1. Asset managers ignore ESG at their own risk. Research by Goldman Sachs shows that asset managers in Europe struggle to sell funds not labelled as ESG under the Sustainable Finance Disclosures Regulation (SFDR). The SFDR aims to prevent greenwashing and boost sustainable investment. A fund designated under Article 6 of the SFDR is not taking any ESG considerations into account. Managers of Article 8 funds must “promise to promote ESG”, while those of Article 9 funds must “make ESG its objective and target 100% sustainable investments”. Article 6 funds are less attractive to investors, with Article 8 and 9 funds receiving 3.4 times more clients. An unofficial subcategory called Article 8+ funds who do not meet Article 9 criteria, but go beyond the requirements for Article 8, is growing as well. Article 9 funds are “seeing the most consistent inflows across equities and fixed income”. 

2. ESG through the first half of 2023. This proxy season, support for environmental and social shareholder proposals dropped significantly from previous years. In 2021, 41 environmental proposals were voted on with 42% winning a majority vote. This year, 83 such proposals went to a vote but only 22% were supported. Similar trends were observed with social proposals. One reason is a jump in anti-ESG proposals being voted on, but receiving very little support. The U.S. Supreme Court ruling on affirmative action may have also trickled down to corporations, with shareholders baulking at diversity proposals. Groundbreaking ESG legislation has also been signed into law that will change the corporate landscape, such as the European Sustainability Reporting Standards. Climate lawsuits have come before United States courts for the first time in history this year, with the state of Montana losing a case to a group of young environmentalists. 

3. Why are fewer shareholders supporting ESG? As shareholder support for social and environmental proposals fell in 2023, Morningstar analysts share potential explanations. Firstly, proposals regarding environmental and social issues this year were more detailed and prescriptive than previous years and faced more scrutiny as a result. This is very subjective, as a proposal considered too extreme by the shareholders of one company may not be by another company’s shareholders. Political backlash is another significant factor in the United States. Large asset managers such as BlackRock and Vanguard also supported fewer proposals and blamed this on the decrease in quality of such proposals. The Securities and Exchange Commission is expected to publish new rules for shareholder proposals to simplify proxy season for investors and organisations which should help streamline the process. 

4. Climate goals falling to the wayside. Sultan Al Jaber, president of COP28, emphasised at the recent Africa Climate Summit that the world is losing the race to secure the goals of the Paris Agreement and keep 1.5 (°C) within reach. This comes ahead of the United Nations first report on how countries are faring with regards to their climate goals, and how they can achieve the targets of the 2015 Paris Agreement. These remarks come on the heels of a record-breaking summer, with the summer of 2023 being the hottest summer ever recorded. Heat records were shattered and natural disasters such as hurricanes, wildfires, and flooding continue to devastate communities around the world. 

5. Can COP15’s Global Biodiversity Framework Fund stop biodiversity loss? Last week, 185 countries launched the Global Biodiversity Framework Fund (GBFF) in Vancouver, Canada. The GBFF was first ratified at COP15 in Montreal last year to help developing countries fund biodiversity mitigation strategies. Canada has pledged US$164 million in total, while the United Kingdom has put US$12.6 million into the fund. 20% of the fund is earmarked for Indigenous and community-led biodiversity protection, with ⅓ designated for the most vulnerable countries such as small island nations. The Montreal agreement asked for US$20 billion in cash flow through the fund by 2025, growing to US$30 billion by 2030. 

Ira Srivastava is Competent Boards’ Program Coordinator. Follow Competent Boards on LinkedIn.

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