ESG Regulation and Investor Trends Towards 2024
ESG investing is evolving as regulations and investor expectations align. The transition towards sustainability is gaining importance with frameworks like SFDR influencing action. Key areas like Scope 3 scrutiny, climate risk quantification, and nature impact are set to be significant. Timelines to action are pressing as corporate targets overlap with executive tenures. Investors are focusing on sustainability for moral, marketing, and strategic reasons.
- ESG investing
- Sustainability transition
- Investor expectations
- Regulation alignment
- Corporate targets
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ESG regulation and investors. Whats changing as we head towards 2024? Tom Rayner, Sillion sillion.co.uk CGI Webinar 1
Sillion Overview Sillion advises companies, governments and NGOs on the transition towards sustainability. We help clients understand and quantify strategic implications, then position for advantage. Scenario Analysis Transition Modelling Strategy & Positioning 2
Research and Reports Research and Reports throughout the year Large qualitative survey of investor expectations Widest-read ESG briefing in the UK sillion.co.uk 3
Investor expectations - Qualitative interviews - 15 Asset Managers ($3 trillion AuM) Agenda Investors and ESG Summary 23/24 [On the Rise 23/24] Timelines to action Top Reporting Tips TCFD ISSB Quantifying impacts TPT SFDR 4
Why do investors care about Sustainability? 1 2 3 Moral Imperative Marketing Benefit Strategic Lens
Summary Observations 1 2 3 4 5 ESG in investing has survived major challenges (at least in the UK and EU) Disclosure frameworks and investor expectations are aligning Quantifying impacts of the transition growing in importance Some investor regulations are having real impact (SFDR) Pressure for action on boards and execs coming sooner than expected 01 6
On the Rise this year Scope 3 scrutiny SBTi verification Quantifying climate risks & opportunities TPT ISSB CDP / self-reporting ESG Assurance Social factors & impact Nature & Biodiversity What did we find will be increasingly important over the next year? 7
Timelines to Action 2030 targets of corporates, and their related implications for capex and opex, are beginning to overlap with likely tenures of present executives. Average tenure of FTSE350 CEO is 5.4 years. Decarbonisation and sustainability targets will need to be solved by current exec teams.
Near-universal reporting framework for UK and large-listed corporates; widely read. TCFD 1 TCFD scenario analysis signals that the management is aware of the transition and is doing something about it. This is more important to me than carbon intensities or temperature scores. Seen as proxy for ESG sophistication and indicator of good strategic management. 2 We want to know how they are thinking about the transition, how they are building an analysis into their decision-making processes for the business. Upcoming focus on remuneration; TPT expected from corporates soon. 3 9
Final standards published at the end of June. Significant uptake expected. ISSB 1 We were delighted that the FCA said it would wait for the ISSB rather than forming its own standard. It will inevitably mean it s a slower process but it will be more useful in the longer term. Investors optimistic about apples to apples comparison and cross- border applicability. 2 I wouldn t say we re happy yet, but we think ISSB is definitely going in the right direction. Some consolidation challenges expected globally. Universal uptake may take time. 3 10
Aligns with TCFD and ISSB; fills gap between commitments and costed/timed actions. TPT 1 The TPT is the final piece of the jigsaw, and I like the way it has been designed. For me it will be the new gold standard, complimenting TCFD and adding what was missing on how companies are going to practically achieve the transition. Requires standalone transition plans every 3 years; updates annually. 2 Both quality and content have real potential to affect company valuations. 3 11
Central strategic tool, quantifying risks and opportunities from the climate transition. Quantifying Impacts 1 The most sophisticated companies have the best Scenario Analysis in general. And the best Scenario Analysis provides decision-useful information about how to navigate the transition. Central to TCFD, ISSB (and soon TPT); required to be reported annually. 2 Scenario Analysis is the most tangible and understandable part of sustainability disclosure. Best practice should provide decision-useful information to exec team, and inform front and back end of the ARA. 3 In reality, transition risk is much more significant, and we spend much more time on that than physical risk. 12
Real uptake across buy-side, inside and outside of EU. SFDR 1 Our sales team asked if we could change a fund to Article 9 to help with sales, so there is definitely traction with clients! Misunderstanding of the scheme s intent, but outcome still effective. Standards coalescing. 2 Sales teams feedback indicates impact with Asset Owners. 3 13
Reporting Tips 1 2 3 4 5 Nail the basics and get a head start on ISSB Prepare early for ongoing quantitative requirements Develop a costed transition plan to prepare for TPT Consider your SFDR and SDR investment case and register Remember the sustainability report is a reporting document 01 14
Thank you sillion.co.uk mariana.spratley@sillion.co.uk info@thecorporategovernanceinstitute.com www.thecorporategovernanceinstitute.com CGI Webinar 16
