Hello from Hyannis Port, Massachusetts, where Moral Money is moderating a couple of panels at the RFK Compass Summer Investors Conference.
Environmental, social and governance (ESG) investing continues to come under siege in Washington. Republican senator Steve Daines from Montana jumped into the Stuart Kirk saga to attack efforts by the financial community to facilitate a clean energy transition.
All this bluster is indirectly aimed at the Securities and Exchange Commission for its proposed rule to require companies to disclose emissions risks and other data. The comment period for this proposal ends on Friday, and Daines and other Republicans are playing offence for companies balking at the costs of climate disclosures.
But bluster towards HSBC or ESG investing is not a legal argument, and for companies to torpedo the SEC’s climate rules, businesses will need to win in court. Friday’s comment letter deadline is just the next step down the path to a courtroom battle over corporate regulations likely to play out next year.
For today’s newsletter, I have breaking news from the Mark Carney-led effort to help companies fulfil their net zero carbon emission efforts. Our colleague Andrew Jack has a piece on nature crimes and an organisation working to reduce exploitive environmental practices.
And please read the powerful opinion piece at the end of this newsletter from Mia Mottley, the prime minister of Barbados, who has called on rich-world countries to help the countries on “the frontline” of extreme weather. (Patrick Temple-West)
Join hydrogen CEOs, policymakers and investors on June 16 at the FT Hydrogen Summit in London and online to discuss the opportunities and challenges in harnessing the full power of hydrogen. Register here.
Amid US political pressure, Gfanz advances carbon reduction plan for banks
Earlier today, the Glasgow Financial Alliance for Net Zero (Gfanz) proposed a game plan for banks and other financial institutions looking to make their emissions carbon neutral. Recall that former Bank of England governor Mark Carney unveiled Gfanz last year to help the financial sector support a managed phaseout of carbon-intense assets.
Now, the Gfanz has launched a proposal for financial institutions that will be open for a six-week public comment period. The recommendations include setting a baseline for greenhouse gas emissions from assets as well as establishing goals for cutting carbon — specifically in coal, oil and gas.
Mary Schapiro, the former head of the Securities and Exchange Commission (who is now a key leader of the initiative), told Moral Money that this Gfanz effort dovetails with the SEC’s climate disclosure proposal. And the Gfanz work will advance despite Republicans’ political pressure in opposition to climate change regulations, she said.
On Monday, as part of his screed against HSBC for suspending Stuart Kirk, Republican senator Steve Daines demanded to know if the bank had any communications with Gfanz before sidelining Kirk. Daines needled HSBC for being a principal of the group.
But Gfanz is not really the Republican’s target. It is the SEC. Daines this week joined with others in his party to urge the SEC to rescind its climate disclosure proposal.
“We believe that this rule reflects a significant over-reach of the SEC’s traditional financial markets focus,” the group of Republicans said.
The SEC won’t do that. And the Gfanz’s efforts will proceed in the months ahead. (Patrick Temple-West)
Pressure mounts on banks and investors over ‘nature crimes’
Campaigners are stepping up efforts to have banks and pension funds held accountable under money laundering legislation if they fail to stop lending to, or investing in, companies committing environmental crimes.
Simon Zadek, chair of the Finance for Biodiversity Initiative, a think-tank, is calling for regulators to take tougher steps to stop financial companies profiting from the support of businesses involved in illegal fishing, logging, waste trafficking and wildlife trade.
He estimates that “nature crimes” globally generate $280bn a year in revenues and $30bn in forgone taxes — but loopholes mean banks currently do not report on, or face action over, failures to prevent illegal activities in the “financial value chain”.
“The greatest illegal damage to nature comes through the activities of largely legal food producers — think soya and beef in Brazil and palm oil in Indonesia,” Zadek told Moral Money. “These producers are the clients of banks and other financial institutions, often blue-chip, and yet benefit from environmental crimes.”
While anti-money laundering legislation in various jurisdictions requires banks to signal to regulators any direct illicit financial flows passing across their balance sheets, the existing rules typically do not cover reporting on investment flows. Repayments from companies they work with can then in turn be implicated in “nature crimes”.
In recent days Zadek has made calls for regulators to utilise broader interpretations of existing reporting requirements, along with tougher penalties for environmental crimes and tighter voluntary diligence by institutions to prevent such transactions.
At the World Economic Forum in Davos and at a session of the Wolfsberg Forum of global banks, a network which develops guidance for managing the risks of financial crime, he pushed for “a pivot away from chasing criminals” towards tightening standards around financial flows.
New due diligence requirements in the EU and the UK are set to impose greater scrutiny of deforestation, while mooted “ecocide” legislation raises the prospect of triggering future lawsuits against a broader range of companies.
Zadek called for the development of new mechanisms for environmental crimes akin to the Kimberley Process, which aims to increase transparency in the diamond trade in efforts to tackle “conflict diamonds”.
“Financial institution profits are an unacknowledged form of money laundering, intentionally, knowingly or otherwise,” he said. “Investors, the banks and other legal finance providers benefit from environmental crimes.” (Andrew Jack)
Chart of the day
Russia’s invasion of Ukraine has increased the risk of famine and raised pressure on foodmakers to reconsider their biofuel production.
Before Russia’s invasion, global biofuel production was at a record high. In the US, the leading biofuels producer, 36 per cent of total corn production went into biofuels last year, while biodiesel accounted for 40 per cent of soyabean oil supplies. But some food companies and policymakers are calling for an easing of mandates for blending biofuels into petrol and diesel to increase global grain and vegetable oil supplies.
Please read our colleagues Emiko Terazono and Camilla Hodgson’s report on this dilemma here.
Mia Mottley, the prime minister of Barbados, has written in the FT to ask the G7 nations to protect small countries from the cost of global warming. “My country, Barbados, is on this frontline, where a storm can destroy 100 per cent of our national income in a few hours,” she said. Climate-vulnerable countries need funds now to build defences. And the G7 can make a difference by widening the eligibility for concessional lending to include climate vulnerability.
If you’ve been enjoying Moral Money, you might want to check out Sustainable Views — a new service for sustainable finance professionals from the FT’s specialist arm, providing deep dives into ESG policy and regulation every Tuesday and Thursday. It’s a great resource to help you stay on top of developments in this fast-moving space. The latest edition looked at a UK regulatory review of TCFD reporting and a push for greater transparency on ESG ratings. You can sign up for a free trial here.