The Institute of Environmental Management & Assessment (IEMA) welcomes the development of this Publicly Available Specification PAS 7341. As the second PAS in a series within BSI’s Sustainable Finance Standardization Programme, this PAS comes at a critical time when there is a need to ensure that the financial sector is better aligned towards tackling critical climate change and environmental challenges.

Section: Foreword

General comment:

The Institute of Environmental Management & Assessment (IEMA) welcomes the development of this Publicly Available Specification PAS 7341.As the second PAS in a series within BSI’s Sustainable Finance Standardization Programme, this PAS comes at a critical time when there is a need to ensure that the financial sector is better aligned towards tackling critical climate change and environmental challenges.

PAS 7341 follows closely and builds upon the common terminology and set of principles laid out in PAS 7340, to help organisations identify, develop and maximise opportunities that address sustainability challenges.

Following discussions with IEMA members with experience working on sustainability issues within the financial sector, we have reviewed the PAS and provide below comments on several sections to help further refine the document as it looks to provide a way for firms to implement and demonstrate implementation of the regulatory and soft law requirements that are increasingly being asked for.

Overall, we have found that there is too much direct reproduction of sections from PAS 7340 in PAS 7341 (i.e. in particular in section 4 on Governance and Culture where sections of PAS 7340 appear to have been copy pasted). We believe that PAS 7341 should only make brief reference to PAS 7340 and instead include additional sections (such as divestment/stranded assets) which are directly relevant to sustainable or responsible investment management.

We believe that the level of ambition within this PAS should be broader, aimed at organisations that are at various stages in their sustainability journey.

We call for the objectives of this PAS to be further specified.As currently defined, we believe that the responsible and sustainable investment management approaches, do not provide enough guarantee of sustainable outcomes.

Section: 1 Scope

General comment:

The PAS should make it clear what scope it includes or excludes. Currently the definition does not go into details as to which specific financial products are included. This might be difficult to specify until the third PAS, which will consider assets portfolios, is scoped out.

Section: 3 Terms, definitions and abbreviations

Section responsible investment management (P12)

'consideration of the impact of material factors, such as ESG considerations, on financial risk and return'

Proposed wording:

IEMA proposes that the current definition of Responsible Investment Management is amended along the following lines:

  • provide tighter language which extends beyond consideration of financial material risks to provide appropriate and balanced consideration of E&S impacts, risks and issues;
  • include reference to the specific sectors concerned (e.g. insurance, banking, etc…);
  • include wording that covers “societal return on investment”. We are concerned that the current definition only helps to provide basic safeguards which are not enough to promote “responsible investment” practices given that they are lacking the element of “social sustainability”.

Section 3.1.1 additionality

'investment activity that delivers impacts or outcomes beyond what would otherwise haveoccurred'

General comment:

The current definition of additionality appears to be limited to a financial sector view. Given that the focus of this PAS is on sustainable finance, we believe that the definition should extend to sustainability considerations. Additionality is an important issue in order to avoid allegations of “greenwash” or “impact wash” and applies to all asset classes not just the impact sector.

The “additional” impact in a traditional private equity buy-out fund portfolio company might be enhanced safety or environmental performance, or reduced resource use versus a baseline over the course of the ownership phase to exit.For an impact fund the “additional” impact would be the additional positive environmental or social impact related to the portfolio company’s product or service (e.g. wealth creation/jobs).More advanced firms will also capture the additional enhanced safety or environmental performance, or reduced resource use versus a baseline over the course of the ownership phase to exit.

In all asset classes additionality from a sustainability perspective should be clearly demonstrated wherever possible in respect of product/service/supply chain/end use.

The issue of divestment is referred to on two occasions in the notes to section 3 and 7 but there is no section or sub-section of the PAS refers to it expressly. We believe that a definition of divestment is needed, laying out what an appropriate strategy should look like.

The concepts of stranded asset risk and forward-looking scenario analysis should also be defined/explained.

In times of climate and environmental emergencies, we believe that this is an important issue for many asset owners today. Indeed, investors are currently facing a lot of pressure with regards to stranded assets. This focus is currently absent from this PAS and therefore needs to be explicitly addressed. This should help to provide further guidance on the changes needed (i.e. upskilling of directors and senior management) to be able to meet the standards required for responsible or sustainable investment management activities.

We do not see reference within this PAS to the importance of authenticity.

