I say “no” a lot. As an advisor on sustainability communications, often the recommendation I give to clients is to avoid actively pushing out stories about reducing their environmental impact, setting goals, or investing into sustainability initiatives.
There is a delicate balance between avoiding accusations of greenwashing, and suffering the chilling effects of ‘greenhushing’ – where a fear of potential reputational damage from a backlash can prevent an organisation from taking credit for genuine progress.
Greenwashing is becoming an increasingly serious risk. A few years ago companies could by and large get away with shining a big spotlight on a small win, without facing scrutiny about their wider environmental impact. But the public, journalists, and regulators have become increasingly literate on sustainability issues, and they are rightly able to call out companies making spurious or overbaked claims.
In recent months we have seen the Advertising Standards Authority in the UK come out with formal greenwashing rulings against HSBC and Lufthansa on their climate claims. The EU has just put in place a draft plan that would give companies just ten days to justify green claims about their products before facing potential penalties.
In the US, H&M is in the middle of a class-action lawsuit over providing its customers with allegedly inaccurate environmental scores. And asset managers are frantically working to ensure that marketing for their ESG-labelled funds will comply with the requirements of Europe’s Sustainable Finance Disclosure Regulation.
Companies are now starting to list impacts related to perceptions of greenwashing as a material risk in their annual reports, and banks such as NatWest and Standard Chartered are rolling out training to staff to tackle this. In an anonymous global survey of nearly 1,500 executives at large businesses, 58% privately admitted that their company was guilty of greenwashing.
At the same time, it is important to celebrate companies that are doing the right thing. Change doesn’t happen overnight. The process of transitioning towards a sustainable economy will require a mixture of continuous improvement and transformative action over the course of years and decades. And today the pace of change is still far too slow.
We need to build momentum and shift expectations on what is possible, raising the bar on what good performance looks like for a business. Storytelling and sharing examples of success are critical tools for driving broader action. If you don’t receive positive reinforcement for doing something that can often be expensive and challenging, the motivation to continue your efforts can often drain away.
When deciding on whether or not to communicate sustainability achievements, I typically run through three core questions that will help shape my advice to clients.
Does this make a meaningful difference?
Companies should understand their material issues and biggest areas of impact. If you have massive manufacturing operations powered by fossil fuels, the fact that you have switched your offices onto renewable energy tariffs is not the strongest story.
Do you have the evidence?
Assertions should always be backed up by high quality data, ideally with support or assurance from credible third parties. When Tesco made the claim that its plant-based meat alternatives had a lower environmental impact, it relied on general principles and not specific lifecycle analysis, which led to censure from the advertising regulator.
How does this fit within a broader strategy?
An isolated example of good practice will invite the difficult questions about what is happening elsewhere. Unless you are beyond reproach in terms of your performance (and virtually no company is), it is critical to contextualise action as just another step along the journey towards a more sustainable destination.
There is a need to be cautious about the increasingly acute reputational risks from communicating on sustainability. But as these issues become ever more obvious and urgent, if you aren’t seen as part of the solution then by default you will be perceived as part of the problem.
First you have to actually be doing green things, but if you are then you don’t let greenhushing hold you back – just be careful to get the storytelling right.
Policy preview: Singapore’s sling The Organisation for Economic Co-operation and Development (OECD) and G20 agreement to implement a global minimum 15% corporate tax faces a long road to implementation, particularly as governance standards for policing adherence remain undefined. Singapore is likely to prove a key test case. It has a 17% corporate tax, but offers an array of incentives that can reduce this significantly for many corporate residents, including those tech giants who operate regional headquarters from the city-state or the investment managers based there.
Prime Minister Lee Hsien Loong acknowledged as much earlier this month, noting that the city state will have to see how its current tax incentives “will have to be modified”. Singapore is not a member of the OECD, unlike many other alleged ‘tax havens,’ or the G20, but has signalled support for the effort for years now, and members of its government have called out the “artificial shifting of profits” to minimise their tax bills in the past, even as others have accused Singapore of profiteering off such practices.
Singapore remains well-positioned as a corporate hub outside tax competition, but it is nonetheless still likely to ensure that its business environment is as attractive as possible for the multinationals and other businesses that make their home there. It is set to benefit from concerns about the political environment in Hong Kong as well as its membership in the Regional Comprehensive Economic Partnership (RCEP), due to come into effect next year.
Singaporean authorities have indicated that they will seek to take action aimed at making Singapore an even friendlier business environment, including by offering incentives to hire locals and lowering requirements for leasing government-owned office space, a considerable portion of Singapore’s commercial property stock.
However, the temptation for tax adjustments may prove too great – particularly as its strident COVID-19 regulations and increased requirements for permanent residency visas have raised concerns about the quality-of-life and employment advantages it has long held.
Singaporean authorities may state they do not intend to continue to compete on a tax basis, but such declarations have been made in the past with little follow-through. The extent to which it is possible to enforce and regulate the OECD-G20 agreements is likely to be evidenced by Singapore’s corporate tax adjustments.
Power play: good COP bad COP COP26 has set the stage for a new series of measures to stimulate private markets for climate financing.
British Prime Minister Boris Johnson used the conference to renew a longstanding goal, first agreed at the 2009 iteration of the COP conference, to provide US$100bn of climate finance – intended to enable developing countries’ attempts to mitigate and adapt in the face of climate change – annually by 2020.
