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.
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*This is our last edition of the year. See you in 2024! - your new sender, Jayson O'Neill
2023: Climate finance goes mainstream
If you had told us last year that the conversation around sustainable investing, climate-related financial risk, and emissions disclosure would reach a fever pitch this year, we might not have believed you. It wasn’t all good news, with the forces of political dark moneypushing back on any progress. But those efforts — while nothing to ignore — have largely failed to gain traction with the public.
In short, the time has come to accelerate a shift towards implementing and disclosing responsible investment practices, including ESG and climate-related financial risks, emissions pollution transparency, and rooting out greenwashing. Next year, we may be looking back and asking what the whole fracas was really about, because it is really just common sense risk management.
Winter might be coming. Scope 3 disclosure definitely is
The warmest year on record makes a snow-filled holiday less likely, but climate risk and Scope 3 emissions disclosure are definitely blowing in. The SEC’s long delay comes after a record number of comments and pending legal challenges by fossil fuel-aligned forces. The delays didn’t prevent other jurisdictions from carrying the corporate climate transparency mantle, including requiring disclosure of emissions from up- and downstream, known as Scope 3. California’s new corporate disclosure rules created a watershed moment that reoriented the landscape. The new reality in the world’s fifth-largest economy, combined with the direction of nearly all other international jurisdictions, reassures us that the SEC will issue climate risk and emissions disclosure requirements consistent with others and in line with what investors need. Considering disclosure will cost about as much as a big holiday party and consistency will only ease the regulatory burdens, we are looking forward to companies having fewer excuses to argue against transparency.
Anti-anti-ESG?
2023 was a turbulent but rewarding year for those publicly defending ESG principles. The year started off strong with multiplereports emphasizing the negative financial consequences of anti-ESG legislation for taxpayers and pensioners. President Biden handed the movement another victory in March with his first veto of a bill that aimed to repeal a Department of Labor rule allowing retirement fund managers to consider ESG metrics in their investment decisions. Republicans shifted focus to the state level, where 37 states introduced 165 pieces of anti-ESG legislation. Despite this enormous push, only 22 measures passed, and 17 of those states passed none of the bills.
The fight returned to DC in July, as House Republicans wasted time with “ESG Month,” releasing 18 bills targeting everything from investor freedom to shareholder proposals and proxy voting. These bills didn’t go anywhere, though some politicians think they still have a chance. Despite ESG month’s purpose (to “whittle away at companies’ willingness to come out for progressive causes”), the financial sector and business community showed their support for ESG with initiatives like Freedom to Invest, bringing together more than 270 businesses, banks, pension funds, and advocacy groups to protect the right to consider ESG factors.
Looking ahead to 2024, we can only hope that “woke capitalism” stays off the 2024 presidential campaign trail and that the investment and banking sectors can correct away from dark money influences.
Shaping global finance
This year, we saw heavily indebted and climate-vulnerable countries leading the conversation on international financial reform following the release during COP27 of the Bridgetown Agenda from Barbados Prime Minister Mia Mottley. France’s Summit for a New Global Financing Pact and Kenya’s Africa Climate Week were marquee moments, building pressure on the International Monetary Fund (IMF) and World Bank to reform their lending practices. These efforts saw another boost when US Treasury Secretary Janet Yellen supported reform and the appointment of Ajay Banga as the president of the World Bank. The World Bank, in turn, updated its mission statement to “ending poverty on a livable planet” during annual meetings in October.
IMF Director Kristalina Georgieva announced a goal to increase the Resilience and Sustainability Trust capacity to $60 billion (but has so far approved just under $6 billion in loans for projects in 12 countries). The World Bank also announced the inclusion of new “climate-resilient disaster clauses” to pause loan payments following natural disasters, which other lenders agreed to implement during COP28. In another important signal, the need for non-debt-creating finance was also mentioned in the Global Stocktake, the major decision text of COP28.
Looking to 2024, the conversation around debt, climate, and financial reform will only grow more urgent. The World Bank will be seeking to replenish the International Development Association, the finance window reserved for below-market-rate loans to the least economically developed countries and small island developing states. And at COP29 in Azerbaijan, countries must agree to a New Collective Quantified Goal on Climate Finance, establishing a target goal for global annual climate finance with a floor of $100 billion. The historic Loss and Damage Fund will also seek substantial capitalization to the tune of $100 billion or more.
On our radar
Americans for Financial Reform Education Fund and Take On Wall Street have launched ESGexplainer.org, a new digital platform to aid public understanding of environmental, social, and governance (ESG) investing amidst widespread misinformation campaigns.