A Principled Stance

Chris Skidmore, former MP and author of the net zero review, talks about what the next UK government should do to get the country’s net zero commitments back on track.

 “I cannot vote for the [Offshore Petroleum Licensing] bill next week. The future will judge harshly those who do. At a time when we should be committing to more climate action, we simply do not have any more time to waste promoting the future production of fossil fuels, which is…

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Take Five: Modi Feels the Heat

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

Climate wasn’t high on the ballot in India’s election, but Modi must soon face uncomfortable truths on coal.

Modi feels the heat – Conducted in record temperatures, the world’s biggest exercise in democracy dealt a blow to the ego of incumbent Prime Minister Narendra Modi, but it’s less clear how the outcome of India’s general election will impact its net zero transition. Stock prices were down this week on the assumption that reliance on coalition partners would slow the pace of the infrastructure investment plans of Modi’s ruling Bharatiya Janata Party (BJP). The impact of the election on India’s climate policy might be less significant, for a number of reasons. First, other priorities regularly topped polls of voter concerns, notably inflation and unemployment, although this has evolved recently, partly due to increased instances of climate-induced physical impacts, from landslides to floods to severe crop losses. Second, both the BJP and its leading opponent, Congress, are strongly committed to India’s continued adoption of renewables, albeit via different means – with the challenger party promising in its manifesto a new green transition fund and more resources for India’s National Adaptation Fund. A third reason, which leads on from the first two, is that neither major party has been forced to properly address India’s biggest climate problem – vast and rising emissions from coal. Indeed, current policy is for domestic production to increase up to 2040 to reduce reliance on imports. Coal – and Modi’s close relationships with the controversial Adani Group – notwithstanding, the BJP’s record on solar and hydrogen investments, and fossil fuel subsidy reductions is impressive. But regardless of the make-up of the coalition, India’s next government will need to up the ante to have a hope of meeting even its existing climate commitments, such as installing 500GW of renewables, which will handle 50% of electricity demand, by 2030.

Down, not out – Support for climate-related resolutions at the AGMs of US firms has been closely watched this proxy season for further signs of a “stewardship depression” witnessed since 2021. But climate votes only tell part of the story, with a high number of social-themed filings also vying for investor backing. These include four shareholder proposals seeking more action and transparency on pay, working conditions and racial equity by Walmart, the world’s largest private employer. Prior to

Agility Paramount to Net Zero Investing – CFA Institute

Divergence in views on universal ownership as investment professionals align on data concerns. 

A flexible mindset and systems thinking is paramount for investors looking to align their investment strategies with a net zero future, industry thought leaders have determined.   New research published by the CFA Institute Research and Policy Center, which draws on insights from 20 investment industry experts, has outlined the strategic…

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Take Five: Twin Peaks

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

Developed countries have belatedly reached a target for climate finance, only to be set a new one for nature.

Ten years after – It might have taken them a little more than a decade, but at last they got there. Developed nations mobilised US$115.9 billion of climate finance for developing countries in 2022, it was revealed this week, exceeding for the first time the US$100 billion annual level set in Copenhagen in 2009. According to the Organisation for Economic Co-operation and Development (OECD), last year saw a record 30% annual rise in climate finance, meaning the target – originally unveiled at COP 15 – was reached two years late. The total includes more than US$20 billion in attributable private finance, as well as bilateral and multilateral public sector funding, plus export credits. Importantly, adaptation finance accounted for US$32.4 billion of the total – three times the 2016 level. Discussions on a New Collective Quantified Goal (NCQG) on climate finance for the post-2025 period, which made little progress at COP28, should progress next week’s Bonn Climate Conference, where the agenda will also include carbon credits, adaptation finance and the Global Stocktake, ahead of COP29. In anticipation of the NCQG, the OECD released an analysis recommending use of public sector interventions to directly or indirectly finance climate action. But measures to support the goals of the Paris Agreement must now sit alongside those needed to realise the objectives of the Global Biodiversity Framework (GBF). At a Nairobi summit that concluded yesterday, the UN Convention on Biological Diversity called for investments of at least US$200 billion a year from all sources, and for reform of US$500 billion in harmful subsidies to achieve the GBF’s Goal D: invest and collaborate for nature. These and other recommendations will be discussed at COP16 in Colombia in October.

