Take Five: A Peace Pact with Nature

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

As negotiators got down to work in Montreal, investors were faced with decidedly mixed policy messages. 

A peace pact with natureThe UN Convention on Biological Diversity’s COP15 got underway in earnest on Wednesday, charged primarily with finalising the Global Biodiversity Framework (GBF), which offers hope of little less than a transformation of humanity’s relationship with nature. UN Secretary General Antonio Guterres left no one in doubt of the need for radical change with the arresting rhetoric of his opening comments. Calling the GBF a ”peace pact with nature”, Guterres underlined the need for “tough regulatory frameworks and disclosure measures” – a point underlined by new reports of corporate failings across sectors – and echoed COP27’s ‘loss and damage’ breakthrough by demanding “meaningful financial support” for the Global South.

Brassed off – Rarely has Glasgow seemed so far away as this week, when UK Prime Minister Rishi Sunak trashed the ambitions he laid out at COP26 by approving a new deep coal mine in Cumbria, the UK’s first in 30 years. In a cold snap, and in the depths of an energy crisis, traditional allies still criticised the move. While Sunak’s government is also taking a relaxed view of solar panels and wind turbines on agricultural land, the lack of long-term customers for the new plant exposes the short-term thinking of a government that has already forgotten where a ‘growth at any cost’ policy can lead. But the decision is in keeping with an ongoing relinquishment of the UK’s role as a climate leader, as policy gaps go unfilled. It also says something about the power of the past in a country that still finds it hard to evolve from its industrial and imperial heritage. One cure could be to read the International Energy Agency’s November report on the urgency of the transition from coal, rapidly followed by this week’s IEA report on the jobs and growth that will come from a rapid upscaling of renewables over the next five years.

Change for the better – Europe is no stranger to political backsliding in the face of scientific evidence, having allowed gas into its environmental taxonomy at the beginning of the year, and now ending it by further weakening the scope of proposed rules on environmental and human rights due diligence. But the bloc also enhanced its claims as a leader on environmental policy this week, passing a deforestation law with the reach to change commodity sourcing practices globally and a judicial review mechanism to scrutinise proper enforcement. Not only were its tough traceability measures welcomed by NGOs and campaigners, they were used by a former minister to skewer the UK government’s attempts to wriggle out of amendments to a less-than-green Financial Services and Markets Bill. In parallel, investors are upping their policy discussions with governments globally, as sovereign engagement becomes a core part of their toolkit.

(Not) In the Vanguard – The US Republican party’s war on ESG went up a gear this week, with an intervention by state attorneys-general which forced Vanguard out of the Net Zero Asset Managers initiative (in turn, earning the indexing giant the ire of ex-US VP Al Gore). Republican members of Congress are querying US investors’ membership of Climate Action 100+, after similar pressure was successfully placed on banks. Last week, Republican Congressmen introduced a bill designed to thwart SEC climate disclosure rules, while Republican-run Florida withdrew US$2 billion from BlackRock, putting pressure on CEO Larry Fink, so far an advocate of ESG as essential to fiduciary duty. The growing demands of US workers for green pensions may yet convince the GOP they’re out of step with voters, but for now they are willing to do the bidding of their financial backers.

Beyond Basel – The Basel Committee on Banking Supervision issued further guidance this week to ensure a consistent approach by banks in factoring climate risks into their compliance with ‘Pillar 1’ standards for minimum capital requirements. Calls have increased for supervisors to explicitly tilt capital requirements to achieve climate goals, but the committee was clear that its FAQ did not represent a change to existing standards. As NGO Finance Watch observed, it is time for the Basel Committee to “take a step further and recognise the higher risks of specific assets under Pillar I, such as fossil fuel exposures”.

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