Breaking: The White House has acknowledged climate change is an increasing systemic financial risk. This morning, the Biden administration unveiled a strategy to “measure, disclose, manage and mitigate the systemic risks climate change poses” to the economy. The White House also touted its efforts already under way to combat global warming. These included the labour department’s proposal this week to open up retirement savings plans for environmental, social and governance (ESG) funds.
The full details are available here.
Now on to the rest of our newsletter.
At the FT’s Mining Summit this month, BHP chief executive Mike Henry boasted that the world’s biggest mining group had a “really ambitious” plan to reduce its enormous carbon footprint. This week, BHP shareholders had a chance to give their verdict.
At the company’s annual general meeting for London investors yesterday, 83 per cent of shareholders voted in favour of the plan — despite public advice from investor advisory firm Glass Lewis to reject it. BHP, which is listed in both London and Sydney, has promised to eliminate net carbon emissions from its own operations and its direct suppliers by 2050. But it plans to continue providing coal to steelmakers, infuriating critics such as the Australasian Centre for Corporate Responsibility.
“Institutional investors have proven that they are easily cowed by big companies like BHP and they’re unwilling to force them to adhere to the Paris agreement,” said Dan Gocher, ACCR’s director of climate and environment. BHP plans to spend more than $2bn on oil and gas development in the current financial year, and has outlined plans to keep mining coal well into the 2050s.
Some other companies have been getting more favourable press this week — notably Tesla, which ranked as a top performer among companies pushing for better government climate policies. Keep reading for more on that, as well as on humanity’s inability to stop destroying species in their thousands.
The other COP you might not have heard about
In late 2010 delegates from every nation on earth, except the US and the Vatican, gathered in Nagoya, Japan, and signed what was billed as a historic agreement.
In the pact, known as the Aichi Declaration, global governments promised to put an overdue end to humanity’s destruction of natural habitats. The agreement laid down 20 far-reaching targets to be reached within a decade: all fish would be harvested sustainably, for example, and the extinction of species would be halted.
Precisely none of those targets had been reached when the deadline passed last year. According to the UN, the planet’s extinction rate is accelerating, with about 1m animal and plant species now threatened with annihilation. So it’s no surprise that there were low expectations for the Convention on Biological Diversity’s COP15 conference when it kicked off in the Chinese city of Kunming this week.
“The ambition is super-low and we’re pessimistic this will end up with a good agreement for nature,” Patricia Zurita, the Ecuadorean head of the 2.5m-member, century-old conservation group BirdLife International, told me on the eve of the conference.
The delegates — which still don’t include the US, where Republican opposition has blocked full membership — did, however, produce the five-page “Kunming Declaration”, with a promise to put “biodiversity on a path to recovery by 2030 at the latest” (those tracking China’s rising influence on multilateral institutions will have noted that the declaration’s subtitle trumpets “Ecological Civilisation” — a signature slogan of President Xi Jinping).
The declaration included little in the way of hard targets, and it’s far from clear that any will come from the follow-up negotiations next spring. It’s striking, meanwhile, how little attention this COP has garnered compared with the hotly anticipated COP26 on climate action, which kicks off in Glasgow on November 1.
The much-needed focus on climate change must not crowd out action on the world’s biodiversity crisis, Zurita told me. With the support of the Asian Development Bank and former US Treasury secretary Hank Paulson, her organisation this week launched a programme to raise $3bn to protect bird habitats from Siberia to New Zealand — many of which protect human communities against storm surges and flooding.
Zurita and Paulson hope it could prove a model for other conservation programmes. But in the absence of serious intergovernmental action, such initiatives offer rare glimmers of hope amid the disaster overtaking huge swaths of the natural world. (Simon Mundy)
Tesla scores an ‘A’ for environmental lobbying
Beloved and despised, there is sparse middle ground in public opinion for Tesla chief executive Elon Musk.
Despite the f-bombs, an SEC settlement and concerns about workplace safety all raining down on Musk, Tesla remains a star among global corporations that lobby for ambitious climate change policies, according to InfluenceMap, a London-based pressure group. Earlier today, InfluenceMap published its first comprehensive update in three years of the “A-list” companies leading the push to get governments to do more on climate change.
Only a handful of companies made both InfluenceMap’s 2018 and 2021 A-list, and Tesla was one of them. The electric vehicle maker won applause for its support of litigation that would reinstate Obama-era penalties for breaking fuel mileage standards. Musk has also backed a carbon tax.
InfluenceMap’s ranking covers only climate lobbying, so concerns about Tesla’s workplace safety are not considered. Tesla is “controversial” but “they consistently come out in support of electric vehicle policies and decarbonisation” with aggressiveness that is unique compared with its competitors, Kendra Haven, a director at InfluenceMap, told Moral Money. Tesla was the only car company to make the A-list.
