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The Chronicle

By Joel Kenrick

Three Climate Treaties within a couple of weeks:

The big climate news over the weekend is a global deal on HFC greenhouse gases, the 1) third significant international climate deal in the last two weeks, following the international aviation deal, and confirmation Paris Agreement will enter into force on 4 November. Also new: 2) two reports revealing anti-climate corporate lobbying from UCS & InfluenceMap, 3) one major new climate economy report, and 4) 8,500 mutual funds carbon emissions revealed. Meanwhile 5) investors worth $2x trillion set out their expectations of the automotive giants, the 6) BRIC Bank announced new green investment, and investors celebrate victory after 7) BP ditched Great Australian Bight drilling plans. All that and round up of 8) a few other stories that caught my eye below.

1) YOU WAIT DECADES FOR A CLIMATE TREATY…. THEN THREE COME ALONG AT ONCE 

The big news two weeks ago was that the Paris Agreement crossed the crucial 55% threshold triggering entry into force, which will now occur on 4 November. Since then two elements that were left out of the deal – HFCs and aviation – have seen global deals reached. 

HFCs: More than 170 countries have reached a deal described as "monumental" to phase out gases that are making global warming worse. Hydrofluorocarbons (HFCs) are widely used in fridges, air conditioning and aerosol sprays. Delegates meeting in Rwanda accepted a complex amendment to the Montreal Protocol that will see richer countries cut back their HFC use from 2019 (See CarbonBrief Daily 17 Oct). The New York Times hailed the deal, saying compared to Paris ‘the outcome could have an equal or even greater impact on efforts to slow the heating of the planet’ and that the Kigali deal was seven years in the making (Nations, Fighting Powerful Refrigerant That Warms Planet, Reach Landmark DealNew York Times, 15 Oct). The deal could help avoid as much as 0.5C of future global warming and was ‘the fourth significant move to curb climate change in the past two weeks', reported the FT (Global deal to phase out hydrofluorocarbons sealed in KigaliFinancial Times, 15 Oct)

US Secretary of State John Kerry said: "It's a monumental step forward, that addresses the needs of individual nations but it will give us the opportunity to reduce the warming of the planet by an entire half a degree centigrade.” (Climate change: 'Monumental' deal to cut HFCs, fastest growing greenhouse gasesBBC News, 15 Oct). The BBC said ‘the new agreement will see three separate pathways for different countries. Richer economies like the European Union, the US and others will start to limit their use of HFCs within a few years and make a cut of at least 10% from 2019. Some developing countries like China, nations in Latin America and island states will freeze their use of HFCs from 2024. Other developing countries, specifically India, Pakistan, Iran, Iraq and the Gulf states will not freeze their use until 2028.’ 

Supporters of the deal 'point to the past history of the Montreal Protocol - over 100 fluorinated gases have been eliminated in the agreement's 30 year history. Once the regulation has been passed, industry rapidly develops alternatives. "The market is going to wash over India, and will sweep them along, they will make the transition a lot faster than the number they put up," Durwood Zaelke of the Institute for Government and Sustainable Development (IGSD) told the BBC, "Phase-outs have always driven the market transition so the laggards will be moved along by the market.” Carbon Brief have an excellent brief (Explainer: Why a UN climate deal on HFCs mattersCarbon Brief, 10 Oct)

Aviation: Delegates from 191 nations at the International Civil Aviation Organization (ICAO) agreed the first ever global climate deal for aviation which will see airlines involved in an offsetting scheme for global emissions from 2020. "Global aviation emissions in 2020 will be used as a benchmark, with around 80% of emissions above 2020 levels offset until 2035. The new system will be voluntary until 2027, but dozens of countries, including the world’s two largest emitters, the US and China, have promised to join at its outset in 2020.' (First deal to curb aviation emissions agreed in landmark UN accordGuardian, 6 Oct). Reaction recognised it was a major step but more was required, with NGOs Transport & Environment saying "Today is not mission accomplished for ICAO, Europe or industry. The world needs more than voluntary agreements" and Sandbag calling on the EU to continue to take a lead: "Now the EU must stick to its guns and strengthen its own aviation carbon market, continuing to push the international community to turn the global scheme into a climate policy with teeth.” (Reaction: Aviation climate deal agreed in MontrealClimate Home, 6 Oct). The agreement was historic as ’the first global climate measure to be agreed outside of the UN climate talks and the first global carbon cap on an industry’s net CO2 emissions’ but it is still just offsetting wrote WWF’s James Beard (A global climate deal for aviation! So what next?, Climate Home, 11 Oct).  

