Melissa Chase, Senior Content Marketing Manager, Sustainalytics 

Ruthann Bartello, Commercialization Director, Stewardship Services 

Greenwashing is a growing concern among financial market participants. Whether it’s measuring the sustainability performance of companies in a portfolio or ensuring that their own firms and offerings are not making exaggerated claims about their sustainability impacts, asset managers are on the lookout for potential greenwashing risks. Adding to the confusion is a lack of clarity around what defines a sustainable investment, as well as the growing list of regulations and reporting frameworks asset managers need to comply with.  

In this episode, we discuss the European Sustainability Reporting Standards, the cornerstone of the Corporate Sustainability Reporting Directive, which should pave the way for more accessible and standardized corporate sustainability information. You also hear from Morningstar Sustainalytics’ Ruthann Bartello about the key strategies investors can use to mitigate greenwashing risks in their investment products and across their portfolios. 

Please take a moment to share your thoughts on ESG in Conversation. You can email us at [email protected].    

00:00:00 

Introduction 

00:01:50 

Morningstar Sustainalytics new ebook “Seeing Through the Green: As Guide to Greenwashing Risks for Asset Managers”  

00:03:00 

The final Corporate Sustainability Reporting Directive and its standards are published 

00:4:09 

Investor stewardship as a tool to combat greenwashing.  

00:5:30 

Interview with Ruthann Bartello on key strategies institutional investors can use to address greenwashing 

00:06:07 

Greenwashing explained 

00:08:15 

Investor concerns around greenwashing 

00:09:58 

What’s behind investors’ concerns 

00:11:35 

Consequences of greenwashing for investors 

00:15:05 

Key regulations related to greenwashing 

00:19:31 

Strategies for asset managers to mitigate against greenwashing risks 

00:20:23

Tips for asset managers to build a robust investment strategy 

00:24:49 

Final thoughts 

Links to Select Resources 

• Seeing Through the Green: As Guide to Greenwashing Risks for Asset Managers  

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• Melissa Chase, Senior Content Marketing Manager, Sustainalytics 

• Arthur Carabia, Director, ESG Policy Research, Morningstar 

We are excited to share with you the revamped ESG in Conversation! In this new format, we’re expanding the focus beyond sustainable finance to share the latest environmental, social and corporate governance insights. In addition to highlighting recent research from our global team of ESG experts, we will continue to bring you deep dives into the ESG, climate, impact, sustainable finance and regulatory insights you need to know about. 

In this episode you’ll learn about the upcoming greenhouse gas reporting requirements for companies in North America, the implications of Europe’s policy response to the climate crisis, the Fit for 55 package, and what it means for companies that supply goods and services in the EU.    

Also, Morningstar’s Arthur Carabia discusses what the recently published International Sustainability Standards Boards reporting standards mean for companies and investors. 

Please take a moment to share your thoughts on ESG in Conversation. You can email us at [email protected].    

00:00:00 

Introduction 

00:01:45 

Greenhouse gas emissions requirements for North American companies 

00:03:50 

Interview with Arthur Carabia about the launch of the ISSB standards 

00:10:40 

Highlights of the EU’s Fit for 55 legislation 

• Mandatory Scope 3 Emissions Reporting in the U.S. and Canada: Most Companies Are Unprepared 

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In this episode of ESG in Conversation, we’re exploring the question: what does it take to be a sustainability leader in 2023 and beyond? You’ll hear from Joseph Hill, London Techstars alumn and CEO of Zephframe, about the sustainability challenges facing start-ups. You’ll also hear from Eileen Buckley, VP of Corporate Responsibility at Stryker, about the importance of integrating sustainability across an organization. Gabriel Presler, Global Head for Enterprise Sustainability at Morningstar, also joins in to discuss the role investors play in sustainability leadership.

