Commentary

Take Five: No Breakthrough in Belém 

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

This week saw limited progress on deforestation in the Amazon, potentially suggesting a greater future role for inclusive action at the local level.  

Amazon alliance – Was it a triumph and a vindication for Brazil’s President Lula that this week’s Amazon summit happened at all, or yet another failure of leadership by politicians that no breakthrough was made? Meeting in the Brazilian city of Belém, which will host COP30, to discuss ending deforestation by 2030, the eight countries created a new alliance – enhancing cooperation on water management, health, sustainable development – but left individual governments to pursue their own conservation goals. Belém is also the capital of Pará state, which has seen a rapid reduction in deforestation since Lula returned to power, and initiatives including the signing of a carbon credits deal by the remote Acangatá community. There have long been concerns that Indigenous Peoples have been allowed too small a role in addressing the climate and nature crises, both in terms of carbon sequestration projects and use of sustainable agriculture techniques to preserve biodiversity. As such, it is welcome that the recommendations of the Taskforce on Nature Markets, released this week, include ‘aligning economic and financial architecture with an equitable, global nature economy’ and ‘securing improved economic benefits for nature’s stewards’.  

Tipping point – The debate over whether pension funds and other asset owners are taking necessary action on climate change was furthered this week with the release of a paper by Economics of Energy Innovation System Transition (EEIST), calling for “fundamental change” to the way investment decision-making is framed. Last week, Louise Davey, Director of Regulatory Policy at The Pension Regulator, acknowledged that trustees must be ready to challenge their advisors, after separate reports by the Institute and Faculty of Actuaries (IFoA) and Carbon Tracker warned of the shortcomings in modelling widely used by the pensions industry. The new EEIST report says pension funds are currently too influenced by modern portfolio theory, arguing that credible transition plans will need “short-term bespoke scenario analysis in order to set interim targets against which reporting will be required”. It also includes an example of pension fund transition planning by the Universities Superannuation Scheme, which is undertaking a review of its approach due in part to the need to recognise tipping points 

Gore’s COP warning – In a TED talk released this week, climate activist and former US Vice President Al Gore took aim at COP28 President-Designate Sultan al-Jaber and the fossil fuel lobby. Noting al-Jaber’s conflicts of interest, Gore said that the oil and gas sector had “brazenly seized control of the COP process”, partly through the sheer number of delegates they will send to Dubai. This is just one element of a global campaign of influence-peddling, he added. “For every piece of legislation, whether it’s at the municipal level, the regional provincial level, the national level or the international level, they’re … doing everything they can to slow down progress.” This effort is clearly a powerful barrier to effective climate policy, but asset owners should remember too that the lobbying activities of asset managers and investee corporates could be more positively aligned to the goals of the Paris Agreement.  

Disney vs De Santis – Followers of US culture wars might be focused on former President Donald Trump’s court appearances, but a case involving another candidate for the Republican presidential nomination – Ron DeSantis vs Disney – may reveal more about the relationship between government and business in general, and the state of the ESG backlash in particular. This week a business group highlighted DeSantis’ actions against the entertainment giant – which centre on LGBTQ+ policies – as part of a wider trend of politicians curbing the freedom of speech by businesses, thus “hindering investment and innovation”, and ultimately threatening economic prosperity. Meanwhile DeSantis’ lawyers welcomed a change of approach by Disney in a new court filing claiming that the Florida Governor’s actions are protected by legislative immunity. Florida has also been at the forefront of political action against the finance sector offering ESG-themed investment products and services. This is unlikely to abate soon but support may be running out of steam. Following a steady if unspectacular six months for ESG ETFs, this week saw news that anti-ESG funds were doing less well. And claims that anti-ESG sentiment had driven S&P to change its approach to ESG credit indicators seemed overplayed.  

Pace of change – One of the many differences between countries’ net zero transition efforts has been the pace and effectiveness of their support for electric vehicle infrastructure, as noted by an International Energy Agency report earlier this year. The US and the UK are seen as particular laggards in this respect, but it is heartening – especially in light of UK PM Rishi Sunak’s recent wobble over a 2030 ban on new ICE sales – that consumers are forging ahead. Not only is the new EV market continuing to grow, but the used market – a key indicator – is also motoring along, with an 82% increase in the sales of battery electric vehicles year-to-date reported by the UK’s Society of Motor Manufacturers and Traders.  

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