Commentary

Take Five: Making Good on a Promise

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

As the deadly toll of climate change is increasingly felt around the world, it’s more important than ever that we walk the walk.  

Making good on a promise – Just as it’s important to reduce global CO2 levels to mitigate the effects of climate change, investors, companies and policymakers need to be paying attention to methane, too. Over 120 countries have now joined the Global Methane Pledge, committing to reducing methane emissions from human activities by at least 30% from 2020 levels by 2030. As part of their efforts, the Methane Guiding Principles initiative launched the Methane Policy Toolkit, which will support governments as they develop or update policies and regulations. Promises like this one risk being undermined by countries that refuse to sign the pledge. Despite having a big methane problem due to its dependence on coal, last year Australia refused to join the pledge. But, with a new and more climate-conscious Labor government in position, change is in the air. The federal government is currently consulting with industry and stakeholders as to whether the country should commit to the 30% methane reduction. If Australia does sign on, then that may open the door to big changes down under.  

“Floor not the ceiling” – Speaking of Australia, Prime Minister Anthony Albanese is working hard to make good on his promise for a “new era” of climate action, introducing the Climate Change Bill to parliament this week. If approved, the federal government will be committed to cutting greenhouse gas emissions by 43% by 2030 from 2005 levels. The bill has been welcomed by the Investor Group on Climate Change (IGCC), as it noted this should unlock billions in new investment for climate solutions. However, the Australian Greens have not issued their support, arguing that the target is too weak to be fully aligned with a 1.5°C temperature pathway, calling for the government to commit to phasing out new coal and gas projects. So far, Albanese has refused to do so, countering that such a stance would have a “devastating impact” on Australia’s economy. Amanda McKenzie, CEO of Australian climate change communications organisation The Climate Council, said: “It is important that the government has said their targets are the floor not the ceiling and can be improved over time.” 

Playing both sides – It’s well understood that oil and gas companies need to be transitioning away from fossil fuels and upscaling clean energy solutions. Most of them have published transition strategies and are investing in renewables-focused projects. But, in the midst of an energy crisis, the extent of the world’s dependence on fossil fuels has become painfully clear – and oil and gas majors are profiting. Shell alone has reported profits of US$11.5 billion so far this year. CEO Ben van Beurden said that, for the UK to overcome its energy market “design problem”, the solution for helping consumers is to increase supply. The Financial Times pointed out that TotalEnergies CEO Patrick Pouyanné is facilitating new oil and gas projects even as he commits the company to the clean energy transition. Anti-climate change lobbying by oil and gas companies is also well-documented. While investors are increasingly scrutinising companies’ lobbying activities, it’s more important than ever to ensure the world continues to transition away from carbon-intensive activities.  

From heatwaves to flooding – While temperatures in the UK have fallen to more manageable levels this week, climate-related concerns are rising alongside water levels. An academic has warned that torrential rain and widespread flooding is “the new normal”, following floods in Northern Ireland this week. Seventy millimetres of rain fell within five hours, causing riverbanks to burst and drainage systems to overflow, damaging more than 300 homes. It’s taken a more sinister turn in other parts of the world. Flash floods have devastated communities across the US, Pakistan, China, Iran and elsewhere, leading to loss of homes, loss of livelihoods and loss of lives. The Ocean Risk and Resilience Action Alliance has estimated that the flooding and erosion of coastal urban areas will cost US$1 trillion in damages and loss of land by 2050. The IPCC has also repeatedly called for increased investment in flood defences, noting that the global mean sea level increased by 3.7 millimetres per year between 2006-2018. “Extreme sea level events that previously occurred once in 100 years could happen every year by the end of this century,” the IPCC has previously said.  

Taking a stand – When a company CEO holds 14% of the shares but controls 58% of the votes (*cough cough* Mark Zuckerberg), it’s particularly difficult for shareholders to hold the company accountable. A coalition of global asset owners managing over US$1 trillion in assets is taking a stand, and has announced its support for the UK Financial Conduct Authority’s (FCA) proposals to maintain current premium listing protections around dual share class structures (DCSS) in any move to a single segment regime. The Investor Coalition for Equal Votes (ICEV), which was founded by UK pension scheme Railpen and the US Council for Institutional Investors, reiterated its support for a one share, one vote structure. Railpen’s Senior Investment Manager Caroline Escott said: “Active investor stewardship and ensuring shareholders have a voice in proportion to their economic ownership is vital to achieving good investor outcomes and ensuring the UK remains a trusted hub for global capital.” 

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