EU banking supervisor The European Banking Authority (EBA) announced the launch of a consultation on new proposed guidelines, setting out requirements for banks to identify, measure, manage and monitor ESG risks, including setting plans to address risks arising from the EU’s transition to a climate-neutral economy.

Requirements for banks under the proposed guidelines would include undertaking regular materiality assessments of ESG risks, ensuring the ability to identify risks through data processes and methodologies including exposure-based, portfolio-based and scenario-based approaches, and the integration of ESG risks in their regular risk management frameworks, with considerations of impact across risk categories including credit, market, operational, reputational, liquidity, business model, and concentration risks, across short-, medium-, and long-term time horizons.

The guidelines would also require institutions to develop Capital Requirement Directive-based (CRD) transition plans addressing risks arising from the climate transition and financial risks stemming from ESG factors and regulatory objectives.

According to the EBA, the new guidelines were developed in line with the regulator’s roadmap on sustainable finance. Launched in late 2022, the roadmap sets out the EBA’s priorities and plans in the areas of sustainable finance and in supporting and monitoring the integration of ESG risk considerations in the banking framework, through key objectives that include risk management and supervision, treatment of exposures, and ESG risk and sustainable finance monitoring.

Explaining the rationale behind the new guidelines, the EBA noted that despite actions taken over the past few years to manage the impacts of ESG factors, “several shortcomings have been observed in the inclusion of ESG risks in business strategies and risk management frameworks,” which the regulator said could “pose challenges to the safety and soundness of institutions as the EU transitions towards a more sustainable economy and ESG risks become increasingly substantiated or materialize.”

The guidelines also note a different approach relative to other sustainability-focused regulation such as the Corporate Sustainability Reporting Directive (CSRD) and the proposed Corporate Sustainability Due Diligence Directive (CSDDD), which focus on the compatibility of business models with the EU’s climate and sustainability objectives, while the EBA’s proposals focus instead on ensuring ESG risks are assessed and embedded in strategies and policies, rather than requiring banks to align with specific sustainability goals or transition pathways.

While specifying that the goal of setting up prudential plans “is not to force institutions to exit or divest from carbon intensive sectors,” the guidelines do aim to “stimulate institutions to proactively reflect on technological, business and behavioral changes driven by the sustainable transition,” including focusing on the related risks and opportunities, transition planning and engagement.

Click here to access the draft guidelines. The EBA consultation is scheduled to run until April 18.

Lawmakers in the European Parliament and Council announced today that they have reached a provisional agreement on proposed new rules to strengthen emissions standards for heavy-duty vehicles, including a requirement for a 90% emissions reduction for heavy trucks by 2040.

Additional interim requirements covered by the agreed standard include 45% emissions reductions from 2030, and 65% from 2035.

The agreement follows an initial proposal by the European Commission in February 2023 for a revision of the CO2 emissions standards for heavy duty vehicles (HDVs). Trucks and buses account for over 6% of total greenhouse gas (GHG) emissions in the EU, and more than 25% of GHG emissions from road transport.

Among the most significant revisions in the new agreement to the Commission’s initial proposal include an expansion of the scope of the regulation aimed at making nearly all HDVs subject to emissions reduction targets, including smaller trucks, urban buses, coaches and trailers, while allowing exemptions such as small-volume manufacturers and vehicles used for mining, forestry and agriculture, and vehicles for use by the armed forces, fire services, or in civil protection, public order and medical care. Additionally, the agreement extends the scope of the regulation to vocational vehicles such as garbage trucks or concrete mixers from 2035, while also introducing a 2035 100% zero emissions target for urban buses, with an intermediate 90% 2030 goal.

The agreement also includes a requirement for the Commission to review the effectiveness and impact of the amended regulation in 2027, including evaluating the possibility of developing a common methodology for the assessment and reporting of the full lifecycle CO2 emissions of new HDVs, studying the potential role of introducing a carbon correction factor (CCF) to enable the inclusion of renewable fuels and carbon neutral e-fuels in the fleet transition mix, and assessing the role of a methodology for registering HDVs exclusively running on CO2-neutral fuels.

