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The Chronicle

By Joel Kenrick

Mark Carney sets global green growth priorities:

After a few days off below is The Chronicle. My must read of last fortnight is the speech (PDF) by 1) Mark Carney setting out global green growth priorities in Berlin last Thursday. He makes clear his expectations on disclosure and green bonds for the G20 ending his speech saying ‘the German Presidency could be decisive.’ Full speech at end. Other notable news and reports include: 2) Preventable Surprises investigate the ‘Missing 60%’ of investors who failed to back climate resolution at Exxon, while Blackrock back new initiative on 'Focusing Capital on the Long-Term'3) Waltham Forest first council to adopt fossil fuel divestment strategy, 4) France and Luxembourg compete on green finance, 5) Investors urged to oppose fossil fuel bonuses, 6) UNEP Inquiry second annual report published today and 7) EU near to Paris Ratification.

1) MARK CARNEY SETS OUT GLOBAL GREEN GROWTH PRIORITIES

On 22 September Mark Carney, the Governor of the Bank of England and Chair of the Financial Stability Board, gave the Arthur Burns Memorial Lecture in Berlin (Full PDF including slides on Bank of England, also at Mark Carney speech in full: 'Resolving the climate paradox'Business Green ($), 23 Sept. Also full text pasted at end of email). 

The speech was the third significant intervention by Mark Carney, coming after his ’Tragedy of the Horizons’ speech last September, andestablishment of the FSB Task-force on Climate-related Financial Disclosures (FSB TCFD) during the COP21 Paris climate talks. Notably he offered ‘an outside observer’s perspective on three of the core issues' the Task Force 'must address in its Final Report’:

  1. 'Static disclosures of current carbon footprints are not sufficient to reveal a company’s climate-related financial risks. Investors and creditors need to know the strategic as well as the static.' 
  2. 'The robustness of a firm’s strategy and targets could be further illuminated through scenario analysis which weigh firms’ strategies against plausible public policy developments, technological advances, and evolving physical risks.' This could be based on the Nationally Determined Contributions (NDCs) of the countries the business operates in, or on the ultimate two-degree goal, and need to be sufficiently transparent to allow for comparisons and challenge.
  3. 'There may be merit in considering a proportionate approach that scales the granularity of disclosures to the risks faced by firms.'However investors should still have information they need to seek out risks and rewards across all sectors of the economy. 

He also suggested specific measures on green bonds, including standardising terms and conditions and creating voluntary definitional frameworks, certification and validation to give certainty a project is ‘green.'

The speech received widespread coverage in the UK media, with the Financial Times highlighting Carney’s 'optimistic scenario in which investment in low-carbon technology could simultaneously solve many of the world’s most stubborn economic problems at the same time as mitigating the likely rise in global temperatures.'  (Mark Carney lays out vision for ‘green’ global growthFT ($), 22 Sept)

Business and investors appear to be “hedging future disaster risk” Bloomberg report Carney saying, but while “Green investment represents a major opportunity for both long-term investors and macroeconomic policymakers seeking to jump-start growth” … “For this to happen, however, green finance cannot conceivably remain a niche interest over the medium term.” Carbon footprint data is “not sufficient to reveal a company’s climate-related financial risks” Carney said, and investors “need to know the strategic as well as the static” and should be given various scenarios each company thinks might unfold. (Carney Says Green Finance Can Help Prop Up Global EconomyBloomberg, 22 Sept)

According to the BBC Carney said 'long-term financing of green projects in emerging markets would promote financial stability’ and reduce climate change risks (Mark Carney : Green finance 'a major opportunity’BBC, 22 Sept) while the Press Association highlighted that ‘"too rapid a movement" towards climate-friendly reforms could catch markets unprepared. "Sudden changes in policy, technology and physical risks could prompt a reassessment of asset values as costs and opportunities become apparent," Mr Carney said. "The speed at which such re-pricing occurs is uncertain but could be decisive for financial stability." (Mark Carney warns against 'too rapid a movement' towards low-carbon economyBelfast Telegraph, 22 Sept)

Business Green put his comments in the context of City Minister Simon Kirby’s assertion last week that green finance is a ’top priority’ for the Treasury and the G20 leaders vow to scale up green financing (Mark Carney: 'green finance can help resolve tragedy on the horizon’,Business Green ($), 23 Sept). Responsible Investor focus on Carney’s specific proposals including his suggestion that 'environmental risk should be integrated into credit ratings, calling for greater standardisation of green bonds and climate disclosure, in a speech in which he declared Germany’s upcoming presidency of the G20 “decisive” for the green economy.’ (Carney calls for standardisation of green bonds and climate disclosureResponsible Investor ($), 23 Sept)

In the German media, Handelsblatt focus on his support for green bonds (Londoner Notenbankchef plädiert für Ökoanleihen, 23 Sept). 

