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Transparency of ESG investment ratings faces regulatory scrutiny – Reuters



U.S. dollar banknote is seen in this picture illustration taken May 3, 2018. REUTERS/Dado Ruvic/Illustration/File Photo

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  • Aim is coherent, global approach to tackle greenwashing
  • Measures less strict than for credit rating agencies
  • Emphasis on transparency in how ESG ratings compiled

LONDON, Nov 23 (Reuters) – Market regulators set out a global framework on Tuesday to police environment, social and governance (ESG) investment ratings and help combat ‘greenwashing’ in the fast-growing, multi-trillion dollar sector.

Regulators are cracking down on many aspects of ESG investing with basic rules to make it easier to punish greenwashing, where the environmental credentials of an investment or activity are overstated, in a cross-border sector where investment is “exploding”.

The International Organization of Securities Commissions (IOSCO), which groups securities watchdogs from the United States, Europe, Asia and Latin America, published 10 recommendations for its members to apply in day-to-day work.

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“What we are trying to do now is put this foundation in place so we have some possibility to go after greenwashing and not just talking about it,” Erik Thedeen, chair of IOSCO’s sustainable task force and director general of Sweden’s markets watchdog said.

Asset managers use ratings from about 160 raters such as MSCI, S&P Global and Morningstar to pick stocks and bonds for “green” products now popular with ethical investors, but there are no regulatory checks on how those ratings were put together.

IOSCO said its recommendations will begin shining a light on how ratings are compiled and conflicts of interest handled in a largely unregulated business which is already worth around $1 billion and growing at 20% a year.

It recommends that ESG ratings and data providers consider implementing written procedures to underpin high quality ratings, and make public disclosure a priority.

Some regulators are likely to go further, with IOSCO members Britain and the European Union having already expressed concerns over the lack of rules for ESG raters.

The recommendations will raise the bar to entry into the ratings sector, an official at a leading ESG rater said.

Earlier this month a new global body was set up to introduce rigour into how companies make ESG related disclosures. Until now, asset managers have relied heavily on ratings in the absence of high quality company disclosures. read more

IOSCO has already set out a framework for checks on how asset managers sell green funds and will now focus on what independent checks on company ESG disclosures could look like.

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Reporting by Huw Jones; Editing by Alexander Smith

Our Standards: The Thomson Reuters Trust Principles.

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Britain needs a 'booster for growth' as tax hikes threaten investment – CNN



London (CNN Business)Britain’s economy needs much more investment. Business says it’s unlikely to get it any time soon.

The Confederation of British Industry said in its latest forecast that a “short-lived recovery” in capital spending would end in 2023 because of tax hikes on companies.
Investment in the United Kingdom has lagged that of other advanced economies for decades, and the business lobby group’s forecast will deal a blow to Prime Minister Boris Johnson’s aspirations for building a high-wage and high-productivity economy.
Business investment would briefly rise above pre-pandemic levels by the end of next year, before slumping as companies are hit by a corporate tax hike and the end to a tax break on some investments in plant and machinery, the CBI said.
The corporate tax rate will rise from 19% to 25% in April 2023. UK finance minister Rishi Sunak announced the hike in March this year to help pay for the costs of the pandemic and reduce government borrowing. The tax break on plant and machinery, introduced earlier this year, will also expire in April 2023.
Investment stagnated following the Brexit referendum in 2016 as companies were deterred by the uncertainty over Britain’s future trading relationship with the European Union. It has dropped further since the start of the Covid-19 pandemic.
Capital spending by UK companies fell by 11.6% between the third quarters of 2019 and 2020, the CBI said.
By the government’s own admission, business investment was already low by the standards of other advanced economies. A UK Treasury factsheet published in April said: “Much of the UK’s productivity gap with competitors is attributable to our historically low levels of business investment compared to our peers. Weak business investment has played a significant role in the slowdown of productivity growth since 2008.”
Investment in technology, skilled workers and innovation are key to raising productivity, and boosting growth and incomes without pushing prices higher. The CBI’s warning comes as inflation continues to rise. It hit a 10-year high of 4.2% in October, and the Bank of England’s chief economist has warned it could exceed 5% in early 2022.
“I know from speaking with firms of all sizes that they have an ambitious investment mindset, and are anxious to implement growth plans. But while intentions have thawed, we’re coming up to a cliff edge in 2023,” CBI director-general Tony Danker said in a statement.
He said the tax break had been successful but industry needed targeted measures to encourage “the scale of investment we need, particularly in green technologies. A booster for growth is needed to protect and build on our recovery.”
Britain’s economy should grow by 6.5% in 2021 according to the UK government’s own Office for Budget Responsibility’s projections. But the economy won’t recover its pre-pandemic size until the first quarter of next year, the Bank of England forecasts.
The recovery has been hobbled by Brexit, which the OBR believes will cause more long-term damage to the economy than the pandemic.

