How Sustainability Disclosures and Regulations Benefit Investors

Information becoming available under new regulatory disclosures can be beneficial for investors looking to make sustainable investments.

Art by James Yang


There are several regulations and disclosure requirements aimed at meeting sustainability and greenhouse gas reduction targets worldwide that investors will need to understand and from which they can hopefully benefit.

Asset owners representing trillions in assets have pledged to mandate things such as sustainable, carbon-neutral portfolios and divestments from carbon producers.

For example, the U.N.’s Net-Zero Asset Owner Alliance represents 69 asset owners with $8.4 trillion in assets under management with a target of achieving net-zero portfolios by as late as 2050, with inflows into ESG and sustainable funds exceeding $30 trillion by the end of the decade, predicts Broadridge.

In order to achieve their sustainability and net-zero goals, investors could take advantage of incentives that are offered by some countries, such as tax credits, green bonds and accelerated depreciation incentives, new regulatory and disclosure regimes not only make sustainable investing easier, they will also make them mandatory in order to meet numerous net zero goals by the middle of the century.

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Disclosure Requirements, Incentives and Regulations

A number of countries are planning climate related disclosure requirements, mandating that companies report their climate risks, emissions, and other requirements.

U.S.: In March, the Securities and Exchange Commission finalized its climate reporting and sustainability requirements. The rules are meant to “provide investors with consistent, comparable, and decision-useful information, and issuers with clear reporting requirements,” said SEC Chair Gary Gensler in an announcement of the rule adoption.

These disclosures, which will be implemented in 2025, aim to disclose and standardize climate-related risks to public companies, such as the material impact that these risks have on a company’s financial conditions and operations, as well as any material impacts of climate-related risks on a company’s business model and outlook.

“The SEC’s new climate disclosure rules have the potential to be a significant data upgrade for institutional investors. They will enable enhanced risk monitoring across portfolios, especially for sectors vulnerable to climate hazards,” says Maksym Konevshchynskyy, senior strategy consultant at Indefi. “With access to comparable data, investors will now be able to engage more effectively with companies on mitigating these risks. Moreover, increased transparency will help investors weed out greenwashing, spotlighting firms that fall short in addressing climate risks.”

The SEC said in its final rule that institutional investors overwhelmingly expressed a need for more “reliable, consistent and comparable” climate-related information. The SEC argues that the demand for climate disclosures from institutional asset managers reflects what they think is in the best interest of their investors and clients, to whom they have fiduciary duties.

“As stock prices reflect profits potentially years in the future, even long-term climate-related risks can affect profitability, though not all climate risks are necessarily long-term. In any case, risks to cash flows, even those that are far in the future, can still be important for investors today,” the SEC disclosure final ruling states.

Europe: Many European countries already have implemented climate disclosure standards, although specific regulations are not standardized across the EU. However, in late 2018, the European Commission published the first draft of the Sustainable Finance Action Plan, a set of disclosures and regulations aimed at achieving net zero by 2050 across the bloc.

Institutional investors, however, are concerned about the quality of data that would be provided by companies under the EU’s transparency framework, known as the Sustainable Finance Disclosure Regulation, or SFDR, and while they have demand for sustainable investments from asset owner clients, they are also worried about accusations of greenwashing.

“Although institutional investors and banks welcome the Sustainable Finance Action Plan, they are faced with difficulties in collecting granular and reliable data on sustainability to meet their transparency obligations under the EU taxonomy regulation, [the Corporate Sustainability Reporting Directive], SFDR, and the Capital Requirements Regulation (CRR) (Pilar III),” according to research from BNP Paribas.

Australia: Australia will soon be implementing several mandatory disclosure requirements for companies, starting with larger entities, and smaller businesses phased in over time.

The goal of these disclosures, according to the Australian treasury, is to develop a “rigorous, internationally aligned and credible climate disclosure regime” that will make the country an attractive market for international investment to support the county’s transition to net-zero.

