Take Five: A Magic Formula for Climate Policy

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

This week academics offered a helping hand to policymakers, who continued to prove how much they need it.

In their hands – Scientists this week gave policymakers the clearest roadmap yet for reducing carbon emissions, having just told them they had all-but-certainly failed to limit climate change to 1.5°C. Research led by Dr Christoph Bertram found that the most ambitious climate mitigation scenarios now offer a 50% chance of limiting climate change to 1.6°C above pre-industrial levels, noting also that feasibility constraints – meaning the effectiveness of government action – lowers chances to 5-45%. A few days later, a team from Oxford University – supported by Berlin’s Mercator Research Institute on Global Commons and Climate Change and Bertram’s colleagues at the Potsdam Institute for Climate Impact Research – released a comprehensive analysis of more than 1,500 climate policies implemented in 41 countries over two decades which identified the most effective measures so far introduced. While policymakers had achieved a shockingly poor hit rate – just 63 interventions were rated as having a positive outcome on emissions – the researchers sought to offer the magic formula for future success. In short, coordinated policy actions work best – especially when including carbon pricing measures – as seen in the reforms to the UK electricity market by the 2010-2015 coalition government. But this only applies to developed markets, with researchers finding no examples of successful pricing intervention in the electricity sector of developing economies. With the next round of nationally determined contributions due in matter of months, there’s still a little time for some hasty redrafting.

A little less conversation – The headline figures from BlackRock’s report on its voting record across the 2024 AGM season were seized upon as further evidence of weakening support for ESG-related resolutions by US asset managers and a dissipating interest in sustainability. In a year where overall investor backing did decline, the world’s largest money manager voted for just 20 out of 493 shareholder proposals on environmental or social issues, saying the majority were over-reaching, lacking in economic merit, unlikely to boost long-term shareholder value or redundant. As a side note, the firm said it also withheld support for any of the increasing number of anti-ESG resolutions seeking to roll back company efforts to tackle material sustainability-related risks. Needless to say, BlackRock’s support for proposals seeking to limit the environmental and social risks and impacts faced by portfolio companies differs markedly from its record in 2021’s Shareholder Spring. Since then, the lawyers have got involved, with BlackRock among the many asset managers being dragged through the courts, vilified by states’ attorneys-general and threatened with sanctions for their membership of collaborative investor initiatives on climate change. The US electoral cycle makes it hard to peer through the fog, but there are signs that greenhushing is just that: a quietening rather than an ending. Analysis from Factiva recently found that mentions of ESG and sustainability are just as common in 2024 as in recent years in companies’ financial reports and disclosures, even if they’re less frequently discussed in earnings calls. As the headline of a Wall Street Journal story on the research plaintively observes, ‘Companies Haven’t Abandoned Sustainability. They’re Just Talking About It Less’.

Plastic progress – The Biden administration confirmed a shift of US policy in favour of including production limits in a proposed global treaty to eliminate plastic pollution. The news that the US is willing to join a coalition of countries – already including Canada, France, Switzerland and the UK – in favour of tough output curbs will be a blow for producers, who have ploughed significant resources into influencing the complex UN process for creating a global and binding agreement, which started in 2022 and is expected to conclude next year. Critically, increased plastics production has been seen by the fossil fuel industry as a way of offsetting falling demand from energy utilities as they move to renewable sources. The US shift also increases the likelihood of a list of plastics and hazardous chemicals subject to specific restrictions. Investors are already on board, with many backing an “ambitious” treaty and some warning petrochemicals firms not to block its progress. Some governments and organisations want to go further, including the signatories of the ‘Bridge to Busan’ declaration. But with the US presidential election cycle reaching fever pitch before the next round of negotiations – starting in South Korea in late November – there’s still time for the issue to become weaponised as a threat to jobs.

Near-term risks – Central bankers are attending the US Federal Reserve’s annual Jackson Hole Economic Policy Symposium, but it’s not clear how much time will be devoted to consideration of climate impacts. The invite-only summit’s agenda gives little away, focusing largely on the ongoing battle against inflation and various aspects of the transmission of monetary policy. But even on these traditional central banking themes, climate is already influential. Former Federal Reserve governor and deputy secretary of the US Treasury Sarah Bloom Raskin has claimed that Fed Chair Jerome Powell is lagging international peers by not at least tracking the increasingly evident and diverse impacts of climate change on prices, claiming they will only become more influential as the energy transition progresses. Other commentators have noted the potential for climate change to limit the effectiveness of monetary policy tools and transition mechanisms, with some calling for policy innovations to incentivise green financing. Given recent comments on interest rates from the man who gave him the job, Powell might be forgiven for thinking that Republican Party presidential election candidate Donald Trump is more of a near-term danger than climate change.

In search of balance – The UK’s new Labour government has hit the ground running with a raft of initiatives of interest to green investors – from renewable energy policies to pensions reviews – but its policies around social issues, particularly in the workplace, are also beginning to gain prominence. As part of a range of measures on workers’ rights, the government intends to enshrine in law a ‘right to disconnect’ which could cost errant employers thousands of pounds if taken to a tribunal, according to press reports this week. We’re all looking for the right work-life balance in the aftermath of the Covid-19 pandemic and in the midst of an ongoing communications technology revolution, and many jurisdictions have introduced similar policies, including several European countries and Australia, whose new laws come into effect this month. The UK has yet to finalise its proposals, but is thought to favour following Ireland’s pragmatic approach, which requires firms to stick by agreements once negotiated with their workforces.

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