ESG Corner- July 2024

31, July 2024

IN THE NEWS

This section focuses on key developments globally, 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. ISO Plans to Launch First International Standard on Net Zero

The International Organization for Standardization (ISO) is developing a new standard to help organizations and governments achieve net-zero targets. The standard will be an independently verifiable international standard which will provide guidance on net zero strategies which are best practice, consistent and comparable across the globe. The development of this standard reflects the growing importance of sustainability and the need for coordinated action to address climate challenges. The new ISO standard on net zero is set to be launched at COP30 in November 2025, following a public consultation period earlier in the year.

2. IFRS Collaborations to Ease Reporting Requirements

GRI and IFRS – The collaboration between the Global Reporting Initiative (GRI) and the International Financial Reporting Standards (IFRS) Foundation seeks to achieve full interoperability between their respective standards. This initiative aims to enhance the consistency and comparability of sustainability reporting and financial reporting.

IFRS and IFC – The International Finance Corporation (IFC) and the International Financial Reporting Standards (IFRS) Foundation recently announced a partnership to improve sustainability reporting in emerging markets. This collaboration aims to enhance the quality and consistency of ESG reporting by providing support and resources to companies operating in these regions.

CDP and IFRS / CSRO – CDP has launched a new platform to streamline environmental reporting for 75,000 companies, cities, states, and regions. This platform aligns with IFRS S2, TNFD, and ESRS standards, simplifying compliance and enhancing data utility.

GHG Protocol and IFRS Foundation – The GHG Protocol and the IFRS Foundation have signed a Memorandum of Understanding (MoU) to streamline reporting on greenhouse gas emissions. This partnership will integrate GHG Protocol standards with IFRS S2 Climate-related Disclosures, enhancing consistency and transparency for global companies.

Uniqus’ POV

The forthcoming ISO net zero standard, and recent sustainability reporting collaborations signify a critical shift for businesses. Early adoption can provide a competitive advantage, showcasing commitment to sustainability and attracting environmentally conscious investors and consumers.

The remit of the IFRS Foundation in setting up of ISSB was to set a global baseline on sustainability disclosures. The ISSB is steadfastly moving in that direction. With interoperability being established with several global frameworks the investor focus of comparability and consistency will be achieved. the ISSB standards will set the benchmark akin to what IFRS achieved on financial reporting.

US

1. The EPA’s Updated 2024-2027 Climate Adaptation Plan

On June 20, 2024, the Environmental Protection Agency (EPA) published its 2024-2027 Climate Adaptation Plan, outlining detailed actions to address climate change’s impacts on communities, ecosystems, and the environment. The Plan is part of a combined release of over twenty federal agencies’ climate adaptation plans and focuses on building resilience against climate-related challenges and potentially devastating impacts by integrating climate considerations into the EPA’s programs, policies, and operations.

2. The Rise of Mandatory Climate Reporting

With California leading the charge on mandatory climate reporting in the United States, other states are expected to follow suit. State governments are starting to play a more active role in requiring US companies to disclose their environmental impact through increased mandatory climate reporting. The four states that are considering climate disclosure legislation are Washington, New York, Illinois, and Minnesota. Although each bill differs in timelines, they all resemble the California Climate Law SB253.

Uniqus’ POV

Attention towards climate data and reporting continues to evolve and grow in the US. The recent announcement of the EPA’s Climate Adaption Plan, and various state climate bills focused on mandatory reporting of climate data, emphasize a critical shift towards prioritizing a healthy environment.

While the future of US climate-related reporting and regulations remains somewhat uncertain, it is important that companies begin taking steps towards gathering, analyzing and assessing their climate data. Implementing technology to act as an important enabler should also be incorporated into the plan. Upskilling of people and capacity building is also an important factor that requires focus of companies. By doing this from an earlystage companies will find themselves in a comfortable place to adhere to any new regulations, frameworks, policies, or plans.

India

1. India Ranks 63rd on Energy Transition Index, Sweden on Top

India has improved its ranking to 63rd on the Global Energy Transition Index, moving up from 67th. This progress reflects India’s efforts in enhancing energy equity, security, and sustainability. The Index, released by the World Economic Forum, is led by Sweden, followed by Denmark, Finland, Switzerland, and France. India’s improvement is noteworthy amidst the global challenge of balancing energy security with environmental sustainability. Despite significant advancements, India continues to face challenges, such as its reliance on coal, which is heavily impacting its emission intensity. The report highlights the need for innovative solutions and policy interventions to accelerate the global adoption of sustainable energy practices.

