Voluntary carbon markets shrank for the first time in at least seven years, after an investigation into credits derived from protecting forests showed that the vast majority were worthless.
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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As carbon markets falter, Dubai steps in
Voluntary carbon markets shrank for the first time in at least seven years, after an investigation into credits derived from protecting forests showed that the vast majority were worthless. This hasn’t stopped Sheikh Ahmed Dalmook Al Maktoum, Dubai royal family member and host of this year's international climate negotiations in the United Arab Emirates, from looking to corner the market in carbon credits derived from African forests. The Voluntary Carbon Markets Initiative claims to have a solution, offering a set of principles for high-integrity credits that it expects to trade at a premium due to high demand. A temporary collapse in these markets may have some positive effects if companies spend more money and time on actually decarbonizing, but less money flowing to developing countries may also be a problem.
UAE’s big bet
Speaking of carbon credits, at Africa's first-ever climate summit in Nairobi, pledges worth hundreds of millions of dollars were made to expand the continent's carbon credit production. The UAE committed to purchasing $450 million in carbon credits from the Africa Carbon Markets Initiative. The summit's goal is to promote Africa as a hub for climate investments, highlighting market-based financing tools like carbon credits, which are obtained from emission-reducing projects and can be bought by companies to offset their emissions. Despite the pledges, many African activists argue against carbon credits, viewing them as a means for richer countries to avoid direct compensation and debt relief responsibilities.Meanwhile, a report released Monday by ActionAid finds major international banks plowed $3.2 trillion into fossil fuel expansion in the Global South, incongruous with many Africans’ desire for a clean energy future.
KKR's eco-claims slammed in new report
An upcoming analysis finds that private equity behemoth KKR’s portfolio companies, particularly the $9 billion LNG investments, have committed numerous environmental violations and engaged in unethical business practices while contributing to the climate crisis. The report highlights three of KKR’s gas investments—the Coastal GasLink pipeline in Canada, the Port Arthur LNG project in Texas, and Cameron LNG in Louisiana—and says these projects demonstrate a pattern of repeat environmental violations, a lack of accountable business practices, and significant cost overruns and delays. This comes as KKR recently announced new global hires to build its much-touted climate investment strategy.
Betting against disaster
Amid a growing insurance crisis, hedge funds, pension plans, and wealthy individuals are delving into a new financial tool known as catastrophe bonds. As reinsurance becomes increasingly expensive, another way insurance companies can offload some risk is by selling high-yield catastrophe bonds to investors. If natural disasters exceed a predetermined damage threshold, investors forfeit their initial principal. If they don’t, investors reap high returns. The market now exceeds $41 billion—almost double its 2013 level. While investors bet against catastrophes, insurers continue to fund a fossil fuel sector where the odds of climate destruction are much more clear.
States backpedal on ESG boycotts
In a not-so-surprising twist, red states are finding out that boycotting asset managers that incorporate ESG metrics is inconsistent with their fiduciary responsibilities. Last month, the Securities Industry and Financial Markets Association filed suit against Missouri officials for a boycott rule that the trade group contends runs afoul of federal securities law. Shortly after, the Oklahoma State Treasurer announced that the state had halved its list of blacklisted firms, but it still included BlackRock and State Street, which account for approximately 65% of the state’s public retirement portfolio. That presented a problem for the public pension board, which passed an exemption for the firms with only one dissenting vote. The regulatory morass created by anti-ESG policies is failing flat in other red states too. And, as red states backpedal, more questions about the intentions of anti-ESG asset firms are coming to light.
September 13: America Is All In coalition “Cash In on Clean Energy” Tour. Series of monthly, in-person events with expert-led workshops for business, government, and community leaders to learn how to utilize the Inflation Reduction Act (IRA). Register for the next event in Orlando here.
September 17-24: Climate Group Climate Week NYC. View list of events here.
September 18: Climate Finance Day - NYC Climate Week 2023. From As You Sow, Jefferies, Carbon Tracker, IEEFA and more. Register here
