Weekly News: our selection of recent analysis on sustainable finance
Every week, Policy Shift will share a selection of recent articles and publications focused on public policy and innovation. This week's theme deals with sustainable finance and more broadly the financing of the energy and ecological transition.
By the scientific review Nature, this article shows that political failure in combating climate change has shrunk the time left for action by two-thirds: the world has now ten years to mitigate climate change and minimize its impacts by shifting away from incremental actions to implement transformational actions. The article also highlights, based on a synthesis of all ten editions of the United Nations’ Emissions Gap Report, that individual countries’ pledges pursuant to the Paris Agreement are not on track to achieve commitments (“that were insufficient from the outset and are now woefully inadequate”). China shows no change in projected greenhouse gas emissions by 2030 since 2015, as well as the United States – while the European Union shows lower change mostly attributable to the implementation of new policies. Countries such as Brazil and Indonesia show higher emissions projections from deforestation.
An analytical report (in English) about the sustainability reports published by 1000 European companies pursuant to the European Union’s Non-Financial Reporting Directive
By the Alliance on Corporate Transparency, this report shows that companies fall short of linking policies (and strategies) to risks and results (and impact). On climate change, if 82% of companies have policies in place, only a third has targets and even fewer report on their outcome. Evidence from specific sectors – such as the extractive sector – show that a lot of companies still set theoretical objectives or “warm words” (as qualified by former MEP and IIRC Chair Richard Howitt), but no concrete targets. These results show that EU regulations must not become “reporting for reporting’s sake” but actually impact the company’s business model, strategy and performance in relation with climate change and ESG issues.
A report (in French) about sustainable investments funds in France and their development in 2019
By Novethic, this publication illustrates the development of Socially Responsible Investment Funds distributed to French investors in 2019. In a year, this market’s assets under management have doubled, reaching close to 280 billion euros at the end of 2019 and 704 funds. The number of international financial market participants continues to grow as well, which accentuates competition in an expanding market. This development is particularly based on thematic funds (about a quarter of assets under management), particularly for the themes of water, renewable energy and energy efficiency. Social themes are emerging, with the theme of education having collected nearly 1 billion euros in 2019 worldwide.
An academic paper (in English) about the divergence of environmental, social and governance ratings
By Florian Berg (Massachusetts Institute of Technology) and al., this article investigates the divergence of ESG ratings from five prominent rating agencies, attempting to trace the disagreement to the most granular level of ESG categories that is available and dividing it into three main sources (scope divergence; measurement divergence and weight divergence) in order for investors and companies to understand existing divergences in ratings. Measurement difference (i.e. different assessments of ESG categories) account for half of the overall divergence, as well as the lack of a common “taxonomy” and lack of harmonized and comparable ESG information disclosed by companies. The study also detects a rater effect, due to the influence of each rating agency’s view of the analyzed company as a whole.
A report (in English) about the financial risks associated with the loss of biodiversity (“Nature is too big to fail”)
By PwC Switzerland and WWF, this study finds that biodiversity is the “next frontier” in financial risk management. Therefore, as climate change and the loss of biodiversity reinforce each other, policymakers have to respond to this double crisis, as the risk of financial market instability increases as well. The report suggests a typology of biodiversity-related financial risks (physical risks; transition risks; litigation risks and systemic risks), building on the expertise around climate-related financial risks. The report recommends that countries agree to an ambitious Global Biodiversity Framework at the forthcoming COP15 on Biodiversity in order for financial flows to be fully aligned with biodiversity conservation and restoration. Disclosure and stress-testing regulatory frameworks for financial actors must now integrate biodiversity.