Uniqus’ POV

The World Economic Forum’s Global Energy Transition Index 2024 highlights significant progress in the global shift towards sustainable energy. India’s improvement amongst the 120 countries, is due to 42% of its energy being generated from renewables, reflecting its commitment to energy security, equity, and sustainability. Sweden retains the top position due to robust energy policies. The Index assesses countries’ readiness and performance in transitioning to secure, sustainable, and equitable energy systems, considering regulatory frameworks, energy security, sustainability efforts, and carbon reduction initiatives. The leadership of countries like Sweden, Denmark, Finland, Switzerland, and France underscores the importance of global comprehensive energy policies.

2. Leading REIT’s Landmark Sustainability Bonds: Driving Green Growth with IFC Partnership

A business park REIT issued Rs 650 crore in sustainability-linked bonds to the International Finance Corporation (IFC) with a 7-year tenure and a coupon rate tied to ESG targets. These targets include reducing GHG emissions, increasing green-certified building areas, and reducing energy intensity. The bond framework includes KPI selection, performance target calibration, reporting, and verification. Bureau Veritas confirmed the framework’s alignment with international standards. This issuance follows a previous green bond issue, reinforcing the company’s commitment to sustainability and aligning with India’s net- zero ambitions.

Uniqus’ POV

The REIT’s bonds, rated AAA (Stable) by ICRA, tie their coupon rates to achieving specific ESG targets, including GHG emissions and energy intensity reductions, over a 7-year term. Supported by a robust sustainability-linked financing framework, the initiative focuses on critical elements such as selecting KPIs, calibrating sustainability targets, and ensuring rigorous verification, as validated by Bureau Veritas.

The REIT’s CEO celebrated this milestone, marking their inaugural sustainability-linked bond issuance in India’s REIT sector following a successful green bond launch. With a cumulative INR 18.6 billion in green financing, the effort underscores a steadfast commitment to sustainable growth, integrating environmental and social benefits into their business strategy. The partnership with IFC aims to advance sustainability across their business parks, aligning with India’s net-zero aspirations and promoting resilient climate finance solutions. The recent SEBI approval for ESG ratings by domestic rating agencies like ICRA, CRISIL, and CARE is expected to contribute to a more robust ESG ecosystem in India.

Middle East

1. Oman Ranks 2nd Among GCC and Middle East in the Environmental Performance Index 2024

The 2024 Environmental Performance Index (EPI) ranks Oman second among GCC states and the Middle East, just behind the UAE, advancing 99 places to 50th globally with a score of 51.9. This improvement is reflected positively in Oman’s development sectors. The EPI, focusing on ecosystem vitality (42% of the total score) and environmental health (20%), evaluates countries on habitat, biodiversity, air quality, and waste management. Oman’s efforts, including new natural reserves and biodiversity initiatives, significantly boosted its ranking. The Environment Authority’s actions in managing reserves and combating invasive species also contributed to this success.

Uniqus’ POV

Oman’s remarkable improvement in the 2024 Environmental Performance Index brings forth significant opportunities for collaboration on sustainable development projects. The score advancement highlights the effectiveness of Oman’s environmental policies and the potential for further enhancing sustainability practices. Oman plans to continue contributing efforts to protect biodiversity, combat desertification, and integrate green technologies align with Uniqus’ expertise in policy advisory, regulatory compliance, and sustainability initiatives. These efforts highlight potential collaboration to promote environmental stewardship and sustainable growth across the region.

2. QCB Launches ESG And Sustainability Strategy for Financial Sector

Qatar Central Bank (QCB) launched the ESG and Sustainability Strategy for the Financial Sector, aligning with Qatar National Vision 2030. The strategy focuses on managing climate, environmental, and social risks, mobilizing capital towards sustainable finance, and integrating ESG practices into QCB’s operations. Key initiatives include building capabilities in sustainable finance, developing a sustainable finance data infrastructure, and enhancing the financial system’s resilience to sustainability transitions. This strategy aims to support national sustainability goals and inspire regional and global efforts. The QCB has also outlined 12 supervisory ESG principles, including ‘Board oversight, ’ ‘strategy and risk materiality, ’ and ‘disclosure requirements.’ for addressing ESG and climate risk.

