Jane Fonda brings star power to ocean treaty debate

Before we jump into today’s newsletter, I would like to highlight our colleagues’ interview with the head of Vanguard, the world’s second-largest asset manager. Chief executive Tim Buckley defended Vanguard’s December decision to quit the Net Zero Asset Managers initiative, which has committed to reducing greenhouse gas emissions. US Republicans have harassed BlackRock and State Street for their role in this organisation, but Vanguard has — at least until now — largely stayed above the fray.

“We cannot state that [environmental, social and governance] investing is better performance wise than broad index-based investing,” Buckley said. “Our research indicates that ESG investing does not have any advantage over broad-based investing.”

Buckley’s comments come as Republicans in Washington are gearing up to hold hearings on ESG investing. And rather than defend his product offerings, Buckley appears to be talking himself out of the hot seat as Republicans look to grill executives about ESG. (Vanguard manages the third-largest US ESG fund, the $13.7bn FTSE Social Index.)

For today, I cover the start of negotiations to finish a UN treaty to regulate swaths of the world’s oceans. Actress and activist Jane Fonda is putting her muscle behind the cause too.

I also interviewed Emmanuel Faber on the “pens down” moment for the International Sustainability Standards Board. For Faber — and the rest of the ESG community — the big question for now is the final wording of the US Security and Exchange Commission’s climate disclosure rules, which are expected next month. Patrick Temple-West

Jane Fonda: oceans activist

Almost two-thirds of the world’s oceans are considered beyond country jurisdictions, meaning these high seas are open for exploitation and environmental attack. For years, activists have been stymied in their drive for a global treaty to protect up to 99 per cent of unregulated ocean space. After negotiations at the UN broke down last August, they started up again on Monday in New York.

Desperate to secure a win this time, environmentalists have enlisted Hollywood stars for help. Speaking near the UN on Monday night, actress Jane Fonda called on countries to put aside “greed and hubris” to get a treaty finished. Deliberations are scheduled for the next two weeks.

“Set aside the politics, the greed and inertia,” she said.

As pharmaceutical and cosmetic companies explore the potential of novel compounds derived from marine life, one of the biggest problems the delegates face is how to divide the profits. Building companies are also attracted to deep-sea organisms that resist predation, crushing pressures, and extremes of heat and cold. Developing countries often miss out on the cash from high-sea exploration, and these nations are pushing for a share of profits as part of any new treaty.

Global politics are also a problem. After the August negotiations broke down, the EU blamed China and Russia for the impasse. Six months later and the geopolitical situation looks less favourable.

The stakes are high. The UN COP15 biodiversity summit in December committed to protecting at least 30 per cent of the world’s land, inland waters, coastal areas and oceans by 2030. Without the oceans treaty, reaching that 2030 goal could be impossible, negotiators told me on Monday.

“We need a win,” said Lisa Speer, director of the International Oceans Program at the Natural Resources Defense Council. (Patrick Temple-West)

Faber’s green standards near showtime, waiting on the SEC

The stage is set for the debut of the International Sustainability Standards Board (ISSB), an initiative to include climate risks in accounting standards.

Emmanuel Faber, ISSB chair, told me it is now “pens down” for drafting ahead of a vote to unveil the standards before July 1. The standards are expected to take effect at the start of 2024.

These standards are becoming increasingly important for bank regulators and the Basel Committee on Banking Supervision, a Switzerland-based body that includes regulators from 28 large economies and sets capital policies for banks, he said.

“If they want to measure the carbon content and risk in lending portfolios they need those companies to provide the granular data that our standards are requesting to report on,” Faber said after the ISSB published its latest update on Friday.

Disclosures prompted by the ISSB are coming online as the European Central Bank has said it wants banks to categorise climate and environmental risks and assess their impact by March 2023. The ECB last year conducted an unprecedented climate risk stress test to gauge how banks were prepared for different environmental shocks. Banks fell short in accounting for certain climate risks and needed to obtain better data from their clients, the ECB said.

“The market signal is super strong, if you are not decarbonising your lending portfolio, you will not be able to refinance yourself,” Faber said.

But the big unknown for Faber right now is at the US Securities and Exchange Commission, which next month is expected to finalise its emissions disclosure rules.

The question is whether the SEC incorporates ISSB’s work into its ruling, “and we don’t know yet”.

The uncertainty is almost certain to persist even after the final rules are approved. Republicans are likely to challenge the rules in court with support from companies that don’t like the costs and legal risks. For now, the ISSB’s work is being embraced by investors and companies and is likely to cement itself into financial reporting regardless of the action in the US. (Patrick Temple-West)

Smart reads

The World Bank is at an inflection point as it prepares for a new greener mission, our colleagues wrote in Tuesday’s Big Read. “There’s a great hope that whoever comes next can meet the moment on climate change,” said one development official.

The bank must also scale up climate investment by creating a new climate-focused bank within a bank, argued Afsaneh Beschloss, a former World Bank chief executive.