Mike Scott rounds up the latest ESG news, from the G7 meeting, to the launch of the Task Force for Nature-related Financial Disclosure
The mood music around tackling climate change continues to increase in volume, with everyone from the G7 to the UN Secretary-General to individual governments, as well as banks and civil society groups, calling for more ambitious action, and targeting sectors from insurance to retail to airlines to steel.
Here’s Mark Carney, former governor of the Bank of England, telling businesses that they need to demonstrate a clear commitment to address the climate crisis in order to attract investment. “Investors, banks and indeed society will increasingly differentiate between companies that meet this gold standard and those that do not. That means backing companies with credible plans with the necessary finance to turn plans into action; and divesting those who don’t demonstrate credible intention to transition,” he said at the launch of Imperial College Business School’s Leonardo Centre on Business for Society.
This was backed up by a call from Aviva Investors for UK financial institutions to be forced to outline by the end of 2023 how they plan to decarbonise their portfolios in line with the government’s 2050 net-zero target. The call comes as a new report from Greenpeace and WWF finds that UK banks and investors are currently responsible for financing nearly twice the emissions of the UK every year; if it were a country, the City of London would be the world’s ninth-largest emitter.
The G7 meeting in the UK produced a number of pledges that indicate a sharp change in direction by the U.S., in particular, and which have significant implications for investors and business. The governments explicitly recognised the threat of climate change to financial stability, pledged to embed climate change and biodiversity loss into decision-making, and to green the financial system. This included a commitment that central banks will take climate risks into account, and support for “a baseline global reporting standard for sustainability”, which companies and investors have been calling for over a number of years.
Antonio Guterres has urged insurers to stop underwriting fossil fuel projects. (Credit: Andrew Kelly/Reuters)
In the U.S., a new executive order paves the way to make companies disclose their climate risks, while in the UK, the government launched plans for its own green taxonomy, following the launch of the EU’s initiative, and plans to make large pension funds report in line with the guidelines of the Taskforce for Climate-related Financial Disclosures.
The announcements followed a call from more than 450 investors with $41tn of assets for governments to increase their climate ambitions and implement meaningful policies, including making climate disclosures mandatory for all companies.
Insurers in the crosshairs
UN Secretary-General Antonio Guterres called on insurance companies to stop underwriting and investing in fossil fuel projects, telling an industry summit: “We need net-zero commitments to cover your underwriting portfolios, and this should include the underwriting of coal and all fossil fuels. COP26 must signal the end of coal.”
Finance watchdog ShareAction highlighted the fact that, despite their supposed expertise in managing risk, insurers’ management of systemic risks such as climate change lags significantly behind other financial sectors. Almost half of insurers it looked at received the lowest rating – an E – with U.S. companies performing poorest of all. Four-fifths of U.S. insurers scored the lowest ranking, compared with just over half in Asia and fewer than a quarter in Europe.
Bill McKibben, co-founder of 350.org, called attention to the paradox: “The insurance industry is the single most annoying part of this whole climate puzzle: they possess all the data about what global warming is doing to our Earth, and yet they keep underwriting the industry that drives the damage.”
Just 16% of the assessed insurers have policies to restrict underwriting of oil sands, shale oil or Arctic oil exploration, only 13% have a policy to exclude investment in companies that are knowingly in breach of human and labour rights, and none has set any biodiversity targets, such as those relating to deforestation, hazardous waste or water use, across their portfolio.
And yet when they do act, they can have a real impact: BMD Group admitted in June that it had been unable to obtain insurance for its work on the controversial Adani coal mine in Australia.
Following Guterres’ speech, a number of major Korean insurers announced they would no longer cover the construction and operation of new coal projects, while Lloyd’s of London syndicate Argo said it would cut ties with the Trans Mountain pipeline, which carries oil from Canada’s Alberta production heartland to the coast of British Columbia, when its current policy expires at the end of August.
In the wake of a number of successful shareholder resolutions in May, particularly at oil and gas groups, HSBC adopted a resolution calling on the bank to stop financing coal in the OECD by 2030 and globally by 2040. Chevron followed other U.S. oil companies in seeing a majority of voters back a resolution calling on it to reduce all its emissions.
Shareholders have now turned their attention to airlines, and won similar victories at the AGMs of United and Delta Airlines. The latter was asked to explain how its climate lobbying aligns with the goals of the Paris Agreement. “Corporations have a significant impact on climate policy, directly and through their trade associations. This string of majority votes is strong recognition by investors that these efforts must be fully aligned with the ‘well below 2 degrees’ goal of the Paris Agreement,” said Adam Kanzer, head of stewardship at BNP Paribas Asset Management, which filed the Delta proposal. Investor expectations that climate lobbying be Paris-aligned is now becoming the norm, he added.
