**Correction** An earlier version of this newsletter stated that Investec received an F grade in this year’s CDP ranking of companies for climate change. CDP assigned Investec Plc, which covers the group’s non-Southern African operations, an F grade. Investec Limited, the Southern African entity, received a B grade. Investec told Climate Risk Review that it makes a single CDP submission for the group that includes Investec Limited and Investec Plc, which is the one rated B. The reference to Investec receiving an F grade in the copy below has been deleted to reflect this
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1) Fewer banks make CDP’s climate ‘A List’ in 2021
La Banque Postale, BNY Mellon, and UBS were among just 12 financial institutions to land on the CDP’s 2021 A List for climate change leadership, down from 28 last year.
Each year, CDP — a nonprofit that promotes disclosure on climate change, water security, and forests — scores corporations on their public reporting, awareness, management and leadership on these issues. Out of almost 12,000 companies assessed this year, just 200 placed on the Climate A List, down from 280 in 2020. The CDP said this reflected how “the consensus on what qualifies as climate leadership has evolved and the bar raised.”
Bank of America, Goldman Sachs, and ING — all major financial institutions that made the A List last year — fell back in the ratings. ING scored an F grade, the lowest, after failing to respond to the CDP’s questionnaire this year. Other F-graded financial institutions include Apollo Global Management, the giant private equity outfit, and Berkshire Hathaway, Warren Buffet’s globe-spanning conglomerate.
Of the 30 global systemically important banks (G-Sibs), BNY Mellon and UBS alone scored an A on climate change. Ten G-Sibs scored A-, 11 scored B, two scored D-, and three scored F: Agricultural Bank of China, Bank of China, and ING Bank. JP Morgan and Wells Fargo were the only G-Sibs not to be scored.
2) EU adopts first piece of climate-friendly investment rules
The European Union passed into law the first set of new rules on what investments can be considered climate-friendly.
The Taxonomy Climate Delegated Act (DA) sets out the ‘technical screening criteria’ through which economic activities that contribute to climate mitigation and adaptation can be identified as such. Adopted by the European Commission in April and approved by the European Parliament in October, the DA became official with the expiry of the European Council’s extended scrutiny period on Thursday.
The rules oblige investors to specify how much of their ‘green’ investments can be accounted for by the EU’s sustainable finance taxonomy from January 1, 2022. The taxonomy sets out a ‘common language’ through which the climate-friendliness of different assets can be assessed, based on their contribution to at least one of six sustainability objectives and the degree of harm they do to the others. Only the rules governing the climate mitigation and adaptation sustainability objectives have passed into law — and not for all economic sectors, either. Specifically, the classification of natural gas and nuclear power are in limbo.
Investors will have to start reporting the taxonomy alignment of their portfolios from January 2023. However, rules on the content and presentation of disclosures based on the taxonomy, covered by the Sustainable Finance Disclosure Regulation, are yet to be finalized.
Still, observers hailed the passage of the DA as a major milestone on the EU’s journey to stamp out greenwashing and channel private finance towards climate-friendly objectives.
“The adoption of the first set of EU Taxonomy criteria is a significant achievement, as it sets into law for the first time a common understanding of which and to what extent activities covered are environmentally sustainable,” said Fiona Reynolds, chief executive officer of the UN’s Principles for Responsible Investment.
3) Few corporate emissions targets align with 1.5°C ambition
Only 3% of 4,400 companies assessed by Moody’s have set emissions targets that align with a 1.5°C warming limit.
The financial intelligence provider also found that less than half of organizations — 42% — set any kind of emissions target, and only 11% have targets that are quantifiable out to 2030. On average, the companies that have set targets are aligned with a 2.1°C warming scenario.
The analysis used Moody’s Temperature Alignment Data, which catalogues companies’ GHG emissions trajectories based on their reported and estimated future emissions. These trajectories are then compared with benchmarks set by the International Energy Agency (IEA) to determine their warming potential. The resulting Implied Temperature Rise (ITR) score expresses each company’s alignment with these benchmarks in degrees Celsius.
Across those firms that have set targets, Moody’s estimates they will have to slash aggregate 2022-2030 emissions by 20% to hit them on average, and by 35% to achieve net zero by 2050. Firms operating in the gas and electric utilities sector were found to be the most enthusiastic adopters of emissions targets, with 84% of the 94 companies assessed having set a target. In contrast, only 47% of oil and gas companies have set targets, and just 16% have quantifiable targets out to 2030.
The ambition of the emissions targets set by the oil and gas industry are also the lowest across all sectors, with an average ITR of 3°C. Electric and gas utilities have the most ambitious targets, with an average ITR of 2.1°C — still in excess of the “well below 2°C” target laid out by the Paris Agreement.
European companies have the highest level of target setting across the assessment universe. Fifty-seven percent of firms in Europe have set targets, versus 43% of those in Asia Pacific and just 32% of those in North America.
4) Net-zero asset owners have shoddy climate voting records
Few institutions that are part of the Net-Zero Asset Owner Alliance (NZAOA) directly participate in climate votes at shareholder meetings, and the rest generally do not clearly explain how third parties vote on their behalf, new research shows.
Only 13 out of 46 NZAOA members were found to have exercised their share voting rights on climate-related shareholder proposals without an intermediary, with the remainder relying on proxy advisors, asset managers, and other service providers. Some 18 members do not publicly disclose how climate voting decisions are made on their behalf by intermediaries, while over 75% do not say whether they review their third parties’ voting recommendations. The research was conducted by academics commissioned by the Sunrise Project, a climate-focused nonprofit.
The academics further discovered that after becoming NZAOA members, institutions’ voting records did not become any more climate-friendly relative to their non-NZAOA peers. They said this suggests NZAOA membership is less a catalyst for climate activism and more a recognition of existing practices.
On Twitter, French climate nonprofit Reclaim Finance said: “This is yet another failure from finance’s flagship initiatives to address the climate crisis”. The group recently knocked the NZAOA and other climate groups under the umbrella of the Glasgow Financial Alliance for Net Zero for failing to tackle fossil fuel investments.
In light of the findings, the academics recommended that asset owners track, monitor and disclose how votes are exercised on their behalf and consider ditching asset managers that fall short of their climate voting values and pledges. They added that asset owners should adjust their proxy voting policies to align with the objective of limiting global warming to 1.5°C.
As of December 10, there were 62 NZAOA members representing $10 trillion of assets.
5) ECB to quiz bank managers on climate acumen
Bank executives will have to disclose their level of knowledge and experience on climate and environmental risks through an updated ‘fit and proper’ questionnaire the European Central Bank (ECB) published on Wednesday.
This questionnaire serves as a guide to the information the ECB and European financial watchdogs expect to receive on prospective appointees to C-suite positions at banks under their supervision. Appointees may be rejected if they do not meet certain standards. The ECB is also able to apply conditions to the appointment of managers before granting approval.
For the first time the questionnaire asks prospective appointees whether they have ‘high’, ‘medium’, or ‘low’ knowledge and experience of climate-related and environmental risks, and requests details on any climate risk training they have received.
Irene Heemskerk, Head of the ECB’s Climate Change Centre, said of the update on LinkedIn: “Adequate knowledge of climate-related and environmental risks is now officially an essential requirement in the c-suite of banks. And rightly so!”
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