One year beyond the deadline this target has not been met. Latest OECD estimates show climate finance amounted to some US$80bn in 2019, three-quarters of it provided on a state-to-state basis. Announcements made during COP26 suggest the target will not be met until 2023. Diplomats and negotiators are hard at work trying to pull together enough public and private finance to make the target. Building on Germany and Japan’s positions as the largest providers of climate finance in 2019, we have seen new commitments in recent weeks from the UK, Italy, and Denmark, while US climate envoy John Kerry is confident that the total will be met in 2022. So far, so good?
It is not so simple – what is meant by ‘climate finance’ is itself contested. There are a range of definitions, accounting for the financial instruments used (such as loans or grants), whether contributions are from the private or public sector, and the favourability of interest rates or notice periods. The OECD’s definition of climate finance is broad, encompassing grants, loans and export finance credits from both public and private sectors.
Many developing countries find this definition overly generous, arguing that it obscures how useful and beneficial climate finance might be. For instance, many contributions focus on development projects with only a partial focus on climate goals, and very often governments do not meet their fair share of climate finance contributions.
This contributes to the anger and mistrust felt by developing nations. The founder of a Nairobi-based climate charity, said that the missed US$100bn in 2020 had “hugely damaged” trust in the UN climate summit process, while the Gambia’s energy minister has said that the consequences for developing nations would be grave: “It would be catastrophic because we need those resources”.
This widespread feeling that developed countries cannot be trusted to pull their weight is a challenge to negotiations at COP26, where talks are being held to determine target levels of climate finance beyond 2025. Geopolitical pressure on wealthy countries to deliver is growing. The bulk of climate finance at present is public, but given the political headwinds we can expect to see OECD countries lean on the private sector to find the environmentally and politically necessary levels of finance.
“We [the world’s least-developed countries] bear the biggest brunt of the impact of climate change and we would like to see the commitment that was taken by the developed countries be fulfilled” Lamin B Dibba, The Gambia’s Environment Minister
Dollars and sense: Russia and Ukraine’s battle of Britain
Moscow and Kyiv have been locked in war in eastern Ukraine for some seven years now. Casualties remain a weekly occurrence on the frontlines, even as life goes on largely unaffected in both capitals. The bitter falling out between the erstwhile close allies has had ramifications for international gas markets, NATO, and much more. One front of the conflict has even struck into the heart of Britain, which while not a violent threat, could have major ramifications outside the scope of the conflict.
On 11 November, the UK Supreme Court is due to hold its final hearing in a lawsuit between the two sovereign states, as Kyiv claims that Moscow foisted a US$3bn bond loan on the former, disgraced, government of President Viktor Yanukovych (whose ouster in large part sparked the war) in 2013. Subsequent Ukrainian governments have refused to repay, arguing duress. Russia for its part argues that though the loan was structured under UK laws, that these arguments are not justiciable in the UK.
Ultimately, Kyiv’s bar for a ‘victory’ is lower than Russia’s – if the Supreme Court merely orders a full trial on the merits of any of the various legal arguments Ukraine has made (legal scholars have labelled its approach a ‘kitchen sink strategy) then a series of further appeals by Russia can be expected and the bond will remain outstanding.
The British government has in the past indicated it does not approve of Russia’s approach to the bond, though suggestions that it legislate in support of Kyiv have been dismissed as unworkable – and caused concern this could undermine London’s position as a key market for selling emerging market debt. London and New York have long been the preferred markets for doing so, with their respective legal regimes providing comfort to investors.
Anything other than a ruling in favour of Russia, however, risks affecting London’s attractiveness as a market for such debt – if there is an argument of coercion, this will likely be picked up by activists from groups like the Jubilee Debt Campaign. As is so often the case, much will be determined by the messaging around the ruling and whether Russia seeks to engage in a public relations effort over the judgement. This should be expected; British banks and investors should be prepared for Moscow engaging in its own effort to disparage the standards of English law for such contracts in the event of an adverse ruling.
“Is it really incomprehensible that such an unprecedented policy of double standards could open a Pandora’s box, cause enormous damage to global finances and generally undermine confidence in international financial institutions”
The last time I was in a room full of newspaper editors it was to discuss press regulation, so naturally all ended in mutiny. On Friday, before Greta Thunberg and Vanessa Nakate headed off to protest against investment in fossil fuel projects, and then onto Glasgow, I introduced them to media decision makers in a private, round table discussion hosted by the Natural History Museum.
This time there was a wholly different spirit and purpose. Greta has remarkable convening power, but as moderator I had wondered whether the journalists would feel they were being lectured. They didn’t. Here was huge media influence coming together in one room, abandoning cynicism, ready to listen and to take responsibility for informing the public and holding government to account.
Greta was also ready to listen, facts at her fingertips but never hectoring. Her faith is in the people rather than the politicians and thus she turns to the media. This slight figure, remarkably composed, speaking perfect English, can hold a room of media leaders who reach millions. Alongside her was a figure of comparable charisma, the Ugandan activist Vanessa Nakate, talking of the moral responsibility towards the global south, which is responsible for a tiny percentage of the world’s carbon emissions, yet pays the highest price in loss and damage.
