With all the problems inherent in the evolution of the regulation of sustainable investments in Europe, we must not forget the focus which is the financing of the climate transition. Article 2.17 SFDR does not help allocate funding to sustainable projects, and the European taxonomy does not work either.. On average, income taxonomy alignment is 10%, although slightly higher for investments, 14%, which, at least, is a sign in the right direction. Visit the specialized elEconomista ESG portal.
Taxonomy is an instrument that has quantified the problem, it tells us that we have the fever for scientific rigor, but does not serve the asset management industry. The objective is for the financial sector to finance not only what is already “green”, but also companies transitioning to economic models compatible with the Paris Agreements. Regarding the sectoral diversification of ESG funds, although the situation experienced on the markets in 2022 (war in Ukraine) and 2023 (maximum interest rates detrimental to transformational investments) has forced to expand the range of names in the ESG portfolios, The positioning of these portfolios reflects the low weight of key sectors in the contribution to global decarbonization. The mining, oil, gas and power industries remain significantly underweight. This is why a transition fund label could help facilitate such mobilization. This might interest you: The elusive “greenwashing”.
According to Net Zero Tracker, around 87% of global emissions and 93% of GDP are covered by a target net zeroeven if they have not yet had this significant influence on the trajectory of emissions. Although the reference to the decarbonization objectives validated by SBTi continues to achieve consensus among financial market players when evaluating the transition and, also, the qualification of sustainable investment according to 2.17 SFDR, the sustainable finance platform of the EU focuses on capital expenditure (investments). , as a measure looking to the future essential to validate the credibility of transition plans. Thus, the problem of the current valuation of the DNSH would be, in a certain way, “calculated”. SBTi is a useful and independent tool allowing investors to perceive the level of ambition of the company regarding its commitment to decarbonization. While the number of SBTi target companies has increased by 67% per year since 2018, a third are in the services sector, which generally has a limited carbon footprint. SBTi also suffers from other criticisms, such as its over-reliance on reported data without proper verification, limited resources, and lack of standards for hard-to-decarbonize sectors like aluminum, construction, chemicals, and steel. March 10, 2021: the lasting “tsunami”.
According to CDP, 1 in 4 companies have declared transition plans in 2023, an increase of 50% this in 2022; and 39% of them break down most of the KPIs needed to properly assess their credibility. Not only for businesses, but also for NZAMi-aligned asset managers, it is essential to have a transition assessment framework for portfolio companies. Following the UK classification and the potential replication of such a fund labeling system in our SFDR 2.0, interest in bridging funds could clearly grow.
Data quality and inconsistent reporting methodologies affect the usability of the taxonomy and the evaluation of transition plans. The CSRD (Corporate Sustainability Reporting Directive), applicable from 2025, requires financial institutions to break down the alignment of their strategy with a 1.50C scenario. The transition plan should contain elements covering transition risks, investments and associated additional financing, etc. For its part, the CSDDD directive, of subsequent application, without imposing additional requirements, deepens the execution of transition plans and their updating every 12 months. CDP and Net-Zero Data Public Utility (NZDPU) have expanded their agreement to make climate and transition information freely available to the public on more than 10,000 companies, around half of the world’s market capitalization. The CDP is aligned with the ISSB climate standard, IFRS S2, as well as the European Sustainability Reporting Standards (ESRS). We are therefore continuing our approach to integrating climate risks and opportunities into corporate strategy.
Miriam Fernández Jiménez is responsible for thematic investments at Ibercaja Gestión.
