ESG Corner- June 2024

20, June 2024

IN THE NEWS

This section focuses on key developments in the US, India, and the Middle East, dissecting the most recent news and analyzing its potential to influence regional landscapes, businesses, and consumers. Uniqus provides our insights into how these developments may shape current market dynamics and set the stage for future opportunities and challenges.

Global

1. ISSB Standards To Be Used as Disclosure ‘Passport’

With many evolving voluntary and mandatory reporting requirements around ESG, it can take time for companies to keep abreast of their disclosure expectations. The International Sustainability Standards Board (ISSB) chair, Emmanuel Faber, expects US companies to use its standards as a ‘passport’. The goal is to enhance interoperability with other reporting requirements, such as California’s climate bills and the recently released climate rules from the US Securities and Exchange Commission (SEC).

2. Challenge to SEC’s ESG Proxy Vote Rule Dismissed

A U.S. federal court dismissed a challenge by Republican-led states against the Securities and Exchange Commission’s (SEC) rule regarding proxy voting on ESG issues. The SEC’s rule aims to enhance transparency in proxy voting by asset managers and safeguard investors’ interests by requiring investment funds to categorize and disclose their proxy votes on ESG topics. Four of the required fourteen categories funds must disclose voting information pertain to ESG topics, including climate change, human rights, and diversity. This decision is viewed as a victory for supporters of ESG investing, affirming the SEC’s authority to regulate proxy voting. The ruling also reinforces the current trend towards increased disclosures and consideration of ESG factors in investment decisions, and the need for companies to address these concerns in a transparent manner to meet the expectations of investors and regulators.

3. S&P 500 Companies Linking Compensation to Climate Goals

A study recently conducted by S&P Global, using the S&P Global Sustainable1 Net-Zero Commitments Tracker dataset and S&P Global Corporate Sustainability Assessment (CSA) data, found that more than a third of companies in the S&P500 Index (comprising the 500 largest US companies by market capitalization) have executive or board compensation and monetary incentives associated with a company’s emissions reduction. The practice of incentivizing emissions reductions by linking reduction achievements to executive compensation is increasing, with 15% of S&P 500 CEOs having monetary incentives tied to emissions goals, up from just 9% in 2021.

Uniqus’ POV

As the sustainability reporting landscape evolves, stakeholders must take a collaborative approach to streamline disclosure processes, making it easier for companies to comply and deliver transparency. Regardless of their ESG maturities, companies should start with a comprehensive assessment to determine applicable reporting frameworks and disclosures required or desired by various stakeholders.

This often reveals overlaps in requirements, allowing companies to identify existing data and potential information gaps. With sustainability becoming a top priority amidst expanding regulatory developments, not only should companies enhance communication and transparency with investors, but investment funds will also do so through the proxy voting process. As regulatory pressures and investor demands for climate transparency increase, companies should explore adoption of net-zero targets to align with global climate goals. Proactively enhancing sustainability strategies not only helps meet regulatory demands but also provides potential long-term financial benefits that make companies relatively more attractive to investors. Investors alike also face their own pressures related to sustainability, which are passed down the investment value chain to corporates. Integrated and forward- looking business strategies enable companies to link sustainability priorities with investor focus areas.

India

1. SEBI’s Master Circular on ESG Rating Providers’ Requirements

The SEBI Master Circular for ESG Rating Providers (ERPs) outlines procedural and disclosure requirements applicable to ERPs. It serves as a comprehensive reference point, consolidating all relevant directions related to ESG ratings. ERPs that adhere to these guidelines can help ensure transparency and accuracy in their ESG assessments. The Circular covers data collection, methodology, rating disclosure, and conflict of interest management. By following these norms, ERPs contribute to informed investment decisions and promote sustainable practices in the corporate sector.

Uniqus’ POV

The latest SEBI Master Circular for ESG Rating Providers ensures transparency and accuracy in ESG assessments. By adhering to its guidelines on data collection, methodology, disclosure, and conflict of interest management, ERPs can enhance informed investment decisions and promote sustainable corporate practices.

2. SEBI Seeks Public Opinion on Value Chain Disclosures and Green Credit2

SEBI proposes including disclosures on the Green Credit Program, generated through sustainable activities, in the Business Responsibility and Sustainability Reporting (BRSR) framework. This aims to incentivize environmentally responsible practices among listed companies and their value chain partners. The proposal also redefines value chain partners and allows for flexibility in ESG data assurance.

Uniqus’ POV

SEBI’s proposal to include Green Credit Program disclosures in the BRSR framework is a significant step towards encouraging sustainable practices among listed companies and their value chain partners. By redefining value chain partners and allowing flexibility in ESG data assurance, this initiative aims to enhance transparency and accountability. Expected measures incentivize environmentally responsible actions, drive a more sustainable corporate ecosystem, and foster long-term value creation.