In other news, officials are apparently ‘increasingly confident that Mark Carney will stay on as Bank of England governor until 2021, rather than leave in 2018 as he originally indicated when appointed in 2013 (Confidence grows that Mark Carney will steer BoE through Brexit,Financial Times ($), 23 Sept). See also Reuters, and Daily Telegraph (Whatever his faults, Carney should stay in charge at the Bank of England, 23 Sept).

2) TOP INVESTORS PLAYING GAMES OVER EXXON VOTE

BlackRock, Invesco, BNY Mellon and Vanguard voted against investor-led climate change resolutions at Exxon and Chevron according to data shared with FTfm by Fund Votes (Asset managers accused of climate change hypocrisyFinancial Times ($), 25 Sept). They report that Aberdeen voted against the climate resolution at Chevron, but not at Exxon. Raj Thamotheram, chief executive of Preventable Surprises told the FT: 'This inconsistent stewardship behaviour by systemically important fund managers is quite hard to understand, especially when they are also saying they are long-horizon investors who take stewardship seriously [and] put their end beneficiaries first.Julian Poulter accused the groups of hypocrisy but ‘ also very bad financial management’, while Jackie Cook, founder of Fund Votes said asset managers voting for climate motions at BP and Shell but against Exxon and Chevron ‘seem to be blindly following management. It’s hard to interpret this other than by reference to a conflict of interest or plain neglect of stewardship responsibilities.'

In a blog post The Missing60 are found, yet still are lost (Preventable Surprises, 24 Sept) Casey Aspin looks in detail at the explanations given by the leading asset owners and managers for their votes. The research is also covered in Responsible Investor (Why did some fund managers vote against the Exxon/Chevron climate resolutions?  RI (free), 26 Sept) and (Which investors voted ‘for’ the climate change resolutions at the energy majors, and why? , RI (free), 27 Sept).

In other news Blackrock’s Global Head of Active Equities Mark Wiseman will chair a new organisation, FCLT Global, to ‘Focus Capital on the Long-Term’ which will develop tools and approaches to encourage long-term behaviours in business and investment decision-making. The organisation 'is originally the brainchild of Wiseman, who developed the idea while he was CEO and president of the C$264.6bn (€179.8bn) Canada Pension Plan Investment Board (CPPIB).’ (Leading investors and companies join forces in long-term capital initiativeResponsible Investor ($), 29 Sept). RI report that ‘to coincide with its launch FCLT Global has also released a whitepaper suggesting CEOs are facing growing short-term pressure. A survey with 1,000 executives worldwide found 87% feel the most pressure to demonstrate financial results within two years, up from 79% in a similar survey in 2013.’ 

Meanwhile the investigation into Exxon by the SEC is subject of column by Gillian Tett, US Managing Editor of the FT (Energy companies must act to avoid banks’ mistakes, Financial Times ($), 22 Sept). According to Tett the probes: 'are understood to be focusing on at least two questions: first, whether Exxon the energy company has properly adjusted its books to reflect the 60 per cent plunge in oil prices in the past two years; and, second, whether Exxon has appropriately revalued its assets to reflect the current and future impact of the shifting climate change debate.’ Whatever the cause of the probes they have 'exposed an fascinating accounting Achilles heel’. ‘It is tough to measure the real value of future reserves’ even with stable oil prices, 'but, when it comes to calculating the cost of future climate change regulations, the task is doubly hard.’ She calls on 'Executives to start a proactive industry-wide debate about how to measure and report the financial consequences of climate change in a harmonised and clear way. Better still, they need to do this with regulators, auditors and shareholders.'

