A selection of this week’s major stories impacting ESG investors, in five easy pieces.
Nature-focused investor engagement took a big step forward this week, with the unveiling of targets and expectations.
Analysis this – How many psychiatrists does it take to change a light bulb? Just one, but the light bulb really has to want to change. How many investors does it take to change a company? The more the better, new research suggests, preferably all in agreement, with the time and resources to engage face to face, over a long period, showing deep understanding of the firm they want to change. This is what corporates told researchers made for successful shareholder engagement, along with metrics showing solid evidence that action would drive stakeholder benefits, or conversely the high costs of inaction. The study, by the First Sentier MUFG Sustainable Investment Institute, is an invaluable read for the stewardship professional, who may nevertheless sigh at the prospect of having to meet its nine criteria. Tools to make it easier to collaborate on and monitor stewardship activities are welcome, such as the Principles for Responsible Investments’ new due diligence questionnaire, but will – as is suggested in the UK Financial Conduct Authority’s recent discussion paper – regulatory change also be necessary to bolster the existing efforts of asset managers and owners?
Nature’s call – Almost 200 investors turned collaborative stewardship theory into practice this week, with Nature Action 100 launching its engagement phase, and releasing its target list of portfolio companies with the biggest footprint on nature. High on their expectations was supply of information on actions, partly overlapping with the 14 disclosures in the recently released final recommendations of the Taskforce for Nature-related Financial Disclosures, but laying emphasis on the setting of ambitious targets and the means with which to deliver on them. Not all the firms targeted for engagement are household names – chosen for their systemic significance, geographic reach and scale of impact, as well as balance sheet size. There were signs of change in at least one of NA100’s target sectors this week, with several target firms involved in a new regenerative agriculture initiative, but with further evidence released this week on the extinction threat to nature in the UK, the investors’ call for “urgent action” will resonate.
From North Sea to four Cs – Not content with throwing a spanner in the works of the auto manufacturing industry’s net zero investment strategies, UK Prime Minister Rishi Sunak this week gave decidedly mixed signals on the future of UK energy generation, by approving development of an oil field off the Shetland Islands. His previous announcements had elicited a mixed response, ranging from a poll boost for Sunak to a denunciation by investor bodies, warning of a fall-off in investment in green growth if he did not embrace “certainty, consistency, clarity, and continuity” in his net zero policymaking. The new Rosebank field – which could produce 300 million barrels of oil and 200 million tonnes of carbon dioxide – is expected to single-handedly exceed the oil and gas sector’s allowance for the UK’s next carbon budget, while doing nothing to reduce domestic energy bills, and helping project leader Equinor to avoid the fossil fuel windfall tax. But the ripples will spread far wider. To quote former Climate Change Committee Chair Lord Deben, “How can we ask other nations not to expand the fossil fuel production if we start doing it ourselves?”. But don’t worry John, the field will be electrified by 2030.
Are you listening, Rishi? – Having already recently announced the beginning of the end of the era of fossil fuel dependence, the International Energy Agency went further this week, updating its ‘Net Zero by 2050’ blueprint for the sector’s transition. Famously, the original version declared that there was no justification for further oil and gas exploration beyond 2021. This week’s update reiterated that “no new long-lead time upstream oil and gas projects are needed”, warning that attempts by governments to prioritise domestic production “must recognise the risk of locking in emissions”, noting also that “new projects would face major commercial risks”. The IEA offers policymakers little excuse for further prevarication, asserting that “ramping up renewables, improving energy efficiency, cutting methane emissions and increasing electrification with technologies available today” will deliver more than 80% of the emissions reductions needed by 2030. The path is steep but achievable, it concludes with perhaps an eye on COP28 negotiations, arguing that a tripling of installed renewable capacity by 2030 and a doubling of the annual rate of energy efficiency improvement would wipe out the need for any new approvals of unabated coal plants.
Soft power – The week has seen a resurgence in ESG-related enforcement action, albeit at different ends of the scale on either side of the Atlantic, with the UK again making up for lack of clout through deployment of irony. The US Securities and Exchange Commission followed up on its new fund names rule with a fine for German asset manager DWS over misleading statements regarding its integration of ESG factors into investment processes, which came to light via whistle-blower Desiree Fixler. The fine, which totalled US$25 million when AML-related charges were added to the bill, towered over those being handed out by The Pensions Regulator for failing to report climate risks in line with TCFD recommendations. At around £5,000, the scale of fines being levied at this stage are unsubstantial, but to optimise impact the regulator was at least able to ‘name and shame’ the pension plan, most likely to prompt a wry smile.