India signals a shift in the global carbon credit market

Today, I am going to start off with a bit of basketball news. Yes, this is still Moral Money, not Scoreboard. (But you can sign up for our newsletter on the business of sport here.) I wanted to draw your attention to a new sustainable investment fund unveiled by Calamos Investments that has partnered with basketball star Giannis Antetokounmpo.

This US equity fund, which is awaiting regulatory approval, seeks to invest in “above average” environmental, social and governance (ESG) companies. Aside from the name — the Calamos Antetokounmpo Sustainable Equities Trust — it is not clear what role the basketball star will have. A spokeswoman for Calamos said the fund and the basketball player had “shared values”.

It might be a gimmick, but it is also a bit of fun in a pretty dour environment for ESG these days.

In today’s newsletter, we also have a piece from Tamami about India’s carbon credit market. And I write about the legal challenge threatening Nasdaq’s effort to boost board diversity at its listed companies. (Patrick Temple-West)

India’s looming carbon credit export ban: a sign of things to come?

As heatwaves have swept much of the northern hemisphere this summer, India has been among the countries worst affected. That may have helped accelerate the pace of political progress towards climate action in New Delhi.

First, the Indian cabinet approved new national emissions targets, known as nationally determined contributions (NDCs). Prime Minister Narendra Modi announced these climate goals — which aim to cut energy intensity 45 per cent from 2005 levels by 2030 and to achieve net zero by 2070 — at the COP26 meeting in Glasgow last year, but they were not officially recognised until early this month.

Arguably just as significant was the passage in the Lok Sabha, the Indian parliament’s lower house, of a law that will reduce imports of fossil fuels and establish a national carbon trading scheme. To become law, the bill still needs to pass the Rajya Sabha, the parliament’s upper house, before going to the president for formal approval.

The idea of launching a national carbon credit market has been widely welcomed by specialists as a way to cut emissions in India, the world’s third-biggest polluter.

“[The carbon credit market] will help in incentivising players in the energy, cement and steel [sectors] to outperform their emission standards to gain credits,” said Vibhuti Garg, India research leader and energy economist at the Institute for Energy Economics and Financial Analysis. Garg added that this market would become an additional source of revenue for companies that were able to sell the credits gained through rapid emission cuts.

And as the government aims to get the new market off to a strong start, it has made a move that could ripple far beyond India, by signalling that it will ban exports of carbon credits.

“Carbon credits are not going to be exported. No question,” India’s power and renewable energy minister Raj Kumar Singh told lawmakers. India must meet its NDCs before exporting carbon credits, he added, without giving details on when and how the ban would be implemented.

According to S&P Global Commodity Insights, India is the fourth country that has announced or planned bans on selling carbon credits to outside buyers. Papua New Guinea, Indonesia, and Honduras have already done so. While article 6 of the Paris agreement allows the transfer of carbon credits among countries, some countries worry that if too many carbon credits are sold abroad, there won’t be enough credits left for local governments to reach their own targets.

“This is akin to countries in the energy business, securing the domestic market with domestic energy production so that once the demand is met domestically, energy exports are allowed,” Gauri Jauhar, an executive director at S&P Global Commodity Insights, told Moral Money.

Yuejia Peng, associate director of energy and climate scenarios at S&P Global Commodity Insights, said that more governments would take similar moves to restrict the export of carbon credits as they tried to deliver the targets in their NDCs, which were required of countries that signed the 2015 Paris agreement.

While some countries might be able to sell credits internationally and still meet their NDCs, others would need to hold on to these units to meet their own targets, Peng said, predicting that “a mix” of positions would emerge in the near future. (Tamami Shimizuishi, Nikkei)

Nasdaq’s landmark board diversity rules bogged down by conservatives in court

When it won regulatory approval last year to push companies to add women and minorities to listed company boards, Nasdaq was broadly applauded by companies and the financial industry.

But a conservative group known for attacking ESG investing was not pleased and has sued to stop Nasdaq’s board requirements. Oral arguments were held on Monday in Texas and a decision could be announced at any time.

The conservative non-profit think-tank leading the lawsuit, the National Center for Public Policy Research, argues that Nasdaq’s diversity standards are outside the scope of Congress’s rules for exchanges.

“Congress did not — and indeed could not — delegate power to SEC” to regulate race, gender and sexuality quotas, the group said in its court filings.

Nasdaq has argued that it is a private company, and that the SEC’s decision to approve its board standards was not arbitrary and capricious.

Nasdaq said it proposed the rules “in response to investors’ demands for diversity-related information” and that the SEC “found that the rule would provide investors with that information”.

It was hard to tell from oral arguments how the three-judge panel on the US Fifth Circuit Court of Appeals would rule. But this courtroom showdown shows how difficult it is to make the smallest ESG progress in the US. Board diversity laws in California were struck down in court earlier this year when they were challenged by conservative groups.

Nasdaq’s diversity standards are not mandatory. The exchange asks companies to comply or explain why they will not. But the leeway was not enough to avert a legal fight.

The fight also underscores the near certainty that a legal challenge awaits the SEC’s climate disclosure rule, which could be finalised as soon as October. SEC chair Gary Gensler and his team are likely to see a lot more action before the Fifth Circuit in the months ahead. (Patrick Temple-West)

Smart read

• An increasing number of technology venture investors are hoping to pair concerns about global warming with interest in the “web3” internet. “A surfeit of start-ups have burst on to the scene this year, variously promising to ‘green’ bitcoin, make NFTs sustainable and solve niggling problems in carbon markets once and for all.” Go deeper with this Big Read from our colleagues Camilla Hodgson and Siddharth Venkataramakrishnan.

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