The media leaders talked, under Chatham House Rule, of their commitments and challenges. How to keep readers interested in a story both existential and urgent without overwhelming and alienating them? How to balance short-term gains – energy security – with medium term destruction?
The climate scientist Professor Simon Lewis, who joined Greta and Vanessa at the meeting, does not mince his words about the scale of the threat to “human civilisation”. Lewis claims in his book The Human Planet, that human kind is a geological force, changing everything, forever.
Greta and Vanessa wanted to meet the media decision makers because galvanising public opinion and keeping pressure on governments are crucial if we are going to get to net zero. The media are good at that. Indeed, Greta has said of the media: “You are our last hope.” There was honest self-examination during the session. One editor raised the rule of journalism that you cannot keep doing the same story and keep reader attention, but then observed that coverage of Covid had shattered that rule.
We discussed the lessons from the pandemic, during which media played an important role in informing the public and persuading them to get vaccinated.
There were further insights: television was thought to have an advantage over print in covering climate because of the power of images. Our senior journalists agreed that humanising and personalising the issue helped with engagement. They also emphasised that hope was important.
Audiences, particularly for financial media, like reading about technological solutions. Can journalists discriminate between aspiration and realistic achievement? Can even scientists be sure of what is going to work?
The editors talked about representing climate stories through entertainment or graphics or on the weather pages, in order to keep audiences engaged. It can be a tough sell: according to George Marshall’s book Don’t Even Think About It, our brains are tragically hard wired to avoid thinking about climate change.
Friday was a thought provoking session from a group of media leaders who have power and recognise responsibility. The final words came from Vanessa Nakate, who had found herself erased from media photographs when she spoke at the youth forum in Milan, an editing decision that seemed symbolic of the lack of attention paid to the global south in discussions about climate change. “Whose story are you telling?” she asked.
Then Greta headed off for her next protests, a small, self-contained figure, immediately mobbed by her supporters. An 18-year-old activist who has become a world figure.
Policy preview: Uranium’s return? In September, uranium spot prices returned to levels last witnessed in 2012, spurred by hopes that Japan would be restarting its investment in the sector a decade after shutting it down following the March 2011 Fukushima Daiichi nuclear power plant disaster. Nuclear power has been on the lips of politicians elsewhere as well, with many proposing renewed nuclear investment as a key component to the climate crisis. The UK’s Boris Johnson has been a keen proponent, and since assuming office in 2019 has repeatedly floated a plan for a dozen or more ‘miniature’ nuclear reactors.
The past decade has been brutal for the sector. Westinghouse, once America’s flagship nuclear firm, filed for bankruptcy in March 2017 and was later purchased by investor Brookfield Business Partners, though it has been accused of failing to reinvest in the business and dithering on whether to seek an exit. The UK’s pre-Boris nuclear strategy is broadly seen as a failure, with Hinkley Point C beset by repeated delays, knock-on effects for its French state-owned parent EDF’s other projects as well. Russia’s Rosatom has had more success, but its flagship project – near the Lithuanian border in Belarus – has caused the Baltics to limit electricity trading with Russia and Belarus over security concerns. China is the sole outlier, having invested heavily in building new reactors over the last decade, though its efforts to export its building technology have not met success.
Japan restarting its nuclear reactors would provide a new breath of life to the sector but would hardly prove sufficient. The crash in uranium prices that began in 2012 was also driven by Germany’s abandonment of nuclear power, one of outgoing Chancellor Angela Merkel’s most controversial legacies. There have been some hopes that a coalition without her Christian Democrats (CDU) could revisit the decision, but this should be dismissed – the result of the September election means that the Greens are all but assured a role in any government. The party traces its origins to the anti-nuclear movement that inspired much of mainstream student and youth politics in the 1970s. They are more likely to agitate for an EU ban on nuclear power – something the party’s representatives in the European Parliament have previously called for – than allow the resumption of nuclear power plants in Germany.
Uranium is not dead yet, and nuclear power investments may ultimately form a key part of the climate crisis response. But headwinds remain – just look to Japan where the opposition has campaigned on the nuclear power plant restart ahead of the 31 October election, seeking to cast the government as irresponsible.
“Following Fukushima we had to acknowledge that even in a highly technologically-developed country like Japan the risks of nuclear power cannot be safely mastered”. Chancellor Angela Merkel
Power play: Dier’s Day Eric Zemmour has seeped through French politics this autumn like water from a burst dam, dominating conversation even, and often especially, amongst those most opposed to his right-wing nationalist vision for France. Perhaps the only major political force in the country to successfully ignore him thus far is his right-wing rival, Marine Le Pen and her National Rally (formerly the Front National) party, though this has not proven effective in terms of maintaining Le Pen’s spot in the polls. All this before Zemmour has even formally declared his candidacy. A mix of quasi-literary invectives, national pride, culture war invectives and the effectively-timed leaking of an affair with his assistant have proven irresistible to French media. Zemmour is certainly his own man, but at the genesis of this media frenzy stands one of his closest political advisors: Antoine Diers.
Diers is, like Zemmour, not an elected politician. He also formally does not work for the non-candidate, at least not yet, and serves as chief of staff to the mayor of the upscale Paris suburb Le Plessis-Robinson. He has served as a counsellor himself, in Dunkirk, for the various iterations of France’s traditional main right-wing party, now known as the Republicans, amid the heydays of Nicolas Sarkozy’s presidency. Diers combined this work with a simultaneous stint in student politics (which in France still includes a fair number of right-leaning associations, and neo-Gaullist movements, contrary to popular perception).
