In Brief

UN: ‘Bogus’ net-zero pledges cover up fossil fuel expansion

UN's Guterres speaks at the launch of net-zero guidance at COP27

At the launch of a roadmap for financial institutions and businesses to achieve net zero at COP27 yesterday, UN secretary-general, António Guterres, called current pledges “bogus,” calling for them to be aligned with the new guidance.

“I have a message to fossil fuel companies and their financial enablers,” he said.

“So-called ‘net-zero pledges’ that exclude core products and activities are poisoning our planet. They must thoroughly review their pledges and align them with this new guidance. Using bogus ‘net-zero’ pledges to cover up massive fossil fuel expansion is reprehensible.”

He was speaking today in Sharm el-Sheikh at the launch of the report, Integrity Matters: Net Zero Commitments by Business, Financial Institutions, Cities and Regions, by the expert group Guterres set up at COP26 last year that is chaired by Catherine McKenna.

The report sets out a roadmap for firms but also stricter guidelines than other voluntary groups have, such as requiring firms to not invest in new fossil fuel supply or deforestation, a limited use of carbon credits, the inclusion of Scope 3 emissions and the exclusion of lobbying.

“Targets must cover all greenhouse gas emissions and all scopes of emissions,” Guterres said. “For financial institutions, this means all financed activities.”

MSCI adds climate action indexes

It includes companies based on SBTi targets, green revenues, climate risk management and track record

MSCI has launched a suite of climate indexes for equity investors looking to reduce emissions.

The MSCI Climate Action Indexes will select and rank companies based on four main indicators, Christine Chardonnens, executive director, global ESG and climate indices at MSCI, told ESG Clarity.

These are carbon intensity, Science-Based Targets Initiative (SBTi)-approved targets or a similar credible track record, green revenues and the strength of their climate risk management.

The carbon intensity reflects the current state of the company and the forward-looking indicators (SBTi-approved target, credible track record, green revenues and climate risk management) are used to assess the steps companies take to reduce their emissions, Chardonnens added.

The investible companies are then ranked by these criteria, selecting the top half for inclusion in the index.

The indexes also use MSCI ESG Business Involvement Screening Research and MSCI Climate Change Metrics to identify and remove controversial companies.

MSCI said the indexes are designed for equity investors who are looking for broad sector coverage and are seeking to drive the low-carbon transition in the real economy by investing in companies making progress towards emission reduction targets. 

Melissa McDonald, head of ESG and climate indexes at the firm, said: “The MSCI Climate Action Indexes helps investors looking to fulfill that aim by gaining exposure to the companies that are making meaningful progress towards net zero in the real economy and addressing the systemic risks of climate change.”

The suite comprises MSCI ACWI Climate Action Index, MSCI World Climate Action Index, MSCI Emerging Markets Climate Action Index, MSCI USA Climate Action Index and MSCI Europe Climate Action Index.

Princeton axes oil companies from endowment

The school will sever ties with the 'most-polluting segments' of the industry

Princeton University is dumping the fossil fuel holdings in its $38bn endowment, the school’s board of trustees announced Thursday.

The school listed 90 oil and gas companies from which it will dissociate, meaning that it will divest from the companies and also avoid any business relationships with them. The dissociation is “focused on the most-polluting segments of the industry”, including companies with significant business in thermal coal and tar sands, according to the announcement.

Princeton made the decision last year to move away from fossil fuel holdings in its endowment but just recently had its board of trustees vote on the list of companies to exclude. The most prominent name on the list is ExxonMobil, but it also includes energy producers such as Xcel Energy and Alliant Energy.

The measure is part of the board’s goal to eventually have a net-zero endowment portfolio. Princeton used data to compile the list of companies based on recommendations from a faculty panel, according to the announcement.

Along with the dissociation, the university is planning to start a fund that will be used to support energy research. That will be necessary in order to make up for a drop in research funding that will result from cutting ties with the energy companies on its list, the school stated.

Yale partners with Arvella Investments for ESG data

Helping people integrate ESG into their portfolios

Yale University has launched a partnership with Paris-based boutique firm Arvella Investments to provide ESG research, the groups have announced.

