ESRS and EU Taxonomy - What's new in reporting?

ESRS - Sustainable Reporting Milestone

The European Parliament's resounding support for the European Sustainability Reporting Standards (ESRS) signifies a milestone in sustainability reporting. Over 50,000 European Union companies will soon be mandated to report on sustainability performance starting January 2024. This pivotal development extends ESRS requirements to non-EU companies operating in Europe by 2028. MEPs decisively rejected a resolution (p170) on October 18 that sought to limit ESRS, effectively clearing the path for its final adoption. This marks a vital step towards a robust sustainability reporting framework in the EU and globally.

ESRS are a set of mandatory standards developed to standardise ESG reporting for companies within the EU, with specific disclosure criteria covering 12 ESG topics, aiming to ensure consistency and transparency in reporting.

Anne Lenglet posted a comprehensive summary about ESRS and what is next on the European agenda.

EFRAG , which has been actively involved in this process since September 2020, is committed to supporting the implementation of these ESRS. Informational videos explaining the first ESRS draft can be found on EFRAG′s website and in the coming weeks, they will publish implementation guidance on crucial topics and initiate a Q&A platform to facilitate stakeholder engagement and understanding of ESRS. Recently, EFRAG has unveiled the initial inventory of the 1,178 metrics featured within the officially approved ESRS. Nossa Data in their Linkedin post provided besides usefull linkes a "quick-fire" statistical summary:

• E1 (Climate Change) stands out with a significant 220 individual metrics.
• Among the 1,178 metrics, merely 174 are of a voluntary nature.
• A total of 112 metrics have been identified as compliant with other EU regulations, such as SFDR, Pillar 3, Benchmark Regulation, and EU Climate Law

Additional details are available on various websites like European Commission offering amongst other Q&A section, EFRAG, Greenomy. Moreover, several podcasts cover the topic, including Greenomics, EU CSRD demystified.

Coming soon: Eu Taxonomy-Aligning Benchmarks

In December, the EU Platform on Sustainable Finance will issue Climate Change Taxonomy and the EU Regulatory Response: EU Taxonomy-Aligning Benchmarks (TABs) Report. Unlike previous reports tied to specific consultations, this one is particularly exciting as it introduces an innovative benchmark rooted in the EU Taxonomy. Drawing inspiration from the remarkable growth of EU Paris-Aligned Benchmarks (EU PABs), which now manage €116 billion in assets in under three years, this report places a strong emphasis on green capital expenditures (capex).

Training

FEBEA - European Federation of Ethical and Alternative Banks and Financiers is launching a Social Inclusive Finance Technical Assistance (SIFTA) workshop: "Climate Finance Workshop: Implications for Ethical Banks and Social Finance Intermediaries."?? Date: November 13th, 2023?? Location: Vienna, Austria. More details on the LinkedIn post or the website.

In the news

IFRS & ISSB: According to an?announcement?by the International Financial Reporting Standards (IFRS 9 ) , the Brazilian?finance ministry?and?the?country’s?Securities and?Exchange?Commission?will develop?a road map to?start?voluntary?disclosure?in 2024, and move?to mandatory?disclosure in?2026.

Fortune: Chevron announces buy of Hess for $53 billion in new oil megadeal days after Exxon says it will acquire shale giant Pioneer

Financial Times: How to make space-based solar power a reality

Financial Times: John Kerry: Energy transition is the ‘new industrial revolution’

Financial Times: Nickel miners linked to devastation of Indonesian forests

Financial Times: Toyota nears mass production of solid-state batteries

Financial Times: Chevron’s Mike Wirth: ‘We are not selling a product that is evil’

Corporate Knights: Green financing surges to more than US$2.6 trillion at top banks

IPE: Viewpoint: A response to ISSB’s Faber’s ‘triple illusion’ criticism of double materiality

ETF Stream: ESG ETFs investing in fossil fuel companies, research warns

ESGToday: TMF Group Launches ESG Reporting Service

ESGToday: EU Commission to Delay Adoption of Sustainability Reporting Standards by 2 Years

Ashish Kumar posted reflections from the #GIINForum2023 in Copenhagen and then at the #AVCA2023 in London on his LinkedIn post.

European Wind Power Action Plan: Brussels offers EU wind industry a helping hand

Council of the EU - Green Bonds: European Green Bonds: Council adopts new regulation to promote sustainable finance

Recommended readings

2023 Status Report: The sixth and final report by FSB Task Force on Climate-related Financial Disclosures (TCFD) highlights steady momentum in companies disclosing TCFD-aligned information, but it also emphasises that more progress is needed. On average, for fiscal year 2022 companies reported in line with 5.3 of the Task Force’s 11 recommended disclosures, up from an average of 3.2 in 2020. While levels of disclosure are increasing, they still fall short of the 11 recommended disclosures. Key takeaways:

Size bias in refinitiv ESG data: Despite LSEG Data & Analytics 's claims of mitigating size bias in ESG ratings in 2022, a recent analysis by Juris Dobrick, Christian Klein and Bernhard Zwergel, reveals that the bias has actually increased since 2019, impacting ESG scores and calling for the adoption of a correction factor to address this issue for transparency.

