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After losing to Joe Biden, US president Donald Trump has certainly not gone quietly into the night. But while his attempts to overthrow the election results have (rightly) dominated the headlines, his lame-duck administration has made some other controversial under-the-radar moves that should not be ignored — such as moving to auction off oil leases in the Arctic National Wildlife Refuge.
To tackle this very important topic, this week we’re doing something new. We’re hashing things out with our Energy Source colleagues Derek Brower and Myles McCormick to give you a full picture of what this means for often intersecting worlds of energy and sustainability. Read more from Derek and Myles by subscribing to their newsletter here. And let us know what you think of this new format at
Derek Brower (ES): The Trump administration spent almost four years trashing rules designed to protect the environment, from loosening controls on oil and gas companies’ methane pollution, to allowing mercury emissions from power plants, to opening up national forests to drillers. It eased Obama-era fuel economy and emissions standards for passenger cars. The day after President Trump lost the election, the US formally left the Paris agreement.
But let’s be clear about Mr Trump’s hopes to open the Arctic National Wildlife Refuge to drillers. Yes, he plans to sell leases just days before President-elect Biden enters the White House. But this is pure symbolism. Exploring North America’s Arctic is expensive and risky. Shell, the last big major to launch a big Arctic campaign, blew more than $7bn before abandoning the idea in 2015. Forget climate activists, the market would punish any company willing to plough billions into such costly adventurism. Plus, there’s enough oil in Texas — available without much controversy, producible quickly and at relatively low cost — to keep producers occupied. The world is not clamouring for Arctic oil.
Moral Money colleagues, what do you think? Is Mr Trump just toying the Arctic stuff to own the libs one last time?
Billy Nauman (MM): You nailed a couple of important themes here, Derek. “Owning the libs” often appears to be Republicans’ sole aim these days. But Trump is not alone in creating Arctic policies that amount to little more than symbolism. Companies that claim to care about global warming are getting in on the action as well.
After years of activists and investors ratcheting up pressure on banks that lend to fossil fuel companies, we’ve started to see a wave of new climate policies rolling in from the finance sector. One of the most common pillars of these policies is — you guessed it — a pledge to stop funding fossil fuel projects in the Arctic. Goldman Sachs, JPMorgan Chase, Wells Fargo, Citi, Bank of America and Morgan Stanley have all jumped on this bandwagon.
The zeitgeist is certainly changing in finance. Banks are finally waking up to the risk that fossil fuel companies will be forced to leave significant portions of their assets in the ground. The massive PR accompanying these announcements also indicates that they are still desperate to rehab their images after the last financial crisis, and see “climate-consciousness” as a good way to do that.
But since no one wants to touch the Arctic anyway, as you point out, it is difficult to get too excited about these commitments. If Arctic oil somehow became an attractive investment, it would be meaningful if banks actually stuck to their guns. (I’m sceptical that they all would). Doing it now is pure symbolism.
At the end of the day, a banker’s job is to assess risk — and investing in Arctic oil exploration is just not a smart bet. They don’t deserve a pat on the back and a green star just for doing their jobs.
Myles McCormick (ES): That is exactly the crux of it Billy: it’s easy to take a stand against something that isn’t going to happen.
As Derek points out, the newfound ability to exploit America’s abundant shale resources has largely put paid to the days where plucky wildcatters would set out on high risk, high reward missions to unearth big oil reserves. But there is another reason why drilling in ANWR is not a realistic prospect: a septuagenarian from Scranton named Joe Biden.
Even if some enterprising upstart buys up leases in ANWR, despite the odds stacked against it, the man who takes up residence at 1600 Pennsylvania Avenue next month will do all he can to impede the project. While Mr Biden cannot easily cancel the lease sales, he can slow the process to a snail’s pace, driving up costs to make the project even less palatable.
More tools Mr Biden has at his disposal: an executive order to stop further development of ANWR pending a lengthy review; reallocating permitting staff away from Alaska; or he could go the whole hog and declare parts of the Alaska coastline a national monument, rendering it off limits to drilling.
