Take Five: A Minimum Level of Ambition

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

As the world awaits the outcome of biodiversity negotiations at COP15, gradual progress was seen on climate change, almost everywhere. 

Minimum requirements – Banks have had a bad press recently for their less than full-throated commitment to net zero. Now, one of their own, HSBC, has gone and added to the pressure. The bank’s new energy policy is worthy of attention: it will stop providing borrowing or capital markets finance for new oil and gas fields and related infrastructure; but will permit finance and advisory services “at the corporate level” to firms with transition plans consistent with the bank’s interim and 2050 net zero goals; and the bank will continue to finance existing supplies of oil and gas “in line with current and future declining global oil and gas demand”. The announcement can be seen as an indication of investor influence, as it follows six months of discussions following a shareholder resolution coordinated by ShareAction, itself part of an ongoing effort. The responsible investment campaign group noted the limits of the policy, pointing out that HSBC is no better than other major European banks in respect of financing firms with oil and gas expansion plans. Nevertheless, the move sets “a new minimum level of ambition for all banks committed to net zero”.

On the precipice – Along with the rest of the world, investors looked on this week as negotiations over the Global Biodiversity Framework (GBF) in Montreal lurched on, marked by frequent walkouts over “resource mobilisation”, AKA funding. Developing countries are demanding more money to implement the GBF’s goals and targets, and ministers are aiming to break the deadlock over the weekend. Despite a lack of progress, Deputy UN Secretary-General Amina Mohammed said last night there was a “positive and constructive” mood, adding that high levels of engagement by civil society and the finance sector were helping the search for solutions. Target 15’s requirements for nature-related disclosures is one of the areas of ongoing discussion, but Wednesday’s Finance Day made clear the sector’s willingness to support the GBF’s overall aims. “We have a choice now to step back from the precipice and make this work,” said Mohammed.

Not either / or, but both – When the concept of a climate club was unveiled by Germany to somewhat baffled Group of Seven fellow members, it was characterised as a more pragmatic means of accelerating the global transition to renewable energy than Europe’s more bureaucratic Carbon Border Adjustment Mechanism (CBAM). Both made progress this week, suggesting a range of policy levers are needed. Hot on the heels of Indonesia, Vietnam became the latest country to agree a Just Energy Transition Partnership – releasing US$15.5 billion of public and private funding over three to five years – a key strand of the climate club commitment to funding emissions mitigation in developing countries. Meanwhile, the CBAM took a big step toward the introduction of carbon pricing on imports of emissions-intensive products from next October, effectively globalising the EU’s Emissions Trading System.

Good neighbours – The EU and UK are partners in the Vietnam deal, but they’re on different paths in other aspects of their climate and broader environmental policies. This week, the UK confirmed further delays to its Green Taxonomy, details on which will be announced following the repeal of statutory requirements relating to technical screening criteria, as part of its Financial Services and Markets Bill. The UK’s disjointed approach was also evident in plans to scale back post-Brexit Environmental Land Management schemes, alongside efforts to accelerate wind power, having recently backed a new coal facility. Meanwhile, Europe signed off on its REPowerEU package, which aims to accelerate the bloc’s renewables transition via measures to boost energy efficiency, increase renewables deployment, and support zero-emission transport. While aspects are far from perfect, Europe’s progress on its Fit for 55 package, which also tackles emissions in sectors such as aviation and shipping, could well see it generate even more green jobs than its neighbour.

Will Texas hold’em? – The most authoritative survey on sustainable investment in the US told us what we already knew: institutional investors are more concerned about climate risk than any other ESG topic and US asset managers are increasingly responding via the fund solutions and services they deliver. This may not slow the onslaught of political attacks on the industry – the latest round of which took place in the Texas Senate – but should give succour on the hard road ahead.


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