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Shell’s green exodus, BoE climate hoax, a papal blessing for conscious capitalism

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Welcome to Moral Money. Today we have:

  • Shell clean energy execs hit the exit

  • Bank of England targeted by environmentalists

  • New sustainable finance guidance from ICMA

  • The pope joins forces with responsible capitalism group

  • Japan’s green stimulus

Shell execs stage green revolt

With the upcoming anniversary of the Paris Climate Change accord dominating the sustainability agenda this week, most companies are trying hard to talk about their green credentials. Royal Dutch Shell, however, has a green PR mess on its hands.

In the coming weeks, the company is expected to unveil a new strategy for its energy transition. But as Anjli Raval and Leslie Hook reveal, the company “has been hit by the departure of several clean energy executives amid a split over how far and fast the oil giant should shift towards greener fuels”.

Besides being a big embarrassment for Shell in an already tumultuous year for the industry, it indicates two key points: first, attitudes surrounding the acceptability of fossil fuels is shifting more quickly than most executives anticipated; second the clean energy lobby is becoming increasingly vocal about the need to curb fossil fuel use and embrace new energy sources. Sticking a picture of a wind farm on a poster might have once seemed like good PR; for many investors, however, it is no longer good enough. (Gillian Tett)

Mark Carney, a fake email, and the future of global warming mitigation

© REUTERS

If you want to get another sense of how rapidly the zeitgeist is shifting, consider what is happening with one of Britain’s beloved cultural rituals: the BBC’s Reith lectures.

This annual event, which was first started in 1948 by the philosopher Bertrand Russell, has featured numerous intellectual luminaries, ranging from Hilary Mantelto Stephen Hawking. This year’s star, however, is Mark Carney, former governor of the Bank of England — speaking on the topic of climate change.

The content is not as gripping as The Crown. But Mr Carney’s sermons have serious messages for British voters. During last week’s lecture, for example, he called for the introduction of carbon pricing and suggested this should be ringfenced from the vagaries of political shifts (ie elections). One model to copy, he suggested, was the way that politicians have outsourced monetary policy decisions to independent central banks. “It is easier to be a central banker in a democracy than it is to be a politician in a democracy,” Mr Carney said.

The timing of that last comment was a touch unfortunate. Earlier this week, Mr Carney’s former employer was the victim of a hoax — apparently by environmentalists. The spoofers sent an email to the Financial Times and other media saying the BoE would exclude debt that was most exposed to climate risk from its bond-buying programme.

It seemed a bombshell announcement. But a second (also fake) email then arrived claiming to be from the BoE, which declared the first email a fake — and declared that was “truly disheartening to see fakery cause premature hope.”

BoE then issued a (real) statement saying the announcement was phoney and that it would investigate the misuse of its name. But the attack shows how green activists are watching central banks. And it would be foolish to discount the possibility that some of those spoof ideas might even become policy one day.

Consider what happened last year, in January 2019, when a similar spoof of Larry Fink’s highly anticipated annual letter was distributed to the press — apparently from the same activists targeting the BoE. That letter warned companies that they must take climate change seriously or risk being sold by BlackRock. 

BlackRock denounced the fake at the time. But this year Mr Fink’s real letter echoed some of the spoof’s sentiment. (He committed to withdraw from some coal companies and drew applause from climate warriors in calling on corporations to address their climate risks.)

Did we mention how the zeitgeist keeps shifting? (Patrick Temple-West)

New green bond guidance

Defining a “green” bond has often involved dealing with issues that often seem a little, er, grey. But the International Capital Market Association (ICMA) has just offered new help: it is publishing a handbook for companies looking to issue green and transition bonds, offering guidance on what information they should be disclosing to investors.

This tackles questions that are becoming increasingly important as more companies tap into sustainable finance such as: “should companies in high-emitting industries qualify for green financing?” and “what sort of projects should count as green?”

ICMA outlines four important issues to consider, building on its existing green and sustainable bond principles, which have become the de facto market standard.

First, it defines proper use cases for sustainable financing: green bonds should be targeted at “enabling an issuer’s climate change strategy”; transition bonds should be used to “transform [a company’s] business model in a way that effectively addresses climate-related risks”.

It then addresses how companies can prove to investors that the bonds they issue will impact core areas of their business, rather than niche projects and explains how they should track their decarbonisation progress using science-based targets. ICMA also calls for issuers to disclose the capital, operating and R&D expenditures linked to the proceeds of any green or transition bond they issue.

