ESG+ Newsletter – 30 January 2025

Leaked EU Omnibus plans signal major sustainability reforms

As our own Vittorio alludes to in our inaugural ESG+ video, the European Commission is considering significant revisions to its sustainability package of legislation. Last week, as reported by Responsible Investor, a draft version of the document revealed details of that approach. The EU Competitiveness Report, released yesterday and covered in Politico, outlines “unprecedented simplification” in sustainable finance reporting, due diligence, and the EU taxonomy. Key reforms include ensuring data alignment with investor needs, proportional timelines, and mitigating excessive reporting burdens on small businesses. The Commission also plans to introduce a new mid-cap category to ease compliance for companies between SMEs and large firms. This category is expected to encompass up to 31,000 businesses. 

Meanwhile, the French government has proposed delaying CSDDD indefinitely and limiting CSRD disclosures to climate-related objectives. The move aligns with concerns from other EU nations and the European People’s Party, citing competitiveness challenges. Somewhat ironically, in contrast to regulatory relaxation from governments, major corporations – many of whom have already taken extensive steps towards compliance – have urged the EU to maintain its sustainability commitments, thereby offering regulatory certainty.

With competing pressure from businesses and governments, the EU will attempt to balance its sustainability ambitions, reintroducing a level of uncertainty to reporting obligations and easing regulatory burdens in the name of competitiveness. 

FTI Report: Using AI means disclosing on its governance 

In an AI-heavy news week, building on our European-focused Decoding AI Disclosure report published in November 2024 in collaboration with Trinity Business School, FTI has now also analysed AI-related disclosure of the 30 US companies included in the Dow Jones Industrial Average across 10 categories. This US Addendum reviewed annual Proxy Statements, Corporate Sustainability Reports and 10-Ks to reveal  that sector-wise, technology companies lead the way in AI disclosure and have the most extensive multi-stakeholder frameworks in place. Despite European Annual Reports being subject to different reporting requirements and a ‘lighter’ US AI regulation regime compared to the EU AI Act, the difference between the two regions was not as dramatic as expected. Europe saw companies with more consistent average disclosure rates across sectors while in the US, three companies from the TMT sector disclosed information across more than nine categories (something no European company did).  As we continue to see AI shareholder proposals announced at company annual meetings, FTI continues to help companies evolve Proxy Statements and Annual Report disclosure around AI, to provide comfort to investor that risks related to the technology are being effectively mitigated, while opportunities are being uncovered and maximised. 

How AI can improve sustainability action and reporting

Speaking of AI, this week ESG Dive had an interview with Cisco’s Chief Sustainability Officer, Mary de Wysocki, where she recognised that using AI means considering both its potential and impacts on energy consumption as well as other issues like privacy, transparency and accountability, something clearly felt by our poll respondents. De Wysocki points to capturing “the opportunities of AI” by thinking “about it in a responsible way”. While there is concern around the emissions and energy demands of AI, there are many positive use cases on decarbonisation, waste and energy management, and in effective sustainability reporting. Already, the industry is beginning to consider how they can leverage AI to simplify the reporting process they will face to comply with the CSRD. In fact, a Morningstar Index survey found that “7-in-10 respondents are hoping that AI adoption will increase at least “moderately” to help with ESG reporting (77%), and improve analysis (71%), portfolio construction (74%) and index creation (76%)”, perhaps heralding an era of efficiency in meeting increasing regulatory burdens on sustainability. 

What’s in a name? Investors alter approach to fund branding

In 2024, 115 funds chose to remove ESG-related terms from their name, according to a report from Morningstar, covered in Portfolio Adviser. The decisions come as the industry looks to comply with the UK FCA’s Sustainability Disclosure Requirements (SDR), while simultaneously coming under scrutiny politically. Despite the deadline for funds to readjust their marketing in line with SDR passing on 2 December 2024, analysts at Morningstar “expect an acceleration of rebranding activity in the coming months”. The firm anticipates that a further 30%-50% of all European ESG funds will change their name, as they ensure compliance with updated European Securities and Markets Authority’s (ESMA) marketing guidelines coming in on 21 May 2025.  

While inflows into global sustainable funds hit a low of $36bn in 2024, Q4 saw a rebound; and, Morningstar Sustainalytics’ head of sustainable investing research suggested that 2025 might be a reset year as sustainability focused investors navigate anti-greenwashing rules, sustainability strategy resets, and uncertainty in regulation, as governments manage a changing geopolitical and economic landscape. Perhaps the state of flux was best summed up by Stewart Investors recently, when announcing the removal of the word “Sustainability” from a fund name: “Regulatory approaches are changing quickly and unpredictably and will likely continue to do so. We would rather focus on improving our own approach to sustainable investment than lose focus trying to second-guess regulatory change.”

Unified global standards for sustainability assurance

While EU reporting requirements and fund naming may be entering a state of flux, the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA) launched an integrated initiative to advance trust and transparency in sustainability reporting, as published by IAASB’s news bulletin. The new standards, ISSA 5000 and IESSA, provide global, ethical frameworks for sustainability assurance, addressing the growing demand for reliable sustainability data. These standards are designed to enhance credibility, support ethical practices, and mitigate risks like greenwashing. Effective from December 2026, they aim to drive informed decision-making and accountability, with ongoing support for adoption through guidance, webinars, and feedback channels. 

ESG resolutions decline but engagement remains key

A decline in support for ESG-related shareholder resolutions may point to a growing demand for high-quality and impactful proposals, according to a recently published analysis by the Principles for Responsible Investment (PRI). The report reveals that between 2022 and 2024, average shareholder support for sustainability-related proposals dropped from 28.2% to 15%, while backing for governance-related resolutions decreased from 33% to 25.4%.

According to ESG Investor, PRI’s Director of Sustainable Systems argues that the numbers may not tell the whole story, explaining that increased scrutiny has led to more challenging resolutions remaining on ballots, as companies and filers often negotiate, leading to the withdrawal of some proposals. In terms of investor stewardship, he clarified that securing commitments through engagement before a vote on a shareholder resolution can be just as effective as filing a resolution. Even if successful, as they are non-binding, resolutions do not guarantee Board action. In evaluating trends, the PRI recommends that investors continue using the dual tools of engagement as well as voting – ensuring that corporate Boards keep the promises they make. 

ICYMI

• A Bloomberg Opinion column highlights that ESG investing faced early attacks during Trump’s first week in office, noting several challenges this past week. 
• Saudi Arabia is investing over $500 billion in developing environmentally friendly tourist destinations, Saudi Gazette reports. 
• Cbus, one of Australia’s largest funds, warns that its climate targets could be at risk due to the rise of the anti-ESG movement. According to The Australian, the fund may reconsider its climate goals and approach to engaging with companies on sustainability as the movement gains strength.