Diers, however, quickly moved to the right, becoming a follower of Philippe de Villiers, a former Republican who had broken with the party over what he saw as its insufficient criticism of the influence of Islam in France and Euroscepticism. He was also associated with the right-wing activist Pierre Meurin go on to be director of the academy set up by Marion Marechal after she broke with her aunt Marine Le Pen amid Le Pen’s attempts to detoxify the Front National. Bluntly, he studied with many of France’s most polemic and assertive figures, with experience in new form media and more accustomed to raucous debate than the formal-yet-acerbic debates of the old French intellectual right-wing from which Zemmour hails.
Diers has forced Zemmour into the centre of the national conversation, appearing more often on critical television and radio stations that more established right-wing figures have long considered unworthy of their time. Diers is widely tipped to become Zemmour’s spokesperson once his candidacy is formalised. Even if Zemmour’s candidacy ultimately does fail to win the presidency, Diers has set an example for how the right can seize the French national conversation – experience that will keep him in high demand.
“I have come to the conclusion that politics are too serious a matter to be left to the politicians.”
Charles de Gaulle
Dollars and sense: Emirati geo-economics The United Arab Emirates (UAE) has recalibrated its foreign policy in recent years to ensure a greater focus on economic diplomacy, all the while assisting its endeavour to diversify its economy away from dependence on oil.
We have already seen the effects begin to play out with the recently-announced partnership and investment relationship between the UAE and the UK. This is to include Emirati investment in the UK’s green energy and life sciences sectors, but also a tie-up to invest in and expand ports in Senegal, Egypt and Somaliland. The UAE has long had a strategy of investing in African ports, but the partnership with the UK’s Commonwealth Development Corporation helps put it at the centre of Britain’s own ability to project power in the region.
There is precedent for the UAE to use economic ties as a bridgehead for deepening its political links. Last October, it was the flagship Gulf signatory of the Abraham Accords – an agreement between Israel and a number of Arab states to normalise diplomatic relations. This had been preceded by substantial Emirati investment into Israeli business and in particular its services sector. Once unthinkable, UAE and Israeli embassies have opened up alongside formal channels of communication and cooperation.
This diplomatic cooperation paves the way for further partnership in strategically-important sectors. The two countries have proposed cooperation on security matters, and though progress will likely fall short of a full defence pact, Israel’s decision not to intervene to oppose the US’ recent sale of weapons to the UAE points toward further cooperation.
The Abraham Accords also gives further political space for the UAE to promote business ventures with Israel and other international partners. Just last week Israel, India, the US and UAE formed a quadrilateral forum for economic integration, helping them work together on sectors including infrastructure, digital infrastructure and transportation.
Indeed, a joint article by Abdullah bin Zayed Al Nahyan and Yair Lapid, the UAE’s minister of foreign affairs and international co-operation and the foreign minister of Israel, respectively, highlighted the extent of these bilateral partnerships. The pair noted they ranged from an association between the Israeli D’Vaish health food company and the UAE-based Al Barakah Dates Factory, as well as a $1bn investment by Emirati sovereign wealth fund Mubadala into Israel’s Tamar gas field.
UK-UAE economic partnership is following a similar course, with the Emirati state pledging to invest £10bn in the UK’s strategically important clean energy, tech and infrastructure. The UAE has already invested £1.1bn in British companies and funds, including £500m in telecoms infrastructure firm CityFibre. Meanwhile, Mohamed bin Zayed, the UAE’s de facto leader, plans to sign an agreement with the Prime Minister to strengthen trade and collaboration across a wider range of sectors including climate change and regional stability (read: defence and security).
The UAE’s increasing appetite for collaboration and strategic partnerships between the UK and the UAE is only set to increase, providing opportunities for British firms in key sectors both in the UK and internationally.
“As two of the world’s most dynamic and advanced countries, the UAE and Israel together can help turbocharge economic opportunity by pushing for deeper regional integration.” UAE and Israeli Foreign Ministers Abdulla bin Zayed and Yair Lapid
Policy preview: referanda to the rescue? Planning reform has long been seen as a bugbear for the Conservative Party. Even the current government, with its 80-seat majority, has faced calls to water-down its proposals in the aftermath of June’s Chesham & Amersham by-election attenuated concerns that housing reform could erode support from the traditional Conservative base, homeowners.
The Labour Party has attempted to seize on this, arguing that Prime Minister Boris Johnson’s tax increase puts the burden to fund social care on workers rather than on homeowners. Nonetheless, we noted in our 23 June Horizons newsletter that we expected Johnson to push ahead with the core of these reforms despite that shock result with the Liberal Democrats overturning a 16,000 majority.
Johnson and Housing Secretary Robert Jenrick, however, have faced grumbling from the backbenches, including from former prime minister Theresa May over the planning reforms. Yet some of these same backbenchers may have picked up on a solution that allows Johnson to avoid risking a major rebellion. MPs are expected to introduce a private members bill that would give local communities a vote on housing in their area, including approving density plans and style guides.
The policy, known as ‘Street Votes,’ is the brainchild of the Policy Exchange and Create Streets think tanks and aims to challenge the perception that new developments are aesthetically, and economically, unpleasing to suburban residents while also enabling those rural residents to protect green spaces even when their local authorities aim to increase the housing stock.
