Investors have teamed up with non-profit organisation CDP to create what is being described as the first standardised environmental disclosure questionnaire specifically for private companies.
CDP, which runs a global environmental disclosure platform, said the initiative aimed to address a transparency gap, whereby a trend towards privatisation of high-carbon assets risked diminishing transparency and performance on environmental, social and governance (ESG) issues “since private companies do not have to comply with the reporting requirements of a listed entity”.
It said the new private companies disclosure platform would allow investors to benchmark private companies and compare like-for-like on environmental performance.
The pilot project’s objective is to increase disclosure from private companies of all sizes, “and those with high-impact business activity that have historically avoided scrutiny on environmental issues and pressure to decarbonise”.
CDP said that to meet anticipated gaps in reporting, it would augment reported data with emissions estimates, allowing private market investors to calculate financed emissions so that they could set and report against their own net-zero commitments.
Investors including Beach Point Capital, M&G, Neuberger Berman and Nuveen are participating in the pilot.
“CDP’s initiative is seeking to provide guidance and tools for calculating emissions data to the private markets industry,” said Jennifer Signori, managing director at Neuberger Berman.
“We believe pragmatic tools will help investors understand and manage climate risks and support portfolio objectives in climate transition and solutions.”
Separately, think tank 2° Investing Initiative (2DII) yesterday announced the launch of a project to develop a climate database covering at least 200,000 SMEs across the EU. Banks, central banks and supervisors are the intended users.
XPS fund analysis: glass half full or half empty?
UK pension consultancy has said there are clear areas of and for improvement with regard to funds’ ESG risk management processes.
In 2021 it assessed 54 fund managers across 199 funds for its ESG ratings review, and today it said 23% of the funds were awarded an XPS green rating, up from 20% the previous year.
Progress had been made in relation to stewardship and fixed income funds being able to evidence robust integration of ESG, according to the consultancy, which also said private markets were beginning to make some headway in factoring in ESG considerations into decisions, albeit from a low base.
Alex Quant, head of ESG research at XPS, said the private markets progress “points to demand from asset owners for information and change”.
As concerns shortcomings, XPS said it had found evidence of strong firm-level messages not being backed up by fund investment decision-making.
It said 11% of all funds and 26% of equity funds were unable to provide any examples of E, S, or G factors being taken into account in investment decisions, “raising legitimate concerns over whether the ESG processes being described are being applied in practice”.
The consultancy said that for pension schemes the findings emphasised the need for trustees to challenge their investment consultants on due diligence and engage with managers to ensure effective stewardship, among other steps.
Spain makes green bond debut, EC’s closer
Spain has issued its first green bond, a €5bn 20-year issue, while the European Commission has adopted a framework for its own use of the debt instrument.
NN Investment Partners said the focus on climate change adaptation differentiated Spain from other sovereign green bond issuers, and that its green bond issue “proves Spain is on the right track to be climate-neutral by 2050, as per their plan”.
The European Commission said its framework was drafted in line with the green bond principles of the International Capital Market Association and aligned, “to the extent feasible”, with the proposed EU green bond standard.
As previously disclosed, the Commission is planning to raise nearly a third of the €750bn of funds allocated to Next Generation (NGEU), the EU’s recovery plan to deal with the COVID-19 emergency, by issuing green bonds.
The Commission is aiming to issue its first green bonds in October. “Judging from the Commission’s experience in the first issuance of social bonds and the growing green bond market, we expect demand for NGEU green bonds to be high,” said EU Commissioner Johannes Hahn at a press conference yesterday.