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Commentary

Take Five: Malpass Makes Room for Change  

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

World Bank President David Malpass’ decision to step down may provide an opportunity to accelerate reform of the global financial architecture.  

Malpass moves on – The announcement of David Malpass’ early departure as head of the World Bank has been widely greeted as an opportunity for US President Joe Biden to appoint someone more willing to put climate risk at the heart of the development bank’s funding strategy. Malpass, appointed by Biden’s Republican predecessor, Donald Trump, has attracted mounting criticism for his apparent reluctance to reform and reorientate the institution to address the world’s most pressing collective crisis and to be more flexible in its approach to rising debt levels in emerging markets and developing economies (EMDEs). An exit press release defended Malpass’ record on debt and climate, but controversy and criticism mounted throughout his tenure, with US Treasury Secretary Janet Yellen calling this week for the bank to “expand its vision”, by lowering EMDE funding costs and increasing private finance mobilisation. Suggested replacements include US Climate Envoy John Kerry, ex-US VP Al Gore and Rockefeller Foundation President Rajiv Shah. While some have called for an end to the custom which allows the US – as the World Bank’s largest shareholder – to appoint its president, India’s G20 Presidency is expected to advance more structural reforms to global finance institutions.  

Missed opportunity? – Barclays Bank drew fire for the lack of new climate commitments in its 2022 results statement, released this week, widely accused of falling behind UK banking peers in the race to decarbonise their portfolios. In particular, Barclays was criticised for failing to come up with “a single major new commitment that would bring [it] closer to meeting the climate imperative of limiting global warming to 1.5°C”, with its refusal to explicitly rule out financing for new fossil fuel exploration and production seen as undermining its own stated commitments. But comparisons are complex. As ShareAction noted recently, Barclays is the only large European bank to include capital markets activities in its sector decarbonisation targets. With the AGM season looming, asset owners are currently setting their red lines for support of banks’ board directors, and have much material to consider before making their calls.  

Overdue discussion – Increased climate reporting requirements imposed by regulators are giving investors more insight into the climate and sustainability policies of listed firms, and diminishing the scope for the latter to obfuscate. Impending transition plan guidance is a further step in this direction, but not the last. Released last Friday, a discussion paper from the Financial Conduct Authority seeks to take things to a new level. It explores appetite for new measures to ensure governance, incentives and skillsets are in place to fully embed sustainability in business cultures and strategies. It also asks asset owners and managers whether regulation is needed to encourage effective stewardship and oversight of investee firms’ sustainability commitments. With corporate greenwashing reports published on a weekly basis, the discussion seems overdue.  

Pay up, don’t shut up – As noted above, there are a lot of climate-related reasons to expect this year’s AGM season to be lively, if not downright adversarial. But one perennial governance-focused agenda item shows no sign of slipping off the proxy statement. A new report from US shareholder advocacy group As You Sow notes that the average pay of S&P 500 CEOs rose 20.9% last year, despite the increased use and effectiveness of ‘say on pay’ votes, making them 324 times better off than their median employees. Asset owners and managers are mobilising, on both sides of the Atlantic, but much remains in the gift of the index giants.   

Slow to fadeCoal is never far away from the headlines. This week, global steel manufacturer ArcelorMittal was rebuffed for a “two-speed” decarbonisation strategy which pairs a shift to green hydrogen in Europe and Canada with use of CCUS to temper its plans for new coal-powered blast furnaces in India. Reuters also reported plans by Pakistan to quadruple coal-fired capacity as a more cost-effective means of generating power compared with gas-fired plants. This comes from a country still recovering from historic flooding largely attributed to climate change. But perhaps the most eloquent argument against coal was the eerie orange tinge to Whitehaven Harbour, sighted this week close to the preparatory work being conducted by West Cumbrian Mining, granted approval by the UK government last December.  

 

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