‘The sham must end’: UN ups the ante on corporate climate action

Hello from New York, where Moral Money wants to briefly turn your attention away from Sharm el-Sheikh to deliver some breaking news on the US midterm elections. As of Wednesday morning, Republicans were expected to win the House of Representatives, but their hopes of a big wave of support have been shattered. As our Washington colleagues reported this morning . . . 

The early tallies from the midterm elections on Tuesday showed many battleground races across the country were too close to call, with control of the Senate remaining in the balance and Republicans struggling to secure widespread victories in swing districts in the House of Representatives.

Please see our analysis of the results below.

But we definitely do not want to distract from the action at COP27, where we continue our special editions every weekday during the climate summit. On a busy day in Sharm, a UN expert group announced a major new report on non-state net zero commitments of crucial importance for Moral Money readers. Below is some analysis from Simon, who is reporting from the ground throughout COP27. (Patrick Temple-West)

COP27 day 3 in brief

On a very busy third day, attendees were united in their dismay at the huge queues for food, and the eye-watering prices at the end of them. Personally I fasted. Here are the highlights:

• Russia’s invasion of Ukraine had undercut the global effort to combat carbon emissions, Ukrainian president Volodymyr Zelenskyy warned — in contrast with other leaders’ claims that the war is hastening the energy transition.

• CDP, which runs the biggest disclosure platform for corporate climate emissions, said it would incorporate the standards of the International Sustainability Standards Board into its reporting system. ISSB chair Emmanuel Faber said the bodies were “reducing the burden on entities and moving a step closer to that common language for disclosures”.

• The Africa Carbon Markets Initiative was launched, backed by the UN Climate Change High-Level Champions. The new body wants to help Africa to produce credits worth 300mn tonnes of carbon each year, with associated revenue of $6bn, by 2030.

UN unveils benchmark standards for corporate climate plans

If you’re following, or are involved in, corporate responses to climate change, you’d do well to take a good look at a major new report unveiled here at COP27 yesterday.

It came from a body with one of the longest names I’ve ever had to write: the UN High‑Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities (UNHLEG), which was set up in April by UN secretary-general António Guterres and chaired by former Canadian environment minister Catherine McKenna.

The report sets out standards for net zero plans by companies and all other non-state actors. Announcing the report, Guterres used characteristically punchy language. “Using bogus net zero pledges to cover up massive fossil-fuel expansion is reprehensible,” he said. “This toxic cover-up could push our world over the climate cliff. The sham must end.”

This comes after months of controversy around the membership standards for Mark Carney’s Glasgow Financial Alliance for Net Zero — a story that Kenza moves forward today in a brilliant FT Big Read. Gfanz’s sectoral groupings had been required to follow standards set by the UN-backed Race to Zero campaign — but as of last month, these corporate alliances are free to pick membership criteria for themselves.

The UNHLEG has now laid down a clear and demanding set of standards by which all such alliances — and any non-state body with a net zero plan — will be judged, whether they like it or not. These include some that could be very inconvenient for many big companies, such as the following:

• Non-state actors should have short‑term emission reduction targets of five years or less, with the first target set for 2025.

• Businesses should end all expansion of coal, oil and gas reserves.

• An entity’s net zero pledges and progress reporting should cover all scope emissions and all operations along its value chain in all jurisdictions.

• All net zero pledges should include specific targets aimed at ending the use of and/or support for fossil fuels.

Some Gfanz members had questioned the legitimacy of Race to Zero’s own expert group, which effectively set Gfanz standards until last month’s split. Crucially, while the Race to Zero campaign enjoys UN support, the UNHLEG is an official UN body, making it far harder to dismiss.

The 16 members of the UNHLEG are a much more diverse group than some other benchmark-setting initiatives that are heavily stocked with executives from the global north. Four are from Africa, including former Malian prime minister Oumar Tatam Ly and Kenyan climate researcher Jessica Omukuti. Financial heavyweights on the team include former Chinese central bank governor Zhou Xiaochuan and ex-Brazilian finance minister Joaquim Levy. The corporate financial sector is represented by a man familiar to Moral Money readers — Günther Thallinger, a board member at Allianz and chair of the Net-Zero Asset Owner Alliance, which is part of Gfanz.

Carney tweeted to welcome the report, and endorsed its call for regulators to develop mandatory frameworks for transition finance, which he said could draw on a new Gfanz net zero transition planning framework, published earlier this month.

McKenna endorsed her fellow Canadian’s suggestion in a friendly response on Twitter. But in her spoken remarks, she struck a strikingly harsh tone towards companies that have sought the good PR of a net zero pledge without undertaking the painful work needed to make it count.

“If you put up your hand and say: ‘I’m a climate leader and I’m committed to net zero,’ you cannot claim to be net zero [while] continuing to build or invest in new fossil fuel supply,” she said — words that will rankle with the many Gfanz members still funding new fossil fuel development. (Simon Mundy)

Quote of the day 

“The impacts of climate change are with us now, but they are far more than floods, droughts and heatwaves. They extend to our very sense of hope.”

Paloma Escudero, head of Unicef’s COP27 delegation, commenting on growing climate anxiety. A Unicef poll suggests almost half of young people in Africa have reconsidered having children due to the climate crisis.

Beyond COP27: US elections pose problems for ESG 

US midterm congressional elections rarely go well for the guy in the White House. Donald Trump lost to the Democrats in 2018. Barack Obama suffered setbacks in 2010 and 2014.

Now, it is President Joe Biden’s turn to face the music. He was already facing an uphill battle as inflation jumped this year. As of early Wednesday morning, Republicans were still expected to win the House of Representatives. But a nationwide rout failed to materialise.

“Democrats put up an unexpectedly strong fight,” our Washington colleagues reported today. Control of the Senate was still unknown on Wednesday.

For environmental, social and governance investing, not much will change in the near term. Aniket Shah, global head of ESG strategy at Jefferies, published a report this month citing a Republican lobbyist who said hand ringing over ESG would be “noise in the near term” and more about preparing for the 2024 elections.

Biden’s big climate legislation seems safe. The Inflation Reduction Act has bipartisan support. Democrats and Republicans are likely to come together to pass oil-and-gas permitting reform, Shah said.

That does not mean it will be easy going for BlackRock and other companies that are under fire for their ESG business practices. Republicans are certain to consider calling BlackRock chief executive Larry Fink to Washington to testify about ESG and sustainable investing.

Republican state attorneys-general will continue to attack ESG. As a result, “green hushing” will accelerate as big banks stop touting their climate mitigation efforts, a Washington lobbyist told me last week.

Republican control of the senate will make life much harder for Gary Gensler, chair of the Securities and Exchange Commission. The SEC’s landmark climate disclosure rule is certain to end up in court next year, and Republicans will do whatever they can to help companies torpedo the regulation.

Finally, though they are not up for election, the Supreme Court justices will continue to present a risk to US climate regulations. The justices’ decision against the Environmental Protection Agency this year cast doubt on the powers of other regulators such as the SEC.

Smart read

Our colleague Martin Wolf writes that it is too late to talk about “reparations” for climate change. “Diverting attention from the priorities of today to compensation for injustices in the past will lead not to action but to endless and unproductive disputes,” he writes. People should not give up hope that climate change can be slowed. “At COP27, we must do so, in earnest.”