Whether such a policy could be successful remains to be seen. Advocates such as Sam Bowman of the US’ International Center for Law and Economics argue that it provides the optionality necessary to have a ‘bottom-up’ approach while allowing the political hurdles, at both a parliamentary and local level, to be overcome by residents keen on raising the value of their neighbourhood. They point to similar proposals in Seoul and Tel Aviv that saw new housing approvals jump by as much as 50%.
Incorporating the Street Votes proposals into the government’s own legislation may well bring it sufficient votes to avoid a substantial rebellion. It may also bring in some Labour votes for Johnson’s housing plans and planning reforms, a situation Johnson has thus far been keen to avoid least he be seen to be dependent on Labour votes to pass them.
The Smart Votes system remains untested, and it will seem unnatural to many UK political observers that referenda, even of the hyper-localised variety, could be the panacea to some of its mot lasting political disputes. Politically, however, it offers the Johnson government the potential to declare victory on passing its reforms while deflecting responsibility for any eventual housing -target shortfall.
“Maybe this referendum will be the beginning of a trend” Former UKIP and Brexit Party leader Nigel Farage
Power play: waiting for Whately
The UK government is staking a great deal of political capital on its recently announced reforms for adult social care. Prime Minister Boris Johnson has gripped the ‘third rail of British politics’ by trying to tackle the issue, but the government could be damaged if the controversial policy is a damp squib.
Helen Whately, Minister for Social Care, will be responsible for driving and delivering the reforms. Funded by a rise in national insurance contributions and dividend taxes raising £12bn annually, the government will initially attempt to clear the pandemic-induced NHS backlog.
After three years of increased funding for the NHS, the extra cash will supposedly be diverted from the NHS and re-allocated to the social care system. If, of course, reducing funds to the NHS doesn’t prove too politically challenging.
With a political bid to prevent care users needing to sell their homes or other financial assets to fund their social care, the government has proposed a (means-tested) cap on the lifetime costs of social care of £86,000 from October 2023.
However, it is not yet clear exactly how or why the reforms will make the social care system. The political difficulty that has surrounded the issue for decades has largely been a matter of funding, and it is this area that was covered in most detail by last week’s announcement
There is still more to come in the way of solutions for how the government plans to tackle some of the underlying problems that the social care sector faces. Identified in Department for Health & Social Care’s white paper this February, these issues include insufficient integration with the NHS, too much bureaucracy and a need for more accountability in the system.
The government’s new plan includes provisions for more training and support for care workers, but detail on how it will address these issues is thin on the ground, with another white paper setting out further detail promised in due course. Social care providers such as Four Seasons Health Care have already criticised the plan as being too little too late, calling on the government to make the necessary reforms to help support staff as soon as possible.
Though the reforms have not been universally popular, they have not torpedoed the Conservative’s polling in the manner that Theresa May’s social care proposals did in 2017. Once the impact of NIC increase starts to bite, pressure will be on for the government and for Whately to show that their reforms are having a real effect.
“We have a social care crisis right now, and it can’t wait to for people to draft [a promised white paper], and then delay any funding and any staffing changes for another two years.”
Jeremy Richardson, Four Seasons Health Care CEO
Dollars and sense: actioning ESG It is not too often that international bond markets have to think about NGO’s. That is not to say it is unprecedented for them to do so – 25 years ago the International Monetary Fund and World Bank launched the Highly Indebted Poor Countries (HIPC) initiative following sustained pressure from the Jubilee Debt campaign and associated activist groups. HIPC today remains a key structure of emerging market debt markets, enabling many more countries, including debuts well into the bottom rungs of the credit rating spectrum, to issue international debt.
The sale of so much debt by low-income countries and companies in poorly regulated markets has often raised concerns about how they should be treated for investors seeking to put climate change concerns and environmental, social and governance (ESG) principles at the heart of their investing strategy. The credit investment industry is being slowly transformed by ESG investing, with so-called ‘green bonds’ now often trading at a premium. This makes green debt in theory cheaper, and therefore a market structure to promote the very ESG principles they encompass.
However, concerns about ‘greenwashing’ remain. If the recent trend for ESG investing does translate to a sustained premium, this risks major losses for creditors holding debts that are later revealed not to be as rooted in ESG as initially premised.
Given that similar concerns about morality in investing and the potential for economic growth to be more equitable globally prompted the HIPC initiative – which enables countries below a certain income level to receive special assistance from the IMF and World Bank – it is not too surprising that once again the voices of NGO’s are being heard on ESG investing.
Already there is evidence that they may be having an impact. In March of this year, the Nature Conservancy announced it was launching a programme to work with coastal nations to protect their waters, ‘Blue Bonds for Ocean Conservation’. The effort attempts to combine the twin realities that it is difficult for maritime nations to resist exploiting their waters’ wealth with the reality that debt countenancing ESG principles is cheaper for issuers.