• Curtis File, Editorial Manager, ESG and Sustainable Finance

• Juliette Goulet, Project Manager, Ellen MacArthur Foundation

As global leaders gain a more nuanced understanding of climate change, they are looking at the circular economy as a potential solution to mitigate their impact. In a circular economy, organizations aim to prevent waste throughout the value chain instead of relying solely on recycling. This approach involves sharing, leasing, reusing, repairing, and recycling materials and products for as long as possible. Proponents say the approach comes with huge potential upside. The Ellen MacArthur Foundation, for example, projects that a circular economy could reduce greenhouse gas emissions by 25%, create 700,000 jobs, and save $200 billion per year by 2040. But the path to achieving those goals is far from clear, and it will require an all-hands-on-deck effort.

In this episode of ESG in Conversation, we’re exploring the question: how do businesses, governments and investors fit into the circular economy? You’ll hear from Juliette Goulet, a seasoned sustainability practitioner from the Ellen MacArthur Foundation, about the challenges of implementing a circular economy. You’ll also hear from Wayne Hubbard, CEO of ReLondon, about putting the circular economy into practice in London, England. Joris Laseur and Jonathan Kellar from Morningstar Sustainaltyics’ stewardship team also join to discuss the role investors play in helping businesses reduce their waste and implement circular business practices.

• Nicholas Gandolfo, Vice President, Corporate Solutions

With the European Union’s Green Bond Standard set to come into effect sometime next year, we look at what it could mean for the global sustainable finance market more broadly. Although the highly anticipated framework is expected to be the gold standard for what we see in the market going forward, there are ongoing concerns about its usability. Some market participants are worried about the potential difficulty in meeting all the requirements of the Green Bond Standard and whether the standard is too prescriptive in its requirements to set up a framework.  

The sustainable debt market continues to see innovations in the types of projects being funded. One example is the use of green bonds to raise money for artificial intelligence (AI) projects related to green or social initiatives. The green bond issuance highlighted in this episode will finance AI projects related to improving the environmental performance of buildings through data analytics and energy management software. Using AI to support corporate sustainability improvements is not new, but funding such projects using sustainable debt instruments could be the next wave. 

Our sustainable finance insights show will be taking a break for the summer. We’ll be back this fall with some exciting changes to bring you more ESG, sustainable finance and responsible investing insights. In the meantime, please subscribe to ESG in Conversation on your favorite podcast platform and enjoy new episodes each month! 

• Climate Bonds Initiative – Sustainable Debt Market Summary Q1 2023 

• Concrete Policies to Underpin the Cement Transition 

• TDC NET Sustainability-Linked Finance Framework Second Party Opinion 

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Hosts:

• Sabrina Tang Sales Associate, Sustainable Finance Solutions

In this month’s episode, Nick and Sabrina dig into the sustainable finance market’s rebound in Q1. Despite the market pressures caused by inflation and the banking shake-ups at UBS and Credit Suisse, sustainable finance activity saw an upward trend in the first part of the year. Although Nick and Sabrina stop short of making any predictions about where volumes will land by the end of the year, they do note some interesting dynamics in the market: green use of proceed bonds remain strong, social and sustainability focused bonds are down slightly, and sustainability-linked finance appears to be gaining some ground again despite continued market scrutiny.

Despite the rebound in sustainability-linked bond (SLB) activity in Q1 this year, concerns remain about this sustainable debt instrument. Several recent articles and reports discuss the credibility of SLB targets, whether coupon rates offer enough of a penalty if targets are missed, and whether the performance targets and indicators have an impact on sustainability.

There’s also some media coverage on SLB issuers missing their stated sustainability performance targets. Although not ideal, missed targets among SLB issuers could be viewed as a sign of their rather than an indication of something being fundamentally wrong. For issuers considering sustainability-linked debt instruments and seeking additional guidance, check out the latest market references from Climate Bonds Initiatives (CBI).