Can this allay concern about greenwashing? Not completely. But it is an important step forward for the sector and shows how it is maturing. ICMA’s previous green bond principles were created nearly seven years ago and a lot has changed since they were first launched.

Most notably, the idea of dividing the world into rigid “brown” and “green” buckets is being replaced by an awareness that the real challenge now is to push brown (ie dirty) companies onto a greener path (or, as we like to call it at Moral Money, to become “olive”.)

If ICMA can help companies become a greener shade of olive by supporting the issuance of “transition” bonds that would be a thoroughly good thing; especially if it can also create consensus around what can be defined as a truly green shade of “green”. (Billy Nauman)

A pope and a Rothschild look to turn dung to poetry

When Pope Francis agreed to lend his name to Lynn Forester de Rothschild’s Council for Inclusive Capitalism, it “was a surprise to me. I think it was a surprise to Lynn as well,” admits Marcie Frost, who runs California’s giant public sector pension fund Calpers. 

Lady Lynn has “some pretty hefty convening power”, as Ms Frost puts it, but this is a pope who has dubbed unbridled free markets “the dung of the devil”. 

So what will the Vatican’s endorsement mean for an initiative that has already signed up the managers of more than $10tn of assets and companies with a combined market value of more than $2tn? 

Lady Lynn, who has been working to make capitalism more inclusive since the “wake-up call” of Occupy Wall Street in 2011, stresses that the council’s members must make measurable commitments on which the public can hold them to account. 

The group’s guiding principles also adhere to the UN’s sustainable development goals, but establishing how many of its members’ pledges would not have happened without some papal prodding is hard to do from the outside. 

For Lady Lynn, the task is nothing less than to get capitalism back to what it was meant to be. “Look at Adam Smith. His first book was the Theory of Moral Sentiment. He assumed capitalism would be based on morality and the 1980s greed is good [mantra] was a terrible deviation from the way capitalism was born,” she says. 

She has been a catalyst in several efforts to get capitalism back on track, but says they have been “more prose than poetry . . . What we missed was the poetry of a movement” that could give the public confidence that a capitalist reformation is real.

And besides, “unlike other efforts, we’re with the pope”. (Andrew Edgecliffe-Johnson)

Insights wanted on battling short-termism

The Moral Money Forum is launching a series of in-depth reports early next year, informed with your insights. Our first report will ask how investors and the companies they invest in can encourage long-term behaviour in a world of short-term pressures. Thanks to those of you who have already shared thoughts, case studies and data. Those of you who have not yet done so can do so here.

Chart of the day

8oz of steak emits nearly 10x more greenhouse gases than a meat alternative

Morgan Stanley has published a report on “the future of food” that says alternative protein foods, such as Beyond Meat burgers, reduce carbon emissions from food production.

Grit in the Oyster

Fintech has been a darling of the impact investing world in recent years. No wonder: digital finance has the potential to raise financial inclusion among marginalised, unbanked communities in the west, as well as many emerging market regions too. Women also often stand to benefit.

However, a striking report from the UK-based Finance Innovation Laboratory shows that there is a dark side to fintech too: a lack of data privacy and concentration of power on some platforms, and extensive energy usage. “Global computing and internet-connected devices now account for about 5 per cent of the world’s electricity production — and this could rise to 20 per cent by 2025,” the report notes.

If fintech really wants to earn the “impact” label, in other words, there needs to be more debate about whether the energy being consumed is green or brown. (Gillian Tett)

Tips from Tamami

Nikkei’s Tamami Shimizuishi helps you stay up to date on stories you may have missed from the eastern hemisphere.

Japanese prime minister Yoshihide Suga’s cabinet approved a new stimulus plan worth ¥73.6tn ($706bn) on Tuesday, and decarbonisation and digitalisation are key pillars of the economic recovery plan.

The stimulus package includes a ¥2tn fund to assist ambitious carbon-neutral projects over the next decade. Mr Suga’s government is also considering a corporate tax deduction of up to 10 per cent for capital expenditures that help achieve the government’s net-zero emission target by 2050.

This is the third round of stimulus, and some investors are concerned that the country’s total bond issuance for 2020 will probably surpass ¥100tn for the first time, according to Nikkei.

The cost is high, and it remains to be seen whether Mr Suga’s gambit will work. But if it succeeds, the 2020 Summer Olympics (in 2021) will be the new model for the sporting extravaganza of the “Build Back Better” era — just like the last Tokyo Olympics, in 1964, was a symbol of Japan’s previous economic success.

