ESG Investment boom, FSC 3 highlights the annual trend

Investment boom, The European Union issued the “Sustainability Classification Rules” in June last year, and the Taiwan Financial Supervisory Commission issued the principles of disclosure of ESG domestic and overseas funds successively last year and this year. There have been waves of “anti-greenwashing” actions at home and abroad. The rising awareness of investors has become a key driving force for the market to move towards ESG.

On January 12, the Financial Supervisory Commission announced 8 principles for ESG-themed overseas funds to disclose matters. The proportion of relevant targets must reach at least 60%. Anti-greenwash (Greenwash)” action.

“Anti-greenwashing” has become a global consensus. As early as last June (2021), the European Union took the lead in issuing “sustainable classification rules” in order to put an end to ESG funds’ behavior of “selling dog meat”. Although, the EU has recently been arguing over whether to include natural gas and nuclear power in the relevant draft of the classification standard for sustainable finance.

However, prohibiting greenwashing has become a global goal, and the key behind it is the rise of investors’ ESG awareness. Whether companies pay attention to ESG has become the key to their investment or not.

There is no doubt that ESG will still be hot in 2022. Next, let’s take a closer look at the key points of this emerging ESG wave from an investment perspective.

Key point 1 | Strictly prevent greenwashing on the road

Although the scale of global sustainable investment and financing is growing year by year, there is still a lack of clear and consistent definitions and standards for sustainable investment and financing internationally.

Huang Tianmu, chairman of the Financial Supervisory Commission, observed that the recent report released by the Bank for International Settlements also mentioned the investment boom in perpetual assets, and reminded supervisory agencies to pay attention to and avoid greenwashing. “Foreign fund companies have discovered that investment strategies will ESG factors are taken into consideration, but there is a gap in actual implementation, which is the problem of derivative greenwashing.”

Therefore, in order to guide capital investment in activities or projects that are indeed in line with sustainable development, some countries in the world have formulated “sustainable classification standards” as a reference when screening targets for financial investment and financing. Among them, the EU is the most developed Be complete and specific.

In June 2020, the European Union issued the “Taxonomy Regulation”, authorizing the supervisory authority to formulate norms that require large enterprises and the financial service industry to disclose relevant information. Among them, in terms of the financial service industry, the EU has formulated the “Taxonomy Regulation” for the financial service industry. The Sustainability Financial Disclosure Specification (SFDR) requires financial institutions to disclose information such as the company’s own sustainability risk policy, assessment of major adverse impacts on the environment and society, and implementation of agreements.

Taiwan is not absent from this “anti-counterfeiting” campaign. Huang Tianmu took the “ESG Trust Fund Information Disclosure Review and Supervision Principles” launched in July 2021 as an example. This is the regulation issued by the Financial Regulatory Commission after referring to the SFDR and international guidelines on ESG funds to prevent fund greenwashing. The content includes ESG ESG-related proportion of fund investment must reach more than 70%, and there are 8 major norms such as risk warnings and regular disclosure.

Huang Tianmu revealed that as of the end of October 2021, China Investment Trust has issued 32 funds with related themes such as ESG, corporate governance and green environmental protection, with a scale of about 156.7 billion yuan. Those who are in compliance with the regulations must still complete the amendments by January 2022 at the latest.

Key point 2 | Taiwan version of sustainable classification standard

As for the Taiwan version of the “Sustainability Classification Standard”, Huang Tianmu revealed that the FSC is also working with the Environmental Protection Agency. It will be established after referring to international practices. It is scheduled to be completed by the end of 2021. Initially, willing companies and financial institutions will be invited to conduct Try to do it, so that the financial industry and enterprises can communicate in a common language, and of course, it can avoid greenwashing in all walks of life.

Taking the environment as an example, Huang Tianmu pointed out that the content will have quantitative and qualitative standards to check whether the economic activities of enterprises will cause substantial contribution or significant damage to the environment, and to achieve climate change mitigation and adjustment, water resource conservation, Transformation to circular economy, pollution prevention and control, biodiversity protection and other purposes.

In practice, Huang Tianmu revealed that, for example, a manufacturing company will need to evaluate and disclose data such as carbon emissions and water consumption per unit of production in its main economic activities to see if it meets the set standards before it can be said to be beneficial to mitigation. Whether a company’s economic activities can be called “sustainable” can be assessed by whether the company’s economic activities have substantial contributions to the goals of climate change and water conservation; or whether the company uses circular economy and pays attention to biodiversity.

Of course, in addition to environmental aspects, companies also need to evaluate whether they follow social and corporate governance indicators, such as whether there is any violation of human rights and labor rights. As far as financial institutions are concerned, various information disclosed by enterprises can be used to conduct due diligence and evaluation, and include it in the investment and financing decision-making process, as a reference for screening sustainable investment and financing targets.

Huang Tianmu is full of expectations for the “sustainable classification standard” that is being planned. He said that in addition to allowing enterprises or projects that value sustainability to receive more efficient and reasonable support from the financial industry and investors, he also hopes that this standard can become a guideline to guide the transformation of various enterprises in the future, allowing enterprises to upgrade or transform their industries There will be a clearer direction in the process, and then promote the whole society to jointly respond to climate change and pursue sustainable development.

Focus 3 | ESG Information Transparent Disclosure

The Financial Supervisory Commission is also currently planning to add a “Corporate ESG Information Disclosure” section in the Public Information Observatory, which is expected to be launched in the second quarter of 2022.

The information currently known in the special zone will include environmental and social issues. For example, in the environmental aspect, quantitative information such as greenhouse gas emissions, water consumption, and waste will be required to be disclosed; in the social aspect, occupational safety (such as occupational accident data) and workplace diversity will be disclosed. and equality (such as the proportion of female employees and senior executives), etc.

In order to strengthen the integration of ESG information, the stock exchange is also discussing relevant measures to quantify and correlate employee benefits and salaries, median salaries in the current public information observatory, and corporate governance evaluation indicators related to communication between the board of directors and investors. information together.

In addition, according to the “Corporate Governance 3.0-Sustainable Development Blueprint” released in August 2020, it is planned to include 11 recommended disclosures under the 4 core operational contents of the Task Force on Climate-related Financial Disclosure (TCFD) into the sustainability report The content disclosed in the book is expected to be officially implemented in 2023.

In addition, the Financial Supervisory Commission has also announced that all listed companies with a paid-in capital of more than 2 billion yuan should prepare and submit ESG reports from 2023. Therefore, it is foreseeable that in 2022, more companies will invest in research on ESG reports, as well as preparations for the disclosure of TCFD and Sustainability Accounting Standards Board (SASB) standards.

For serious investors, with the disclosure of more corporate ESG information, it also means that they have more understanding and awareness of the risks and opportunities of investment objects, and the investment keywords in Taiwan in 2022 will also clearly brand ESG.