CFA Institute, responsible investing organization Principles for Responsible Investment (PRI) and the Global Sustainable Investment Alliance (GSIA) announced today the release of Definitions for Responsible Investment Approaches, a new guideline aimed at harmonizing sustainable investment terminology for more effective investment industry communication and to reduce greenwashing risk.

According to the organizations, the new resource follows significant growth in recent years in investor interest in ESG issues, driving a proliferation of investment products and practices, but also leading to new terminology that can be unclear or inconsistent.

The guidance was developed in response to a set of sustainability-related investment and finance recommendations published in 2021 by IOSCO, the leading international policy forum and standards setter for securities regulators, which included developing common terminology for sustainable finance terms and ESG approaches. IOSCO’s recommendations were aimed at tackling greenwashing, helping investors to better understand the sustainability features and potential risks associated with EGS-themed and other investment products, and ensuring that products that identify themselves as sustainability-related through their names are accurately reflecting their focus on sustainability.

PRI CEO David Atkin said:

“Responsible investment has grown significantly, and so have the expectations for clear and transparent communication. Investors need language that enables them to communicate their responsible investment practices accurately, succinctly, and consistently. By unifying around common definitions, we support our signatories and members to communicate with confidence.”

The new resource focuses on key responsible investment approaches including Screening, ESG Integration, Thematic Investing, Stewardship, and Impact Investing. Each of the terms are provided with a definition and a detailed explanation, as well as a list of terms that served as the primary inputs and reference points, and guidance for using the terms in practice.

For example, ESG Integration is defined as “Ongoing consideration of ESG factors within an investment analysis and decision-making process with the aim to improve risk-adjusted returns,” while Impact Investing is defined as “investing with the intention to generate positive, measurable social and/or environmental impact alongside a financial return.”

CFA President and CEO Margaret Franklin, CFA, said:

“Technical terminology is an important part of professional practice.  New terms are always emerging alongside new ideas, and definitions evolve over time.  It’s important to standardize terms and definitions as practices mature so that professionals can communicate efficiently and effectively with each other as well as with clients, regulators, and other market participants. We believe this work will serve as a valuable resource for all market professionals.”

The organizations noted that the new resource is intended for investors, regulators, policymakers, and other market participants, and is meant for application across a wide range of investment style and asset classes, both in public and private markets.

Former GSIA Chair Simon O’Connor said:

“For many years, our organizations have been working to define and clarify the language of responsible investment.  This foundation of experience and expertise enabled us to come together with a common purpose to clarify and harmonize these definitions on a global scale. We now encourage the investment industry and regulators to adopt these definitions to create greater consistency.”

Click here to access the new resource.

The Science Based Targets initiative (SBTi), one of the key organizations focused on aligning corporate environmental sustainability action with the global goals of limiting climate change, announced the launch of a major transformation aimed at improving governance, boosting integrity and increasing capacity, including revealing that it is separating its standard-setting and validation activities into distinct entities.

Founded in 2015, SBTi was formed as a collaboration between CDP, World Resources Institute (WRI), the World Wide Fund for Nature (WWF), and the United Nations Global Compact (UNGC), with the goal to establish science-based environmental target setting as a standard corporate practice. The organizations’ key functions include defining and promoting best practice in emissions reductions and net-zero targets in line with climate science, providing technical assistance to companies who set science-based targets, and providing companies with independent assessment and validation of their emissions reduction targets.

SBTi said that the move to separate the standard-setting and target validation entities will help to boost credibility and integrity, and is in line with best practice for assurance bodies. The organization added that it is in the process of strengthening its standard setting processes, following the appointment of an independent technical council.

In addition to the structural transformation, SBTi announced a series of key governance changes, including incorporating the organization in the UK, establishing itself as independent from its founding organizations.

SBTi also announced the appointment of Francesco Starace, formerly CEO of Italian energy giant ENEL, as Chair of the SBTi’s Board of Trustees, and also named former President in Colombia Iván Duque and  Novozymes CEO Ester Baiget as Trustees, with plans to introduce 2 – 3 additional trustees over the next year.