Gap analysis – A lack of progress on gender equality in the workplace has been underlined by the International Labour Organization (ILO) in a report reflecting fewer jobs and lower pay for women, especially in low-income countries. According to an update to the ILO’s annual World Employment and Social Outlook, the ‘jobs gap’ – which measures the number of persons without a job but who want to work – stands at 22.8% for women in low-income countries, versus 15.3% for men. This contrasts with a gap

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

IoT is Driving Sustainable Battery Surge

Dorian Maillard, Vice President at DAI Magister, explains the challenges and opportunities facing the growing market in efficient, eco-friendly power solutions.

In the expansive landscape of the Internet of Things (IoT), the quest for sustainable power solutions has emerged as a pivotal challenge. With the IoT market forecasted to surpass US$1.6 trillion by 2025, the demand for efficient power solutions has become increasingly pressing. However, the reliance on traditional batteries poses significant environmental and logistical hurdles, driving the imperative for sustainable alternatives.

The IoT market’s exponential growth, fuelled by advancements in connectivity, sensor technologies and data analytics, underscores the critical importance of sustainable power solutions. With over 75 billion connected devices projected to be in operation within the next decade, the reliance on conventional batteries is unsustainable in the long run. The proliferation of IoT devices, ranging from smart home gadgets to industrial sensors, has led to an unprecedented surge in battery consumption. The sheer number of batteries being utilised not only presents challenges in terms of resource depletion but also raises concerns about the environmental impact of battery disposal.

Rising demand for alternatives

Certain sectors within the IoT industry stand out as particularly in need of alternative battery solutions. For instance, industries such as healthcare, where continuous monitoring devices are extensively used, require reliable and long-lasting power sources to ensure uninterrupted operation. Moreover, in industrial settings, where sensors and monitoring devices are deployed in harsh environments and remote locations, sustainable battery alternatives can reduce maintenance costs and enhance operational efficiency. Additionally, in the realm of smart agriculture, where IoT devices are employed for precision farming and environmental monitoring, sustainable power solutions are essential to enable data-driven decision-making and optimise resource utilisation.

Despite efforts to recycle batteries, the process remains inefficient and often results in hazardous waste. Improper disposal of batteries can lead to soil and water contamination, posing risks to ecosystems and human health. In addition, the reliance on finite and environmentally damaging resources, such as lithium and cobalt, further exacerbates the sustainability issue. As the global demand for batteries continues to escalate, concerns over resource depletion, environmental degradation and geopolitical tensions surrounding resource extraction intensify.

The transition to sustainable battery alternatives is not only a matter of environmental responsibility but also a strategic imperative for ensuring the long-term viability of IoT deployments. By reducing reliance on conventional batteries, organisations can mitigate environmental risks, enhance operational efficiency, and contribute

Net Zero is Bringing Business Back to Britain

Graham Upton, Chief Architect – Intelligent Industry, Capgemini UK, explains how climate goals are driving UK firms to reindustrialise.

The UK has recently been accused of watering down its net zero ambitions, with a report from the Climate Change Committee suggesting that the UK is on course to miss meeting the pledges it made at COP28.

Despite this, new data indicates UK businesses are taking decarbonisation efforts seriously, increasingly bringing their manufacturing back home to shorten supply chains and cut emissions. According to a new report by the Capgemini Research Institute, UK organisations are investing £338.5 billion into reindustrialisation over the next three years, an increase of £57.8 billion on the previous three years.

Sustainability is a driver of reindustrialisation

Reindustrialisation, or the act of moving manufacturing operations closer to home, is emerging as a key strategy to decrease a company’s greenhouse gas (GHG) emissions. Responsible for 54% of the world’s energy consumption, manufacturing has a massive carbon footprint, and is a key concern for any business considering how they can balance economic growth with a responsibility to work towards net zero.

Ensuring that a business has a strong ESG strategy adherence is also attractive to investors. Companies committed to ESG are often at less risk of exposure to accidents or lawsuits, and so offer better returns. Data from credit ratings agency and index provider Standard & Poor’s show that its ESG index has outpaced the S&P 500 in recent years.

As UK manufacturing has shrunk over the past 50 years, the proportion of emissions produced beyond its borders has ballooned. Today, around half of the UK’s carbon footprint is found abroad. However, companies are now increasingly aware of their indirect Scope 2 and 3 emissions, both because of increased corporate social responsibility, and because the regulatory environment grows more stringent. For example, UK companies trading in the US and the EU now need to comply with regulations like the EU’s Corporate Sustainability Due Diligence Directive, its Circular Economy Action Plan, and the US’s Uyghur Forced Labor Prevention Act.

