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Global Policy Puts World on 1.8°C Pathway

Current global policy commitments and actions have set the world on track to achieve 1.8°C of global warming by 2050. This is according to the Inevitable Policy Response’s (IPR) latest Quarterly Forecast Tracker, which provides investors with an ongoing assessment of key climate energy, land use and transition policy and technology developments. Since COP26, over 160 relevant policy measures relating to sustainability have been identified and tracked by IPR. Between April and June this year, 36 policy actions were highlighted as “relevant”, with 26 reinforcing the probability of a 1.8°C  outcome, five indicating a “slight acceleration” towards 1.5°C , and two suggesting deceleration. For the latter, IPR noted that US Federal climate policy “has somewhat stalled” and action against deforestation in Brazil will be dependent on the outcome of the upcoming election

US Supreme Court Curbs EPA on Power Plant Emissions

The US Supreme court overturned a ruling to limit the ability of the federal Environmental Protection Agency (EPA) to regulate greenhouse emissions at power plants. The ruling, which reviews West Virginia vs EPA, asserts that only Congress can pass cap-and-trade rules to limit emissions, thus challenging the Biden administration’s net-zero plans, which include a pledge to eliminate power plant emissions by 2035. EPA Administrator Michael Regan expressed disappointment, while Mindy Lubbers, CEO of investor network Ceres said the decision “flies in the face of established precedent and imperils the economy”. Ceres also called on Congress to pass an economic package which includes federal clean energy investments. Danielle Fugere, President of shareholder advocacy group As You Sow, said the decision to restrict the powers of the EPA was “difficult to fathom”. This democratic nation cannot stand under the tyranny of an institution so far removed from the needs of the society they claim to serve and so willing to ignore precedent and clearly stated Congressional mandates,” she said.

New Stewardship Guidance for UK Pension Funds, Investment Managers

New recommendations have been introduced to help strengthen the relationship between UK pension funds and investment managers. The report, published by a steering group of managers, pension funds, investment consultants and lawyers established jointly by the Investment Association (IA) and Pensions and Lifetime Savings Association (PLSA), outlines how to implement effective stewardship between the two groups. Recommendations includes establishing an oversight framework between them asset owner and manager that outlines core sustainability KPIs that will be regularly reviewed, introducing a ‘governing charter’ setting out mutual expectations on the promotion of long-term sustainable value, and ensuring greater clarity and articulation of stewardship expectations during the manager appointment process. The report is in response to the Asset Management Taskforce tasking the IA and PLSA with providing more guidance and support in this area. Archie Struthers, Co-Chair of the steering group and an independent investment management expert, said: “Both asset owners and investment managers are facing unprecedented challenges in supporting the economy to transition to net zero. True collaboration, with a clear focus on sustainable value will be essential to navigate these challenges going forward. These recommendations help to focus on the practical steps which can be taken at each stage of the relationship from pre-appointment to ongoing oversight. Our goal with this report is to affect an intervention, as the end-to-end investment process can be much improved by all parties leaning in to work more effectively with each other on an ongoing basis, to the benefit of our collective beneficiaries.”

CalSTRS Claims Significant Climate Change Action During Proxy Season

The California State Teachers’ Retirement System (CalSTRS) says it has increased its efforts to hold investee companies to account on climate change and human capital management by voting on a record number of shareholder proposals and board elections during the 2022 proxy season. CalSTRS, the largest educator-only pension fund with US$314.8 billion in assets under management, said it has voted on more than 1,000 shareholder proposals this year, noting that nearly 100 of CalSTRS-supported proposals received more than 50% of shareholder support. CalSTRS has come under pressure to divest its investments from the fossil fuel industry, via a bill which was ultimately blocked before its state assembly hearing. CalSTRS said it reviewed all shareholder proposals during the proxy season in the context of its corporate governance principles and commitment to a net zero investment portfolio by 2050 or sooner. It also expects corporations to appropriately manage climate-change risks by publishing a report aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) and disclose, at a minimum, Scope 1 and Scope 2 emissions. Aeisha Mastagni, CalSTRS’ Sustainable Investment and Stewardship Strategies’ Portfolio Manager, said: “Our actions during this historic proxy season are rooted in our mission of securing the financial future of California’s public educators and their beneficiaries.” 

Top Listed Companies Urgently Need to Cut Carbon Intensity, Warns MSCI

Data and index provider MSCI has reported that the world’s listed companies need to cut carbon intensity by between 8%-10% a year by 2050 to meet 1.5°C target. Its latest quarterly Net-Zero Tracker suggests there are only 57 months – just under five years- left to keep global warming below 1.5°C. Only 11% of listed companies currently align with the 1.5°C temperature rise according to MSCI, an increase of one percentage point from October 2021. The analysis also shows less than half of listed companies align with a 2°C temperature rise, and 45% of the 2,900 companies in the MSCI ACWI Index have committed to decarbonisation targets. The tracker’s analysis of Implied Temperature Rise by industry group has the energy sector aligning with the highest temperature rise of 6.8°C, followed by automobiles and components at 4.4°C and materials at 4.1°C. Sylvain Vanston, MSCI’s Executive Director of Climate Change Investment Research, said: “Every step by companies to cut their absolute emissions and every effort by policymakers to drive momentum is critical because every tenth of a degree matters.” 

