Sustainability & ESG Insights August '24: Navigating CSRD and Investors on ESG Investing

??Via this monthly newsletter, we'll share more knowledge and content about what's arguably the most important domain of our generation: Sustainability and ESG. The goal is to inspire and share insights so each and every one of us can make a difference in the Environmental, Social and Governance domain we call Sustainability.

Valuable ESG and Sustainability news of August '24

??In this months’ newsletter:

- Navigating CSRD

- The UK’s shift to sustainable aviation fuel

- UK’s new proposal to regulate ESG raters

- The EU Commission’s FAQs on corporate sustainability reporting rules

- The Biden-Harris administration’s investment in EV manufacturing

- ICMA’s new guidance on sustainable commercial paper

- How European consumers are perceiving EVs

- And more…

Navigating the CSRD: A Comprehensive Guide for Sustainability Leaders

The sustainability world at the moment is flooded with talk about one thing, the Corporate Sustainability Reporting Directive. Otherwise known as CSRD. In this article Sustaira ’s Global Sustainability Lead Rory O'Sullivan gives you a comprehensive high-level understanding of the directive, step-by-step walking through the high level approach many companies are taking, where to be cautious and some top-tips. Rory will be sharing these, along with many more in the upcoming CSRD webinar.

CSRD steps to take:

Step 0: Legal ccoping

Step 1: A Double Materiality Assessment

Step 2: Checking definitions and performing a gap assessment

Step 3: Making a data strategy & preparing to report

Step 4: Collect your data and prepare your report

Remember, the CSRD is an opportunity for companies to demonstrate their commitment to sustainability. By following best practices and leveraging digital solutions, sustainability leaders can navigate the CSRD effectively and contribute to a more transparent and responsible business landscape.

For more detail and if you have any questions, we advise you to join our upcoming CSRD webinar per the below:

UK Announces 2% Minimum Sustainable Aviation Fuel by 2025

As part of their “Jet Zero” strategy to achieve net-zero emissions in aviation by 2050, the UK government has mandated that 2% of jet fuel must come from sustainable aviation fuel by 2025. With the new mandate, the government hopes to significantly reduce greenhouse gas emissions and support economic growth.

Why SAF Matters:

• SAF, produced from sustainable resources like waste oils and agricultural residues, is a key tool in reducing the aviation sector’s carbon footprint. Compared to conventional jet fuel, it can cut lifecycle greenhouse gas emissions by up to 85%.?
• The current supply of SAF is however limited, making up less than 0.1% of global jet fuel volumes.

Economic and Environmental Impact:

• Along with cutting emissions, the initiative is aimed at boosting the UK economy. By supporting SAF production, the government hopes to make Britain a leader in clean energy and secure the long-term future of its aviation industry.?
• To encourage investment in new plants across the UK, a revenue mechanism (RCM) will be introduced in support of SAF producers.?

Challenges and Innovations:

• The mandate is part of the UK’s “Jet Zero” strategy to achieve net-zero emissions from aviation by 2050. To encourage innovation, the government is introducing measures to diversify fuel sources and reduce reliance on scarce resources.?
• This includes a cap on certain feedstocks and a separate obligation for power-to-liquid fuels starting in 2028.

Looking Ahead:

• While the SAF mandate still requires Parliamentary approval, it marks a bold step towards sustainable aviation.?
• As Secretary of Transport Louise Haigh stated, “Developing, using, and producing SAF will help drive our missions to kickstart economic growth and make Britain a clean energy superpower”.

In summary, this mandate represents a significant step towards reducing the aviation sector’s carbon footprint and fostering economic growth. By setting ambitious targets and encouraging innovation, the government aims to position Britain as a leader in clean energy and sustainable aviation.

Read more via the link below:

IASB Releases Draft Guidelines for Corporate Climate Risk Reporting

The International Accounting Standards Board (IASB) has recently published a consultation document aimed at helping companies improve their reporting on climate-related risks and other uncertainties. This initiative responds to growing investor demand for clearer and more consistent climate-related information in financial statements.?