Global database of cement production assets and upstream suppliers: Authors Nataliya Tkachenko, PhD , Kevin Tang, David Kampmann, Conor Hickey, Matt McCarten, Steven Reece, Maral Bayaraa, Cristian Rossi, Kimberly Scott, David Yoken, Peter F., Courtney Layman, Christophe Christiaen and Ben Caldecott dove into the grapples of cement sector sustainability issues with finding that a comprehensive global asset-level dataset, incorporating plant age and raw material sourcing, is crucial for reducing greenhouse emissions effectively. Today, the majority of plants identifed are located in China, accounting for 1,159 plants or 37.0% of total assets identifed:

2024 Commission work programme: The Programme by European Commission adopted on October 17, 2023, focuses on simplifying EU regulations, reducing reporting requirements by 25%, and addressing emerging challenges while maintaining standards.

Reporting matters 2023: The publication by WBCSD – World Business Council for Sustainable Development prioritises impact over compliance, aligning with evolving global standards to enhance the value of sustainability reporting.

European supervisory examination programme for 2024: In the programme, European Banking Authority (EBA) outlies crucial areas for increased supervisory focus across the European Union. The ESEP seeks to promote supervisory convergence by offering Competent Authorities a unified set of priorities for implementation in 2024.

Increasing Climate Ambition, Decreasing Emissions: The third progress report of the Net-Zero Asset Owner Alliance: The report by United Nations Environment Programme Finance Initiative (UNEP FI) states that in 2023, the Alliance reported its members' combined absolute financed GHG emissions for the first time, showing an increase from 2019 to 2021, reaching 221.1 million tCO2e, and a decrease in 2022 to 213.4 million tCO2e, marking a 3.5% year-on-year reduction. Sub-portfolio targets include average CO2e reduction goals of 22%-32% for 2025 and 40%-60% for 2030.

Global Coal Exit List 2023: GCEL, a project by Urgewald , is influencing global financial institutions' coal policies, encompassing 1,400+ parent companies in coal power, mining, and development. Some insights from the "coal universe":

• Out of the 1,433 companies on the GCEL, only 71 companies have announced coal exit dates. Meanwhile, 577 companies are still developing new coal assets.
• Companies are still planning to develop an additional 516 GW of new coal-fired capacity. If built, these projects would increase the world’s current installed coal-fired capacity by 25%.
• With over 7.2 billion tons, the world’s thermal coal production reached an all-time high in 2022.3 And new coal mines are still on the horizon in 31 countries.

Nature Markets Principles: Voluntary Principles for Science-based Investment to create High Integrity Natural Capital Markets in the UK: The Wildlife Trusts , Finance Earth and Federated Hermes have today published a set of principles for ensuring ‘nature markets’ truly deliver for nature, climate and people.?

The unusual suspects: Are well-meaning environmental stakeholders and institutions undercutting the contributions that companies can make to fighting climate change? In an article published in the Oxford Open Climate Change journal, Roger Ballentine explored this issue.

Greening the Bond Market: A European Perspective: Pioneering global analysis of green bonds by EBI - European Banking Institute, covers markets, intermediaries, and monetary policy, with contributions from diverse professionals like lawyers, economists, academics, and regulators. The book was authored David Ramos Mu?oz and Agnieszka Smoleńska, PhD., who shared some insights on LinkedIn.

How Do Climate Policies Affect Holdings of Green and Brown Firms’ Securities?: The study by ?eská národní banka explores how climate policies and key events impact securities holdings. The financial sector increased green investments, but private non-financial sectors favored brown firms with COVID-19 emphasised the carbon risk premium, with country factors influencing outcomes. One of the authors Simona Malovana ???????? nicely summarized key takeaways in her Linkedin post.

Global Sustainable Equity Sustainability Report 2023: Ninety One published a report that serves as a tool for monitoring their sustainability efforts and enhancing understanding of the companies they invest in.