Paris Agreement: The landmark Paris Agreement will enter into force on 4 November after being ratified by more than 55 countries representing over 55% of global emissions, after the EU fast-tracked ratification with the European Parliament voting in favour on 4 Oct. Carbon Brief have all the background (Explainer: Paris Agreement on climate change to ‘enter into force’, 6 Oct). The deal means the Paris Agreement will come into force before the US elections on 8 November, and the progress over the last fortnight means that when international climate negotiators meet for COP22 in Marrakesh, Morocco on 7 November 'they will not only have the Paris agreement in force far earlier than anyone initially expected, but will also be operating with a new HFC regime. All of which marks 2016 as quite the year for international climate progress.' (The world just took another huge step forward on fighting climate changeWashington Post, 15 Oct).

2) ANTI-CLIMATE CORPORATE LOBBYING REVEALED: 

Business Europe at odds with members on climate, according to a new InfluenceMap report BusinessEurope's narrow climate change vision. 'BusinessEurope faces renewed questions over its green policy stance after a report today slammed the trade federation's "obstructive" lobbying against EU climate change policy, accusing it of being unrepresentative of many of its members’ views’ reported BusinessGreen. (Is BusinessEurope at odds with its members on EU climate policy?BusinessGreen, 4 Oct) The new research found ‘many of the trade federation's members - which also feature 70 global corporation partners such as Google, Microsoft, Siemens, Philips and BP - are supportive of far more ambitious climate policies than BusinessEurope itself lobbies for’ and 'BusinessEurope's positions on climate  change policy are more obstructive than even the chemicals and oil and gas sectors’ often seen as most opposed to ambitious climate change policy. InfluenceMap Director Dylan Tanner told Edie the result shows BusinessEurope “continues to be way behind the curve when it comes to the European climate policy agenda. While it is normal for industry to push back on regulations and policy, most of European business and finance has clearly articulated the need for more ambitious climate policy from Brussels, not less. BusinessEurope ignores this trend at its peril” ('Way behind the curve': EU climate policy 'obstructed' by trade body BusinessEurope, Edie, 5 Oct)

The Climate Accountability Scorecard was published by the Union of Concerned Scientists (The Climate Accountability Scorecard: Ranking Major Fossil Companies on Climate Deception, Disclosure, and Action (2016)UCS, 6 Oct). The study looked at BP, Chevron, Conoco Philips, ExxonMobil, and Shell, the five largest investor-owned oil companies in cumulative emissions; as well as Arch Coal, CONSOL Energy and Peabody, which are the three leading coal companies by the same measure. Exxon and the coal companies come out at the bottom of the responsibility ranking, while according to the report “none of them has made a clean break from disinformation on climate science and policy” and “none of the eight companies has laid out a company-wide pathway or plan to align its business model with the Paris Climate Agreement” (Leading Fossil Fuel Companies Fail Climate Responsibility TestInsideClimate, 13 Oct). Only two companies (BP and Shell) consistently affirm the legitimacy of climate science, UCS said in a blog (New Study Ranks Eight Major Fossil Fuel Companies on Their Climate Change ActionsAlterNet, 7 Oct)

3) NEW CLIMATE ECONOMY: world to spend $90 trillion on infrastructure over next 15 years, should it be dirty or clean?

