BP finds ‘mismatch’ between net-zero pledges and Paris goals

One of the last places you would think to turn for a laugh is the Securities and Exchange Commission. Surely, a mention of the SEC brings a shiver rather than a chuckle to our readers in corporate compliance departments. Lawyers tend to take the fun out of everything.

But as part of a statement about sustainability standards and the accelerating action from the IFRS Foundation to encourage new policies, SEC commissioner Hester Peirce tweeted out this gem. She is a lawyer, remember.

If you have been reading Moral Money closely this year, hopefully we have kept you up to speed on the sustainability standards alphabet soup. By the way, Peirce has urged the IFRS Foundation to reconsider the plan to form the sustainability standards board.

Peirce has spent two decades in financial regulation. But I’m hoping she does not rule out a future career as a memer. — Patrick Temple-West

Oil companies recognise the need to reduce emissions — but will they move fast enough?

A few years ago, oil and gas companies were in the camp of climate change deniers. No longer. Or, at least, some are not. Yesterday BP, the British energy group, released its 70th annual statistical review. This revealed some good news: a big slump in carbon emissions in 2020 owing to Covid-19 shutdowns; a sharp rise in renewables; and a stark increase in government and business net-zero commitments. (Check out Moral Money’s cartoon video about the net-zero trend.)

But, as Spencer Dale, BP’s chief economist, also acknowledged — and I described in a column — last year’s emissions decline has been largely reversed and the increase in renewables is “barely making a dent” in coal emissions.

Even with a record number of companies publicly committing to net zero in June, pledges are still not being implemented fast enough to hit the Paris climate change goals. There is a “mismatch between pledges and the outcomes the world needs to be on track with the Paris climate agreement”, the report said.

Dale tried to be optimistic about this, pointing out that the world — and companies such as BP — already have the technology to hit the goals if there is proper investor, customer and government support. And Paul Bodnar, head of sustainability at BlackRock, insisted that investors were willing to take a long-term view and back a transition to renewables even though these are less profitable than fossil fuels — in the short term. Meanwhile, Giulia Chierchia, head of sustainability at BP, said that the company is ready to “jump out of its fish bowl” — and move away from the cognitive dissonance that has marked the sector in the past — and engage with critics.

That is progress. However, the big question now is whether governments will move in a sufficiently radical way to back this by, say, introducing a carbon tax. All eyes on the G20 at Venice and the forthcoming COP26. (Gillian Tett and Kristen Talman)

World Economic Forum sees reasons to worry about ESG ETFs

Asset managers are launching new environmental, social and governance (ESG) funds at a dizzying pace. BlackRock, Fidelity and other fund companies are scrambling to cook up various iterations of ESG products to cash in on the booming demand for sustainable investments.

But ESG exchange traded funds “might not be as green as you think”, according to a report from authors at the World Economic Forum that caught our eye on Thursday.

Notably, the WEF report cited Tariq Fancy, the former BlackRock sustainable investing executive, who raised concerns earlier this year that green investing was mostly “PR spin and disingenuous promises from the investment community”.

WEF also linked to a chart in this FT story, which highlighted the growth of funds that have rebranded themselves as sustainable, ESG or some other green moniker, according to Morningstar data.

“Approach recently rebranded funds with caution,” WEF warned.

The warning is particularly striking in that it comes from WEF, the Swiss-based host of the Davos conference, which is scheduled to return in 2022. (Book your hotel rooms now!)

WEF went on to plug Follow This, the Dutch shareholder activist group that has targeted Shell, ConocoPhillips and other oil companies over their carbon emissions.

With low fees, ESG ETFs have undoubtedly unlocked sustainable investing opportunities for retail investors and pensioners. But investors must also remember the adage: you get what you pay for. With the increasing complexity in the ESG ETF space, WEF is right to remind people to look under the hood when making investment decisions. (Patrick Temple-West)

Italians incentivised to make green home improvements with ‘ecobonus’ scheme

Over margarita pizza in Rome this week, my friend Matteo boasted about a deal he had just scored. He had just had solar panels installed at his home for free. All he had to do was sign over his tax credit, awarded through the Italian government’s ecobonus tax scheme, to the installation company. 

