Take Five: The Race to Decarbonise Heats up
A selection of the major stories impacting ESG investors, in five easy pieces.
This week Europe’s leaders were told to speed up their energy transition, and not just to save the planet.
Mario’s medicine – A long-awaited blueprint for a more competitive Europe was published this week, sparking debate on the role of government policy and regulation in driving sustainable economic growth. Authored by Mario Draghi, former prime minister of Italy and president of the European Central Bank, the report focused on tethering competitiveness to decarbonisation. It called for coordinated policy and investment to support the innovation needed to supply cheap and clean energy to businesses and consumers. “Europe will need to act together to green industries that use energy intensively and are disadvantaged by asymmetric regulations,” wrote Draghi in The Economist. The report also diagnosed Europe’s prevailing sluggishness, taking aim at red tape, including that designed to support sustainable investment – notably the Corporate Sustainability Due Diligence Directive and the Corporate Sustainability Reporting Directive. But Dr Draghi’s prescription was not less regulation; rather it sought to encourage better-designed and more coherent rules. More guidance, fewer overlaps and use of digital tools would ease implementation, he advised, thereby increasing transparency and driving change. While it’s possible Draghi has inadvertently encouraged those seeking to slow or weaken sustainability reporting requirements, there may be a case for a more risk-based approach to compliance. ‘Super Mario’ will present his recommendations to EU leaders in early November.
Natural capital – Are you investing in the bioeconomy? You almost certainly are if you take its broadest definition, encompassing all use of biomass in economic activities. But if you’re not doing so with conscious regard to sustainability and equity, you’re probably not investing to the fullest benefit to of stakeholders. This could soon change. Under Brazil’s presidency, the Group of 20 (G20) is expected to agree a set of high-level principles intended to catalyse a more deliberate approach. Expected to be unveiled in November, the principles will be a key goal of Brazil’s G20 Initiative on Bioeconomy, which aims to establish a clear basis for policy interventions aligned to sustainable development objectives – including through international cooperation across subsidies, trade policies and regulation. Taking the clean tech revolution as its template, a new report released by NatureFinance, commissioned by the Brazilian government, outlines a positive future for sustainable investment in nature. It argues that the bioeconomy can grow from a valuation of US$4-5 trillion today to a projected US$30 trillion by 2050, supported by national strategies that are already in place in South Africa, Mexico, Brazil, India, China, Japan, and the US. There is no shortage of financing instruments available, including carbon and biodiversity credits and sustainability-linked debt. But investor appetite will be strongest, according to the think tank, where an integrated approach combines enterprise with “growing public awareness, suitable infrastructure, and enabling fiscal arrangements”.
Principles for Responsible Mineral Investment – Whether mining retains its place in the bioeconomy may depend on the response to the final report of UN Secretary General António Guterres’ Panel on Critical Energy Transition Minerals. The report seeks to guide a just transition for the countries in which the industry operates, via seven principles and five recommendations aiming to promote fairness, transparency, investment, sustainability and human rights along the entire minerals value chain. Principle Five calls for responsible investment and fair trade, described as “vital enablers” of sustainable, inclusive development – but currently not sufficiently accessible or tailored to the needs of developing countries. “Financing should include environmental, social and governance protections consistent with internationally recognised sustainability standards, human rights laws and frameworks, including the individual and collective rights of Indigenous Peoples,” the report mentioned. The next steps will be discussed at COP29 in Baku.
Aussie rules, OK? – Australia took another step on its net zero path this week with the passing by its House of Representatives of a bill to introduce mandatory climate-related reporting requirements. The country’s largest firms will need to report climate risks and opportunities in line with standards set by the International Sustainability Standards Board from the start of next year – albeit with an extra year to report Scope 3 carbon emissions – with smaller companies phased in across two further tranches. Parliamentarians also signed off on the creation of the Net Zero Economy Authority, charged with delivering an orderly and positive transformation for the regions, industries, workers and communities of Australia. While the country’s pension funds celebrated events in Canberra, regulators will be looking forward to hard numbers replacing vague and inconsistent language in climate-related disclosures.
File under misinformation – What role did climate change play in this week’s debate between the two candidates for the US presidency? It certainly wasn’t the most-discussed topic, but bore as little relationship to the facts. Asked “What would you do to fight climate change?”, Republican candidate Donald Trump changed the subject, outlining his plans to increase taxes on Chinese car imports – a favourite topic. Meanwhile, Vice President Kamala Harris – who replaced incumbent Joe Biden as the Democratic candidate in July – seemed mainly concerned to avoid appearing too ‘green’, highlighting “historic” high levels of domestic gas production and distancing herself from allegations that she once supported a ban on fracking. Many American voters remain indifferent to climate issues, with the economy, immigration and abortion way ahead in terms of priority. But the same cannot be said of Germany’s foreign ministry, which took to X to repudiate Trump’s claims of buyers’ remorse over its investments in renewable energy.
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