasingly adopting a systems-level approach to investing. In fact, The Investment Integration Project (TIIP) recently published a document called Systemic Stewardship: Investing to Address Income Inequality, which makes the case for income inequality as a major systemic risk that investors can and should address.

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EFRAG publishes the next set of PTF ESRS Cluster Working Papers

The European Financial Reporting Advisory Group (EFRAG) has published another cluster of working papers from the European Sustainability Reporting Standards (ESRS) Project Task Force (PTF) – they’re coming fast! Particularly noteworthy is the one on Sustainability Statements, which specifies the content and structure of the ‘Sustainability Statements’ to be contained within the management report, which will comprise all the applicable disclosures – sector-agnostic, sector-specific, and entity-specific – required by the ESRS. While companies will have three presentation options to choose from, the preferred one is to report sustainability disclosures within a single separately identifiable section of the management report. If the other more disaggregated presentations are used, companies will have to provide an index of content (same idea as for the GRI). The other noteworthy working paper is the draft disclosure requirements on biodiversity and ecosystems, which you’ll remember are co-created with the Global Reporting Initiative (GRI). Biodiversity is climbing the charts of top-of-mind issues to address, for both capital markets and business.

ESRS P1 on Sustainability Statements

ESRS S1 on Own workforce – General

ESRS S4 on Own workforce – Other work-related rights

ESRS S5 on Workers in the value chain

ESRS S6 on Affected communities

ESRS S7 on End-users / consumers

ESRS E4 on biodiversity and ecosystems

EU's Sustainable Finance Implementation Timeline  

The multiple policy initiatives that comprise the European Union’s Sustainable Finance Action Plan can get confusing. So, the EU provides an implementation timeline visual to help us keep track. While perhaps only marginally helpful, it does illustrate there’s a lot coming on stream, very soon, for both investors and companies.

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UN resolution to end plastic pollution

Heads of State, environment ministers and other representatives from 175 nations signed a historic resolution last week to end plastic pollution, addressing the full lifecycle of plastic, including its production, design, and disposal. The resolution establishes an Intergovernmental Negotiating Committee that will begin its work this year, aiming to complete a draft legally binding agreement by the end of 2024. Great news!

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SEC Chair’s video on ESG fund labelling

Perhaps a sign of the times, I thought it was quite novel to see Gary Gensler, the Chair of the US Securities and Exchange Commission (SEC), use video on Twitter to explain the importance of proper investment product labelling. Of course, this is addressed to retail investors, and of course, it has everything to do with the crack down on “greenwashing” of investment products being labelled as “green”, “ESG”, or “Sustainable” that perhaps aren’t so much what they claim to be... I would love the SEC to do a video for reporting issuers on the importance of providing comparable and reliable disclosures on their material ESG issues and impacts.

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ATHEX ESG Reporting Guide 2022

The Athens Stock Exchange (ATHEX) has published an updated ESG Reporting Guide for reporting issuers “to improve their ESG performance and effectively communicate it with investors”, as part of the mobilization effort of the UN’s Sustainable Stock Exchanges (SSE) initiative, of which the ATHEX and 110 other stock exchanges are members. I find it particularly noteworthy for its connection to George Serafeim, a thought leader in sustainable finance and business, whom I believe had quite a bit of influence on its contents. It's a good summary of the integration of sustainability to business and strategy and related disclosure practices. It reflects several best practices, including a codification of the disclosure metrics, explicit formulas for calculating performance measures, core level and advanced disclosures, as well as universal and industry-specific disclosures. While it encompasses all the leading standards and frameworks, it is particularly heavily influenced by the SASB Standards. Will it replace the confusion of multiple voluntary reporting resources and solve the puzzle of comparable (standardized) and reliable (audited) disclosures? No. But, for any company just starting their sustainability reporting journey, it’s a very good place to start.

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SASB Standards and the new International Sustainability Standards Board

Speaking of SASB, they recently issued an update on the upcoming consolidation of the Sustainability Accounting Standards Board and the International Integrated Reporting Council into the IFRS Foundation. There is no doubt that the upcoming International Sustainability Standards Board (ISSB) sustainability reporting standards will reflect much of the work already done by SASB, as well as the other initiatives being consolidated by, or collaborating with, the IFRS Foundation. I can only echo the advice in the update: “Report preparers and users should continue to use the SASB Standards. Efforts put into disclosure now will help preparers implement the IFRS Sustainability Disclosure Standards in the future. Those considering adopting the SASB Standards, the Integrated Reporting Framework and/or the TCFD recommendations are encouraged to get started now to better meet both present and future information needs of investors.” I completely agree.

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