Will This COP Go Pop?

A last minute proposal breathed hope into the stalled climate talks when the European Union agreed to create a “Loss and Damage” fund - a central demand of less developed countries. In exchange, the EU wants more emissions cuts in line with the 1.5-degree target in the Paris Agreement. “This would have to be a package deal,” European Commission Vice President Frans Timmermans said. The two largest climate emitters - the US and China - which have both been opposed to such a fund - have yet to respond. Dealmaking looks likely to drag into the weekend.

When last years’ climate meeting fell short of the mark, I summarized the COP process by applying Winston Churchill's quote “democracy is the worst form of government – except for all the others that have been tried.”??

But, in a week where the world population topped 8 billion people, and the COP27 meeting in Egypt may fail to deliver the agreements needed to stem climate change, perhaps the whole process needs to be rethought. With more than 100 heads of state and nearly 40,000 in attendance, failure would be a colossal missed opportunity.?

Climate activist Greta Thunberg decided to skip this COP saying “The Cops are mainly used as an opportunity for leaders and people in power to get attention, using many different kinds of greenwashing.” ?While harsh, the lack of results in the face of catastrophe signals that change is needed.

Draft COP27 Climate Deal

The first draft of the 20 page agreement released on Thursday was labeled a “non-paper” because it repeated the goal from last year's Glasgow Climate Pact "to accelerate measures towards the phase down of unabated coal power and phase out and rationalize inefficient fossil fuel subsidies" but stopped short of any real reduction agreements.

This COP meeting was dominated by the issue of "loss and damage" - a mechanism for wealthy countries to pay for the damage to countries being ravaged by climate impacts. But due to lack of agreement, the draft final text only "welcomes" the fact that the topic was taken up as part of this year's official agenda.

$20 Billion to Reduce Methane

President Biden used his cameo appearance at the meeting to announce an updated U.S. Methane Emissions Reduction Action Plan which includes more than $20 billion in new investments from the Infrastructure Law and the Inflation Reduction Act.

Key investment areas under the plan include capping orphan oil and gas wells, improving industrial equipment, and reclaiming abandoned coal mines. Reduction in methane emissions is seen as one of the most effective near-term actions that can be taken because it has 80x the warming power of CO2.

US - China Climate Talks Resume

After meeting on the sidelines of the G20 summit last weekend, Chinese President Xi Jinping agreed to resume climate talks with President Biden. This comes three months after Xi halted talks in protest of Speaker Nancy Pelosi’s trip to Taiwan. US climate envoy John Kerry confirmed formal climate talks with China have restarted at the COP27 summit in Egypt. As the world’s two biggest polluters, bilateral cooperation between the US and China is crucial if the world is to avert catastrophic climate change.

US Elections Slow Climate Action

The US midterm elections resulted in divided government that will slow but not stop the Biden climate agenda.? A string of legislative successes - including the sweeping climate measures in the so-called ‘Inflation Reduction Act,” provides unstoppable momentum for US climate action.

Republicans won a majority in the House of Representatives which will give them a platform to criticize investments made under the new climate law. “Can they block the law? No. Can they slow down or entangle implementation? Absolutely,” said Jason Grumet, the president of the Bipartisan Policy Center.

The new Congress will definitely block President Biden’s commitment to deliver $11.4 billion a year to help poor countries rebuild and adapt to the damage inflicted by climate change. High level climate champion Nigel Topping said that all countries need to live up to their commitments: “to complain about your difficult politics is insulting to every other country,” he said. “Everybody’s politics is difficult.”

Climate Rules at Risk?

Proposed US rules to allow consideration of ESG factors for managing pension funds and to require disclosure of climate related financial risks will be a target of the new conservative majority. Expect hearings featuring SEC Chairman Gary Gensler and executives of large asset management firms with ESG investment practices.?

With the divided government, Congress is unlikely to be able to block these rules but the hearings will provide a platform for Republicans to criticize the ESG movement. As we reported last week, some Republicans have threatened to shut down the US government to stop these rules.?????

Transmission Deal Likely?

There is bipartisan support for legislation introduced by coal state Senator Joe Manchin before the election. The bill appeals to both sides because it would speed new energy projects including electric power lines needed to carry all the wind and solar power that will be generated by the new climate law.

