Market Wrap
A NewDay, but not a new dawn for article 9 funds
- 9fin team
•5 min read
This is the weekly ESG Wrap, which highlights Featured 9fin ESG content, such as TLDRs for all deals, news stories that have interested the ESG team this week, and 9fin ESG product updates.
9fin featured content
NewDay – ESG QuickTake (9fin) (22/11/22)
TLDR: Credit card lender NewDay’s target to achieve carbon neutrality by 2022 lacks ambition. Its net zero emissions target includes Scope 3 but is not SBTi-verified. NewDay reports lower performance than peers for both board gender diversity and gender pay gap. NewDay has not been involved in any cases related to financial crime. As a digital banking company, cyber attacks represent a material threat to NewDay.
If you are not a client but would like to request a copy of the NewDay ESG QuickTake, please complete your details here.
United Rentals – ESG QuickTake (9fin) (22/11/22)
TLDR: United Rentals (UR) is an equipment rental company specialising primarily in general construction/industrial equipment and aerial work platforms. Petroleum and hazardous waste spills represent a significant environmental material risk to UR. Waste management performance lagged behind competitors. Emissions and energy consumption reporting and performance exceeds peers. UR performs better than peers in terms of health and safety performance/targets, employee turnover and union representation. It marginally underperforms on gender representation. CEO and non-CEO pay are tied to ESG factors. The group shows good engagement on cyber security issues.
If you are not a client but would like to request a copy of the United Rentals ESG QuickTake, please complete your details here.
COP27 — Private sector off-course on road to “climate hell” (23/11/22)
COP27 closed as an event high in rhetoric and low in action, with finance itself held up as an example of a sector lagging. Positive takeaways for sustainable finance were few and far between, making it clear that the next decade will be crucial for the development of an industry that is free from greenwashing and allows asset owners to make impactful climate-related investments. This 9fin feature provides an overview of the key takeaways for investors from this year’s COP and looks at how COP’s themes have permeated into the LevFin market.
News & Stories Followed by 9fin's ESG team
SFDR credibility ‘at stake’ as trickle of Article 9 downgrades grows to a flood (25/11/22)
More than a tenth of all Article 9 funds (just under 130) have announced plans to ditch the classification since the start of November. These include many ETFs tracking Paris-aligned (PAB) and Climate Transition benchmarks (CTB). The bulk of the changes have come from Amundi, which said in a statement it had decided to take “a conservative approach” in terms of fund classification, ditching the Article 9 classification for “almost all” of its 100 funds in the category, which between them manage €45 billion. BlackRock has also downgraded all but one of its Article 9 ETFs to Article 8, for a total of 16 funds with $26 billion in managed assets. This includes its flagship iShares Global Clean Energy ETF, which has $6.2 billion.
Goldman Sachs to pay $4m penalty over ESG fund claims (23/11/22)
Goldman Sachs has agreed to pay a $4m penalty over US regulatory charges that the bank’s asset management division misled customers about environmental, social and governance (ESG) investments. The SEC’s settlement involved two mutual funds and one separately managed account strategy. Before February 2020, Goldman Sachs employees completed certain ESG questionnaires for evaluating companies included in the funds after securities were already picked, the US regulator said in a statement on Tuesday.
Firms linked to Uyghur persecution in multiple Article 9 funds (22/11/22)
A new report by Hong Kong Watch and Sheffield Hallam University named a series of companies with alleged links to the repression and forced labour of Uyghurs and found that large asset managers and prominent pension funds in the US and UK have significant holdings in them via passive funds. Analysis by Responsible Investor of 12 of the 13 companies listed in the report shows that all of them appear in funds classified as Article 9 under the EU SFDR, the strictest level of sustainability reporting. The firms most commonly found the in these funds tracked a series of Climate Transition and Paris-aligned benchmarks from MSCI and Solactive and broad market-based indices such as the MSCI China Index, MSCI Emerging Market Index and MSCI All-Country World Index ex-US. Some of the alleged companies include Hoshine Silicon, Xinjiang Goldwind Science and Technology, Foxconn Technology, China Railway Group, BGI Genomics, Lens Technology, and Zhejiang Dahua Technology.
The International Capital Market Association (ICMA) and the International Regulatory Strategy Group (IRSG) will convene an independent group to develop the Code. Consistent with their respective objectives, the FCA, the Bank of England and other relevant financial regulators and government departments will sit as active observers to this group. The group will be co-chaired by M&G, Moody’s, London Stock Exchange Group (LSEG) and Slaughter and May, and will be composed of stakeholders including investors, ESG data and ratings providers, and rated entities. The group will aim to meet for the first time later this year.
European Parliament votes for mandatory female board representation (22/11/22)
The European Parliament has approved a law requiring the inclusion of a minimum of 40% women on non-executive boards by 2026. The vote follows an agreement between the European Council and European Parliament in June to improve gender balance on company boards. Small and medium-sized enterprises with fewer than 250 employees will be excluded from the legislation. The directive will introduce quotas for member states on both executive and non-executive boards with 33% female representation as the overall minimum requirement.
Amundi, Deutsche Bank’s DWS Downgrade ESG Funds in Big Reset (21/11/22)
Amundi is reclassifying almost all funds currently listed under the EU’s top ESG category, known as Article 9. Amundi said the decision affects close to €45 billion ($46 billion) in Article 9 products. DWS also plans to downgrade €2 billion in fund assets. BlackRock said earlier this month it will downgrade 17 exchange-traded funds classified as Article 9, which will affect $26 billion in assets under management. Many of those ETFs had tracked MSCI climate benchmarks.
ESMA is seeking stakeholders’ feedback on the introduction of quantitative thresholds for the minimum proportion of investments sufficient to support the ESG or sustainability-related terms in funds’ names. The main elements of the consultation paper on draft guidelines for the use of ESG or sustainability-related terms in funds’ names on which ESMA is seeking stakeholders’ feedback are: 1) a quantitative threshold (80%) for the use of ESG-related words; 2) an additional threshold (50%) for the use of “sustainable” or any sustainability-related term only, as part of the 80% threshold; 3) application of minimum safeguards to all investments for funds using such terms (exclusion criteria); 4) additional considerations for specific types of funds (index and impact funds).