Rushing through lease sales may be a symbolic gesture by Donald Trump. Stopping the project in its tracks, by hook or crook, would be an even greater symbolic gesture for his successor.
It is a fair bet that most directors whose companies have come through 2020 intact will be congratulating themselves right now on surviving a year of unparalleled governance challenges. But a new survey should give them pause.
PwC and the Conference Board asked more than 500 C-suite executives of US public companies how they thought their directors had performed this year. Only 30 per cent thought their board was capable of responding well to a crisis, and 35 per cent said it had “struggled to provide effective oversight” when Covid-19 hit.
The reason, it seems, is who is sitting around the boardroom table. Eighty-two per cent of executives think that at least one member of their company’s board needs to be replaced (while just 49 per cent of board directors say the same about their peers). Advanced age and “overboarding” — directors juggling too many jobs — are the biggest complaints.
Much of this year’s governance discussion has focused — rightly — on the need for improved boardroom diversity, and the survey shows that the vast majority of executives agree that less conformist boards are more effective. But the extent of concern in the C-suite suggests that board chairs and ESG-conscious investors may need to pay as much attention to directors’ effectiveness as they are belatedly paying to board composition. (Andrew Edgecliffe-Johnson)
M&A activity in the ESG data space has been enriching investment bankers handsomely over the past 12 months. Late last month, S&P scored a big acquisition with its $44bn purchase of IHS Markit, which will help the credit rating company incorporate emissions data into ESG scores (S&P acquired RobecoSAM’s ESG ratings arm in 2019).
The wave of consolidation has inevitably caught regulators’ attention. On Tuesday, the financial market regulators in France and the Netherlands pushed for the European Securities and Markets Authority (Esma) to take a targeted look at regulating ESG data and credit ratings. Sustainability service providers remain largely unregulated, the duo said, and that could lead to conflicts of interest as well as unfair barriers to entry for competitors. Esma should oversee sustainability service providers and shed light on their methodologies, said the Autorité des Marchés Financiers and the Autoriteit Financiële Markten.
Esma is already developing ESG disclosure standards for financial products that are likely to start in March 2021.
The ESG regulatory action remains firmly in Europe for now. On Monday, Michael Bloomberg called on the Biden administration to quickly mandate climate-related financial disclosures. But Joe Biden’s pick to lead the Securities and Exchange Commission is unlikely to start work on mandatory ESG disclosure regulations until the second half of 2021 at the earliest.
Until then, ESG stands for “Europe scores globally”? (Patrick Temple-West)
Nikkei’s Tamami Shimizuishi helps you stay up to date on stories you may have missed from the eastern hemisphere.
China’s pledge last week at the UN virtual Climate Ambition Summit to triple wind and solar capacity during the next decade eclipsed another important climate announcement from one of its neighbours in south Asia.
Pakistan’s Prime Minister Imran Khan announced that the country would have no new coal-fired power plants, and committed to sourcing 60 per cent of the country’s energy from renewables by 2030. He also said that 30 per cent of all vehicles will be electric in the next 10 years.
Pakistan’s contribution to global emissions is less than 1 per cent, but “sadly, we are the fifth-most vulnerable country to climate change”, said Mr Khan.
Mr Khan’s pledge is significant as it shows Pakistan’s awareness of the carbon lock-in effect and the risk of stranded assets, said Dimitri De Boer, chief representative of the China office for ClientEarth, an environmental law group. With falling costs of renewables, rising financing costs for coal, and the possibility of carbon pricing, coal doesn’t make economic sense any longer — even for developing countries.
The decision’s implication for “greening” China’s Belt and Road Initiative is also important. Mr De Boer added: “If some key host countries are saying no more coal, and instead want renewables, it becomes an easier decision for China to stop making such investments altogether.”
Other BRI recipient countries in Asia and Africa might follow Pakistan’s decision. Green technology is no longer a luxury reserved for developed counties.
The US Federal Reserve has finally joined the Network for Greening the Financial System the central bank said on Tuesday. This is a major step forward for the central bank, but as a new survey points out, the members of the NGFS are still grappling with how far they should go to fight climate change.