The world is expected to invest $90 trillion in infrastructure over the next 15 years and requires an urgent shift to ensure this money is spent on low-carbon energy-efficient projects, according to the latest annual study by the Global Commission on the Economy and Climate (World needs $90tn infrastructure overhaul to avoid climate disaster, study findsGuardian, 6 Oct). Such smart investment over the next two to three years could help ameliorate the climate crisis, but “the window for making the right choices is narrow and closing fast” the Guardian reported. “We can invest the $90 trillion in the dirty unsustainable infrastructure of the past or leap forward into the clean and efficient infrastructure of the future. It basically has the same costs and net present value” Felipe Calderon, the commission chairman and former President of Mexico said (Arresting Global Warming Doesn’t Mean More Money, Top Panel SaysBloomberg, 6 Oct). 

The global economy could “self-destruct” if countries fail to ditch fossil fuels and embrace a clean, green, high-tech future, according to leading economist Nick Stern, The Independent report (Global economy could 'self-destruct' if world carries on burning fossil fuels, leading economist warnsIndependent, 6 Oct). "The world is struggling to revive its growth," said Lord Nicholas Stern, who is also a co-chair of the Commission. "It's never really picked up properly since the global financial crisis of about eight years ago. Many things have been tried, but what hasn't been tried properly and should have been is strong investment in sustainable infrastructure. That's the growth story of the future, that's what can revive global growth” (Also in Building a greener world: Does the global economy need a sustainability shake-up? ($), Business Green, 6 Oct).

The Global Commission identified four action areas to finance sustainable infrastructure in their report

1.   Tackle fundamental price distortions through fossil fuel subsidy reform and carbon pricing. Fossil fuel subsidies amounted to around US$550 billion in 2014, skewing investment away from sustainable options. They call for 'Governments, including through the G20, to set a deadline for fossil fuel subsidy phase-out of 2025 at the latest.

2.   Strengthen policy frameworks and institutional capacities. Better planning and governance can ensure the right projects are selected in the first place, and the right financing is used at the right time.

3.   Transform the financial system through new tools like green bonds and green investment banking, and by greening the existing financial system, including through corporate climate risk disclosure with 'countries, especially in the G20, to build on the Task Force on Climate-related Financial Disclosures’ work to move toward appropriate mandatory disclosure standards as a matter of corporate governmance'.

4.   Ramp up investments in innovation and deployment of clean technologies to reduce the upfront costs of sustainable infrastructure. (See page 3, Executive summary, for full summary of recommendation)

4) CARBON EMISSIONS OF 8,500 FUND REVEALED 

The FT reports that 'A BlackRock fund that invests in eastern Europe and Asia has been named as the UK’s dirtiest fund in the first ever ranking to show how exposed investment products are to polluting industries. […] The ranking of 1,200 UK funds by As You Sow, a non-profit organisation, comes as concerns mount that investors could suffer big losses if companies with large carbon footprints are negatively affected by attempts to tackle climate change.” John Davis, director of financial industry at South Pole Group, which provided data for the ranking, said: “Understanding the carbon footprint of a fund is important for an investor as the world begins to trend towards sustainable investments and away from those that are carbon intensive. There are now great opportunities to invest in companies that are actively addressing climate change and to also avoid the regulatory risks that arise from climate change, such as carbon taxes and reporting regulations.” (UK’s dirtiest funds revealedFinancial Times, 13 Oct). 

Responding to the study a Blackrock spokesman told Financial News site: "We have a fiduciary obligation to invest in the markets our clients choose, against specific benchmarks. … We believe that investors can no longer ignore climate change. We are at the start of a long-term educational journey for both ourselves and the market about carbon risk in portfolios, which is why this year we incorporated ESG and carbon-specific data into our Aladdin risk management platform.” (BlackRock trust tops chart of UK's 'dirtiest’ fundsFinancial News ($), 13 Oct. Business Green ($), Fund Strategy and Blue & Green Tomorrow also covered. 

