Commentary

Take Five: Climate Policies in the Dock

A selection of this week’s major stories impacting ESG investors, in five easy pieces. 

The threat of climate litigation looms larger, but policymakers continue to under-deliver on their net zero commitments.

Climate court – This week, the battle against climate change moved decisively to the courtroom, with the increasing prospect that countries will be forced by law to stiffen their efforts to meet the goals of the Paris Agreement. On Wednesday, the UN General Assembly backed a resolution initiated by Vanuatu which asked for an advisory opinion from the International Court of Justice on the obligations of states in respect of climate change. It could take up to two years for the opinion to be finalised, but it would then be used in climate change court cases globally to determine states’ obligations. Opinions are also being sought under the Inter-American Court of Human Rights and the Law of the Sea. Also this week, the Club of Climate Seniors has been given leave to take their fight for tougher climate action by the Swiss government to the European Court of Human Rights, with implications for the court’s 46 member states. The story so far is remarkable in itself, as the idea stemmed from a group of law students, then was taken up by one of the world’s most climate-vulnerable states, but the rest of the journey could be more remarkable still.

Under-poweredHigh Court action was at least part of the reason why the UK government came out yesterday with a raft of measures – collectively titled Powering Up Britain – aimed at bolstering efforts to meet its net zero commitments and improve energy security. Already warned this week that its adaptation plans are inadequate, the government faced an underwhelmed response to its latest mitigation efforts, but the sheer volume of announcements means it will take time to assess their collective impact. The long-awaited update to 2019’s Green Finance Strategy was more broadly welcomed, including updates and measures on fiduciary duty, the green taxonomy, transition planning and ESG ratings. But there remains a sense of the UK being outpaced by events globally, with Europe this week passing a raft of measures related to its Fit for 55 strategy, and agreeing to target 45% renewables in its energy mix by 2030 (albeit not to universal acclaim), and China increasingly gearing up its efforts on climate change and sustainable finance.

Answering the call of nature – A further way in which Europe may be pulling ahead of the UK is related to the expectations of asset owners in accounting for nature-related risks. This week’s UK announcements included plans to ensure coordinated climate and nature action, but it was also announced that the next steps on proposed Sustainable Disclosure Requirements – which include an extension from climate to broader environmental reporting – will be delayed to Q3. Meanwhile, European Insurance and Occupational Pensions Authority (EIOPA) published a staff paper on relevance of nature-related risks to the insurance sector. “It is vital to consider what the role of the insurance sector can be in contributing to the restoration and conservation of nature through investment and underwriting activity,” the regulator said.

Bridging the pillars – As part of this week’s announcements, the UK government confirmed its commitment to international standards for ESG reporting, including the first two from the International Sustainability Standards Board, which prioritises enterprise value, due to be finalised in the coming months. With the Taskforce on Nature-related Financial Disclosures confirming its embrace of dual materiality, the tension between these two pillars of disclosure remains. Or does it? This week, Singapore-based property developer CDL became the first Southeast Asian firm to adopt a two-pillar ESG disclosure framework in its latest integrated sustainability report, which also included details of progress against its Science Based Targets Initiative-validated interim net zero target.

New pitch for a big tent? – The importance of using multiple levers to address climate change and other systemic risks was underlined by UN PRI CEO David Atkin in his response to the findings of its ‘PRI in a Changing World’ consultation. Buoyed by the fact that 77% of members support its policy engagement efforts, he noted the limits of collaborative engagement with corporates by investors. “Ultimately, the systemic changes we need will come from the policy sphere,” he said. But with 30% of PRI signatories viewing management of ESG risks as the “sole dimension” of responsible investment, the question of the agility and speed of the PRI’s big tent will continue to be asked.

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