Spotlight on Sustainability: Your Monthly Sustainability Summary

Welcome to the first monthly Sustainability Summary, where we shine the spotlight on the latest news, views and trends in environmentally and socially sustainable finance.

Does the UK Budget do enough to support a green, socially-just economy?

The big news here in London in March was the UK Budget. With considerable pressure from all sides on the UK economy, not least from Covid-19 and Brexit, the big question is if Chancellor Rishi Sunak has been able to keep the green agenda on track while supporting the UK people, economy and diverse business groups through coming out the other side of COVID.

Pre-Budget, there were key industry calls for change: The Environment Agency, Environmental Audit Committee, other sustainability and industry bodies set out their sustainability wish list for the Budget.

In reality, the Chancellor offered just a few green and socially focused measures in the Budget. The key announcements included an-ESG-focused retail savings vehicle, contrasted by some that are not too friendly to the green agenda, such as freezing fuel tax, designed to keep living costs low for those already pressed by the pandemic.

Responses to the announcements are a real mixed bag.

Read more about how the Budget measures were received and whether businesses feel the 2021 Budget is doing enough for the green agenda in all aspects, not just sustainable finance.

Bank of England to go green?

Surprising and welcome news in the Budget was the announcement that the Bank of England (BoE) monetary policy would be targeted with supporting and driving the Net Zero transition.

Thomas Archer, Nikko Asset Management, was pleased with the commitment to sustainable finance voiced in this Budget and in the current UK Chancellor’s efforts to date, pointing out that the significance of the BoE changes for ESG investment should not be underestimated:

“From Rishi Sunak’s infancy as Chancellor of the Exchequer, there has been a real change in tone from the Treasury in the importance of a Green transition for the UK economy. This continued in Wednesday’s Budget, as Sunak pressed ahead with new policies; creation of an infrastructure bank, green finance schemes benefiting energy production, a retail savings product for investors to support green projects; and more details on the first UK Green Gilt.

“However, perhaps more significant was his announcement that as well as the Bank of England’s 2.0% inflation target for monetary policy. The Central Bank should also now, ‘reflect the importance of environmental sustainability and the transition to Net Zero,’ in doing so, changing the Bank’s approach in buying Green Corporate bonds, and ‘to account for the climate impact of the issuers of the bonds we hold.”

Archer continues: “This change in approach should not be understated and could become a real catalyst for sustainable investment by creating a significant purchaser in the UK market overnight. The Central Bank can now play a vital role and become a key capital allocator in green/sustainable finance in years to come and should be welcomed. It is hoped going forward, that more policies can encourage capital allocation to this extent in the future, which will facilitate the UK’s pursuit of a Green transition as it emerges out of the Covid-19 era.”

• More detail was announced on the green support highlighted in the Budget later in the week, including circa £15 million green sovereign bonds.
• Other measures could create opportunities for areas such as Clean Tech, such as the consultation around pension flexibility reforms and the UK Future Fund.

Business priorities

Before the Budget, iResearch Services surveyed 500 business leaders on their requirements from the Budget and business priorities, now and post-pandemic. After the event, we also asked them how the Budget announcements have changed their priorities and where their focus lies for the year ahead. In response to the green announcements so far, Gurpreet Purewal, AVP Business Development, iResearch Services, commented:

“Further commitments to green and sustainable investment are indeed welcome. Companies will be looking at how they can balance the shorter-term necessities dictated by the Covid-19 pandemic with medium and longer-term ESG goals, all in tandem with strategies for business growth, now and in the future. No mean feat! The Budget covered plenty of ground and offered support and opportunity in several key areas, but UK businesses have multiple challenges to weigh up and considerable pressure to assess strategic priorities. The drive towards a more sustainable financial future is a significant step in the right direction.”

• What do you think?
• Does the Budget go far enough?

We will continue to discuss how businesses in the UK can balance the multiple pressing priorities of the pandemic, Brexit, and ESG.

Other important ESG stories you may have missed this month

Net Zero Commitments

Net Zero commitments are rolling in constantly from big companies – it’s good to see momentum and support, as firms consider the best route forward. Here are some highlights:

• Investors ‘need not wait’ on net-zero as framework passes portfolio test.
• Aviva becomes the first big insurer to commit to the Net Zero 2040 goal.
• Jane Fraser, the new CEO of Citi, makes the company’s commitment to Net Zero goals clear at the outset.
• Bank of America also outlined the bank’s commitments last month, following numerous announcements in 2020, including JP Morgan and Morgan Stanley.
• Net Zero: a £350 billion opportunity – with the right support, says Lane Clark & Peacock.
• FedEx commits billions to Net Zero goals.
• PwC discusses how companies can bridge the gap to achieve Net-Zero.
• HSBC joins Barclays in the flight from fossil fuels.

“Frequent Net-Zero commitments are filling the news, which is evidence alone for how important becoming a sustainable business is. Skeptics will suggest that Net-Zero commitments can be seen as a marketing or PR ploy, but that is becoming less likely as internal and external stakeholders are increasingly holding the C-Suite to account once they make a pledge like this. I expect these commitments to be reflected back in quarterly investor and shareholder calls, for example.”

Kevin Anthony, VP Sales and Client Success, iResearch Services.

Funds

• UK investment managers send a stronger message about diversity in the latest industry communication.
• In a luxurious nugget of news, Prada took on a sustainability-linked loan in February.
• Goldman Sachs launched its first sustainability bond last month, to great fanfare.
• Insight Investment has urged the UK government to issue sustainability-linked bond.
• A recent online straw poll of financial advisors and asset managers found that clean, sustainable energy would have the biggest long-term impact for investors (71%), with demographics on the horizon (14%) and AI starting to come in to play at 7%.

