Green Finance Advisor of Friends of the Earth (HK)
Climate change has been the front and centre for discussion on sustainability and is likely to stay as a hot topic for the world of green finance for years to come. However, being responsible citizens of the world there are other important topics we need to find solutions. The loss of our nature is another crisis that is equally challenging for us and is bringing immense economic and societal challenges to our world. To overcome these challenges we have to understand and more important to measure the risk and the impact of the loss of our nature.
In the Davos meeting of World Economic Forum held in early 2019 the idea emerges to address these issues. Later in the year WWF and AXA worked a report to discuss about integrating nature into investment strategists. The report laid out the risks from biodiversity and called for the establishment of a mechanism for them. After a serious of meetings and discussions among different parties the Task Force of Nature-related Financial Disclosure was announced in July 2020. The Taskforce or TNFD in short called for companies and financial institutions to understand, assess and report the nature-related risks. While the reporting framework is still on the work, we may see that to mirror Taskforce of Climate-related Financial Disclosure (TCFD), which was developed five years ago and has gradually become the most preferred framework by regulators and financial institutions for reporting climate-related risks.
Under the current schedule, an informal working group is working on the TNFD framework. The target is to have the framework developed in 2021 and tested in 2022. We are looking forward to the details of it.
Michele Leung, Green Finance Advisor of Friends of the Earth (HK)
EU Sustainable Finance Package is one of the most ambitious
legislative plan globally that aims to shift capital flows towards sustainable
investment to achieve sustainable and inclusive growth. The impact is not
limited to the EU, as investment managers outside the EU may be impacted or
wish to follow if they manage European assets. It is also very likely that
other jurisdictions are also looking at putting in similar measures in place.
Sustainable Finance Disclosure Regulation (SFDR) is one of the ten
points from EU Action Plan, which is clarifying institutional investors and
asset management duties. Essentially, its objective is to harmonize ESG
disclosure standards, requiring financial market participants to integrate
sustainability risk in the investment process and to report on such integration
at both the entity and product level. In February 2021, the European
Supervisory Authorities released their Final report on draft Regulatory
Technical Standards (RTS), providing details on content, methodologies and
presentation of disclosures under the SFDR, which included a set of 64 adverse
impact indicators, including 18 principal adverse sustainability impact
indicators ad 46 additional environmental and social indicators. Based on the draft RTS, financial market
participants serving EU investors may be required to make disclosures at an entity
level of all of the 18 principal adverse
impact indicators , two from additional set of adverse impact indicators (one
environmental and one social) and any other indicators used to assess the
Re the timelines, principle-based disclosures are required from
beginning in March 2021, and then it will be more challenging in Jan 2022 as
detailed and prescriptive disclosures (i.e. adverse impact indicators) will be
Market participants has raised concerns on the data availability,
aggressive timeline and also the inefficiency and cost if to collect data
directly from companies. For example, among the required metrics, the
disclosure rate is the lowest for gender pay gap, biodiversity and water
emissions. They are now seeking for
guidance and best practices to start their new journey, many of which are now
establishing their dedicated project team and IT structure, while knowing the
limit is data availability.
One possible solution is to rely on third party vendors, which in fact, have launched tailored and robust SFDR solutions that help investors to source the data more holistically and to respond both qualitatively and quantitatively. In absence of disclosure, the third party vendors can conduct company outreach, provide estimation and supplementary data to bridge the gap.
Three months into 2021, the world
seems to slowly be moving towards a return to normalcy. In countries
everywhere, people are expressing cautious optimism about our ability to
collectively tackle the COVID-19 pandemic thanks to the determination and
ingenuity of the scientific community, which has provided newfound hope through
vaccination technology. And while concerns around vaccine equity remain high,
recent developments – such as the agreement between rival US pharmaceutical
companies, Johnson & Johnson and Merck, to collaborate on vaccine
production – have reinvigorated perceptions of trust in the ability of
institutions, including business, to contribute to a sustainable recovery.