Smart read

Further reading

  • Employees step up pressure for corporate reform (FT)

  • Jobs are the wrong metric to judge a ‘Green Industrial Revolution’ (FT)

  • Malaysia’s CIMB commits to phase out coal financing by 2040 (Reuters)

  • Companies Could Face Pressure to Disclose More ESG Data (WSJ)

  • ICI Backs SASB ESG Framework (Ignites)



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ExxonMobil proposes carbon storage plan for Texas port

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ExxonMobil is pitching a plan to capture and store carbon dioxide emitted by industrial facilities around Houston that it said could attract $100bn in investment if the Biden administration put a price on the greenhouse gas.

The oil supermajor is touting the scheme ahead of the US climate summit starting on Thursday, where President Joe Biden plans to announce more aggressive national emissions targets and hopes to spur world leaders to increase their own carbon-cutting goals.

Carbon capture and storage, or CCS, “should be a key part of the US strategy for meeting its Paris goals and included as part of the administration’s upcoming Nationally Determined Contributions”, said Joe Blommaert, head of Exxon’s low-carbon focused business, referring to the targets that countries are required to submit under the 2015 Paris climate agreement.

Oil and gas producers have sought to highlight their commitments to tackle emissions ahead of this week’s climate talks, which promise to heap pressure on the fossil fuel industry. BP pledged to stop flaring natural gas in Texas’ Permian oilfields by 2025, while EQT, the country’s largest natural gas producer, said it backed federal methane regulations.

The International Energy Agency has called carbon capture and storage, which uses chemicals to strip carbon dioxide from industrial emissions, “critical for putting energy systems around the world on a sustainable path”.

But the technology has struggled to gain traction as costs have remained persistently high. The most recent setback in the US came last year with the mothballing of the Petra Nova project, the country’s largest, which captured carbon from a Texas coal-fired power plant.

Many environmental groups have been critical of the oil and gas industry’s focus on carbon capture, arguing it is used to justify continued investment in oil and gas production and is not economical, especially as the costs of zero-carbon wind and solar power have plummeted.

Exxon said that establishing a market price on carbon — which has been attempted by a handful of US states, Texas not among them — would be important. The US government should “implement policies to enable CCS to receive direct investment and incentives similar to those available to other efforts to reduce emissions”, Blommaert said.

Exxon declined to comment on the carbon price it thought was needed to justify the investment, but said its plan would generate $100bn of investment from companies and government in the Houston region.

The company’s plans call for a hub that would capture emissions from the 50 largest emitting industrial facilities along the Houston Ship Channel, such as oil refineries and petrochemical plants, and ship the carbon by pipeline to reservoirs for storage deep under the sea floor of the Gulf of Mexico.

The project could capture and store about 100m tonnes of CO2 a year by 2040 if developed, Exxon said. That is 2 per cent of the roughly 4.6bn tonnes of US energy-related carbon emissions in 2020, according to the Energy Information Administration.

Exxon has been under intense pressure from investors, including a proxy fight with the activist hedge fund Engine No 1, to bolster its strategy for the transition to cleaner fuels. In February, it created a low-carbon business line that it said would spend about $3bn over the next five years.

Biden’s $2tn clean-energy focused infrastructure plan would expand carbon capture and storage tax credits. The administration said it would back 10 projects focused on capturing carbon from heavy industry, but it did not endorse a price on carbon.

Climate Capital

Where climate change meets business, markets and politics. Explore the FT’s coverage here 



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European stocks hit record after strong US earnings and economic data

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European equities hovered around record levels, the dollar dropped and government bonds nudged higher on Monday as markets continued to cheer strong economic data while also banking on continued support from the US Federal Reserve.

The regional Stoxx Europe 600 index gained 0.3 per cent during the morning to set a new record, before falling back to trade flat.

This follows a week of upbeat earnings from US banks as investors await results from big businesses including Coca-Cola and IBM later on Monday. Data released last week showed US homebuilding surged to a near 15-year high in March while retail sales increased by the most in 10 months.

The dollar, as measured against a basket of currencies, fell 0.4 per cent as bets on higher interest rates receded. The euro rose 0.4 per cent against the dollar to buy at $1.203. Sterling also gained 0.4 per cent to €1.389.

Federal Reserve chair Jay Powell told the Economic Club of Washington DC last week that the central bank would not taper its $120bn of monthly asset purchases until it saw “substantial further progress” towards full employment.

