Take Five: Join the Climate Club

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

As European and North American policymakers, regulators and indeed judges continue to tear through their end-of-term in-trays, there were many developments with potential to shift the world of sustainable finance. Here’s our top five for this week:  

Join the climate club – The Group of Seven announced a climate club at its summit in Bavaria this week, alongside somewhat watered-down commitments to transition away from fossil fuels. The vaguely-worded statement brought increased attention to the climate club concept, seen by some as a more achievable approach to extending the reach of carbon pricing than more explicit and elegant devices, such as Europe’s Carbon Border Adjustment Mechanism (CBAM). The European Council’s negotiating position on CBAM, adopted as part of a broader announcement on the ‘Fit for 55’ climate strategy, attempted to ease the pain for carbon-intensive sectors, but the criticism this attracted could be just a foretaste of the battles to come.   

Court wades in on carbon emissions – The US Supreme court overturned a ruling to limit the ability of the federal Environmental Protection Agency (EPA) to regulate GHG emissions at power plants. The ruling, which reviews West Virginia vs EPA, asserts only Congress can pass cap-and-trade rules to limit emissions, thus challenging the Biden administration’s net zero plans, including a pledge to eliminate power plant emissions by 2035. EPA Administrator Michael Regan expressed disappointment, while investor network Ceres said the decision “flies in the face of established precedent and imperils the economy”, calling also for Congress to pass an economic package which includes federal clean energy investments.  

ESG ratings rated – The UK’s Financial Conduct Authority issued a feedback statement setting out its policy direction of travel on ESG data and ratings services, following a call for market input. The regulator made it clear that tougher oversight is on the way for service providers, citing poor governance, potential conflicts of interest and reliance on poor-quality data. Earlier this week, the European Securities and Markets Authority updated the European Commission on its own investigation into ESG ratings, which highlighted shortcomings in transparency, methodology and coverage, and found that 77% of users contract with multiple providers to broaden their asset-class and geographic spread.  

Deforestation delayed – Research released by the UN-backed Race to Zero reported minimal progress by corporates in eliminating the results of tropical deforestation from their supply chains. Just 6% of major firms which have net zero commitments and are considered critical for tackling tropical deforestation are making strong progress, found the study, echoing recent research from CDP. As Brazilian elections loom, policymakers are also underperforming, with Europe’s proposed deforestation law described as containing more holes than Swiss cheese, by the World Wide Fund for Nature, and the UK’s Climate Change Committee calling for minimum environmental standards” to imports of selected agricultural products. 

Montreal-bound – Slow progress was made at UN-convened talks in Nairobi, which concluded this week, aimed at finalising the text of the Global Biodiversity Framework (GBF). The UN Convention on Biological Diversity said “a considerable amount of work will be required” if the agreement, dubbed ‘Paris for Plants’ is to be signed by world leaders at COP15 at Montreal in December. Nevertheless, efforts to ensure asset owners can align their investment flows with the goals of the GBF were advanced with the release of the new version of the Taskforce on Nature-related Financial Disclosures’ (TNFD) beta framework, complete with a first iteration of its assessment metrics.  

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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