A selection of this week’s major stories impacting ESG investors, in five easy pieces.
This week, the UK tried in vain to please all with its approach to energy security and net zero.
Rishi’s risks – Long-voiced concerns that carbon capture is an excuse to let fossil fuel firms keep digging increased on Monday when UK Prime Minister Rishi Sunak prepared for his summer holidays by announcing a major CCUS investment alongside new licences for North Sea oil and gas drilling. Professor Myles Allen, an IPCC member who has frequently supported the technology despite its scaling-up challenges, suggested the licences should be contingent on commitment to carbon removal. Some went further. Australian mining-mogul-turned-green-hydrogen-guru Andrew Forrest threatened to pull out of the UK in protest at Sunak’s “clickbait” leadership; the Grantham Research Institute’s Lord Nicholas Stern said the PM was “playing politics with the future of the planet”. Attention returned to the North Sea on Thursday when power utility SSE started to install turbines at the world’s largest offshore windfarm. Investment flows to similar projects have been slowed by higher costs across Europe versus the revenues promised by contracts for difference. But wind power remains a more attractive long-term investment than fossil fuels, more attuned to concerns flagged in the UK government’s latest National Risk Register, and less of a threat to marine protected areas.
In deep – A month of climate records has intensified concerns about the impacts of rocketing surface temperatures on land and sea, both the environmental risks to oceans go deep. Almost three weeks of negotiations ended in Jamaica this week with a decision to kick the can down the road on deep sea mining in areas beyond national jurisdiction. With a two-year deadline to define rules running out in early July, there had been concerns that the UN-backed International Seabed Authority would be forced to green-light a mineral drilling project supported by Nauru. But a final communique confirmed failure to agree on a proposal by Chile, Costa Rica, France, Palau and Vanuatu for a general policy on the conservation of the marine environment, “including consideration of the effects of the ‘two-year rule’”. Last week, ISA said it expected to complete draft exploitation regulations for mineral resources next year ahead of adoption in 2025. But there are still concerns that a DSM application could be submitted before the rules are finalised and it is still not clear how this would be handled. While observers note problems with ISA’s governance processes, attention moves to discussions on a consolidated negotiating text of the draft regulations in November.
Standard bog – This week saw further progress in the roll-out of disclosure standards, but also further evidence of their limitations and the challenges of achieving consensus. Europe finally adopted its European Sustainability Reporting Standards, under which firms must report their 2024 risks and impacts, with slightly toughened comply-or-explain rules, following criticism of the Commission’s decision to make some disclosures conditional on materiality. The UK endorsed the ISSB’s first two sustainability standards and set a mid-2024 deadline for releasing its own Sustainability Disclosure Standards. Despite IOSCO approval last week, the ISSB’s approach still has its sceptics, with some arguing – appropriately in the week of Earth Overshoot Day – that sustainability reporting in general fails to report in context of planetary boundaries. Meanwhile Reuters noted continued delays to rules on banks’ carbon accounting, due to disagreements on the level of Scope 3 emissions they should take responsibility for when supplying equity or debt finance. No wonder SEC Chair Gary Gensler is taking his time over announcing final adjustments before issuing the US’ climate risk disclosure rule.
Trump card – Fitch’s decision to downgrade the credit rating for US debt from its AAA gold standard, citing governance concerns, was roundly condemned by the great and the good of the country’s financial establishment. Treasury Secretary Janet Yellen defended US Treasuries as the world’s safest and most liquid asset, while prize-winning economist Paul Krugman, not always a vocal supporter of US economic policy, noted the country’s recent success in controlling inflation while avoiding recession. Both are valid, and there may be few ‘real-world’ implications of the action, but it’s hard to argue with Fitch’s central claim of a steady deterioration in recent decades of the mechanisms guiding US finances, given the size of the debt, the lack of consensus for reducing it, and the regular interruptions to government business caused by cliff-edge budget negotiations on Capitol Hill, and that’s before one even considers other erosions to standards in public life emanating from a former neighbour of the US Treasury Department.
Forward planning – While some in the northern hemisphere are taking it easier in August, there is no let up for many of those preparing for COP28 in December. In his day job as Chief Executive of the Abu Dhabi National Oil Company, Sultan al-Jaber announced an acceleration of the UAE state oil firm’s net zero target to 2045. And as President-Designate of COP28, he committed to making the climate summit “an inclusive and safe space for all participants”, as well as providing space for climate activists “to assemble peacefully and make their voices heard”. One once might have thought such statements superfluous, but that was before the disturbing reports during the Bonn Climate Change Conference and COP27.