Take Five: When Life Gives you Lemons …
A selection of the major stories impacting ESG investors, in five easy pieces.
In the week the world breached 1.5°C of man-made climate change, one man made the weather.
Not-so-quiet quitting – It was tempting to try to put together a sustainable investment blog that omitted any mention of incoming US President Donald Trump. Tempting but next to impossible. After all, the only phenomenon making more weather right now is climate change. He’s certainly a key contributing factor to the exodus of major US financial institutions from sector alliances mapping a route to net zero emissions by 2050. This week, JP Morgan followed five peers out of the Net Zero Banking Alliance (NZBA), while BlackRock exited the parallel coalition for asset managers. In addition, the Glasgow Financial Alliance for Net Zero, an umbrella body, widened its membership criteria to include any finance firm investing in renewable energy. The banks have typically insisted they will continue to work with clients to pursue decarbonisation goals, while BlackRock’s recently updated engagement priorities suggest it plans thorough scrutiny of investee firms’ approach to tackling their material climate-related risks. Quitting the coalitions helps Wall Street avoid the limelight, however, allowing them to maintain relationships with sustainability-minded clients, while funding oil and gas projects, and dodging Congressional hearings and anti-trust threats from Trump’s political allies. NZBA’s recent progress report highlighted increased disclosures, but there have been suggestions that its plans to monitor members’ financed emissions from capital markets activity was a step too far. While the departures may well offer scope for institutions to push back prior climate commitments, they will still need to face up to mandatory climate disclosures in Europe, under the incoming Corporate Sustainability Reporting Directive, as well as the attentions of their investors.
Sweet moderation – If there was one sector faster than finance to align its business models to new US political realities it was technology. This week, Meta swiftly abandoned its widely criticised attempts at moderating and fact-checking content across its social media platforms, replacing them with a freewheeling approach pioneered by Elon Musk on X. What could possibly go wrong? On Tuesday, Meta CEO Mark Zuckerberg said the firm would get “back to our roots around free expression” by effectively devolving content governance to users and relaxing its approach to hate speech. “It means we’re going to catch less bad stuff, but we’ll also reduce the number of innocent people’s posts and accounts that we accidentally take down,” said Zuckerberg, who added that he would work with Trump to defeat censorship. Effectively, self-regulation is as beautiful as it is rare. We will soon find out how advertisers and investors feel about the rise in social harms and the fall in trust and credibility that is likely to follow this move. From a regulatory perspective, the European Commission has already clashed with X over its approach to content moderation and Meta will be expected to first conduct a risk assessment. The EU Digital Services Act does not prescribe approaches to content moderation, but its view of the change could be swayed by Musk’s increasingly frequent interventions in domestic European politics.
Tariff talk – There are many other ways in which the return of Trump is impacting the ESG risks in asset owners’ portfolios – from the push and pull of energy policy changes to legal arguments around data governance that will determine the future of TikTok later today. But the one likely to have most impact on most pockets could be the trade wars he is picking with almost anyone in view. This week Trump threatened economic pressure on Denmark in order to release Greenland into US custody. The most consistent target has been China, and in particular its world-leading electric vehicle (EV) sector, already subject to 100% tariffs under the outgoing Joe Biden. An effective ban on Chinese EV imports and a widening of tariffs to US allies has implications for Europe’s car industry and its Carbon Border Adjustment Mechanism. But how the details work out in practice could be influenced by government efficiency advisor and Tesla CEO Elon Musk, who builds and sells cars in China and Europe. Tesla’s position as the world’s largest EV firm is in peril after annual deliveries declined for the first time in a decade in 2024 to 1.79 million, just ahead of China’s BYD which sold 1.76 million pure EVs out of a record 4.3 million vehicles sold overall.
A Grimm tale – As 2024 was confirmed as the warmest year on record, Munich Re declared it also one of the most expensive, in terms of losses from natural disasters, the frequency and severity of which being driven by climate change. The reinsurer said losses topped US$320 billion, up a third from 2023, with 40% covered by insurance. The high level for both was attributable to location – the US – whose valuable real estate and infrastructure assets were regularly pummelled over the past 12 months, including by two hurricanes hitting Florida within a fortnight. “Climate change is showing its claws,” said the reinsurer’s Chief Climate Scientist Tobias Grimm, explaining that “the higher the temperature, the more water vapour and therefore energy is released into the atmosphere. Our planet’s weather machine is shifting to a higher gear.” As Los Angeles firefighters struggled to get the county’s wildfires under control last night, climate change having played a key role, JP Morgan estimated that economic losses from the fires could reach US$50 billion. Of these, insured losses are reckoned to be around US$20 billion. But the complex insurance picture in California, one of many regions where insurers have withdrawn coverage, means it might take time for the true story to emerge. Insurers including State Farm and Allstate have stopped offering new home insurance policies in the state, claiming price caps made the business unviable. According to the Financial Times, the former declined to renew 72,000 policies in California last year, including many in the Pacific Palisades area affected by this week’s fires, with residents resorting to the state-backed Fair Plan or less-regulated providers.
New year, new jobs – The beginning of the year offers the opportunity of a fresh start, which often means a new job. Among others, Robin Hodess at the Global Reporting Initiative and David Kennedy at the Science Based Targets initiative have big plans for 2025. But changes in the job market are likely to make their way up the sustainable investment agenda in more profound ways, with the net zero transformation and the AI revolution just two factors influencing skills, recruitment and workplace environment. This has been recognised ahead of Davos via the World Economic Forum’s ‘Future of Jobs’ report. Its survey of 1,000 global employers placed broadening digital access as the most transformative trend for the worldwide jobs market by 2030, with climate change mitigation and adaptation ranked third and sixth respectively. With 170 million new roles set to be created and 92 million displaced over the next five years, handling these shifts will be critical to long-term value.
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