The number of investors supporting CDP’s Non-Disclosure Campaign increased by 56% from 2020
One of the largest U.S. retailers, Target, committed to cut its use of virgin plastics in its own brands by a fifth by 2025 in reaction to a resolution at its May annual meeting by activist investor As You Sow, which has also secured pledges from PepsiCo and Walmart to cut their plastic use, too.
A campaign to get companies that don’t currently disclose their climate risks to do so has also stepped up a gear. The number of investors supporting CDP’s Non-Disclosure Campaign increased by 56% from 2020. They targeted 29% more companies to report on what they are doing to address themes of climate change, forests and water security, including Amazon, Facebook, Netflix, Alibaba, Rio Tinto and Roche.
The courts are getting in on the act as well. A Dutch court ruled that Royal Dutch Shell is liable for damaging the climate and must cut its emissions by 45% by 2030, a sharp increase from its own targets. While the company announced plans to appeal, it also pledged to “rise to the challenge” and increase its emissions reduction ambitions.
The Dutch case is likely to embolden pressure groups around the world to bring cases against other fossil fuel companies in other markets.
A group of lenders have teamed up to encourage climate action in the steel sector. (Credit: Fabian Bimmer/Reuters)
A group of banks that are leading lenders to the steel industry have teamed up to encourage climate action in the steel sector. The Steel Climate-Aligned Finance Working Group, comprising ING, Citi, SocGen, Goldman Sachs and Standard Chartered, is to draft a climate-aligned finance agreement for the sector, to set global best practices for lenders to the industry, which is responsible for 7% of global emissions.
Steel is one of the sectors being targeted by a new research initiative, Industry Tracker, launched by the team behind Carbon Tracker and Planet Tracker. The scheme will provide research on industrial sectors that are critical to the global economy but also high emitters where emissions cuts will be crucial to meeting net-zero targets. As well as steel, it will highlight opportunities in cement and chemicals, as well as capital goods, technology, health and others, looking at the largest companies and their value chains.
A new Carbon Tracker report said even oil and gas companies with the strongest targets to curb emissions, such as Eni, BP and Shell, rely on metrics to curb energy intensity rather than absolute emissions, and “technologies like carbon capture that are unproven at scale or require tree planting over vast areas”.
Biodiversity’s finance gap
The last month has seen the launch of a number of new tools to address biodiversity risk, a nascent sector that is growing in importance. The biggest development was the
launch of the Taskforce on Nature-related Financial Disclosures (TNFD) to help business assess nature-related risks and opportunities.
The taskforce says that more than half of the world’s economic output –$44tn of economic value generation – is moderately or highly dependent on nature and that investment in nature-based solutions could generate up to $10.1tn in annual business value, and create 395m jobs by 2030.
Companies and investors are still unsure what the opportunities and risks are, though, so they need tools to help them navigate this emerging field.
The UN-backed ENCORE biodiversity module allows financial institutions to explore to what extent their financial portfolio indirectly drives species extinction risk and impacts ecological integrity. It focuses on mining and agriculture, and includes guidance for engaging with companies.
Turtle doves are among the cropland species whose numbers are falling. (Credit: Frantisek Hromada/Shutterstock)
Analysis suggests that half of the mining sector’s potential to reduce species extinction risk lies with just over 2% of the world’s mines, while over 60% of the global potential for reducing species extinction risk across all land area falls within cropland.
A new Market Review of Nature-Based Solutions, from Green Purposes Company and Finance Earth, maps where private capital is being used to support nature-based solutions business models. The review says that $854bn a year must flow to biodiversity conservation financing by 2030 to safeguard the natural environment, but there is currently a $700bn a year financing gap.
“The market requires further intervention and policies in place to support the transition of the financial markets to meet the new government net-zero targets,” the report says, adding that there are opportunities in commercially mature sectors such as forestry and agriculture as well as emerging, high impact solutions such as marine/coastal conservation, peatland restoration and species protection.
And BNP Paribas Asset Management has joined forces with CDP to develop a set of common biodiversity reporting metrics for companies to help investors and companies measure progress on protecting nature. The investor has also launched an Ecosystem Restoration fund “offering exposure to companies engaged in the restoration and preservation of global ecosystems and natural capital”.
This article is part of the July issue of the Sustainable Business Review. See also:Antonio Guterres Aviva Investors ethical investing fossil fuels UK green taxonomy TCFD TCND COP26 ShareAction As You Sow Royal Dutch Shell steel industry biodiversity loss