Hello from London. We start with the news that West Virginia’s Republican Treasurer has added HSBC to its boycott list — the first British bank to fall victim to the state’s anti-ESG aggression. West Virginia was the first state to target BlackRock and other financial firms deemed to boycott fossil fuel companies. Texas, Florida, Missouri and other GOP-led states followed suit with anti-ESG initiatives and divestments.
For its part, HSBC seeks “to work with — not boycott — energy companies”, a spokesperson told Reuters via email.
Today’s main item is about planning for net zero. Gone are the days when companies could satisfy green-minded shareholders by celebrating Earth Day or ditching plastic straws. Many corporate executives are now attempting to craft smarter transition plans. But as these strategies have become more sophisticated, they have also become harder to evaluate.
Today, we looked at a UK government-backed initiative, more than two years in the making, meant to help companies disclose their transition plans in a more useful way. It could be a first step towards making such plans more credible, as companies around the world grapple with cleaning up their businesses. But disclosure remains voluntary, raising the question of how much the initiative can do to influence private-sector activity.
Thanks for reading.
environmental disclosures
A step closer to standardising climate disclosures
Yesterday, the group charged with setting standards for UK companies’ net zero transition plans published its guidance for seven sectors, ranging from mining to asset management.
Announced at the COP26 climate summit in 2021 by then-chancellor Rishi Sunak, the Transition Plan Taskforce was created to determine how listed companies and financial institutions can make their transition plans more consistent and easier to compare. It’s co-chaired by Baroness Charlotte Vere, Treasury Lords Minister, and Aviva chief executive Dame Amanda Blanc.
Policymakers hope that better disclosure standards could unlock more capital for companies with ambitious plans. Plus, some argue, supplying a much needed disclosure framework could help make the UK a global leader in climate-related financial services.
To that end, a new government consultation, launched in March and supported by the TPT, will explore how the UK can become the “best place in the world to raise capital, invest and obtain financial services” for the net zero transition.
Vanessa Havard-Williams, a consultant at the law firm Linklaters and member of the TPT delivery group, is leading that effort. She told me that the TPT guidance is “one of the most developed and most intuitive frameworks” for disclosure.
But amid pushback to red tape in corporate reporting, such as the recent paring down of Europe’s Corporate Sustainability Due Diligence Directive, UK regulators have not yet made climate transition plans compulsory. That raises the question of whether the new guidance will be taken up at a rate that can move the needle on emissions or realise London’s hopes to become a hub of transition capital and services.
‘Docking in’
The TPT’s new sectoral recommendations come on top of a general disclosure framework published in October. The guidance enters a crowded field of climate reporting principles, spanning everything from nature-related risk to carbon offsets.
But Ben Caldecott, an Oxford university sustainable finance professor who co-heads the TPT secretariat, told me that the new guidance could help organise those existing commitments.
“We’re not saying that [TPT guidance] suddenly gazumps everything else — it’s quite the opposite. These other things can dock into it,” he said.
The TPT guidance builds on the disclosure standard developed by the International Sustainability Standards Board, which says that if a company has a transition plan it should disclose it. TPT, Caldecott said, “provides the necessary further depth and detail”.
The guidance, he said, was “more about creating a framework over the short, medium or long term [for users] to deliver their existing commitments . . . than saying, there is one particular set of targets you need for this to count as a credible transition plan”.
For example, the framework for metals and mining is “material-agnostic”, including towards coal mining, though it notes the high emissions of coal combustion. Rather, it suggests that users disclose the objectives of their coal operations, including new coal mine openings.
Once plans are disclosed, Caldecott said, critics may argue that they are not ambitious enough. But, he added: “I think that speaks to part of why we need these things. So we can start to have meaningful engagements, debates, arguments about which bits of a transition plan should improve.”
At COP26, Sunak said the government would “move towards making it mandatory” for companies to publish decarbonisation plans, but for now the guidance remains a suggestion, not a rule.
Asked about this, Havard-Williams, who helped develop the TPT guidance, pointed out that the Bank of England and the Financial Conduct Authority, the UK’s top financial regulator, were observers of the TPT. That presence, she suggested, could mean more regulation down the line.
But others have warned that the voluntary nature of transition planning could undermine the TPT’s purpose. Under the current “comply or explain” regime, listed companies and large asset owners are required to describe their transition plans — but they can simply disclose that they do not have a plan.
A November House of Commons report argues that, as a result, the UK “risks losing its leadership position in the green finance space by deferring its commitment to mandatory transition planning”.
Beyond net zero
The TPT guidance released yesterday also includes advisory papers on environmental topics such as nature, climate adaptation, and the just transition. That’s partly the result of pressure from climate groups which argue that transition plans should consider risks to stakeholders ranging from oil-rig workers to endangered species.
“If you just look at net zero, you’re missing out on some really important things,” Caldecott said.
Looking ahead, the TPT’s mandate has been extended to work with Havard-Williams’ new review body on ensuring the credibility and integrity of transition finance. If the UK is to lead, a key question will be how investors evaluate polluters’ plans for cutting emissions. Getting the terms straight could be a first step.
“Currently, transition finance is an area in relation to which there are relatively few examples,” Havard-Williams said. “That’s probably because we don’t have a clear way of working out what counts.”
Right to reply
In Monday’s edition, we explored how a shift in the International Energy Agency’s guidance on fossil fuel investment had fed through into UK bank Barclays’ climate policy. Reader Paul OBrien in Wyoming wrote this in response:
This morning’s discussion of Barclays raised a critical point on green investment policies: What future should they assume?
But your argument about defining “long-lead-time” projects does not go far enough. We know that under current government policies the use of fossil fuels for energy will not go to zero by 2050. And even if it did there still would be millions of barrels per day produced for petrochemicals, plastics, etc. We know that governments are backsliding on commitments to reduce the use of fossil fuels. We know that the boom in AI and data centres promises a surge in energy use.
Investors should act on the basis of the most likely future, not the future they want to happen. The future we will experience is uncertain, of course. But for something specific like energy infrastructure, public policies expected to be in place in five or 10 years will be critical. I’m sure ShareAction is a sincere group, but aren’t actual government decisions a more important context? Is pounding on Barclays or some other bank or investment fund, or on the IEA, really helping your readers understand the problem? Or should you make clear that until voters and governments mark clear limits on fossil fuel consumption in the future investors should be expected to underwrite continued development of supply?
Smart read
Nobel-winning economist Angus Deaton has a must-read mea culpa about the impact of globalisation on poverty reduction in the IMF’s quarterly journal.
Read the full article here