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Rathbone Greenbank’s top-three ESG themes for 2022

Kate Elliot, head of ethical, sustainable and impact research, Rathbone Greenbank Investments (“Greenbank”), looks ahead to 2022 and highlights their key areas of focus.

Biodiversity

While Greenbank welcomes the commitments made at COP26, Kate points out that the attention the conference received relative to that of its biodiversity-focused cousin COP15 (the first part of which took place virtually in October 2021), demonstrates that the issue of biodiversity is 10-15 years behind that of climate change. She says the world simply does not have the luxury to wait that long.

Kate Elliot says: “Biodiversity is an issue which Greenbank has been championing for many years. The Global Biodiversity Framework draft was launched in 2021 ahead of the virtual COP15, and we are proud to have participated in a workshop for financial experts to help lay out a vision for how the financial sector could best contribute to achieving the framework’s objectives. This was an important opportunity to help ensure that financial institutions can easily understand the framework and align with the goals that are produced. The second part of COP15 is expected to take place in China, from 25 April 2022, and we hope that this can help build on much-needed momentum in this area.

“Biodiversity is also a key issue for the food industry and, in August last year, we led a coalition of investors and NGOs (Non-Governmental Organisations), urging the UK government to demonstrate clear leadership and ambition in its response to the National Food Strategy’s recommendations for promoting a healthier and more sustainable food system in the UK.

“The food system is a major driver of climate change and biodiversity loss. At the same time, incidences of obesity – a key risk factor in cases of severe Covid-19 – are rising across the world, and awareness is growing of labour rights concerns in global food chains. This is an area we intend to focus on again strongly in 2022.”

Just Transition

Climate change has been the predominant ESG theme for 2021, with wild weather events providing the curtain opener for COP26. While there have been pages of analysis on COP26 – and Greenbank welcomes the commitments made to go further and faster on decarbonisation – it is really about focusing on where climate change and social factors interconnect.

Last year, the annual Rathbone Greenbank Investor Day was held on the topic of the ‘just transition’; that is ensuring that the transition to net zero remains fair for all participants.

Further to this, Greenbank also commissioned research and launched the Financing a Just Transition report.

Kate says: “The UK’s commitment to a net zero economy carries with it the potential to create large numbers of new jobs, as new industries emerge – and existing industries expand – to replace products and processes that become obsolete, as we adapt to new low carbon innovations, regulations and consumer preferences. While the analysis is specific to the UK economy as our chosen case study, our recommendations for investors are relevant at global, national and local levels, and this is an area we plan to continue to champion in 2022.”

Regulation

Kate says: “The world is knee-deep in changes to regulatory regimes when it comes to financial products and services, with those in Britain closely mirroring those of the EU, or at least heading in a similar direction. There were some important milestones last year, with more to come in the year ahead for some of the key pieces of regulation.”

The milestones include:

  • The formation of the International Sustainability Standards Board (ISSB) was announced at COP26 and was described by the FCA as a ‘game changer’. Its aim is to develop a global baseline of high-quality sustainability disclosure standards to meet investors’ information needs.
  • The FCA, in a recent paper outlining how it intends to support the government’s ‘Roadmap to Sustainable Investing’ initiative, is seeking views on the extent to which the UK can remain as consistent as possible with EU sustainable finance regulations, while reflecting the needs of the UK market.
  • One key piece of regulation will be the Sustainability Disclosure Requirements (SDR). In the UK, the SDR will create an integrated framework, drawn from international standards, for disclosures on sustainability across the economy. It will encompass disclosures by corporates, asset managers and asset owners, and investment products.
  • Alongside the SDR, certain investment products will be required to display a label reflecting their sustainability characteristics. The FCA will develop and implement the labels, building on existing work under other domestic and international initiatives. Policy proposals will be issued for consultation in Q2 2022.
  • SDR will also include disclosure requirements relating to the forthcoming UK Green Taxonomy.
  • The Green Taxonomy will provide a common framework setting the bar for investments that can be defined as environmentally sustainable. The EU is also working on a green taxonomy. The UK Government will consult on UK draft Technical Screening Criteria (TSC) during the first quarter of 2022, ahead of legislating by the end of 2022.

Kate adds: “Of course, this is just a fraction of the plethora of regulation around ESG which is currently under consideration or action. The standardisation of data is key; both the data which investors are presented with, and the data and information that they and other providers offer the wider public. A common taxonomy is central to ensuring investors understand, and can compare, the sustainability objectives of different products and services. However, it’s vital that the bar is not set too low, allowing in unsustainable activities and undermining trust in the standard.”

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