The Nature Conservancy said that it was inspired to launch the programme by work it had done with the Seychelles government to restructure $22 million in its debts in 2016, but it is now set to face its first major market test. The government of Belize has announced its intent to restructure its debt – following two defaults in recent years – in a deal backed by the Nature Conservancy and its key creditors. Under the Blue Bonds programme, Belize will repurchase $530 million in dollar bonds for just over US$290 million. Investors see a gain to the 60% discount the debts had been trading at, while Belize reduces its debt burden substantially. In exchange it agreed to fund a $23.4 marine preservation endowment and the new debt provided by Credit Suisse to finance the repurchase will be subject to Belize continuing to honour certain ESG commitments. The deal has until 19 November to be approved by 75% of bondholders.
Bringing together international institutions, NGOs and bond markets proved an effective way to fund emerging markets growth with the HIPC initiative. The Nature Conservancy programme may just have established a template for ensuring that ESG principles remain a sustained, not fleeting, feature of funding this growth.
“A debt is just the preservation of a promise” David Graeber, Author of Debt: The First 5,000 Years
Dollars and sense: internal activism ‘Green’ investment funds and public pressure are forcing big oil firms to change their behaviours, but immediate material change will be limited, while we await and expect further regulatory changes.
This year’s AGM season provide tumultuous for the world’s largest publicly-listed energy firms. Activist ‘green’ hedge funds have used their positions to compel major players to progress on their decarbonisation credentials. Such firms have always been vulnerable to criticisms from climate activists and environmental NGOs.
But the rising salience as climate change as a political issue, coupled with the trend toward a greater focus on companies’ social and environmental credentials, has lent credibility to climate activists operating in the financial world.
Hedge funds such as Engine No. 1 have led the charge by forcing board appointments and environmentally-conscious resolutions at some of the biggest oil firms, including Chevron and Exxon Mobil. These efforts are positioned as moves to maximise shareholder returns and to ensure that energy firms are well-equipped to weather global transitions to renewables. This is a trend we will doubtless see continue as climate change’s impacts are further felt across the world and activists emulate the like of Engine No. 1.
We are also seeing developments of the regulatory environment around listed firms’ environmental reporting requirements in both the UK and the US. For example, the next few years will see the progress along the FCA’s roadmap concerning firms’ obligations around climate and ESG reporting. The roadmap includes reporting requirements for listed entities aimed at preventing greenwashing. From this accounting year, it is already the case that large publicly-listed firms should report their approach to measuring and managing climate-related impacts and risks, and the FCA looks committed to expanding the set of firms affected.
Across the Atlantic, the SEC appears similarly committed to mandating that public companies report climate risks around their behaviours. Although it is already the case the case that oil and gas firms must report on their carbon emissions in the US, this regulatory shift is symptomatic of greater desire by regulators and governments to force companies to disclose the climate impact of their activity. As a sector long negatively associated with carbon emissions, we expect more stringent regulatory mandates to be placed on oil and gas firms in the coming years.
Major economies’ efforts to reach net zero carbon emissions are proving politically contentious across the world. Mandating more open climate reporting will help provide governments with greater political cover to make necessary policy changes. The tightening of ESG reporting requirements, however, can shift the onus for action to a fight between business and government to one within the boardroom.
Though oil majors have been exploring how they can convert their existing facilities to expand their renewable energy production capacity, ‘green’ policies by firms will only go so far. Increased regulation, both in the form of reporting requirements and of minimum climate standards necessary for listing, will likely be a permanent fixture. Governments and activists will both look to listing requirements to bring the battle to the boardroom.
“We welcome the new directors to the board and look forward to working with them—constructively and collectively on behalf of all shareholders.”
Exxon Mobil spokesperson, in response to election of Engine No. 1’s nominees Gregory Goff and Kaisa Hietala.
Power play: Afghanistan’s last bastion The stunning fall of the Afghan government over the last week has sent shockwaves rippling across Western governments, with 20 years of military, human, and financial capital appearing to have been for nought in the fight for control of the country.
US President Joe Biden has made clear that he sees no more direct role for US forces in the country despite acknowledging the surprising speed and scale of the Afghan government’s defeat. And while UK Defence Secretary Ben Wallace too has bemoaned the state of affairs in the country, the reality is that there is no political will in Britain. However, one pocket of resistance to the Taliban remains – Afghanistan’s Panjshir Valley.
Panjshir’s most famous son, Ahmad Massoud, announced on 16 August that he planned to lead a new anti-Taliban movement from the region, the sole territory that has not fallen to Taliban control over the last week. The Panjshir has welcomed fleeing minorities from other parts of the country, special forces units abandoned by their military leaders, and vice president Amrullah Salleh, one of the only senior leaders from the Western-backed government not to flee the country. Protected by significant peaks and a loyal population, it is not the first time that resistance to the Taliban has been left to the Panjshir Valley.
The region famously never fell to the Taliban in the pre-US invasion civil war. It became the core of the ‘Northern Alliance’ against the Taliban that was led by Ahmad Massoud’s father, Ahmad Shah Massoud, better known as ‘the Lion of Panjshir’.
Ahmad Shah Massoud was assassinated two days before the 9/11 attacks, by al-Qaeda operatives posing as Western journalists. The killing was ordered by Osama bin Laden as assistance for his Taliban hosts and to shore up the al-Qaeda-Taliban alliance before the terrorist attacks that did so much to change Afghan and world history. That his son is now left to fight the Taliban without direct Western assistance – effectively the same situation which Ahmad Shah Massoud found himself in, having pleaded for support at the European Parliament just months before his assassination – demonstrates how little impact Western intervention has had on Afghanistan’s underlying divisions.