The ranking of 1,200 UK funds is available on the fossilfreefunds.org website which for the first time reveals to the public – for free – the carbon intensity of 8,500 funds across the US, UK, France, Germany, Denmark and Hong Kong with $11 trillion AuM. (Over $11 Trillion in Mutual Funds Analyzed for Carbon RiskAsYouSow, 13 Oct)

5) INVESTORS SET OUT EXPECTATIONS FOR AUTOMOTIVE INDUSTRY

'Major investors have warned the automotive industry it needs to accelerate its readiness for a low-carbon world if it is to retain their support and prosper', the Guardian report. 'Vehicle makers must put climate change specialists on their boards, engage better with policy-makers, and invest more heavily in low-emission cars, says a network of 250 global investors with assets of more than $24tn (£20tn).' (Investors warn car industry over climate changeGuardian, 12 Oct). Hermes EOS said long-term investors wanted to ensure the companies "are prepared for the challenges stemming from climate change, new technologies, changing policies and shifts in demand caused by global trends” and "expect the industry to embark upon a smoother route to future prosperity by developing and implementing long-term business strategies that are resilient to climate change and resulting regulatory shifts.” 

The report highlights a recent study by Moody’s showing companies face increased credit risk and need to make material changes to more effectively reduce the sector’s carbon footprint and respond to growth in demand for alternative fuel vehicles (Moody's: Auto sector faces rising credit risks due to carbon transition, 20 Sept). The Guardian warns the automotive industry is already exposed to “a plethora of CO2 and pollutant emission reduction targets in all major markets”. BusinessGreen report that switched-on investors are now moving onto the auto industry after having put 'oil giant such as Exxon Mobil, BP and Shell in the spotlight in the past 12 months for their fossil fuel exploration plans, demanding to know how their current business models will be compatible with the vision of a low-emission world outlined in the Paris Agreement’ (How investors can help car companies tackle climate risk roadblocks, 11 Oct).

The full report lists five key expectations that investors have of automotive companies (Investor Expectations of Automotive Companies 2016IIGCC, 11 Oct):

  1. Governance: clearly defined board and management responsibilities on climate change risks and opportunities 
  2. Strategy implementation: long-term strategy which makes the business resilient to climate change 
  3. Emissions management: robust greenhouse gas emission reduction plan is in place.. Sufficient to close the gap between real world and laboratory testing conditions
  4. Public policy: engage pro-actively with public policy makers … to accelerate the transition to a low-carbon economy in line with a 2C scenario  
  5. Transparency and disclosure: disclose in annual reports and financial filings the company’s position on these questions, and transparent about fleet and manufacturing emission related to the company

Meanwhile Eumedion has urged all Dutch listed companies to analysis the potential risk and opportunities related to climate change for their business medal and strategy. The Dutch corporate governance and sustainability platform that is backed by domestic and international institutional investors put climate change at the centre of their latest Focus Letter, urging all companies to detail their efforts to help deliver the goals of the Paris Agreement, accompanied by “relevant data and targets” according to Responsible Investor (Dutch governance platform Eumedion presses companies on climate changeRI ($), 12 Oct)

6) BRICS BANK ANNOUNCE NEW INVESTMENTS

The BRICS summit has just concluded in Geo, India, with  news the BRICS Bank will lend $2.5 billion next year with its first loans targeted at green projects, its president KV Kamath told Reuters (BRICS development bank to lend $2.5 billion next yearReuters, 16 Oct) (H/T Crib notesClimate Home, 16 Oct). 

