Finance and Government Race to Net Zero - August 19, 2022
What’s in a name? Well, a lot it turns out.
This week we are renaming our weekly newsletter to Sustainability Decoded to align with our weekly Podcast. The concept shared by both is to make the important but complex world of sustainability – or ESG – more accessible and thus more actionable. Let us know what you think in the comments.
Aligning Capital to a Sustainable Future
You can be forgiven if you need a refresher on the Glasgow Financial Alliance for Net Zero (GFANZ). While it has an unwieldy acronym, the organization is massive in its scope and objectives. GFANZ represents more than 450 financial institutions, collectively managing over $130 trillion of assets. They came together at the Glasgow Climate Conference last November to commit their trillions to achieve net zero emissions by 2050.
While laudable and ground-breaking, most of these firms don’t have definitive plans for how they will achieve this objective. Enter the GFANZ Measuring Portfolio Alignment report. The draft report outlines standardized approaches for measuring progress toward net zero targets for financial services institutions and aims to fill the need for “credible, forward-looking metrics to help them determine the climate alignment of companies within their portfolios.”
“Growing global scrutiny of transition plans makes the need for business action on climate ever more urgent,” Vice Chair of GFANZ, Mary Schapiro, said. “If financial institutions are to deploy the capital required to usher in the net-zero transition, they need a way to measure whether their financing activities align to their ambition.”
Credibility is King
The “illustrative credibility framework” is at the heart of the new guidance. It assesses the credibility of portfolio companies’ emissions reduction targets based on a range of criteria, including third-party validation (like SBTi), linkage to executive compensation, and defined funding and plans outlining how the targets will be achieved. The report includes case studies from AXA, UBS, Japan’s Government Pension Investment Fund and the Rocky Mountain Institute among others. Following the consultation, which closes September 12, GFANZ will release the final report ahead of November’s COP27 meeting in Egypt.
The Largest Climate Law in US history
Following a slew of negative press and tumbling approval ratings, President Biden is enjoying a renaissance this summer. A string of high profile victories such as the bipartisan infrastructure deal, the bipartisan gun-control law, the CHIPS Act (which subsidizes the US semiconductor sector), easing fuel prices, and striking back at Al Qaeda - culminated this week when the President signed the sweeping Inflation Reduction Act.
Touted as the largest climate measure in US history, the $700B law will bring America within striking distance of its pledge to reduce carbon emissions by 50% (compared to 2005 levels) by 2030 - in line with the Paris Agreement.
>> Read key takeaways from our "Reduce to Net Zero" product webinar!
Hidden in its 750+ pages, there are a few important provisions that have flown under the radar, such as $10 billion to retire coal plants and $5 billion to protect natural carbon sinks like soil and forestry. Another important benefit of the bill that may have gone unnoticed is the health benefits of using cleaner energy. One study estimates the IRA will avoid as many as 3,900 premature deaths and stop 100,000 asthma attacks due to cleaner air. On the other hand, critics have complained that import tariffs on solar panels will drive up costs, and the funding of carbon capture and storage supports business-as-usual in the fossil fuel industry.
The Heat is On
Extreme heat events in recent years have had dire effects on water scarcity and forest fires. According to a recent study, the amount of tree cover lost annually due to forest fires has doubled. Last year alone, we lost 16 football pitches (US translation: soccer fields) per minute, amounting to an area the size of Portugal (which is experiencing unprecedented forest fires).
This summer, droughts have wreaked havoc across the Northern Hemisphere. In the US, the Colorado River is close to its lowest point ever, causing Arizona and Nevada to limit water usage. Yet, the other seven US states that rely on the Colorado River couldn’t agree on limiting water use. Likewise, drought is having a massive impact on water availability in China, with the Yangtze River drying up to the extent that reservoirs are too low to power hydroelectric dams, which is causing rolling blackouts. As a result, China is using more coal-fired energy and trying out the controversial geoengineering technique of cloud seeding to induce rain.
This summer may have seemed hot, but by 2053 almost a third of Americans from Texas to Wisconsin will be living in an "extreme heat belt". New data from the nonprofit First Street Foundation predicts that the peak temperatures experienced on the hottest seven days now will be felt for 18 days a year in 30 years from now.
War Against ESG
As an increasing number of corporations and financial institutions adopt climate targets and ESG-friendly investing strategies, one investor has decided to buck the trend. Vivek Ramaswamy, the co-founder of biotech Roivant Sciences and author of Woke, Inc., has co-founded Strive Asset Management, a self-proclaimed “anti-ESG” fund that seeks to push back against corporate climate activism and invest more in fossil fuels. The Strive US Energy ETF tracks indices mainly in the oil sector - ironically the fund carries a warning about the potential obsolescence of fossil fuels.
Ramaswamy himself has become a champion of the political right through his fight against ESG investing, drawing the criticism of commentators like Oxford’s Saïd Business School Professor Robert Eccles, who describes Ramaswamy’s approach as polarizing, “fiery and unfounded rhetoric.” Eccles notes that far from a political agenda, ESG is “just about the material ESG factors that matter to enterprise value creation.”
But even sustainability advocates like Eccles have begun calling for a shelving of the term “ESG” to be replaced with a less politically divisive term. The term “just doesn’t have value anymore,” noted Eccles in a Bloomberg interview. “Let’s change the conversation.” Other sustainable investing leaders remarked that ESG remains poorly defined and that more concrete definitions and regulations are needed to help stem criticism like that of the Strive Fund and politicians on the right.
Missed last week's Sustainability Decoded Newsletter? Check it out now and stay in the know: August 12, 2022
© 2022 Persefoni AI Inc. All rights reserved. This presentation is the exclusive property of Persefoni and may not be copied or distributed, in whole or in part, without the express permission of Persefoni.
Persefoni is a leading Climate Management & Accounting Platform (CMAP). The company’s Software-as-a-Service solutions enable enterprises and financial institutions to meet stakeholder and regulatory climate disclosure requirements with the highest degrees of trust, transparency, and ease. As the ERP of Carbon, the Persefoni platform provides users a single source of carbon truth across their organization, enabling them to manage their carbon transactions and inventory with the same rigor and confidence as their financial transactions.