Amalthea Biweekly on Green Finance and Regulation, August 7th - 20th
1)? S&P drops ESG scores from debt ratings amid scrutiny
S&P Global has stopped giving out ESG scores to corporate borrowers due to the rising discussion around their utility. They have been issuing scores from one to five on the ESG criteria since 2021. S&P made the move away from the numerical evaluation into a text-only analysis, making them at odds with their rival Moody’s, which still has a numerical ESG scale from one to five. This change comes after a growing scepticism over ESG ratings among investors and US policymakers. S&P’s ESG principles criteria or ESG commentary and research will not change as a result of dropping the numerical scaling.
2) Australian sustainable finance taxonomy gets underway
The Australian Sustainable Finance Institute (ASFI) has started with the development phase of the Australian sustainable finance taxonomy by appointing the Taxonomy Technical Expert Group (TTEG), which will consist of 25 professionals from fields of sustainable finance; whole-of-economy decarbonisation; climate and environmental science and policy; human rights; and Indigenous rights and perspectives. The TTEG will be co-chaired by Guy Debelle and Emma Herd. The development phase is expected to last 12 to 18 months and it will focus on climate mitigation taxonomy screening criteria for priority sectors, and associated technical work on data requirements, methodology for incorporating transitional activities, minimum social safeguards and a ‘do no significant harm’ framework.
3) Materiality misalignment: Growing concerns around SFDR-ESRS workability
The European Commission adopted its final version of the European Sustainability Reporting Standards (ESRS) earlier this summer on the 31st of July, which supplements the Accounting Directive as amended by the Corporate Sustainability Reporting Directive (CSRD). It mandates large companies and publicly listed companies to publish reports concerning their environmental and social risks, and how their activities impact said topics. Under this first set of standards, almost all of the disclosures are subject to materiality assessment. Investors have growing concerns about how they can tackle their mandatory EU disclosure obligations on topics that their investee companies deem non-material under the new corporate sustainability reporting rules. The first ESRS proposal published last year stated that all reporting indicators stemming from EU regulations would be mandatory.
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4) ISSB Asked to Prioritise Biodiversity in Two-year Work Plan
Market participants have emphasized the significance of placing greater emphasis on biodiversity and nature in light of the International Sustainability Standards Board's (ISSB) 120-day consultation regarding its priorities for the upcoming two-year work plan. The growing focus on biodiversity does not come as a surprise, as the ISSB cited research by the World Economic Forum, which projects that 44 trillion USD of economic value generation is directly dependent on nature and its ecosystem services. The ISSB has committed to balance advancing any new projects in a timely manner with delivering its comprehensive global baseline of sustainability-related disclosure standards.
5) Anti-ESG Sentiment Forces Borrowers To Be More Thorough, Morgan Stanley Says
The backlash in the US against investment strategies including ESG criteria is pushing borrowers to be more careful when labelling their bonds. The growing scepticism against ESG is causing investors to rethink how sustainability factors can be implemented in their bond funds, as well as causing some to drop sustainability as a fund objective altogether. This growing security has hurt the ESG market, as ESG Bonds have seen a 53% decrease in corporate funding compared to the previous year.