Starace said:

“I am very impressed by the momentum the SBTi has built since its inception. Today, the organization validates thousands of companies’ targets each year. The SBTi plays an important role in encouraging ambitious corporate climate action, which relies on credible target validation and robust standard-setting. I feel honored to join as Chair during this phase of rapid growth.”

SBTi also unveiled plans to increase its target validation capacity in order to meet significant demand growth. The organization saw an increase of 87% last year in the number of companies setting targets.

Luiz Amaral, SBTi CEO said:

“The moment for accelerating corporate climate action is right now. This action must be built on trust as businesses require the highest level of credibility for their targets. This year we have witnessed the three hottest months ever recorded, we must accelerate on all fronts. When I joined last year, my key remit was to build out the SBTi’s governance, while scaling up the organization in the face of enormous demand. I am elated to have an industry leader like Francesco Starace join as our Chair and welcome all of the new appointees on this important journey.”

The Science Based Targets Network (SBTN) announced today the release of the first corporate science-based targets for nature, aimed at guiding companies in assessing and prioritizing their environmental impacts and setting a standard for targets to address these issues.

The new targets come as businesses increasingly focus on nature and biodiversity risk, and as global efforts to address nature-related issues begin to pick up pace. In December 2022, for example, global governments adopted the Kunming-Montreal Global Biodiversity Framework at the COP15 UN Biodiversity Conference, agreeing to a set of goals aimed at ending biodiversity loss, protecting natural ecosystems and ramping biodiversity-related financing.

Companies are also facing increasing pressure to assess and report on nature and biodiversity-related issues, with new disclosure systems emerging such as the Taskforce on Nature-related Financial Disclosures (TNFD), currently under development. In December, the International Sustainability Standards Board (ISSB) of the IFRS Foundation announced plans to add requirements for companies to provide transparency on impacts and risks related to natural ecosystems to its Climate-related Disclosure Standard, with a particular focus on the TNFD’s work.

The SBTN is a collaboration of more than 80 organizations, established to help businesses and cities operate within the Earth’s limits while meeting society’s needs through the setting of science-based targets (SBTs), in order to transform their impact. The initiative was aimed at building on the momentum of the emissions-focused Science Based Targets initiative (SBTi) to enable companies to set targets beyond climate.

According to the SBTN, the new targets will complement existing climate targets, “allowing companies to take holistic action to address their impact in the face of mounting environmental and social crises.”

Erin Billman, Executive Director of Science Based Targets Network, said:

“We are in the midst of interconnected crises. We cannot limit global warming to 1.5C without addressing nature loss, and we cannot halt and reverse nature loss without a stable climate. Crucially, we know we can’t address either without putting people and equity at the center.”

For its initial release, the SBTN is introducing targets covering freshwater and land, enabling companies to assess impacts and set goals on freshwater quality and quantity, and on the protection and restoration of terrestrial ecosystems. The release forms part of a multi-year plan, with future coverage including biodiversity and ocean targets.

The SBTN announced that an initial group of 17 companies are piloting the validation process for the new targets, with the rollout of the first target validation for companies outside of the pilot aimed to begin early 2024.

Companies piloting the new targets include AB InBev, Alpro (part of Danone), Bel, Carrefour, Corbion, GSK, H&M Group, Hindustan Zinc, Holcim, Kering, L’OCCITANE Group, LVMH, Nestlé, Neste, Suntory, Tesco and UPM.

Adrien Geiger, Group Chief Sustainability Officer at L’OCCITANE, said:

“L’OCCITANE Group has set itself the ambition to contribute to a nature-positive future. To do so, we must rely on science to ensure that our actions match our impacts and nature’s needs. Joining the SBTN Initial Target Validation Pilot is a new step towards our objective to halt biodiversity loss and understand how to make business compatible with planet boundaries.”

