Commentary

ICYMI, all Outcomes are Possible

Optimism and uncertainty are inevitable as we face familiar challenges with renewed vigour.

While we all look for reasons for optimism at this time of the year, we also know there are few certainties. This in itself is a reason for optimism: all outcomes are possible and we can shape the future.

This time last year, one hope might have been for COP26 to actually take place in Glasgow. Today, many will be hoping that its messy and less-than-convincing efforts to ‘keep 1.5°C alive’ can be sustained, as governments and private sector actors embark on the even messier task of turning pledges into reality.

This time last year, we would not have expected shareholders and courts to inflict such heavy setbacks on recalcitrant oil and gas operators on the same day. Today, we’re anticipating further fireworks during this year’s AGM season, as asset owners increasingly act in line with the net zero commitments they made in 2021.

Despite its forced board-level reshuffle, ExxonMobil faces intensifying pressure from shareholders, including a resolution asking it to align its targets with climate science and report on Scope 3 emissions. Last month, it also suffered the indignity of being divested by UBS Asset Management and Nest, the UK workplace pension scheme, for its “unresponsive” approach to engagement efforts.

Understandably, all this two-steps-forward-one-step-back incrementalism can exasperate. In the social sphere, few will celebrate the fact that UK CEOs had to work slightly longer this year (i.e., until approximately 9am this morning) to overtake the average annual earnings of a typical employee.

For some time, it’s been clear that managing and disclosing ESG risks will not move the needle, impact must take its place alongside risk and return in the investor’s decision-making process for sustainability targets and objectives to be met.

Ensuring this information is sought by and provided to investors is one of many competing priorities for regulators in 2022 and beyond. So far, much of the attention has focused on the European Commission’s attempts to allow nuclear and gas energy generation to be included in its green taxonomy via a ‘complementary delegated act’ to the one passed in early December.

Having sneaked out its plans on New Year’s Eve, the Commission has given the independent Platform on Sustainable Finance (PSF) until next Wednesday to “provide their contributions”. This led Chair Nathan Fabian to comment last night that the PSF would “modify its usual consensus-based approach to provide feedback from individual members”. Given its diverse membership, we await with interest.

With consultations and decisions due in many major jurisdictions on multiple aspects of the emerging sustainable finance framework, this rather European row could be a taste of things to come globally, played out against a background of rising inflation and geo-political tensions.

For the reasons suggested above, we at ESG Investor will refrain from making predictions. But to capture a sense of what could be on the asset owner’s agenda over the next 12 months, we do recommend our previews of environmental, social and governance themes. There may be few certainties, but our optimism abounds.

 

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