CBI’s 2022 market summary highlights the growth of sovereign bond issuances. This is great to see because sustainable debt from sovereigns catalyzed the market in many cases. Sabrina highlights the recent activity from Turkey, Austria, Italy, and Cyprus as well as the sovereign green bond program being considered by the Australian government. In addition to more countries seeing the opportunities in sustainable debt instruments, regulators across a growing number of jurisdictions are ramping up sustainable finance activities in their countries. Developments are ongoing in India, Indonesia, Malaysia, Sri Lanka, Japan, and Vietnam to name just a few.

0:00:59

Market overview

0:02:07

Q1 market overview

0:03:25

CBI 2022 state of the market report

0:05:22

Continuing SLB scrutiny

0:06:46

Climate transition plan transparency

0:08:34

More updates to the EU taxonomy

0:09:34

Additional articles and reports to read (see links below)

0:11:34

SLB and SLL overview

0:14:15

Audience questions

0:18:14

Green bonds overview

0:21:13

Green loans overview

0:22:30

Social bonds and loans overview

0:23:25

Labeled products, transition bonds and regulatory updates

• Climate Bonds Initiative – Green and Other Labelled Bonds Fought Inflation to Amass USD858.bn Volume in 2022

• Hera Group’s Green Financing Framework Second-Party Opinion

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Host:

• Curtis File, Editorial Manager, ESG and Sustainable Finance

Featuring:

• Sune Andersen, Manager, Stewardship

The statistics are concerning. The International Union for the Conservation of Nature (IUCN) estimates that up to 28% of all species are at risk of extinction. Given these alarming figures, it is crucial for investors to take action and ensure their investments do not further harm our vulnerable ecosystems.

Join us on the latest episode of ESG in Conversation, where we delve into the critical question: how can investors effectively address biodiversity loss? Gain valuable insights from Dr. Simon Butler, an esteemed professor specializing in acoustic ecology, whose work underscores the urgent need to tackle biodiversity issues. Additionally, hear from Morningstar Sustainaltyics' stewardship and ESG research teams, providing valuable perspectives on investor engagement on biodiversity loss and the challenges faced by corporations in disclosing nature-related risks.

• Nishant Bhagchandani, Sales Manager, Sustainable Finance Solutions 

In this episode, Nick and Nishant discuss the flurry of updates in the sustainable finance regulation and guidance space. The European Union has reached a long-awaited deal on the first set of comprehensive rules for issuing green bonds. Although voluntary, the EU Green Bond Standards will help investors identify high-quality green bonds and may set a precedent for other jurisdictions.  

The Green Loan Principles, Social Loan Principles, and Sustainability-Linked Loan Principles were also recently updated to align more closely to current market practice and provide additional guidance to borrowers (e.g., recommendations that borrowers obtain an independent external review of their green, social and sustainability-linked loan processes). Other updates include recommendations for the sustainable finance taxonomies being developed in Australia and Canada, as well as the new draft version of the Taskforce for Nature-related Financial Disclosures (TNFD) framework.        

With the release of the fourth beta framework from the TNFD, market participants eagerly await the final version, due to be published this fall. This latest beta release includes a full draft reporting framework and a set of disclosure metrics, along with assessment metrics to be used by companies. The disclosure metrics will also include some core measures which are applicable to all sectors. The final framework will help to standardize the sustainability metrics companies report on, making them usable in sustainability-linked instruments and speeding up the framework’s adoption.  

0:00:59 

Market overview 

0:02:32 

Market forecast 

0:03:22 

SVB failure and climate tech 

0:04:05 

Morningstar Sustainalytics launches Low Carbon Transition Ratings 

0:04:37 

Relinking in sustainable finance 

0:05:11 

TNFD release beta version 4 of framework 

0:05:56 

Insights from Kanga News Sustainable Debt Conference 

0:06:30 

Taxonomy developments in Australia and Canada 

0:07:24 

Agreement of EU Green Bond Standards 

0:08:33 

High Seas Treaty will boost blue bond issuance 

0:08:45 

SLBs as a hedge against sustainability policies 

0:09:00 

Transition finance standards 

0:09:12 

Updated principles for green, social and sustainability-linked loans 

0:10:58 

SLB and SLL overview 

0:13:48 

Audience questions 

0:17:43 

Green bonds overview 

0:20:56 

Social bonds and loans overview 

0:22:40 

Labeled products, transition bonds and regulatory updates 

• JD Supra – Asian ESG Debt Markets Take a Breath After Record Run 

• ESG Clarity – Natixis Q&A: ‘Liquidity Will Be Driven by ESG Transparency and Clarity’ 

