Agency Problem, Carbon Pricing, IASB, and Future Generations
Here are 5 ESG insights you might have missed this week:
Sustainability is at Risk when Asset Managers are the Judge, Jury and Executors of the ESG Agenda-
What makes a sustainable investment truly sustainable? And who gets to decide?
"I’ll detail a bit below how the structures of asset allocation and private equity make many impact claims suspect. More and more managers, of course, are delivering sustainable investment results. But allowing the managers to not only monitor, but to define ESG and responsible business practices, risks discrediting sustainable investing, notwithstanding the obvious client demand for and public benefit of bona fide projects."
"An irony of asset management is that the largest pool of capital – the allocators – are not the best resourced. It is the fund managers, especially the very large fund managers, and banks that are willing to pay. Especially if that payout is in the name of asset gathering, or developing products for which the manager can charge a higher fee. Fee-sensitive asset allocators, unlikely to spend much on their own ESG research and diligence, leave it to the managers, even if they ultimately cover the cost."
Putting a Price on Carbon- The State of Internal Carbon Pricing by Corporates Globally-
In a new report, CDP analyses the climate change disclosures from nearly 6,000 companies in 2020 to assess the state of internal carbon pricing by corporates alongside developments in carbon pricing regulation globally.
The research shows that corporate adoption of carbon pricing is rising, with the number of companies using or planning to use an internal carbon price increasing 80% over just five years. This includes nearly half of the world’s 500 biggest companies.
CDP’s analysis found that the median internal carbon price disclosed by companies in 2020 was US$25 per metric ton of CO2e. However, with more countries bringing in carbon pricing regulation, and carbon prices soaring to all-time highs in the EU emissions trading scheme (EU ETS) this year (rising to over €40 / US$44.80 in March), it is clear that corporations need to up the carbon prices they are currently accounting for internally.
Source: https://www.cdp.net/en/research/global-reports/putting-a-price-on-carbon
Global Energy Review 2021-
From the International Energy Agency, the report explores whether the rebound in activity risks pushing CO2 emissions to a new high and to what degree new policies targeting a sustainable recovery are able to curb a rebound in emissions.
As the world enters a second year of the Covid-19 pandemic, the annual Global Energy Review assesses the direction energy demand and carbon dioxide emissions are taking in 2021. The latest statistical data and real-time analysis confirm our initial estimates for 2020 energy demand and CO2 emissions while providing insights into how economic activity and energy use are rebounding in countries around the world – and what this means for global emissions.
Greenhouse gas emissions fell about 7% last year as the COVID-19 pandemic shut down large parts of the global economy. That nearly achieved the reduction that is needed every year to keep global warming below the 1.5º Celsius increase considered the threshold for catastrophe. Instead, the International Energy Agency forecasts emissions will increase this year by 1.5 billion tons, or 5%.
Source: https://www.iea.org/reports/global-energy-review-2021
Why Accounting Really Matters for Climate Change, and What You Need to Know About It-
IASB has made it clear that existing accounting rules require climate to be considered where material... So what happens next?
One reason is that, until recently, companies were able to declare profits as though climate change simply did not exist. They assumed that their newly discovered oil well could be valued as though the oil coming out of it will be sold at $80 a barrel through to 2050 and beyond. They valued a thermal power plant, or a fossil fuel engine factory, as though its future was indefinite and unchallenged by climate concerns. Indeed, in most cases they didn’t even tell their investors what climate assumptions underpinned the company’s profits – and the bonuses they paid their executives.
In an interpretation of its standards, the IASB has made it clear that existing accounting rules require climate to be considered where material, and assumptions shown. The IAASB has further clarified that climate must also be part of the audit. In other words, the historic practice of ignoring climate considerations and hiding assumptions must come to an end.
German Court Orders Revisions To Climate Law, Citing 'Major Burdens' On Youth-
Germany's highest court has sided with young activists in a landmark climate case, ruling on Thursday that some aspects of the country's climate protection legislation are unconstitutional because they place too much of a burden for reducing greenhouse gas emissions on younger generations.
The Constitutional Court is giving the government until the end of next year to set clearer targets for reducing greenhouse emissions starting in 2031, calling the current provisions "incompatible with fundamental rights" because they lack specificity and "irreversibly offload major emission reduction burdens" onto the next decade and beyond.
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