Limited ESG Data Inhibits Infrastructure Investors

Without access to more comprehensive data on ESG-related issues, investors are struggling to fully manage risks to their infrastructure investments, according to EDHECinfra, a provider of market indices, benchmarks and valuation analytics across unlisted infrastructure equity and private debt. Its survey of 100 infrastructure investors identified three key concerns. The first is that ESG risks are not effectively priced, respondents said, noting that the resulting lack of visibility has made it harder for them to properly account for risks in their portfolios – particularly future climate-related impacts. Secondly, 80% of respondents cited climate as their first or second biggest concern when managing risks, whilst “social acceptability and governance issues receive little attention so far”, the report said. Finally, more comprehensive and standardised ESG data is necessary to properly benchmark non-financial risks, surveyed investors added. Frederic Blanc-Brude, Director of EDHECinfra and a co-author of the report, said: “The creation of robust benchmarks to assess risks on the basis of non-financial data, especially climate risks, is a necessary evolution for the infrastructure investment sector.”

Policy Gaps Remain in UK’s Net Zero Policy, Says CCC

A report by the UK Climate Change Committee (CCC) has warned that there are still significant gaps in the UK government’s net zero policy, including sustainable land use and the energy efficiency of buildings. Detailed plans and strategies are still required for waste management, agriculture and achieving full decarbonisation of electricity generation by 2035, the CCC said. The report has also recommended taking action to address the rising cost of living that is aligned with the country’s existing net zero targets. It has also highlighted that the government has yet to publish a public net zero engagement strategy in the three years since it was promised through legislation. The Treasury has also not set out how the full range of costs and benefits of the transition will be shared fairly and it is unclear how central, devolved and local government will operate coherently towards the net zero goal. The report said tangible progress is lagging policy ambition, and aside from the “very positive” uptake in electric cars and increase in renewable electricity, the report does not believe sufficient progress is being made in a wide range of areas.  

G7 Announce Plans for New Climate Club

At the ongoing summit in Germany, the Group of Seven (G7) has announced their goal to establish an international climate club by the end of this year. The idea, driven by German Chancellor Olaf Scholz, is to be built on three key pillars to accelerate climate action and increasing ambition, supporting the effective implementation of the Paris Agreement and reducing emissions. The first pillar aims to advance ambitious and transparent climate mitigation policies to reduce the carbon intensities of participating economies by making policies and outcomes consistent with member ambitions, strengthening measurement and reporting mechanisms, and countering carbon leakage at the international level. Members will be expected to share best practice in assessing the effectiveness and economic impacts of mitigation policies with ambitions to reduce emissions such as through explicit carbon pricing, other carbon mitigation approaches and carbon intensities. The second pillar aims to transform industries jointly to accelerate decarbonisation, through utilising the Industrial Decarbonisation Agenda, the Hydrogen Action Pact, and expanding markets for green industrial products. The final pillar will boost international ambition through partnerships and cooperation to encourage and facilitate climate action, unlocking the socio-economic benefits of climate cooperation and promoting a just energy transition. This will be complemented by Just Energy Transition Partnerships (JETPs), offering support and assistance to developing countries for decarbonising energy and industrial sectors through financial, technical capacity support and technology transfer development and deployment depending on their level of climate ambition.  

European Council Agrees its Position on Carbon Pricing

The European Council has today adopted its negotiating positions on a number of legislative proposals in the European Commission’s Fit for 55 (Ff55) package ahead of trilogue discussions with the European Commission and Parliament. This includes the expansion of the EU Emissions Trading System (ETS), the introduction of the Carbon Border Adjustment Mechanism (CBAM) and the introduction of ETS2. The Council agreed to limit the overall ambition of the current ETS to a 61% reduction in emissions by 2030 and a one-off 117 million reduction in free allowances, expanding the system to cover maritime shipping emissions. While the Council endorsed the proposal to end free allowances for sectors covered by CBAM between 2026-35, it proposed a slower reduction in the beginning and an accelerated rate of reduction towards the end of the ten-year period. “If an industrial sector is covered by the CBAM, it should stop receiving freebies,” said Camille Maury, Industrial Decarbonisation Policy Officer at the WWF European Policy Office. “Throwing money at big industries for another 13 years and trusting blindly that it will be spent in the right way is not only naïve, but it comes at a huge cost to our climate, citizens and the public purse. The money would be better spent on energy efficiency, innovation and a socially just transformation.” The Council also agreed on the proposal to create a separate ETS for the buildings and road transport sectors from 2024. Now that the Council has agreed its positions on the proposals, negotiations with the European Parliament will begin to reach an agreement on the final legal texts.  

Major Investors Back Campaign for Environmental Data From Global Firms 

CDP, the environmental disclosure platform, has announced a record 263 global investment institutions have joined its campaign calling on over 1,400 companies to disclose their environmental data. The 263 investors, including Amundi, Aviva, Schroders and Nuveen, representing over US$31 trillion in assets, have called on non-disclosing companies with a high environmental impact to disclose data through CDP. The targeted companies, which CDP says are more than twice as likely to disclose environmental impact when directly engaged, include Exxon Mobil, Glencore and Tesla. The 1400 non-disclosing companies cover over US$24 trillion in global market capitalisation and emit more than 4800 megatonnes of carbon dioxide equivalent annually. Laurent Babikian, CDP’s Joint Global Director of Capital Markets, said: “Engagement is critical to driving disclosure, and disclosure is the first step to environmental action. Climate change, deforestation and water security present material risks to investments, and companies that are failing to disclose their impact risk trailing behind their competitors in their access to capital.”  

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