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

Carbon Markets can Move the Needle

Improvements in technology and measurement are showing that forest conservation projects do work – and should be accelerated, says Antoine Rostand, Co-founder of Kayrros.

The voluntary carbon market continues to divide opinion. Just recently, the Science Based Targets initiative (SBTi) provoked a backlash – including from within the organisation itself – when it revised its Corporate Net Zero Standard to let companies use environmental attribute certificates, including carbon offsetting schemes. A group that claimed to speak for the “overwhelming majority” of SBTi staff said they were “deeply concerned’ by the move”. SBTi later appeared to backtrack, saying that there were “no changes” to its standards and a formal draft of rules on carbon offsetting would be presented in July.

The strength of the reaction shows how polarised – a now-familiar term – the conversation has become. This does no one any good: we’re all conscripts in the battle to prevent the climate crisis spiralling out of control. Taking swipes at each other merely wastes precious time. We need to find a way to direct the flow of money from those who have a lot of it to those who have much less, and who are, by virtue of where they live, charged with protecting resources on which we all depend.

The climate finance gap – the difference between the amount of funding allocated for climate-related activities and the amount actually needed to effectively address climate change – stood, as of late 2022, at US$2.61 trillion a year. According to BloombergNEF’s ‘Long-Term Carbon Offsets Outlook 2024’ report, carbon credits could reach US$238 per tonne in 2050, and the market could be worth US$1.1 trillion annually by the same year.

Support for the green transition

The world cannot afford the green transition without the carbon market. This is the hard truth of the matter. The good news is that, despite the scepticism and the bad press, the carbon market does, in fact, work. In June last year, we used our Forest Carbon Monitor to assess more than 90% of the Amazon, which is the world’s largest rainforest and one of the world’s largest carbon sinks. Our analysis, which we ran by processing terabytes of satellite data with AI, showed that of 75 reviewed conservation and emissions-reduction projects funded by the carbon market, just five showed the same static deforestation rates. In other words, 96% were working.

More recent analyses have yielded similar

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