A moment of truth for green financial alliances

If joining green alliances ever seemed to financial institutions like an easy, innocuous way to show a friendly face to the world, they’ve surely been disabused of that impression by now. Political and legal pressure from US Republicans has driven a series of big-name exits from these initiatives.

But are these financial climate alliances fading, or going through a necessary evolution? That’s the focus of our first item. Also today, we look at a new network aimed at helping developing nations share expertise around sustainability disclosure rules. See you on Friday.

CLIMATE COALITIONS

US political pressure sparks climate alliance rethink

The latest publication from the US House judiciary committee will have been uncomfortable reading for some of the world’s biggest institutional investors, amid growing political pushback against their climate initiatives.

Friday’s report hit out at climate-focused investor alliances, calling them vehicles for a “climate cartel . . . pressuring US companies to stop producing the affordable energy Americans need.” The committee, chaired by Ohio’s arch-conservative Republican Jim Jordan, vowed to “examine the sufficiency of federal law” to protect commerce against what it called “the climate cartel’s anti-competitive collusion”.

As the political heat grows and the second Trump administration approaches, it’s perhaps no wonder that major financial alliances have been shedding members in recent weeks.

Asset manager Franklin Templeton, which manages about $1.5tn, withdrew from investor coalition Climate Action 100+ earlier this month, following the exits this year of US peers such as JPMorgan Asset Management, State Street Global Advisors and Pimco. UK counterpart Baillie Gifford quit both CA100+ and the Net Zero Asset Managers’ initiative, with a vague explanation saying its membership of them had become “contested”. Goldman Sachs this month became the first major bank to quit the Net Zero Banking Alliance.

Have these alliances had their day? While they’ve suffered some big-name exits, their membership numbers are far from collapsing. CA100+, for example, currently has over 650 (mostly institutional investor) members; it has added 90 since June 2023, with 50 departures in the same period.

CA100+ was founded in 2017, with a focus on encouraging companies to reduce their greenhouse gas emissions and share more information about their risks related to climate change and the green transition. In 2022 it announced a “second phase” of its work with a new emphasis on pushing companies to publish and implement transition plans.

Michael Cohen, chief operating investment officer at $500bn Californian pension plan Calpers and chair of the CA100+ steering committee, told me that several departing members had said they saw no problem with the organisation’s mission, but that the legal pressure from politicians in Congress and state attorneys-general had made their participation in the initiative unsustainable.

Among those criticised by name in the latest judiciary committee report is Anne Simpson, sustainability head at Franklin Templeton, who was the inaugural chair of CA100+ in her previous role as sustainability head at Calpers. Franklin Templeton said its decision to leave CA100+ reflected its investment in internal capabilities, and that it remained “committed to offering strong sustainable investment capabilities to our clients”.

Cohen said that the political pressure on initiatives like CA100+ was pushing them “to sort of revisit what our purpose is, what our goals are”, and establish a clearer focus on their central mission. “All of these initiatives are designed to help investors make better investing decisions,” he said.

While Republican talk of a “climate cartel” may seem overblown, there is room for sensible debate about whether investor drives for emission cuts are necessarily aligned with fiduciary duty. In a valuable new paper, London Business School’s Tom Gosling questions whether asset managers should align their portfolios with a scenario in which global warming is limited to 1.5C above preindustrial levels, if that scenario (or anything close to it) is impossible without major changes to government policy.

Investors can play a more useful role, Gosling argues, by “vocally advocating for effective climate policy to act as a counterbalance to vested corporate and labour interests which are likely to resist any change”.

Indeed, the focus on policy engagement is becoming increasingly conspicuous. Last month, 650 investors controlling $33tn in assets issued a joint statement to world governments, pleading for economy-wide policies to accelerate the energy transition. The 88-member Net Zero Asset Owner Alliance has also been pushing publicly for more ambitious government action.

This is the right direction of travel, Gosling reckons. Climate-conscious investors should focus “less on trying to achieve specific climate goals (over which they have little control and the pursuit of which may give rise to conflicts with fiduciary duty)”, he argues, and more “on contributing to creating the circumstances in which climate goals can be met”.

DISCLOSURE REGULATIONS

New network aims to speed sustainability reporting push

One area where governments have been moving is around sustainability reporting requirements.

Three years since the launch of the International Sustainability Standards Board, more than 20 jurisdictions accounting for most of global GDP have “decided to use or are taking steps to introduce ISSB Standards in their legal or regulatory frameworks”, according to the IFRS Foundation, the ISSB’s parent body.

But concerns have been raised that lower-income nations could find it more challenging to introduce these standards. And with global companies under increasing pressure to report on the sustainability profiles of their suppliers, that could lead to lost sales for developing-nation businesses.

Such concerns help to explain the launch today in Ankara of a new network to support the adoption and use of ISSB standards in developing nations. Convened under Iosco, the global association of securities regulators and financial market authorities, it has 31 members representing nations from Argentina to Indonesia to Zimbabwe.

ISSB chair Emmanuel Faber told me the support of such collaborative networks, and of partners like Iosco, was crucial as the ISSB sought to maintain a pace of international adoption that had exceeded most early expectations. The IFRS Foundation alone “cannot at this stage support 50 jurisdictions all at the same time in the adoption journey,” he said.

“I wouldn’t have expected that it would go so fast,” added Jean-Paul Servais, chair of Iosco. “And I think the reason is that people understand that the standards developed by ISSB are proportionate.”

Smart reads

Policy push Major fossil fuel and industrial companies have written to the European Commission arguing that it should consider new measures pushing consumers to buy less polluting products.

Counting the cost A new report estimated that the global economy is losing up to $25tn a year due to major business sectors’ failure to account for how their activities damage the environment.

Happy new year? Elections around the world next year could bring new setbacks for the green policy agenda, warns Pilita Clark.