Haven assets such as government debt remained in demand. As prices ticked up, the yield on the benchmark 10-year US Treasury note fell 0.02 percentage points to 1.557 per cent, while the yield on the equivalent German Bund slid 0.01 percentage points to minus 0.271 per cent.

Investing convention assumes that US Treasuries and global equities move in opposite directions to cushion against falls in either asset class, but both have now rallied in tandem for an unusually sustained period.

The S&P 500, the blue-chip US stock index, has risen for four consecutive weeks to set new records. The yield on the 10-year Treasury has fallen from about 1.74 per cent at the end of March to just under 1.56 per cent on Monday as investors bought the debt. Treasuries and US stocks not have risen together for so long since 2008, according to Deutsche Bank.

Futures markets indicated the S&P would drift 0.2 per cent lower as Wall Street trading opens.

“I am not saying it’s a rational time in the markets,” said Yuko Takano, equity fund manager at Newton Investment Management. A reason for caution, she added, was signs of “bubbles” in alternative assets such as cryptocurrencies and non-fungible tokens. “There is really an abundance of liquidity. There will be a correction at some point but it is hard to time when it will come.”

“Markets may have become temporarily overbought,” strategists at Credit Suisse commented. “For now, we prefer to keep equity allocations at neutral” rather than buying more stocks, they said.

In Asia, Hong Kong’s Hang Seng index closed up 0.5 per cent and Japan’s Topix slid 0.2 per cent.

Global oil benchmark Brent crude fell 0.3 per cent to $66.57 a barrel.



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EU split over delay to decision on classing gas as green investment

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The European Commission is split over whether to postpone a decision on classifying gas generated from fossil fuels as green energy under its landmark classification system for investors.

Brussels had planned to publish an updated draft of a taxonomy for sustainable finance later this week. The document is designed to guide those who want to direct their money into environmentally friendly investments, and help stamp out the misreporting of companies’ environmental impact, known as greenwashing. 

The commission was forced to revamp its initial proposals earlier this year after the text was criticised by member states which want gas to be explicitly recognised as a low-emission technology that can help the EU meet its goal of becoming a net-zero polluter by 2050. 

Now the publication of the draft rules could be postponed again as the commission seeks to resolve the impasse. According to a draft of the text seen by the Financial Times, the commission proposed to delay the decision in order to carry out a separate assessment of how gas and nuclear “contribute to decarbonisation” to allow for a more “transparent” debate about the technologies.

But officials told the FT that some commissioners were pushing for gas to be awarded the green label now, rather than delaying the decision until later this year. 

“There are a sizeable number of voices in the commission who want gas to be included in the taxonomy,” said one official. A final decision on whether to approve the current text or delay it again for further redrafting is likely to be made on Monday.

The EU’s taxonomy is being closely watched by investors as the first big attempt by a leading regulatory body to create a labelling scheme that will help guide billions of euros of investment into green financial products.

But the process has proved divisive, as several EU governments have demanded recognition for lower-emissions energy sources such as gas. 

Coal-reliant countries such as Poland, Hungary, Romania and others that are banking on gas to help reduce their emissions do not want the labelling system to discriminate against them. France and the Czech Republic, meanwhile, are also pushing for the recognition of nuclear as a “transitional” technology in the taxonomy.

A leaked legal text seen by the FT earlier this month paved the way for gas to be considered green in some limited circumstances. That has since been removed along with other sensitive topics such as how best to classify the agricultural sector, according to the latest draft the FT has seen.

EU governments and the European Parliament have the power to block the draft if they can muster a qualified majority of countries and MEPs against it. 

Environmental groups have hailed the exercise, and urged Brussels to stick to science-based criteria in defining the thresholds for sustainable economic activity.

Luca Bonaccorsi from the Transport & Environment NGO said delaying decisions on gas and nuclear risked allowing pro-nuclear countries like France and the Czech Republic to join up with pro-gas member states “to forge an alliance that will obtain the greening and inclusion of both energy sources”.

“Should they ally, it will be impossible to resist the greenwashing of these two unsustainable energy sources,” said Bonaccorsi. 

The delays in agreeing the taxonomy have forced Brussels to abandon an attempt to use it as the basis for EU green bonds that will be issued as part of the bloc’s €800bn recovery and resilience fund. About €250bn of debt will be issued in the form of sustainable bonds over the next few years, which will make the commission one of the world’s biggest issuers of sustainable debt.



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