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Take Five: No Magic Green Wand

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

In the week 1.5 °C became a reality, policymakers remained focused on short-term considerations.

No magic green wand – On Tuesday, the European Commission gave a clear signal of its climate ambitions, as it committed to reducing greenhouse gas (GHG) emissions by 90% by 2040 from 1990 levels in its Impact Assessment Report. On the same day, the EU Council and Parliament conjured up a smokescreen by agreeing to prioritise investment in a “terribly long list” of green technologies. The Net Zero Industry Act (NZIA), designed to accelerate investment in the clean energy transition, included proven renewable technologies like wind and solar, but also other innovations that have yet to deliver at scale, such as carbon capture and storage (CCS). The act gives the green light to net zero valleys, clusters of clean energy production sites, to be granted rapid approval. The latitude given by the NZIA to member states to decide which projects get the magic ‘net-zero strategic’ label – thus qualifying for funding and permitting support – caused the World Wide Fund for Nature to describe the act as “hocus-pocus” that could undermine Europe’s 2030 targets. If the NZIA won’t help deliver 55% GHG emission cuts by 2030, what chance 90% by 2040? By spreading public largesse too far and wide, it may fail to mobilise the private sector, critics warned. The Institutional Investors Group on Climate Change, however, remained optimistic, endorsing the 2040 Impact Assessment’s recognition of the need for a collaborative approach to project pipelines and finance models, based on a “predictable and simplified” regulatory environment.

Crisis and compromise – The Net Zero Industry Act was not the only casualty of political compromise this week. The introduction of sector-specific disclosure guidelines for the Corporate Sustainability Reporting Directive (CSRD) was delayed by two years. This will either give corporates much-needed time to implement the first set of European Sustainability Reporting Standards (ESRS) or leave them in the dark, depending on who you listen to. This week’s Brussels backsliding did not stop there, with a crucial vote postponed on the Corporate Sustainability Due Diligence Directive. Not to be outdone, the UK government prepared to toss aside another plank of its pathway to net zero by ditching a so-called boiler tax, thereby also risking the loss of yet another climate minister. Meanwhile, the opposition Labour party displayed tone-deafness to the latest alarm bells of the climate crisis by ditching its £28 billion (US$35 billion) green investment pledge in the name of fiscal responsibility.

Missed opportunity – How many green-tinged U-turns can we fit into one blog? Just one more. European Commission President Ursula von der Leyen responded to farm protests this week by ditching a proposal to halve pesticide use. The Sustainable Use Regulation (SUR) had already run into opposition in the Council and Parliament, abetted by agro-chemical lobbying, but von der Leyen’s volte-face torpedoed plans to stimulate the development and adoption of alternatives – such as biocontrol products, which protect plants from insects without use of chemicals. President of the European Parliament Environment Committee Pascal Canfin called it a “missed opportunity”. Part of Europe’s Farm to Fork strategy, the SUR was aimed primarily at supporting healthy soil, clean water and biodiversity. But pesticide reduction policies also have a big role to play in the fight against anti-microbial resistance, as the pollution caused by excessive use of chemical pesticides contributes significantly to the rise of drug immunity among harmful organisms. While drastic top-down bans might not be the answer, pressure for solutions will build in line with growing awareness – among investors and policymakers – of the risks to plant, animal and human health.

Right to disconnect – There was further evidence from Australia of the need for companies and their investors to anticipate and adjust to changing attitudes to work-life balance. The Labor government passed the ‘Right to Disconnect’ bill, which allowed employees to ignore calls or emails from bosses outside work hours without fear of punishment. Business groups said the new law was “dumb” and “not practical”, but Australian PM Anthony Albanese said that someone who isn’t being paid 24 hours a day shouldn’t be “penalised” if they’re not available 24 hours a day. The measure is similar to ones already in place in France, Spain, Italy and Ireland, suggesting that businesses may need to recognise the fundamental readjustments taking place in the post-Covid world of work. Although the Australian government is amending the new bill to avoid the risk of criminal prosecution, the large range of unanswered questions on different exceptions and circumstances could add to existing workplace tensions. Step one for employers might be to learn the joys of ‘schedule send’ on Outlook.

Pathways to Paris – Danish asset owner AkademikerPension was among nine financial institutions recognised in a new study as representing best practice on Paris-aligned investing. This was partly due to its adherence to the International Energy Agency’s Net Zero by 2050 pathway, which asserts there is no need for new fossil fuel exploration. This principle led the scheme to exit all holdings in upstream oil and gas majors by September last year, on the basis that such firms “simply refuse” to alter their course in a manner consistent with the goals of the Paris Agreement. Also this week, Dutch pension scheme PFZW reached similar conclusions after a two-year engagement exercise, having found that more than 300 oil and gas firms were out of step with Paris, leaving the fund holding just seven. Along with ExxonMobil’s recent treatment of activist shareholders, the exit provides more evidence of an industry and its investors being on increasingly divergent paths.

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