ESG+ Newsletter – 15th December 2022

Nature positive potentially the new net zero, but biodiversity deal lacking

As COP15 talks in Montreal went past a week in length, negotiations appeared to be stalling. A lack of engagement and firm positions from countries, including the EU, a group of African nations and Latin America, have soured prospects of a global deal. In particular, proposals to protect 30% of the planet and issues around financing seem to be making reaching a consensus difficult – familiar to those who have toiled on the climate front.

The business and finance days at COP15 did bring a burst of energy though, and examples of companies actively engaging in the biodiversity crisis. As Jenn-Hui Tan, global head of stewardship and sustainable investing at Fidelity International points out, nature positive is the phrase on everyone’s minds in Montreal. Nature positive is a concept whereby biodiversity loss is reserved and previously lost areas are restored. Arguing that nature positivity could be as big as net zero, Jenn-Hui points out that achieving this will be challenging as impacts in different ecosystems cannot be directly compared since biodiversity tends to be a localised issue. While there are complexities to dealing with this challenge, it is clear that COP15 has spurred interest in biodiversity with the World Benchmarking Alliance releasing its first nature benchmark, ShareAction releasing a report assessing Europe’s 25 largest consumer banks’ responses to the joint climate and nature crises, and the launch of Nature Action 100, an investor coalition which aims to engage with businesses to reverse biodiversity loss. If this momentum continues post-COP15, biodiversity looks likely to remain one of the most pressing issues facing businesses and their investors.

Holly Pettingale, sustainability lead at FTI was providing updates on the ground, which are now live here.

A week of mixed fortunes for ESG and Net Zero

Vanguard announced last week that it would be stepping away from the Net Zero Asset Managers (NZAM) initiative, a consortium of nearly 300 multi-million dollar asset managers with the shared goal of net zero emissions by 2050. In a statement, Vanguard outlined that it would be withdrawing from the initiative to reassure investors that it acts independently in relation to climate-related risks.

Almost simultaneously, there was more positive news in the push for net zero, with the world’s largest sovereign wealth fund declaring that it intends to vote against companies without a net zero emissions target. The $1.3tn Norwegian oil fund also intends to target other ESG issues such as executive remuneration and board diversity. At a recent event, the fund’s chief executive Nicolai Tangen issued a warning that it would “absolutely” vote against the directors and Boards of companies that fail to set net-zero targets. He also had stern words on executive pay and stated that the fund wants to see executive pay focused on the long term and aligned with shareholder interests, a potential ode to restricted shares. With the oil fund owning, on average, 1.5% of every listed company, the statement should put Boards across the globe on notice that net zero commitments need to be backed up by tangible action.

EU reaches tariff agreement for carbon heavy imports

As reported by Reuters, a deal was reached on Tuesday between the European Parliament and negotiators from EU member states to impose a tariff on imports of carbon intensive inventory, such as steel and cement. The proposed Carbon Border Adjustment Mechanism would require companies shipping those goods into the EU to declare any emissions directly linked to the production process while requiring the purchase of an emissions certificate if EU standards are exceeded. The latest step ultimately means that any business, and country, not aligned with the EU’s climate strategy as it relates to carbon heavy industries, will have an additional cost placed on its exports into the union.

Mohammed Chahim, the European Parliament’s lead negotiator, noted that the tariff will be a key mechanism in incentivising trading partners to decarbonise. Notably, the agreement includes imported hydrogen, despite not being included in the original draft and despite its potential role in the wider energy transition as a key resource to bridge the gap to renewables.

In case you missed it

• The FCA Board has established a new ESG Advisory Committee to help execute its ESG-related responsibilities. This includes meeting the Government’s expectation of achieving a net zero economy by 2050. The Committee will provide guidance to the Board on relevant emerging ESG topics or issues and views on how the FCA should develop its ESG strategy.
• Salesforce plans to expand Sustainability Cloud into a full ESG reporting tool. The company intend to do this by taking advantage of a range of Salesforce tooling from MuleSoft – connecting to data sources to Tableau – for data visualization to help companies better understand their progress towards ESG goals.

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