December 19, 2022

Hi and welcome back to the Climate Nexus finance newsletter – a regular update that looks at the big stories and players at the intersection of climate change, finance, regulation, and energy, with tips for the week ahead. This will be the last newsletter of 2022. We will return on Jan. 9.

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We saw huge price spikes in oil and gas, driven by an invasion few thought would happen. Some progress on international climate finance. And the term ESG moved from the boardroom to the political arena. Here are the biggest stories of the year, and what we may see in the year ahead. Reach out if you’d like to talk any of these through or be connected to experts.

Conservatives seized on climate smart investing, helped in no small part by the charismatic grifter Vivek Ramaswamy and his pro-oil investment fund. But after months of being on the defensive, supporters of sustainable investing finally struck back. A group of 17 blue-state attorneys general notified members of Congress they are intent on protecting the retirement money of their state workers from risks posed by climate change. Research emerged showing the costs these anti-ESG bans are imposing on taxpayers in the states pushing them. Rules are being finalized that should limit some of the greenwashing we’ve seen from the financial sector. And the chattering class is finally waking up to the fact that these efforts are anti-free market, have little legal standing, and are ultimately coming from a small slice of the population intent on propping up the fossil fuel industry and sowing division for their own political gain. Still the attacks continue, and Ron DeSantis, in his landslide victory speech, proclaimed Florida is where “woke goes to die.” This issue is only heating up for 2023, as many more states consider ways to put people’s money at risk.

Oil prices look likely to close the year pretty close to where they started them, which is remarkable given they spiked some 70% during the course of 2022, largely due to Putin’s invasion of Ukraine and a refusal from OPEC and U.S. shale producers to pump more crude, instead reaping record profits and paychecks. This type of volatility makes it hard for businesses and households to budget for energy expenditures, and is one of the main reasons many say we should ditch volatile fossil fuels for  more stable, cleaner sources of power – mainly wind, solar and electric vehicles. Seeing this volatility is likely one reason why lawmakers were successful in passing the Inflation Reduction Act, the biggest government effort yet to wean the country off fossil fuels. Who gets what from the IRA – it’s hardly perfect, and fossil fuel companies will no doubt have their hand out – as well as ongoing geopolitical threats from Russia, Iran and China, and their impact on oil prices is a space we’ll be watching in the new year.

There was a lot of movement in the international finance arena this year. Most notably, international climate-related finance coalitions suffered big blows, as litigation fear and pushback from U.S. banks softened membership requirements, and with Vanguard's recent exodus from the Glasgow Financial Alliance for Net Zero and Net Zero Banking Alliance. Despite net-zero pledges from banks and investment firms coming under increasing scrutiny, and in a massive departure from last year's Davos vibes at COP26, hardly any big banks even showed up to COP27.

But despite private sector chaos and backsliding, there were small victories. Calls to reform multilateral lenders and the global financial architecture – led by Barbados PM Mia Mottley and US Treasury Secretary Janet Yellen – gained major support, as developing countries face stress from rising inflation, debt burdens, and a strong dollar – all while wealthy countries fail to meet their overdue climate-finance contributions. Some rich countries, like France, now endorse Mottley’s Bridgetown Agenda – and the PM will set forth a concrete proposal by February to present at the World Bank and IMF spring meetings. Finally, in a historic step towards climate justice after a 30 year campaign by developing and vulnerable nations, a loss and damage deal formed an agreement to establish a finance fund – but who pays and who receives money is still TBD.

Texas lawmakers summoned executives from BlackRock, State Street and ISS for a hearing over their sustainable investing practices, in what’s expected to be the first of many such hearings in the US next year. The firms largely stuck to their worn playbook, reiterating how climate risk is financial risk without offering much else, while the lawmakers exposed the true motivator behind the hearings by flatly stating they didn’t believe in climate change. 

On Sunday, European Union members reached a deal to reform the bloc’s emissions trading system. The EU strengthened its cap-and-trade system by eliminating free permits, imposing a tariff on products from countries that don’t price carbon and creating a special fund for lower-income households hurt by the measures. The moves are expected to cut pollution by 62% by 2030, compared to a 43% reduction estimated under the previous plan.

And in Montreal, a major deal to protect 30% of the earth for biodiversity was signed at COP15. The deal includes a call for businesses to disclose “their risks, dependencies and impacts on biodiversity.” A hundred and fifty financial institutions – managing over $24 trillion – ramped up pressure on negotiators, and also pledged to assist in preserving endangered natural ecosystems through financing and investments.

• With all the chat about nature and finance, we recommend Venomous Lumpsucker by Ned Beauman – a weird fish and one of our books of the year, which centers on an exciting, and for now, made up market in “extinction credits.”
• MSCI’s predictions for 2023
• Ceres’ webinar with Andrew Mayock from the White House and representatives from Microsoft and other key stakeholders discussing the federal government’s recent Federal Supplier Climate Risks and Resilience Proposed Rule. 

• December 20: Federal Insurance Office Climate-Related Financial Risk Data Collection comment period closes.
• January 31, 2023: Deadline for public comment on proposed Federal Reserve Board principles on the safe and sound management of exposures to climate-related financial risks for large banking organizations. 

Thanks for reading! Tips, feedback, or questions? Reply to this email. 

– Tan Copsey, Katharine Poole, Steve Hargreaves & Shravya Jain-Conti