3. India Auctions INR 20,000 Crore (USD 2.4B) Sovereign Green Bonds in FY24

In the fiscal year 2023-24, India achieved a notable advancement in green financing by successfully auctioning sovereign green bonds amounting to INR 20,000 crore (USD 2.4 billion). This milestone underscores India’s steadfast commitment to sustainable development and proactive climate action. The issuance of these bonds signifies a strategic effort to mobilize substantial funds for environmentally beneficial projects, demonstrating India’s leadership in leveraging financial markets to support green initiatives and address global climate challenges.

Uniqus’ POV

India’s successful auction of INR 20,000 crore (USD 2.4 billion) in sovereign green bonds for 2023-24 marks a significant stride in green financing. This milestone reflects India’s dedication to sustainable development and climate action. By leveraging financial markets to fund eco-friendly projects, India sets a precedent in global climate leadership and green investment strategies.

Middle East

1. UAE and Oman unite for Renewable Energy and Sustainable Tech projects

Driven by dwindling oil reserves and sustainability goals, Middle Eastern countries are investing heavily in renewable energy. This partnership aims to enhance cooperation in the energy sector and drive the development of sustainable technologies in the region. The UAE aims for a 44% renewable energy mix by 2030 and is currently home to three of the world’s largest solar plants and is the first country in the Middle East to operate a nuclear power facility. With its expertise, Oman is also transitioning to green hydrogen production, targeting 1 million tonnes annually by 2030. Both countries signed a USD 35 billion deal to develop renewable energy, green metals, and digital infrastructure, aiming to enhance economic collaboration through these strategic investments.

Uniqus’ POV

This USD 35 billion deal emphasizes collaboration between governments and private enterprises. Joint ventures can accelerate project implementation, share risks, and create mutually beneficial outcomes. As both nations invest heavily in renewable energy projects, private companies specializing in solar, wind, and hydrogen technologies will find expanded markets.

2. UAE Introduces 10-Year Blue Residency Visa for Environmental Champions

The UAE Prime Minister and Ruler of Dubai launched a 10-year Blue Visa residency program for environmental leaders. This visa aims to attract talent dedicated to sustainability efforts in areas like marine life, clean air, and renewable energy. It aligns with the UAE’s year of sustainability and offers benefits like long-term residency and access to resources. Applications are submitted through the Federal Authority for Identity, Citizenship, Customs, and Port Security (ICP). The Cabinet has also adopted the National Youth Agenda until 2031, which is intended to empower the youth, help them further develop scientific skills, and increase their social contributions becoming a positive representation of the nation.

Uniqus’ POV

This initiative signifies a bold step toward promoting sustainability. Those granted the visa, will contribute their expertise to critical sustainability efforts of the country. They can actively participate in shaping the UAE’s environmental policies, while their insights and experience will influence decisions related to marine conservation, air quality, and renewable energy. The UAE’s commitment to environmental leadership will enhance its global reputation. Hosting experts who champion sustainability reinforces the nation’s position as a forward-thinking hub for ecological progress.

3. Egypt in talks to secure USD 1.2B from IMF’s Resilience and Sustainability Facility

Egypt is set to receive USD 1.2 billion in green financing from the IMF’s Resilience and Sustainability Facility following discussions between Egyptian Minister of Environment Yasmine Fouad and the IMF mission. The funds aim to bolster Egypt’s environmental and climate policies, supporting initiatives integrating ecological concerns with economic development. The collaboration will focus on implementing Egypt’s National Climate Strategy 2050 and exploring effective financing mechanisms, highlighting Egypt’s commitment to sustainable practices and its ranking in the Climate Change Performance Index.

Uniqus’ POV

This funding represents a pivotal moment for Egypt’s climate policies and underscores the nation’s dedication to balancing economic growth with environmental stewardship. The private sector in Egypt can expect new investment opportunities in green and sustainable projects. This facility provides an opportunity for increased funding for initiatives related to renewable energy, eco-friendly infrastructure, and climate resilience. Companies specializing in these areas can participate in projects that align with Egypt’s National Climate Strategy 2050.

IN-DEPTH ANALYSIS

This section delves deep into a significant ESG development, offering comprehensive insights and a nuanced perspective. We break down the critical facets of this development, analyzing its implications for businesses, investors, and regulators. Our in-depth analysis clarifies the potential impact on global markets and how this change may influence strategic decisions across sectors. Join us as we explore this development, shedding light on the opportunities and challenges in the evolving ESG landscape.

Interoperability Guidelines for Companies Complying with ISSB and ESRS Sustainability Reporting Standards

To streamline reporting and ease implementation challenges, the International Financial Reporting Standards Foundation (IFRS) and European Financial Reporting Advisory Group (EFRAG) released ESRS- ISSB interoperability guidance to align the IFRS’ International Sustainability Standards Board (ISSB) standards (i.e., IFRS S1 and S2) and EFRAG’s European Sustainability Reporting Standards (ESRS). The content of this guidance is educational and does not supplant the requirements of either reporting standard.

