Regulation

Take Five: Guterres’ Stark Warning

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

With much of Pakistan under water, it’s time to take more urgent action against the physical risks of climate change.

Guterres’ stark warning – The scale of the devastation caused by flooding in Pakistan may have been a surprise, but surely not the event itself. There have been warnings for years that melting Himalayan glaciers would increase flows through the Indus valley, well beyond the ability of farmers or governments to respond, but that does not stop the pictures from shocking. UN Secretary General Antonio Guterres’ observation – “Today, it is Pakistan. Tomorrow, it could be your country” – was more than rhetoric, given reports on glacial melting in Europe and the Arctic. When climate finance and loss and damage come to be discussed at COP27, we can expect Pakistan’s plight to be used as an example of the urgency of the need for greater support for adaptation measures in developing countries.

In the post? – The run-up to COP26 in Glasgow last year was punctuated by speculation about the submission of countries’ updated nationally determined contributions (NDCs), but there has been markedly less activity ahead of COP27. According to the UNFCCC’s own NDC registry, just 14 countries have submitted new climate plans during 2022, with India’s, delivered in early August, being perhaps the most significant. This comes despite a commitment by signatories of the Glasgow Climate Pact to “revisit and strengthen” their NDCs before arriving in Sharm El Sheik. With NDCs unveiled before and at COP26 charting a path to 2.1°C of climate change, “ambitious NDCs backed by a plan and financing is absolutely critical”, as UN Environment Programme Executive Director Inger Andersen told G20 environment ministers this week.

Walking on hot coals – UNEP’s Andersen also noted a 10% rise in investments in coal supply in 2021, calling for an end to fossil fuel subsidies as well as domestic and overseas coal funding, with the G20 taking the lead. Commitments made at COP26 to phase out or down the use of coal have been difficult to implement, with the ongoing energy crisis even putting some policies into reverse. OECD/IEA figures this week revealed a doubling of fossil fuel subsidies last year to US$697.2 billion by governments that have sought to protect consumers, a figure that is likely to increase in 2022, as climate catastrophes compound conditions on the energy markets. Policymakers are not alone in reassessing their approach, with some investors keeping coal in plain sight to ensure dirty assets wind down on schedule, despite their stay of execution.

Social slips down the agenda – Europe’s legislative agenda kicks off in earnest next week with a series of decisions due to be taken on key elements of the Commission’s Fit for 55 emissions reduction agenda, touching on sectors including renewable energy, electric vehicles, land use, emissions trading and aviation. But plans for a social taxonomy are expected to stall, with reports in August suggesting it has been “shelved indefinitely” due to inherent complexities. Europe will still seek to improve firms’ monitoring and disclosure of social risks to investors through other mechanisms, such as the minimum safeguards that will soon be added to the environmental taxonomy. While the barriers are steep, the focus on tracking and addressing social issues by investors and other interested parties suggests demand for a social taxonomy will not disappear.

Calling out big oil – For those with the bandwidth for longer reads than those available on ESG Investor, we would suggest a new book by Assaad Razzouk, past interviewee, the ‘Angry Clean Energy Guy’ and CEO of renewables energy firm Sindicatum. Reviewed here, Razzouk pulls no punches in focusing on the culpability of oil and gas executives, which he believes should be held legally accountable for the damage they have caused to the environment, and his promotion of circular economy solutions. “We are in critical need of major systemic changes,” Razzouk concludes.

 

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