Take Five: Speed Trap
A selection of the major stories impacting ESG investors, in five easy pieces.
The road to a just transition proved more than a little bumpy this week.
Not the end of the road – Chinese-owned automobile manufacturer Volvo said it would not be able to honour its 2021 pledge to phase-out fossil-fuelled cars beyond 2030. It said around 10% of output would be ‘mild hybrids’ – which contain internal combustion engines (ICE). CEO Jim Rowan said: “The transition to electrification will not be linear and customers and markets are moving at different speeds of adoption.” You could interpret this as referring to the different and changing deadlines imposed by governments for the end of ICE-powered car sales – many preferred to cite “growing consumer resistance”. Undoubtedly, retail sales of electric vehicles (EVs) have been sluggish in some markets, including the UK, but this is no surprise given ongoing policy flip-flop and a steady stream of misinformation on range, safety and access to charging points. Of course there are bumps in the road, but sources interviewed for this week’s feature on the wholesale EV market pointed to the success achieved through the right policy mix alongside technology and service innovation that reduces risk, cost and complexity for the end user. They also insisted that we’re nowhere near the end state for the impact of new technologies on road transport.
Slippery slope – The share of global labour income has stagnated after falling during the Covid-19 pandemic, according to new data from the International Labour Organization (ILO). The portion of total income earned by and paid to workers fell by 0.6 percentage points from 2019 to 2022, and has remained flat since. The prediction that the pandemic would entrench and exacerbate inequalities appears to have been borne out: nearly 40% of the reduction in the labour income share over the past two decades occurred during the pandemic years 2020-22. The ILO said the crisis had undermined progress toward Sustainable Development Goal 10 – reduce inequalities within and among countries. The figures also maintain a downward trajectory that has persisted since the 1980s. At a time when belief in democracy is declining in mature economies and support for far-right political groups is rising, it’s worth noting that an increasingly unequal society is an unstable one – with unwelcome implications for investments.
Underinvestment epidemic – Ahead of the UN’s Summit for the Future later this month, a new report has listed the policy actions needed to deliver the SDGs in Sub-Saharan Africa – not by 2030, but 2100. Warning that pursuing current policies would plunge 900 million into poverty, an international team of economists and scientists used system dynamics modelling to show how a giant leap could be achieved through “extraordinary turnarounds” in five key areas. One of these – already firmly on the agenda at the UN summit and elsewhere – was the alleviation of poverty through reform of multilateral development banks, partly to boost their catalytic relationship with private investment. Other areas – specifically concerning food and energy – were already being debated at this week’s African Ministerial Conference on the Environment. Speaking at the event, UN Climate Change Executive Secretary Simon Stiell noted the risks of desertification across the continent, which is claiming 4.4 million hectares annually. Stiell flagged the investment opportunities arising from extreme need – but observed that Africa’s “epidemic of underinvestment” could only be reversed by progress at COP29 on climate finance, Article 6 carbon markets, and the Loss and Damage Fund.
Going out with a bang – The outcome of the UK’s latest auction for renewable energy projects came as a relief after the disaster of the previous round, where no offshore wind bids were tendered due to the previous Conservative government’s failure to account for inflation. But the auctioning of 3.4 gigawatts (GW) of new offshore wind projects is no milestone, as it leaves the new Labour administration needing to procure 14GW of offshore wind in both upcoming rounds to reach its 55GW target by 2030. Admittedly, demand for solar projects was high and there will be a boost from onshore wind projects next time. At least, the offshore wind industry’s best days can still be said to be in the future – unlike the oil and gas wells with which it shares many a North Sea bed. The announcement last week of a consultation on the sector’s role in Britain’s net zero transition only added to its challenges. Is now the right time for investors to quit a fading industry? Those undecided between maintaining dialogue and divesting – on financial or ethical grounds – might benefit from reading a new analysis commissioned by UK asset owner Border to Coast. The arguments are finely nuanced, but if you’re going – let everyone know, suggests author Dr Tom Gosling, recommending divestors “be vocal about the reasons”, the better to pile further pressure on the polluters.
Only a matter of time – Sanctions so far imposed on companies for causing environmental damage have proved, one might argue, an insufficient deterrent. Is it time then to make this a criminal offence? A survey of 22,000 adults across 22 countries (including 18 Group of 20 members) found that 72% agreed with the case for ‘ecocide’. This should not be a surprise, as moves are well under way in many jurisdictions. Ecocide was recognised as a federal crime in Belgium earlier this year, and similar moves are afoot in Brazil, Italy, Mexico, the Netherlands and Peru. The UK is currently considering jail terms for water company bosses that fail to clean up their act. Investors already alert to the direct and indirect impacts of climate litigation may need to reconsider their risk surface.
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