Last week was another week on the road. This trip took me to the UK for the inaugural Oxford Sustainable Finance Summit orchestrated by University of Oxford’s Dr. Ben Caldecott. It was extraordinary. Two days of impassioned discussion among preeminent climate scholars, scientists, policy makers, regulators, central bankers, investors, financial professionals, and others - all set in the University’s Examination School. There was cold calling, story telling, deep discussion of the challenges we face, and sharing of our experiences and perspectives. And there was debate! Not only during the conference proper, but also at the iconic Sheldonian Theatre to cap off the week.
My top three take-aways from the week:
Leveraging the knowledge of institutional investors
Institutional investors are not only sources of capital, they are sources of insight and expertise, not least on issues such as climate change. This was clear in a panel hosted by Bob Eccles that included Anne Simpson - Head of Sustainability at Franklin Templeton, Sandra Boss - Global Head of Investment Stewardship at BlackRock, and Carine Smith Ihenacho, Chief Governance and Compliance Officer at Norges Bank. These asset managers employ vast teams of sustainability experts whose engagement stands to help companies enhance their risk-adjusted returns. Companies that fail to seriously and strategically engage with their institutional investors and asset managers are missing an important source of insight. What’s more, the boards of those companies are putting their jobs at risk.
Commitment to convergence
I was thrilled to join a panel hosted by Clara Barby who deftly built support for and shepherded the creation of the ISSB last year. Also on the panel were Sacha Sadan - Director of ESG with the UK FCA, Paul Dickinson - founder of the CDP, and Patrick de Cambourg - member of the EFRAG board. The common theme that emerged was the importance of continuing to drive toward harmonization and convergence of reporting standards across jurisdictions. The ISSB will be an important convening standard setter. The reality is, however, that different jurisdictions have different statutory mandates framing sustainability rulemaking. There will always be points of divergence but what is critically important is that we continue to strive for a common baseline for reporting and that we measure the same things in the same way. That is, for example, that we measure GHG emissions in terms of CO2e and in accordance with the GHG Protocol. As standards for other sustainability topics are developed - such as for biodiversity, human rights, environmental justice, and other issues - the ISSB will continue to provide a path to harmonized reporting.
All hands on deck
The culminating debate at the Sheldonian Theatre was thrilling for the history and beauty of the venue and the brilliant debating skills of the participants. The proposition under consideration: financial institutions’ net zero commitments will have no impact on climate change. When the votes were tallied after lively discourse, this proposition was rejected. That is, the gallery agreed that financial institutions’ net zero commitments will make a difference. However, what the debate drew out is that net zero commitments alone will have little effect. They must be paired with accountability mechanisms, guideposts to ensure they are on target, strategies for reaching their goals, deployment of capital and intellectual resources to promote innovation and decarbonization efforts, government oversight and regulation, transparency, and clear reporting. Net zero commitments are critically important to aligning with Paris but they are insufficient on their own. All resources must be brought to bear.
Government & Regulatory Developments of the Week
Breaking News: Congress Makes Giant Leap Toward Far-Reaching Climate Bill
The bill, titled the Inflation Reduction Act of 2022, emerged from negotiations between Senators Chuck Schumer and Joe Manchin, and reverberated across the halls of Congress and the climate world. It would allocate $370 billion in new spending to address climate change. For more on the bill, see the discussion by my colleague, Kevin Stephen in this special edition of his Climate Chapters newsletter.
Consultation on ISSB Exposure Drafts to Close on Friday
This Friday, July 29th marks the end of the 120-day consultation period for the International Sustainability Standards Board’s (ISSB) IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Disclosure and IFRS S2, Climate-related Disclosures exposure drafts. Over the second half of 2022, the ISSB will review the feedback and use it to form final Proposed Requirements, which are expected by the end of the year.
Combined, the exposure drafts have received nearly 300 comment letters so far from international climate organizations, investor groups, multinational corporations, financial institutions, global regulators and more such as the Science Based Targets initiative, CDP, Deutsche Bank, Siemens Energy and the Institutional Investors Group on Climate Change.