Ahead of the summit new analysis from the Institute for Energy Economics and Financial Analysis (IEEFA) found that the BRICS countries are $51bn short of the annual investment needed to deliver on their targets of 'around 498GW of clean energy to their systems as part of the global climate change agreement.' Their plans will 'require an annual investment by BRICS countries of about $177bn. However, the current investment rates fall well short of that total, with investment in new capacity hitting $126bn’  (BRIC countries need extra $51bn per year to hit clean energy targetsBusiness Green, 17 Oct). Of this shortfall IEEFA said 'overall nearly USD 10 billion would need to come in annually from public finance institutions to channelise sufficient private funds to meet the renewable energy capacity targets of BRICS nations.’ (BRICS need addl $51 bln annually to meet renewable targets, Business Standard of India, 13 Oct) 

7) BP DITCH GREAT AUSTRALIAN BIGHT  

Last week started in Australia when BP announced they were abandoning controversial plans to drill in the Great Australian BightABC reported that 'In a statement, BP said it would instead focus on projects it can exploit in the short-to-medium term.’ The Guardian said the news came less than two weeks after the Australian regulatory ‘Nosema found BP’s environmental plans inadequate for a third time’ and said Wilderness Society national director Lyndon Schneiders called on other oil and gas companies to pull out of the region: “If BP with all its experience cannot produce an acceptable drilling plan for Nopsema, the remaining companies exploring in the bight will be wasting their shareholders’ money trying to pursue this folly” (BP ditches plans to drill for oil in the Great Australian Bight, Guardian, 11 Oct). TheFinancial Times quote BP as saying: "We have looked long and hard at our exploration plans for the Great Australian Bight but, in the current external environment, we will only pursue frontier exploration opportunities if they are competitive and aligned to our strategic goals. After extensive and careful consideration, this has proven not to be the case for our project to explore in the Bight.” (BP drops plan to drill for oil in Great Australian BightFT, 11 Oct). The story was also covered by City A.M.The Telegraph ($), The Times ($), BBC, WSJ ($)

BusinessGreen quotes Andrew Grant of Carbon Tracker Initiative that frontier projects such as the Bight "are obvious cancellation candidates at a time when companies are focusing on capital discipline”. (Is BP putting stranded assets theory into practice with exit from Great Australian Bight?, 11 Oct). Grant says the decision "makes both economic and climate sense from an investor perspective” and “more oil and gas companies should follow BP’s lead and avoid throwing cash at projects that are unneeded as the world transitions away from fossil fuels. Instead companies should align their portfolios and investment plans with a 2 degree target that prioritises shareholder returns, and stick with a value over volume approach even as prices rise."

ShareAction, who had written an investor briefing on the project in April distributed to over 100 investors outlining the operational, economic and reputational risks of the project, welcomed the decision. CEO Catherine Howarth said: "BP's new strategy of constrained growth is good news for shareholders, and the company's decision to retreat completely from Australian deep water projects suggests the company’s intentions are genuine.” However she warned that "Pension savers in the UK remain highly exposed to the oil and gas sector, and ShareAction wants to see much stronger evidence that pension schemes understand and are acting to reduce the risks presented by that exposure following the Paris Climate Agreement last December.” 

8) ROUND-UP OTHER INTERESTING NEWS  

Local government pension pooling will have huge knock-on effects for responsible investment, according to an analysis of the changes (Hugh Wheelan: The UK LGPS pensions pooling will revolutionise asset manager cost transparency and ESG servicesResponsible Investor (Free), 3 Oct). 'The £23bn Brunel pool whose founding funds include The Environment Agency Pension Fund’ is likely leader in ESG issues, and 'Some of its members are already leading a cross-pool initiative to promote ESG consistency. And across the pools there will be tenders for ESG services, particularly corporate engagement and share voting, such as the recent joint procurement tender RI recently reported for £4-£10m in voting and engagement services, ESG research and stewardship-related project services’. The eight new pools will have between £13bn and £34bn of assets under management, according to a useful table produced by campaigners (Meddling with Pensions Part III, Fossil Free UK, 29 July). UK SIF has already prepared a briefing on how the investment strategies of administering funds relate to responsible investment (Policy update: Local Government Pension Scheme – Guidance on Preparing and Maintaining an Investment Strategy Statement (pdf), UKSIF, Sept). 

