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Take Five: Modi Feels the Heat

A selection of the major stories impacting ESG investors, in five easy pieces. 

Climate wasn’t high on the ballot in India’s election, but Modi must soon face uncomfortable truths on coal.

Modi feels the heat – Conducted in record temperatures, the world’s biggest exercise in democracy dealt a blow to the ego of incumbent Prime Minister Narendra Modi, but it’s less clear how the outcome of India’s general election will impact its net zero transition. Stock prices were down this week on the assumption that reliance on coalition partners would slow the pace of the infrastructure investment plans of Modi’s ruling Bharatiya Janata Party (BJP). The impact of the election on India’s climate policy might be less significant, for a number of reasons. First, other priorities regularly topped polls of voter concerns, notably inflation and unemployment, although this has evolved recently, partly due to increased instances of climate-induced physical impacts, from landslides to floods to severe crop losses. Second, both the BJP and its leading opponent, Congress, are strongly committed to India’s continued adoption of renewables, albeit via different means – with the challenger party promising in its manifesto a new green transition fund and more resources for India’s National Adaptation Fund. A third reason, which leads on from the first two, is that neither major party has been forced to properly address India’s biggest climate problem – vast and rising emissions from coal. Indeed, current policy is for domestic production to increase up to 2040 to reduce reliance on imports. Coal – and Modi’s close relationships with the controversial Adani Group – notwithstanding, the BJP’s record on solar and hydrogen investments, and fossil fuel subsidy reductions is impressive. But regardless of the make-up of the coalition, India’s next government will need to up the ante to have a hope of meeting even its existing climate commitments, such as installing 500GW of renewables, which will handle 50% of electricity demand, by 2030.

Down, not out – Support for climate-related resolutions at the AGMs of US firms has been closely watched this proxy season for further signs of a “stewardship depression” witnessed since 2021. But climate votes only tell part of the story, with a high number of social-themed filings also vying for investor backing. These include four shareholder proposals seeking more action and transparency on pay, working conditions and racial equity by Walmart, the world’s largest private employer. Prior to the AGM, investors and workers called on the firm to recognise its position as a “systemically important economic actor” by paying and treating its workers more fairly, and protecting employees, in light of high levels of gun violence at Walmart stores over the past five years. At the retail group’s AGM on Wednesday, 19.1% of shareholders supported a resolution in favour of a workplace safely and violence review, down from 23.8% last year, while 15.4% backed a racial equity audit (which secured 18.1% of votes in 2023, after a failed bid to exclude it) and 11.5% agreed the firm should conduct human rights impact assessments (compared with 5.7% in 2023). Mixed levels of support from fellow investors might dismay the filers of the resolutions, but they’re unlikely to deter them. As any stewardship professional will tell you, AGM votes are only the most visible element of a much more multi-faceted and ongoing campaign.

Solid Stiell – The Bonn Climate Change Conference kicked off on Monday with a trenchant call to action from Simon Stiell, Executive Secretary of the UN Framework Convention on Climate Change (UNFCCC). Practically, if not literally, the halfway point between COP28 and COP29, the two-week summit will, among other things, help governments understand what they must deliver in their national plans for climate mitigation and adaptation, having digested the implications of the Global Stocktake last December. The forthcoming third round of nationally determined contributions to the Paris Agreement should not just be 1.5°C-aligned, but all-encompassing. “They can serve as powerful blueprints, to propel each of your economies and societies forward, and drive more resilience, more opportunity, better human health and higher living standards,” he said. No less important or ambitious, said Stiell, should be countries’ national adaptation plans – addressing physical vulnerabilities and resilience – which must be submitted in 2025 and implemented by 2030. As Stiell noted, adaptation efforts have been badly under-resourced almost everywhere despite the growing evidence of physical risks. Fittingly perhaps, the UN Environment Programme marked World Environment Day on Wednesday through a series of events directing attention to desertification, soil degradation, and efforts to build drought resilience. According to the UN, around 40% of the world’s land is already degraded, directly affecting half of humanity, with an estimated 3.2 billion people negatively impacted by desertification. “Today, we’re pushing planetary boundaries to the brink – shattering global temperature records and reaping the whirlwind,” said UN Secretary-General António Guterres.

Taking a shine to Shein – Having run into political opposition in the US, Chinese fast fashion firm Shein took steps this week to secure a presence on the London Stock Exchange. Given the company’s questionable environmental and human rights track record, the Financial Conduct Authority’s (FCA) willingness to grant a listing is widely seen as an indicator of whether the UK is prepared to compromise corporate governance standards to attract business. Since Brexit, the exchange has struggled to attract new listings or even keep existing ones. Exchange executives have led the fight for flexibility, making the case for the FCA’s listings review to consider competition, while many institutional investors have rallied support for higher standards. Shein, reportedly valued at £51.7 billion (US$66 billion), offers vast ranges at affordable prices by commissioning short runs at myriad suppliers, then pushing them hard through social media influencers. The result is an ESG investor’s nightmare, combining opaque supply chains with forced labour and resource-intensive manufacturing. It’s not clear whether Shein has yet filed a prospectus with the FCA, but the firm’s Executive Chairman, Donald Tang, has launched a charm offensive, meeting both UK Chancellor Jeremy Hunt and Jonathan Reynolds, the shadow business secretary.

Golden green – Australia took another step along its belated path to net zero under the Albanese government with the issuance of A$7 billion (US$4.7 billion) in green sovereign debt. According to Bloomberg, the country’s inaugural green bonds were three times oversubscribed, with high demand resulting in a 4.295% average yield, roughly 1.5 basis points below the ten-year benchmark. Strong investor interest was ascribed to a “scarce pool of green Australian assets”, and a “credible, impactful” framework that will see proceeds directed to energy transition initiatives, including hydro-power and marine renewable energy. No doubt local institutional investors will have subjected the offer to rigorous scrutiny during the recent roadshow. But it’s interesting to note that Australia’s superannuation funds have been encouraged to be bolder in their climate engagement, while action by regulators has reminded them of the risks of failing to adhere to green commitments.

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