With the provisional agreement reached, the new regulation will need to be endorsed by member states’ representatives on the Council and by Parliament’s environment committee, and then formally adopted by the Parliament and Council before entering into force.

The Taskforce on Nature-related Financial Disclosures (TNFD) announced a commitment by 320 companies and financial institutions to start nature-related corporate reporting, based on the recently released TNFD recommendations, with some to begin disclosures with their annual corporate reporting for 2023.

The commitments, announced at the World Economic Forum’s (WEF) Annual Meeting in Davos, Switzerland, marks a significant move towards the establishment of standardized reporting on nature-related governance, strategy, risk management and targets, with companies signing on representing $4 trillion in market capitalization, and also including more than 100 financial institutions across banks and insurers as well as asset owners and managers representing $14 trillion.

Each of the companies have pledged to begin providing TNFD-aligned disclosures as part of their annual corporate reporting for either the 2023, 2024 or 2025 fisal years.

Asset managers joining the commitment included Norges Bank Investment Management (NBIM), the investment manager for Norway’s $1.4 trillion oil fund.

Carine Smith Ihenacho, Chief Governance & Compliance Officer of NBIM, said:

“Addressing nature-related financial risks has been a longstanding priority on our ownership agenda at Norges Bank Investment Management. As active contributors to the Taskforce on Nature-related Financial Disclosures (TNFD), we are committed to leveraging this tool to deepen our understanding of our portfolio’s nature-related impacts and dependencies, further reinforcing our responsible investment efforts in this important area.”

The commitments follow the publication in September by the TNFD of its final recommendations for nature-related risk management and disclosure, following a a two-year process, beginning with the formation of the TNFD in June 2021, building on the success of the Task Force on Climate-related Financial Disclosures (TCFD).

The TNFD’s recommendations are anticipated to be used to help shape the development of future sustainability disclosure standards. The International Sustainability Standards Board (ISSB) of the IFRS Foundation, for example, which recently launched its landmark sustainability and climate reporting standards, has already announced that the TNFD recommendations will inform its future standard setting, and environmental disclosure platform CDP stated that it plans to align its global disclosure platform with the TNFD framework.

Calling the commitments a “milestone moment for Nature finance and for corporate reporting,” David Craig, Co-Chair of the TNFD and former founder and CEO of Refinitiv, said:

“As climate-related sustainability reporting goes mainstream through the new International Sustainability Standards Board (ISSB) standards and regulation in a growing number of countries, this is a clear signal that investors, lenders, insurers and companies are recognizing that their business models and portfolios are highly dependent on both nature and climate and need to be treated as both strategic risks and investment opportunities.”

Lawmakers in the European Parliament voted 593-21 on Wednesday to adopt a new anti-greenwashing law banning a series of commercial practices, including the use of unproven generic product claims such as “environmentally friendly,” or “climate neutral,” or marketing a product as having a reduced environmental impact based on the use of emissions offsetting schemes.

The agreement follows the release in March 2022 by the EU Commission of a set of proposals to amend the EU’s existing rules aimed at protecting consumers from unfair commercial practices such as untruthful or aggressive advertising and providing consumers with information on products, to include considerations relating to the green transition. A recent study by the Commission found that more than half of green claims by companies in the EU were vague or misleading, and 40% were completely unsubstantiated.

Key aspects of the new law include rules aimed at making product labels clearer by banning the use of generic environmental claims not backed up with proof, and the regulation of sustainability labels to allow only the use of those based on official certification schemes or established by public authorities. The law will also ban the use of claims based on offsetting schemes that indicate that a product has a neutral, reduced or positive impact on the environment.

The new law also includes rules focused on product durability, requiring guarantee information on products to be more visible, and mandating the creation of a harmonized label to give more prominence to goods with an extended guarantee period, as well as banning unfounded durability claims, prompts to replace consumables earlier than strictly necessary, or presenting goods as repairable when they are not.

The new legislation must now be approved by the EU Council, which reached a provisional agreement in September with Parliament on the proposals, before passing into law. Once published in the EU’s Official Journal, member states will have 2 years to integrate the rules into national law.

In addition to the new law, the EU Commission has also proposed a “Directive on Green Claims,” to protect consumers from greenwashing, aimed at establishing a new set of rules requiring companies to substantiate and verify their environmental claims and labels.

