The International Sustainability Standards Board has confirmed that companies will be given time to adapt to a number of the requirements set out by its disclosure rules, including on Scope 3 requirements. The freshly released International Sustainability Standards Board's reporting rules, which were published in their final form on June 26, aim to harmonise the way companies report on sustainability and climate risks, respectively.
Under the umbrella of the International Financial Reporting Standards Foundation, which hosts the ISSB, adherents to IFRS S1 standards will have to offer sustainability-related disclosures on governance, strategy, risk management, metrics and targets from January 1 2024.
“Potential challenges will be with jurisdiction adoption and overcoming some of the recent politicisation of ESG,” Victory Hill Capital Partners’ head of sustainability Eleanor Fraser-Smith told Sustainable Views. “For more progressive jurisdictions already using double materiality in Europe this could be seen as a step back in managing the external costs to a business.”
Almost two-thirds of the biggest asset managers do not regularly review human rights issues in investments' supply chains, says non-profit ShareAction, and a fifth only apply social policies to ESG-labelled funds.
Victory Hill Capital Partners head of sustainability Eleanor Fraser-Smith points to UN guiding principles on business and human rights, which were endorsed over a decade ago and include the corporate responsibility to respect human rights. “This due diligence and applying a local human rights lens to investments is not routine [for asset managers],” she told Sustainable Views.
“Life cycle and value chain approaches, and systems thinking, including tipping points, are not routinely considered either. The linkages between biodiversity, climate and community wellbeing and human rights are not well understood, with topics still approached in silos,” Fraser-Smith added. “However, product stewardship and supply chain management is improving, with more focus on chain of custody and ‘as a service’ or circular business models, but we need to see more momentum.”
Eleanor Fraser-Smith, our Head of sustainability, was recently featured in Investment Week in their Earth Day 2023: Impact of new climate policies.
“Recent climate policies such as the US Inflation Reduction Act and EU Green Industrial Plan offer investors new opportunities for a low-carbon economy while strengthening energy security. As a technology-agnostic sustainable energy infrastructure investor, we support policies that encourage decarbonisation, drive investment into critical infrastructure and technologies, and create green jobs."
“Current policies often solely target removing fossil fuels from the energy mix. This may lead to systemic risks and illogical outcomes such as investing in nuclear power plants, which are not sustainable due to toxic waste production. Instead, policies should focus on reducing reliance on fossil fuels by changing energy demand through investment in energy efficiency, electrification, long-duration storage schemes, and carbon capture and reuse.”
In a move to encourage private sector investment, chancellor Jeremy Hunt said in the spring Budget that the UK green taxonomy will class nuclear power as ‘environmentally sustainable’, subject to consultation.
Although nuclear fuels are not renewable, the classification would enable nuclear power to have the same investment incentives as renewable energy. But despite being low-carbon, it is not uncommon to come across ESG funds and investment companies that exclude nuclear power generation. So will investment managers follow the UK government’s approach to nuclear power?
Richard Lum, co-chief investment officer at Victory Hill Capital Partners, argues that it is "imperative that the government should move away from [nuclear] technology if it is serious about decarbonising”, citing carbon emissions that occur during the extraction and disposal of the fuel source for nuclear energy and in the materials used in the construction of plants.
He adds that Victory Hill’s position on nuclear energy has not changed, and disagrees with it being ‘environmentally sustainable’. “Fundamentally, nuclear is not environmentally sustainable given, at the very least, the waste from nuclear power stations is highly toxic and needs a permanent form of containment, which prevents any potential forms of leakage into the biosphere,” he says.
“On this basis alone, it is difficult to characterise nuclear power as environmentally sustainable.”
Tuning out the anti-ESG rhetoric, institutional investors globally are charging ahead with opportunities to finance a sustainable future.
The number of sustainability-focused projects around the globe has grown rapidly in recent years, from hydropower plants in Brazil to electric bike infrastructure in India and power transmission lines in the American West, plus scores of other approaches.
The need for sustainable-minded investments is growing, notes the United Nations' 2023 Financing for Sustainable Development report.
This is especially true when it comes to addressing climate change. Meeting the Paris Agreement goal of limiting the global temperature increase to 1.5 degrees Celsius above pre-industrial levels will take an estimated $126 trillion investment in climate solutions, according to the Institutional Investors Group on Climate Change, a European membership body for investor collaboration with more than 400 pension funds, asset managers and other members representing 26 countries and a collective €60 trillion ($65 trillion) in AUM.
Richard Lum, managing partner and co-CIO of private equity and infrastructure manager Victory Hill Capital Partners LLP in London, whose £457.2 million VH Global Sustainable Energy Opportunities fund targets climate and energy-related infrastructure investments, thinks the rising price of carbon provides further incentive for renewable energy, but cautions that long-duration storage to address some of renewable energy sources' intermittency problems is still not economically attractive. So investors need to prepare for "a post-subsidy world" and consider other approaches, like smaller power generation closer to customer demand, he said.
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