Take Five: A Fresh Start

A selection of the major stories impacting ESG investors, in five easy pieces.?

Green policies were given a reboot in the UK and Europe this week, while the tech sector’s ESG credentials weakened.

Rebalancing act – This week’s King’s Speech gave an insight into the priorities of Britain’s new Labour government, indicating an appetite to address challenges across the ESG spectrum. While exciting new bodies grabbed the headlines – from Great British Energy to the National Wealth Fund to the Audit, Reporting and Governance Authority – there are also thorny issues to be tackled in the social realm. The new administration’s Employment Rights Bill – part of its ‘Make Work Pay’ plan – claims to be the “biggest upgrade to workers’ rights in a generation”, but it also raises similar questions to the recent UK listings review about the pursuit of growth. The employment bill aims to redress the prevailing imbalance in workplace flexibility that benefits employers much more than employees. Key measures include a ban on zero-hours contracts, the creation of a Fair Work Agency and the removal of “unnecessary” restrictions on trade union activity. The latter will bring encouragement to the GMB union, which this week narrowly lost its bid to represent Amazon workers in the UK for the first time. The union’s campaign for recognition followed a strike over pay by a largely migrant workforce in January 2023. Alleging persistent anti-union activity by managers at the online retail giant, which has raised concerns among investors , the union said it would continue its efforts.

Turning away talent – The sustainability credentials of global tech-led behemoths have been further thrown into question following reports that computing powerhouse Microsoft has become the latest household name to cut back on its diversity initiatives. The Seattle-headquartered firm cited “changing business needs” as the reason for laying off a team focused on diversity, equity and inclusion (DEI), in an internal email. Zoom, Google and Meta are among the other tech firms to have recently sacked DEI staff. Beyond the tech sector, agricultural machinery manufacturer John Deere reiterated this week that diversity quotas were not company policy, but that it would still “track and advance” diversity within the firm. Whether this is just the social equivalent of ‘greenhushing’ – or major corporates are really turning their back on talent pools with the potential to drive future growth and innovation – remains to be seen.

AI’s appetite – Beyond its recruitment and employment policies, there are escalating concerns about how the tech sector is facing up to the climate impact of the AI arms race. Analysis by Moody’s this week said surging demand would double global data centre capacity over the next five years, adding that access to power and water were key constraints on growth. Critically, the ratings agency predicted that the facilities would require four times more installed megawatts of capacity, potentially using up to 80% of new solar and 50% of new wind capacity expected to come on stream in the next half-decade by the International Energy Agency. This, however, is not the only thing cramping tech firms’ AI ambitions. As fast as data centres are springing up, regulators and legislators are racing to introduce guidelines to manage the technology’s use in the finance sector and beyond . And as if that wasn’t enough, the leading players in the AI space will need to monitor their supply chains with increasing rigour as semiconductor manufacturers become increasingly subject to the volatility of domestic and international politics.

Ursula’s green growth – Barely having rested since his election – squeezing his new legislative programme between a NATO summit last weekend and a one-day meeting with 50-odd European leaders yesterday – new UK Prime Minister Sir Keir Starmer had to accept one notable absentee from his initial round of political speed-dating. Ursula von der Leyen was kept in Brussels by the murky business of winning a second term as President of the European Commission. Rather like an Article 9 fund downgraded from having sustainable objectives to merely sustainable characteristics, the price of von der Leyen’s incumbency was a European Green Deal of a distinctly lighter hue. Following its success in the recent elections to the European Parliament, the European People’s Party demanded a policy platform built on growth, not green . Nevertheless, von der Leyen managed to secure the backing of Green MEPs for her reelection, largely by couching green ambition in terms of enhanced security and competitiveness, and kicking the detail into the long grass. A less-than-detailed agenda yielded a less-than-enthusiastic welcome from others, including the World Wide Fund for Nature , with the fate of the EU Deforestation Regulation being a closely watched indicator of the new commission’s commitment to climate and nature-positive policies.

A natural next step – Nature will also be on the agenda during the Group of 20 finance ministers’ and central bank governors’ upcoming meeting in Rio de Janeiro next week, thanks to a new report from the Financial Stability Board (FSB) on the current state of authorities’ initiatives to identify and assess such risks to the financial system. The FSB warns that physical and transition risks “may have profound effects” on the real economy and the financial system, but observes a vast range of responses across markets – with some supervisors having conducted detailed analytical work while others have done next to nothing, blaming data gaps . Indeed, the FSB sees this as a prevailing problem, noting the “lack of reliable and consistent data” on financial exposures to nature risks. This will be frustrating to many, including the Taskforce on Nature-related Financial Disclosures (TNFD), which has spent much time and effort over the last two years arguing for organisations to make the best of the many sources available, and working with scientists and data providers to improve the situation. Just as frustrating is the very small number of financial regulators actively encouraging the voluntary adoption of the TNFD’s recommendations . COP16 In Colombia could provide the ideal opportunity for the first countries to mandate TNFD disclosures.

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. Please click through and subscribe.