Worsening ESG Politics?

While the anti-ESG (or anti-woke) agenda is primarily a US phenomena, it will affect many multinational companies and global financial institutions. Europe approved their new ESG disclosure law with nearly 90% in favor, but the well funded anti-ESG movement could metastasize to other geographies as a conservative talking point.

This week California Gov. Gavin Newsom said the “Ideological attacks on ESG investing defy the free market—and taxpayers are losing out. Adding that ESG is “..why we consistently beat Republican-led states in nearly every economic category”

Robert Eccles chimed in to highlight the hypocrisy of the anti-ESG movement throttling the free market by restricting investment decisions in states led by conservatives.?

But the anti-ESG movement picked up momentum in the midterm elections. Kansas, Iowa, Missouri, Nevada and Wisconsin flipped from Democratic to Republican in races for state auditor, controller or treasurer. Of the 50 elected state financial positions, Republicans won 29 and Democrats won 19 with two races remaining uncalled. Expect more ESG restrictions and?divestments from financial institutions that incorporate ESG — and especially climate — in their investment decisions.

Rep Sean Casten (D-IL) slammed JP Morgan CEO Jamie Dimon and Wells Fargo CEO Charles Scharf when their companies attended the State Financial Officers Foundation (SFOF) meeting after saying they would “probably cancel” their memberships since the group is spreading misinformation about ESG.?

Every Company Needs a Political Strategy?

While the political turmoil over ESG escalates, this MIT Sloan Review article is an excellent summary of why every company needs a political strategy.? It draws a throughline from the civil rights movement to the ESG battles of today and gives practical advice to corporate leaders to “always prioritize employees, customers, and other stakeholders over the increasingly short-term or even contradictory goals of elected officials.”?

Peak ESG Reporting?

Contrary to the anti-ESG movement, Sustainability reporting hit new peaks with the G&A Institute report finding that 96% of S&P 500 companies and 81% of Russell 1000 companies now publish ESG reports and SASB is the most used reporting standard.

New Reporting Standards?

Under the leadership of my friend and colleague Patrick de Cambourg - the inaugural chair of the Sustainability Reporting Board (SRB) - twelve new European Sustainability Reporting Standards (ESRS) were released this week. While globally consistent ESG reporting standards is still an aspiration, the European standards allow preparers to use “the available best practice and/or available frameworks or reporting standards such as IFRS S2 (industry-specific climate standard) and GRI sector standards.” The new standards will dictate the mandatory ESG disclosures for about 50,000 companies subject to? Europe’s new Corporate Sustainability Reporting Directive (CSRD).?

Here is a great explainer and a handy table from Deloitte providing an overview of the new standards: There are two cross cutting standards, five covering environmental topics, four on social issues and one that deals with governance.? All told, the standards encompass 1,144 data points.?

Meanwhile, the International Sustainability Standards Board (ISSB) standards were backed by the G20. The official statement welcomed the “efforts to achieve interoperability across disclosure frameworks” and “progress on achieving consistent and comparable climate-related financial disclosures.”? In addition to CDP adopting its new climate standard, the ISSB also signed 20 new implementation partners.

Love Wins

In a stunning bi-partisan vote, 12 Republicans joined all Senate Democrats - voting 62-37 to clear the path for an historic recognition of the right to same-sex marriage. The bill was prompted by the likelihood that the conservative US Supreme Court will strike down the 2015 case that provided this right to all Americans. Should this happen, conservative led states will ban the practice, but this bill will require states to recognize a same-sex marriage from another state. This bipartisan vote is remarkable recognition of these rights that were in question not too long ago?

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NOTABLE PODCASTS

• Outrage + Optimism tackles Should oil and gas companies be at #COP27?? Christiana Figueres says, they are "very important entities in respect of how quickly do we decarbonise" and Simon Stiell stated "they are part of the problem but they are also part of the solution." And they tackled the issue of Loss and Damage, which was center stage at this year’s COP meeting and why the money flow is slow at COP27
• GreenBiz 350 Podcast covered what needs to happen at COP27
• I was interviewed by Steve Zwick for Bionic Planet: Forty Years of Sustainability Finance: Making ESG Work