The younger Massoud notably finds himself without the same broad alliance among Tajiks and Uzbeks that his father was able to rely on. Even before the government’s collapse, the Taliban made inroads in northern Afghanistan far beyond what it ever achieved before the US-led invasion. Meanwhile the Taliban has made clear it seeks international recognition, and even made noise about adjusting its medieval practices ever so slightly to such support. However, it ultimately remains the reprehensible terror group that it has always been.
If there is to be any international support for an anti-Taliban effort now or in the future, Ahmad Massoud and the Panjshir Valley may prove the sole conduit for hope that Afghanistan can avoid another decade of darkness under Taliban rule.
“This situation over the short and long-run, even in case of total control by the Taliban, will not be to anyone’s interest. It will not result in stability, peace and prosperity in the region. The people of Afghanistan will not accept such a repressive regime. Regional countries will never feel secure and safe.”
Ahmad Shah Massoud, ‘Letter to the American People’ (1998)
Policy review: hydrogen hopes The UK government launched its first its plans for a ‘world-leading hydrogen economy’ on 17 August, declaring its intent to secure more than 9,000 jobs in the sector and unlock £4 billion in investment by 2030. Hydrogen has long been linked with the green agenda, as the gas produces no carbon emissions when burned.
However, hydrogen comes in various varieties – and the debate over how to support the sector’s development largely breaks down into two camps over these: advocates of ‘green hydrogen’ derived from electrolysis and ‘blue hydrogen’ derived from natural gas but in which the carbon dioxide in this process is captured and securely stored or disposed.
The government’s hydrogen plan declares its preparation to offer subsidies in support of hydrogen production but crucially demurs on whether it will subsidise green or blue hydrogen, or both, only “committing to providing further detail in 2022 on the government’s production strategy”. A public consultation on “a preferred hydrogen business model” is now underway.
Advocates of both forms of hydrogen production will be lobbying the government in line with their preference, with ‘blue’ advocates keen to demonstrate its lower cost and ‘green’ supporters advocating for its potential as a carbon-free energy source, with no long term storage costs even if presently it is significantly more expensive.
The cost difference to the UK could be significant, as the government’s strategy lays out that it plans to offer effective ‘feed in tariffs’ in which hydrogen producers receive a payment to bridge the difference between the cost of production and the price at which they sell it on the market. It does caveat that this market price cannot be lower than the price of natural gas, but the price differential between gas and ‘green’ hydrogen is significantly wider at present than between gas and ‘blue’ hydrogen.
Blue hydrogen’s advocates, however, have an additional tool at their disposal in addition to the cost basis, which will be subject to advancing economies of scale in electrolysis technology (though some have already voiced concerns about reliance on Chinese technology in this space). Namely that blue hydrogen offers a route to extending the lifeline of the North Sea’s hydrocarbons industry – something already endorsed by the UK’s oil and gas industry.
With the public purse under post-pandemic pressure and the Conservative’s levelling up agenda, subsidies for blue hydrogen may well prove a potential panacea for a number of areas of concern, but selling their potential will require a sustained and joined up effort from both legacy industry and new hydrogen players.
“I believe that water will one day be employed as fuel, that hydrogen and oxygen will constitute, used singly or together, will furnish an inexhaustible source of heat and light” Jules Verne
Policy preview: ending the debt ceiling? The US’ debt ceiling is among the most despised institutions of US politics, from the perspective of the Democratic Party. The ceiling formally institutes a limit on how much the US government can borrow – but in practice it has never done so, having been consistently raised since its introduction just over 100 years ag, even in the 1990’s when then-president Bill Clinton managed to run a rare surplus.
The ceiling is once again in the news after the Republican Party refused to support raising it in a procedural vote on 27 September. The ceiling was of course consistently raised under former president Trump, when Republicans controlled the Senate, and it was formally suspended for two years in August 2019. While this may well have avoided its politicisation during the COVID-19 pandemic, the vast government spending rapidly required by the initial response to the virus highlighted the potential risks in retaining such a limit.
Democrats argue that the Republican Party politicises the limit every time that it is out of power, pointing to the government shutdowns that resulted from refusals to raise the limit when Barack Obama was president and former Republican House Speaker Newt Gingrich’s 1995 move to separate the increase from the annual budgetary process. But at the same time the Democrats have been wary of publicly calling for its elimination, which could be perceived by voters as embracing fiscal irresponsibility.
Treasury Secretary Janet Yellen has warned that failure to raise the ceiling could lead to a formal default, declaring this would push the US back into recession. Federal Reserve Chair Jerome Powell – who former president Donald Trump nominated to replace Yellen in that post – has made the same point.
Republican Senate Majority leader Mitch McConnell has used the latest standoff to say that the buck stops with the Democratic Party this time, given the party’s control of both houses of Congress and the presidency. He is correct in that the Democrats can use the budget reconciliation process – which would override the Republican ability to filibuster such a vote – to eliminate the debt ceiling. Yet the Democrats are seemingly unwilling to open the 2022 budget resolution to do so, which could galvanise opposition to increased spending from centrist Democratic Senators Joe Manchin and Kirsten Cinema, already engaged in a standoff with their own party over a US$3.5 trillion social policy and US$1 trillion infrastructure bill.