Following the MEP’s vote, Parliament’s rapporteur Biljana Borzan said:

“This law will change the everyday lives of all Europeans! We will step away from throwaway culture, make marketing more transparent and fight premature obsolescence of goods. People will be able to choose products that are more durable, repairable and sustainable thanks to reliable labels and advertisements. Most importantly, companies can no longer trick people by saying that plastic bottles are good because the company planted trees somewhere – or say that something is sustainable without explaining how. This is a big win for all of us!”

Global commodities trading company Trafigura announced a new agreement with 1PointFive, the Direct Air Capture (DAC)-focused subsidiary of energy giant Occidental (Oxy) for the advance purchase of carbon credits to be produced from 1PointFive’s industrial DAC facility, STRATOS.

Announced at the World Economic Forum’s (WEF) Annual Meeting in Davos, Switzerland, the agreement marks Trafigura’s first transaction under its commitment as a Founding Member of the First Movers Coalition (FMC). Trafigura launched the commitment at last year’s WEF meeting, pledging to purchase at least 50,000 tons of carbon dioxide removal credits by the end of 2030.

FMC was launched at the COP26 climate conference, creating a coalition of companies committed to creating early markets for clean technologies addressing hard-to-abate sectors. By setting major advanced purchase commitments to be met by 2030, the coalition sends strong market signals enabling the scaling and commercialization of clean technologies including near-zero carbon steel, aluminum, shipping, trucking and aviation, as well as advanced carbon dioxide removal solutions.

Hannah Hauman, Global Head of Carbon Trading for Trafigura, said:

“We are delighted to collaborate with 1PointFive as we expand our global customer offering for hard-to-abate sectors. Supporting the development of large-scale removals projects demonstrates our commitment to advancing carbon sequestration technologies, underpinning demand today to enable the scaling of production for tomorrow.”

DAC technology, listed by the IEA as a key carbon removal option in the transition to a net-zero energy system, extracts CO2 directly from the atmosphere for use as a raw material or permanently removed when combined with storage. According to the landmark Intergovernmental Panel on Climate Change (IPCC) climate change mitigation study released last year, scenarios that limit warming to 1.5°C include carbon dioxide removal methods scaling to billions of tons of removal annually over the coming decades, with DAC positioned to potentially account for a significant portion of the total.

Most solutions that capture and store CO2 are early stage and currently limited in scale, including DAC. 1PointFive is currently constructing STRATOS in Ector County Texas, which it expects to be the largest DAC facility in the world to date, designed to capture 500,000 tonnes of CO2 per year when fully operational.

According to the companies, the advance purchase of credits by Trafigura will help to support the adoption of 1PointFive’s CDR credits to help hard-to-abate industries address their emissions.

Michael Avery, President and General Manager of 1PointFive, said:

“Our work with Trafigura is rooted in a shared commitment to the climate and an understanding of the critical role that durable carbon removal, specifically Direct Air Capture, plays in helping organizations address their carbon footprint. We are excited about this agreement because it establishes our collaboration with a global commodities firm focused on reducing emissions across the value chain.”

Barclays announced today the establishment of a new Sustainable Banking Group within its Capital Markets business, bringing together the bank’s Sustainable Capital Markets and ESG Advisory teams, in a move aimed at addressing the sustainability needs of clients across industries.

According to Barclays, the newly formed business will combine its capabilities across M&A, Equity, Debt and Risk Management capabilities, offering clients with a tailored approach to coverage, advice and execution.

Travis Barnes, Global Co-Head of Capital Markets at Barclays, said:

“Combining the expertise of our superb sustainable capital markets team and ESG advisory businesses will enable us to better support clients’ ambitions to finance their sustainability and transition journeys.”

The new business will be led by Susan Barron and Cindy Quan, who have been appointed as Co-Heads of Sustainable Banking Group.

Barron has been with Barclays since 2010, most recently serving as Global Head of Sustainable Capital Markets. Quan joined the firm in 2023 from Goldman Sachs, and has been serving as Head of Americas ESG Advisory.

