UN Race to Zero drops its ‘no new coal’ rule

UN secretary-general António Guterres has taken every recent opportunity to deliver furious exhortations on the need for climate action, and his speech at the General Assembly yesterday was no exception.

“We need to hold fossil fuel companies and their enablers to account,” Guterres said, hitting out at financial institutions “that continue to invest and underwrite carbon pollution”.

But the push to cut the financial sector’s support for fossil fuels is not going smoothly. As we reveal in today’s Moral Money, the UN’s Race to Zero initiative has quietly made some major changes to the tough new criteria it announced in June — including the abandonment of its explicit bar on support for new coal projects. It’s an important development and we want to hear your opinions — ping us at moralmoneyreply@ft.com, or just reply to this email. (Simon Mundy)

UNGA in brief

• At the start of the UN general assembly meetings, secretary-general António Guterres attacked public relations firms for working to clean up the reputations of oil and gas companies. Read his searing remarks here.

• A pair of notable climate pledges came from Norway’s sovereign wealth fund and the Net Zero Asset Owner Alliance yesterday. Our colleagues Camilla Hodgson and Richard Milne have the details.

• Though Russia’s invasion of Ukraine dominated much of Tuesday’s conversation, German chancellor Olaf Scholz urged wealthy countries to “not abandon the countries that are struggling the most in the face of loss and damage as a result of climate change.” 

Race to Zero discovers the limits of voluntary corporate climate initiatives

Three months ago, environmental campaigners cheered a new set of membership criteria from Race to Zero — a UN-backed body that sets the standards for global financial sector alliances pursuing net zero emissions targets.

The new requirements, to be applied from next year, stated that all Race to Zero members “must restrict the development, financing, and facilitation of new fossil fuel assets”. It added in bold text: “Across all scenarios, this includes no new coal projects.”

But while those words delighted climate activists, they spooked some of Race to Zero’s corporate members. Now, the controversial language has vanished.

Late last week, a revised version of Race to Zero’s interpretation guide was quietly posted to its website. “Each Race to Zero member,” it said, “shall phase out its development, financing, and facilitation of new unabated fossil fuel assets, including coal, in line with appropriate global, science-based scenarios”.

The changes in language — which were not announced and have not yet been covered in the media — carry significant implications. Most obviously, the explicit bar on support for new coal projects has disappeared. The word “restrict” has been replaced by “phase out”, with connotations of a gradual shift rather than immediate action. And while the June text referred to “new fossil fuel assets”, the September version has added the qualifier “unabated” — meaning that companies are free to ramp up investments in fossil fuel projects that promise to capture and store the carbon emitted.

Another noteworthy new sentence called for each Race to Zero member to “independently” undertake its pursuit of these targets, “in compliance with all legal and professional obligations”.

This latter addition reflects worries — which we’ve covered in earlier editions of Moral Money — that Race to Zero members’ adherence to its requirements could conflict with antitrust laws that forbid collusion among competitors, or with their fiduciary duty to clients.

Nigel Topping, the UN climate champion who co-leads Race to Zero, told me that the antitrust law concerns were a key driver of the guideline changes. He said Race to Zero had commissioned advice from lawyers who concluded that an explicit agreement among financial companies to shun new coal projects could indeed fall foul of competition law.

“There is an issue that competition law doesn’t distinguish between what’s done for the public good and what’s not,” Topping said, urging governments to overhaul these laws, and to impose new regulations that will push corporate action beyond what voluntary alliances can achieve.

But Topping played down the importance of the Race to Zero’s revised language, stressing that members were still required to align their corporate strategy with science-based scenarios in which global warming is limited to 1.5°C. “Every science-based 1.5 degree scenario sees no role for new coal,” he said.

It remains to be seen whether the new wording will be enough to allay the concerns of companies that have joined the sectoral groupings in the Glasgow Financial Alliance for Net Zero. Spearheaded by Mark Carney and Michael Bloomberg, Gfanz announced with fanfare last November that it had rallied financial groups controlling $130tn in assets behind net zero goals.

But as the Financial Times reported this morning, some major US banks have been threatening to pull out of Gfanz, citing legal fears. And while the new Race to Zero requirements have been watered down from the June version, they are still a good deal more stringent than the much vaguer language that was in place when most Gfanz members signed up last year.

To some observers, Race to Zero’s language change will look like a worrying climbdown, an indulgence of financial executives who fear the disruption of a rapid energy transition. Others may view it as a pragmatic effort to hold together a valuable but fragile business coalition, or simply to ensure legal compliance. Either way, these recent developments highlight the limits of what can be achieved through voluntary corporate climate initiatives in the absence of serious government action. (Simon Mundy)

Coal fuelled Adani’s wealth but now India demands green energy alternatives

Billion-dollar fortunes are not new in India, but Gautam Adani — founder of the eponymous Adani conglomerate — is now reaching extraordinary heights with his wealth.

Last week, Adani became the second-richest man in the world, according to Bloomberg’s Billionaire Index.

This is the first time a person from Asia is ranked so high on the wealth list. The Indian tycoon ejected Amazon founder Jeff Bezos from the No 2 spot.

Adani owes much of his fortune to coal. But recently, his empire has invested heavily in renewable energy, too. Though Adani’s green push has been criticised by environmentalists as too little too late, it reflects Prime Minister Narendra Modi’s initiative to guide the world’s third-largest emitter to net zero by 2070. 

Recent government reforms have helped stimulate renewable energy in India and promise to accelerate progress, said Sumant Sinha, founder and chief executive of ReNew Power. The company is India’s biggest renewable energy provider and Goldman Sachs is ReNew’s biggest shareholder. He spoke to Moral Money on the sidelines of a UN event in New York this week.

The government reforms include a programme to get state utilities to pay for power on time. Previously, utilities would fall behind on their power payments, to the frustration of energy companies. Now, the central government will cut off states that owe bills from the central exchange, Sinha said. “Hopefully this one problem, this one big speed bump that we had, is now getting solved,” he said.

Secondly, Sinha applauded the government’s Solar Energy Corporation of India (SECI), which serves as a brokerage house for renewable power. With SECI, “it has allowed us not to take the risk of a utility” in power purchase agreements, he said.

“What that allows us to do is get financing at a lower cost, and that lower cost is now passed on to the utility so it is actually a benefit for the utility as well,” Sinha added.

Delhi experienced one of the scariest heatwaves in recent history this spring. These frightening temperatures underscore that, “Yes, we are moving, but we are not moving fast enough,” Sinha said. “It is a massive opportunity for people like us. But I just wish that we would all move a little faster.” (Tamami Shimizuishi, Nikkei and Patrick Temple-West)

Smart read

Moral Money has written about the embarrassing saga at Federated Hermes in recent weeks. For those who need a reminder: the huge fund manager used to be considered an ESG champion — until it emerged that it was also backing the association of Republican state treasurers that has dismissed ESG as a “scam”. That prompted a group of Danish pension funds to issue a sharp rebuke. At first, Federated Hermes appeared to ignore this pressure. But now it has cracked — as an FT story shows. Those Viking financiers clearly have considerable power.