Investors targeting net zero portfolio emissions under their commitment to the $11 trillion Net Zero Asset Owner Alliance (NZAOA) will no longer be able to utilize carbon removals as a method to reach their alliance-aligned goals, according to new rules released by the organization. The alliance’s more stringent requirements will also require members to set climate goals for additional asset classes such as private equity investment.

Founded in 2019, the NZAOA is a UN-convened, member-led initiative of institutional investors committed to transitioning their investment portfolios to net-zero GHG emissions by 2050. The organization has grown to 84 members with over US$11 trillion in assets under management.

The new requirements form part of the NZAOA’s third edition of its Target Setting Protocol, which aims to guide alliance members in setting science-based targets on their financed emissions in order to enable alignment with IPCC pathways to keep global warming below 1.5°C.

The guidelines set out requirements for signatories to set climate goals for their portfolios, including emissions reduction targets for underlying portfolio holdings (“sub-portfolio targets) in the range of -22% to -32% by 2025 and -40% to -60% by 2030, as well as targets for high-emitting sectors.

One of the most significant changes under the new rules is the elimination of the ability of alliance members to use carbon removals to achieve their targets. Although the landmark IPCC climate change mitigation study released last year identified carbon removal as a key tool to limit warming to 1.5°C, the NZAOA stated that “with carbon removal technologies yet to impact at scale,” it would disallow their use towards the goals. The protocol also guides members to encourage investee companies to prioritize emissions reductions.

Despite the rules for members, the protocol still recognizes that the carbon removal market “is important for accelerating decarbonization,” and encourages members to “contribute to a liquid and well-regulated carbon removal certificate market before 2030.”

Additional new requirements under the protocol include expanding asset classes covered by members’ commitments. Noting that setting decarbonization targets for private equity portfolios has been challenging due to a lack of data for unlisted equity, the protocol introduces a methodology for direct private equity investments and a requirement to set targets for these investments this year, and for all private equity assets by 2025.

The new protocol also includes guidance on carbon accounting for sovereign debt, and asks members to phase in target-setting on new commercial real estate loans.

The protocol also adds a section on the Just Transition, for the first time requiring members to consider societal impacts of shifting their portfolios towards net zero, and ensuring that the benefits of the low carbon transition are fairly shared, with a particular focus on emerging markets.

NZAOA Chair and Allianz SE Board Member Günther Thallinger said:

“The Alliance continues to enhance depth and coverage with each edition of the Target Setting Protocol, aiming to build a coherent, consistent trajectory aligned to the demands of latest climate science. We show that working towards net zero is possible. It is a matter to decide to do so.”

Click here to access the new NZAOA protocol.

Responsible investment organization the Principles for Responsible Investment (PRI) announced today the release of its new Reporting Framework, setting out the updated reporting process for the organization’s investor and asset owner signatories.

The Principles for Responsible Investment were established by a group of investor signatories in 2006, supported by the United Nations, to aid investors in integrating ESG factors into the investment process. To achieve this goal, the PRI group established a set of specific, voluntary and aspirational principles for investors to follow, including the incorporation of ESG issues into the investment process, and into signatories’ own ownership policies and practices. Signatories to the PRI are also required to report annually on their responsible investment activities based on a number of different indicators.

The reporting process has been on hold since 2021, to allow for the updates to the framework. With the release of the new framework, the reporting cycle will begin again in May 2023.

David Atkin, PRI CEO, said:

“We are very pleased to launch 2023 reporting for PRI’s signatories. The updated framework provides a valuable way for our signatories to monitor and report progress against their ESG investing goals. In addition, the framework will offer broader insights into progress on responsible investment issues which are important to our signatories and the responsible investment ecosystem broadly.”

The changes to the PRI’s reporting framework reflect the increasing regulatory demands facing signatories over the past several years, particularly since the PRI reporting took place in its current form in 2012, as well as the fragmented global landscape, with different demands and expectations in different markets. According to the PRI, the new framework aims in part to deliver a reporting process highlighting where progress has been made, and where more work is needed.

