ESG+ Newsletter – 24 July 2025

Cat bond sales surge amid rising climate risks 

Insurance companies are increasingly relying on catastrophe bonds (cat bonds) to mitigate the growing risks posed by natural disasters. These instruments enable insurers to transfer part of the risk for events like hurricanes, wildfires, and earthquakes to investors, whereby the occurrence of a designated catastrophic event may result in investors losing some or all of their principal. If no such event takes place, investors receive their principal back along with interest. As reported by the Financial Times, cat bond issuances reached a record $18.1 billion so far in 2025, surpassing the previous high of $17.7 billion for the whole of 2024. This surge highlights the growing need for insurers to manage escalating risks driven by climate change. 

For investors, cat bonds provide higher yields than traditional fixed-income investments and are less correlated with broader financial markets. Recent returns have been robust, as disasters like the 2024 hurricanes Helene and Milton caused minimal losses to bondholders. Only more extreme events would significantly impact investors. However, the increasing frequency of severe weather events raises concerns about future losses and the broader societal impact. Rising insurance premiums linked to climate change could deepen social inequalities, as only a small fraction of the population can benefit from the high returns offered by cat bonds, while the majority bear the financial burden and social impacts. 

SBTI’s net zero standard for banks and investors  

The Science Based Targets initiative (SBTi) – responsible for aligning corporate environmental sustainability action with global climate goals – announced the release of its completed Financial Institutions Net-Zero (FINZ) Standard. The FINZ is aimed at banks and investors, enabling them to set net zero-aligned targets for their lending, investing, insurance and capital markets activities, complementing the SBTi’s cross-sector standards covering Scope 1, 2 and most Scope 3 emissions. ESG Today reports that the FINZ Standard ensures that financial institutions aiming to set aligned targets must first commit to achieving net-zero by 2050 or earlier and identify their “in-scope” financial activities which represent 5% or more of revenues. Fossil fuels have been identified as the highest priority sector, with the FINZ Standard’s new fossil fuel transparency policy requiring financial institutions to publish policies to immediately end project finance explicitly linked to fossil fuel expansion activities by 2030. Despite growing scrutiny on net zero ambitions and entities overseeing those efforts, the latest standards from the SBTi demonstrate that significant efforts are still being made to support corporates to get to net zero by 2050 at the latest. 

ESG is being reframed, not reversed 

Despite the prevailing narrative that ESG is losing momentum due to extended regulatory deadlines, waning investor interest, and business caution, a recent survey by EcoVadis reveals a different story. According to ESGToday, which cites EcoVadis’ “2025 U.S. Business Sustainability Landscape Outlook” survey of 400 executives involved in business and operational decision-making, sustainability remains a key priority for companies across the political spectrum. The survey found that 87% of executives reported that their company’s sustainability investments, whether in strategy, technology, or other areas, have either remained steady or increased, with only 7% reporting a decrease. Executives attribute the continued emphasis to benefits such as supply chain differentiation, risk mitigation, improved resilience, cost savings, and other factors that enhance overall business performance. 

Despite the ongoing commitments to wider sustainability, the term “ESG” has never been under more pressure. As reported by Sustainable Views, companies in the banking sector are moving away from “toxic” ESG language, seeking to reframe their sustainability efforts in a way that is perceived as less divisive, replacing “ESG bonds” with “resilience bonds“, for example. While the “ESG” label may be losing traction in certain instances, the nomenclature of initiatives is less relevant than the underlying work, with companies continuing to prioritise sustainability initiatives in long-term planning, with outcomes designed to protect financial performance while benefiting the economy and the environment. 

ESG at Mid-Year: who still cares, and why you should 

In our very own midyear update, FTI Consulting sets out reasons why the business case for ESG and sustainability strategies remains strong, driven by three critical stakeholder groups – investors, regulators and issue-focused parties. Sustainability factors continue to influence investment decisions due to their proven returns. Major investors across pension funds, sovereign wealth funds, asset management, and private equity are refining, not abandoning, their ESG frameworks, treating them as vital risk-management tools. 

Although the EU’s Corporate Sustainability Reporting Directive (CSRD) is currently paused, it is expected to re-emerge with a continued commitment to double materiality and formal assessment of climate-related financial risk. This multi-jurisdictional framework, alongside others like the Sustainability Standards Board (ISSB), will transcend domestic political sentiment, reflecting years of policy development, stakeholder consultation and international coordination. In the U.S., federal ESG rules may be fading, but state-level regulations are expanding, particularly in California and New York, with growing mandates around climate disclosures and Extended Producer Responsibility (EPR) requirements. EPR laws combatting plastic waste in seven U.S. states and the EU, and greenwashing regulations continue to encourage ESG-aligned practices. Furthermore, customer demand, especially in healthcare, consumer products and manufacturing, reinforces ESG’s relevance. 

For business leaders, these shifts bring both challenges and opportunities. As detailed in our piece, by focusing on materiality, leveraging precise, data-driven communication and embedding ESG into core strategy, companies can adopt ESG as a strategic move to build trust, anticipate regulatory shifts and gain a competitive edge.  

Surging AI energy demand drives record electricity prices 

This week, the Financial Times reported a record surge in electricity prices, driven largely by skyrocketing demand from AI data centres and delays in constructing new power plants. One grid operator, serving 13 U.S. states and Washington D.C., said it procured electricity this week at a 22% premium compared to last year. It also committed to paying power producers 10% more for the period from June 2026 to May 2027, with estimates that customer energy bills could rise between 1% and 5%, depending on how utilities and state regulators pass on the costs. Political backlash is already mounting: several state governments have taken steps to keep prices lower. The results also undercut former President Trump’s campaign promise to cut energy prices by 50% – in reality, they have risen over 5.6% in the past year. 

As demand from AI infrastructure continues to strain the grid, pressure will mount not just on operators and regulators, but also on the tech companies driving and investing heavily in this technological transformation, reaffirming the interconnectivity of technology advancements and the ultimate political stakeholder: voters. AI firms may need to reflect higher energy costs in the pricing of their products – raising the question of whether the promised cost-efficiencies of AI could be undercut by the energy needed to power it, potentially slowing adoption, especially among small businesses with tighter margins, without even addressing the bigger picture issues of environmental impact of substantial increases in energy use.

Omnibus package may allow companies to address CSRD mistakes

The first wave of CSRD reports have been released, revealing wide variation in reporting style, content, and double materiality assessments, and spurring some notable concerns from investors. Environmental Finance covers investor feedback, detailing a review of 41 reports that found inconsistent approaches, making it difficult to compare companies’ sustainability efforts and, ironically, undermining one of CSRD’s core goals: improved comparability. Further investor comments noted that lack of comparability was unsurprising given the level of change to reporting, as well as warning that CSRD’s flexibility and lack of clarity will not only encourage variance in reporting approaches but will also permit in-scope entities to omit key financial information, which is standard under ISSB’s S1 and S2.

Outside of investor focus, the Omnibus “stop the clock” has placed companies in a limbo of sorts. In reviewing the initial reporters, the team at FTI Consulting has set out some key considerations, to allow those yet in scope to learn from wave 1 entities’ early mistakes and take advantage of the additional time they have been given to prepare for future CSRD disclosures. Key recommendations included: (1) leverage existing compliance frameworks to reduce workload, (2) address priority gaps from their double materiality assessments, and (3) invest in ESG software for consistent, accurate, and assured reporting.

ICYMI 

• Meta has announced a new long-term agreement to supply 100% renewable energy for its data centre operations, according to ESG Today.
• The United Nations’ highest court has said that countries must meet climate obligations or risk legal action and potential reparations from affected states, Reuters reports.