In response CDP’s Jane Stevensen says this issue is being tackled by the FSB TCFD, but that after it reports 'The key question then will be, what market pressures and processes could or should be brought to bear to reach a high level of adoption across the G20 and beyond? (The debate on managing climate risk is under wayFinancial Times, 27 Sept) 

3) FIRST UK LOCAL AUTHORITY PENSION FUND TO DIVEST FROM ALL FOSSIL FUELS

The Waltham Forest Pension Fund has become the first of the UK’s Local Government Pension Schemes (LGPS) to decide to divest from all fossil fuels, reported IPE (Waltham Forest PF becomes first LGPS fund to divest fossil fuelsInvestment & Pensions Europe, 23 Sept). Following the vote at the council’s pension fund committee the pension fund will “exclude fossil fuels from its strategy over the next five years.” Chair of the committee, Councillor Simon Miller, said: “Waltham Forest Pension Fund is proud to commit to divesting from fossil fuels. Not only does this mean the fund will not be invested in stranded assets but will be actively investing in cleaner, greener investments to the benefit of our community, borough and environment.” Professional Pensions report that the £716.5m fund has a lower exposure to fossil fuels than other LGPS funds, with just 2.2% exposure as at 31 March 2016 (Waltham Forest to fully divest from fossil fuels by 2021, 23 Sept). LocalGov note that ‘analysis last year found local government workers have lost up to £683m from their pension funds due to the fall in coal share prices’ (London council to divest pension from fossil fuels, 26 Sept) 

4) FRANCE AND LUXEMBOURG COMPETE TO BE LEADING GREEN INVESTMENT HUB

The Luxembourg Green Exchange was launched as the world’s first platform for trading environmentally securities (Luxembourg launches world’s first ‘green bond’ platform, Financial Times ($), 27 Sept). CEO Robert Scharfe told Bloomberg: “Investors are growing very skeptical about whether green really means green. So we felt that we needed to create an environment where it is clear” and so the LGE 'intends to act as a gatekeeper… to help reduce ambiguity in the market’ (World’s first Green Securities Exchange Announced in LuxembourgBloomberg, 27 Sept). The news came as Ségolène Royal said that Paris aims to become the ‘home’ of green finance (France’s Royal outlines plans to make Paris ‘green finance home’Responsible Investor ($), 27 Sept) resulting in what RI call a 'scramble among jurisdictions to become the world’s green finance hub’ (Luxembourg exchange launches green investment platform as sustainable finance race hots upResponsible Investor ($), 27 Sept) 

The Luxembourg Green Exchange will claim 'the strictest eligibility criteria of its peers’ with ‘existing bonds on the green list that do not currently comply with the new eligibility criteria will be given a transition period to meet them, after which they will be expelled’ (Luxembourg launches first '100% green’ exchangeEnvironmental Finance ($), 28 Sept)

5) INVESTORS UNDER PRESSURE TO END EXECUTIVE FOSSIL FUEL BONUSES

In Australia a 'report from the environmental advisory firm Market Forces says super funds are hoodwinking investors by rewarding executives for expanding traditional fossil fuel projects despite committing themselves to climate friendly policies’ (Super funds under pressure to end executive fossil fuel bonusesABC News, 29 Sept). The Guardian quoted report author Daniel Gocher: “Executive bonuses predicated on unearthing more fossil fuels when the world needs less shows the extent to which these companies’ business model is broken. They are not just in a state of denial but actively accelerating towards a brick wall.” (Superannuation funds encouraging greater fossil fuel exploration, report saysGuardian, 28 Sept). 'Four out of five companies looking to drill the Great Australian Bight will pay their top executives vast bonuses if they strike oil beneath the ocean', find Climate Home (Executives up for big bonuses in Great Australian Bight oil rush, 28 Sept)

In related news in the UK ShareAction released a report saying 'Investors in the oil companies should use binding votes on pay policies next year to scrap short-term targets and reward chief executives for working towards the target set in Paris last December’ (BP and Shell investors urged to reward bosses for backing green energyGuardian, 29 Sept). 'For the first time in 2017, shareholders will get a binding vote on corporate pay policies in the UK' reported Climate Home (Oil majors told: stop rewarding bosses for climate-busting strategies, 29 Sept)