As a result of this and other concerns about supply chain resiliency and geopolitics, 78% of UK execs have a reindustrialisation strategy or are currently developing their strategies, and around two thirds are banking on reindustrialisation to help their organisation meet its climate ambitions in the next three years. According to our data, reindustrialisation is expected to drive on average

Countdown to 2025

Bert Kramer, Head of Climate Research at Ortec Finance, says we cannot discount the possibility of a transition-related financial crisis.

As the clock ticks down from the 2015 Paris Agreement, there is growing uncertainty that on our current trajectory the world is going to meet the stated goal to be net zero by 2050. As this target approaches and governments around the world come under increasing pressure to implement policy and other measures to reach it, the likelihood of a smooth, orderly transition to a low-carbon economy diminishes. Experience tells us that financial markets rarely react well to sudden shocks or forced changes.

Losses from stranded fossil fuel assets could result in a US$2.5 trillion loss in financial wealth. This represents some 2.5% of global stock market capitalisation. While this may not seem a significant figure, it is worth bearing in mind that subprime mortgages that started the 2008 Global Financial Crisis were worth less than US$0.5 trillion.

Identifying trigger points for such events ahead of time is inherently difficult, but there are a couple coming up that warrant further attention as they have the potential to catalyse a financial crisis. The submission of new nationally determined contributions (NDCs) by countries in time for COP30 next year is one and the forthcoming interim review of decarbonisation targets by some of the major investor groupings, such as the UN-convened Net Zero Asset Owner Alliance (NZAOA), is another.

Forecast overshoot

A key component of the Paris Agreement, NDCs are submitted every five years. They outline each signatory country’s plans to decarbonise their respective economies including a set of intermediate targets and the steps to reach net zero, which include the all-important policy action required to enforce compliance. The intention is that targets become more ambitious each time they are submitted.

The problem with the current set of NDCs is that they are not ambitious enough to limit global warming to below 1.5 or even 2° Celsius by 2100 and the current policy framework isn’t adequate to enforce them. According to the latest Carbon Action Tracker report, under the current NDCs a temperature increase of 2.5° Celsius by the end of the century is considered most likely with 2.1° Celsius regarded as being an optimistic outcome if all current and long-term commitments are adhered to. This forecast overshoot of the 2100 goal is likely to mount further pressure on governments to make next

Taxonomies are not Instruments of Industrial Policy

Christina Ng, Managing Director of the Energy Shift Institute says Asia’s transition finance complications could harm its climate goals.

Is transition finance an attempt to extend the spectrum of green finance? Or is it a covert means of financing non-green activities, which have had limited opportunity in gaining access to sustainability-conscious investors?

This phenomenon appears to be occurring in Asian markets.

And nowhere is this more apparent than in the realm of national financing frameworks, where the drive to foster economic growth is so strong that it can be pursued at the expense of transitioning to a genuinely green and sustainable energy future.

Recent developments underscore this troubling trend.

For example, Indonesia’s revamped Sustainable Finance Taxonomy incorporates certain new and existing coal-fired power plants as transition activities and therefore qualifies them for transition finance. The Indonesian government justifies this classification due to the role of coal power generation in processing critical minerals for electric vehicles and clean energy technologies – which aim to contribute to economic growth.

Flawed reasoning

This flawed reasoning not only perpetuates the reliance on fossil fuels but also risks alienating climate-minded foreign investors. Indonesia’s logic, if applied universally, would imply that any power plant, including fossil-fired ones, could be labelled transitional, simply because it powers the manufacturing of clean energy technologies.

Up in the northeast of the region, the government of Japan launched a Green Transformation (GX) policy. It aims to switch Japan’s fossil fuel-oriented industries to clean energy focused ones and issue sovereign transition bonds, among other instruments, to finance the GX plan. But a deeper dive reveals that the centrepiece of the government’s GX strategy is about ensuring economic growth.

This observation is also shared in a Sustainable Fitch note which found an emphasis on the term ‘competitiveness’. Specifically, the term was mentioned 15 times in the GX framework as compared to just once in Singapore’s green financing plan and not at all in India’s framework. The note goes on to say “this may explain why some of the eligible transition activities under Japan’s strategy are supportive of industry, but do not meet international green standards”. The questionable activities referred in Japan’s strategy include hydrogen, gas infrastructure, and ammonia co-firing in coal and gas power plants.

The approaches in Indonesia and Japan overlook the fundamental goal of sustainable finance – chiefly, to channel capital to activities that mitigate greenhouse gas emissions that would, in

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