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Take Five: Copernicus Calling

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

This week concludes with low expectations and high stakes as G20 leaders seek to balance climate ambition, sustainable development goals and macroeconomic challenges.

Expectation management – The Group of 20 Leaders will meet in New Delhi this weekend under a cloud. Or two. Warned of further economic headwinds by the Financial Stability Board and chastised for failing to implement the goals of the Global Biodiversity Framework by CDP, the various delegations spent much of the build-up to the summit lowering expectations on collective climate action. The hosts underlined the need to match climate ambition with the development objectives of the Global South, while Saudi Arabia and Russia chiselled in the background to secure a role for fossil fuels in the net zero future, as they had in July, with support from the now leaderless Chinese. Even if they don’t wilt in the heat, they will need to seek shelter from the rhetoric of UN Secretary General Antonio Guterres, who will not miss any opportunity to urge the assembled world leaders to look past their differences to shared responsibilities for meaningful action at the upcoming SDG Summit and COP28.

The power of eight – Should policymakers from the G20 or anywhere else need guidance on what effective climate policy looks like to private investors, help was at hand this week from the Investor Agenda, a grouping of climate- and investor-focused organisations including the Principles for Responsible Investment. The partners published their eight principles for climate policy that would accelerate the allocation of private capital to climate-positive investments. Citing the US’ Inflation Reduction Act and the EU’s Fit for 55 plan, great emphasis was placed on ‘whole government’ approaches which were also strong on sectoral detail – “to clarify the roles that are expected from different actors and sectors to support the delivery of overarching commitments and interim targets”.  In addition, the report noted the importance of “fiscal policy and financial incentives” to attract investment to the industries that will drive the net zero transition. As such, it’s little surprise that the UK did not feature heavily in the reports case studies and examples, despite a grudging shift in onshore wind policy earlier this week. But there’s still scope for UK PM Rishi Sunak to arrive in Dubai with new and comprehensive policies put in motion in the Autumn budget statement scheduled for late November.

Progress on Plastics – A key step was taken this week in the development of a legally binding instrument to end plastics pollution, with the release of the ‘zero draft’ ahead of negotiations in Nairobi in November. The draft does not resolve the disagreements that were evident in the second of five scheduled summits in Paris in June, but it does lay out the options well in advance, to better ensure progress at the negotiating table. There are proposed targets for reduction, reuse, refill and repair, as well as the elimination of certain polymers. Reaction has pointed to the scope for backsliding due to options for voluntary rather than mandatory action, and a lack of detail on the adoption of circularity. As the World Wildlife Fund noted: “Negotiators will have a choice and they must choose ambition.”

African ambition – If substantial progress is made on plastic pollution in Kenya, they won’t be able to call it the Nairobi Declaration, after that moniker was taken at the conclusion of the first African Climate Summit this week. The declaration – which called for a global carbon tax and finance system reforms to accelerate and lower the cost of climate finance flows – will form the basis of Africa’s negotiating position at November’s COP28 summit. As well as seeking a carbon tax, covering fossil fuel trade, maritime transport and aviation, the declaration also revived the financial transaction tax, saying this would ensure large-scale financing for climate-related investments and remove the issue from geopolitical and domestic political pressures. Carbon credits were a controversial subject at the summit, blamed by some for giving a free pass to polluters. But a good chunk of the US$23 billion committed to green projects at the event went to a major carbon markets initiative, ensuring debate continues around the balance of benefits for local communities and distant investors.

Bond beefs – Members of the Net Zero Asset Owner Alliance admitted this week to the difficulties and differences of opinion that arise when investors seek to decarbonise their debt portfolios, especially regarding sovereign bonds. But there are plenty of climate- and nature-related risks facing investors in the corporate bonds markets too, as research showed this week into the debt financing proposed by Brazilian meat processer Minerva to fund the purchase of assets from rival Mafrig. In particular, Minerva’s lukewarm environmental commitments are undermined by the acquisition of slaughterhouses that have sourced cattle from illegally deforested land, while its profitability is threatened by the increased due diligence being imposed by recent EU deforestation regulation. The deal increases Minerva’s outstanding US$ debt by 65% at a time when “deforestation and sustainable land use is increasingly in focus for investor and bank sustainability policies”. Beef bond buyers beware.

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