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China's Special Bonds Can't Halt Property-Led Investment Slump – BNN



(Bloomberg) — China is betting that a pickup in infrastructure spending can spur investment and cushion a property-led slowdown which has dragged economic growth down to almost its lowest pace in more than three decades. 

But because the property curbs are hitting government revenue from selling land, Beijing will need to ease its tough campaign to crack down on “hidden” local government debt if it wants a long-lasting revival in infrastructure spending.

Premier Li Keqiang last month urged local governments to make better use of the proceeds from the sale of 3.65 trillion yuan ($573 billion) in “special” bonds to counteract “downward pressure” on the economy. The bonds are used to fund specific projects rather than general expenditures and regional authorities have almost completed the sale of this year’s quota.

The quota could be expanded to 4 trillion yuan next year, according to state media reports, but even that amount of funding would be small relative to China’s total infrastructure spending needs. Bloomberg Economics estimates infrastructure investment will reach about 23 trillion yuan in 2021, which implies special bonds can only around 16% of that expenditure.

The remainder is mainly paid for with money from land sales and local government financing vehicles, which are companies set up by local governments to raise debt from loans and bond sales and then keep that borrowing off of government balance sheets. Both those sources of financing are under strain from property sector curbs and a campaign against “financial risks.”

Those financing vehicles raised less money in 2021 as Beijing ordered local governments to cut their “hidden” off-balance sheet debt. LGFV’s net local bond issuance — the excess of newly sold bonds over repayments — in the first 11 months of the year was 1.95 trillion yuan, down from 2.19 trillion yuan in the same period last year, according to Bloomberg estimates. 

The platforms have found it harder than in the past to obtain loans from banks and from non-bank “shadow” financing because Beijing has been shrinking the shadow finance sector as part of its financial de-risking effort. They have also raised less from foreign investors: LGFV’s net issuance of dollar-denominated bonds through the end of last month more than halved to $5.7 billion.

The property crackdown is also reducing local government’s sales of land to property developers, a major source of funds for local government investment. Infrastructure spending growth has moved almost exactly in line with land sales revenue growth in recent years, according to analysis from Goldman Sachs Group Inc., while the correlation with special bond and LGFV bond issuance is less significant.

Beijing’s efforts to slow the real estate market began cutting into land sales volumes and prices this summer. Local government income from land sales shrank by more than 10% year-on-year in August, September and October, the largest and most sustained decline since 2015, according to Wei He, an analyst at Gavekal Dragonomics.

In the first 10 months of the year, infrastructure investment rose just 1% compared with the same period a year earlier, leaving local governments with unspent funds. 

“The positive factors such as money that hasn’t been spent this year will be countered by the negative impact from land sales,” He said. “Therefore I do not expect a significant acceleration in infrastructure spending to materialize next year.”

To be sure, “special” bond issuance has been concentrated at the end of this year, which could translate into a slight pick-up in infrastructure spending in the first half of 2022 if the funds are quickly put to use. But local governments have been struggling to find suitable projects to fund with special bonds whose conditions stipulate that investments must generate enough income to repay the bond principal and interest.

Local governments’ land sale revenue could fall 10% year-on-year in 2022, according to Gavekal’s He. That means if Beijing really wants infrastructure investment to increase, it will need to loosen the constraints on LGFVs, compromising on its goal to control debt-levels in the economy.

“If the economy softens in 2022 and the government needs to increase infrastructure spending to support economic growth, there would be easing in financing for LGFVs,” said Ivan Chung, associate managing director at Moody’s Investors Service in Hong Kong.

©2021 Bloomberg L.P.

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Infrastructure investment is here — how can we spend it wisely? | TheHill – The Hill



For nearly a year, the question around infrastructure spending has been, “How much?” At last, the nation has received an answer.

Although smaller than originally proposed, the $1 trillion bipartisan infrastructure spending bill recently signed into law by President BidenJoe BidenMarcus Garvey’s descendants call for Biden to pardon civil rights leader posthumously GOP grapples with chaotic Senate primary in Pennsylvania ​​Trump social media startup receives commitment of billion from unidentified ‘diverse group’ of investors MORE will still ensure immense, much needed investments in the nation’s infrastructure.

But now that we’ve finalized the magnitude of our spending, it’s time to ask a new question: “How can we spend wisely?”

Decision-makers and the public need to remember that even the smallest of spending decisions can have enormous consequences. Not only can the choice of project type have lasting effects on an entire region, but even the construction practices selected for that project can determine its long-term success. 

