The disclosure and transparency trend

As part of edie's new ESG Handbook, CDP's head of investor research Carole Ferguson outlines how the twin threats of the coronavirus pandemic and the climate crisis is creating a heightened focus on transparency amongst investors and corporates.

The disclosure and transparency trend

Climate change has been rising rapidly up the policy agenda in the last few years and has increasingly been at the forefront of minds for companies, investors and consumers. With the physical risk of climate change such as the Australian wildfires bringing ongoing media attention to the subject.

The arrival of Covid-19 caught the world by surprise and there was concern that the current and ongoing response to tackle the human, social and economic costs of the pandemic will be a set back to the growing initiatives starting to be put into place by policy makers, companies, investors and the broader society to tackle climate change. There was concern that delaying events such as COP 26 would result would de-rail action on climate change.

However, it appears the extreme shock to our systems and the social and economic costs from Covid-19 has reinforced the need to address future shocks from ecological risks such as climate change. There is a recognition that pandemics and climate risks could lead to the same shocks to the system and cause disruption to normal economic and social activities and practices. Lessons learnt from the pandemic could help to prepare not just for mitigation strategies but also adaptation strategies to build greater economic and environmental resilience to climate change.

On the policy front, stimulation packages from the EU have green innovation linked to financial aid. Even in countries which have not made an explicit link between green investment and financial stimulation, there is an ambition to create new industries and jobs linked to environmental innovation.

The threat from Covid-19 has led to a broader adoption of the digital economy re-dressing normal social and working practices in terms of communication, remote working and how we source goods and services. This could have profound impacts on the emissions profile from sectors such as aviation where cheap travel had becoming the norm driving a relentless rise in emissions.

In financial markets, the growth in ESG funds is accelerating – an estimated $75bn under management in ESG ETFs which represents a 64% five-year annualised growth rate seeing a further spike with $16bn inflows linked to MSCIlinked ETFs year to date against a $34bn outflow in all other categories (UBS). Growth in financial regulation around climate disclosure for financial institutions is likely to continue to see a continuation of this trend which in turn will drive investor calls for greater disclosure and transparency from the companies they invest in.

Therefore, while Covid-19 has extracted an unprecedented toll on global economies with significant costs to bear, it has inadvertently acted as a wake-up call to the risks and costs related to climate change.

edie’s ESG Handbook

Green finance and ESG investing were reaching a tipping point, then the coronavirus pandemic swept across the world. The virus hasn’t so much as tipped the scales towards ESG investing but rather poured most of the world’s financial system towards it.

If businesses want to assist with national and global efforts to build back better, aligning to ESG reporting requirements is one way to ensure the finance is funnelled into a global
green recovery.

As such, sustainability professionals can download a new report, sponsored by UL and created in association with edie’s Sustainable Investment Virtual Conference, will explain the complexities of ESG and outline best practice applications for businesses.

The report examines all the key considerations across all three ESG pillars and explores where the data fits into the current reporting landscape. Expert viewpoints are also provided by UL and CDP, outlining the importance of ESG to the investor community. Case studies linking through to in-depth stories also feature.

Download the report here.

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