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Take Five: Transition Troubles

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

This week saw politicians continue to expand the number of routes toward a net zero transition.

Norway’s nodules – Deep sea mining for minerals critical to the clean energy transition took a step forward this week, with the Norwegian parliament voting to allow firms to apply for extraction licences. Miners must conduct extensive impact assessments that could take a decade before they can source lithium, cobalt and other minerals from nodules on the sea bed. The industrial process could generate pollution, damage habitats and contribute to biodiversity loss. The vote was witnessed by campaigners who pointed to the deep seas’ role as a carbon sink and unique wilderness, echoing the concerns of scientists, MEPs and Norway’s own environmental agency, which has said an initial impact assessment had failed to meet legal criteria. Norwegian investors have also expressed strong reservations. The government has insisted that deep sea mining should be explored as part of Norway’s efforts to transition to net zero and boost energy security, rather than relying on imports from countries as diverse as China, Peru and the Democratic Republic of Congo. Many countries are feeling similar pressures, but it’s worth noting that the European Union has imposed a temporary ban on the practice, despite setting targets for domestic extraction and processing of critical minerals. The issue is not going to go away, with some estimates suggesting more will be needed in the next 30 years than has ever previously been extracted. And there’s every chance it could resurface later this year with the International Seabed Authority due to finalise rules relating to mineral exploitation of areas beyond national jurisdiction in July, having fudged the matter last year.

On the Skids – There were no such environmental protests outside the UK parliament this week, partly due to government’s last-minute decision to pull the scheduled vote on its Offshore Petroleum Licensing Bill. Before the postponement on Tuesday, the bill had already done considerable political damage, prompting the resignation of Chris Skidmore MP, former minister and author of the UK’s legally-binding net zero commitment, last Friday. Already doomed by the UK’s electoral calendar, the bill was savaged on Monday by an analysis highlighting its negligible impact on domestic energy security and prices, the primary justifications offered by the government for draft legislation described elsewhere as “performative”. It had been defended over the weekend by Chancellor Jeremy Hunt as vital to the UK’s net zero transition, after which all three of these lines of defence were trotted out in support of an ambitious new UK Civil Nuclear Roadmap on Thursday. Whether any of the required investment eventually comes from a transition – sorry, Sustainability Improvers – fund remains to be seen.

Apple’s core values – The reason for the delay to the Offshore Petroleum Licensing Bill was not a post-COP28 UK government rethink but a shortage of parliamentary time caused by a decades-old tech governance scandal which may have deepened the concerns of those fearing humanity’s future subjugation to artificial intelligence. Although not quite so old, another long-running tech governance scandal was edging closer to a satisfactory conclusion in the US, with Apple initiating payouts to complainants who alleged the firm had deliberately slowed the performance of some ageing iPhones. Apple has denied wrongdoing and is fighting a similar class action in the UK. In 2017, the tech giant admitted it had slowed performance of some models, confirming users’ anecdotal suspicions, adding that it had acted to prolong usage, as battery power diminished over time. The alternative argument was that Apple was building in obsolescence to boost new sales, contributing to global mountains of e-waste, as well as demand for components, including critical minerals. In response to growing regulatory, investor and consumer concerns, the firm has since pledged to embrace circularity and carbon neutrality, but its fabled commitment to product excellence still clashes with its new-found sustainability ethos. Like all tech giants, Apple has had to adapt to right-to-repair laws, but the actions it has taken to ensure repair services stay in-house has led to further legal trouble – this time in France.

Dutch courage – Research released this week by ShareAction suggested that institutional investors are still struggling to hold banks and insurers to account on of their support for the fossil fuel sectors. The NGO found that asset manager backing for shareholder resolutions on fossil fuel financing policies slipped to just 16% in last year’s proxy voting season, suggesting a continued lack of scrutiny of banks’ net zero transition strategies. Nevertheless, there are pockets of progress, with Dutch Bank ING updating its net zero policies to restrict future finance for metallurgical or coking coal, used in steel production. Many banks have already placed limits on thermal coal finance, but ING is the first to no longer supply dedicated finance for new coking coal mines or the expansion of existing ones. Fellow signatories of the Sustainable STEEL Principles – including Citi, Crédit Agricole, Société Générale, Standard Chartered and UniCredit – may be next.

Greening Davos – There is scant cause for comfort in AI-driven misinformation topping climate change as the foremost imminent global risk listed in the World Economic Forum’s annual Global Risks Report – given the former’s widespread use to downplay the latter. Spurred perhaps by recent confirmation that 2023 was 1.48°C warmer than pre-industrial levels, the agenda for the forum’s Davos summit, starting Monday, will put climate and nature centre stage. It may, however, be somewhat of a relief to some that this won’t be the greenest Davos ever, as live cams are revealing at least some snow at the ski resort.

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