Investment constraints facing firms in Central, Eastern and South-Eastern Europe: This analysis by European Investment Bank (EIB) draws from the EIB Group Survey on Investment, covering 12,500 EU firms, offering key insights on innovation, digitalization, climate transition, and financial constraints. It e.g. underscores the substantial investment gap in CESEE, where only 77% meet sufficiency levels, while the EU and the US maintain 80% and 81%:

CISL’s Business Transformation Framework: The report by Centre for Sustainable Finance (CISL) introduces a diagnostic tool that sets out 12 enablers presented onto four organisational typologies, distinguished by different levels of alignment to sustainability and purpose, against which businesses can self-assess. In summary, the Business Transformation Framework structure is represented by following figure:

Linkedin Article: Cliff Prior in his article summarises GSG Global Impact Summit 2023 in Málaga which united global leaders to discuss impact transparency, capital mobilization, and accelerating impact economies.

Linkedin Post: In his post, Kyle Greenstein discusses the adoption of current format of ESRS without adding limitations. Additionally, the EU Commission proposed a 2-year postponement for sector-specific ESRS standards, impacting EU and non-EU companies alike.

Linkedin Post: Simon Evenett writes about factual briefing note he and Fernando Martín, assesed to analyse the EU-US negotiations on the "Global Arrangement on Sustainable Steel and Aluminium," addressing carbon intensity, overcapacity, and the potential impact on Chinese producers.

Linkedin Post: In his post, Andreas Posavac highlighted RepRisk's report On the rise: navigating the wave of greenwashing and social washing, underscoring its importance in addressing environmental and social issues and rising misleading communications.

Linkedin Post: Fabiola Schneider in her post discussed an open letter signed by over 100 academics that her, Theodor Cojoianu, Andreas Hoepner, Andreas Rasche and Joeri Rogelj sent to urge the European Commission to advance the ESRS by making Scope 1, 2, and 3 GHG emissions reporting part of remaining list of mandatory disclosures.

Linkedin Post: Eddie Donmez created a collection of Q4 2023 Outlooks from Leading Wall Street Investment Banks and Managers.

Blog Post: Alex Edmans in his post discusses a question: Can we really make $4 trillion fall from the sky?

Podcasts

MUST listen recommendation - in this special #podcast supported by the European Investment Bank (EIB) to coincide with The World Bank/International Monetary Fund annual meetings in Marrakech in October 2023, Nancy Saich, the EIB’s chief #climate change expert, and Eila Kreivi, its chief sustainable finance advisor, discuss the finance industry’s efforts to become sustainable. Listen to the episode here.

Generative AI Analyzes Climate Bond Market Workflows for Good: In the new episode of The Sustainable Finance Podcast with Paul Ellis, speaker Krista Tukiainen , CCO of Climate Aligned, explains their AI platform's impact on bonds, loans, and climate change via debt capital markets.

How to spur investments in greener power grids: Moderated by Lisa Jucca , the Exchange podcast hosted Secure Meters Limited CEO Suket Singhal who highlighted the need to upgrade electricity networks for a carbon-free world, requiring a doubling of annual investments to $750 billion. He suggested that new pricing models are essential to attract the necessary funding.

Macro trends in sustainable finance: In the latest episode of Corrs Chambers Westgarth 's Essential ESG podcast, hosts Alison Morris and Emmanuel Georgouras discuss sustainable finance trends and the regulatory challenges emerging in Australia.

Events

Paris, France (+online): OECD Sustainable Investment Days is a two day event which will take place on 7 and 8 November. The OECD IPA Network Meeting will take place on November 7, 2023, followed by the OECD Roundtable on Investment and Sustainable Development on November 8, 2023.

Prague, Czechia: Změna k lep?ímu will host its annual conference on 9 November, with a major focus on action and practical steps to drive positive change in the Czech Republic. More information and registration is available on the website.

London, UK: The annual Climate Bonds Initiative global conference returns to London, Bishopsgate on 9 and 10 November, which will include a full day of training and master classes on green debt instruments. More details on the event website.

London, UK: The UK Financial Services Summit will take place on 9 November, organised by POLITICO Live. It will focus on "Maintaining the U.K.’s lead in the financial world".

Brussels, Belgium: . 微软 will host a special event focusing on CSRD (and European reporting standards) and the role of technology. The event will take place at Microsoft, Rue Montoyer 51, Brussels and more information & registration is available on the event website.

Budapest, Hungary: On 4 December, the Budapest Climate Summit will take place at Hotel Marriott.

Online: EIOPA's 7th Sustainable Finance Conference that will take place on 14 December, will gather regulators, industry and stakeholders to critically assess efforts in delivering on sustainability goals.

Prague, Czechia 2024: The CEE Sustainable Finance Summit will return to Prague from 27 until 29 May 2024. The agenda will include deep dives into ESG reporting, implementation of ESRS, CSRD, SFDR, CSDDD, and biodiversity indicators. Register for updates on the event website or email [email protected] for more information.