Commentary

ICYMI, Joined-up Thinking is a Rare Commodity

Companies, financiers and governments all struggle to put climate at the heart of policy.

This week started with a poor ESG report card for global corporates. The Climate Action 100+ investor initiative released its first benchmark report, showing that net-zero pledges by the world’s heaviest emitting companies often lack detail and credibility. The investors’ findings were reinforced by a separate study, which also noted a worrying level of reliance on carbon offsets to meet emissions reduction commitments.

But banks soon came under scrutiny, with the release on Wednesday of the ‘Banking on Climate Chaos’ report by a coalition of NGOs. The report pointed to the US$3.8 trillion in fossil fuel financing from the world’s 60 largest banks since the Paris Climate Agreement as evidence of a lack of urgency on climate risks in the finance sector.

As ever there are beacons of best (or at least better) practice. Unilever unveiled a detailed plan to achieve net-zero emissions across its supply chain by 2039, including a commitment to an advisory vote on its progress at its AGM every three years and independent third-party assurance.

This followed the decision by Rio Tinto to support a shareholder resolution requiring the mining group to set emissions targets in line with the Paris Agreement and to cut ties with any trade body lobbying against climate action. Meanwhile, asset owners gave further indications of their direction of travel, with New York City Pension Funds (AUM: approx US$240 billion) doubling their collective investment in climate change solutions to US$6 billion.

As the corporate and finance sectors up their game, they can always rely on political compromise and downright muddle-headedness to draw fire. It’s not only home bias that recommends the UK as a fascinating case study in this respect. This week, Chancellor Rishi Sunak updated the Financial Conduct Authority’s remit to include climate change for the first time, while the BEIS outlined new disclosure requirements for corporates.

This puts the UK in line with recent recommendations from the Principles for Responsible Investment for G7 and G20 finance ministers to “lead and support policy reforms in their countries that align financial markets with the global sustainability goals”. (It is also encouraging that climate risk is front and centre for financial regulators globally, and in the US and China in particular.)

And government policy has been a significant driver of the UK offshore wind sector, which could treble its workforce by 2026, according to a new report. On the other hand, it also emerged that the UK government is due to grant permission to drill more oil and gas wells in the North Sea, as part of a gradual transition to clean energy.

As this week’s commentary articles show, policy is far from joined up in Europe either, and teething troubles with SFDR indicate how far we have to go. But with so much riding on COP26, the lack of coherence on climate issues does not inspire confidence in its host.

When pressed by a committee of senior politicians the extent of his focus on the Glasgow event, UK Prime Minister Boris Johnson admitted the government’s Climate Action Strategy Committee had “not met a great deal”.

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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