Take Five: 2025 Calling
A selection of the major stories impacting ESG investors, in five easy pieces.
Fragmentation, polarisation and smaller coalitions are in prospect as countries position themselves for green growth.
Keep it clean – The likelihood of 2025 being dominated by a green trade war increased a few notches this week, with the US and China both firing shots. Outgoing US President Joe Biden continued his policy of supporting green jobs at home by hiking the costs of clean energy imports with a final round of tariffs, doubling the charges levied on solar panel components. Just as night follows day, this came after China announced an anti-trust investigation into US chip giant Nvidia, also citing potential violation of commitments made during its acquisition of networking products supplier Mellanox Technologies. Protection of the US semiconductor industry is also a long-term Biden policy likely to be continued by Donald Trump, even if his intentions on TikTok, the Chinese social media platform under threat of sanction on national security and data protection grounds, are harder to read. As noted here recently, it’s also hard to read the implications of these tensions for the EU and UK as they progress plans for carbon border adjustment mechanisms, seeking to balance security, growth and sustainability considerations. As the International Monetary Fund has noted, green industrial policies can be a positive for decarbonisation, but their international ramifications can make it harder to reach global consensus on common rules, and not just those for trade.
Go your own way – Another safe prediction for next year will be the divergent priorities of financial regulators, both in terms of the balance struck between sustainability and competition, and the need for international cooperation. Ashley Alder, Chair of the UK’s Financial Conduct Authority (FCA), told British parliamentarians this week that he opposed any “race to the bottom” regarding light-touch regulation, warning that the “apparent direction of travel in the US” held “clear dangers” of repeating the mistakes that led to the Global Financial Crisis. This contrasts sharply with the views of Paul Atkins, incoming Chair of the US Securities and Exchange Commission. Having loosened UK listings rules, Alder may feel that the FCA has already done enough to support Chancellor Rachel Reeves’ growth agenda. As a former chair of the International Organization of Securities Commissions and a firm backer of the International Sustainability Standards Board (ISSB), Alder told politicians the UK finance sector had reaped advantages from “embedding international standards”. In the FCA’s response this week to the Chancellor’s remit letter, Alder said “leading the way in implementing global agreements on sustainable finance may create opportunities”, while admitting the UK may need to make progress with “a smaller group of like-minded jurisdictions”. An early test of whether the government agrees will be its response to the recommendations of the UK Sustainability Disclosure Technical Advisory Committees on adopting the ISSB’s disclosure standards, expected to be finalised next week.
The mouse that roared – Oral evidence continued into its second and final week as the International Court of Justice geared up to provide guidance on state responsibilities for anthropogenic climate change under international law. Initiated by Vanuatu, a South Pacific archipelago with a population of roughly 334,000, and backed by the UN General Assembly, the action will lead to a non-binding but unignorable advisory opinion that could oblige countries to go beyond existing commitments under the UN Framework Convention on Climate Change. Much may depend on the detail provided by judges on the legal consequences for states that have caused significant harm to the climate system. According to ClientEarth, there could be “major knock-on effects” for countries’ obligations around emissions and human rights. “It would open up the possibility that international climate commitments can be legally enforced,” said the campaign group. While climate litigation has ramped up in recent years, current proceedings in The Hague are seen as the ‘mother of all climate cases’ due to their significance, but also the record number of states and other organisations giving evidence. For those keen to understand the diverse perspectives offered by Micronesia, Saudi Arabia, the UK, the Alliance of Small Island States and the International Union for Conservation of Nature, among others, the court has published both written and video records.
Ensuring integrity – The tricky task of building integrity into existing practices continued to prove challenging with news this week of resignations from a carbon markets standards body. Jürg Füssler, Managing Partner at Swiss sustainability consultancy Infras, and Lambert Schneider, Research Coordinator for International Climate Policy at Öko-Institut, stepped down from their roles after the Integrity Council for the Voluntary Carbon Market (ICVCM) approved methodologies for generating carbon credits which they felt did not meet its high-integrity Core Carbon Principles. Füssler said the methodologies fell down in terms of additionality, quantification and permanence, and as such “do not make sure that credits will have sufficient environmental integrity”. Given the number of credits covered by the methodologies, he warned the ICVCM risked flooding the market with low-integrity credits when participants are becoming increasingly selective. There will inevitably be bumps in the road for the nascent biodiversity credits market too, but a recently released set of high-level principles should help to ensure integrity is built in “from the get-go”.
Tipping point for insurers – December has brought further evidence of the slow-moving disaster that is the insurance industry’s response to climate change. This week, campaign group Insure Our Future’s annual scorecard reported that climate-related losses are outweighing revenues from underwriting fossil fuel business at many of the largest insurance firms. It also noted that climate-attributed losses rose from 31% to 38% of total insured weather losses over the last decade. As more regions become uninsurable, there was relatively slow progress in new underwriting policies withdrawing from fossil fuel business. Meanwhile, end-of-year assessments from the insurance industry have made for compelling reading. US hurricanes, European floods and Gulf deluges combined to put 2024 on track for insurance losses of at least US$135 billion, according to Swiss Re. A fifth consecutive year of US$100 billion-plus natural catastrophe losses led Balz Grollimund, the reinsurer’s Head of Catastrophe Perils, to comment: “Investing in mitigation and adaptation measures must become a priority.” Separately, Munich Re reported that losses from the 2024 US tropical cyclone season were “far above” the ten-year average. Given the critical role of insurance in any economic activity, it’s no accident the insurance sector’s net zero coalition was among the first, but not the last, to be targeted by anti-climate activism.
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