Changes include improvements in clarity, with updated terminology and minimized ambiguity in questions, as well as improvements in  consistency and applicability, as well as restructuring of some sections for better alignment with other sustainability reporting frameworks such as TCFN, TNFD and ISSB.

The framework also incorporates changes to reflect emerging themes across the responsible investment landscape, including the introduction of new voluntary indicators focused on human rights. These changes reflect the priority areas highlighted by the PRI in its 2021-2024 strategic plan.

Chief Reporting Officer at the PRI, Cathrine Armour, said:

“Our Reporting Framework is constantly undergoing a process of evolution, and we believe that this most recent iteration of the framework delivers vital transparency and insight which benefits our signatories on both an individual and collective basis. Notably, the inclusion of key indicators on issues such as human rights demonstrates how PRI is enabling change through our reporting process.”

Click here to access the PRI’s updated framework materials.

The Science Based Targets initiative (SBTi) announced today the appointment of Maria Outters as Chief Impact Officer, a newly created role for the organization, aimed at driving strategic engagements, strengthening governance, and accelerating the growth of corporate climate action.

Founded in 2015, SBTi was formed as a collaboration between CDP, World Resources Institute (WRI), the World Wide Fund for Nature (WWF), and the United Nations Global Compact (UNGC), with the goal to establish science-based environmental target setting as a standard corporate practice.

The initiative has emerged as one of the key organizations focused on aligning corporate environmental sustainability action with the global goals of addressing and limiting climate change. Last year, the initiative appointed its first CEO, Luiz Amaral.

Amaral said: 

“Last year I announced plans to expand and strengthen the SBTi’s executive leadership team to support this growth, and I’m delighted that Maria has now joined us. She brings with her extensive sustainability expertise, as well as strong corporate leadership experience. I know she’ll be a huge asset to the SBTi, helping us to accelerate the impact we’re already driving in the private sector.”

In her new role, Outters will be responsible for leading SBTi’s global engagement strategy, and for supporting the incorporation of the initiative as a standalone NGO later this year, as well as its goals to reach 10,000 companies with science-based targets representing 5GT of emissions and 20% of the global economy.

Outters joins SBTi after more than 15 years at Sodexo, where she held various senior leadership positions, and most recently served as Group SVP Sustainability/ Corporate Responsibility.

Outters said: 

“Time is running out to meet the goals of the Paris Agreement, and we must expand the role of the private sector in rapidly cutting greenhouse gas emissions. That’s why I joined the SBTi – to advance this proven method for companies to align their operations and strategies with climate science. I thank the board for entrusting me with this position and look forward to working with this exceptional team.”

A UN-backed group of sustainability, business, finance and government leaders unveiled a series of recommendations aimed at developing clearer standards for net zero pledges made by businesses and other non-state entities, and avoid the use of the commitments for greenwashing.

The group, “High-Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities,” was convened by UN Secretary-General António Guterres in March 2022, to address the proliferation of net zero pledges emerging from companies, financial institutions, and local and regional governments, which range widely in detail, robustness and scope.

In her introduction to the report, Expert Group Chair, and former Canadian Minister of Environment and Climate Change Catherine McKenna said that the group has set “tight definitions for what it means to be net zero and net zero‑aligned,” making it clear that “non-state actors require not only long-term pledges but also short-term science-based targets as well as detailed transition plans showing immediate emissions reductions and capital expenditures aligned with these targets and their net zero pathway.”

McKenna added that the report addresses concerns raised by investors, consumers, and others, “around the use of net zero pledges that make greenwashing possible.”

The report sets out ten main categories of recommendations, including announcing a net zero pledge and setting targets, the use of voluntary credits, creating a transition plan, phasing out fossil fuels and scaling up renewable energy, aligning lobbying, just transition, increasing transparency and accountability, and speeding up the establishment of regulation.

