Take Five: A Missed Opportunity?

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

Macroeconomic turmoil continues to negatively influence policymakers’ focus on climate mitigation and adaptation, while investments trend positively.

A missed opportunity? – Finance ministers urged each other this week to resist the “potential risk of backsliding on climate goals” in the face of runaway inflation and interest rate hikes. But despite congregating on the margins of the 2022 Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group, the Coalition of Finance Ministers for Climate Action did not appear to discuss the need for more urgent action on climate mitigation and adaptation from multilateral development banks (MDBs). The group’s annual report did, admittedly, carry encouraging words from World Bank President David Malpass, who also signalled a more dynamic role for his institution at an IMF seminar than in recent comments. There were also nudges this week from GFANZ Co-chair Mark Carney, who urged greater involvement of MDBs in blended finance innovations such as Just Energy Transition Partnerships, while Alok Sharma, on his last outing as COP26 President, also called on them to take a greater role in building resilience and transitioning to renewable energy in debt-burdened developing countries. Some finance ministers, however, had little choice but to focus on the current macroeconomic situation.  

Backsliding in Brussels – Backsliding seemed to be very much on the agenda in Europe, with some member states believed to be preparing to ditch the commitment to 45% renewable energy by 2030 in the European Commission’s RePowerEU proposal. The European Council formally agreed its position earlier this month ahead of trilogue negotiations with the commission and MEPs, but rumoured amendments could slow Europe’s renewables transition, partly by delaying permitting. At least Europe’s efforts to break the link between renewable electricity and wholesale gas prices are more generous than the ones being considered by the UK government. Overall, politicians seem to still be suffering from cognitive dissonance in their approaches to clean energy technologies – from hydrogen to wind to solar – while capex trends tell a more positive story. International Energy Agency Chief Fatih Birol urged European “solidarity” on energy, a message that will gain weight with the release of the agency’s World Energy Outlook 2022 

Looking for leaders – Next month, at COP27, we will hear a lot about the progress of countries in reducing carbon emissions as part of their nationally determined contributions to the Paris Agreement. This month, it has been the turn of the corporates. Climate Action 100+ reported limited but not quite negligible progress by the world’s most carbon-intensive firms, highlighting a lack of “meaningful shifts in business models”. Meanwhile, the majority of corporates are generally not yet providing investors with “decision-useful climate-related financial information”, according to the Task Force on Climate-related Financial Disclosures. Despite their distractions, politicians will need to show more leadership in Sharm El Sheikh. 

Living in hope – Notwithstanding the attention paid to the above-mentioned research on firms’ progress toward net zero emissions, perhaps the most widely-read study by sustainability-focused investors this week was the World Wide Fund for Nature’s Living Planet Report 2022. The authors describe the Convention on Biological Diversity’s (CBD) COP15, and the expected signing of the Global Biodiversity Framework, as “a once-in-a-decade opportunity to course-correct for the sake of people and the planet”. Addressing a finance audience this week, CBD Executive Secretary Elizabeth Mrema put the value of the opportunity at US$10 trillion. “Financial institutions and businesses should be prepared to take whatever action is necessary” to support nature-positive finance flows, she added.  

A trillion-dollar impact – Estimates vary on the extent to which investors are already pursuing investments that positively impact people and planet. The Principles for Responsible Investment pointed to the barriers that remain for UK-based asset owners in investing for sustainable impact, due to a lack of clarity in existing legislation. Meanwhile, the Global Impact Investing Network estimated more than US$1 trillion (US$1.164 trillion to be precise) in impact investing assets worldwide for the first time. How quickly and how high would that rise if impact was firmly put on the same footing in fiduciary duty as risk and return?  

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