Carney takes aim at EU’s rigid green regulation plans

This week I did something that once seemed commonplace but now feels nerve-racking: took a domestic flight (to Colorado) for spring break. Much has changed: not only are masks and wipes ubiquitous, but so are green pledges from the aviation industry. United Airlines, for example, is proudly trumpeting its 2050 net-zero pledge to passengers when they board — with a video of its chief executive dressed like a lumberjack.

Is this just hot air? Environmentalists might howl yes: as we note below, there is rising scrutiny of the corporate “net-zero” pledges now tumbling out. There is also an intensifying fight in Europe about what is really “green” — and whether airlines can ever qualify. But the airlines are signalling that know that in the post-Covid world they cannot market themselves as before. Read on.

Mark Carney urges ‘50 shades of green’ approach

Last Friday Mark Carney, the former governor of the Bank of England and the UK climate adviser, indicated that he was worried about the way that the EU green taxonomy was developing. Speaking at the FT Weekend festival, he pointed out that while the goals of a taxonomy are laudable, it would be deeply damaging if it was too rigid to be workable for companies.

Instead, he argued, the EU should embrace “50 shades of green” — or the reality that companies are engaged in a “transition” that is far more complex than any binary green vs. non-green taxonomy can reflect.

Now there are signs that Carney’s criticism — which is shared by many in the financial and corporate world — is hitting home. The FT’s EU correspondent Mehreen Khan got an exclusive peek at the (revised) draft legislation for the EU taxonomy. This suggests that the EU is now defining natural gas as being “sustainable” in some circumstances — instead of tossing it out of all the green buckets, as the taxonomy initially did (and as the European Investment Bank, say, has done in its own approach).

This will provoke horror from some environmental groups and green politicians who fear that the EU is watering down its rules in the face of corporate lobbying. (Climate activists have been fuming at Carney as well, after he asserted that his new employer Brookfield Asset Management had reached net zero, despite funding numerous controversial fossil fuel projects.)

The EU’s seeming shift will be welcomed, however, by many industry leaders. The leaders of countries such as France are also likely to be enthusiastic about this “50 shades of green” approach since they are lobbying to get nuclear power defined as green, which is an idea that most German politicians hate.

But don’t expect a clear resolution to this battle soon: the spectrum of views among Europe’s stakeholders means that these definitional fights could run for a while. That may be no bad thing: since Washington’s Securities and Exchange Commission is drawing up its own plans for ESG oversight now too, a slight delay (or modification) in the introduction of the EU green taxonomy might make it a little easier to get some transatlantic co-ordination. Here at least, is hoping. (Gillian Tett)

Executive bonuses stoke investor angst

Most Americans this month have been anxiously refreshing their bank accounts to see when they will receive the $1,400 cheque promised in Joe Biden’s $1.9tn stimulus package. At the same time, investors are getting increasingly frustrated with some enormous bonuses company boards have doled out to executives without much concern for how well the chiefs actually performed. 

Earlier this month, BlackRock slammed pharmaceutical company AmerisourceBergen over its pay plan for chief executive Steven Collis (pictured) who received $14.3m in 2020, a 26 per cent increase from 2019.

Also this month, investors torpedoed the pay package for Starbucks chief executive Kevin Johnson — a rare rebuke.

BlackRock, Vanguard and other investors have argued that companies should tie executive pay to performance targets.

But such bonus schemes remain rare. More than three-quarters of S&P 500 companies do not align executive pay with their financial performance, according to CGLytics, an Amsterdam-based executive pay data provider.

The findings from CGLytics were reinforced by a report earlier this week from index provider MSCI. Chief executives who oversaw the strongest returns in MSCI’s sample of 235 US companies received the lowest awarded pay on an annual average basis, the company said.

“When MSCI measured pay and performance against CEO tenure, however, it found little evidence that high CEO pay achieved this lofty goal of CEO incentivisation,” MSCI said. (Patrick Temple-West)

Fossil fuel funding undercuts banks’ net-zero pledges

Banks’ financing for fossil fuel companies may have dipped slightly in 2020, but the Rainforest Action Network says quick action is needed to “lock in” those declines “lest they snap back to business-as-usual in 2021”.

The fall in funding is almost certainly a “Covid blip,” Alison Kirsch, lead climate and energy researcher at the Rainforest Action Network, told Moral Money. Only 17 of the 60 banks in RAN’s study have made promises to cut their financed emissions to net zero by 2050, and none of those pledges is stringent enough to actually achieve the goals of the Paris climate accord, RAN says.

