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Commentary

Take Five: Driving Ambition 

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

Events this week underlined the urgency and complexity of the transition to renewable energy sources, for one sector more than others.  

Car trouble – Press coverage of the World Meteorological Organisation’s new research – predicting El Niño will likely tip us over 1.5°C of global warming by 2027 – was often accompanied by useful charts pointing out some of the impacts of climate change. One noted how warmer and wetter weather systems moved slower and lasted longer, helping to explain why the Emilia-Romagna region of Italy had experienced little to no rain in months, which left the ground to bake and harden, making it less able to soak up the heavy, persistent rains that have now engulfed it. One of the short-term impacts of the deluge – which released six months’ rain in less than two days – was the cancellation of this weekend’s F1 Grand Prix, a fitting warning to a globe-trotting circus tainted by greenwashing and sportswashing. Not that the week has been kinder to former petrol-heads trying to embrace new business models based on renewable energy sources. Stellantis, owner of Vauxhall, had to step up its warnings to the UK government about the joint consequences of its post-Brexit trade deal with Europe and its failure so far to support the development of a domestic battery supply for the nascent electric vehicle sector (thus, inadvertently accelerating incentives to rival manufacturer JLR). Meanwhile, Tesla’s Elon Musk acceded to shareholder calls for a public report on the firm’s measures against child labour, following concerns about cobalt mining practices in the Democratic Republic of Congo. With investors increasing their scrutiny of the mining industry’s role in a just transition, through new forums and standards, the auto industry’s supply chain due diligence will need to go up a gear.  

Material disclosure – What role did the auto sector play in the rumoured watering down of the disclosure requirements of Europe’s Corporate Sustainability Reporting Directive? Given the time it has taken Volkswagen to provide details about its lobbying activities, we may need to be patient. Fingers of blame are pointing in several directions at present. But the suggestion that the application of European Sustainability Reporting Standards will be subject to a materiality test should not be a cause for too much celebration in the boardroom. Investors will make it clear what they consider material and can draw their own conclusions if they don’t get the information they require.  

Mind the gap – At last week’s Stewardship Summit, asset owners preferred to describe their differences with asset managers, particularly regarding ESG-related engagements, as a gap rather than a chasm. Whichever term you choose, there were signs of widening this week with a group of UK pension schemes serving notice that they expect answers from asset managers at the end of the AGM season over their voting and engagement activity with the oil and gas sector. Several of the members of the UK Asset Owner Roundtable were among those who pre-declared their intention to vote against the reappointment of BP’s chair last month, only to gather scant support from other investors. Some asset managers are redoubling their efforts on climate-based engagement, and ramping up their sanctions, but will it be enough to stop a chasm becoming a schism?  

Raising standards – Some observers posited that expected changes to CSRD were due to concerns about Europe’s alignment with the forthcoming standards from the International Sustainability Standards Board, which has had a slightly uncomfortable week after a lukewarm endorsement from G7 finance ministers and central bankers last weekend. It’s the turn of heads of government to head to Japan this weekend, ahead of the UN’s International Day for Biological Diversity on Monday. It will be more than standards-setters poring over the inevitable summer communique for signs of strong commitment to tackling the nature and climate crises in tandem.  

See you in court – As AGM season heats up, with banks and insurers again under scrutiny from investors for their support for fossil fuels, the oil and gas firms themselves have been almost as focused on the courtroom as their shareholder meetings, reflecting the increasingly litigious nature of climate action. France’s TotalEnergies now seems certain to face Greenpeace France and others in court over their greenwashing claims against the firm, while Shell will know by the end of the week whether ClientEarth’s efforts – backed by investors – to sue its directors individually can proceed. Investors may generally prefer less confrontational forms of engagement, including a resolution at Total’s AGM next Friday, but will nevertheless be impacted by the outcomes.  

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