The tax break is part of “Relaunch Decree”, a programme the Italian government rolled out last summer to support the Covid-19 economic recovery through infrastructure spending. The framework allows Italians to receive a 110 per cent tax reimbursement for making home improvements that are energy efficient or protect against earthquake damage.

Corporations are also looking to take advantage of the ecobonus programme and have offered to install thermal insulation systems, solar panels, and other products.

Since May, more than 14,000 citizens have used the ecobonus for home improvements totalling €1.8bn, according to research from Cresme, a research group on the Italian construction industry. The northern Italian region of Lombardy has taken the Iead on the schemes.

The ecobonus scheme is “boosting the country’s energy transition and creating new real estate and green companies, [while] also helping employment”, said Alessandro Gili, research fellow at the Italian Institute for International Political Studies.

The programme’s popularity can be seen first-hand in Matteo’s neighbourhood in the western suburbs of Rome, where more and more solar panels are popping up as neighbours take advantage of the tax scheme. 

“This shows how Italians are ready to fight climate change by changing their behaviour,” Christian Iaione, director of the Luiss law, digital innovation and sustainability programme in Rome, told Moral Money. (Kristen Talman and Davide Ghiglione)

Can the ‘S’ and ‘G’ in ESG coexist?

It is often said that “G” is the most important aspect of ESG. “E” and “S” issues may grab more headlines, but unless companies are well governed, they can struggle to put their environmental and social plans into action.

But new research from professors at Columbia Law School and the University of Washington calls this common wisdom into question.

When large institutional investors push companies to strengthen their governance structures, they may actually be creating myriad social problems, according to the report.

“The shift to strong governance causes managers to limit investment and thus hiring, thereby depressing labour prices. Common owners [ie. large institutional investors] act as a wage cartel, pushing labour prices below their competitive level,” the paper states.

This, in turn, leads to worsening inequality, which undercuts the social benefits many of these institutional investors are trying to create by focusing on ESG.

“‘G’ has aspects which easily live side by side with the ‘S’ and the ‘E’, such as the fact that you need diversity on your boards . . . But I have a problem with the ‘G’ being tied together with ESG as if it coexists with every part of it,” Zohar Goshen, professor at Columbia and co-author of the report, told Moral Money. 

“As far as allocation of control between managers and shareholders, this has a huge trade off. And the trade off goes against employees.”

There is certainly nothing to guarantee that putting more power in the hands of management would lead to a better deal for workers. But as Goshen points out, it is hard to deny the overarching trends of the last 40 years.

“Wages have stalled despite rising productivity, and institutional investors have replaced retail shareholders as the predominant owners of the American equity markets,” he writes. “It is not a coincidence that at the same time American workers got a new set of bosses, their wages stopped growing, and shareholder returns went up.”

Fixing the problem will not be easy. The best solution, Goshen believes, would be for policymakers to break up the large asset managers, although he is the first to admit this is unlikely to happen in today’s political climate.

We encourage you to read the paper for yourself and tell us what you think. Email us at moralmoneyreply@ft.com. (Billy Nauman)

Grit in the oyster

The UN has warned the EU that Covid-19 has slowed the bloc’s progress on achieving sustainable development goals (SDGs).

Progress in tackling inequalities (SDG number 10) has been exacerbated by the pandemic.

“Overall, the Covid-19 pandemic has made achieving the SDGs even more challenging. But I am convinced that the unprecedented policy measures we are taking . . . will put us back on track,” said Paolo Gentiloni, European commissioner for economy.

Smart read

Mark Carney is defending his work to develop a new market for carbon offsets. Environmental groups have criticised the former Bank of England governor’s efforts to set up the Taskforce on Scaling Voluntary Carbon Markets. “Addressing greenwashing is precisely why this task force has been set up, and precisely why the governance recommendations it is unveiling today are so important,” Carney said on Thursday. Please read Leslie Hook and Billy Nauman’s story here.

Recommended reading

• James and Kathryn Murdoch back $250m BlackRock climate fundraising (FT)

• Five things the G20 must do to tackle climate change (FT)

• Insurance industry feels the heat on cover for fossil fuels (FT)

• ‘There was an assumption that we must not be that intelligent’ — one black founder’s experience (Sifted)

• Swedish challenger to H&M planning IPO to lure ESG investors (Bloomberg)

• Gensler: Update names rule to include ESG (Ignites Europe)