Hello from New York, where I’ve just arrived ahead of the Moral Money Summit Americas here on Tuesday and Wednesday next week. Do join us for two days of compelling debate with a stellar cast of speakers including former Colombian president Iván Duque Marquez, former US vice-president Al Gore, and SEC commissioner Hester Peirce. You can register to attend, either in-person or online, here.
Also, don’t miss the latest in Sarah Murray’s series of authoritative, deep dive Moral Money Forum reports — this time on the sustainability push within the controversial private equity industry. In the next report Sarah will tackle biodiversity risks and impacts, and she wants to hear from Moral Money readers as part of her research. Please take a minute to share your thoughts through our reader survey.
In today’s edition, Kenza reports on how carbon “insetting” may be catching on in the UK pension sector (following on from Patrick’s recent piece on that theme). And I wrote on the hefty to-do list facing Sherry Madera, the new head of the Carbon Disclosure Project. Thanks for reading. — Simon Mundy
Pension fund drops ‘net zero’ claim
Back when carbon credits were still fashionable in 2021, it seemed avant-garde of UK pension scheme Cushon to offer a “net zero” version of a fund, claiming investments had a net neutral impact on the climate.
Moral Money has wondered since then whether this type of label would spread throughout the financial sector, given its obvious appeal to pensioners and savers worried about their impact on the planet.
However, appetite for products claiming to have a “net zero” or “neutral” environmental impact appears to have been seriously dented by questions about whether carbon credit projects are achieving the impact they claim. Nature-based projects based on forestry projects have come under particular scrutiny.
Last month, the UK’s Carbon Trust consultancy stopped offering “carbon neutral” verification, while the EU said it intended to ban companies from using carbon credits to make public claims of being “climate neutral”.
In a sign of the financial industry’s shifting mood towards this subject, Cushon told Moral Money that from today it would no longer offer new clients a “net zero” option. This means ditching a key part of its previous marketing strategy, after previously describing itself as the “world’s first net zero pension”.
The pension fund will focus instead on achieving an 80 per cent cut to the emissions linked to holdings in its sustainable strategy, as a proportion of total holdings, and relative to the broader economy.
This goal covers $400mn of Cushon’s managed funds, and could soon include up to $1.6bn more, depending on trustee approval.
Cushon’s “net zero” claim over the past two years has relied on buying carbon credits, which represent one tonne of carbon dioxide emissions being avoided, reduced or captured. Then as now, no company appears to have achieved net zero via cuts to original sources of emissions, such as their supply chain or product use.
“You can’t build a diversified portfolio with no emissions at the moment, it’s not possible,” Cushon strategic adviser Julius Pursaill told me last year. Buying offsets meant the strategy could hit net zero while remaining reasonably diversified, given the small number of companies that emit very little, he said.
This week, however, he told me the offsetting question had become an unwelcome distraction. “We became aware that the vast majority of focus from external commentators and investment advisers was on our offset strategy, the type we were buying, the verification of calculations . . . what was going on inside the investment strategy was getting no attention whatsoever.”
The new priority is tweaking the portfolio annually to prioritise the lowest emitters and those cutting emissions fastest. The Cushon Master Trust still aims to invest around 5 per cent of assets in natural solutions, including carbon credits — subject to trustee approval — so it’s not repudiating the idea completely.
The focus on decarbonising the strategy by more than half by 2030 is meant to shift the Overton window of politically acceptable ideas, just as the “net zero” description did previously, Pursaill said. Companies globally have typically been setting goals to halve emissions by 2030, and reach “net zero” by 2050.
One thing hasn’t changed in Cushon’s approach, however: the pension fund still does not include investee companies’ indirect emissions, known as scope 3, in target-setting, due to concerns about the quality of data disclosed by companies. This is the case even for the fossil fuel companies in its funds, whose indirect emissions account for the vast bulk of their climate impact (for example, the emissions from an oil company’s petrol when it’s used in cars).
Pietro Rocco, head of green finance at the Carbon Trust, told Moral Money that pension funds globally would “not have a material impact on decarbonisation” if they failed to include scope 3 emissions, which make up the majority of investee companies’ carbon footprint globally. “We always say that an [imperfectly calculated] footprint is better than no footprint.”
He added that the Carbon Trust expects more financial institutions to drop terms like “net zero” and “carbon neutral” unless these terms are independently verified, due to increasingly “critical” consumers and “stringent” regulation. (Kenza Bryan)
A busy in tray for CDP’s new chief
The non-profit Carbon Disclosure Project was an early mover at the intersection of business and climate change: it’s been helping companies to report their carbon emissions since 2001 (two years before the birth of Greta Thunberg, to put things in perspective).
Today, it’s a unique resource, with a database that collects and makes available carbon reporting from more than 23,000 companies around the world. But at a time of proliferating data sources and standards, can this venerable institution stay at the centre of the business sustainability agenda?
That’s the task faced by Sherry Madera, who took over this month as CDP’s chief executive — replacing Paul Simpson, a member of the founding team who had led the initiative for the past 12 years.
Madera — who previously worked as a public policy executive at Mastercard and as a UK trade official focused on China — told me that software will be a central focus. Many Moral Money readers will have experience of disclosing or accessing data through the CDP’s platform. Madera promised a comprehensive overhaul of the system to be completed next year. The changes will make the system easier to use for regulators and others seeking data. Importantly, it will also seek to ease the burden of reporting, particularly for smaller companies.
According to new CDP figures released today, there has been a 24 per cent year-on-year rise in companies using its platform to disclose carbon emissions. The expansion has been particularly strong in the Asia-Pacific region, Madera noted, as Asian companies close the gap with the US and Europe. Eighty-six per cent of S&P 500 companies already report through CDP, and 94 per cent of the UK’s FTSE 100.
Listed companies worth $67bn now report using CDP, the body says — equivalent to two-thirds of global market capitalisation. Uptake has been lower among privately held companies, which have not faced the same pressure for climate disclosure as their publicly listed peers. But Madera said she expects that to change, as they come under pressure for transparency from business clients.
CDP is also working to set its system up for reporting under the new standards from the International Sustainability Standards Board, and the recommendations from the Task Force on Nature-related Financial Disclosures. Amid this flurry of activity around reporting, I noted, some have voiced concern that the emphasis on disclosure could distract from the push for substantial climate action.
“I think this is where targets come in,” Madera replied. “Once you disclose a baseline of data, you need to figure out where it is you’re trying to go to, and measure and manage that on an annual basis, maybe even more frequently . . That is where disclosure absolutely dovetails with real action.” (Simon Mundy)
Smart read
The FT’s chief economics commentator Martin Wolf weighs in to the intensifying debate over how to reform the world’s multilateral development banks, with a typically authoritative column.
Read the full article here