Take Five: Warming Relations

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

This week, the US and China rekindled climate talks as July heatwaves continue to devastate globally, but territorial disputes and rising tensions over critical minerals threaten to turn relations cold.

Warming relations – The world’s two largest economies – and polluters – have agreed to resume talks on climate ahead of COP28 amid territorial disputes in the South China Sea and rising tensions over critical minerals. US Climate Envoy John Kerry met with Chinese leaders in Beijing this week in a bid to rebuild trust and iron out agreements between the two nations to address the climate crisis. “We – our team and the United States administration – came to Beijing in order to unstick what has been stuck since almost last August,” Kerry told onlookers on Wednesday, with climate talks put on hold in 2022 after US House Speaker Nancy Pelosi’s controversial visit to Taiwan. At the end of his four-day visit, Kerry said the two countries had agreed to dust off their joint statement addressing the climate crisis, which lays the foundations for a diplomatic framework to engage on global warming. The stabilising of US-China relations is vital to make significant progress in addressing climate risks, with both countries suffering heatwaves surpassing 50°C, underscoring the urgency of reducing greenhouse gas (GHG) emissions as quickly as possible. But with the US conducting dozens of war-game scenarios in anticipation of a military conflict in the Indo-Pacific amid a rapid rise in military spending by China – how long until relations turn cold? 

Supercharged weather – Global warming is “supercharging” extreme weather events, according to scientists, leading to a rise in their frequency and severity. In the Northern hemisphere, climate change is exposing people and nature to blistering heatwaves that have led to wildfires across North America and Europe, taking a toll on local biodiversity, while parts of Asia battle extreme rains that have caused floods and landslides, forcing hundreds to evacuate their homes. With extreme weather events on the rise, it’s not just the natural world at risk. A growing number of insurers are exiting markets exposed to increased climate-related risks, which threatens to upset the delicate balance of financial ecosystems, posing detrimental knock-on effects for banks, investors, policymakers, companies and citizens as we stare down the barrel of an uninsurable future.  

Climate retreat – This week, HSBC Asset Management was called theonly true steward of the global economy” by Follow This Founder Mark van Baal, after he announced that it was the only large UK investor still voting for change across all oil majors. A new report by the Dutch shareholder activist group noted that net zero-committed asset managers, including LGIM, abrdn and Janus Henderson, voted against climate resolutions put forward by Follow This at the AGMs of US oil and gas majors Chevron and ExxonMobil this proxy season, despite having voted in favour of the same resolutions in previous years. Oil and gas majors’ windfall profits represent a “once-in-a-lifetime opportunity” to transition existing business models to renewables, van Baal said in a statement, adding that short-term fossil fuel profits and addressing long-term climate risks are not “mutually exclusive”.  

You’ve been served – Australia government agencies have been sued for failing to disclose the climate and biodiversity-related impacts of funding fossil fuel projects. Human rights and environmental organisation Jubilee Australia filed legal proceedings this week in the Federal Court of Australia against Export Finance Australia and the Northern Australia Infrastructure Facility, calling for the Australian Government to put an end to these “destructive subsidies”. The news comes as the Labor government plays catch-up with the rest of the world on accelerating sustainable finance policies, recently signing an agreement with New Zealand to tackle climate change more collaboratively alongside its other Pacific neighbours.  

“Lackadaisical” leadership – Despite Brits feeling the heat this summer with record-breaking temperatures in June, UK Prime Minister Rishi Sunak doesn’t seem to be breaking a sweat, with him doing little to advance green issues and seemingly complicit in letting the country fall behind the EU and the US in addressing the climate crisis. His lack of interest in our rapidly warming world has caught the attention of UN climate leaders, including former Unilever CEO Paul Polman and Laurence Tubiana, a key architect of the Paris Agreement, who, along with 13 other signatories, wrote a letter to Sunak to express their “deep concern” for his government’s “lackadaisical approach to international climate, nature, and environment issues”. 

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