The Democratic Party may therefore have an interest in allowing a brief crisis over the debt ceiling even as they control all branches of government. Previous shutdowns have failed to significantly affect domestic political trends. McConnell’s relationship with Trump and the less fiscally cautious wing of the party that has been so ascendant since his 2016 election victory is strained, with Trump reportedly seeking to stoke a leadership challenge among Republican Senators. Despite McConnell’s declarations, the intricacies of Senate parliamentary process are not of interest to most American voters.
Strange as it may seem, if Democrats are hoping to lay the blame for any fallout at McConnell’s feat, in hopes it will engender an environment in which they can finally push through the debt ceiling’s abolition in 2022.
“Democrats have every tool they need to raise the debt limit. It is their sole responsibility”. Senate Minority Leader Mitch McConnell
Power play: Der Kingmaker Germans went to the polls on Sunday, and the election appears to already have a likely winner. The leader of the Social Democratic Party (SDP), Olaf Scholz, is look set to be the next Chancellor. However, the two smaller parties he will need to support his governing coalition will have to find a lot of compromise.
The SDP won the most seats in the election in a disappointing night for the Angela Merkel’s governing Christian Democratic Union (CDU).
The party sitting closest politically to the two largest parties, the SDP and the CDU, and thus natural coalition partners in the next government is the FDP, whose leader Lindner has been described as a ‘kingmaker’ who must choose the next leader of the Republic.
However, a coalition made up of the CDU, FDP and Greens, is politically implausible. The CDU suffered a heavy defeat on Sunday, losing a quarter of its support compared to the last election in 2017. Their leader is already facing calls to resign from within his own party, and is no longer a serious contender for the Chancellery.
The most likely outcome is a ‘traffic-light’ coalition between the Greens, the SDP, and the FDP. The SDP will need to form a coalition with these parties in order to form a government. But while the Greens favour statist intervention, the FDP is more aligned to a laissez-fair economic doctrine, preaching faith in markets to solve the climate crisis.
So while Lindner may no longer the ‘kingmaker’ – with little tangible choice over who will be the next Chancellor – more significant may be areas where the Greens and the FDP can find common ground. Whereas the Greens and SDP largely align on economic policy, the FDP support significant tax cuts and adherence to the debt brake. Division over climate issues such as the future of the car sector, Nord Stream 2 gas pipeline, and how to best protect households from the impact of climate policies, may prove to be sticking points.
However, early signs suggest compromise is possible – the Greens and FDP already have entered negotiations between themselves to better enable them to present a united front. To give just one example, Lindner has called for a state investment fund, separate from the federal budget, borrowing and invest with higher returns. The Greens may well see this as the route to climate infrastructure investment without having to increase national debt to unacceptable levels.
Perhaps Lindner will not be kingmaker, with Scholz apparently already Chancellor-in-waiting. But the success of Germany’s next government will depend on how much compromise can be reached by the FDP and the Greens – and early signs are promising.
“For me, it is always important that I go through all the possible options for a decision”.
Chancellor Angela Merkel
Dollars and sense: Lithium in coalition Germany’s Green Party is all but certain to enter its next government after the 26 October elections – having come in third, both the first-place Social Democrats (SPD) and the runner-up Christian Democratic Union (CDU) have they want to discuss forming a coalition with the party. Any realistic coalition other than a renewed CDU-SPD grand coalition, which both have said they wish to avoid, would require the Green’s participation. The Green’s environmental agenda has been embraced by both as well, but one major question facing any new coalition will be how they balance environmentalism and NIMBYism.
Pollsters reported that more Germans identified climate change as their primary concern going into the elections, rapidly overtaking COVID-19 as the summer progressed. The German auto industry has also undergone a rapid shift to supporting the electric transition for the sector as well, spurred on by Tesla’s development of a ‘gigafactory’ outside Berlin – something the outgoing grand coalition pushed for. The CDU’s chancellor candidate, Armin Laschet, even met with Elon Musk in mid-August, seeking to brandish his parties green credentials.
Incidentally, Laschet posed a question to Musk that said gets to the heart of Germany’s green agenda: “hydrogen, or electric?”. Musk laughed it off, endorsing the later (on which he has staked his company) wholeheartedly but that such a question could still be posed in German politics highlights the quiet discomfort many at its peak express with regards to a core aspect of the transition: the supply of lithium batteries.
Demand for lithium has grown exponentially over the past decade, but Europe has repeatedly failed to develop its own sources. Plans for lithium mining in Portugal collapsed in April, and while the UK has made some very early tentative progress towards exploiting its own lithium, post-Brexit competition and EU rule-of-origin and tariffs mean that integrating European auto manufacturing with UK battery production is unrealistic at present.
Despite the enthusiasm for the green agenda, the Green Party has been at the forefront of opposition to lithium mining. At the European level, the party has fiercely opposed the US$2.4 billion Rio Tinto led Jadar mine project in Serbia over concerns it will degrade the local biodiversity and agricultural fertility and in solidarity with local protests.
Whatever coalition is formed in Germany, it will have to deal with the reality that Berlin risks being left behind if Europe remains without a significant local lithium supply. Otherwise, its auto industry risks being left behind.
“We have to think of where the raw materials come from… but we want to further develop and expand electro-mobility here in Germany, particularly with the production of batteries”. Annalena Baerbock, co-leader of the Green Party
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