“We believe that a global approach to the development of climate-related financial disclosure standards and the implementation of the standards in Australia will support investment decision making relating to climate change risks and opportunities and broader sustainability-related matters” said Andrew Gray, head of ESG and stewardship, and Matthew Harrington, CFO at AustralianSuper, in a statement announcing the pension fund’s position on the new disclosure requirements.

This month, Australia will also begin issuing its s, where were scheduled to be issues this week. The first bonds will mature in June 2034, according to the Australian Office of Financial Management. AOFM says the size of the issue will be roughly AUD 7.0 ($4.64 billion).

These bonds, which like treasury bonds, are intended to raise funds that will be invested in net-zero investments in Australia. A number of pension funds are increasingly engaged with the AOFM’s climate policies and have expressed interest in these bonds, says a spokesperson for the AOFM.

“Investors are responding to pressure from clients, including demands to align portfolios with net zero emissions objectives. Many investors either have specific green/sustainable bond funds, or they incorporate an environmental, social, and governance overlay into existing investment processes,” the spokesperson says.

Inflation Reduction Act

In the U.S., investors can also take advantages of incentives offered through large programs like the Inflation Reduction Act of 2022. The IRA will provide roughly $370 billion in energy infrastructure related tax credits over the next 10 years, these credits could benefit projects in which institutional investors make infrastructure investments.

The IRA also makes it easier for tax-exempt organizations, like pension funds, to take advantage of tax credits from these investments, something they could not do otherwise, writes Matthew Solomon of the Climate Policy Initiative.

“The tax credits in the IRA have been restructured to allow for transferability, meaning that project developers can sell the value of the tax credits to third parties in exchange for cash. Pension funds will no longer be penalized for not being able to access these credits on their own,” Salomon writes.

According to research from Goldman Sachs Asset Management, reviewing one year of the IRA, $282 billion worth of infrastructure investments across 280 clean energy projects were announced across 44 states.

“The Inflation Reduction Act offers a dual benefit to institutional investors. Directly, it provides tax incentives for renewable energy projects and grants for energy efficiency improvements. Indirectly, it boosts companies operating in renewable energy and green technology sectors with significant subsidies, potentially enhancing their financial performance and, consequently, investor returns,” Konevshchynskyy says.

GSAM also suggests investors could make equity investments in industries within verticals that are most affected by the IRA, such as the materials, industrials energy and utilities sectors. “The IRA’s support for jobs, especially in manufacturing, should support economic growth and consumption, in turn supporting the U.S. equity and credit markets,” the GSAM report states.


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How investors are capitalizing on the need for sustainable building materials.

Art by James Yang


Sustainable infrastructure investing is becoming more than just owning solar and wind farms and is extending to the materials needed to build those and other large projects. It is also forcing investors and consumers to consider a circular lifecycle of products, rather than seeing outputs as a single use.

Sustainable materials are a niche sector, but a growing one, as more companies, investors and asset owners consider how to reach their net-zero carbon emission targets. This sector is also ripe for innovation as the buildings and construction sector accounts for 37% of global emissions, according to the United Nations Environment Program, with much of it coming from producing materials such as cement, steel and aluminum, which use high heat in their processes.

There is also a push for more infrastructure development globally, both in the U.S. with the Inflation Reduction Act encouraging the buildout of sustainable infrastructure, and in Europe with the REPowerEU initiative, as the continent intensifies its efforts to build more clean energy infrastructure.

Even so, there is a gap in global infrastructure spending, says Dan Abbasi, principal at investment manager Douglass Winthrop Advisors, who oversees the firm’s sustainable equity strategy. Last year alone total global infrastructure spending was $2.9 trillion, but the world needs $3.4 trillion, he says, citing the G20’s Global Infrastructure Outlook. If that trend continues, the spending shortfall will be $15 trillion over the next 15 years, he says. As these projects are built, sustainable design may become more important.

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There are public and private ways to invest in sustainable materials, and experts say institutional investors should think broadly about the space, looking not only at materials companies, but also those firms focusing on resource efficiency and specialty chemicals to reduce carbon emissions across the supply chain and in outputs.