The Yale Initiative on Sustainable Finance will be the research partner for the firm’s ESG for Investors sustainable investment service. That service is designed to help people integrate ESG into their portfolios, with input from fellow investors and academics, according to Arvella.

“After a dramatic growth in ESG-labeled assets, ESG investing faces an unprecedented backlash,” the company stated in the announcement. “Two factors drive this backlash. First, investors have challenged weak analytical foundations of ESG investing, anticipating that it is likely to deliver subpar long-term investment returns. Second, the lack of meaningful real-world impact has fed greenwashing claims.”

The research is aimed to provide information to asset managers and their clients that could improve returns and have environmental and social impact.

“Greenwashing is a rational, if unambitious reaction to ESG activists’ absurd asks,” said Arvella CIO Benoit Mercereau, in the announcement. “ESG activists exhort investors to do things that make little investment sense. Unsurprisingly, most investors won’t. ESG proponents should acknowledge investors’ reality and make the business case for ESG improvements instead. If a company’s positive ESG impact will increase its profits, investors will stop at almost nothing to maximize that impact.”

The arrangement between the Yale Initiative on Sustainable Finance and the asset manager is not the first of its kind. Other firms have recently partnered with universities to provide ESG research, including MIT’s relationship with Wellington Management and Columbia University’s partnership with AB.

‘Expert’ investors value ESG more than novices

A Schroders survey found people seek sustainable investments for multiple reasons

Seasoned investors are more likely than novices to attribute performance benefits to ESG factors – but they also value sustainable investing most for environmental and social benefits.

That is according to a report published Tuesday by Schroders, which earlier this year surveyed more than 23,000 people globally.

Just over two thirds of respondents who identified as expert of advanced investors said they agreed with the statement that “Sustainable investing is the only way to ensure profitability in the long term,” compared with 52% of intermediate-level investors and 43% of beginners. Further, experienced investors were also much more likely (69%) than others to agree that “investment can drive progress in sustainability challenges such as climate change.” Fifty-seven percent of intermediate investors and 49% of beginners said they agreed with that statement, according to Schroders.

Over the past several years, people have become more likely to say they choose sustainable investments because of environmental and social factors, rather than potential for higher returns, the company found. Fifty-two percent of people drawn to such funds cited environmental impact as their leading concern, up from 47% who said so in 2020. Meanwhile, 43% pointed to “societal principles,” compared with 32% two years ago. Those saying higher returns were their primary reason declined from 42% to 36%.

When it came to factors that would lead people to invest more in sustainable funds, the top reason (57%) was being able to pick funds that go along with their personal preferences on ESG issues, according to Schroders. Behind that were “more education about sustainable investment in general” (48%) and data showing higher returns associated with those funds (44%).

“The interaction between sustainability and returns has seen some polarizing results this year,” the firm’s head of sustainability strategy, Hannah Simon, said in an announcement. “While self-professed beginner investors appear more skeptical, the majority of people believe sustainability is crucial to delivering long-term returns.”

Earlier this year, Schroders issued separate survey data from retirement-plan investors, finding that 74% said they would increase contribution levels to their accounts if sustainable funds were available.

Muni bond ESG intel service launches

Data around climate risk and potential default can help investors amid a rise in natural disasters

Data provider UrbanFootprint and insurance company Assured Guaranty are preparing an ESG information service catered to the muni bond market, the companies recently announced.

Municipal Bond Insights is designed to help investors evaluate climate risk and other factors amid a rise in extreme weather events that cost the US an estimated $145bn in damages across 20 natural disasters in 2021, the firms stated. Such events can lead to higher rates of defaults.

“As climate change continues to accelerate the severity and regularity of extreme weather events, public finance institutions are seeking solutions to include climate and community resilience metrics in risk assessment for their portfolios,” UrbanFootprint CEO Joe DiStefano said in the announcement.

Assured Garanty has been using UrbanFootprint’s methodology for more than a year to analyze climate risks in its portfolio of insured bonds, the company said.