Key Features of the Proposed Guidance:

The proposed guidance includes eight illustrative examples designed to show how companies can apply existing IFRS Accounting Standards to better communicate the impact of climate-related risks on their financial position and performance. These examples focus on key areas such as:

• Materiality judgements
• Disclosures about assumptions and estimation uncertainties
• Disaggregation of information

Importance of the Guidance:

IASB Chair Andres Barckow emphasized the importance of this guidance, noting that investors increasingly factor climate-related risks into their decision-making processes. The new examples aim to bridge the gap between financial statements and sustainability disclosures, enhancing transparency and providing investors with the information they need to make informed decisions.

Call for Feedback:

The current consultation is open for feedback until November 28, 2024, and the IASB encourages stakeholders to share their views.

Read the details via the link below:

Britain to Propose Law Regulating ESG Raters

The UK government is set to introduce legislation next year aimed at regulating environmental, social, and governance (ESG) rating providers. This move is part of a broader effort to enhance transparency and accountability in the ESG sector.

Key Points:?

• Legislation Timeline: The proposed law is expected to be introduced in 2024.
• Regulatory Body: The Financial Conduct Authority (FCA) will oversee the regulation of ESG raters.
• Objective: The main goal is to ensure that ESG ratings are reliable, consistent, and transparent.
• Market Impact: This regulation could significantly impact how companies and investors approach ESG ratings
• Scope of Regulation: The legislation will cover all ESG rating providers operating in the UK, including those based overseas but providing ratings for UK companies
• Transparency Requirements: ESG raters will be required to disclose their methodologies, data sources, and any potential conflicts of interest
• Accountability Measures: The FCA will have the authority to enforce compliance and penalize non-compliant ESG raters.

Government’s Stance

The UK government believes that regulating ESG raters will help address these concerns. By introducing legislation, they aim to:

• Enhance Trust: Build greater trust in ESG ratings among investors and companies
• Improve Standards: Ensure that ESG ratings are based on robust and transparent methodologies.
• Protect Investors: Safeguard investors from misleading or inconsistent ESG ratings.

Industry Response

The proposal has received mixed reactions from the industry:

• Support: Some stakeholders welcome the move, seeing it as a step towards greater transparency and accountability. They believe that standardized regulations will help create a level playing field and improve the overall quality of ESG ratings.
• Concerns: Others worry about the potential for increased regulatory burden and costs. Smaller ESG providers, in particular, fear that the new regulations could impose significant compliance costs, potentially driving them out of the market. There are also concerns about the potential for regulatory overreach and the impact on innovation within the ESG sector.

The UK’s proposed legislation to regulate ESG raters marks a significant step towards improving the reliability and transparency of ESG ratings. As the ESG sector continues to grow, this regulation could play a crucial role in shaping its future.

Read more about it via Sustaira's article below!

CEOs on Creating Value with Climate Action

In a recent survey by PwC, 4,700 CEOs shared their insights on how climate action can drive business value. Despite the challenges, many CEOs are finding that addressing climate-related opportunities and risks can lead to better financial performance.

The Climate Action Conundrum

• While CEOs recognize the seriousness of the climate crisis, only 30% believe it will drive shifts in their business models over the next three years. This is significantly lower compared to the 56% who see technology as a key driver.?
• Many CEOs are still skeptical about the financial returns of climate-friendly investments, with about half citing lower returns as a barrier to decarbonization.

Financial Performance and Climate Action

• Interestingly, the survey reveals that companies taking more action on climate-related opportunities and risks tend to have better financial performance.?
• CEOs who reported their companies are actively addressing climate issues also reported higher profit margins and revenue growth.

Trade-offs Not Required

The data suggests that climate-friendly investments do not necessarily come at an extra cost. Companies that apply their normal hurdle rates to these investments have similar profit margins to those that set lower rates. This indicates that the financial downside of climate action may be minimal.

In summary, the survey highlights that while there are challenges, the logic of value creation through climate action remains sound. CEOs who embrace climate-related opportunities and risks can potentially achieve superior financial performance.

Read more here:

EU Commission Publishes FAQs on New Corporate Sustainability Reporting Rules

The European Commission (EC) has released a set of frequently asked questions (FAQs) to aid in the implementation of the Corporate Sustainability Reporting Directive (CSRD). These FAQs aim to clarify various aspects of the CSRD and the first set of the European Sustainability Reporting Standards (ESRSs), ensuring stakeholders can comply with regulatory requirements effectively.

