December 12, 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. 

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ESG will be huge, with anti-sustainable action expected from several more states. Defenders have finally gotten their act together though, so expect major pushback from state treasures and other elected officials, researchers, and campaigners highlighting how these measures are coming from a small slice of the population intent on propping up the fossil fuel industry and sowing division for their own political gain. 

Fossil fuel price volatility will continue, although it’s pretty amazing oil prices look set to end the year pretty close to where they started after a wild ride in 2022. The year’s volatility was one reason the Inflation Reduction Act passed, and we’ll be watching how that money is doled out.

On the international front, we’ll be looking at whether Vanguard’s decision to leave two net-zero initiatives sparks an exodus of other money managers, and if international lending institutions can pick up any of the slack.      

Republican staff on the Senate Banking Committee released a report last week continuing their efforts to marginalize sustainable investing. The GOP report accuses asset managers of using their stakes in public companies to cast proxy votes that favor a “liberal political agenda.” The report was written in favor of the “Investor Democracy is Expected” bill or INDEX Act written by GOP Senators Toomey and Sullivan. The bill would require investment advisers of index funds to vote proxies based on their investors’ wishes, which the GOP assumes would be against ESG.

On the other side of the aisle, House Democrats released a memo making the case the oil industry is not at all serious about reducing its carbon footprint and that claims to the contrary are simply greenwashing. The memo relies on subpoenaed emails and documents, and notes how many of the industry’s strategies around cutting emissions rely on transferring polluting assets to other owners.     

Members of the GOP are pressuring financial institutions to leave climate alliances and making antitrust accusations, which legal experts say don’t hold much water. But few thought it was a coincidence that the world’s second largest asset manager announced its withdrawal from the Net Zero Asset Managers and Glasgow Financial Alliance for Net Zero initiatives – the main voluntary associations where finance institutions pledge to transition away from fossil fuels. Vanguard cited the need to provide “clarity” to their investors about the role of index funds and their thinking on addressing material risk, including climate-related risks, and noted its need to be seen as speaking “independently.”

The move came after continued Republican attacks and disinformation about ESG investing, all while regulators attempt to crack down on corporate greenwashing. Last month a coalition of Republican state attorneys general sent a letter to U.S. energy regulators asking them to bar Vanguard from purchasing certain U.S. utilities, citing the firm’s membership in the alliance as one reason. Advocates say Vanguard will ultimately lose out in the long run as more investors demand climate smart products, and that net-zero alliances may ultimately be stronger if weak-link players depart.    

As crypto executive and “ESG truth-teller” Sam Bankman-Fried plans to remotely testify to the Senate Banking Committee over the collapse of FTX tomorrow, scrutiny over cryptocurrency’s ESG, climate, and oversight implications continues. The failure of FTX – which founder SBF originally committed to making “carbon neutral” – has spotlighted issues with ESG scoring and evaluation criteria, regulation of the industry, the significant environmental harms of crypto, and the importance of financial disclosures and strong corporate governance.  

According to new mapping and analysis in a report released at UN Biodiversity COP15, oil and gas expansion in the Amazon and Congo Basins is a rapidly accelerating existential threat to global climate stability and biodiversity, and to tens of millions of Indigenous People and local communities. More than 20% of the total population in these regions or up to 45 million people now dwell in oil and gas blocks. For more info contact EarthInsight Executive Director Tyson Miller at tyson@earth-insight.org. Media interviews with Amazonian and/or Congolese partners available upon request.

• Tomorrow: House Financial Services hearing “Investigating the Collapse of FTX, Part I” and Senate Banking hearing “Examining How Capital Markets Serve Diverse Entrepreneurs and Investors.”
• December 14: SEC meeting to consider major market structure reforms, House Financial Services hearing “Consumers First: Semi-Annual Report of the Consumer Financial Protection Bureau,” and Senate Banking hearing “Crypto Crash: Why the FTX Bubble Burst and the Harm to Consumers.”
• December 15: Senate Banking hearing “The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress” and Berkeley Boosts webinar: Can ESG change investor expectations and voting behavior? Companies have launched environmental, social, and governance initiatives in response to overwhelming investor demand, only to face an increasing backlash against some of their choices. What do investors really want, and what is the best way to channel their preferences into annual meetings, given that many hold stock through large asset managers?
• December 16: U.S. Secretary of the Treasury Janet L. Yellen will preside over a meeting of the Financial Stability Oversight Council at the Treasury Department.

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