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“Sustainability-linked loans and bonds are becoming increasingly common, and they provide the answer to a question that may be heard in many boardrooms. That question is, what value does being sustainable provide?

The answer is that your premiums may be lowered based on your business hitting KPIs such as limiting production waste for a product. This turns sustainability into a real commercial value-add.

With the likes of Goldman Sachs introducing its first sustainability bond, we are likely to see a domino effect, where other investment banks follow suit. Sometimes businesses need a reason to do something; too often we see regulation brought in to solve an issue and organisations are forced to adapt. This method is more the carrot than the stick, so it is naturally going to be more effective.”

Yogesh Shah, CEO, iResearch Services

Regulation, Reporting and Accountability

Transparency is firmly on the agenda, with varying levels of access and success, depending on company size and structure. Financial data company, Preqin, considers why transparency is easier for larger firms.

February 2021 saw several well-known data firms launch free access to ESG scores, including S&P and Refinitiv (owned by the London Stock Exchange). A new collaboration was launched between The Global Reporting Initiative (GRI) and impact measurement and management tools network B Lab.

• Enormous, expensive EU regulatory challenge for asset managers when it comes to anti-green-washing.
• There was a big win for ESG in the US as Trump’s anti-ESG investment policies are revoked.
• IFRS starts reporting standards off with climate focus.
• SEC builds ESG Taskforce for ESG and climate-related enforcement action.
• EU ESG reporting regulation warning : with the launch of the EU’s Sustainable Finance Disclosure Regulation (SFDR), the EDHEC Infrastructure Institute (EDHECinfra) has warned that existing ESG reporting schemes for infrastructure investors could fall short of requirements.
• S&P provides free access to ESG scores.
• Refinitiv (LSE) offers free access to ESG scores.
• GRI and B Lab team up to align ESG Reporting and impact management.

“Trust is top of the agenda, and we have seen some accused of ‘greenwashing’ for not being transparent enough when it comes to being accountable. The news in the US that former President Trump’s anti-ESG investment policies have been revoked is a massive step forward.

By having ESG scores made public by firms such as S&P Global, a big step will be taken to tackle the transparency problem that has been faced before, but not fixed. ESGs will increase standards to mitigate risks and with the spotlight on the industry, there will be pressure to increase unofficial regulation. The new standards will help combat negativity and rebuild trust.”

Andrew Newby, Operations Director, iResearch Services

Read more about the 3 Ts future of financial services: Trust, Transparency and Technology

Sustainable Investment

Moving in the right direction

Becky O’ Connor talks to the i newspaper about how steps in the right direction for ethical investment require compromise and commitment. She counsels not to hold off until everything is “perfect” and, equally, don’t give up when it doesn’t all go your way.

The ever-evolving regulatory agenda

“The market is constantly changing; the participants are constantly changing and the emotiveness of dealing with somebody’s hard-earned cash will always raise tensions when things don’t go to plan. And in our profession, things don’t always go to plan…”

Richard Philbin, Wellian Investment Solutions

People, Community and Connection

“Psychology can be dismissed as women can be dismissed.”

– Jenifer Nadel, co-author of WE: A manifesto for women everywhere, with Gillian Anderson.

• International Women’s Day on 8th March continues to gain traction, but what is the situation really like for women in financial and professional services? The jury is still out, according to The Economist and Financial News:
• Zurich sets high benchmark as an employer brand in financial services.
• Exciting news as Jane Fraser takes the helm at Citi, shakes up working practices and appoints new Head of Diversity, Equity and Inclusion, Erika Irish Brown.
• KPMG appointed its first female leaders in 150 years back in February.
• In the legal world, the new first female Senior Partner of a Magic Circle Firm, Georgia Dawson, was announced in September 2020. She has set clear diversity targets for the firm in 2021.
• In March 2021, a Top 10 law firm in the UK, Herbert Smith Freehills, announced their first female Chair and Senior Partner, Rebecca Maslen-Stannage.
• Hogan Lovells appoints their new Chair in May 2021, Marie-Aimee de Dampierre, and according to Financial News, Linklaters plans to follow suit.
• Communicating and connecting effectively in a loud, digital world – by former Principal of Culture & Communications at Amazon turned consultancy-founder, Kristin Graham.

“International Women’s Day is always a highlight, with so many organisations and people sharing important diversity stories, and this year has seen a welcome increase in awareness and participation as the platform of IWD continues to gather momentum throughout the year. In fintech, financial and professional services, we are seeing a shift in the number of leaders of different genders and ethnicities, marking progress, but also highlighting there is still a long way to go.

“Firms like Zurich and Citi have taken centre stage through their approach to employment during the pandemic. More organisations need to follow suit to mitigate job losses like making jobs more flexible and accessible.

“One positive the pandemic has given us is empathy. From the C-Suite to the service floor, everyone has been forced into an uncomfortable situation. This has had a transformational impact upon businesses because many employees have had to adapt to remote work, and wellbeing issues have been brought to the fore. Everyday stresses are no longer just an HR issue. Providing employees with support, education and flexibility is quickly becoming the new normal. Brands that put employees first will reap the rewards as productivity and commitment will be more likely to rise, which will provide a better client experience and, ultimately, increase revenue.

“Times are changing – let’s keep up the momentum and #choosetochallenge – to challenge inequality, challenge ourselves to tell more stories from diverse people and perspectives, to recognise and shine the spotlight on those who are making a difference.”

Rachael Kinsella, Editor, iResearch Services.

Listen to the iResearch Services International Women’s Day and Women’s History Month Podcast Special with Dr Parves Khan .

Get in touch with the iResearch Services Team to find out how we can help you create sustainability focused thought leadership programmes to drive action and positive change.