Beyond the two current exposure drafts, the ISSB announced this past week its intention to issue a Request for Information later this year on what shape its future agenda should take. During the ISSB’s inaugural meeting, Roomie Johnson, a technical lead, said, “The public consultation on our agenda priorities is intended to ensure that the board’s forward look, forward looking plan and allocation of resources is as responsive as possible to market needs.”
UK Ordered to Detail Path to Reach Net Zero Targets
The UK High Court has ruled that the government’s Net Zero Strategy has provided insufficient detail regarding how it will actually reach its targets. The UK Department for Business, Energy and Industrial Strategy (BEIS) published their strategy in October 2021 after the 2019 Climate Change Act was revised, requiring the government to commit to a net zero emissions path by 2050.
This issue reached the high court after environmental groups challenged the strategy, saying it had illegally failed to include the policies needed to practically meet the emissions reduction targets. A majority of the justices of the court agreed, saying BEISs strategy lacked quantifications or estimations of how exactly the 2050 targets will be reached as mandated under the Climate Change Act. Friends of the Earth, one of the organizations who took legal action, told The Guardian, “It shows that the Climate Change Act is a piece of legislation which has teeth, and can, if necessary, be enforced through our court system if the government does not comply with its legal duties.”
From Net Zero to Jet Zero
Also in the UK, the government has announced its Jet Zero Strategy to achieve net zero emissions from aviation and airports in the country by 2050. The Department of Transportation’s plan will focus on international leadership and partnership that will maximize opportunities in system efficiencies, sustainable aviation fuels, zero emission flights, carbon markets and removals, influencing customers and addressing gasses other than CO2.
Key policies in place to reach the Jet Zero vision include net zero domestic flights and airport operations in England by 2040, and a mandate that 10% of the fuel mix be sustainable aviation fuel by 2030. The Jet Zero strategy will monitor progress against its trajectory on an annual basis, while also issuing a major review of the strategy every five years.
Other Stories I’m Following:
Commitments by asset managers to cut GHG emissions are highly inconsistent according to financial analysts at Morningstar and JP Morgan. Analysts from Morningstar noted that fund managers are facing a ‘rapidly closing’ window to accelerate their carbon footprint calculations and other climate plans. [My take: Last week’s heat waves, droughts and flooding across much of the Northern Hemisphere evidence that there is no time to waste. We need Wall Street to act quickly and effectively to steer capital to solutions.]
More investors this year are opposing the election of corporate directors because of their slowness on corporate climate action. Investors have cited climate change as a reason for voting against director candidates at 225 U.S. companies, including Warren Buffett’s Berkshire Hathaway. That number is up over 40% from 2021. [My take: Shareholders own the company and they care about climate change. Directors need to take note and take action.]
The number of top 200 Australian firms with net-zero commitments has doubled over the past year, but investors are concerned with the lack of detail in these plans. “We’re not really seeing as much detail as investors need,” noted the chief of Australian investor association ACSI, noting scenario analysis and transition planning as two concrete areas lacking detailed planning and action from companies. [My take: Investors and shareholders are not just taking companies’ word for it. They want to see plans that show a path to net zero.]
Researchers at the MIT Sloan School of Management studied how many company CFOs are still using legacy KPIs–like revenue, cash flow, and operating costs–to measure company performance. Researcher Michael Schrage contends that KPIs need to be revisited to capture different forms of value in the digital era, like customer sentiment and technological competitiveness. [My take: Climate is also making its way to the CFO’s desk. A company’s climate strategy and its financial strategy are increasingly linked, particularly in high-emitting industries.]
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Wyatt joined Persefoni from the U.S. Securities & Exchange Commission (SEC), where she served as Senior Counsel for Climate & ESG to the Division of Corporate Finance, led the rulemaking team through drafting proposed climate disclosure regulations, and worked closely with the Office of International Affairs.
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