Take Five: Rapid, Deep, Immediate

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

In an eventful week, the words of climate scientists reverberated around the world. 

Rapid, deep, immediate – Powerful messages do not necessarily lose their impact through reiteration. Released Monday, the Synthesis Report that concluded the Intergovernmental Panel on Climate Change’s (IPCC) sixth assessment cycle confirmed much we already knew. We have every opportunity to save ourselves, but delay will make that task much harder and the outcomes more uncertain. “Deep, rapid, and sustained reductions in GHG emissions would lead to a discernible slowdown in global warming within around two decades,” but “the probability of low-likelihood outcomes associated with potentially very large adverse impacts increases with higher global warming levels.” The IPCC put heavy emphasis on an urgent increase in “climate resilient development” which integrates adaptation and mitigation – for which “feasible, effective, and low-cost options” already exist – backed by increased international cooperation and access to adequate financial resources. These last two represent the key sticking points and underline the role for policymakers and investors. “If climate goals are to be achieved, both adaptation and mitigation financing would need to increase many-fold,” the IPCC said.

Scaling up – Powerful as they are, the IPCC’s words to date have carried less weight than the economic realities faced by governments in a world reshaped by Russia’s invasion of Ukraine, which are doing much to increase the above-mentioned international cooperation and finance flows. This is notable in southeast Asia, where the transition to clean energy is often a national security and balance of payments issue, as well as an environmental one. Last week saw Indonesia and Singapore agree to increased collaboration in multiple areas including renewable energy and sustainable urban and housing development, while other countries, including Thailand and the Philippines, are actively tendering to expand solar and wind capacity. Some institutional investors have been hamstrung by the lack of scale offered by renewable energy projects in the region, making them less investible, but when governments are running tenders for 10GW projects, at least one of the barriers to finance flows mentioned by the IPCC begins to ebb.

Too much, too little, too polluted – Having started with the IPCC’s climate change assessment, the week will end with recommendations on tackling one of its most evident impacts: heightened water risks. Following a year of severe droughts and shocking floods, the UN’s first water conference since 1977 opened on Wednesday with limited expectations and a UNESCO-authored report highlighting the need for increased international cooperation to avoid escalating crises and increase progress toward SDG6, a key element of the UN’s broader efforts to get all its Sustainable Development Goals back on track this year. Non-binding at this stage, the conference will conclude with agreement on a series of commitments – known as the Water Action Agenda – that could form the basis of a binding deal by governments at COP28.

Double trouble – Next week will see the release of the final draft iteration of the disclosure guidelines of the Taskforce on Nature-related Financial Disclosures (TNFD). Expected to be finalised before the end of the year, many hope the voluntary framework will be written into hard law, as a means of tracking alignment with the Global Biodiversity Framework, much more quickly than it took TCFD-based reporting rules to be mandated to align finance flows with the Paris Agreement. According to participants at a roundtable hosted in Singapore this week by ESG Investor and S&P Global Sustainable1, this can’t happen soon enough. Where some struggled to get location-specific data from investee companies, others found challenges with analysing the nature-related risks in firms beyond those with the largest footprints. All, for what it’s worth, sought to view these risks through a double materiality lens. 

Work in progress – Nature-related risks might be rising up the investor agenda in the Asia-Pacific region, but that doesn’t mean social issues are being ignored. The treatment of workers is increasingly seen as an area where companies and industries need to reform their approach. And this is not just an issue for factories and facilities far removed from the investors’ line of sight, for example in the supply chains of technology or apparel firms. Both Japan and China have taken steps to curb overworking in recent years, in response to growing concerns about Karoshi and 996 working cultures in relatively well-paid jobs. Last month, South Korea was forced to backpedal on plans to increase maximum working hours after major protests. Investors in Asia may not yet be taking the same steps as those in the US, where workplace themes are set to play a major role in forthcoming proxy voting battles, but they are watching closely.

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