Commentary

ICYMI, an Ill Wind is Blowing From the East

Russia’s increasing isolation is having mixed impacts on climate risks.

The world stood by as Ukraine burned this week, fearing action beyond sanctions could prompt something worse, if that could be imagined.

War is good for nothing of course, but it certainly added a new dimension to a number of ‘hard-to-shift’ challenges. Almost overnight, Vladimir Putin pulled off something investors have been struggling to achieve since 2015: decarbonising the business models of oil and gas majors. By divesting its 20% stake in Rosneft, BP also disposed of around a third of its oil supplies.

As divestment sceptics know, there’s a big difference between reducing portfolio and real-world CO2 emissions. Those oil flows may no longer sit on BP’s TCFD report, nor may they find a buyer on today’s energy markets, given disruption to east-west payments. But will the energy giants diversify from or double down on fossil fuels in response to inevitable write-offs on stranded assets?

And the latter can hardly be considered safe in the hands of a military-grade tyrant with as idiosyncratic a grasp of climate science as history. Siberia might already be on fire, but it would take an extreme optimist to believe an isolated Putin would heed advice to ‘keep it in the ground’.

And isolated he increasingly is. Investors, asset managers, payment systems, and technology giants moved at varying speeds, but all are heading for the exits, partly fearing the reputational damage of being the last firm left standing. Next to Putin, that is.

The spectre of war has highlighted the risks of Europe’s gas dependency, accelerating previously dilatory efforts at transitioning to renewables, which may be further bolstered by a new 10-point plan from the International Energy Agency. It has also been a catalyst in less expected ways. There was at least a decent interval before gas was sneaked into Europe’s environmental taxonomy. It took less than a week from the unveiling of the social taxonomy for someone to suggest putting guns in it.

Political realities are also finding expression in discussions about the future of Europe’s emissions trading scheme, with policymakers tempted to suppress carbon prices. And as Europe’s green fund labelling regime approached its first year, another part of the bloc’s sustainable finance strategy, focused on corporate reporting, was criticised for its lack of ambition.

The arguments of those calling for stronger, quicker action in disclosures was underlined by a raft of reports signalling a lack of progress, planning or focus in boardrooms on corporate net zero strategies.

Away from Europe, there was some good news. Meeting in Nairobi, the United Nations Environmental Assembly agreed to establish a legally binding framework by 2024 to protect the world’s oceans from plastics and other solid human waste. UN Executive Director Inger Andersen made clear governments’ work to end single-use plastics starts now, lest any energy giant is still looking to replace revenue through that form of diversification.

In a busy week, Andersen also introduced the IPCC’s new climate change report focused on Impacts, Adaption and Vulnerabilities, alongside a powerful speech from Secretary General Antonio Guterres. Its last words will also be ours:

“Climate change is a threat to human well-being and planetary health. Any further delay in concerted anticipatory global action on adaptation and mitigation will miss a brief and rapidly closing window of opportunity to secure a liveable and sustainable future for all.”

 

 

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