Stewardship & ESG Updates

Martin Currie: Latest Stewardship Activity: February

    David Sheasby

    David Sheasby Head of Stewardship and ESG

    SUMMARY

    • Remuneration discussion with Infineon

    • COP26 and the importance of Net Zero (new insight)

    • The US officially returns to the Paris Agreement

    • SEC to update corporate climate disclosure guidance

    • UK pension bill on climate-change written into law

    • CTI releases report on Petrostate energy transition

    • Singapore consults on green finance taxonomy

    • Hampton-Alexander Review finds UK boardrooms meeting diversity targets

    • Set of “Principles for a U.S. Transition to a Sustainable Low-Carbon Economy”

    • The Social Cost of Carbon

    COP26 and the importance of Net Zero (new insight)

    • 2021 could prove to be a pivotal year in the fight against climate change. With the crucial climate summit, the 26th Conference of the Parties (COP26) happening in Glasgow in November this year, governments around the world are stepping up policy commitments to combat global warming. As part of our Long -Term Investment Institute (LTII), we have published the first piece in a new series of papers focused on the importance of reaching 'net zero' emissions, exploring the meaning and necessity of having a net zero ambition.

    In our subsequent papers we will then look at the challenges (technological, political and social), the opportunities, and the role that corporates and the financial services industry can play in achieving this goal.

    POLICY DEVELOPMENT

    The US officially returns to the Paris Agreement

    • Following the commitment of US President Joe Biden to re-enter the Paris Agreement when he took office on January 20th, the return of the US to the Agreement became official on Friday 19th February. This means that the US returned just over 100 days after it left. The Biden administration has already stated that a tougher climate target will be set before it hosts the global summit for world leaders on 22 April 2021.

    SEC to update corporate climate disclosure guidance

    • A decade after it last issued guidance on how companies disclose the risks presented to them by climate change, the United States Securities and Exchange Commission (SEC) will review and update. They will review the extent to which public companies address the topics identified in the 2010 guidance, assess compliance with disclosure, engagement, and understand how the market is currently managing climate-related risks. This work will be used to update the 2010 guidance to reflect developments in the last decade.

    UK pension bill on climate-change written into law

    • Under new UK laws, pension schemes will now be required to take account of the government’s net zero targets and the Paris Agreement (which seeks to limit global temperature rises to 1.5°C). This introduces civil penalties, alongside new criminal offences, and will place climate change firmly at the centre of the requirements on schemes.

    CTI releases report on Petrostate energy transition

    • The Carbon Tracker Initiative (CTI) published a report looking at the impact of the energy transition on the ‘Petrostates’ – the 40 countries with the greatest fiscal dependence on oil and gas revenues. The report suggests that, compared with industry expectations, Petrostates’ government revenues would be US$9 trillion lower over the next two decades (2021-2040) under the low-carbon scenario. Much of this decrease is driven by lower prices, rather than lower volumes. Overall, oil producing countries risk losing US$13 trillion in total by 2040. The 19 worst affected countries have a total population of 400 million with a clear risk of job losses and cuts in public services.

    Singapore consults on green finance taxonomy

    • Mirroring what we have been seeing in Europe, the Green Finance Industry Taskforce (GFIT) convened by the Monetary Authority of Singapore (MAS), has released a consultation paper on proposed taxonomy for financial institutions to identify activities that can be considered green or transitioning towards green.

    A key feature of the proposed taxonomy is that it encompasses transition activities that allow for a shift towards sustainability while considering starting positions and supporting inclusive economic and social development. The consultation seeks feedback on GFIT’s recommendations on the environmental objectives, focus sectors, and a traffic-light system, which sets out how activities can be classified as green, yellow (transition), or red according to their level of alignment with environmental objectives.

    OTHER MARKET DEVELOPMENTS

    Hampton-Alexander Review finds UK boardrooms meeting diversity targets

    • The Hampton-Alexander Review produced its latest report looking at the extent to which diversity has made progress towards the targets set for 33% female board membership by the end of 2020.  The report found that women now occupy 1,026 board seats at FTSE 350 companies, up from 682 in 2015. The FTSE 100, 250 and 350 have now all reached target of women making up 33% of boards. However, the review found that progress is lacking when it comes to appointing women into the most senior executive roles, such as CEO positions.

    Set of “Principles for a U.S. Transition to a Sustainable Low-Carbon Economy”

    • The US Climate Finance Working Group released a set of “Principles for a U.S. Transition to a Sustainable Low-Carbon Economy” as part of efforts to engage with US regulators on climate finance. Among the ten principles are calls for more harmonised global taxonomies, metrics, and standards to encourage comparable data and information on sustainability, and the promotion of more robust climate disclosure and international standards.

    The Social Cost of Carbon

    • The Social Cost of Carbon (SCC) attempts to capture the economic damage resulting from the increase of Green House Gases (GHGs) in the atmosphere, felt through the impacts of climate change.  Essentially, the SCC estimates the ‘net present value’ of future social costs of one additional tonne of carbon emitted in terms of today’s value. Estimates of the SCC vary widely but are key in assessing the cost-benefit analysis of climate policy, so assumed levels can have a significant impact on the future path of these policies. In the US, the SCC is required to be incorporated into Federal agency decisions. Former US President Donald Trump chose to reduce the SCC to $8/tonne whereas Biden has now proposed that this be increased to $52/tonne for the time being.   

    DEFINITIONS

    The Paris Agreement is an agreement within the United Nations Framework Convention on Climate Change (UNFCCC), dealing with greenhouse-gas-emissions mitigation, adaptation, and finance, signed in 2016. The agreement's language was negotiated by representatives of 196 state parties at the 21st Conference of the Parties of the UNFCCC in Le Bourget, near Paris, France, and adopted by consensus on 12 December 2015. As of December 2020, all 197 members of the UNFCCC have signed the agreement and 189 remain party to it.


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