“No bank making a climate commitment for 2050 should be taken seriously unless it also acts on fossil fuels in 2021 — banks must immediately end support for fossil expansion, and commit to the date by which their fossil financing will reach zero,” the report says.

One problem is that most banks do not take the critical step of setting interim targets. Going net zero by 2050 does not mean flipping a switch 30 years from now. To stand a chance of keeping climate change below 1.5 degrees Celsius, it is necessary to start reducing emissions now and make steady progress every year. Yet only Lloyds and NatWest have announced such plans, aiming halve their climate impact by 2030.

Banks are also not being strict enough with their clients, RAN says. Numerous banks have pledged to drop coal companies that are not making a transition away from fossil fuels, but only one, NatWest, has a similar policy for oil and gas. And even then, RAN points out, it has not yet publicly disclosed what it will take for an oil or gas company to get the boot.

But the mere existence of these policies — and the rate at which they are growing is still a positive sign. If nothing else, it is a “tacit acknowledgment by banks that they too are major emitters,” RAN notes. And that is a pressure point that will be used in future climate campaigns.

“Even if they’re empty and fluffy and vague and 30 years out . . . what the [net-zero plans] do is admit that banks are climate actors, banks are emitters and banks need to be held accountable for the emissions that they are facilitating,” said Kirsch. “And that’s a foothold for shareholders.” (Billy Nauman)

Chart of the day

The pandemic might have tanked the global economy last year, but you wouldn’t know it from looking at the extraordinary wealth gains notched by the billionaire leaders of the world’s top technology companies. According to data analysed by Americans for Tax Fairness and the Institute for Policy Studies, two liberal-leaning think-tanks in Washington, Elon Musk, Jeff Bezos and Mark Zuckerberg expanded their wealth 559 per cent, 58 per cent and 86 per cent respectively. The full study is available here.

Grit in the oyster

Many companies and investors say that they try to “do well by doing good”. As a reminder that many still fall short, here’s a little grit in the ESG oyster.

BlackRock on Monday said it had hired law firm Paul Weiss to conduct an internal review into reports of “employee misconduct” after the Financial Times and other publications detailed allegations of discrimination and sexual harassment at the company.

The move was announced in a memo to staff from Larry Fink, the BlackRock chief executive who has gained renown for his calls for “sustainable capitalism” and greater diversity in the corporate world.

Earlier on Monday, the Financial Times reported that Essma Bengabsia, a former BlackRock employee who is Muslim American, said she was sexually harassed and discriminated against on the grounds of her race and religion while working on the company’s trading floor.

Tips from Tamami

Nikkei’s Tamami Shimizuishi helps you stay up to date on stories you may have missed from the eastern hemisphere.

India is considering whether to set a goal to be carbon neutral — and to do so ahead of China’s 2060 deadline.

If India proceeds with a plan to become net zero by 2050, it would be a particularly significant move because “the world cannot get to the 1.5 degrees or 2 degrees target [set by the Paris agreement] unless India gets to net zero by mid-century”, said Jayant Sinha, lawmaker from Prime Minister Narendra Modi’s ruling Bharatiya Janata party.

But the task would not be an easy one. To meet the goal, India must cut fossil fuels down to represent just 5 per cent of its total energy consumption by 2050, according to the Council on Energy, Environment and Water, a New Delhi-based research institution. That is a massive drop from 2015, when oil, gas and coal accounted for 73 per cent of its power.

India, which ranks fourth in wind power and third in solar power in the global renewable energy market, is looking to establish itself as a renewable energy manufacturing hub and create several million jobs, policy director at Global Wind Energy Council Martand Shardul said. But while a net-zero target would complement the country’s existing ambitious renewable energy plans, it would not be a magic wand that decarbonises the growing Indian economy, he warned.

“Foreign investors will be watching India like hawks in 2021,” said Jan Erik Saugestad, chief executive at Storebrand Asset Management. “A date for net zero helps, but the critical targets are short-term ones to get that clean energy infrastructure built at a rapid pace.”

Further Reading

• ESG’s dirty secret (Investors’ Chronicle)

• Powerful investor group finds net-zero pledges distant and hollow (FT)

• SEC forces oil companies to hold investor votes on emission targets (FT)

• BlackRock under pressure to live up to its promises on diversity (FT)

• Japan to set bolder 2030 emissions target with eye on US alliance (Nikkei)

• Why won’t companies release good corporate sustainability data? (Fast Company)

• How companies’ compliance officers are bringing ESG into the due diligence fold (The Fashion Law)

• Standardising ESG reporting requirements would not benefit investors (Forbes)