Proposed wording:

Suggested definition of stranded asset risk:

Stranded assets are generally accepted to be fossil fuels, which at some time prior to the end of their economic life (as assumed at the investment decision point), are no longer able to earn an economic return (i.e. meet the company’s internal rate of return), as a result of changes associated with the transition to a low-carbon economy

Suggested definition of forward-looking scenario analysis:

Forward‐looking scenario analysis is a tool that can provide a more realistic assessment of the downside risks and upside potential of investment portfolios than traditional approaches. It captures the sensitivity of portfolios to events through the mathematical articulation of expert opinion. It challenges and enhances our understanding of likely portfolio behaviour in extreme scenarios

Suggested definition of divestment:

Divestment is the process of selling subsidiary assets, investments or divisions in order to maximize the value of the parent company. In responsible or sustainable investment management practices, it is represents the process of moving money out of unethical companies.

IEMA proposes that a section on authenticity could stress the importance for responsible or sustainable investment management practices to ensure:

  • that the investment firm (i.e. manager) has not simply piggybacked off an existing and well-established initiative already in place at a portfolio company;
  • that the investment show can demonstrate the investment firm made a clear contribution and/or instigated an impact initiative;
  • that the authenticity of any environmental and social impact has been confirmed by a qualified person/entity.

Section: 4 Governance and culture

General comment:

As referred to above, the pop out box in section 4.1.10 references TCFD and the SDGs as possible frameworks against which organisation could develop their investment management strategies. However, thought should be given as to how these frameworks compare in practice. Tighter drafting will be required, to ensure that organisations do not embed investment management practices that circumvent the objectives of TCFD and the SDGs. This new drafting will need to specify the type of measurement approaches that should be required.

Section 4.1.10:

General comment:

The pop out box here has been slightly cut off from a formatting perspective.

5 Strategy alignment

General comment:

Staff Competency under section 5.1.2:

“Staff competency to carry out roles and responsibilities relating to the responsible or sustainable investment approach shall include, as a minimum:

a) understanding and applying key responsible investment or sustainability concepts;

b) how to embed and share information across the organization; and

c) mechanisms to allow staff to participate in, improve on and report concerns relating to responsible or sustainable investment management.”

The language currently included under section 5.1.2 referring to staff competency should provide more information on the degree of staff competencies required in investment firms to support sustainable or responsible investment management practices.

Section: 6 Investment processes

General comment:

Sustainability professionals increasingly emphasise the need to convey performance in context and define science-based targets. In doing so, they focus on thresholds that refer not to financial accounting metrics but to the condition of ecology and society within which the business operates. “Sustainability impact thresholds” are currently referred to in 6.1.5 and 6.1.9 when discussing “Integrating responsible and sustainable considerations into investment decisions”:

  • When discussing responsible investment under NOTE 1 of clause 6.1.5 the PAS states that ‘Good practice to assess sustainability impact is to use scenarios and alignment with evidence-based frameworks for setting thresholds in relation to sustainability factors that trigger action’.
  • When discussing sustainable investment under clause 6.1.9 the PAS states that ‘The organization shall determine sustainability impact thresholds, using existing accepted frameworks where practicable (for example the EU taxonomy [25]), and the resulting scope of actions to avoid breaching thresholds, which might differ according to the timeframes of the investment’

As noted in section 4 on Governance, we believe that tighter drafting is needed setting out specific reference to science based-targets (currently limited to a note under 4.1.10) and the need to provide scientific evidence that company actions actually contributed to reducing GHG emissions in the real economy. By supporting science-based target setting by companies withing their investment portfolios and holding them to account for their corporate GHG reductions (see 2° Investing Initiative for more information on science-based targets for financial institutions -, investment firms could help businesses align with global emissions budgets generated by climate models, thereby spurring ambition and generating the innovations needed to transition to a low-carbon, sustainable economy.

Section: 7 Investor rights and responsibilities

General comment:

Under clause 7.2.9 the PAS refers to the process of due diligence but not specify if this is organisational due diligence (on an on-going basis) or project-based due diligence. Some multinational organisations will have branches operating unsustainably.The lack of clarity as to which type of due diligence is referred to could reinforce the prospect of multinational organisations ring fencing those unsustainable operations rather than integrating frameworks that support sustainable practices throughout the organisation.

Section: 9 Claims of compliance

General comment:

We believe that the language in this section should be tighter, helping to provide the reader with guidance on the type of organisational frameworks that are required to establish a responsible investment management approach or a sustainable investment management approach.

Section 9.2 – NOTE: “An organization assessment’s might be completed by self-assessment, a peer review, or by an independent third-party certification body if available.”

General comment:

In the note to section 9.2, PAS 7341 encourages potential third-party certification. Given the non-prescriptive nature of the language used in the current version of PAS 7341, we would argue that the current draft lends itself more to a guidance standard than a verifiable standard.

To enable this PAS to become a verifiable standard we call for further clarification on the investment strategy and how to assess key risks as part of the risk management process (i.e. to include the process on how to assess climate risk, transition risks, etc…).


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