Welcome to Moral Money. 2020 was a crazy, wild, shocking — tragic — year. Covid-19 upended numerous forecasts, including some that the Moral Money team had cheerfully made back in the calm days of January 2020, when the global economy was booming (remember that?)
So what happened with the biggest storylines we set out to cover at the beginning of the year? What do we expect in 2021 when the coronavirus scourge finally dies down? (Here is hoping.)
We will address the second question in a few days’ time in a separate note, and — as ever — would welcome any forecasts of your own. But before looking to the future, let’s take a glance back at 10 major themes we laid out for 2020. After all, transparency is the bedrock of environmental, social and governance . . . no matter how embarrassing it might seem.
We got this point half wrong. The focus on ESG in finance and business has exploded in the past year. But we did not quite predict how Covid-19 would have an impact on this growth. In March, when the economy collapsed, we briefly feared that the pandemic might derail the rise of ESG.
After all, history shows that sustainability movements tend to wilt in recessions, and the pandemic was such a dramatic shock that it seemed logical to think (fret) that companies and investors would regard sustainability as a luxury they could no longer afford.
Not so. Unlike earlier recessions, the Covid-19 shock has accelerated the sustainability momentum. This is remarkable, particularly since it seems likely to continue in 2021, for reasons we will set out next week. We are thrilled our initial reaction in March was wrong.
The first question we posed last year was “Can anybody create unified ESG standards?” and the answer was, unfortunately, no.
But we did see some good progress.
Early in the year, the World Economic Forum and the Big Four accounting firms announced that they were developing a new disclosure framework linked to the UN’s sustainable development goals. It is still a work in progress — and has elicited some criticism for not being stringent enough — but the fact that the Big Four are working together at all shows just how important this topic is.
We also saw some important developments from the biggest players in the ESG data world (the aforementioned alphabet soup). In September, the Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI), CDP, International Integrated Reporting Council (IIRC) and Climate Disclosure Standards Board (CDSB) joined up to work on a unified ESG framework. Just last week we saw the fruits of their labour begin to take shape. Check it out for yourself here. Simply put, this is a big deal.
It is too early to tell if it will be the silver bullet that markets have been waiting for, but the International Organization of Securities Commissions (IOSCO) has already given the group a vote of confidence. All eyes turn now to the International Financial Reporting Standards Foundation (IFRS), which is set to weigh in on the matter soon.
Joe Biden started 2020 trailing in his party’s primary. In the waning days of the year, Mr Biden is packing for the White House with an opportunity to shape ESG rules in the US. Mandatory climate risk and other ESG disclosures are likely to be a top agenda item for the US Securities and Exchange Commission in 2021.
But the Democrats’ failure to win the Senate, combined with Republican gains in the House, will limit Mr Biden’s ambitions. Even if liberals win both Georgia Senate seats in the runoff on January 5, the Democrats will have the slimmest majority possible to advance climate and ESG laws through Congress. The political picture facing Mr Biden ensures the US will lag Europe on sustainability policies for years to come.
We noted in January that “one intriguing question for 2020 is whether [Donald] Trump might soften his stance” towards green issues and the Paris climate accord, since there were signs that some centrist Republicans were embracing climate change issues. He didn’t. On the contrary, in the closing days of his administration, the White House intends to auction off leases to drill in the Arctic wildlife reserve and the Office of the Comptroller of the Currency is taking measures to prevent banks from withholding finance for this on ESG grounds.
However, some Republicans have been quietly positioning themselves to be more open to climate change debates, mindful of how their own base is shifting. Moral Money might have been a little too optimistic about how swiftly Republicans would make this shift; but the momentum is there.
Banks sharpened their long, long-term vision this year in line with shareholder sentiment — as we suspected they would — with an increasing list of firms pledging to be net-zero by 2050. Barclays, HSBC, TD Bank and others committed to align all customer financing activity to the 2015 Paris climate accord. Morgan Stanley this year became the first big US bank to say it will measure, disclose and set a target to achieve net-zero financed emissions by 2050.
Elsewhere on the sustainability spectrum, Australian banks pulled the plug on coal. Deutsche Bank promised to double its green financing activities to €200bn by 2025.
While these pledges were applauded, environmental campaigners will be agitating for more in 2021. Earlier this month, San Francisco pressure group As You Sow filed 2021 petitions at JPMorgan, Wells Fargo, Bank of America, Goldman Sachs and Citigroup calling for immediate, tangible steps to disclose and cut fossil fuel financing.