The establishment of the new business marks the latest in a series of moves by Barclays to expand its sustainable finance capabilities and teams, including the launch earlier this month of a new Energy Transition Group within its Corporate and Investment Bank. In 2022, Barclays announced a goal to facilitate $1 trillion of sustainable and transition financing between 2023 by the end of 2030. In July the company said that it has delivered over £87 billion ($112 billion) of green finance towards its goal to date.

Daniel Hanna, Global Head of Sustainable Finance at Barclays, said:

“We want to partner with our clients as they manage the opportunities and challenges of the transition to a low carbon future. Under Susan and Cindy’s leadership, we have created a single team that can work across all industries and our M&A, equity and debt capabilities. The combined teams will work closely with our newly formed Energy Transition Group and other teams such as Sustainable Project Finance to support clients to navigate market volatility and access the best solutions.”

By: John McCalla-Leacy, Global Head of ESG at KPMG

Last month COP28 closed in Dubai – achieving a number of landmark agreements and pledges. The summit took place in a nation that’s built its wealth on fossil fuels and amid a backdrop of a challenging geopolitical and economic landscape. As many governments and central banks grapple with inflation, supply chain bottlenecks and conflicts, a constant risk persists that immediate attention is placed on that which ‘seems’ most urgent, to the detriment of the important, and that ESG may slip off the radar. Personally, I left the UAE with a sense of cautious optimism. It wasn’t perfect, but the world seems to be moving in the right direction.

The agreement to ‘transition away from fossil fuels’ may have attracted criticism for the absence of ‘phase down’ language but the importance of the deal and how much it moves the debate forward should not be underestimated. The world is not there yet, but even recognizing on a collective level that there is a need to shift away from fossil fuels is a big deal. Coal, oil and gas account for three quarters of the world’s greenhouse gas emissions. The stark reality is that a failure to deliver a truly just energy transition, that meets the needs of both developing and developed nations – will be a failure to solve the climate crisis. Expect the world’s decision makers increase the number and depth of conversations on what actions are needed when they meet here in Davos and at future COP summits.

The COP28 summit demonstrated that there is growing awareness of renewable’s potential. There was agreement to aim to triple renewable energy capacity and double energy efficiency by 2030 whilst recognizing the need to peak global emissions by next year, 2025.  The shift to renewables is a fundamental enabler to a low carbon economy, but it won’t be easy. KPMG’s report ‘Turning the tide in scaling renewables’ highlighted the challenges ahead. A majority of industry execs surveyed (84 percent) shared that current market barriers were causing delays to roll out or funding of renewable projects.

The research in the KPMG report highlights the scale of what lies ahead. Here in Davos, business and political leaders have an opportunity to act. As the world edges closer to 2030 all the evidence suggests we will struggle to meet the original Paris Agreement targets. Indeed, if all COP28 pledges are met, the world would still fall short of keeping global warming below 1.5 degrees. Despite growing commitment and consensus, there remains key barriers to unlocking new, cleaner sources of energy and more needs to be done to communicate in a simpler, more transparent way on the impact each of us is making – positively and negatively in the world.

This week there’ll be a lot about the potential of technology and innovation, which may be leveraged to accelerate action on climate. Among them – AI. It’s something I’ve spoken about recently and I’m excited about what it can do. Whether it’s analyzing large data sets to support companies’ disclosure requirements or helping to auto-generate company specific decarbonization pathways and build transition plans, AI’s possibilities are huge. But so too is its potential to actually add to the damage being done to the planet. With questions raised about the vast amount of computing power needed to meet the AI demand as well as how the world can ensure that AI is utilized with appropriate governance and controls.

Talk of innovation in potential future technology solutions is encouraging, but innovation is also needed in the way that businesses are managed.  One example of how the business community is stepping up to this challenge, is the recent work of the World Business Council for Sustainable Development (WBCSD). Here 200 CEO-led organizations, including KPMG, are coming together to accelerate the transition to a net-zero world. WBCSD has provided guidance on how businesses may better embed the accountability for climate action into Corporate Performance and Accountability systems (CPAS) and drive the link between financial markets and sustainable business transformation.

As my week in Davos draws to a close – I recall the words of the UN Climate Change Executive Secretary, who at COP28 called “all the governments and businesses…to turn pledges into real economy outcomes, without delay”.

