Welcome to Moral Money. Today we have:
Reaction to Prime Minister Boris Johnson’s 10-point green plan
Law firms scramble to build out ESG-specific practices
Big banks develop standards for financing emissions
Critical UK climate plan faces tough questions
This week Boris Johnson grabbed headlines without talking about Brexit, Covid-19 or his new(ish) baby — and turned instead to the issue of climate change. Hooray. But as the much-hyped climate plan landed this week with a thud, some critics called out its failure to set a clear road map for growing green finance.
So big players in the City of London are now scrambling to push Mr Johnson’s government to hammer out the important details — and thus get private capital to start working quickly to decarbonise the economy.
“This is a great strategic vision,” said Rhian-Mari Thomas, chief executive of the Green Finance Institute, a London-based public-private partnership. “But in order for it to be fully investable we now need to see the detail underpinning the plan.”
For Mr Johnson’s green revolution to become a reality, the government needs to deploy its balance sheet not just as grant money but also as a guarantee for green investors, she said.
“There really is a strong case for a new public financial institution in the UK — a new investment bank with a mandate to be a risk mitigation vehicle that clearly supports the 10-point plan vision by catalysing private investment into the newer technologies,” said Ms Thomas.
This, of course, would not be enough in itself. As the IMF has outlined, governments need to also set a meaningful price on carbon (Ms Thomas’s group has urged starting with a fee of £75 per tonne) and ensure that their transition plans do not make things worse for poor people. As Martin Sandbu noted, the UK’s plan does not meaningfully touch on either of these points.
Even when the plan dives into specific sectors it provides little specific information on how it intends to achieve its goals.
“While the plan picks out offshore wind, clean transport and green buildings as priorities for action in the next decade, it is disappointingly sparse in detail about how these outcomes are going to be achieved or how the pledges of new funding will deliver ‘world-leading industries’ in hydrogen and carbon capture and storage,” said Ian Simm, chief executive of Impax Asset Management. “Without this, we’re left wondering exactly how all of these individual headline-grabbing initiatives will combine to add up to net zero.”
There is also the problem of greening the rest of the economy. Carbon prices and mandatory Task Force on Climate-related Financial Disclosures (TCFD) participation may help push companies in all sectors in the right direction, but a recent study from KPMG found that three out of four corporate directors didn’t believe they had the skills needed to go green even if they wanted to.
“[Mr Johnson’s plan] is a policy that is — in many aspects — not possible. The fact is, there is a cultural and expertise shift that has to take place first, that hasn’t yet,” said Michelle Davies, international head of clean energy and sustainability at law firm Eversheds Sutherland.
A survey from Edelman this week found that 69 per cent of asset owners wanted companies to tie executive pay to sustainability. In theory, this should give corporate bosses a reason to get up to speed. But as we noted last month, these pay packages often fail to incentivise real change.
So what can be done?
None of this is intended to suggest that it will be impossible for the UK government to deliver on its promises. The symbolism of this is striking — and welcome. But if Mr Johnson’s plan is going to achieve much of anything, his team will need to find a way to answer these tough questions, fast. (Billy Nauman and Kristen Talman)
Corporate law embraces ESG in toto
Lawyers are paid to find ways to win — whatever the climate. So it should be no surprise that global law firms are scrambling to build out ESG-specific practices to keep pace with the booming demand for regulatory advice and sustainable financial products.
Today, Clifford Chance, one of the four “magic circle” law firms that do the most lucrative City business, announced it had established an ESG task force to be headed by Jeroen Ouwehand.
The firm’s ESG efforts will include, for example, advising clients about eligibility of sustainability-linked bonds as European Central Bank collateral, Mr Ouwehand said.
Part of the initiative is commercial — about “monetising our knowledge” as banking clients are moving down the green path as well, said Mr Ouwehand, who is based in Amsterdam and mentioned he became a vegan in 2016. “The last generation of capitalism was really about going global, and I think the next one will be about going sustainable.”
US-based law firms Paul Weiss and Winston & Strawn announced ESG teams this year. In 2019, Freshfields appointed Tim Wilkins as global partner for client sustainability.
As the big law firms seek to monetise ESG work,
firms’ litigators are eyeing a boom in climate change court fights. Paul Weiss partner Ted Wells is representing ExxonMobil in a dispute with the city of Baltimore that is going before the Supreme Court in the weeks ahead.
