The transition to a net-zero economy is under way, but progress is painfully slow.
For the second week in a row, Europe has provided a test case for the implementation of climate pledges. If policymakers give investors the green light to continue to invest in gas-fired power generation, what hope is there of achieving promises to cut carbon emissions?
This week, EU member states agreed to exclude gas and nuclear energy from the first delegated act to its green taxonomy. For investors, this means these activities do not contribute to climate change adaptation and mitigation goals and as such cannot be invested in by funds labelled as having sustainable characteristics and objectives under the EU Sustainable Finance Disclosure Regulation.
But that’s not the end of the story. There is still a very real possibility that gas and nuclear could be added to the green taxonomy by another route. Initially flagged in June, a second ‘complementary’ delegated act could cover activities that contribute to emissions reductions but which do not meet the Taxonomy’s technical screening criteria. This now has the backing of France and others.
Like hybrid cars, it is possible to make a case for gas and nuclear energy to play a part in the transition to net zero. But that’s not the same as including them in a scientifically-led list of sustainable activities. The European Commission has even tasked the Platform for Sustainable Finance with establishing a brown taxonomy to handle such sectors. But this, apparently, does not satisfy vested interests. Politics, again, proves to be the dirtiest business of all.
We’re all in transition of course, reforming our business models, and setting targets for eliminating the biggest risks. Or are we? Many are still yet to set climate targets, according to a Moody’s assessment of 4,400 large, publicly listed companies, representing around 67% of global market capitalisation. Only 42% have set emissions targets, with just 3% aligning with net zero by 2050, collectively heading towards 2.9 degrees Celsius of global warming.
But there are star performers, delivering profits and serving customers, while also making headway on sustainability disclosure and performance. This was shown this week with the publication of non-profit disclosure platform CDP’s A-list, which showcased 14 global firms that not only merited an ‘A’ against climate-related criteria, but also delivered on forest protection and water security.
Are asset owners doing enough to encourage investee companies to aim for the A-list? The largest ones are not yet setting an example, according to a recent report by the Thinking Ahead Institute, which found that just 14 are members of Mark Carney’s US$130 trillion net zero coalition. As noted in ESG Investor’s new COP26 Special Report, asset owners and their intermediaries are not yet consistently on the same path to net zero.
But attitudes are changing, often prompted by regulators and even politicians. Members of the UK’s Occupational Pensions Stewardship Council – representing over £500 billion – this week wrote to asset managers demanding a greater say for asset owners on climate and related issues during next year’s AGM season. They were joined by UK Pensions Minister Guy Opperman, who insisted “the days of trustees leaving everything to asset managers without scrutiny must come to an end”. At ESG Investor, we can only welcome any politician’s calls for greater scrutiny.