We said in January that artificial intelligence and smart home technology could take a leading role in the increased use of renewable energy in 2020. We forecast this because of the difficulty of consistently generating renewable energy and the challenges of storing it. Not to mention the issue that energy consumption is used, and priced, with no connection to supply.
Like many good ideas, this got kicked to the kerb in 2020 by the Covid-19 shock: progress in harnessing smart technology to distribute green power more effectively is still slow. So, sadly, is the development of effective battery technology.
We forecast that this year would be the year of “olive” with financiers increasingly looking at not just “green” and “brown” bonds and loans. Instead, they would see a transition in progress as businesses moved along a spectrum from brown to green.
We were correct: olive products, approaches and strategies became all the rage in 2020 as financiers hunted for ways to apply ESG standards to dirty industries such as fossil fuel companies.
Critics complained this smacked of greenwashing. Financiers retorted it was the only way to tackle the key sources of pollution and emissions (aka those fossil fuel groups) and to create the right products that could be sold to investors. Either way, the momentum has been striking — notwithstanding the fact that the “green” taxonomy that the European Commission released this year is fairly rigid (i.e. not very olive friendly at all.)
We pointed out in January that 2020 was the start of the UN’s self-styled “decade of delivery”, when the world was supposed to hit its sustainable development goals. Back then, progress was patchy, but the conversation was shifting.
On the zeitgeist point, Moral Money was correct: there has been plenty of chatter about SDGs. On the “progress” point, however, 2020 has not just been “patchy” — but disastrous. The economic impact of the pandemic has undone years’ worth of progress in meeting many of the UN’s targets for health, literacy and gender equality and economic development in poor countries. That makes the SDGs doubly important; but this cruel twist also makes them even harder to achieve, not least because there has been relatively little debate about these issues recently with rich countries consumed with their own woes.
In an effort to find something — anything — else to talk about that was not linked to Brexit, 2020 was a contender to be the year that Boris Johnson’s government would go green. The need for more green initiatives and sustainable business was perhaps the only thing on which almost all of the UK’s political parties could get behind.
We were correct, albeit rather late in the day. For most of the summer, Mr Johnson was so Covid-19 obsessed (rightly so as the UK suffered from more total excess deaths than any country in Europe) that sustainability slipped off the agenda, particularly after the Glasgow climate summit was delayed to 2021.
But now Mr Johnson is making up for lost time (not least because he wants to show that the UK can still be a global leader amid the woes of . . . er . . . Brexit). We have seen a blitz of public-private initiatives and bold talk about making London the green financial capital of the world. That may be over ambitious. But, happily, this is still one aim (if not the only one) that the UK’s various political factions can agree on, without mentioning that dreaded “B” word.
Chinese president Xi Jinping’s pledge in September to make his country carbon neutral by 2060 surprised the world — even reporters at Moral Money, who forecast that the world’s largest polluter might prevail as an ESG leader in 2020 a year ago. Mr Xi earlier this month followed up his pledge with more concrete, near-term reduction plans, easing concerns over Beijing’s dedication to cutting emissions.
China’s move forced the hands of economic powerhouses in the region. Both Japan and South Korea declared within almost a month that they would be carbon neutral by 2050. Recipients of China’s economic support — such as Pakistan — also started shifting from coal to renewables. China, Japan and South Korea are the main financiers of overseas coal projects, so their green commitments will have a global impact.
Asia started the year as an ESG laggard, but it has transformed itself into one of the most active participants of the movement after Europe. This is partly thanks to China’s involvement and the current US administration’s disengagement. But, while the “E” factor of ESG made a great stride, “S” and “G” remained relatively unnoticed. With the Covid-19 recovery unfolding, we hope that sustainability will get more attention next year in Asia, where the number of people living in poverty is expected to increase for the first time in 20 years.
Here’s one more thing we did not expect in January . . . in 2020 Moral Money was also named Newsletter of the Year by the Society for Advancing Business Editing and Writing. We were surprised and thrilled, given that this SABEW award is not just for ESG but all forms of business journalism, and it is another sign of how ESG is moving into the mainstream.
We know we could not have done this without the support of all our Moral Money audience. So thank you!! We hope you have a festive (and safe) holiday season. We’re off on Friday but stay tuned for our 2021 predictions next week.