Take Five: Green in Name Only?

This week’s major stories impacting ESG investors, in five easy pieces.

In a week of distinctly contrasting political headlines across the UK and Europe, we select five stories with implications for sustainable finance:

Green in name only? – Legal action was promised by member states, MEPs and NGOs, after the European Parliament voted to accept the Commission’s delegated act for including gas and nuclear energy in its green taxonomy. The move ignores scientific advice and questions over gas’s role as a transition energy source, but its impact may be limited by the act’s restrictions and investor sentiment. Lawyers have argued that inclusion of gas clashes with existing laws including the European Climate Law and the Taxonomy Regulation itself. As think tanks criticised the taxonomy’s loss of integrity as a science-based transparency tool for sustainable capital markets, asset managers said dealing with the “incoherence” called for “active management and judgement”.

Tumbling price – This week brought further support for the economic arguments for renewable energy transition, in terms of the lower cost of solar and offshore wind. An International Energy Agency report said solar costs had “declined dramatically” over the past decade, but noted the risks of continued over-reliance on China. New investment could double the number of PV manufacturing jobs to a million by 2030, it added. Meanwhile the UK’s latest CfD-based auctions secured 11GW of renewable energy capacity, with offshore wind providing the best value. RenewableUK’s Executive Melanie Onn said the auction showed the ability of renewables to “replace unaffordable gas”, saying rapid construction times meant billpayers would “feel the benefits” next year.

Not following suit – The European Central Bank (ECB) said banks do not yet sufficiently incorporate climate risk into their stress-testing frameworks and internal models. Further, almost two-thirds of banks’ income from non-financial corporate customers stems from GHG-intensive industries. Rising carbon prices and natural disasters could cost banks a least €70 billion this year, it added. “Banks must urgently step up efforts to measure and manage climate risk, closing the current data gaps and adopting good practices,” said Andrea Enria, Chair of the ECB’s Supervisory Board. In an earlier “ground-breaking” move, the ECB committed to aligning its monetary policy operations with its climate action plan, accounting for climate change in corporate bond purchases, collateral frameworks, disclosure requirements and risk management.

Biodiversity and business – The UN-backed Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) was urged to play a bigger role in shaping business interaction with nature at its Bonn biodiversity summit this week. UNEP FI Executive Director Inger Andersen called on the intergovernmental body to support the Task Force on Nature-related Financial Disclosures and deliver “robust underpinnings for businesses” to help understand nature risks and dependencies. IPBES will launch its latest ‘Assessment on the Sustainable Use of Wild Species’, exploring what sustainable use entails, how it relates to UN Sustainable Development Goals, and tools and methods for assessing, measuring and managing sustainable use of wild species.

Going, going … green? – COP26 was not mentioned in Prime Minister Boris Johnson’s not-quite-a-resignation speech, leaving many wondering about the UK’s commitment to its net zero targets and the future of its Green Finance Strategy. An update is expected later this year, following a consultation period launched in May. Following Johnson’s ambitious but patchy record on climate change, it is expected that several of the leading contenders for his job may be less committed. Last week, the UK Climate Change Committee warned of significant gaps in the UK government’s net zero policy, including sustainable land use and the energy efficiency of buildings.

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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