Good morning from New York — or maybe it’s the ice planet Hoth? Looking out the window it is hard to tell.
When Moral Money started talking about carbon prices (way back in 2019), it seemed like a sideshow for mainstream economists or accountants. No longer. Today the FT Lex team (traditionally a bastion of corporate finance orthodoxy) has an exemplary primer on the issue, with striking calculations. (One example: a carbon price of $100 would destroy “about $2.1tn, or 3.7 per cent off the market capitalisations of the 1,000 largest listed companies globally.”)
Investors should take note. Particularly since Janet Yellen, US Treasury secretary, recently co-authored a piece on the issue herself and seems keen to put some ideas into practice.
And this is not the only example of how the mainstream of finance is going green. Read on to learn about Goldman Sachs’s newest move on climate data and more.
In the early, idealistic days of the open source software movement, few people would have believed you if you told them that Microsoft and Goldman Sachs would one day be taking up the cause. And if you told them that these companies were doing so to help save the environment, they might have asked you for a hit of whatever you were smoking.
But here in 2021, this pipe dream has become a reality in the form of the Open Source Climate initiative (OS-Climate for short).
The group was founded last September by the Linux Foundation, Allianz, Microsoft, Amazon, Federated Hermes, and S&P. And today Goldman Sachs became the first bank to join its ranks.
The group’s primary goal is to create an open source “data commons” that will make it easy for anyone to access information on companies’ environmental performance. They are also planning to create a repository of tools that investors and regulators can use to perform climate risk “scenario analyses” and help companies set a path to net-zero emissions.
For Goldman Sachs, good data is the “lifeblood” of the analytical work it does in investment banking and global markets divisions, but good climate data can be hard to find, said Kara Mangone, chief operating officer of Goldman’s sustainable finance group.
“A lot of the info that is disclosed is fragmented [between] government portals, sustainability reports, and other sources,” said Ms Mangone. And by being involved in the OS-Climate group, Goldman can help ensure it includes information that the bank deems to be financially material.
Pulling this all together and offering it free to the public will undercut some of the companies that are making money from scraping, aggregating and selling climate data. But it would be a mistake to think the companies involved in OS-Climate are embracing their inner “information-wants-to-be-free” cyber-hippie spirit.
This story underscores how financial services companies expect to profit from going green. (See also: BlackRock’s big push on Aladdin Climate.) If banks and asset managers can get free, clean data to plug into their models, that opens up a lot of time and resources to do the more complex analytical work that they believe will bring in the big bucks.
Or to put it in Goldman-ese:
It’s easy to threaten to crack down on greenwashing, but a lot harder to effect change.
The UK’s Competition and Markets Authority (CMA) and the Netherlands Authority for Consumers and Markets (ACM) are taking steps (even if they are just baby steps) to get there by leading a first-of-its-kind sweep of companies’ green claims.
This investigation, conducted with the International Consumer Protection and Enforcement Network (ICPEN), found 4 in 10 of these websites appeared to be using tactics that could be considered misleading and therefore potentially break consumer law.
Some of the concerning green statements the CMA found include:
Notably, however, the report didn’t name names, and your guess is as good as ours as to which companies the report is calling out.
The CMA is developing guidance for UK businesses as part of its own investigation into misleading green claims. And though the CMA said it was not announcing any immediate action, companies should quickly address these concerns, said Cecilia Parker Aranha, CMA’s director of consumer protection.
The ACM said on Monday companies can fix concerns by substantiating sustainability claims, keeping them up to date, and being specific.
“Over the past few months, we have sat down with various market participants about our rules of thumb,” Cateautje Hijmans van den Bergh, a member of ACM’s board, told Moral Money. “We will now start enforcing the rules. Businesses that make sustainability claims that are incorrect or misleading can be fined by ACM.”
We’ll keep tabs on this and let you know when, and if, either group follows through on its threats. (Patrick Temple-West)
Imagine for a moment that you can pick two of the following three items: being green, supporting worker rights, or backing global trade. Which would you pick?
