ESG+ Newsletter – 16 January 2025

FTI Insights: EU to reshape ESG reporting – what business leaders need to know

The European Commission is preparing to revamp ESG reporting with a legislative proposal expected on 26 February. Aimed at enhancing competitiveness and reducing regulatory burdens, the initiative is part of a broader re-evaluation of the European Green Deal. The proposed changes could extend beyond procedural adjustments to core reporting requirements, creating strategic implications for businesses. While simplification is the stated goal, the process could trigger broader discussions on reporting content, timelines and scope. For European firms, the legislative outcomes will determine whether the reforms ease administrative challenges or introduce new compliance hurdles. Stakeholders have voiced diverse concerns, with some remaining sceptical about whether the initiative will effectively address bureaucratic challenges. SMEs welcome the promise of simplification but emphasise the need for legal certainty to protect prior compliance investments. Asset managers continue to struggle with limited reliable sustainability data, while civil society organisations stress the importance of ambitious climate goals and clear sector-specific guidance. Germany’s recent request to delay the implementation of the expanded CSRD underscores the challenges of aligning national and EU-level reforms, amplifying uncertainty for businesses already navigating economic pressures. This situation highlights the importance of cohesive and timely policymaking to avoid disrupting the transition toward sustainable investment practices. These changes will have global repercussions, influencing supply chains and prompting multinational organisations to align with evolving EU standards. Locally, European firms might see benefits from reduced complexity but could also face transitional costs.

While the ESG reporting revamp aims to simplify processes and reduce burdens, its success hinges on balancing ambitious sustainability goals with practical implementation, ensuring it does not exacerbate existing uncertainties for businesses.

NZAM suspends activities following latest departures

This week, Net Zero Asset Managers (NZAM) issued a statement outlining that it was suspending its activities and launching a review of its structure. The decision follows on from the news that the world’s largest asset manager, BlackRock, had decided to leave the initiative. The decision by BlackRock would appear to be based on a disagreement in approach to reaching net zero (with NZAM advocating for more aggressive short-term divestment goals from high-emission sectors) and also the growing pressure from stakeholders; most notably in the US where it had faced increased scrutiny and legal pressure regarding its ESG investments in certain states.

The decision by BlackRock, and other leading international asset managers, is a hammer blow to the NZAM initiative. Some have attributed the decision to withdraw as being driven by the political scrutiny that ESG investing and net zero transitions have received. Therefore, it could be interpreted that NZAM is the sacrificial lamb which they hope will get the political heat off them. However, while asset managers are clearly shifting to a different approach, all have re-affirmed their commitment to the net-zero transition, albeit couched in the language of balancing sustainability objectives and financial returns. Asset managers, and indeed the wider industry, may look at repositioning or relabelling ESG and sustainable investing to keep it out of the public and political arena.

2025 sustainable finance trends to be shaped by politics 

Governments are not acting fast enough to limit global warming, reports Reuters, despite record high temperatures and extreme weather events. While regulators are toughening up rules around finance and businesses in order to curb harmful emissions, the US in particular is lagging behind Europe when it comes to sustainable finance. This is due to strong political sentiment against ESG policies, with the potential for this gap to grow under the new Trump administration. Some American companies are already abandoning climate and diversity efforts to adapt to the new political reality, and the biggest US banks have also turned away from a sector wide coalition which had the aim of cutting emissions. The amount of ESG funds launched in Europe was 27 times more than those started in the US this year, and while clients withdrew $15.9 billion from US sustainable investment funds, European funds gained $37.3 billion. Globally, 2024 was the first year that more sustainable funds were closed rather than launched because of American political backlash, as well as tougher EU regulations which dictate that funds should offer proof for their sustainability credentials. However, experts have highlighted that the need for green energy will drive the demand for sustainable finance, as well as the development of climate technology.  

Sustainable finance trends in 2025 will be impacted by the US political landscape; however the extent of these changes is unclear.  Even if there is a continued contraction for sustainable financing in the US, current trends would indicate that global demand for green energy and climate tech will likely continue to sustain green financing momentum globally. 

EBA publishes guidelines on managing ESG risks and climate transition plans 

According to ESG Today, the European Banking Authority (EBA) has released its final guidelines on managing ESG risks, setting requirements for banks to identify, measure, and monitor these risks and their financial impacts, particularly as the EU transitions to climate neutrality by 2050. Key mandates include regular materiality assessments, implementation of tools to evaluate ESG risk drivers, and establishing systems to manage ESG data. The guidelines also outline the development of forward-looking resilience plans, incorporating objectives, actions, and targets tied to banks’ business models and strategies. These plans must address governance, metrics, implementation, and engagement strategies. Large institutions will need to comply by January 2026, with smaller entities following a year later.  Additionally, Responsible Investor has also highlighted how banks must prepare climate transition plans for EU supervisors, with enforcement to be led by the ECB. While some institutions were already working on transition plans under voluntary net-zero initiatives or the EU’s CSRD, official guidance has been sparse. The EBA clarified that prudential-focused plans prioritise risk assessment without mandating divestment from high-emission sectors, distinguishing them from CSRD and Corporate Sustainability Due Diligence Directive (CSDDD) plans, which align with the EU’s 2050 climate goals. 

Given the increasing regulatory focus and the complexity of managing ESG risks, companies should be proactive by investing in robust ESG risk assessment tools and developing comprehensive transition plans well ahead of the 2026 deadlines. Despite differing scopes, companies will need to establish a unified strategic planning process to ensure they are meeting regulatory requirements, and their submissions are all aligned. 

US Treasury’s final round of clean energy tax credits

This week, the US Department of the Treasury and the Internal Revenue Service (IRS) announced $6 billion in tax credit allocations as part of the Inflation Reduction Act’s (IRA) $10 billion investment to support clean energy and decarbonisation projects. Notably, about $2.5 billion of this round of allocations supports projects in designated Section 48C energy communities, such as areas impacted by the closure of coal plants. The largest share of the $6 billion (c. $3.8 billion) was allocated to clean energy manufacturing and recycling projects, including hydrogen production, electric vehicles, batteries, and wind energy components. There was significant industry interest in this round of tax credits, with over 800 concept papers submitted requesting $40 billion in credits – over six times the funding available. As part of these tax credits, these projects will drive the country’s clean energy infrastructure, reduce emissions, and enhance economic resilience. 

The IRA policy has been the most significant piece of climate legislation in US history, investing over $44 billion across projects and providing $10 billion of tax credits. It will likely be the lasting legacy of Biden’s presidency which placed an emphasis on developing technologies that will ‘green’ industries and their economies as opposed to changing societies behaviors through emissions reduction targets like in the EU. 

ICYMI

• A study by a climate advocacy group has highlighted that the projected air passengers numbers are to more than double by 2050, which they believe undermine the aviation industry’s efforts to cut emissions, according to Reuters.
• The Governor of New York announced a $1 billion plan to combat climate change, create thousands of jobs, reduce energy costs, and lower pollution statewide, according to ESG News.
• Beyond corporate activism, student activist group protests forced the Royal Air Force (RAF) to pull its stalls from university job fairs, The Times reports.
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