Commentary

ICYMI, We’re Heading for an East-West Split

Mature economies are powering past coal, but its future is no clearer than its past.

Differences between east and west on coal were highlighted this week, suggesting it could provide one of the biggest areas of contention at COP26 in November.

Speaking at the Powering Past Coal Alliance’s London Climate Action Week European roundtable this week, COP26 President-Designate Alok Sharma urged all countries “to commit to phase out coal power”, saying that consigning coal to history is essential to hopes of limiting climate change to 1.5 degrees Celsius.

Sharma noted the recent G7 commitment to end international financing of coal and the cheaper costs of wind and solar energy. To underline his point, the UK this week also confirmed that it is bringing forward the phasing out of coal from domestic power generation to 2024, reducing reliance on coal for electricity from around a third to zero in a decade. The International Energy Agency recently called for an end to new coal-fired power stations by the end of this year, in its Net Zero by 2050 analysis.

The support of the finance sector for coal has dwindled, but its “deadly addiction” has not disappeared. Last week, MS&AD, one of Japan’s largest non-life insurers, adopted a new policy to neither insure or invest in new coal powered plants. This first for Japan follows similar moves by Korean insurers, with market-leader Tokio Marine facing continued opposition.

The east-west split was laid bare by a new Carbon Tracker report, although one could easily cast the divide as between mature and developing economies, with China, India, Vietnam, Indonesia and Japan responsible for 80% of planned new coal plants and 75% of existing coal capacity. The report’s finding that most of these plants will be uneconomic and that existing capacity relies heavily on policy support suggests heated discussions in Glasgow, a city built in no small part on coal.

Also this week, the UK government provided more detail on its first green gilts, including a framework for how the proceeds will be spent, complete with alignment to UN Sustainable Development Goals. Chancellor Rishi Sunak’s Mansion House speech offered little extra “meat on the bones” to those perceiving large gaps in the UK government’s net-zero 2050 ambitions, but some new details may be imminent.

Pension schemes are moving further along their path to 2050 by preparing their first mandatory TCFD-aligned reports. Unsurprisingly, some are struggling to source the necessary data, in part due to the longer timelines and, in some eyes, lighter requirements for asset managers (a situation described as “nuts” yesterday by one of the UK’s largest pension schemes at a virtual conference).

Meanwhile, the new International Sustainable Standards Board’s progress toward a global standard for climate reporting appeared to be continuing apace, with the US now apparently set on a parallel path, despite some dissenting voices. Backsliding remains a possibility of course, as can be seen in the delays to the European Commission’s planned Sustainable Corporate Governance initiative, widely blamed on lobbying efforts. If scrutiny of environmental and human rights risks in company supply chains is going to remain challenging, perhaps it’s no surprise investors are searching for pastures new.

 

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