The work ahead, to deliver a just and low carbon economy resonates with the themes of Davos around security and trust, but these are set against the backdrop of more than half the world’s population going to elections 2024 at a time of ongoing geopolitical uncertainty. My view is 2024 will be a critical year. Business leaders should not wait for regulatory change.  If you haven’t already acted, then act now. Embed ESG in everything you do. Put the right people and right tools in place with appropriate levels of funding. Monitor, measure and respond. The climate crisis is not something to worry about in the future. It’s happening now. For leaders – across business and politics – this is our collective moment to do the right thing.

John McCalla-Leacy is Global Head of ESG at KPMG International

A significant majority of CEOs are planning, currently undertaking, or have already completed a series of actions to prepare their companies to address the risks and opportunities presented by climate change, including two thirds looking to upskill or reskill their workforce, and more than three quarters innovating new, climate friendly products or services, according to a new global CEO survey released by professional services firm PwC.

For the study, PwC’s 27th Annual Global CEO Survey, PwC surveyed more than 4,700 CEOs across 105 countries.

The survey indicated that CEOs are more optimistic about global economic growth than in the prior year study, with fewer than half (45%) anticipating a decline in growth over the next 12 months, compared to 73% last year, with lower perceived exposure to factors such as inflation, economic volatility and geopolitical conflict.

As perceived exposure to near-term factors have eased, however, the study found an increased focus on long-term megatrends such as climate change and technological disruption, with an increasing number of CEOs reporting that they are less confident in their companies’ viability over the next decade on their current path – 45% vs 39% last year – leading to increased initiatives to reinvent their business models.  

Bob Moritz, Global Chair, PwC, said:

“As business leaders are becoming less concerned about macroeconomic challenges, they are becoming more focused on disruptive forces within their industries. Despite rising optimism about the global economy, they are actually less optimistic than last year about their own revenue prospects, and more acutely aware of the need for fundamental reinvention of their business. Whether it is accelerating the roll-out of generative AI or building their business to address the challenges and opportunities of the climate transition, this is a year of transformation.”

Respondents listed climate change as having one of the most significant increases as a factor driving change in the way their companies will create, deliver and capture value, with 30% of CEOs anticipating a “large” or “very large” change over the next three years, compared to only 22% over the past 5 years.

Initiatives anticipated or underway by companies related to climate change reported by the CEOs included improving energy efficiency, with 65% now undertaking, 10% completed, and another 14% planning actions in this area; 58% in progress or completed and 20% planning new, climate-friendly products technologies or services; 47% in progress or completed and 21% planning initiatives to protect assets and workforces from climate risk, and 44% in progress or completed and 23% planning the implementation of initiatives to upskill or reskill their workforce.

Despite the progress on climate-related initiatives, however, the survey found that many CEOs are not likely to pursue several of these actions, including 31% who have no plans to incorporate climate risk into their financial planning, 30% not anticipating reskilling or upskilling implementation, and 29% with no plans for protecting assets and workforces from climate risk.

One of the key findings from the survey is an apparent increase in acceptance by CEOs of lower rates of return for climate-friendly investments, with over 40% of respondents reporting that their companies have set a lower hurdle rate for these, compared with other investments. Of those accepting a lower rate of return, most reported hurdle rates between one and four percentage points lower.

Moritz said:

“This year’s data suggests a high degree of CEO uncertainty ahead, but CEOs are taking action. They are transforming their business models, investing in technology and their people, and managing the risks and opportunities presented by the climate transition. If businesses are to thrive over the short and long-term, build trust, and deliver sustained and long-term value, they must accelerate the pace of reinvention.”

Click here to access the survey.

A group of 27 institutional investors representing more than $4 trillion in assets under management announced today that they have co-filed a shareholder resolution at Shell, urging the energy giant to set Paris Agreement-aligned medium-term target to reduce emissions arising from the use of its products.

The resolution, led by oil and gas-focused shareholder activist group Follow This, was filed by investors including Amundi, NEST, Scottish Widows and Candriam. Collectively, the investor group owns approximately 5% of Shell stock.

