Six emerging messages around COP28

Another week, another wave of transatlantic sniping around America’s Inflation Reduction Act. The latest spark was the recent news that the White House will provide $7.5bn in subsidies for American-made electric vehicle chargers as part of the $396bn IRA.

Since this aid is only offered when products are at least 55 per cent made in America, European business groups are fuming. As Luisa Santos, deputy director-general of BusinessEurope, which represents companies across the EU, told the FT: “Our most important trading partner decides things in their own interest . . . They keep doing this. But they want us to support them on China.” Ouch.

If you want a second spicy topic, check out the FT piece questioning the spreading B Corp movement. Sustainability enthusiasts might dismiss this as “just” an anti-ESG backlash; but at Moral Money we welcome this scrutiny as a sign that the mainstream cares about these issues, and hope it will bring more maturity to the sector.

Meanwhile, in today’s newsletter we highlight the continued growth in sustainability funds and dive into some of the controversies and opportunities now bubbling around COP28, as the leadership team embarks on a public relations drive. Let us know what you think of today’s edition at moralmoneyreply@ft.com. (Gillian Tett)

COP28: the public relations battle starts

When it emerged last month that Sultan al-Jaber, Minister of Industry and Advanced Technology in the United Arab Emirates, would lead the COP28 climate discussions, many green activists were horrified. No wonder: al-Jaber also happens to be chief executive of Abu Dhabi National Oil Company, or ADNOC, a major contributor of carbon emissions.

And this sparked such horror from progressive lawmakers in America that two dozen members of Congress wrote to John Kerry, the US climate envoy, denouncing the move.

“To help ensure that COP28 is a serious and productive climate summit, we believe the United States should urge the United Arab Emirates to name a different lead for COP28 or, at a minimum, seek assurances that it will promote an ambitious COP28 aligned with the 1.5 degrees Celsius limit,” the letter said.

A month later, there is no sign that the White House, UN or UAE will heed this call. Instead, al-Jaber is now conducting a self-styled “listening” — and persuasion — campaign in a bid to quell the criticism, speaking to business groups, energy conferences and media. Sadly the UAE COP28 public relations team has not yet permitted him to conduct free-flowing “on the record” interviews (which is at odds with its professed love of transparency.) However, judging from comments that al-Jaber has offered in formal (controlled) public sessions — and private conversations — there are at least six key themes in this UAE public relations pitch.

Firstly — uncontroversially — the COP28 team is stressing “inclusion”, by bringing in plenty of women, youth activists and delegates from poor countries. There is talk, say, of the UAE subsidising the latter from its own coffers, and its team features two women: Shamma al-Mazrui, UAE Minister of State for Youth Affairs, and Razan al-Mubarak, President of the International Union for Conservation of Nature (IUCN). That is better than the male-dominated Egyptian team at COP27.

Secondly — and more controversially — the UAE team wants to give the private sector a central role in COP28 and argues that al-Jaber is well placed to do this since he is the first chief executive to run a COP meeting. Third, the UAE group is emphasising green innovation and climate tech, arguing that climate change should be considered a massive economic opportunity, not just threat. That will be music to the private sector’s ears.

Fourth, the group plans to incorporate biodiversity goals into COP28 (not surprising, given that al-Mubarak has been an environmental protection enthusiast). Fifth, the UAE team wants to get climate finance flowing to poorer nations by backing calls to overhaul the multilateral development banks and introduce new blended finance initiatives. This, in my view, could end up being the most meaningful aspect of COP28, given the looming personnel change at the World Bank and swelling campaign by the so-called Bridgetown Initiative for global financial reform. And the UAE is so wealthy, as a result of its fossil fuel businesses, that it could potentially backstop big blended finance programmes from its own resources. Indeed, I would wager a (biggish) bet that this will happen during COP28.

However, the sixth message — and the one hardest for critics to swallow — is that the UAE will not kill off the goal of keeping “one point five alive”. In a conference last week in Dubai al-Jaber acknowledged that the goal was slipping away. But he stressed that the UAE backs “a course correction” to slash emissions. And while ADNOC and the UAE have been a big source of these emissions in the past decade, he insists they are now channelling profits from fossil fuels into green energy. Masdar, the renewable energy giant which Al Jaber also runs, is cited as proof of this.

Is this just hot air? It is impossible to know right now. It is feasible that the UAE will be so keen to prove its critics wrong that it will deliver more than anyone expects, particularly given that the country has so much money of its own to use for mitigation and adaptation. The fact that it sits at a “crossroads” — ie neither east nor west, south or north — could help build coalitions too.

But if the UAE is going to convince the cynics that this COP28 will not be a contradiction in terms, it will need to show that it is cutting its own emissions — and be willing to denounce other oil and gas centres if they do not follow suit. That is still hard to imagine. The green jury is still out, in other words, on COP28; stand by for more pitched PR fights. (Gillian Tett)

Transition funds find favour in a choppy market

Last year was tough for markets, but that didn’t stop fund managers charging in with a wave of new sustainable-branded investment products.

Investment managers launched 694 ESG funds compared with 654 the previous year, according to Barclays’ analysis of Morningstar data.

Within this growth, the mot du jour was “transition”, after a flurry of corporate net zero promises strengthened the argument that funds should focus on companies that were decarbonising most rapidly, rather than businesses that were already green.

Newly launched climate funds focused on the transition received more inflows in 2022, about $2.4bn, than any other type of climate-focused fund.

This “possibly demonstrat[ed] greater comfort amongst the end-investor base in holding high-emitting issuers”, the banks’ analysts wrote.

Climate funds are one broad type of sustainable fund. They have in the past typically focused either on low-carbon companies, which include the likes of tech companies Meta and Alphabet, or on the innovators bringing “solutions” to market, such as wind or solar power providers.

But climate funds that focus on the transition allow managers to invest in mainstream companies, as long as these have convincing transition plans — for example carmakers Mercedes and Ford, which are betting big on electric vehicles.

“If you invest just in pure-play low carbon companies it narrows down your investment universe quite substantially,” Sonali Siriwardena, global head of ESG at the London-based law firm Simmons & Simmons, told me. “It’s a much more accessible and realistic investment goal to focus on transition.”

The relative outperformance of transition funds came in a rough year for the asset management sector. Net flows into sustainable funds globally fell 76 per cent from $649bn in 2021 to $157bn in 2022, because of the challenging macroeconomic environment, according to Morningstar. The global fund market was hit much harder and saw net outflows of $529bn.

“Global sustainable fund flows rebounded in the final quarter of 2022, while the rest of the market continued to bleed money,” said Hortense Bioy, global head of sustainability research at Morningstar. “This shows that sustainable fund flows are more resilient in times of market volatility than their traditional peers, they’re stickier.” (Kenza Bryan)

Smart read

Banks this year are gearing up for the biggest round of job cuts since the global financial crisis as dealmaking slowed. But the financial sector is still hungry for ESG qualifications, according to a report last week from Barclays. The need for ESG talent has so far defied the broad hiring downturn, the bank said. Please see the Bloomberg article about this trend.