For entities announcing a net zero commitment, the report recommends that pledges must be made publicly, and contain a series of interim targets aligned with IPCC or IEA net zero pathways to limit warming to 1.5°C. Targets would be required to be set within a year of making the net zero pledge, and cover emissions reductions across the entity’s full value chain and activities. The recommendations also state that while carbon credit purchases can play a role in emissions reduction efforts, entities must prioritize deep reductions in emissions, and that credits should not be counted towards the net zero pathway-required interim emissions reductions.

The recommendations also state that all net zero pledges should include specific targets aimed at ending the use of fossil fuels, and matched by a fully funded transition to renewable energy. For financial institutions, this would include immediately ending lending, underwriting or investing in companies planning new coal infrastructure, power plants or mines, as well as a commitment to end financing of exploration for new oil and gas fields, expansion of oil and gas reserves, and oil and gas production.

In order to increase transparency, entities would be required to annually disclose greenhouse gas data, net zero targets and the plans for meeting those targets, with reporting done in a standardized format.

The report also highlights the need for a move to regulated net zero requirements, including the development of regulations and standards for net zero pledges, transition plans and disclosure.

Commenting on the launch of the report at the COP27 climate conference, UN Secretary-General António Guterres, called on “all government leaders to provide non-state entities with a level playing field to transition to a just, net-zero future.”

Guterres added:

“We must have zero tolerance for net-zero greenwashing.”

Click here to access the High-Level Expert Group report.

Global investment professional association CFA Institute and the Association of Chartered Certified Accountants (ACCA) announced today the launch of a new climate finance course targeted for business, finance, investing and accounting professionals.

According to CFA Institute and the ACCA, the new course is being introduced in response to the demand for skills and training for finance and investment professionals to help organizations with their sustainability strategies and activities.

CFA Institute and President and Chief Executive, Margaret Franklin, CFA, said:

“Concerns over greenwashing and a demand for products and skills to support sustainable investing have created a real need for finance professionals to develop a deeper understanding of how these factors are impacting the industry, clients, and the world at large.”

The new course provides an introduction to climate change, and its related economic and environmental impacts, as well as climate solutions, and covers topics including carbon pricing, sustainable business models, climate risk and opportunities in the context of business and portfolio construction and investment analysis. The course requires around 10 hours of self-paced study, and can be used as verified CPD.

According to ACCA Chief Executive Helen Brand, the course, designed by experts from both organizations, is “unique in its holistic approach, looking at the perspectives of both issuers and of investors.”

Brand, added:

“Both accountancy and investment professionals have a vital role to play in the fight against climate change and creating a better world, so we’re delighted to be working with CFA Institute on this.”

A group of more than 300 financial institutions and multinational firms representing $37 trillion in assets and spending power have launched a campaign with research provider and environmental disclosure platform CDP, requesting some of the world’s highest emitting companies set climate targets aligned with the global ambition to limit global temperature increase to 1.5°C.

The campaign is backed by many of the world’s largest financial institutions including Allianz Global Investors, AXA Group, Crédit Agricole and UBS, as well as by 45 multinational companies with over $710 billion in annual procurement spending, such as PepsiCo, Astra Zeneca, and Schneider Electric.

Laurent Babikian, Joint Global Director Capital Markets at CDP, said:

“The past few months of extreme weather have again shown us what a warming world does at 1.2 degrees. It will get catastrophically worse unless we see an unprecedented reduction in GHG emissions – 50% in the next eight years – to allow us to cap the rise at 1.5 degrees. But this is simply unachievable unless the highest impact companies have ambitious targets for reducing all of their value chain emissions.”

As part of the campaign, CDP sent letters to over 1,000 companies, selected through criteria including emissions and market cap, requesting that they set emissions reduction targets approved through the Science Based Targets initiative (SBTi), one of the key organizations focused on aligning corporate environmental sustainability action with the global goals of addressing and limiting climate change.

Founded in 2015, SBTi was formed as a collaboration between CDP, World Resources Institute (WRI), the World Wide Fund for Nature (WWF), and the United Nations Global Compact (UNGC), with the goal to establish science-based environmental target setting as a standard corporate practice. Last year, SBTi launched a Net Zero Standard, which it will use to assess and certify corporate commitments to achieve net zero emissions.

