Commentary

Take Five: Two Out of Three Ain’t Bad

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

G7 policymakers stuck to the script in Sapporo, more or less, while US politicians seemed distracted from their concerns over climate disclosures.

Two out of three – The week started with some significant firsts in terms of policy coordination from major economies on climate and nature crises, scoring perhaps two out of three for effort. Meeting in Sapporo, Japan, Group of Seven climate ministers on Sunday committed to updating their National Biodiversity Strategy and Action Plans to meet the objectives of the Global Biodiversity Framework and supporting the development of national biodiversity finance plans for all signatories. They also backed Target 15 on nature-related disclosures, recognising and supporting the role of the Taskforce on Nature-related Financial Disclosures, while committing also to alignment of fiscal and financial flows including harmful subsidies. On climate, ministers also agreed to accelerate the renewable energy transition, collectively increasing offshore wind capacity by 150 GW by 2030 and solar by 1 TW. Although they also backed a quicker phase-out of fossil fuels, they failed to set a 2030 deadline for phasing out coal, perhaps unnerved by news of Vladimir Putin tilting at green windmills and fearing further energy security disruption. G7 ministers committed too to the development of a regulatory framework on deep seabed mineral exploitation that protects the marine environment, albeit against a backdrop of debate as to whether such activity is even necessary.

Dividing lines – Sometimes no news is good news. Having vowed to use their House majority to halt US Securities and Exchange Commission’s planned climate disclosure rules, Republicans instead focused their fire on the US watchdog’s approach to regulating the crypto market. Gary Gensler’s visit to Congress this week was a bruising experience for the SEC Chair, but not for the reasons expected. Indeed, during more than five-and-a-half hours of testimony, pretty much the only mention of the much-delayed rule, now expected in June, came when Rep. Bill Huizenga complained of Gensler’s failure to provide evidence of a pre-drafting cost/benefit analysis. Rather than marking a receding tide of GOP anti-ESG sentiment, the hearings may instead signal the point at which crypto too became a dividing line in US politics.

Sitting uncomfortably – A change of tactics now seems clear for asset owners seeking more credible and transparent net zero transition plans from investee firms. Recent years have been characterised by a rising tide of shareholder resolutions seeking decarbonisation targets and improved emissions disclosures, with boards seeking to head off discontent by offering non-binding say-on-climate votes, often with the aim of pushing through ‘half-baked’ measures. There will be no shortage of climate-related resolutions during this year’s AGM season, but seems likely to be an uptick in the number of shareholders voting against board reappointments at firms seen to have failed to respond proportionately to climate risks and impacts. UK pension schemes with £244 billion AuM have pre-declared they will vote against the reappointment of BP Chair Helge Lund at the firm’s AGM next week, in response to its recent slowing of decarbonisation plans without consulting shareholders. With the Church of England Pensions Board planning to vote against Volkswagen’s board over lack of transparency on climate lobbying, many directors may not be sitting comfortably.

Define your terms – Those seeking transparency of a different kind – i.e. clarity on what constitutes a sustainable investment – might have been disappointed after the European Commission recently declined to offer one in response to requests from regulators.  This sparked a plethora of comment this week warning of investor confusion and the prospect of a rethink among those SFDR Article 9 funds that downgraded over the past six months for fear of being accused by regulators of greenwashing. However, it is unlikely that the decision will herald a free for all; rather managers are on notice to carefully provide evidence for their sustainability claims, and to take account of evolving regulatory expectations. To quote a past contributor to ESG Investor, for fund managers, it’s still not easy being green.

Invest in our planet, again – Everyone will find their own way of marking Earth Day tomorrow, but we couldn’t help noticing that the organisers’ theme for this year bears remarkable similarity to their 2022 message. We’re not sure if this is a signal of commitment to recycling or an indication that the message did not get through last time.

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