That, in essence, is the dilemma confronting the Biden administration — and one that investors need to factor into their portfolios. In recent days there has been ample evidence on display of the Biden team’s commitment to labour rights (as our colleague Sarah O’Connor notes). So, too, of the Biden team’s desire to go green. The new administration also seems keen to embrace a more positive tone towards globalisation.
However, there is a problem: US hostility towards China remains sky-high across the political spectrum and China accounts for a large chunk of the global green supply chain — in solar panels and much else. So much so that calculations by Bloomberg suggest that whereas the American Elon Musk tops the 2021 global green billionaires index, almost all the other green titans on this list are Chinese.
The Biden administration has tried to hit back in recent days by ordering the federal government to buy US-made electric vehicles from companies with unionised labour. It is a crowd-pleasing gesture for progressives. But that order rules out Tesla, which lacks unions right now, and while General Motors is (in) famously unionised, it does not yet have vehicles that qualify as truly made-in-America. Nor do any other “American” EV groups.
There is thus a yawning gap in the market. No doubt some entrepreneurs will soon be asking for financing from ESG venture capital to plug that gap. Or who knows: maybe Mr Musk will embrace labour rights too? That seems unlikely given that he has been, er, hostile to the idea of unions in the past (which, along with governance issues, has made it hard to determine ESG ratings for Tesla). But stranger things have happened. (Gillian Tett)
Watching the saga of the groups trying to set sustainable accounting standards often seems as exciting as watching paint dry. However, as the FT editorial board pointed out yesterday, it is a massively important story.
One of the key things to watch this year is what happens at the International Financial Reporting Standards Foundation (IFRS) — the influential non-profit group that oversees the International Accounting Standards Board (IASB). Late last year, the IFRS announced it was considering the creation of a Sustainability Standards Board, or SSB (alas, more letters in the alphabet soup). It opened a consultation seeking feedback from the market.
The consultation closed this week after receiving a staggering 583 responses (all of which have been published online).
The responses show wide support for the IFRS’s efforts and numerous calls for the IFRS to tap into the work that has already been done by groups such as the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-Related Financial Disclosures (TCFD). And of course Bank of America voiced its support for the group led by its chief executive Brian Moynihan at the World Economic Forum.
It will still be a while before we see anything definitive out of the IFRS. (It certainly has a lot of reading to do.)
Its next step is to produce a proposal on how the SSB will be set up. It expects to finish that by the end of September. Then at COP26 in November, it hopes to be able to announce that the SSB will be established. However, judging by the language in the IFRS’s press release, we would not be surprised if this drags on into next year. (Billy Nauman)
Nikkei’s Tamami Shimizuishi keeps an eye on Asia to help you stay up to date on stories you may have missed from the eastern hemisphere.
The Japan Bank for International Cooperation’s (JBIC) decision to finance a controversial coal power project in Vietnam has created a global backlash.
“In my [15-year] career, I have rarely seen such a distance between marketing and actual financing,” said Ulf Erlandsson of the Anthropocene Fixed Income Institute, an advocacy group. JBIC’s announcement said that it would provide financing to the Vung Ang 2 coal project through its “Growth Investment Facility”, which is designated for the development of quality infrastructure for “environmental preservation and sustainable growth”.
Mr Erlandsson calls on investors to boycott JBIC’s bonds. “I don’t see how that investment — which everyone knows will be in play for financing Vung Ang 2 — aligns with any sensible bank policy not financing new coal plants,” he said.
In Japan — where youth movements are rare — a group of climate change advocates in their teens and 20s demanded JBIC explain why it supports the coal-fired plant.
In response, JBIC said that the project was needed for “economic development in Vietnam”. Momoko Nojo, a leader of the youth movement, said that she understood JBIC’s logic, but was also disappointed with JBIC’s lack of enthusiasm in curbing global warming.
According to Nguy Thi Khanh, a pioneer of Vietnam’s environmental movement and founder of Hanoi-based Green Innovation and Development Centre (GreenID), the general public and local governments in the county have well understood the negative impacts of coal power and showed opposition.
“Given the coal divestment movement has been become bigger and bigger, such a decision [to finance Vung Ang 2] would leave JBIC alone, and out of the global effort to tackle climate change,” said Ms Nguy.