Key Features of the FAQs:

• Assurance of Sustainability Reporting: Companies are required to obtain external assurance on their sustainability reports to ensure the accuracy and reliability of the disclosed information. This step is crucial for building trust among stakeholders.
• Key Intangible Resources: These resources, such as intellectual property and human capital, are increasingly recognized as vital to a company’s long-term success. The CSRD mandates that companies provide detailed information on these intangibles.
• Requirements for Third-Country Entities: These entities must comply with the same sustainability reporting standards as EU-based companies. The FAQs provide guidance on how these requirements apply to third-country entities, ensuring a level playing field.
• Sustainable Finance Disclosure Regulation (SFDR): The FAQs touch upon the Sustainable Finance Disclosure Regulation (SFDR) and its interplay with the CSRD. The SFDR requires financial market participants to disclose how they integrate sustainability risks into their investment decisions. The alignment of CSRD and SFDR aims to create a cohesive framework for sustainability reporting and disclosures.

By addressing these key areas, the EC’s FAQs provide valuable guidance for companies navigating the complexities of the CSRD and ESRSs, promoting a more sustainable and transparent business environment in the EU.

Here’s a link to the full article:

ICMA to Release New Guidance on Sustainable Commercial Paper by End of 2024

The International Capital Market Association (ICMA) is set to release new guidance on sustainable commercial paper (CP) by the end of 2024. This move aims to address the growing interest in sustainable finance instruments and provide a framework for users.?

The Need for Guidance

The Increasing interest in sustainable commercial paper has highlighted the need for clear guidelines. Sustainable CP offers a short-term financing option that aligns with ESG criteria. However, the lack of standardized practices has posed challenges for market participants. The upcoming ICMA guidance aims to fill this gap by providing a comprehensive framework.

Key Components of the Guidance

The ICMA’s guidance will cover several critical aspects:

• Eligibility Criteria: Defining what qualifies as sustainable commercial paper.
• Use of Proceeds: Guidelines on how the funds raised should be allocated to ensure they meet sustainability goals.
• Reporting and Transparency: Requirements for issuers to report on the use of proceeds and the impact of their projects.
• Verification and Assurance: Recommendations for third-party verification to enhance credibility and investor confidence

Market Impact

The introduction of this guidance is expected to have a significant impact on the sustainable finance market. It will provide issuers with a clear roadmap, encouraging more companies to issue sustainable CP. For investors, the guidance will offer greater assurance that their investments are contributing to genuine sustainability efforts.

This new framework is eagerly anticipated and is expected to play a pivotal role in advancing the goals of sustainable finance.

Feel free to explore the full article for more details:

Missouri Court Blocks Anti-ESG Rules

A Missouri Court has issued a permanent injunction against the state’s anti-ESG rules, marking a significant victory for proponents of ESG investing. The ruling highlights the ongoing legal battles surrounding ESG regulations and the implications for the financial industry.

Background

In July 2023, Missouri implemented rules requiring securities professionals to disclose and obtain written consent from clients if their investment decisions incorporated social or nonfinancial objectives. These rules aimed to ensure transparency but faced significant opposition from industry groups.

Legal Challenge

The Securities and Financial Markets Association (SIFMA) filed a lawsuit against the rules, arguing they were preempted by federal laws, violated the First Amendment, and were unconstitutionally vague. The case was brought before the U.S. District Court for the Western District of Missouri.

Court’s Decision

On August 13, 2024, Judge Stephen R. Bough issued a permanent injunction against the anti-ESG rules. The court found that the rules were preempted by the National Securities Market Improvement Act of 1996 (NSMIA) and the Employment Retirement Income Security Act of 1974 (ERISA). Additionally, the court ruled that the rules violated the First Amendment’s protection against compelled speech and were unconstitutionally vague.

Implications

The ruling is a significant win for ESG advocates, as it removes a major regulatory hurdle for incorporating ESG factors into investment decisions. It also underscores the limitations of state power in regulating ESG practices and may influence similar legal battles in other states.

The Missouri court’s decision to block the anti-ESG rules is a pivotal moment in the ongoing debate over ESG regulations. As the financial industry continues to navigate these complex issues, this ruling provides clarity and support for the integration of ESG principles in investment strategies.

Read more about Missouri’s decision here:

Biden-Harris Administration to Invest $50 million to Boost EV Manufacturing

The Biden-Harris Administration has announced a $50 million investment to support America’s auto communities and bolster domestic electric vehicle (EV) manufacturing. This initiative aims to help small- and medium-sized suppliers adapt to the evolving EV supply chain, ensuring the retention of good-paying, union jobs.