Maricopa County, Arizona, for instance, has long chosen to maintain concrete pavements with asphalt overlays. Yet, a report by the Arizona Department of Transportation has found that continuing to do so could cost the region an extra $1 billion over the next decade when compared to diamond grinding. Clearly, even decisions as small as maintenance technology choice can have an outsized impact.

This is not to say we should spend less. Our infrastructure spending as a percentage of GDP has fallen by roughly one-quarter over the past 60 years. Meanwhile, federal investment as a whole fell by 50 percent by the same metric between 2011 and 2018. Together, the recent Infrastructure Investment and Jobs Act and Build Back Better Act could reverse these trends and transform the nation’s infrastructure.

But to turn this raw investment into real impact will require us to spend more wisely. Thankfully, a growing body of research can allow us to do at.

New findings have given us the opportunity — and the mandate — to spend more boldly and intelligently than ever before. Here’s what we should do: Modernize planning tools to consider systems holistically, get out of technology ruts, and, most fundamentally, measure performance.

So, what do we mean by “considering systems holistically,” exactly? Rather than weighing the benefits of a project in isolation, holistic planning weighs how a project would also impact surrounding infrastructure and the wider region.

Consider the Red-Purple Bypass Project in Chicago: A modernization initiative of the Chicago Transit Authority, or CTA, this recently completed project rebuilt a junction between some of the city’s busiest El lines.

At first glance, building a short rail bridge seems like an isolated improvement. Yet, its cascading effects could be substantial.

By simply relieving a bottleneck, it could essentially unlock capacity equivalent to a new line — accommodating eight additional trains and 7,200 more passengers per hour. It will also improve reliability across the rail network, benefiting commuters in distant parts of Chicago. Evidently, thinking in terms of the wider network can make even localized projects hugely transformative.

This same holistic approach can also improve the nation’s ailing road networks.  

Research indicates that moving to whole system decision tools provides as much benefit as spending roughly 10 percent more per year. And the tools to do this, referred to as asset management tools, are commercially available. States should adopt and apply such tools to inform all funds allocation questions immediately.

Thankfully, systems perspectives are starting to become standard practice. Leading transportation departments and metropolitan planning organizations (MPOs) are today implementing accessibility-based performance planning — a leading whole systems approach.

This form of planning considers projects based on how many jobs, health care facilities, parks, and other key amenities people can reach in certain times by certain modes of transport. With this kind of systems planning, even targeted improvements can expand access across entire regions.

But systems approaches alone cannot ensure efficient spending: We’ll also need to escape technology ruts.

Research shows that when states eschew tired tools and use a wide variety of materials and construction technologies, they can build a system far more economically. In fact, using a broad mix of paving materials and practices, including investing in long-lasting construction, provides the same benefits as spending 32 percent more per year while also cutting pavement emissions by 21 percent.

Finally, to realize lasting change, we need to measure the performance of the infrastructure we create.

Currently, we rarely measure the quality of our roads — chiefly because data on infrastructure has been hard to gather. And yet, without this data, effective decision-making is impossible. That’s where smart technologies can prove useful.

Various smartphone crowdsourcing tools are already gathering road quality and travel time data across the country at a fraction of the cost of conventional methods. With more investment, these tools could help cash-strapped transportation departments while helping to mitigate traffic jams — which currently cost drivers roughly $1,000 annually.

Over many years, a narrative has emerged in the public imagination: when immense, visionary investments are made — the Hoover Dam, the Interstate Highway Network — cities, regions and nations are transformed as a result.

Yet, transformative infrastructure projects are the product of more than just massive investment: their success also depends on cutting-edge tools and perspectives that maximize those investments.

As we shift from negotiation to implementation, we should embrace a new narrative to guide our infrastructure investments. We need to understand that spending boldly is just the first step: ultimately, we must spend shrewdly as well.  

Jinhua Zhao, Ph.D. is director of MIT’s Mobility Initiative and an associate professor of transportation and City Planning.

Anson Stewart, Ph.D., is a research scientist at MIT’s Department of Urban Studies and Planning.

Franz-Josef Ulm, Ph.D., is the faculty director of the MIT Concrete Sustainability Hub. His research interests are in the mechanics and structures of materials. His research investigates the nano- and micromechanics of porous materials, such as concrete, rocks and bones and the durability mechanics of engineering materials and structures. 

Randolph Kirchain, Ph.D., is the co-director of the MIT Concrete Sustainability Hub. His research focuses on the environmental and economic implications of materials selection and deals with the development of methods to model the cost of manufacture and the sustainability of current and emerging materials systems.

Research from the MIT Concrete Sustainability Hub is sponsored by the Portland Cement Association and the RMC Research and Education Foundation.

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