The ‘insane’ state of financial sector climate action

Greetings from New York where summer is almost over, and preparations are heating up for the UN General Assembly meeting next month. The UN wants to use this event to raise pressure on business to accelerate decarbonisation and, above all, reduce coal usage.

A big initiative on that front has been the Glasgow Financial Alliance for Net Zero, which has corralled hundreds of financial companies into decarbonisation commitments. But as we reported recently, some activists have questioned whether Gfanz is showing enough ambition, especially on coal.

In response to our story, Mary Schapiro, the former top US securities regulator who is now vice-chair of Gfanz, pointed out that the UN’s Race to Zero body is designed to “create the rules” on transition plans, which Gfanz then helps its corporate members to meet. She said the Gfanz leaders “all believe there is no rationale for financing new coal and that existing coal needs to be shut down or run down as quickly as possible”, with full alignment between Gfanz and Race to Zero. The Gfanz leadership didn’t receive any pushback from banks when it recently urged an end to coal finance, she added.

Maybe so. But the big challenge for Gfanz is that it does not have a way to force financiers to live up to their decarbonisation plans. “We’ve been arguing for mandatory transition plans right from the beginning,” Schapiro said. So check out our story below on the hazy path ahead to serious corporate accountability on climate issues. And take a look at our piece on the accelerating use of litigation to crack down on greenwashing in the advertising and public relations world. (Gillian Tett)

Investment in developing countries is essential to tackling climate change and global inequality. Yet for ESG investors, social challenges, governance flaws and poor data can be obstacles to including emerging market companies in investment portfolios. This is the topic of our next Moral Money Forum report. In your ESG investment strategies, are you directing less capital to emerging market companies — or avoiding them altogether? What are the obstacles to allocating more capital to companies in these markets? And what compelling research and data have you seen that might inform our reporting? Share your thoughts here.

Gfanz: what happens next?

At first sight, Nigel Topping might look to be in a position of enviable power over the financial sector. The Briton is the co-leader of both the UN’s Race to Zero initiative — which sets standards for non-state actors committed to net zero carbon emissions — and the Glasgow Financial Alliance for Net Zero, a grouping of financial companies that have signed up to the former initiative.

But when Topping spoke to me last week, from a climate conference for Caribbean officials in the Bahamas, he struck a note of exasperation. “It’s insane,” he said, “for the world to rely on underfunded NGOs to police capital markets. Governments need to step up.”

Topping has a point. If asked to design the most effective framework to tackle the financial sector’s contribution to catastrophic climate change, no serious person would come up with a voluntary, membership-based system such as the Gfanz/Race to Zero set-up, with limited capacity to hold companies accountable. As we reported today, Race to Zero is hoping to set up an independent body with the power to expel companies for non-compliance with its rules — yet it’s still unclear how that body is to be funded.

None of Gfanz’s leaders — who include former Bank of England governor Mark Carney and billionaire businessman Mike Bloomberg — has argued otherwise. They’ve made clear there can be no substitute for rigorous mandatory measures from governments, which have been agonisingly slow to materialise. The hope is that, by demonstrating companies’ willingness to support an emission-slashing agenda, and by giving a flavour of what effective rules in this space could look like, these voluntary initiatives could pave the way for a system that really works.

But in an economy riven by gaping inequality at national and global levels, it’s worth considering the influence of Gfanz, a club of prosperous financial executives, on the shape of the climate-related regulations their sector will end up facing — rules with big implications for everyone on the planet.

See, for instance, this paper from the UK’s official Transition Plan Taskforce, whose findings will be used by the national financial regulator to draw up new climate-related disclosure rules. “In particular,” it states, “the TPT is collaborating closely with Gfanz to ensure that each organisation’s respective recommendations are consistent and complementary to the greatest extent possible.”

It is reasonable, too, to note the potential for conflicts of interest to arise for Carney who, alongside his highly influential position at Gfanz and other international climate-focused roles, has just been promoted to the chairmanship of Brookfield Asset Management, a financial company with $750bn in managed assets. Then there’s the argument, made for example by France’s environment agency, that the focus on corporate-level (rather than national) net zero goals is actually a bad idea in the first place.

None of this is to impugn the good intentions or hard work of those involved in Gfanz. Undeniably, the initiative has helped prepare the ground for governments and regulators to make tough new rules that are badly needed. Now it’s up to those officials to get on with it and do their part. (Simon Mundy)

Courtroom showdowns increase over green marketing claims

In recent years, oil companies have been dragged into courts worldwide for alleged climate violations. Environmentalists have hoped to hit oil majors with costly settlements — in an echo of the litigation against tobacco companies that resulted in a $206bn settlement with US states. 

But increasingly in the US this year, consumer businesses are also being sued for potential greenwashing. Apparel company H&M has become the latest brand to be engulfed in a courtroom showdown. An individual has alleged H&M misled consumers with the company’s sustainability scorecards for clothing and that these statements violated New York consumer protection laws.

H&M has not yet filed a response in court.

As more companies are marketing products as environmentally friendly, consumers — who are willing to pay a bit more for eco-conscious products — are starting to challenge the corporate claims in court, said Steve Nickelsburg, a partner at Clifford Chance. The law firm last week published a report on the state of consumer greenwashing cases in the US.

Greenwashing litigation against well-known brand companies “is an emerging trend,” Nickelsburg told Moral Money, adding that there would “absolutely” be more cases.

The new wave of greenwashing litigation at consumer companies is in the early stages and could face a difficult reception from judges. Earlier this year, AllBirds fought off a civil case alleging that some of the company’s sustainability claims — such as “made with sustainable wool” — were misleading.

But a case against Vital Farms, a Texas egg producer, is proceeding (we previously wrote about Vital Farms as a publicly traded B Corp). The judge in this case did not dismiss the lawsuit alleging that eggs were mislabelled as “ethical” and “certified humane”.

Companies aggressively pushing their sustainability claims for marketing and branding goodwill must be especially careful that they can back up these statements, Nickelsburg said. The plaintiffs bar has identified greenwashing as an area to pursue. Companies and their shareholders can no longer blithely market themselves as green leaders. (Patrick Temple-West)

Smart read

• Here’s a starkly cold-eyed analysis of the energy crunch from the University of Cambridge’s Helen Thompson. “World economic growth still requires fossil fuel production,” she asserts, while warning that there will be no repeat of the surge in US shale production earlier this century, and that there’s little scope to accelerate the transition to cleaner sources in the near term. “The only way forward is realism for the short term, recognising that there is no way back to cheap energy,” Thompson writes.