Strengthening Auto Communities

As part of the “Investing in America” agenda, the U.S. Department of Energy (DOE) is channeling $50 million to six states with significant automotive workforces. these states are Michigan, Ohio, Indiana, Kentucky, Tennessee, and Illinois. This funding is designed to help small- and medium-sized suppliers retool their manufacturing facilities to support the EV supply chain. By doing so, the initiative aims to maintain and create good-paying, union jobs in traditional auto communities.

Economic and Environmental Impact

This investment is not only about economic growth but also about environmental sustainability. By supporting the EV supply chain, the initiative contributes to reducing greenhouse gas emissions and promoting cleaner transportation options. The focus on union jobs also underscores the administration’s commitment to fair labor practices and economic equity.

The $50 million investment by the Biden-Harris Administration represents a significant step towards strengthening America’s auto communities and advancing the EV supply chain. This initiative highlights the administration’s dedication to sustainable energy, economic growth, and job creation.

Read more here:

Sustainability Megatrends Report: Global Investors Reporting Higher Performance Yields after ESG Investing

Cushman and Wakefield’s recent Sustainability Megatrends Report reveals that 60% of global investors believe ESG investing leads to higher performance yields. This finding underscores the growing financial benefits of sustainability and the increasing demand for ESG-focused investment products.

Institutional Investment Surge

Institutional investors are rapidly increasing their focus on ESG-related investments. According to the Sustainability Megatrends Report, 60% of surveyed investors reported higher performance yields from ESG investments. Additionally, 78% of investors are willing to pay higher fees for ESG funds, highlighting the strong demand for sustainable finance products.

Building Performance Standards

New Building Performance Standards (BPS) are setting benchmarks for energy efficiency and sustainability in real estate. These standards aim to improve the environmental impact of buildings by regulating energy consumption and carbon emissions. As more governments adopt BPS, companies must adapt their infrastructure to meet these requirements or face penalties.

Increased Transparency

With the rise of mandatory ESG reporting requirements globally, companies are increasingly required to disclose their environmental and social impact metrics. This push for greater transparency holds companies accountable for their sustainability efforts and can lead to financial penalties and reputational damage if not adhered to.

Shifting to Low-Carbon Economy

The global shift toward a low-carbon economy is driving significant changes across industries. Companies are investing heavily in renewable energy sources and implementing decarbonization strategies to reduce their carbon footprints. This transition is essential for meeting global climate goals and ensuring long-term sustainability.

The Sustainability Megatrends Report highlights the financial benefits of ESG investing and the growing demand for sustainable finance products. As institutional investors continue to prioritize ESG factors, companies must adapt to new standards and reporting requirements to stay competitive and meet investor expectations.

For more information see article below:

McKinsey & Company: How European Consumers Perceive Electric Vehicles

A recent McKinsey and Company report highlights how electric vehicles (EVs) are gaining traction in Europe, with 16% of new-car sales being EVs. Despite challenges like high costs and charging infrastructure, consumer interest continues to grow.

Electrification Momentum

• Rising Sales: EVs now account for 16% of new-car sales in Europe, a significant jump from under 1% in 2019
• Stable Market: Even with the removal of purchase subsidies in markets like Germany, sales have remained stable
• Diverse Buyers: The EV customer base is expanding from early adopters to more mainstream consumers

Consumer Insights

• Survey Data: McKinsey’s survey of 15,034 individuals in France, Germany, Italy, and Norway reveals key trends

Major Concerns

• Battery Range: Real-world battery range versus advertised range remains a top concern
• Costs: High purchase prices deter some potential buyers
• Charging Infrastructure: The ability to charge at home is a significant factor for many

Market Trends

• Used-EV Market: The market for used EVs is growing, offering more affordable options for consumers
• Innovative Profiles: Automakers are developing nuanced profiles of EV buyers to better meet their evolving expectations

The EV market is on a steady rise, driven by diverse consumer interest and evolving market dynamics. Addressing concerns like battery range, costs, and charging infrastructure will be key to sustaining this momentum.

For the complete report and a summary see:

??Of course there are many more insightful articles, so please share your thoughts and recommendations in the comments below.

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