Investors face an exponential rise in the number of environmental, social and governance (ESG) initiatives. Here is a selection of the most relevant, and the acronyms that accompany them.
Insight is either a signatory to or a member of CDP, Climate Action 100+, Net Zero Asset Managers initiative, PRI, TCFD and UN Global Compact.
CDP: a global system for organisations to measure their carbon emissions
The CDP, formerly the Carbon Disclosure Project, runs a global disclosure system for investors, companies, cities and regions to monitor, manage and disclose their environment impact.
Climate Action 100+: the world's largest investors unite for change
This initiative aligns investor engagement to encourage the world's largest carbon emitting companies to take action on climate change. It is backed by 545 institutional investors with $52 trillion under management.
COP 26: a potential source of new regulation
The 26th United Nations Climate Change conference (COP26) is scheduled to be held in Glasgow, in November 2021. Its aim is to accelerate action towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change. COP26 provides a focus for new UK government regulations for pension funds and for the Pensions Climate Risk Industry Group, a cross-industry body aimed at providing guidance to help pension trustees meet their legal responsibilities.
Net Zero Asset Managers initiative: an asset manager collaboration for emissions targets
The Net Zero Asset Managers initiative is an international group of asset managers committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5 degrees Celsius; and to supporting investing aligned with net zero emissions by 2050 or sooner.
PRI: investors working together to implement six aspirational principles
The Principles for Responsible Investment works to understand the investment implications of ESG factors. It supports its international network of investor signatories in incorporating these factors into their investment and ownership decisions.
The Science Based Targets Initiative: helping companies know how much emissions to cut
This organisation helps companies set emissions targets that are in line with holding global warming to well below 2°c above pre-industrial levels. Science-based targets show companies how much and how quickly they need to reduce their greenhouse gas emissions to prevent the worst effects of climate change.
SDGs: 17 sustainability goals that most of the world has agreed on
The Sustainable Development Goals (SDGs) are goals to end extreme poverty, reduce inequality and protect the planet by 2030. They have been adopted by 193 countries through negotiations at the United Nations. Insight's Prime sovereign ESG impact ratings are tied to the SDGs.
SFDR: classifying European funds according to ESG standards
The EU's Sustainable Finance Disclosure Regulation (SFDR) means all funds offered to investors in Europe must be categorised as either 'non-sustainable' (article 6), 'promoting good environmental, social and governance characteristics' (article 8), or 'products targeting sustainable investments' (article 9). The intention is to make funds more comparable and easier to understand.
The rules came into effect on 10 March 2021; a second stage of compliance on June 30, requires reporting on principle adverse impact. Then in January 2022 reporting must commence on regulatory technical standards.
TCFD: climate change disclosures to be made compulsory
The Financial Stability Board established the Task Force on Climate-related Financial Disclosures (TCFD) to develop recommendations for more effective climate-related disclosures that could promote more informed investment, credit, and insurance underwriting decisions. This in turn can enable stakeholders to understand better the concentrations of carbon-related assets in the financial sector and the financial system’s exposures to climate-related risks. The UK government has created a timeline for pension funds to comply with TCFD starting with the largest funds going first.
United Nations Global Compact: the world's largest corporate sustainability initiative
This organisation supports companies that align their strategies and operations with the Ten Principles of the UN Global Compact which cover human rights, labour, environment and anti-corruption. It also supports those that take strategic actions to advance broader societal goals, such as the UN sustainable development goals, with an emphasis on collaboration and innovation.
UK Stewardship Code: the number of principles has grown from seven to 12
This voluntary code is aimed at raising the standard of stewardship of assets held by asset owners and asset managers. In 2020, the Financial Reporting Council has expanded the number of principles of the Code from seven to 12. The updated code now covers assets other than equities; decision making before purchase and sale of assets and a new principle focussed on purpose, value and culture.
Informative videos on stewardship can be found here: www.insightinvestment.com/investing-responsibly/uk-stewardship-code-2020/
Responsible investment, Fixed income
Five reasons for focusing on responsible investment in fixed income
Putting principles into practice: responsible investment annual report 2021
Monitoring corporate climate risk