Last week the financial sector and the international development sector gathered in Geneva to discuss how asset managers, asset owners and banks can contribute to achieving the UN’s Sustainable Development Goals. Here is why one should resist the temptation of cynicism.
Last month, the Quaero Capital ESG team attended the annual PRI event, this year held in Paris. The event was the largest responsible investment conference ever held, with over 1600 attendees from the industry.
Last month the UN Climate Summit took place in New York, arguably the most significant event for global cooperation on climate change since Paris 2015.
“Flygskam”, a new expression in Swedish, refers to the movement that originated in Sweden last year. It literally translates as ‘flight shame’ and is used to encourage people to shift towards more sustainable transportation options. It’s also given birth to another concept – ‘tagskryt’ or ‘train brag’.
As it’s often the cheapest form of transportation, more than 90% of all world goods, from raw materials to finished products, are carried by sea. Spurred by worldwide population growth and increasing globalisation, global trade has grown by 85% in the last 18 years. The shipping industry merchant fleet has grown to c.100,000 vessels producing an estimated 3% of global greenhouse gas emissions annually. According to the International Maritime Organisation (IMO), the UN agency responsible for the safety and security of the shipping industry, emissions will increase between 50 and 250% by 2050 under a business-as-usual scenario, if no drastic measures are taken.
Global deforestation is at a very high level, losing five million hectares a year or the equivalent of 15 football pitches of forest every minute. The election of the new Brazilian President Jair Bolsonaro in January led to a rapid reacceleration in Brazil; the Brazilian Space Agency found that deforestation had increased by 88% in June this year relative to last. In the past forty years, the Amazon rainforest has lost about 18% of its territory.
Earlier this year QUAERO CAPITAL became a signatory to the Carbon Disclosure Project (CDP), an organization that campaigns for better disclosure of environmental performance data from companies, cities, states and regions. It aims to make environmental reporting and risk management a business norm, and drive disclosure, insight and action towards a sustainable economy.
While the European Union signals increasing ambition to curb carbon emissions, the common perception is that momentum in the US market is in the opposite direction. While the ambitions of the Trump administration have been to cut back environmental regulation, there are reasons to believe these reversals may be stalled. Factors to consider in the US market include:
The election of Ursula von der Leyen as the Head of the European Commission adds to momentum behind carbon emission reduction appetite in the EU. She promised a “European Green deal within the first 100 days of its mandate”. Objective: to make the European Union “the first carbon-neutral continent by 2050”. She confirmed her support for a CO2 emissions reduction target of 50-55% in 2030 compared to the 40% currently agreed, and she is considering a carbon tax at the borders, a proposal supported by France since 2009 but fiercely rejected by Germany whose industry is a major exporter. The new President also mentioned her willingness to extend the European carbon market (the EU-ETS) to construction, road transport and maritime transport sectors.
Sustainable investment has evolved in the US market less rapidly than in Europe to date due to multiple reasons, one of which has been less ambitious regulation at the national level. ESG policy has become a partisan issue and the current administration has rolled back regulation, bucking the global trend. A recent whitepaper from Morningstar said that in the US, where climate change is a ‘contested concept’ ESG investment factors must be justified by explaining ‘why’, while in Europe they must explain ‘why not’. Despite this headwind, assets under management in ESG-oriented funds grew 40% to €684bn over the four years to the end of 2018.