Net Zero

A chocolate shop, a resort hotel, a romance movie, and a coal-fired power plant all count as “climate finance,” according to a Reuters investigation of how rich countries are distributing ostensibly green aid funding. As wealthy countries close in on a longstanding pledge to distribute $100 billion per year in climate finance to developing countries, there is still scant oversight of how that money is used.

The U.S. is planning to give financial and technical assistance to Turkmenistan to help it curb some of the world’s worst methane emissions, after climate envoy John Kerry spoke with President Serdar Berdimuhamedov this week. Turkmenistan’s two main oil and gas production areas emit more methane than the entire carbon footprint of the U.K., mostly because of aging and faulty equipment.

Subsidies in Europe for aviation biofuels are driving an increase in tropical deforestation, a report found. The fuels are composed of waste fat from livestock animals; as more of that is diverted for fuel, it is being replaced in cosmetics and other products with palm oil, a notorious cause of deforestation in Indonesia and elsewhere.

China is consolidating its position as the unrivaled global champion of clean energy. Construction of wind and solar power there by the end of next year is expected to be nearly twice that of the EU, U.S., Brazil, and India combined, according to a report this week from the International Energy Agency.

Climate activists need a new strategy

THE NEWS

The overwhelming rejection of shareholder proposals urging ExxonMobil and Chevron to better report and reduce their carbon emissions capped off a dismal run for climate activists.

Of the dozens of proposals put forward at annual shareholder meetings of U.S. banks, insurers, and oil and gas companies over the last month, only one received majority support, the worst showing for ESG-related proposals since 2017.

TIM’S VIEW

A few things went wrong for climate activist shareholders this year, and they point to possible paths toward future success.

First, energy market conditions are undermining the short-term business case for ditching fossil fuels. At the same time, many climate-related proposals are becoming more pointed in what they ask of companies, shifting from a focus on emissions disclosure to demanding more specific plans to phase out the production or financing of fossil fuels. Those calls are still alienating most investors. Another factor is the push by legislators and attorneys general in Republican-controlled states to penalize what they perceive as “woke” ESG investment practices by asset managers.

Activists have a few options on how to revise their strategy. One is for pension funds or other investors to file lawsuits accusing asset managers of breaching their fiduciary duty to clients by ignoring climate risks. That strategy hasn’t been tried yet in the U.S., but was successful in a 2020 case in Australia. Another option is to quit bluffing and take money away from recalcitrant managers, like the U.K.’s largest pension fund did last year when it shifted $6.3 billion from BlackRock into a climate-focused fund managed by Legal & General. A third strategy: Change nothing, and continue beating the same drum until it becomes too loud for companies to ignore.

ROOM FOR DISAGREEMENT

If the news from the proxy voting season appears grim, it is unfolding in a context in which a rapidly rising number of companies are proactively setting net zero targets. Thomas Peterson, climate coordinator at the activist investor group As You Sow, said that when filing shareholder resolutions the group targets companies that are laggards in their sector. “Those companies are getting harder to find,” he said. “That’s a good thing. The low-hanging fruit is gone.”

THE VIEW FROM THE ANTI-ESG MOVEMENT

This year also saw a record number of anti-ESG proposals, which mostly aimed to roll back companies’ workplace diversity initiatives. Yet support for these measures was even lower than for climate resolutions, averaging less than 3% in favor, according to Welsh. The lesson is that while investors may be wary of standing up for ESG, they’re even less willing to attack it, given the reputation and financial risks.

Click here to read more.

Jeremy Bentham is the co-chair of world energy scenarios at the World Energy Council, and the former head of Shell’s Scenarios team. Read his full exchange with Semafor’s Prashant Rao.

Projected energy bill savings by European consumers from 2021-2023 as a result of the buildout of wind and solar energy, according to the IEA.

Investment funds that aim to focus on sustainability might actually be driving emissions higher. In a new study, Yale University finance professor Kelly Shue and her colleagues analyzed the operational emissions of 3,000 companies over the last two decades and noted how they changed in response to shifts in each company’s cost of capital. They found that anytime capital costs went up even slightly for companies in high-emissions sectors like energy and agriculture (which could happen for myriad macroeconomic and individual reasons), the companies’ emissions jumped as well. That’s no surprise, Shue said: “If a [high-emissions] firm has difficulty raising capital, it will push them to become more short-termist, so they double down on their existing business. You rarely hear about a firm announcing a green transition project while it’s worrying about bankruptcy.”

Sustainable investment funds — which total more than $35 trillion globally — aim to exclude or minimize such companies. But to the extent that exclusion from sustainable investing raises the cost of capital for high-emissions companies (which it may already have, by up to 2%, Shue said), higher emissions will follow.

A better strategy for climate-conscious investors, she said, would be to prioritize high-emissions companies that demonstrate progress on lowering their emissions. For an oil and gas company, even a 1% reduction in emissions could amount to a far greater climate benefit than a health care company that reaches net zero. More funds, she said, should also focus on companies that directly contribute to the energy transition (a maker of EV batteries, for example), rather than obsess over which companies across the whole economy have the lowest emissions.

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— Tim (with Prashant Rao and Jeronimo Gonzalez)