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Impact Insights #6

Get ready for a sizzling summer as we unveil the hottest sustainable finance news and impact initiatives in our Impact Insights for June.

Curated by our Sustainability Specialist, Kenza Akallal.

■ One step closer to consistent and verifiable sustainability disclosure

The International Sustainability Standards Board (ISSB) has issued its long-awaited inaugural standards. The first of the two standards, IFRS S-1, sets out rules that companies must follow when they report on sustainability-related risks and opportunities. IFRS S-2 addresses climate-related risks and opportunities and is intended to be used alongside IFRS S-1.

The release of the standards comes at a pivotal moment, with market and regulatory awareness of the importance of robust private sector transition plans gathering pace. Since its inception during COP26, the ISSB has received backing from the G20, the Financial Stability Board, and PRI.

■ Crackdown on the ESG data provider industry

The European Commission is set to introduce new rules requiring ESG data providers, including those outside the EU, to be certified by the EU financial regulator. Data providers will have to divest from any conflicting activities and could face fines up to 10 percent of their annual turnover.

The move comes as European regulators are seeking to counter greenwashing in the rapidly growing sustainable finance industry and direct private financial flows towards genuinely environmentally friendly activities.

■ New clarifications from the EU on Taxonomy & SFDR

The European Commission has released a series of sustainable finance annexes, addressing frequently asked questions. These documents offer guidance on measuring minimum safeguards, affirming that Taxonomy-aligned investments meet the criteria for ‘sustainable investments’ under SFDR, and shedding light on the role of the EU Taxonomy within the broader SFDR framework. Supplementary materials debunk concerns on low Taxonomy disclosure and present toolkits for transition finance.

■ Beyond transition finance: adaptation finance

With recent news of record-breaking marine heatwaves, far-reaching wildfires, and amplification of blackouts, adaptation is becoming increasingly crucial in light of warnings from the scientific community that Earth is past its safe limits. It is essential to allocate financial resources to help communities, companies, countries, and regions adapt to the impacts of climate change.

The World Resources Institute provides valuable insights to advance climate adaptation finance. The European Commission also introduced a new dedicated economic activity for disaster risk management.

■ Can carbon markets accelerate progress towards net zero?

While companies should focus primarily on reducing their emissions, many are unlikely to eliminate them entirely for years to come, leading to growing recognition of carbon markets' essential role. In addition to new standards, code of practice and expanding financial infrastructure and solutions, technology is supporting market transparency.

Some believe that the voluntary carbon market needs a radical transformation to focus on funding carbon removal, as opposed to the avoidance or reduction of emissions. But removals credits make up just 3 per cent of the voluntary carbon market and are expensive. Challenges remain, including recent news of wildfires whipping out carbon offset projects, alongside continuous greenwashing and credibility concerns. Can carbon markets accelerate progress towards net zero? Check out FT’s big take on the question.

■ Breakthrough space solar demonstration

Solar energy has been harvested in space and beamed back to Earth for the first time. My brain short-circuited reading this article. But jokes aside, the experiment may have provided an early glimpse of a new type of power station, a solar array that is placed in orbit where it is constantly bathed in sunlight, no matter the weather on Earth or the time of day.

■ Bold push for gender diversity on board

Norway's government has revealed its intentions to bolster gender equality in the corporate realm by extending quotas for women on boards to large and medium-sized companies by 2028. Since 2004, state-owned companies must have at least 40% female board members or face closure. The same rule applies to the largest publicly listed firms since 2008.

Meanwhile, the FT highlighted a recent study claiming that attractive women are 16 percent more likely to secure start-up funding. This was intended to be a tongue-in-cheek piece. But if you do wish to explore the more important issue of diversity, equity and inclusion, why not consider exploring these thought-provoking articles instead: The other diversity dividend, How do different industries approach diversity, equity, and inclusion and The importance of surface-level and deep-level diversity.

■ Anti-ESG fad might be over before it got going

Criticism of sustainable investing has become incredibly politicized and noisy over the past year. Against this backdrop, ‘Anti-ESG’ funds have emerged. These strategies come in different flavors but have in common their aim, providing an alternative to sustainable investing. A recent study by Morningstar highlights that these anti-ESG fund flows peaked in late 2022 but quickly lost steam.

■ This is bad! You’ll never see climate change the same way again

Is it worth clicking on gloomy links if you know they will pollute your psyche? According to a new study that will surprise no one, the more negative words in a headline, the more people will click on it. We are living in an era of massive climate action, but our negativity bias, media, and misinformation mingle to make us feel a pervasive sense of doom just the same, especially in Europe.

With that, let me leave you with inspiring words from a recent conference. “Broader socio-dynamics have also changed over the past few years. Climate change is now part of our culture. Every media organization now talks about climate, every business is now expected to have a climate strategy. Young people are beyond motivated. We know we have the money. We have more private capital than we ever had in our history. And there are a lot more people and ideas coming into this space.” Hopefully, you will never see climate change the same way again.

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