CDP announce new sector-focused strategy, with a ‘commitment to introduce sector-based questionnaires in G4 2017’. According to the non-profit: ’This will drive further insights for companies and investors enabling better peer-to-peer comparison, benchmarking and investment decision-making’ and 'ensure CDP is well-placed to implement the TCFD (Taskforce on Climate-related Financial Disclosures) recommendations expected in December’. (CDP announces new sector-focused investor strategyCDP, 11 Oct). 

Smith School urge bottom up, asset specific data to assess firms exposure to environmental risk, according to a new guest paper in S&P Global Ratings. 'Asset level data gives physical and nonphysical information from the asset itself as well as its ties to company information - as opposed to simple disclosures from firms on their wider environmental impact, such as metrics on overall water use or carbon emissions.’ Business Green quotes Ben Caldecott: "The good news is that much of the data required to undertake this already exists. It's just in disparate locations and needs to be brought together and can be augmented with remote sensing and big data datasets. This is an awkward task, but not a particularly expensive one." (Could asset level data offer a better way to assess climate risk than disclosure?Business Green, 7 Oct)

Impax assets up 59%: Impax Asset Management, which is focused on environmental markets, saw AuM reach a new peak of £4.5bn, up 59% in a year. The results for year ending 30 Sept were a significant jump against the £2.8bn reported last year.  (Impax sees 59% surge in assetsFinancial Adviser, 10 Oct)

Saudi Arabia looks towards life after fossil fuels: In the Kingdom’s Bond prospectus they tell investors 'it would take 70 years to sell all of its oil, prompting concerns that some of it could go unrealised’ reported the WSJ. The paper said 'On the one hand, the 70-year timeline suggests that Saudi Arabia is confident that it is sitting on a bounty of petroleum that will last for generations. On the other, investors are worried about fast-changing climate-change regulations and technological advancements that could render oil less valuable in the future.’ Amy Myers Jaffe of University of California, Davis told the paper: “Will Saudi Arabia ever be able to monetize all the 70 years of reserves? Scientific modeling says no”. (Saudi Arabia Signals Challenges to Economy Ahead of Bond IssueWall Street Journal ($), 11 Oct). 

Saudi shift to new technology: The kingdom will invest 'up to $45bn from Saudi Arabia’s Public Investment Fund (PIF) over the next five years’, into a new technology fund run with SoftBank, dubbed the SoftBank Vision Fund, as part of Saudi’s new 2030 economic plan reported the FT. The PIF has around $157bn under management, and invested $3.5bn in Uber earlier this year. (SoftBank and Saudi Arabia plan $100bn tech fundFinancial Times, 14 Oct. Also in Reuters)

Green Climate Fund approved $745 million for projects on Friday, raising total approved projects so far in 2016 of around $1 billion, although it may not meet its target of $2.5 billion of loans in 2016, its first full year of operation. (Green Climate Fund approves $745 million for projects, lags 2016 goalReuters, 14 Oct) The GCF also appointed veteran climate diplomat Howard Bamsey as new Executive Director (Australian selected as head of the Green Climate FundClimate Home, 13 Oct). 

OECD call for revitalisation of securitisation while hosting its third Green Investment Financing Forum in Tokyo. (Securitisation, tainted by financial crisis, is key to financing climate transition – OECDResponsible Investor ($), 14 Oct)

Green investors get more energy for bang: While investment in renewable energy is likely to have fallen during 2016 from a high in 2015, new analysis from BNEF shows that since 2010 investors can ‘spend the same, get more’ due to cheaper renewable costs. Green Energy Boom Picks Up Speed Even as Investment StagnatesBloomberg, 12 Oct). The Global Wind Energy Outlook 2016 will be published tomorrow in Beijing. 

In 3 weeks time the UNFCCC COP22 will start in Marrakesh – if you’ve any news stories or launches it would be useful for others to know about please let me know. Oh, and thank you for suggestions on a name for these email updates - in the end ‘The Kenrick Chronicle’ was the winner, despite a late write–in effort to have it renamed ‘Keeping up with the Kenricks’. Unfortunately the risk of lawsuits from the Kardashians prevented me…

written by Joel Kenrick

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