6) UNEP INQUIRY LATEST ANNUAL REPORT

The UNEP Inquiry into sustainable financial system today launched second annual report that reveals a doubling in policy actions over the past five years to align the global financial system with sustainable development. Policy and regulatory measures by finance ministries, central banks and financial regulators to promote sustainable finance have risen to 217 and now exist in nearly 60 countries. However, much more effort is needed to turn this momentum into genuine global transformation. (THE FINANCIAL SYSTEM WE NEED, FROM MOMENTUM TO TRANSFORMATIONUNEP Inquiry, 30 Sept 2016)

7) EU CLOSE TO PARIS RATIFICATION

The EU today came a step closer to ratifying the Paris Agreement and 'overcame fears over parliamentary sovereignty to secure a fast-track deal paving the way for the bloc to ratify the Paris Agreement on climate change’ reported EurActiv. The  one-off 'deal between environment ministers at an emergency meeting will allow the EU to ratify the Paris Agreement, without every member state having previously ratified it at national level’ (EU overcomes sovereignty fears to secure deal on climate changeEurActiv, 30 Sept)

"The Paris Agreement sends an unequivocal market signal," said Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change (EU fast-tracks Paris climate deal to brink of entering into forceReuters, 30 Sept). Stephanie Pfeifer's full IIGCC response says: 

“The Paris Agreement sends an unequivocal market signal that will transform the future direction of the global economy towards an era of huge opportunity for investors in renewable energy, energy efficiency, infrastructure and other areas. Across the world institutional investors in all parts of the Global Investor Coalition will warmly welcome the news that the EU Council has reached an agreement today sufficient to ensure the bloc can deposit its ratification instrument before Member States have completed their own procedures. This is a historic moment for the EU but must now be followed by swift action to implement the comprehensive raft of policy measures and regulatory change required to ensure climate action and risk disclosure are placed front and centre of efforts by all Member States to secure strong, sustainable, inclusive growth in a world where we curb global warming to less than 2C and stabilise emissions by 2050.” (See tweet)

8) OTHER NEWS: AVIATION DEAL GROWS NEARER, FIGURES PLANS LONDON RETURN, CDP TRACK BUSINESS ACTION

Aviation industry is backing plans that could see industry pay to increase emissions. According to Bloomberg 'the 15-year agreement would not force airlines to cut their pollution. Instead, companies would compensate for any emissions growth after the accord begins in 2020 by buying credits that back renewable energy development, forest preservation or other environmental endeavors' (Airlines Back Climate Plan That Could Cost Them $24 BillionBloomberg, 26 Sept). The EU Transport Commissioner Violeta Bulc said she was “cautiously optimistic” about getting a deal at the ICAO talks in Montreal this week, telling EurActiv 'there is an “overwhelming majority” in favour of the text currently on the table, which the EU sees as the “lowest common denominator” (Europe sees ICAO deal to curb aviation emissions within reach,EurActiv, 30 Sept)

Former UNFCCC Executive SecretaryChristiana Figueres is back: 'Fresh from quitting what is becoming an increasingly brutal race to replace Ban Ki-moon as UN secretary general, Christiana Figueres is back with a new project: Mission 2020.’ She tells Climate Home “by 2020 we have to bend the [emissions] curve and by 2020 we have to have a critical level of support for developing countries” and plans to work with cities on standardising emissions data, corporate giants on investing in renewables and says she will target major charities and philanthropies to stump up more cash. (London calling: Figueres dives back into climate after UN bidClimate Home, 28 Sept)

CDP launched a report – The Paris effect: How business is factoring in the Paris Agreement – during Climate Week showing how over 600 companies worth a combined $12 trillion are starting to factor the Paris Agreement into their business plans, report Edie (The Paris effect: Are businesses ready for a new climate reality?Edie, 21 Sept)

That’s all for now – apologies for rather long update covering two weeks. As always please forward to anyone you think might be interested and any comments, suggestions or stories welcome.

Next week look out for the New Climate Economy launch of The Sustainable Infrastructure Imperative: Financing for Better Growth and Development report on Thursday October 6th, ahead of the IMF / World Bank annual meeting in Washington D.C.

written by Joel Kenrick

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