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Take Five: North and South 

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

In Sharm El Sheikh and beyond, the biggest questions revolve around the future relationship between developed and developing nations.  

Friday night, Saturday morning – Concerns about the pace and direction of negotiations at Sharm El Sheikh have been building all week, with many fault lines evident between North and South. Despite the efforts of the Egyptian COP27 Presidency, it’s not clear if discussions will tip over into the weekend to finalise the latest draft cover text, issued this morning, as they did last year in Glasgow. Also as at COP26, some developing countries are reluctant to commit too quickly to fossil fuel phase out, critical to efforts to ‘keep 1.5°C alive’, especially when developed countries are still failing to deliver on climate finance pledges to support this energy transition, described in the new text as a “grave concern”.  Loss and damage continues to be a source of friction, but a draft text issued yesterday on funding arrangements offers options, following from agreement on operationalising the Santiago Network. UN Secretary General Antonio Guterres was clear that the “breakdown in trust” between North and South must end: “This is no time for finger pointing. The blame game is a recipe for mutually assured destruction”.  

Common ground – Guterres was speaking following his return from Bali, where representatives of North and South found at least some common ground. The G20 leaders summit communique acknowledged the need to “strengthen policies and mobilise financing” to address climate change, biodiversity loss and environmental degradation, including full implementation of the Paris Agreement, revisiting 2030 NDC targets, supporting loss and damage, and fulfilling the US$100 billion climate finance pledge, albeit “taking into account different approaches”.  On biodiversity, G20 leaders backed adoption of “an ambitious, balanced, practical, effective, robust and transformative” post-2020 Global Biodiversity Framework, as well as the tools needed for implementation and accountability, pledging also to step up efforts to reverse biodiversity loss, via “nature-based solutions and ecosystem-based approaches”. More practical signs of cooperation could be found in the agreement on Indonesia’s Just Energy Transition Plan, which provides finance and technical support on the country’s path to renewable energy, potentially also involving the US’s new Energy Transition Accelerator.   

Getting on with the job – The practicalities of implementation and accountability were on the agenda in Europe as policymakers, regulators and standards setters got down to the matter of defining what environmentally sustainable business and investment looks like. Brussels-based standards setters streamlined the disclosure rules European firms must follow from 2024 onward, while watchdogs stepped up their battle against greenwashing, whilst providing yet further “clarity”, around service providers’ taxonomy-alignment requirements. Several steps behind, and with many gaps in its climate and sustainability policies still outstanding, momentum is also gathering in the UK, with its regulator supporting the voice of the asset owner and receiving cautiously positive feedback on its new fund labelling framework.  

Politics as usual – There were also signs this week that addressing the climate crisis is increasingly an inherent and constant element of government business. In attempting to rescue the UK government’s fiscal credibility, Chancellor Jeremy Hunt warned against “bankrupting our economy and harming our planet” as he placed energy efficiency for homes and businesses at the centre of his attempts to end the country’s cost-of-living crisis, largely caused by soaring fossil fuel prices. This follows an executive order from the White House requiring all major suppliers to US federal agencies to provide climate-related disclosures, while also setting GHG emissions reduction goals. Executive orders cannot be blocked by Congress, but now that the Republicans’ slim majority in the House of Representatives has been confirmed, we can expect Patrick McHenry to use his position as Chair of the House Financial Services Committee to further his party’s anti-ESG agenda.  

Dual carriageway – The UK Chancellor’s decision to levy road tax on electric vehicles raised some eyebrows, particularly in the context of the increased finance and commitments to support transition to low-carbon road transport at COP27, including from the UK itself. The Egyptian Presidency unveiled its LOTUS –  Low Carbon Transport for Urban Sustainability – aimed at ensuring GHG-free mobility as the Global South increases its rate of urbanisation, while the UK updated COP26’s Zero Emissions Vehicle Declaration, including new signatories France and Spain, and passed its future management to a new Accelerating To Zero Coalition focused on driving transition globally. Will manufacturers respond to these policy signals by splitting off their EV and ICE arms, as France’s Renault last week?  

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