Indeed, business has never been
better positioned to rise to the occasion. The recently released 2021 Edelman Trust Barometer startlingly reveals
that across 27 countries, business is the only trusted institution, placing
higher than NGOs, government, and media on issues that include driving economic
prosperity, encouraging long-term thinking over short-term profits, and
embracing sustainable practices.
The regional findings of the report
are similarly revealing. Consider China for example, where trust in business
remains remarkably high, despite dropping 12 points between 2020 and 2021. This
data is critical given the central role that business has to play in rebuilding
our global economy and achieving the UN Sustainable Development Goals (SDGs).
This is especially important in China, which makes up around 19% of global GDP
and will be central to ensuring that nobody is left behind in the pursuit of a
more sustainable future.
At the World Benchmarking Alliance
(WBA), we are building a movement to measure and incentivize business
performance towards this future through the development of free, publicly
available benchmarks. Our work is rooted in seven systems transformations and focuses on how the
world’s 2,000 most influential companies (SDG2000) can drive
progress on this agenda across their value chains. These companies are global
in nature, spanning 80 countries, employing 102 million people, and
representing $46 trillion in revenue. 246 are directly headquartered in China
but many more have indirect impact in China due to their supply chains or other
The global nature of these
companies requires us to work in partnership with others to ensure that our
benchmarks are built on best available science, reflect societal expectations,
and positively influence company behavior. That’s why we are built as a
diverse, multi-stakeholder Alliance of over 200
organizations representing business and industry platforms, financial
institutions, reporting platforms and standards setters, civil society
organizations, research and academia, multilateral bodies, and sustainability
consultancies. And while our Allies are global, they are currently concentrated
in the global north. With only three organizations currently based in China,
our ability to influence Chinese companies, or business engagement in China
more broadly, remains limited.
Earlier this year, WBA updated our
SDG2000 and included – for the first time – a mapping of how these companies
engage with our Allies as network members, platform signatories, assessed or
benchmarked companies, and framework or standards reporters. Our analysis found
that while 87% of companies were engaged with at least one Ally, only 276 of
the 2,000 companies currently engage with five or more Allies. In China, this
discrepancy is even more pronounced, with only 5 of the 246 Chinese companies engaging
with five or more Allies, despite all of them engaging with at least one Ally.
This data suggests that most companies, including those based in China, are
insufficiently aware of the role partnerships play in achieving a more
sustainable future. Given the magnitude of these companies and their impact
across the SDG agenda, a multitude of partnerships is needed, requiring both
companies and Allies to step up their mutual engagement.
WBA has been proud to work with Friends of the Earth (HK) over the past 18 months on strengthening our engagement with companies in China on this agenda. As our first Chinese-based Ally, FoE (HK) has been instrumental in supporting our efforts in the region. This includes convening dialogues and roundtables with Chinese utilities companies, for example, on needs and opportunities for increased ambition and action using the methodology and benchmark data from WBA’s Electric Utilities Benchmark. It also includes more targeted policy and advocacy engagement, including submitting a joint statement of support for mandatory emission disclosure by companies in response to the public consultation of the National Energy Administration’s 14th Five-Year Energy Planning Development. These efforts have been critical to laying the groundwork for more substantive engagement moving forward, including around the development of our Oil & Gas Benchmark later this year and on efforts to ensure a just transition in China on the road to decarbonization.
These efforts need be replicated,
however, to achieve impact at scale in the region. In recent weeks, WBA has
been proud to welcome two more Chinese-based Allies, Ascent
and Green Light Year – both of who we
forward to working with over the coming years to help guide, and hold to
account, Chinese companies for their performance.
As we begin to emerge from the worst of the crisis and transition towards rebuild and recovery, collaboration will be critical to restoring our trust in institutions, empowering business to lead, and ensuring a just and inclusive future for all.