According to SBTi, companies with targets approved by the organization typically cut emissions by 8.8% per year – well above the pace needed for a 1.5°C path.

The companies targeted by the campaign account for over 7 gigatons of Scope 1 and 2 emissions, and have a combined market value of over $25 trillion. Roughly half of the companies are based in the Asia Pacific region, and 23% in the U.S.

CDP carried out a similar campaign last year, and noted that the new campaign has increased year-over-year by over 30%, both in terms of the number of supporting organizations and their collective assets and purchasing power.

Dr. Luiz Fernando do Amaral, CEO of the Science Based Targets initiative, said:

“Time is running out. But while we still have a window of opportunity to prevent the worst effects of climate breakdown, there is some cause for optimism. Companies representing more than $38trn of the global economy already have validated science-based targets or commitments to set one. What’s more, according to our theory of change, we have reached the tipping point of high-impact companies worldwide. Those left must now take heed and urgently increase their climate ambitions.”

The Science Based Targets initiative (SBTi) announced today the launch of the Forest, Land and Agriculture (FLAG) Science Based Target Setting Guidance, providing a standard method for companies in land-based sectors to set science-based emissions reduction targets aligned with global climate goals.

Founded in 2015, SBTi was formed as a collaboration between CDP, World Resources Institute (WRI), the World Wide Fund for Nature (WWF), and the United Nations Global Compact (UNGC), with the goal to establish science-based environmental target setting as a standard corporate practice.

Last year, SBTi launched a Net Zero Standard, which it will use to assess and certify corporate commitments to achieve net zero emissions, and earlier this year, the organization published a draft Net-Zero Standard for Financial Institutions. SBTi has revealed plans to extend the range of its guidance and resources for specific sectors, including the FLAG, Aviation and Maritime, Cement, Steel, Buildings and Chemicals sectors.

Land-intensive sectors have emerged as a major focus area for climate action, accounting for a significant proportion of greenhouse gas (GHG) emissions, and are often among the most difficult emissions sources to address. The Forest, Land and Agriculture (FLAG) sector represents nearly a quarter of global GHG emissions, second only to the energy sector.

Martha Stevenson, WWF Senior Director and Senior Advisor for the SBTi, said:

“The food we eat, the clothes we wear, the wood used in the houses where we live and the medicines that heal us are available thanks to the forests, lands and agriculture that sustain us. However, the commercialization of our natural environment is a significant source of emissions and is also the sector most vulnerable to the effects of global warming.”

While SBTi noted that many companies in the sector have set or committed to establish net zero targets, many do not currently account for land-based emissions, such as those resulting from forestry and agricultural production, land use change and land management.

According to SBTi, the new guidance is the first standard method for companies to set science-based targets that include land-based emission reductions and removals.

One of the key requirements under the new standard method is for companies to make a commitment for zero deforestation by 2025. According to SBTi, deforestation makes up the vast majority – approximately 80% – of the mitigation potential from land use change.

Other requirements include setting near-term 5-10 year emission reduction targets in line with limiting warming to 1.5°C, and long-term targets to reduce at least 74% of emissions by no later than 2050.

The guidance also highlights the sector’s significant mitigation potential from carbon removal activities, and requires companies to account for GHG removals, like soil carbon sequestration and improved forest management, in their near-term targets, but notes that removals are not a substitute for deep emissions cuts.

SBTi stated that companies with land-related emissions that contribute to 20% or more of their overall emissions will now be required to set FLAG science-based targets.

Christa Anderson, Director at WWF and co-lead of the SBTi FLAG project, said:

“The next few years are critical in our efforts to address the climate crisis, and this guidance addresses 22% of global emissions that have largely been ignored to date. The food, land and agriculture sector has the potential to both cut emissions and enhance carbon sinks at the pace to keep the goal of limiting climate change to 1.5°C within reach.”