Baltimore sued oil companies BP, ConocoPhillips and others alleging that the city had suffered from rising oceans and volatile weather as a result of carbon emissions. This Big Oil representation can get firms in hot water. In October, more than 600 law students from Harvard and other top schools delivered a petition to Paul Weiss asking the firm to drop Exxon as a client. (Patrick Temple-West)
FT Investing for Good USA: Accelerating Global Climate Action will take place in a digital format on December 2 at 12.30 EST. This event will discuss the role capital markets can play in unleashing the financing so urgently needed to recover from the Covid-19 crisis while avoiding the worst effects of climate change. As a Moral Money subscriber, register here for your free pass.
Big banks set new standard for measuring emissions
Action around (yet another) acronym is heating up. This week, the Partnership for Carbon Accounting Financials (PCAF), a group of banks and other lenders, announced that it had established a standard for measuring “financed emissions” — a major step forward in the push to green the financial system.
The announcement appears to have been lost in the current swirl of alphabet soup. But it would be a mistake to ignore it. As of this summer, under 1 per cent of financial institutions reported the emissions linked to their balance sheet — but that is changing quickly and the PCAF has signed up some big names including Morgan Stanley and Citigroup.
This is important for a few reasons. For starters, it seems likely that central banks are going to put this information under a microscope as they scrutinise climate risk in the financial system.
Climate-conscious investors are clamouring for this data too.
“Measuring and disclosing total financed emissions is the critical first step for banks to understand their climate impact, and for banks and investors to understand progress in reducing that impact,” said Danielle Fugere, president of pressure group As You Sow. “PCAF has become the globally accepted standard for measuring and disclosing results along this path. We hope to see all major banks join PCAF and begin the work necessary to achieve net-zero financed emissions.”
By participating in the PCAF, it would appear banks can have their cake and eat it. Not only do they get to have a say in how their emissions are tallied (rather than having the standards dictated to them by regulators) they may get their critics off their back at the same time. (Billy Nauman)
Chart of the day
On Thursday, the European Commission unveiled its strategy for offshore renewable energy. The project proposed to quintuple offshore wind capacity by 2030 — which would require €800bn. The funds will also be needed to build wave and tidal installations, biofuels from algae and floating solar panels.
Analysts at Morgan Stanley said on Thursday that much of the wind development was under way. Germany has announced that it expects an additional 20 gigawatts of offshore wind capacity by 2030, putting the country in position to have the most wind power in the EU in 10 years.
Grit in the oyster
The UK, which is hosting the UN COP26 climate change summit in Glasgow next year, is looking at innovative ways to cut carbon emissions — and the footprint left by web users has drawn its attention, our FT colleagues wrote this week. “If each person in the UK sent one fewer email a day it could cut carbon output by more than 16,000 tonnes a year.” Researchers have said that would be the equivalent of more than 80,000 people flying from London to Madrid.
No need to unsubscribe from Moral Money, Energy Source and the FT’s suite of high-calibre newsletters (please don’t). The 10 most “unnecessary” emails included messages saying only “thank you”, “appreciated”, “cheers” and “LOL”. That should be easy to cut.
Germany’s central bank chief Jens Weidmann, writing in the FT, said monetary chiefs could explore requiring better climate change risk disclosures, but they could not make up for a lack of consistent political action. “When it comes to saving the planet, central banks do not have a magic wand,” he added. This month, Moral Money featured a letter Mr Weidmann wrote to climate activists in which he said “central banks can do more to cope with climate change than they have done so far”.
Canada on Thursday joined the club of countries promising to achieve net-zero carbon emissions by 2050. Canada proposed legislation to legally bind the government to a net-zero process. Among other things, the government would need to hit rolling, five-year emissions targets.
Half a cheer for Boris Johnson’s green revolution (FT)
Fund Firms Home in on Climate Change, Exec Pay (Ignites)
Shareholders Tried to Combat Racial Inequality Through 48 Resolutions This Year. Here’s How Fund Companies Voted. (Barron’s)
CFTC’s Behnam: regulators must be alert to ‘greenwashing’ (Risk.net)
Here’s how to stimulate the global economy in a climate-protective way (Dr. Rajiv J. Shah)
Could carbon labelling soon become routine? (FT)