Commentary

Take Five: Transition or Transformation?

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

UN Secretary General Antonio Guterres said the time for tinkering was over, but the message may not have reached all parties.

Directors in the dock – Fresh from reporting record profits, Shell’s directors were served with a lawsuit this week claiming they are failing to manage “the material and foreseeable risks posed to the company by climate change”. The case, brought under the UK Companies Act, is backed by institutional investors including UK pension funds Nest and London CIV, Sweden’s AP3, Denmark’s Danica Pension and AP Pension, as well as several asset managers. It’s the first-ever attempt to hold directors personally liable for failing to prepare for the energy transition, but only the latest stage in efforts to hold the firm to account, after its “half-baked” Energy Transition Strategy received shareholder backing in 2021. With investors calling this week for ‘Say on Climate’ votes at the AGMs of all FTSE 100 firms, it’s not just Shell’s directors in the dock.

Don’t delay – Guidance on how to make net zero transition plans more credible and robust will become clearer across 2023, with the UK’s Transition Plan Taskforce (TPT) expected to finalise its disclosure framework this year and the International Sustainability Standards Board delivering its climate reporting standard. With TPT’s guidance out for consultation until the end of this month, the message from taskforce members this week was “don’t wait; have a go”, with Patrick Arber, Head of Government Engagement at Aviva, noting that the insurer issued its first attempt in 2020.

EU’s direction of travel – Europe’s energy transition took further, if sometimes faltering, steps forward this week. In a close vote, the European Parliament’s ENVI committee backed “stricter obligations” on environmental and climate impacts for companies, under the proposed Corporate Sustainability Due Diligence Directive. By a clearer majority, it also supported the trilogue agreements on CBAM and ETS revisions. Elsewhere, the European Commission defended the inclusion of gas in its Green Taxonomy via a special Complementary Delegated Act, and concerns were raised about the effectiveness of the Corporate Sustainability Reporting Directive, due to the reduced disclosure requirements and data points in draft EU Sustainability Reporting Standards. As we know, progress is rarely linear, but Europe’s direction of travel seems clear in one respect, with the Commission regarding as “inevitable” a joint EU exit from the Energy Charter Treaty, releasing member states to pursue renewable energy transition.

No time for tinkering – Transformation, rather than transition, was the key theme of Secretary-General Antonio Guterres this week, outlining 2023 priorities to the United Nations General Assembly. In a wide-ranging speech, Guterres warned politicians short-termism and incrementalism were no answer to the pace of change and range of threats, including climate destruction. “This is not a time for tinkering. It is a time for transformation,” he said, calling for a “new Bretton Woods moment” that placed the needs of developing countries at the centre of a revised global financial architecture. Guterres specifically called for multilateral development banks to adopt first loss positions to stimulate inflows from impact-focused private-sector investors, as a part of systemic reforms needed to reignite progress toward Sustainable Development Goals (SDGs) in the build up to an SDG Summit in September.

New bottles for old wine – The UK government’s creation of the Department for Energy Security and Net Zero was seen more as transition than transformation this week, but also could be characterised as deckchair arranging. The new department listed energy efficiency as one of its six priorities, facing the prospect of legal action from Greenpeace over the weakness of existing efforts to tackle fuel poverty. The department was also under immediate pressure from opposition MPs to “show us the numbers” after the Information Commissioner’s Office confirmed an investigation into the withholding of the data underpinning the UK’s net zero strategy.

 

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