Take Five: Carney Holds the Cards
A selection of the major stories impacting ESG investors, in five easy pieces.
Shifting dynamics in North America could offer an opportunity to keep climate on the global political agenda.
Green credentials – Mark Carney’s elevation, last Sunday, to the role of Canadian Prime Minister has been largely characterised as a challenge to his southern neighbour, US President Donald Trump, in terms of his proven ability to handle economic tumult. Carney’s central banking experience, forged in the fires of the global financial crisis and Brexit, may prove priceless to the smallest Group of Seven economy when dealing with a volatile wielder of tariffs. But Carney also has solid green credentials. One of the first senior central bankers to flag the financial risks of climate change, he played a leading role in both the Task Force on Climate-related Financial Disclosures and the Glasgow Financial Alliance for Net Zero. Both have been critical to pushing climate up the financial agenda, even if the latter faces questions over its future role and unfinished business. Now that he has left behind Brookfield’s renewable energy portfolio (recently expanded through the purchase of US assets), Carney may also have an opportunity to drive his country’s net zero transition, if he wins its upcoming election. Canada is behind several of its peers in outlining the details of its proposed taxonomy and committing to mandatory reporting in line with the International Sustainability Standards Board. Carney’s first priority will be to secure the future of his country’s exports, not all of which are especially green. But the new premier will truly deserve his plaudits if he can get Trump to contribute to Canada’s decarbonisation through the imposition of a carbon border adjustment mechanism.
On the hook – Fossil fuel firms are still potentially liable for the financial impacts of climate change after the US Supreme Court declined to prevent Democratic states from pursuing claims in their own state courts. Justices rejected the arguments of 19 Republican attorneys general that the state-level cases should be halted on grounds they were an attempt to regulate the national energy system, which would drive up costs for consumers, threatening also federalism and “our basic way of life”. A handful of Democrat-run states are set to sue large oil and gas producers – including ExxonMobil, Shell, Chevron, ConocoPhillips and BP – for deceiving consumers about the risks of their products contributing to climate change, claiming billions in compensation from physical impacts of climate change, including storms, wildfires and rising sea levels. The cases will come back to Washington sooner or later, legal experts have suggested, as trials expected soon in Massachusetts and Hawaii will almost certainly be appealed. In unrelated news, US President Trump celebrated his first 50 days back in the White House by ordering the Environmental Protection Agency to reconsider its 2009 finding that greenhouse gases are harmful to public health, amid a swathe of deregulation actions hailed by agency head Lee Zeldin as “driving a dagger straight into the heart of the climate change religion to drive down cost of living for American families”.
Not so magnificent – This week has been a rollercoaster for investors in the ‘Magnificent Seven’ US tech stocks, which were tracking 2.5-3% intra-day losses around Thursday lunchtime, following sharp falls earlier in the week. The losers include many sustainability-focused funds, despite the dismal and worsening performance of several of the ‘broligarchy’ across E, S and G factors. There were several contributing factors, but the trigger was a Sunday night Fox News interview with President Trump which alerted recession fears. Proximity to their patron was hard to rule in or out as a driver, given the pace and contradictory nature of newsflow, but Tesla suffered the biggest reverse (outside of tariff policy), leading Trump to offer to buy an electric vehicle to cheer up his government efficiency advisor. The extent of the mega-caps losses – only Meta is in positive territory for the year – led Morningstar to calculate that four of their number were now undervalued at prevailing price levels. These included Zuckerberg and Co, who have tacked closely to Trump since before his inauguration, embracing free speech and abandoning expensive but less-than-effective content moderation capabilities. The emergence this week of a whistleblower and her immediate silencing through a temporary injunction raised questions about the depth of Meta’s commitment to the first amendment (evidence of its belief in investor rights will become clearer in the run-up to Meta’s AGM). Notwithstanding investors’ concerns over social media harms being turbocharged by the rise of AI, the bigger problem for the firm and its peers could arise if the brewing EU-US trade war goes digital.
Peak pressure – Asset managers may not be our best hope for saving the planet, according to recent academic research. A global survey found that portfolio managers generally feel that companies are already doing enough to control their greenhouse gas emissions, perhaps more than strictly necessary from the perspective of value optimisation, the guiding principle shared by those running traditional and sustainable funds. Such a position makes managers fairly unlikely to push investee firms harder for ever more ambitious decarbonisation strategies, even without the attentions of Republican politicians or the barriers erected by regulators. The finding was among several shared by Professor Dirk Jenter from his study of managers’ beliefs, objectives and constraints, presented at an event marking the launch a new Initiative in Sustainable Finance (ISF), which will form the finance stream of the London School of Economics’ multi-disciplinary Global School of Sustainability. The research suggests asset owners have good cause to remind their managers who calls the tune. Their success, or otherwise, is expected to be one of the major future streams of study for the initiative.
What’s in a name? – A decision by the CFA Institute to rebrand its Certificate in ESG Investing as the Sustainable Investing Certificate provoked head-shaking, shoulder-shrugging and hand-wringing this week (sometimes all three, simultaneously). “The term … now more accurately captures the broader, long-term impact and investing goals that the certificate aims to support,” the institute told certificate holders, who will see the name on their digital certificate and badge reflect the new reality on 8 April. Some have characterised such shifts in terminology as an ill-fated attempt to accommodate political bullies, not to mention a tiresome distraction from the pressing issue of managing E, S and G risks in portfolios. The rewriting of documentation to avoid attention while getting on with business is certainly making a lot of American lawyers a lot of money right now. But names and labels can matter, especially when applied to investment products. Come May, Europe could see another extensive renaming exercise, as funds seek compliance with guidelines set by the European Securities and Markets Authority. This at least will have the practical benefit of helping to put the era of greenwashing behind us.
The post Take Five: Carney Holds the Cards appeared first on ESG Investor.