ESG Weekly Update – September 15, 2022

15 September 2022

Global: Survey Shows G7 Corporate Emissions Targets on Pathway to 2.7°C of Global Warming

A survey conducted by the Carbon Disclosure Project (“CDP”), an environmental disclosure platform, and Oliver Wyman, a management consulting firm, suggests that corporate emissions targets across G7 countries are not in line to meet the 1.5°C global warming target agreed in the Paris Climate Agreement. The analysis was based on CDP’s temperature ratings, which scrutinize companies’ emissions reduction.

The report found that every G7 country’s corporate sector was failing to decarbonize at a rate fast enough to comply with the Paris Agreement target. At their current trajectory, the aggregated emissions targets would result in a global temperature rise of 2.7°C. Germany and Italy are on course to reach 2.2°C, with France at 2.3°C, the UK at 2.6°C, Japan at 2.8°C, the U.S. at 2.8°C and Canada at 3.1°C.

In 2021, there was an 85% increase in the number of European companies setting science-based emission targets, resulting in the aggregate corporate “temperature” increase declining by 0.3°C since the start of 2021. However, of those companies who now have these in place, a significant number are failing to account for Scope 3 emissions in their targets (i.e., emissions resulting from activities of assets not owned by the reporting company); Scope 3 emissions typically account for the most substantial portion of their emissions footprint.

The report also highlighted certain sectoral effects driving the geographical disparities in projected temperature increases. This is most striking in the power generation sector, which is on a 1.9°C pathway in Europe compared to 2.1°C in North American and 3.0°C in Asia.

CDP/Oliver Wyman report

Global: Sustainability-linked Sovereign Debt Hub Announced

On September 8, 2022, Nature Finance (formerly known as the Finance for Biodiversity Initiative) announced its new platform—the Sustainability-Linked Sovereign Debt Hub (“SSDH”)—which is expected to be fully operational by November 2022.

The goal of the SSDH is to help reshape sovereign debt markets by providing issuers with technical guidance to help build climate outcomes into sovereign bonds, as well as to help scale the issuance of Sustainability-linked Sovereign Bonds and set in motion a “self-sustainable virtuous cycle.” According to the announcement, this “cycle” will:

  • Enable sovereign debtors and creditors to raise awareness of sustainability-linked sovereign bonds;
  • Directly reward positive sustainability outcomes;
  • Support performance-linked sovereign bonds;
  • Utilize “data-rich KPI platforms”; and
  • Help to facilitate sustainability goals into sovereign debt instruments.

Run by Nature Finance, the SSDH is supported by an advisory board that includes representatives from, among other groups, the World Bank, the European Bank for Reconstruction and Development, the Asian Infrastructure Investment Bank, the Asian Development Bank, the International Capital Market Association, the Climate Bonds Initiative, The Nature Conservancy, the UN climate change high-level champion at COP 26 and the Institute of International Finance.

Nature Finance – Announcement

EU: Manulife Launches Global Climate Action Fund for European Institutional Investors

On September 6, 2022, Manulife, a Canadian insurance and financial services company, launched the Global Climate Action Fund for European institutional investors. The fund is being launched as an EU Sustainable Finance Disclosure Regulation (“SFDR”) Article 9 fund. The SFDR requires market participants to assess and disclose ESG considerations publicly. Article 9 funds must have sustainable investment (an investment that contributes to a measured environmental or social objective) and/or a reduction in carbon emissions as their objective. The Global Climate Action Fund aims to achieve this objective by investing in a portfolio of equities of companies that are leaders in their contribution to climate change mitigation.

Previously, on May 4, 2021 Manulife raised their Climate Action Fund. However, the new Fund represents the European launch of Manulife’s Global Climate Action Strategy, which was unveiled last year to target European institutional investors. The strategy is aligned with the Paris Agreement, which informs the Fund’s investments in companies that are likely to significantly reduce their carbon emissions, to create a portfolio that pursues efforts to limit the temperature increase to 1.5◦C above pre-industrial levels. The selection process identifies three types of companies: companies committed to the Science Based Targets initiative, companies in the lowest 35% of their industry for relative carbon intensity and companies that support a transition to a low-carbon economy (organizations with at least 20% of their revenue deriving from renewable energies and energy efficient technologies). This selection process is carried out by Manulife’s ESG team and then embedded in the Equity Team’s analysis to assess the climate credentials of the target investment.

Press Release