March 11, 2022 - ESG and Climate News
With the Russian invasion of Ukraine entering its third week, and the specter of last week's dire report from the Intergovernmental Panel on Climate Change (IPCC) still fresh, this week’s news highlighted linkages in these crises. This week also marked some movement in the long-awaited US Securities and Exchange Commission climate disclosure rule.
It’s all connected
When the Russian invasion started, Dr. Svitlana Krakovska, a Ukrainian scientist and member of the IPCC, was forced to stop her work on the final stages of the report– focusing on nothing other than survival. The war, she said, is making the window of opportunity to address the climate crisis even narrower, because “now we have to solve this problem [the war] first.” She stressed that Europe's reliance on Russian oil and gas funded the invasion. Now, it’s forcing Europe to accelerate its green transition and look to renewables.
The invasion is also affecting ESG investing. According to Bloomberg, ESG funds had at least $8.3 billion invested in Russia on February 24. Industry researchers at Morningstar Inc. estimate that 14% of sustainable funds globally held Russian assets right before the war. Hortense Bioy, Morningstar’s global head of sustainability research, summed it up this way: “There are still people who inappropriately conflate sustainability and ethics. Sustainable and ESG funds aren’t the same as ethical funds.”
The Russian invasion reignited debate over how ESG investments should be managed. Rachel Robasciotti, founder of Adasina Social Capital said: “We don’t punish companies for the actions of the country where they are headquartered.” Whereas Felix Boudreault, managing partner at research firm Sustainable Market Strategies said “As an investor, you have to consider not just the company, but the environment in which they operate,” adding a warning that China has similar drawbacks as Russia for the ESG investor.
The announcements from McDonalds, Coca Cola and Starbucks this week piled on to a slew of major brands such as Apple, Amazon and Google hitting pause on their Russian businesses. Some have compared the exodus from Russia to disinvestment from apartheid-era South Africa, predicting the fastest way to end the war is to stop trading with Russia and divest Russian assets. The global business community increasingly understands that upholding freedom and democracy is part of their ESG responsibilities.
The Ukraine crisis deserves our prime focus and attention. However, it must not become a reason to drop our net zero commitments. As Dr. Krakovska put it, "It's amazing how the people of Ukraine united against one enemy," and "if we all unite against climate change, we can survive as a civilization."
SEC to regulate on climate risk
In a long awaited move, the US Securities and Exchange Commission (SEC) is set to announce plans for a landmark climate disclosure rule on March 21. The announcement followed much publicized delays over how the rule would withstand the near-certain legal challenges. The main sticking points were whether and how much to include “Scope 3” emissions from assets not owned or controlled by the reporting organization.
The battle lines are already being drawn: An open letter this week from 75 investors with combined $4.7 trillion in assets under management asserted that without verified Scope 3 disclosures, the upcoming rule will not be useful. Surprising no one, some business associations oppose Scope 3 reporting and are readying their legal strategies to oppose the rule.
In a YouTube series called “office hours with Gary Gensler” - the Chairman does a nice job of explaining the SEC’s role in regulating ESG labeling and climate risk, among other topics.
Missed last week's ESG & Climate News? Check it out now and stay in the know: March 4, 2022.
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