Commentary

Take Five: Red, Blue or Green

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

This week, a row over weakened environmental protections in the UK soon began to take on a party political dimension.

For the birds – In the UK, the week started with various voices from the finance sector warning Prime Minister Rishi Sunak of the negative consequences for investment from his less-than-wholehearted commitment to ambitious climate policy. Before the end of it, Sunak was under attack from a far wider coalition, using far less diplomatic language, angered by justifications offered by ministers – including Housing Secretary Michael Gove – for loosening environmental protections to increase house-building capacity. But attention soon shifted from the government’s dubious defence of its record on river protection to the internal politics of the Royal Society for the Protection of Birds. The well-loved charity, most famous for its annual ‘Big Garden Birdwatch’, retracted a strongly-worded tweet after a rebuke by trustee Dr Ben Caldecott, also founding Director of the Oxford Sustainable Finance Group. Caldecott, formerly a senior fellow at the right-leaning Policy Exchange, co-founded by Gove, was in turn rebuked by George Monbiot, campaigner, zoologist and columnist for the left-leaning Guardian newspaper, leading to an old-fashioned social media pile-on. For all that, the environment is not the left-right or red-blue issue in the UK that it is in the US, not yet anyway. Welcome to your new job, incoming Net Zero Secretary Claire Coutinho!

No shock at Shell – A further, if unsurprising, backward step from Shell on climate was revealed this week by Bloomberg, confirming that the Anglo-Dutch oil major has shelved plans to develop carbon credits to compensate for its continued CO2 emissions. Shell’s commitment to net zero by 2050 remains, but it is increasingly unclear how it will get there, given a strategic shift earlier this year to weight investment toward fossil fuels, and now the abandonment of its plans to offset up to 10% of its emissions through investment in carbon credits and development of its own sequestration projects, having built up a substantial capability in the space. Investors walking away from their engagements with – and indeed their investments in – Shell and other oil majors may feel vindicated. As might those who say the 10% target was inappropriate and unattainable, reinforced by Shell’s reported struggles to find high-quality investments in a voluntary carbon market (VCM) that has failed to take off, dogged by continued credibility concerns. Where this leaves VCMs remains to be seen. Also this week, carbon credit verification authority Verra issued details of a revised methodology designed to increase transparency and credibility, making it easier to identify Article 6 credits. That may not be enough to convince Mohamed Adow, Director of Power Shift Africa – who referred to VCMs as “wolves in sheep’s clothing” in a recent webinar – but progress on the Paris rulebook at COP28 might bring greater reassurance to investors and revenues to nature-rich countries (at least those that haven’t already made other arrangements).

G is for … – The ESG-related risks of investing in the mining sector tend to be most discussed in terms of the environmental and social impacts of an industry considered integral to the net zero transition. But this week provided a reminder of deep-seated governance issues in the sector, with the release of new details about the allegations and claimants against Glencore, following its admission of widespread bribery and corruption. In short, almost 200 of the world’s largest investors claim the mining group misled them in prospectuses published over a decade ago and are seeking damages over subsequent losses. This comes on top of the fines totalling around US$1.5 billion already paid by the firm in multiple jurisdictions, hampering Glencore’s efforts to reorientate its business model for a sustainable future and reminding mining-sector investors of the importance of the G in ESG.

Measuring up – The Global Impact Investing Network (GIIN) continued the roll-out of its 2023 GIINsight series on the current state of impact investing, with the release of its findings of measurement and management practice. GIIN’s survey of 300 impact investors found less than half (49%) are audited either internally or externally for impact management processes, with 46% audited specifically on their impact results or performance. Further, just 15% compare results to peers and 76% view the inability to do so “a significant or moderate challenge”. Scaling the sector with integrity requires firms to “overcome data challenges and mainstream the use of impact data in the investment process”, said GIIN Chief Research Officer Dean Hand. The current consultation on a globally applicable methodology for impact accounting could be one of the key steps to this goal.

Finance sector failure – As part of its efforts to reinforce adherence to the UN Guiding Principles on Business and Human Rights (UNGPs), a UN working group is preparing guidance on “how to align better ESG approaches with the UNGPs in the context of financial products and services”. While the working group acknowledges greater awareness in the finance sector, it pulls no punches, noting “most financial actors fail to connect human rights standards and processes with ESG criteria and investment practices”, citing “a prevailing lack of understanding on how human rights issues should be reflected in social criteria, environmental and governance indicators”. One need only look at the corporate and investor response to Russia’s invasion of Ukraine and approach to other conflicts to see more work is needed. To offer your view on what and by whom, the working group is soliciting feedback until the end of the month.

 

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