Few US companies make the A-list because most American groups have strong ties to lobbying groups, such as the Chamber of Commerce and National Association of Manufacturers, which “remain largely opposed to climate policy”, InfluenceMap said.
Corporate membership in trade associations is gradually making its way into the conversation about ESG financial risks. This year, French oil major Total cut ties with the American Petroleum Institute, Big Oil’s powerful Washington lobby group, following pressure from shareholders.
We have heard from consultants and lawyers that some companies are looking for ideas about how to raise their ESG game before the next annual general meeting. Lobbying groups might find themselves increasingly vulnerable if more companies become confident that they can walk away to score ESG points. (Patrick Temple-West)
TCFD ramps up pay scrutiny
The Task Force on Climate-Related Financial Disclosures yesterday published a status update highlighting the increase in companies using its framework for climate disclosures, and where improvements can be made.
Materials and buildings companies lead on TCFD-aligned disclosures. The insurance industry significantly increased its disclosures and now leads all business sectors in publishing climate risk management processes, TCFD said.
Additionally, TCFD highlighted seven categories where climate-related risks and opportunities are increasingly important. These include physical and transition risks, but one area particularly stood out: executive pay.
Moral Money has written before about companies tying executive bonuses to environmental, social and governance criteria. And remuneration has been a reporting standard for TCFD, but now “we have elevated it”, Mary Schapiro, head of the TCFD secretariat, told us on a video call.
TCFD highlighted a few examples of companies that already disclose how climate progress is linked to bonuses. Barclays, for example, tied up to 10 per cent of its chief executive’s bonus to progress towards a goal of net zero carbon emissions by 2050.
“The idea is that when people are compensated for results in specific areas it focuses the mind,” Schapiro said. (Patrick Temple-West)
Bridgewater turns its attention to carbon markets
When that hedge fund behemoth known as Bridgewater jumps, others often follow. So it is striking that the Connecticut-based group, which has made oodles of cash by tracking issues such as gross domestic product and debt, has just seen fit to issue its first in-depth report to clients on carbon markets.
This report argues that investors need to take carbon prices seriously if they hope to make sense of future financial flows. The reason? One is that “the carbon price will over time become an essential input to economic activity . . . just as oil, gas, coal, and other commodities are common input costs today that reflect how growth and inflation are evolving”.
The other is that “we expect that over time carbon markets will become large and liquid enough that global investors will want to understand and participate in them, much as oil is tracked and traded globally”.
Of course, this is old news for asset managers in Europe (as Bridgewater itself points out). But it will be closely watched on Wall Street. (Gillian Tett)
Chart of the day
New pledges for COP26 fall far short of the net zero target to limit global warming to 1.5C, the IEA World Energy Outlook found this week. Our colleague, Tom Wilson, wrote about the IEA’s outlook, warning that spending on clean energy must triple to curb climate change.
The UN’s COP26 conference convenes in early November. As we look ahead to this highly anticipated event in Glasgow, here are some reports we’re reading.
Bank of America analysts have put the cost to “save our planet” at a “mind-boggling” $5tn annually for the next 30 years. In one decade, that amounts to more than the US tax base and three times more than the Covid-19 stimulus bill, the bank said.
UCL research published yesterday found that the UK manufacturing industry needs urgent financing to reach net zero by 2050.
An HSBC report has found the COP26 host nation’s net zero plan is “lean on the public financing side”. Just 25 per cent of the UK’s investment plan to be net zero by 2050 (including a 78 per cent reduction in emissions by 2035) comes from public sources. In comparison, more than 50 per cent of the EU’s Green Deal is sourced from the EU budget.
Moral Money readers consistently prove to be a wealth of knowledge. Today we want to share something that reader Michael Palmer shared with us on the history of socially responsible business in response to our interview with Bernard Sabrier:
“The following statement from Sabrier caught my eye: ‘It’s all new, it’s all exciting, and it’s all good.’
I suspect those who have been labouring in the socially responsible business vineyard for over 50 years (more than 100, if you count the precursors in the business ethics movement) would be surprised to learn that ‘it’s all new.’ (See Edgar Heermance’s Codes of Ethics: A Handbook published in 1924 or William C Frederick’s Corporation, Be Good! from 2006). Frederick traces the history of the movement for socially responsible businesses back more than 50 years. Organisations such as the Committee of Sponsoring Organizations of the Treadway Commission have been doing their part for more than three decades . . .
I mention this history because much of the business and finance world appears to operate as if there were no history. All of a sudden, ESG just popped on the stage. Lack of familiarity with history is highly limiting.”
Ngozi Okonjo-Iweala: Adopting a global carbon price is essential (FT)
Luxury fashion must ditch leather to be truly ethical (FT)
Biden paves way for ESG retirement funds in reversal from Trump (FT)
Etihad raises $1.2bn in sustainability-linked debt (Reuters)
‘Patience could run out’: Mongolia warns Rio over copper mine (AFR)