Take Five: Balance of Power

A selection of the major stories impacting ESG investors, in five easy pieces. 

A stark message in Bonn underlined the tensions between electoral cycles and long-term sustainability.  

Climate “collusion” – Republican politicians faced off against US institutional investors on Capitol Hill this week, in the latest round of the war on ‘woke’ capitalism. Having published a report claiming “bullying” of members by the investor-led Climate Action 100+ (CA100+) coalition, the House Judiciary Subcommittee on the Administrative State, Regulatory Reform, and Anti-trust heard from investor network Ceres, shareholder advocacy group As You Sow and CalPERS – the US’s largest public pension fund. Ceres CEO Mindy Lubber opened her testimony asserting: “Climate change, water scarcity and pollution, and nature loss … pose material financial risks to investment portfolios, business operations and supply chains, thus to the long-term stability of our markets and the economy.” As a member of its global steering committee, Lubber was also representing CA100+, which insisted its members “act as independent fiduciaries, responsible for their individual investment and voting decisions”. The stated purpose of the hearings was to decide whether current laws are sufficient to “deter anti-competitive collusion” to promote ESG-related goals in the investment industry. A legal memo recently secured by the US Sustainable Investment Forum found that firms and investors acting in concert on climate risks “are not violating fiduciary duty and are at negligible risk for anti-trust claims”. Even so, the hearings could be contributing to rising outflows from sustainable investment vehicles, with investor behaviour in the US diverging from elsewhere. Among the evidence cited for reduced appetite was the closure of several funds by BlackRock, some sustainability focused, others – less so, including one targeting opportunities arising from remote working. But it’s far from clear whether the world’s largest asset manager has given up on sustainable investing, given its launch this week of a series of climate transition-focused exchange-traded funds.

Slightly right – The rightward shift of the European Parliament following last week’s elections has prompted divergent views on its implications for the Green Deal that MEPs spent much of the past five years constructing. Centre- and far-right parties swelled their presence largely at the expense of the Greens and the moderate liberal Renew grouping – albeit with voting outcomes contrasting vastly across member states. There is scope for this new cohort to weaken some measures that are still being finalised, such as the

From Co-benefits to Core Benefits

Social impacts on local communities can make or break carbon sequestration projects. 

The prime purpose of voluntary carbon markets (VCMs) is to limit climate change, by allocating capital to projects that offset, remove or avoid emissions through the generation and sale of credits.  Despite controversies, VCMs are growing. A 2023 survey of businesses across the US, UK and Europe found that 89%…

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US Seeks to Boost Carbon Market Credibility

Policies and principles aim to heighten VCM participation and support investment in developing markets’ clean energy transition.

New guidelines unveiled by the US government will improve trust in the voluntary carbon market (VCM) by reinforcing the need for high integrity carbon credits, according to market participants. Three US government departments issued a Joint Statement of Policy and new Principles for Responsible Participation which outlined practices to support…

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Take Five: Bound by Destiny

A selection of the major stories impacting ESG investors, in five easy pieces. 

Public and private sector coordination provides the theme – and events of Nairobi, London and Rio de Janeiro the backdrop – for this week’s digest.

Natural allies – Just ahead of this year’s UN International Day for Biological Diversity, delegates gathered in Kenya for the first review of the implementation of the Global Biodiversity Framework (GBF) since its adoption at COP15 in December 2022. A key task during the nine-day summit is to assess how well parties’ national biodiversity strategies and action plans (NBSAPs) support the 23 targets of the GBF. For the record, just nine countries, plus the European Union, have submitted updated NBSAPs since all 196 parties committed to the framework in Montreal. “The challenge is to ensure that the global aims are translated into nationally relevant targets that consider the context and the biophysical realities of each country,” said David Cooper, Acting Executive Secretary of the UN Convention on Biological Diversity. Delegates will also discuss the means of implementing the GBF, including capacity-building, technical and scientific cooperation, and resource mobilisation – the last of these being the trickiest given an estimated annual biodiversity finance gap of US$700 billion. Investors will be paying close attention to progress on the GBF’s fourth over-arching goal, the alignment of financial flows. According to a recent blog by Emine Isciel, Co-chair of the Finance for Biodiversity Foundation, a critical factor will be reducing existing harmful financial flows. As well as robust private-sector disclosures, via standards such as those outlined by the Taskforce on Nature-related Financial Disclosures, this requires public policy reforms to redirect US$542 billion in annual agricultural, fishing and forestry subsidies that damage nature, while also misdirecting private investment. “By fostering innovations, aligning incentives and setting clear boundaries, [finance ministers] can steer sectoral pathways towards reducing negative impacts, increasing positive impacts and catalysing private finance at scale,” she said.

Two figs – Alignment of finance flows with nature goals was also front of mind at the City Week event in London, with Karen Ellis, Chief Economist of the World Wide Fund for Nature UK, flagging two areas of opportunity. To avoid the nascent market for biodiversity credits making the same mistakes as the voluntary carbon markets, she said, governments could grasp the chance to create compliance markets. These could link the supply of financial incentives to the private

Listen to the Science

As the fallout continues over the Science Based Targets initiative’s approach to offsets, questions arise over the net zero target-setting landscape for corporates. 

In 2024, the number of listed companies with a climate commitment validated by the Science Based Targets initiative (SBTi) jumped to 20% from just 12% in 2023. In 2020, a mere 1% of listed companies had a decarbonisation target validated by the organisation.

According to SBTI’s website, the number of companies and financial institutions setting greenhouse gas (GHG) reduction targets and having them validated doubled to 4,204 by the end of 2023 from 2,079 in 2022.

This steep growth marks SBTi as a focal point of corporate climate action, said Guy Turner, Head of Carbon Markets at MSCI. “It holds a significant cachet among companies,” he explained.

But SBTi’s status as the gold standard for companies serious about decarbonising in line with the Paris Agreement took a serious hit last month after a highly public spat between staff and executives.

On 9 April, SBTi’s board of trustees released a public statement  announcing a consultation on allowing validated companies to use carbon credits to offset their Scope 3 emissions. Mere hours later, SBTi staff and advisors fired off a letter to management, calling for the statement to be withdrawn and for the resignation of CEO Luiz Fernando Do Amaral and any board members who supported the decision.

The incident reheats the long-running debate on whether credits are a credible way for companies to reduce their carbon emissions. But it also raises questions about whether organisations are fit to assess and accredit the decarbonisation strategies of corporates.

Cottage industry

MSCI’s Turner addressed this issue in a LinkedIn post that went viral, arguing that while NGOs have played a critical role in the creation of global decarbonisation frameworks and benchmarks to date, an update to their modus operandi was needed, given high stakes measured in degrees of global warming and investment dollars.

Using the voluntary carbon markets (VCMs) as an example, he noted that what used to be a cottage industry is now in the mainstream. Billions of dollars are dependent on decisions made by its ecosystem of verification bodies and carbon credit sellers. “I don’t think the organisations have grown up in line with the decisions they are making.”

SBTi, a UK-registered charity, is a collaboration between the UN Global Compact and NGOs CDP, World Resources Institute and the