Commentary

Take Five: Big Oil Spills the Beans

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

Scrutiny of climate change policies intensified this week, with more to follow on the road to Sharm El Sheikh.

Big oil spills the beans – US House of Representatives sub-committees this week highlighted the duplicity of oil and gas firms’ stance on climate change and the complicity of their PR firms in misinformation campaigns. Internal documents and testimonies secured by separate investigations revealed how executives privately distanced themselves from commitments to cut emissions, while third-party public relations experts overstated their efforts to go green. “Sixty percent of all super oil messaging contains a green claim, yet less than 12% of their capital expenditures [are spent] on those green activities,” said former Edelman executive Christine Arena. No wonder institutional investors are increasingly scrutinising the climate lobbying activities of investee firms. A 2020 briefing note prepared for Shell’s US president said the firm’s net zero strategy “has nothing to do with our business plans”. Can we expect more joined up thinking from the Anglo-Dutch firm now that former head of renewables Wael Sawan has been appointed CEO?

Antonio’s experts – The claims of fossil fuel firms are likely to face further scrutiny, including from the UN High Level Expert Group on Net Zero Emissions Commitments, which is due to report ahead of COP27. The group launched a public consultation in June on holding non-state entities accountable for their net zero pledges, and updated UN Secretary General Antonio Guterres this week at the UN General Assembly, following his return from Pakistan. The experts, which include Gunther Thallinger, Chair of the Net Zero Asset Owner Alliance, are due to recommend standards and definitions for net zero targets, credibility targets and verification mechanisms. Asset owners further underlined the need for greater scrutiny of firms’ net zero credentials this week, calling for “1.5°C pathway-aligned, science-based, independently verifiable climate transition plans” in the Investor Agenda’s pre-COP27 Global Investor Statement.

Compare and contrast (1) – The English Channel seemed to widen a little further this week as Europe pushed on with its energy reforms and sustainability agenda, while UK policy remained mired in delay and uncertainty. Ursula von der Leyen’s State of the Union address included plans for a windfall tax and the decoupling of electricity pricing from gas. Facing increased calls from business for action, new UK Chancellor Kwasi Kwarteng has an opportunity to outline similar plans in next Friday’s ‘fiscal event’, but his own energy security plans are under threat, with his replacement as Business Secretary, Jacob Rees-Mogg, rumoured to be shelving planned reforms. On broader sustainability measures, Europe won plaudits for tougher action against deforestation, but suffered the indignity of NGOs walking out of its Platform on Sustainable Finance over political interference in the environmental taxonomy. Originally scheduled for Q1 2022, plans for a UK taxonomy are among the many green finance policies caught up in Westminster’s current stasis.

Compare and contrast (2) – The billionaire founder of the Patagonia outdoor clothing firm has won plaudits for transferring ownership to a charitable trust which will donate all future profits to fighting climate change, potentially totalling US$100 million annually. Yvon Chouinard, who has built circular economy principles into Patagonia’s business model, has developed a structure that gives the company away – allowing it to claim ‘Earth is now our only shareholder’ – while still exerting sufficient control to future-proof its independence. How this influences corporate governance models remains to be seen, but one can’t help contrast Chouinard’s clarity of purpose with the muddled decision-making exhibited by some firms, including Dutch leisure firm Center Parcs, in response to funeral arrangements for Queen Elizabeth II.

Advance Australia, far – Australia’s institutional investors are being stymied in their efforts to invest for sustainability impact, according to a new paper from the UN-convened Principles for Responsible Investment, which recommends a series of reforms to the country’s new Labor administration. In common with many other jurisdictions, Australia’s position on the fiduciary duty of asset owners lacks clarity. With responsible investing already accounting for 43% of assets under management, greater certainty for investors – alongside long-awaited climate and energy policy reforms – could propel Australia far beyond its recent laggard status.

 

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