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Impact Insights #5

With so much happening in the world of impact and sustainability, it can be challenging to stay on top of the latest trends and developments. That's why our impact team has put together Impact Insights. A monthly series to help you stay informed and ahead of the curve. So sit back, relax, and get ready to expand your knowledge on the latest impact and sustainability news from May.

Curated by our Sustainability Strategist, Åsne Burgess Øyehaug.

■ A turning point for impact investing

A new white paper from the World Economic Forum (WEF) has surveyed the impact investing landscape and concluded that impact investing has reached a turning point. As the Global Impact Investing Network reported last year, the impact investment market passed the USD 1 trillion mark, reaching USD 1.164 trillion. The WEF also shows that the ecosystem for impact investing has grown, with more actors launching impact or energy transition funds and general partners building knowledge and becoming more comfortable with impact investing.

Many investors are now launching a second or third impact fund, meaning that there is an increased track record for impact investing, which will help raise more capital for impact funds. Much to our benefit, WEF also believes that impact investors will continue to converge around tools and frameworks, with the UN SDGs and the IRIS Core Metrics being among the most common. More standardization and more use of third-party impact verification can lead to less confusion and increase impact understanding, helping drive the demand for impact investing.

More turbulence ahead for new company rules?

The EU Parliament approved a new regulation called the Corporate Sustainable Due Diligence Directive (CSDDD). This comes after over a year of negotiations in the parliament and lobbying from interest groups. The new regulation imposes human rights and environmental due diligence in the full value chains of companies and some financial market participants. It overlaps with the existing Norwegian Transparency Act.
The CSDDD has been contentious and while this vote in parliament is a huge step forward, expect more turbulence now that the 27 Member States will negotiate on parliament’s proposed regulation. Many companies and financial market participants believe the regulation’s scope will be too burdensome, while civil society believes the regulation should go even further and that it’s high time companies take responsibility for their value chain impacts.

One step closer on nature

A few weeks ago, a new draft for the Task Force on Nature-related Financial Disclosures was published. The TNFD builds on the Task Force on Climate-related Financial Disclosures (TCFD), the leading framework for reporting climate risks. It is mainly a framework for reporting, recommending nature-related metrics and information that companies should publish in their annual reports. TNFD is particularly interesting because it recommends an assessment process (called ‘LEAP’) to understand the risks and opportunities of a company’s or an investor’s impact on nature that should be reported on. TNFD’s final version is planned to be released in September. With the success of TCFD, TNFD may very well become the leading reporting tool for action on nature-related impact - and it’s right around the corner.

Two steps closer on nature

May also saw the release of the first set of recommended company targets on nature from the Science Based Targets Network (SBTN). While TNFD recommends how companies and investors should report on nature, SBTN recommends standard targets companies should establish on nature. Just as with TNFD, SBTN builds on an assessment that companies should undergo in order to understand which targets companies should focus on.

The assessment is closely aligned with TNFD’s assessment. So, a company will probably be able to use one or the other to reach a conclusion on what to report on (according to TNFD) and what nature areas to set targets on (according to SBTN). SBTN will, over time, cover four new nature topics (climate targets are already developed as part of SBTi): freshwater, land, biodiversity and ocean. This first publication only includes targets for freshwater, with a beta version for land targets. Biodiversity and ocean will come at a later point.

The recommended targets for freshwater are freshwater withdrawal reduction and freshwater quality, specifically reduction in nitrogen and phosphorus to surface water bodies. The beta version for land targets recommends targets on land footprint reduction, targets on conservation of natural land, and targets on engagement for improvement in ecological or social conditions. Just as many companies have a net-zero carbon target today, expect to see target statements connected to these SBTN targets in the future.

Biodiversity exclusions entering mainstream

Nordea Asset Management (NAM) has for the first time chosen to exclude a company based on the company’s harmful impact on biodiversity. NAM has excluded a chemicals company, DuPont, because of the company’s pollution of chemicals with a long-lasting presence on biodiversity. Interestingly, the company was first flagged by NAM for further investigation based on a Principal Adverse Impact (PAI) biodiversity indicator. PAIs are indicators required to be assessed by investors under SFDR.

As with many investors, NAM has communicated that they intend to step up their use of PAIs as grounds for engagement going forward. There are few other examples of large asset managers using biodiversity impact for exclusion purposes so far, but we can expect more of this going forward.

Tightening in on “carbon neutral” claims and product durability

The EU Parliament voted in May to ban environmental claims such as "biodegradable", “bio”, "environmentally friendly, or “carbon neutral” on consumer products unless supported by evidence. The goal is to help consumers choose products that are in general more durable and sustainable. The Parliament also voted to ban the use of the claim “carbon neutral” if this is only achieved through carbon offsetting schemes. And, they also proposed to ban products that are designed on purpose with a short life span, as well as requiring products to be compatible with spare parts from other producers (e.g., a new battery does not need to be from the same producer).

These are huge steps from the parliament in helping consumers choose products that are more durable, repairable, and sustainable. The 27 Member States will now have to debate the proposal from parliament.

Clean energy investments outpacing fossil fuel investments

In May, IEA published its 2023 ‘World Investment Report’. The headline is uplifting: “Global investment in clean energy is on course to rise to USD 1.7 trillion in 2023, with solar set to eclipse oil production for the first time”. According to IEA, energy security concerns and the price of fossil fuels is the driving force behind the shift in the past 12 months. Looking ahead, some of the biggest challenges are to increase clean energy investments in developing countries.

While India, Brazil and parts of the Middle East have seen positive developments, IEA reports that there is a continued reluctance to invest in developing countries due to factors such as regulatory frameworks, weak grid infrastructure and high capital costs.

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