Chasing Sunshine

While summertime comes to a close and a few people still shoot away for a short break, politically, the UK is tightening the reins on 'ESG'. From a grand perspective, a Republican president would threaten the IRA, and the details regarding China's Renewable Energy target achievements are explored further.

Also, the SEC defends its position, and SBTi is backtracking... surprise surprise.

Environmental

China Hit's Goal 6 Years Early

China has just achieved its 2030 renewable energy goal - Xi Jinping's target of 1,200 GW of window and solar energy generation by the decade's end.

Due to the pressures from COVID regarding energy distribution and importation, providing alternatives that are within its own control has been a big driver for upscaling here. Additionally, China has invested billions in its grid infrastructure to support the increasing electricity requirements and capacities.

Further, the nationwide Country Rooftop program has driven immense progress in subsidies and installation costs for providing a direct-to-source option for the community.

Ahead of the vast majority of the world, China continues to be able to roll out mass scalable green developments according to its economic pathway forward. It has to be admired how this has been handled alongside the subsidies and governmental support provided.

Governance

Donal Trump Doesn't Like EVs

The former president is considering imposing new tariffs on cars made in Mexico by US automakers and is also considering allowing Chinese automakers to build factories in the US. In the meantime, however, he is considering ending the $7,500 EV tax credit if elected due to 'inefficiency'.

Further, he has promised to eliminate the EPA rules limiting power plant pollution and increasing the use of nuclear reactors. The Project 2025 proposal advocates for dismantling the EPA and its climate regulations, reopening the Arctic National Wildlife Refuge for drilling, and defunding the transition to renewable energy across the country.

Proposing further still the removal of all reference to climate change from government discourse.

Australia Joining the Party

The Australian Senate passed a bill mandating climate reporting for large and medium-sized companies, pushing towards a new climate disclosure framework.

There is significant alignment with international standards requiring companies to disclose climate-related risks, opportunities and GHG emissions. Reporting is set to begin in 2025 for large companies, with phased implementation for medium and smaller firms.

The Australian Accounting Standards Board and Auditing and Assurance Boards are still finalising these standards.

SEC Begins its Defence

At the beginning of the month, the SEC began defending its climate reporting rule in court. In the Eighth Circuit, the SEC pushed the view and reinstated that "climate-related risks and a company's response to those risks can significantly affect a company's financial performance and position."

These rules were released in March and immediately met strong opposition across the U.S., facing a series of legal challenges, including up to 9 petitions in 10 days.

Time will tell here.

On the one side, the SEC argues for the need for more detailed, consistent, and comparable information and substantial investor demand.

Opposition cites that the requirements are too onerous and expensive for companies to implement, that the information requested, including GHG emissions data, could be more reliable and less speculative, and that they exceed the SEC's authority.

Corporate

BlackRock Pull Back

The world's largest Asset manager has further reduced its support for Environmental and Social shareholder resolutions to 4.1%, down from 6.7% in 2023, a far cry from its 47% support in 2020-2021.

Despite an increase in the number of such proposals, BlackRock cited reasons such as proposals needing to be broader, have more economic merit, or be more varied, as companies already addressed the risks internally.

SBTi Backtrack

One of the world's critical target-setting agencies in alignment with corporate actions against environmental sustainability actions - has released new research papers, highlighting studies that suggested that “various types of carbon credits are ineffective in delivering their intended mitigation outcomes.”

Addressing the theme that carbon credits could help increase climate mitigation finance, the SBTi highlighted findings pointing to “clear risks to corporate use of carbon credits to offset,” adding that it could have “the potential unintended effect of hindering the net-zero transformation and reducing climate finance.”

It's not surprising that SBTi has now backtracked on its statements surrounding the inclusion of carbon credits as a legitimate for firms to manage their carbon exposure. This move resulted in the CEO resigning and the board being severely criticised.

Be prepared for more shuffling, public perception challenges, and the resulting changes here.

Goldman Exit

GSAM has ended its participation in the Climate Action 100+ investor network - which prioritises engaging with companies to reduce their GHG emissions and provide climate transition plans.

Last year, a group of U.S. Republicans sent letters?to large asset managers warning that participation in groups such as Climate Action 100+ raised concerns about investors’ adherence to fiduciary duties and compliance with antitrust rules.

This departure follows exits from other asset managers, such as JPAM, State Street, PIMCO and Invesco.

With the heavy political emphasis moving from ESG to any form of climate initiative or consideration now, expect this to be common. Firms must protect their capital inflow and investors to maintain their operations.

Opinion

Summer 2024 will undoubtedly go down in the record books as one of the most defensive and unsurprisingly exit-orientated firms will experience.. and it's not likely to stop here.

Large-scale reporting requirements are hampering European firms in terms of the costs associated with simply complying with these new requirements, the legal and monetary constraints if they don't, and the additional workloads required. Firms have been pushing back against the new legislation, such as CSRD.

Coupled with anything environmentally considered, not to mention ESG-related in the U.S. becoming political dynamite with large-scale implementations under constant pressure and criticism from groups, the Sustainability environment in the U.S. has several years to go before clarity can even be foreseen to be established.

A lack of clarity in the U.K., even with the new announcements from the Labour government, poses questions to practitioners that we don't have the answers to yet. While waiting for frameworks, disclosures, and even simple best practices to be acknowledged, the environment doesn't breed an environment of Sustainable Investment certainty.

While people have been away for the summer, ESG and broader Sustainability have come under serious criticism and need to be justified. How do we implement it against how to integrate it throughout the financial world, and to what degree, are keeping more than a few investors speculative at best?