Diandra Soobiah, Head of Responsible Investment at NEST, said:

“We urge Shell to set a credible scope 3 absolute emissions target. This would demonstrate leadership, show Shell is serious about transitioning its business, and play a role in generating real-world change.”

The resolution calls on Shell to align its medium-term target for reductions in Scope 3 emissions from the use of its energy products with the goal of the Paris Agreement, which aims to limit global warming to well below 2°C, and to pursue efforts to limit the temperature increase to 1.5°C. The resolution also states that it leaves the strategy for achieving the targets up to the board of the company.

Follow This led a group of shareholders last year in filing a similar resolution, which received 20% support at Shell’s 2023 AGM. The updated resolution incorporates key changes, including replacing last year’s “2030 target” with a less prescriptive “medium-term targets,” and a rewritten supporting statement focused solely on emissions.

Mark van Baal, founder of Follow This, said:

“Large shareholders hold the key to tackling the climate crisis with their votes at shareholders’ meetings. Shell will only change if more shareholders vote for change. The resolution is designed to give Shell a shareholder mandate to drive the energy transition.”

In 2020, Shell announced a commitment to achieve net zero in its operations by 2050, and in 2021, the company launched its “Powering Progress” strategy, detailing how it will achieve its target to be a net-zero energy business by 2050 across Scope 1, 2 and 3 emissions, with initiatives including investing in renewable and clean energy solutions.

While the company has set 2030 targets to reduce its Scope 1 and 2 emissions, it has avoided setting an interim Scope 3 target. Scope 3 emissions represent more than 95% of the company’s carbon footprint, with “use of sold products” accounting for approximately 74%.

In the company’s “Energy Transition Progress Report” released last year, Shell Chairman Andrew Mackenzie said that “the Board has considered setting a Scope 3 absolute emissions target but has found it would be against the financial interests of our shareholders and would not help to mitigate global warming.” Shell added that in order to implement a more ambitious Scope 3 target, the company would be required to reduce its sales of oil and gas products, which in the absence of a change in customer demand, “would effectively mean handing over customers to competitors.”

In a statement provided to ESG Today following the announcement of the resolution, a Shell spokesperson said:

“Shell’s Board has previously advised shareholders that the Follow This resolution was unrealistic and simplistic, that it would have no impact on mitigating climate change, have negative consequences for our customers, and was against the interests of the company and our shareholders.

“Continued, targeted investment in oil and gas will remain necessary to meet global energy demand over the coming decades as the world transitions to a lower-carbon future.”

Battery manufacturer Northvolt announced today that it has raised $5 billion through the largest-ever green loan in Europe, with proceeds from the financing aimed at expanding its Northern Sweden-based lithium-ion battery gigafactory and battery recycling facility.

The green loan was provided by a consortium including 23 commercial banks, in addition to the European Investment Bank (EIB) and the Nordic Investment Bank (NIB), who are both supported by the European Commission’s InvestEU programme, which mobilizes investment towards sustainable investment, innovation and job creation in Europe.

Alexander Hartman, CFO of Northvolt, said:

“This has been an incredible team effort, involving long due diligence processes, new partnerships with strong institutions, and developing cutting edge financing structures focused on sustainability – all to close one of the largest green financing deals in history.”

Founded in 2016, Stockholm, Sweden-based Northvolt was established with a goal to develop the “world’s greenest battery,” targeting a minimal carbon footprint, sustainable sourcing of raw materials and recycling. To date, the company has received $55 billion in orders from customers including BMW, Fluence, Scania, Volvo Cars and Volkswagen Group.

Northvolt is currently delivering batteries from its first gigafactory Northvolt Ett, in Skellefteå, Sweden, and the adjacent recycling plant Revolt Ett is approaching the conclusion of its commissioning and is already processing its first materials. According to the company, Revolt Ett recovers battery-grade metals with a carbon footprint 70% lower than mined raw materials.

The financing will be used to expand Northvolt Ett’s cathode production and cell manufacturing as well as the Revolt Ett plant.

Peter Carlsson, Co-Founder and CEO of Northvolt, said:

“This financing is a milestone for the European energy transition. It will enable us to realize the full potential of Northvolt Ett and demonstrates that circular, sustainable business practices are fundamental to success in today’s industry.”