When I started as editor earlier this year, many ESG commentators were saying real policy change and regulatory intervention was needed to drive forward initiatives tackling the climate emergency.
As we approach the final month of the year — and what an unprecedented year it has been — it is encouraging to see this is already coming to fruition, although there are bound to be snags along the way.
ESG investors and climate-aware civilians around the world breathed a collective sigh of relief when Joe Biden was confirmed as the country’s 46th president. In his campaign, Biden, labelled the ‘green president’ in some UK press, promised to re-join the Paris Climate Agreement, to focus on a transition to renewable energy, and to create a “friendlier regulatory environment” for a sustainable future.
“In the lead-up to any election, politicians can be known to be liberal with their promises,” said David Harrison, manager of the UK-based Rathbone Global Sustainability Fund. “But almost any green policies Biden implements will be positive compared with his predecessor.”
Never has a truer word been spoken. As well as a pulling out of the Paris deal, Donald Trump’s administration rolled back regulations on emissions and the measuring of environmental impact of construction projects during his tenure.
But with Biden as new president elect, it is likely we will see a flurry of climate change activity, including a restoration of the methane/fracking regulation on domestic oil and gas drilling, and re-enactment of federal GHG emissions-reduction initiatives such as the Clean Power Plan.
This is according to Guillaume Mascotto, vice-president, head of ESG and investment stewardship at American Century Investments, who says: “Biden’s stance on climate change is also likely to be echoed by a Democratic-controlled Congress, resulting in a strengthening of the federal government’s role in energy and environmental policy.”
He adds: “While the appeal of investing in intermittent renewable energy assets will continue irrespective of regulatory developments as technological learning curves improve, an abrupt switch away from fossil fuels is likely to be limited as a result of continued low natural gas prices, infrastructural obstacles and possible push-back on behalf of a Republican-controlled Senate.”
At the same time, Biden has voiced his support to promote a gradual energy transition, Mascotto says, in which natural gas (and by extension the controversial practice of fracking) is likely to remain categorized as a ‘transitional fuel.’
“As such, the focus on environmental protection, and operational health and safety, will continue to be material issues at the forefront of the fracking debate.”
UK green bonds and mandates
Meanwhile, in the UK, there have also been some regulatory developments on the environmental front; Chancellor Rishi Sunak announced Nov. 9 plans to launch the UK’s first sovereign green bond next year, which will be used to finance projects tackling climate change, infrastructure and create green jobs.
Sunak hopes the green gilt will be the first in a series of new issuances to build a “green curve” over the coming years, with Nick Robins, a professor in practice sustainable finance at the Grantham Research Institute, London School of Economics and Political Science, describing it as “a powerful mechanism to mobilize private capital for key national priorities on climate action and recovery from COVID-19.”
The UK is also to become the first country in the world to make Task Force on Climate-related Financial Disclosures aligned disclosures mandatory, and will also implement a green taxonomy to better understand the impact of firms’ activities and investments on the environment, and support the transition to a sustainable economy.
The newly published TCFD Taskforce interim report outlines upcoming rules that will capture a significant portion of the economy including listed commercial companies, UK-registered large private companies, banks, building societies, insurance companies, UK-authorised asset managers, life insurers, FCA-regulated pension schemes and occupational pension schemes.
Saker Nusseibeh, CEO at the international business of Federated Hermes, was among the first ESG investment professionals to welcome the news as an “extremely positive development.” He adds: “Requiring UK companies to make mandatory disclosures against the TCFD framework will move discussions from the ‘whether’ to the ‘what’ and ‘how to’ stage.”
Chris Cummings, chief executive of the UK’s investment industry trade body the Investment Association, notes both the green bond and TCFD plans were “important and ambitious steps” as “financial services will be critical in driving the economy to net zero.”
Although exciting, such a profound change in approach does not happen overnight. But any movement from Biden in the direction of greener initiatives will no doubt be welcomed by the global community, with the U.S. being the world’s second largest producer of carbon dioxide emissions. Biden may have to bide his time (see what I did there?), and the UK has the added complication of negotiating Brexit on the immediate agenda, but it’s good to see governments finally turning a corner when tackling climate change.
Natalie Kenway is the editor of ESG Clarity at Last Word Media.