ICYMI, Governments and Regulators are Making the Running

The private sector’s ability to accelerate the pace of net zero transition is open to question.

When it comes to gathering the collective will to tackle climate change, it is often argued that public policy actions and private sector commitments are mutually reinforcing, spurring each side to go further and faster. This was a week in which the public realm seemed to make more of the running than those in the private sphere. Of course, there are always notable exceptions.

The week started with a?new government in Australia , and a new prime minister, Labor’s Anthony Albanese, promising to make the country a “renewable energy superpower”. Climate-focused investors welcomed the change from the?coal-wielding ?Scott Morrison,?calling ?for an “investment grade 2030 emissions target”, and accompanying policy changes, including a National Transition Authority.

In the US, the Securities and Exchange Commission (SEC) fined a BNY Mellon unit for?overstating ?the extent to which its fund offerings considered ESG factors in the investment process. The US regulator followed this up with?rule changes ?designed to provide investors with greater transparency on ESG fund strategies. Alongside the?progress ?of a bill in California calling for?fossil fuel divestment ?by public-sector pensions, and the SEC’s plans for?climate-risk disclosures , this new assault on greenwashing moves US policy closer to its European counterparts, where fund disclosure rules are already?reshaping ?the market.

In Europe, the Finnish parliament?approved ?a new Climate Change Act committing to carbon neutrality by 2035, and carbon negativity by 2040, while updating absolute emissions reduction targets to 60% by 2030 and 80% by 2040 compared with 1990 levels. Even so, we were?reminded ?how far the G20 nations are from meeting their COP26 commitment to keep 1.5°C alive.

In the private sector, the climate transition got personal this week with the resignation of?Caroline Dennett , a senior safety consultant at Shell, over its climate strategy, and the suspension of Stuart Kirk, Head of Responsible Investment at HSBC Asset Management, following a?presentation ?downplaying the investment relevance of climate risks, the latter now being portrayed in some parts of the?British media ?as an anti-woke martyr.

These departures set the scene for a?series of AGMs ?at oil and gas firms in Europe and the US, at which investors gave muted support for resolutions calling for faster climate action. Only a minority voted against the climate strategies of Shell and TotalEnergies, despite misgivings about both firms’ plans. Resolutions calling for Chevron and ExxonMobil to align with the Paris Agreement also?failed , albeit gaining more support, while investors did back?votes ?calling for US oil and gas giants to report on their methane emissions and transition risks respectively.

Perhaps these outcomes should not be a surprise after BlackRock, the world’s largest asset manager, described many 2022 climate resolutions as “prescriptive or constraining ”. With pension schemes continuing to?commit ?to net zero and concerns rising about the risks from?stranded assets , tensions between asset managers and owners may rise further.

The complex interaction between public and private sectors played out most clearly this week in the?debates ?over the?structure of windfall taxes ?on energy firms, including implications for renewables. Across?land use ,?energy efficiency ?and?fossil fuel transition , the policy signals are not always clear, but the opportunities for growth, such as the development of ‘cleantech ’ sectors, require each side to keep challenging the other.

This is my weekly blog, also published on www.esginvestor.net, in which I collate and comment on some of the main news items of the week from a sustainable investment perspective.