• Environmental Finance – Traffic-Light System Recommended for Australia's Taxonomy  

• International Energy Agency – Global CO2 Emissions Rose Less Than Initially Feared in 2022 as Clean Energy Growth Offset Much of the Impact of Greater Coal and Oil Use 

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With all the noise about ESG in the news, it can be hard to discern what is really going on. We know that the increased demand for companies to address ESG issues has meant that organizations have had to make significant changes to how they work. But when it comes to addressing, managing and reporting on ESG issues, what’s really going on behind corporate doors?  

In this episode of ESG in Conversation, we explore that question by examining how the roles of CSR and sustainability professionals are evolving to address material ESG issues. You’ll hear about the results of the Morningstar Sustainalytics Corporate ESG Survey, with insights about the challenges, concerns, and evolving roles of CSR and sustainability professionals around the world. 

View the show notes in full detail at the Sustainalytics Resource Centre. 

Read the full Morningstar Sustainalytics Corporate ESG Survey Report 2022  

Download the report to learn about the ESG challenges companies face around the world and the resources CSR and sustainability professionals are using to meet them, key steps to ESG maturity, where companies are focusing their ESG investments, and how companies are using their ESG ratings and scores. 

• Winnie Chung, Senior Associate, Corporate Solutions 

In this episode, Nick and Winnie chat about the latest news and transactions in the sustainable finance space. With a focus on innovation, they discuss the new ways in which issuers are leveraging sustainable finance instruments to fund their green and social projects. For instance, the World Bank’s recent bond issuance will forgo investor coupon payments, instead using the funds to finance a project manufacturing water purifiers in Vietnam. Using purifiers will replace biomass burning (traditionally used to boil water to make it safe to drink), resulting in lower carbon emissions. The carbon emissions saved will be turned into carbon credits and sold to fund a coupon payment to bond investors. Nick also notes innovation picking up in the areas of blue bonds and the maritime economy as well as biodiversity-focused finance activities.   

Winnie and Nick also touch on the growing ambivalence towards sustainability-linked instruments. In 2022, sustainability-linked bonds and loans seemed to lose some of their appeal as scrutiny of targets and performance indicators intensified and accusations of greenwashing arose. Adding to the discontent – slipping targets. Analysis from Barclays finds that nine out of 12 SLBs with target measurement dates in 2023 are off track to hit those targets. Consequently, we’re seeing a swing back toward traditional use of proceed instruments. This is particularly true within the green bond market which took less of a hit compared to other types of labelled bonds in 2022. With more green bond disclosure guidance and regulations expected from more jurisdictions, such as India, Bolivia, EU and Latin America, investors will likely continue to seek security in the more structured green bond market.  

0:02:20 

Market overview 

0:02:37 

Expected market rebound 

0:03:15 

Innovative structure from World Bank 

0:04:03 

Swing back to use of proceeds? 

0:04:23 

Innovative structure from ENEL 

0:05:10 

Blue and biodiversity activity 

0:05:31 

Continued scrutiny of SLLs and SLBs 

0:06:40 

ASEAN developments 

0:07:34 

New CBI reports 

0:08:04 

SLB and SLL overview 

0:11:52 

Green bonds overview 

0:17:35 

Green loans overview 

0:17:57 

Audience questions 

0:21:05 

Social bonds and loans overview 

0:22:03 

Labeled products, transition bonds and regulatory updates 

• Bloomberg – ESG Bond Sales Hit 12-Month High; Debut Deals Pile Up 

• Nokia Sustainable Finance Framework Second Party Opinion

More Episodes