Commentary

ICYMI, Momentum for Change has Been Building

Q1 2022 has seen some important, if insufficient, shifts.

Whatever your focus across the spectrum of ESG risks and impacts, the first quarter of 2022 ended in a flurry of activity, if not always of an encouraging nature. Have a thought for those trying – and failing – to sum it all up.

Too slowly, but surely, we’re seeing more standardisation of and regulatory backing for climate reporting. Mandatory reporting for large UK corporates, based on TCFD recommendations, starts next week, while US corporates now have a clear signal of their forthcoming obligations. The International Sustainability Standards Board issued its draft climate disclosure standard this week, giving a glimpse of more granular requirements beyond TCFD, following recent agreement on a ‘two-pillar’ approach to wider sustainability reporting with the Global Reporting Initiative.

Europe, the jurisdiction making most of the running on green policy to date, also looked beyond climate this week. The Platform for Sustainable Finance, the EC’s technical advisory group, not only published proposals for how Europe’s environmental taxonomy can support whole economy transition to sustainability (even some of the ‘brown’ bits), but also how it can go beyond climate-related screening criteria, to prevent pollution, promote circularity, and protect water and biodiversity.

Biodiversity-related reporting might be getting up and running, but progress on the policy framework that sets goals for the public and private sectors is painfully slow ahead of COP15, now scheduled for August. Limited progress was made in Geneva before negotiators from 164 countries agreed on Tuesday to reconvene in Nairobi in June. Sticking points included concerns that the 30×30 target – 30% of land and marine areas protected by 2030 – was insufficient in light of a recent IPCC assessment, with businesses and investors attending among those calling for greater ambition.

One policy area gaining more attention is renewable energy transition, driven by Russia’s invasion of Ukraine. Although debate often seems short of heat and light, notably in the UK where internal squabbles delay action. Perhaps policymakers needed time to digest a raft of new reports, including Ember’s analysis of global electricity generation trends, which highlighted how broadly across regions has been the recent growth of wind and solar. The UK government’s own GHG emissions data might also have given pause for thought.

Elsewhere, German think tank Agora Energiewende offered 15 policy actions to EU policymakers across the power generation, industrial and building sectors to achieve energy independence by 2027, warning also of the risks to carbon pricing from higher energy costs. Meanwhile the International Renewable Energy Agency argued that accelerated investments were “offering a way out of import dependency and allowing countries to decouple economies from the costs of fossil fuels”.

As momentum for change continues to build, so too does investor scrutiny of efforts by investee firms to recognise risks and realities. Climate Action 100+’s annual stocktake of heavy-emitting firms revealed some progress, but not enough to stop climate issues dominating upcoming shareholder meetings, especially with oil majors fighting hard to slow the inevitable.

Not that investors are focused purely on climate. Initiatives launched in recent weeks recognise the full scale of the challenges and responsibilities facing sectors from mining to food retail in times of severe upheaval, uncertainty and hardship for many. Longer term initiatives, such as those addressing human rights issues such as modern slavery reflect the shared responsibility of public and private sectors to address systemic issues.

A new report from TheCityUK outlined how far we’ve come in the past decade and how far is left to go in redirecting finance to sustainable activities, while next week’s final IPCC report of the current assessment cycle, on mitigation, is likely to underline how urgently that further shift is needed.

 

 

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