Greening Cement

Manufacturers are making strides in reducing the carbon emissions from cement, which is made by firing limestone, clay and other materials in a kiln. The energy used to heat the kiln and the chemical reaction produced by the mixture causes carbon emissions.

Christian Hernandez, managing partner in venture capital firm 2150, part of multi-strategy asset manager Urban Partners, which focuses on sustainability in urban areas, says in 2020, only about 10 firms were working on reducing cement emissions, but now there are around 80 companies in various stages of development attempting to green cement.

The first cement company investment for 2150 was in CarbonCure, which injects captured carbon and mixes it into cement. Hernandez says 2150 invests in later-stage private companies with the ability to scale. Another 2150 investment in sustainable concrete is Biomason, which uses microorganisms to build concrete and cement, mitigating 95% of carbon emissions when compared to traditional methods.

Investing in truly green cement producers in the public equity sphere is limited, says Pascal Dudle, lead portfolio manager for Vontobel Asset Management’s global environmental change and global impact equities strategies. Dudle says he prefers to own specialty chemical companies that are working with cement and concrete producers to lower their carbon footprints. His funds own Linde, which works with CarbonCure, to trap carbon in cement. He pointed to another specialty chemical company as an example, Sika AG, which he does not own, which is using additives to reduce cement consumption, clinker content and water use in cement mix. Clinker content, which is over half of cement’s carbon emissions, is produced by the chemical reaction of heating ground limestone and clay. is

Improving Energy Efficiency

Using sustainable materials during new infrastructure construction lowers embodied carbon because the materials use less carbon during the manufacturing process, Hernandez says. However, the best way to lower a building’s embodied carbon, the emissions associated with a structure’s materials and construction process, is to retrofit existing infrastructure to improve its energy efficiency, he adds.

Dudle concurs. “When you live in buildings, that’s almost a bigger part of the emissions because you can live there for decades,” he says.

One of 2150’s companies in the energy-efficiency space is Aeroseal, which uses a non-toxic formula to reduce ductwork leaks and can be used around the building envelope to seal air leaks.

Dudle says making buildings more efficient also includes improving building automation, and there are several publicly traded companies in this space, including heating, ventilation and air conditioning companies Carrier and Johnson Controls, both of which he owns.

Investment Limits

While manufacturers are making some strides in greening building materials, reducing carbon in other sectors remains difficult. Hernandez says 2150 has not found a suitable green steel investment yet, saying much of the technology is still in the research phase or requires significant government subsidies to build and  is difficult to scale. “We’re still struggling on the steel side,” he says.

Publicly traded steel producers have started a few projects, but it’s not part of their core output. Linde announced in May it will supply industrial gas to Sweden’s H2 Green Steel, which is being supported by debt and equity financing, including EU subsidies.

Some larger steel companies, such as ArcelorMittal and Cleveland-Cliffs, are also working on projects to reduce carbon emissions at individual steel plants. Neither company returned requests for comment on the topic.

Recycling and Reuse

The growing field of circular design considers the entire lifecycle of a product so it can be reused, rather than a single-use product that is eventually thrown away. Reusing and recycling products are critical to reducing total carbon emissions.

Dudle points to a subsidiary of waste management company Clean Harbors, Safety-Kleen, a re-refinery and recycler of used oil, as an example. The company creates lubricants out of spent oil.

Andrew Siwo, director of sustainable investments and climate solutions at the $248.5 billion New York State Common Retirement Fund, says the state’s Climate Action Plan has a $40 billion sustainable investment goal, including investments in green infrastructure and resource efficiency, which involves making the most of available natural resources.

One of the pension fund’s investments is Nordic real estate manager NREP, also part of Urban Partners, which focuses in part on reducing the carbon footprint of new construction by repurposing and reusing previous construction materials, including concrete from construction and demolition projects, windows from abandoned buildings and wood floors.

Reusing these materials sharply cuts the amount of new raw material for new projects, the quality is equal or even better, he says, and it makes permitting easier since reusing material helps NREP meet environmental standards.

“This is not being done just because it makes the world a better place. There is a business imperative as well,” Siwo says.

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