This week’s major stories impacting ESG investors, in five easy pieces.
The 2023 meeting of the temple of globalism provided some telling indicators of the state of progress on climate action.
Gored – With environmental risks taking the top slots in the World Economic Forum’s 2023 risk report, it was inevitable that efforts to tackle climate and nature risks would play a leading role at Davos this week. Some were shocked by the anger expressed at the forum by ex-US VP Al Gore, who distanced himself from US Climate Envoy John Kerry on the growing role of petrostates and oil company executives in climate change negotiations. Already under pressure to reform, the World Bank also felt Gore’s fury for “completely failing to do its job” in enabling climate finance flows, including de-risking for private investors. Speaking of which, BlackRock CEO Larry Fink reflected on the “personal” attacks he has experienced as a de facto lightning rod for ESG investing. As you’d expect, he took comfort in the numbers, noting that the US$4 billion lost through withdrawals from ‘red’ US states, were more than offset by inflows of US$230 billion from US clients during 2022. “If you do not have a lens towards decarbonisation, you’re not going to win one euro of business,” he added.
Carrot and stick – Attending Davos in his role as UN Special Envoy for Climate Action and Finance, Mark Carney praised the passing of the US Inflation Reduction Act as a “miracle” and called on governments globally to show similar support for the renewables transition. After initially raising concerns about the act’s protectionist implications, Europe’s leaders appear to have been convinced to use the carrot as well as the stick, with European Commission president Ursula von der Leyen using her Davos platform to unveil a ‘Green Deal Industrial Plan’ that will “make Europe the home of cleantech and industrial innovation on the road to net zero”.
Big tents, grinding to a halt – One of Carney’s other jobs is Co-Chair of the Glasgow Financial Alliance for Net Zero (GFANZ), which was criticised for its members continued fossil fuel financing in a new NGO report released to coincide with Davos. A framework published by the GFANZ-aligned Net Zero Insurance Alliance, aimed at guiding the insurance sector to net zero, was coolly received by some, citing loopholes and a general lack of urgency. With all such collaborative alliances showing increasing caution in the wake of anti-trust threats, however spurious, member firms must be re-considering how to make best use of their resources to address climate risks.
Credits and credibility – The voluntary carbon market sustained an assault on its shaky credentials this week, after a barrage of recent surveys predicting rapid growth in 2023, based on the intentions of large firms to ramp up use of carbon offsets. An investigation of Verra, a major validation and accreditation service, cast doubt on the effectiveness of more than 90% of the carbon credits it has approved (Verra has strenuously rebutted the claims). Science-based net zero transition pathways only recommend residual emissions be offset through carbon credits. Despite the doubts, carbon trading expansion has been rapid, with a new report by Boston Consulting Group and Shell noting record growth in both the regulated and voluntary markets. Steps toward transparency are overdue but very much in motion, made more necessary by the role of credits in many nature-based solutions and the flow of climate funding to emerging markets. But such claims need to be put to bed for good to avoid a fatal case of climate cynicism.
Whodunnit? – Investors in failed UK battery start-up Britishvolt have been left pondering who to blame for its inability to score an open goal. Despite estimates that the UK car industry will need five gigafactories and 96GWh of annual capacity by 2030, the firm struggled to meet project targets, thus forfeiting government support, or win customers, while also attracting attention for wayward expense control. As the global electric vehicle market continues to build momentum, few should need reminding that climate-positive investment must be built on solid fundamentals, and there is still hope the site – and its 3,000 workers – will find a more competent buyer. One candidate could be green hydrogen guru and mining magnet Andrew Forrest, who announced at Davos plans to open an UK plant to manufacture batteries and fuel cells for heavy goods vehicles.