Nevertheless, the guidance will help companies efficiently comply with the climate and sustainability- related reporting requirements from both standards, providing comprehensive information on how to begin the disclosure process and alignment on requirements (e.g., materiality). The guidelines will also alleviate efforts for global organizations that have significant operations in multiple jurisdictions, as there may be situations where an organization or its subsidiaries must comply with or voluntarily choose to report against both standards. As investors and other shareholders seek higher transparency and consistency with reporting expectations, EFRAG and the ISSB aim to alleviate the process for companies operating in the EU and elsewhere.

The ESRS, mandated by the EU’s Corporate Sustainability Reporting Directive (CSRD), goes beyond just environmental factors. Specifically, the ESRS requires companies to address social aspects like employee treatment and diversity, in addition to environmental issues like emissions and resource use. Following the multi-stakeholder lens of “double materiality, ” companies must disclose how their sustainability efforts (or lack thereof) affect their business, financially and strategically, and how their business and related value chain operations impact the environment and other stakeholders. This transparency empowers investors and stakeholders to make informed decisions while holding companies accountable for their social and environmental footprints.

Uniqus’ POV

The interoperability guidance provides clarity around the alignment of disclosure requirements and provides information that an organization starting with either set of standards must understand to enable compliance with either the ESRS or ISSB standards. For example, regardless of whether an organization begins with ESRS or ISSB standards, it can comply with the climate requirements of both standards by following the content of this guidance. For example, CSRD-compliant companies with economic nexus to the EU that also fall under the jurisdiction of ISSB disclosure requirements (e.g., in Brazil) should consider following any non-ESRS requirements, as highlighted by the interoperability guidance.

Regulatory Watch

Regulation around ESG continues to evolve rapidly. This section summarizes some of the latest regulatory developments across key global markets, including the US, EU, UK, India, and the Middle East. Our analysis captures the nature of the legislative changes or updates, along with our high-level assessment of broader implications on business practices and compliance strategies.

REGULATORY WATCH

Regulation around ESG continues to evolve rapidly. This section summarizes some of the latest regulatory developments across critical global markets, including the US, EU, UK, India, and the Middle East. Our analysis captures the nature of the legislative changes or updates and our high-level assessment of broader implications on business practices and compliance strategies.

ESG Best Practices Around the Globe

Uniqus has observed and summarized leading ESG practices worldwide, aiming to inspire governments, businesses, and individuals alike. We highlight exemplary initiatives and strategies that set environmental stewardship, social responsibility, and governance excellence standards. Learn how these best practices achieve sustainable outcomes and drive meaningful change across various sectors and communities.

Microsoft has signed the ‘world’s largest’ carbon removal deal

Microsoft has signed a groundbreaking carbon removal contract with Stockholm Exergi to deliver 3.33 million tonnes of permanent carbon removals. This will be done by installing a carbon capture unit on existing biomass plants. These biomass power plants burn natural materials such as wood pellets and forestry scraps. Carbon dioxide, which is released when the wood is burned, is absorbed by replanted trees, creating a closed carbon loop. The addition of the carbon capture unit intends to capture the carbon emissions before they enter the atmosphere. The project is expected to start construction in 2025 and deliver carbon removal certificates by 2028. The project is expected to capture up to 800,000 tonnes of CO2 annually.

Microsoft aims to be carbon negative by 2030 and remove all CO2 it has ever emitted by 2050.

Beyond this carbon removal contract, Microsoft continues to push forward on sustainability goals through initiatives such as a recent partnership with Qcells for solar energy and the launch of a new AI solution to help companies translate sustainability goals into concrete actions.

ESG Encyclopedia

Dive into the essentials of ESG with our monthly spotlight on key topics, themes, and concepts shaping the landscape of sustainable business practices. In each issue of our newsletter, we select a new focal area to give you an in-depth understanding of its significance and application.

Carbon Credits

Carbon credits permit the release of a specific quantity of carbon dioxide or other greenhouse gases (GHGs). Each credit corresponds to the emission of one metric ton of carbon dioxide or its equivalent in other greenhouse gases. These credits are often referred to as carbon offsets.

Carbon credits are a vital component of cap-and-trade programs. In these programs, polluting companies receive credits that allow them to emit up to a specific limit, which is regularly reduced over time. If a company has excess credits, it can sell them to other companies in need, creating a financial incentive for companies to reduce their greenhouse gas emissions.

Supporters of the carbon credit system argue that it leads to measurable and verifiable reductions in emissions from certified climate action projects. They believe it is an essential tool for governments and private enterprises to address the climate crisis. As a result, various carbon compliance markets are operational worldwide.

Authors

Dr. Elena Primikiri, Partner, ESG Consulting

Nirav Patel, Partner, ESG Consulting

Matt Berner, Managing Director, ESG Consulting

Sagnik Chakraborty, Manager, ESG Consulting

Tiphaine Delepine, Manager, ESG Consulting

Alexandra Matalon, Associate Consultant, ESG Consulting

Rahil Shah, Associate Consultant, ESG Consulting

Ryan Kim, Associate Consultant, ESG Consulting

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