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We can’t wait for consensus on climate rules, EU finance head says

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Hello from London, where Kenza, Patrick, several other FT colleagues and I have been enjoying chatting with many readers of this newsletter at the European leg of the Moral Money Summit, a conference series digging into some of the toughest questions around responsible business and finance.

If you’re not able to be in London this week, don’t despair: we’ll be continuing the discussion with events later this year in New York, Singapore — and Johannesburg, where we’ll be excited to hold our first event focused on Africa. And, as ever, all the conferences will be available to watch online, live or on demand.

Yesterday’s sessions featured intense debate on subjects ranging from climate tech to executive pay, as well as an interview with the EU’s financial services chief, featured below. And we’ll have some highlights in our next edition from what promises to be an action-packed second day. — Simon Mundy

Mairead McGuinness: ‘I believe in fairy tales, too’

The nearly three years that Mairead McGuinness has spent as European commissioner for financial services have gone down so well at home that she is the bookies’ favourite to become the next Irish president.

But when we sat down yesterday for the opening session of this week’s Moral Money Summit, her department’s work on sustainable finance regulation had been taking a hammering.

Over the weekend, the FT reported a complaint from major European businesses that the EU’s new rules around corporate sustainability reporting presented an “impossible task”. Meanwhile, uncertainty around the disclosure rules for investment funds have prompted nervous money managers to recategorise hundreds of products.

McGuinness, however, said that a bumpy ride was to be expected given the ambition and complexity of what her team was attempting. “Europe’s leading on this. And while we say that with some element of pleasure, we’re also aware that we might stumble occasionally, because this is uncharted territory,” she told me.

A letter by BMW’s chief financial officer — written on behalf of his counterparts at about 30 major European companies — reported that companies were unable to produce high-quality disclosure using the new EU green taxonomy. The group accused European authorities of “rushing implementation, unclear definitions and divergent interpretations”.

McGuinness said such complaints were being taken into account as the European Commission prepares to publish a new package of measures around sustainable finance next month. “I live in the real world, I hear these things,” she said. “We have to listen to those concerns. Because if we don’t, then we won’t achieve the results.”

One particular area of concern for many multinational companies has been the risk of regulatory fragmentation, with substantially different reporting requirements in different jurisdictions around the world. McGuinness said she hoped that EU regulators would be able to incorporate some sort of “global baseline” in their standards. But she had a warning for companies who were hoping for a single global standard for sustainability reporting.

“I believe in fairy tales, too,” she joked. “The truth is, the world is quite fragmented. So if you were to wait for everyone to agree globally, I’m afraid it will be Armageddon.”

I asked McGuinness about the recent turmoil surrounding the classification of funds under the EU’s Sustainable Finance Disclosure Regulation. After the EU tightened the rules for funds reporting under Article 9 of the SFDR (which covers funds pursuing sustainability goals), asset managers moved €175bn worth of funds away from that category, nervous that they might not meet the tougher standards.

Part of the problem, McGuinness said, was that SFDR had been approached by the industry as “a labelling regime” for funds, whereas it had been intended as a framework for transparency. But she said she was comfortable with the “self-correction” being carried out by asset managers who were now keen to avoid exaggerating their green credentials — and she was untroubled by the reduction in the number of funds categorised under Article 9.

“What is our objective here? Why are we doing it?” she said. “It’s not because we want to call it Article 8 or 9. What we want is that we get private money . . . to flow in great quantities towards investing in sustainability.” (Simon Mundy)

Science-Based Targets Network offers new guidelines for nature goals

More than 2,500 companies have set public goals to tackle their climate impacts under the non-profit Science-Based Targets initiative (SBTi). Now they can start doing the same for their performance on biodiversity and nature.

The nature-focused Science-Based Targets Network — founded in 2019 by non-profit groups including the World Wildlife Fund — today published technical guidance that companies could use to assess their risks and impacts in this space, and then set out a plan to address them.

SBTN has agreed to collaborate and co-ordinate with SBTi, but the two organisations — despite their confusingly similar names — remain separate. I asked SBTN executive director Erin Billman if it might be better to have a single organisation setting standards for both climate and nature goals — which are, after all, inextricably linked.

Billman replied that, given that SBTi had already gathered so much momentum around climate goal-setting, it made sense, at least initially, for SBTN to tackle the nature angle separately. “The last thing we would want to do is in any way confuse or slow down the climate work,” she said.

SBTN will now start road-testing its new standards with a cohort of 17 early-adopter companies — including businesses that have faced heat over their impacts on water resources and nature, such as Danone, Nestlé and Holcim.

The SBTN resources published today include guidance for setting goals around water and land impacts — but not yet for other areas, such as direct impacts on biodiversity. The organisation plans to issue comprehensive guidance for target-setting in all main areas in 2025.

The guidance published today “reflects where we’ve been able to get that foundation of consensus in our community”, Billman said. “It also reflects where we don’t have that foundation of consensus on the science . . . there is more work to do within the community to get there.”

Billman said SBTN had taken lessons from the experience of the SBTi, which had faced criticism from climate scientists who warned that it did not “appear to ensure sufficient scrutiny” of the data reported by companies. SBTN was setting up a formal grievance policy, and was working to protect the operational independence of the team responsible for validating corporate targets, she said.

“We have the benefits of SBTi having been in front of us, and being able to leverage what works . . . and what didn’t work, and the lessons learned associated with that,” Billman said. (Simon Mundy)

Smart read

Controversial West Virginia senator Joe Manchin cast the deciding vote for Joe Biden’s climate-friendly $369bn Inflation Reduction Act last year. Manchin is now suffering for it politically, the FT’s Aime Williams finds on a reporting trip to his home state. If the Democratic senator loses his seat, that could present new problems for Biden.

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