October 30, 2023

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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Banking regulators updated the Community Reinvestment Act last week, making long-awaited changes to encourage more investment in low-income communities and creating incentives to promote investments related to climate change. 

The CRA, written in 1977, is a key law designed to rectify harms caused by redlining — the discriminatory practice of excluding low-income, Black and brown neighborhoods from lending — by requiring banks to offer loans in neighborhoods where they had branches. But in an era of online banking and fewer brick-and-mortar establishments, the rules needed a refresh. (The law was never enforced very well to begin with.)

Climate advocates praised some of last week’s changes, but noted the new rules do not specifically name race-based discrimination and do little to prevent banks from financing the fossil fuel industry — the root cause of the climate crisis and innumerable harms for these same communities.     

In a separate step to address emerging risks last week, federal financial regulators introduced foundational climate-related financial risk principles for the biggest banks (those with over $100 billion in assets). The joint guidance from the Federal Reserve, Office of the Comptroller of Currency, and FDIC finally recognizes climate change as a threat to financial stability — in other words, the financial impacts of climate change already hitting households, communities, and businesses could spread like a contagion through the economy and financial system.

For far too long, U.S. banks have led the world in fossil fuel financing and exposure, offering only vague climate commitments and hazy net-zero plans while resisting earlier calls by regulators to incorporate climate risk into all parts of their businesses. Advocates of climate action say the new principles are a solid starting point and hope they will lead to additional direct action by regulators. But for now, the new recommendations remain voluntary.

At this year’s COP in Dubai, watch for the release of a new independent report to the United Nations on how to accelerate the private sector’s transition to net-zero greenhouse gas emissions, something a huge number of businesses pledged to do at previous negotiations in Glasgow.

Sarah Bloom Raskin, former US Deputy Treasury Secretary and co-chair of the report told the FT she expects it will identify what’s holding firms back and put forward new solutions to dismantle these barriers, and speed up net-zero shifts.

Click here for more information on how to participate in the consultation, including through written submissions, roundtables, or a public survey until November 10.

New California laws have changed the game when it comes to companies disclosing their carbon emissions, a new report has found, providing some cover for federal regulators who are considering similar rules.

The SEC has been on the fence while writing their long-awaited climate disclosure rule about whether to make companies report Scope 3 emissions — emissions from their suppliers and customers. Corporate lobbyists have gained some traction with claims that Scope 3 disclosure would be too costly and burdensome. 

Yet California went ahead and required Scope 3 (and 2, and 1) disclosure for companies doing business there. Because of that change, the report finds that a similar mandate at the federal level would not impose additional burdens on most (~75%) of the biggest companies subject to SEC rules. Instead, companies would just be asked to disclose to the SEC and investors facts they already know and previously reported to California. 

Europe, too, recently imposed precedent-setting climate disclosure requirements expected to impact many multinational companies. With CA and the EU paving the way for consumers, investors, and shareholders to be informed about companies’ true climate impacts, other states may follow suit with their own transparency mandates, leaving the SEC in the dust.

Big Oil is getting bigger and richer while ESG funds and renewables struggle. Chevron’s $53 billion acquisition of Hess and Exxon Mobil’s $59.5 billion takeover of Pioneer two weeks prior signal a new era of consolidation, with oil giants deploying excess cash from rising oil prices to expand their kingdoms. Meanwhile, investors pulled $2.7 billion out of ESG. funds last quarter, marking the first time U.S. money managers closed more ESG funds than they opened. 

Renewables are suffering too — and it’s not just from high inflation, but also supply-chain problems, high borrowing costs, and waning demand. It doesn’t help that both Republican and Democrat-controlled states are reversing consumer benefits for rooftop solar installations. Regardless of the root cause, these setbacks put state, national, and global climate commitments at risk. 

• Bloomberg: Catastrophe Bond Market Headed for Major Surge in Issuance | House Speaker Mike Johnson Widens Partisan Climate Change Divide
• E&E News: Dramatic plan to expand flood areas could force millions to buy insurance
• New York Times: Siemens Energy in Talks With German Government for Financial Help
• Pensions & Investments: Republican attorneys general appeal decision upholding DOL's ESG rule
• Responsible Investor:  Gensler defends SEC climate disclosure rule to US Chamber of Commerce 
• Reuters: NY Fed to tackle weather-related risks in upcoming research barrage
• United Nations University: Risk tipping points 
• Wharton: ESG Case Studies

• October 31: Ceres A Guide for Businesses: California's New Climate Disclosure Legislation Webinar. Register here.
• November 2: As You Sow 2023 Road to Zero Emissions Webinar. Register here. 
• November 3: Wharton UNPRI Responsible Investing Insights Webinar. Register here.
• November 8: Beyond ESG: Why Corporate Accountability Matters for Communities of Color hosted by Omidyar Network, the Sunrise Project, and Wallace Global Fund. In-person and virtual. Register here. 
• November 9: Climate Policy Initiative Global Landscape of Climate Finance 2023 Webinar. Register here. 
• November 21-22: Organisation for Economic Co-operation and Development (OECD) Green Growth and Sustainable Development Forum. In-person and virtual. Register here. 
• November 30: Deadline to submit inputs to the UN Human Rights Special Rapporteur on climate change, who is requesting information on corporate accountability in the context of human rights and climate change. 

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

– Steve Hargreaves, Katharine Poole, Jayson O'Neill, and Olivia Amitay