Uniqus’ POV

We view Qatar Central Bank’s (QCB) launch of an ESG and Sustainability Strategy for the financial sector as a transformative step towards sustainable finance. This strategy, aligned with Qatar National Vision 2030, focuses on managing climate and social risks, mobilizing capital for sustainable investments, and integrating ESG principles within QCB’s operations. Uniqus can support financial institutions in building capabilities, developing sustainable finance data infrastructure, and ensuring compliance with these progressive sustainability standards, thus fostering a resilient and sustainable financial ecosystem.

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.

Taskforce on Nature-related Financial Disclosures (TNFD)

The Taskforce on Nature-Related Financial Disclosures (TNFD) is a global initiative that provides recommendations for companies and financial institutions on assessing and reporting on nature-related financial risks and opportunities. The TNFD was established to address the urgent need for organizations to integrate nature-related considerations into their financial decision-making processes.

The TNFD recommendations encourage organizations to assess their dependencies and impacts on nature, including biodiversity, ecosystem services, and natural resources. By following the TNFD framework, companies can better understand how these dependencies and impacts can affect their short, medium, and long-term financial performance. This, in turn, helps investors, lenders, and other stakeholders make more informed decisions that account for nature-related risks and opportunities.

The TNFD disclosure recommendations are structured on four pillars, which are consistent with the Taskforce on Climate-related Financial Disclosures (TCFD) and the International Sustainability Standards Board (ISSB).

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.

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.

UAE Initiative for Financial Wellbeing and Sustainability: Emphasizing the SMART Platform and ESG Benefits

H.H. Sheikh Theyab bin Mohamed bin Zayed Al Nahyan has unveiled the UAE Initiative for Financial Wellbeing and Sustainability in partnership with First Abu Dhabi Bank and other key allies. This initiative seeks to improve financial education and offer necessary financial resources to UAE nationals and residents, promoting financial stability and economic development.

SMART Platform

Launching an innovative and integrated platform for financial well-being is crucial to this endeavor. This platform provides many services, including educational programs, debt management tools, and workshops accessible in person and remotely. The SMART platform seeks to utilize cutting-edge financial technology to make financial literacy readily available and exciting for people of all ages so that individuals can make well-informed financial choices.

ESG Benefits

This initiative highlights the UAE’s dedication to Environmental, Social, and Governance (ESG) principles. It promotes economic sustainability and resilience by encouraging financial literacy and inclusion. The comprehensive impact of this integrated approach, which involves collaboration from the public, private, and third sectors, enhances the lives of thousands of families and contributes to a more resilient future for society. This initiative gives individuals power and supports broader ESG objectives by cultivating a sustainable economic environment that benefits the UAE community.

ESG Encyclopedia

What is scope 1, 2, and 3 GHG emissions?

Numerous businesses aim to lower their greenhouse gas emissions. When they report their progress, they frequently use the terms ‘Scopes 1, 2, and 3 emissions, ’ but what exactly do these designations signify? When working towards achieving net zero emissions, one of the primary methods for evaluating and quantifying companies’ greenhouse gas emissions involves analyzing them across three distinct ‘scopes.’

Why are there three scopes of emissions?

To reduce emissions, we first need to understand and measure their sources. A company and its broader ‘value chain’ (suppliers and customers) categorize the emissions created by its operations into three scopes. The name ‘scopes’ comes from the Greenhouse Gas Protocol, the most widely used standard for greenhouse gas accounting worldwide.

Definitions of Scope 1, 2, and 3 emissions

Scope 1 pertains to the direct emissions that a company owns or controls. Conversely, scope 2 and 3 indirect emissions result from the company’s activities but originate from sources not owned or controlled by the company.

In Focus: Findings from our Latest ESG Survey

Uniqus recently released the ‘Sustainability in Action: Integrating ESG for long-term value creation’ report in collaboration with IMA India.

Based on insights gathered from surveys and interviews conducted with leaders of more than 150 companies, this comprehensive report delves into the ESG maturity of Indian corporates. It reveals significant strides in integrating sustainability into core strategies. Our findings highlight companies’ proactive steps towards ethical responsibility and using green finance and technology. The report explores how Indian businesses pave the way for a sustainable future.

Authors

Dr. Elena Primikiri, Partner, ESG Consulting

Nirav Patel, Partner, ESG Consulting

Matt Berner, Managing Director, ESG Consulting

Nachiketa Das, 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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