Bankers discuss ESG financial practices at UN climate conference

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the environmental, social, and corporate governance (ESG) trends and events that characterize the growing intersection between business and politics.

ESG developments this week

Around the world

Bankers discuss ESG financial practices at UN climate conference

The United Nations’ 28th climate change conference, COP28, started November 30 in Dubai, United Arab Emirates (UAE). Bankers and other financial professionals were present to discuss ESG factors in finance:

The UAE host of COP28 has given access to hundreds of bankers, consultants and lobbyists — and 20 housekeepers — at the event where oil and gas executives such as ExxonMobil chief executive Darren Woods will rub up against almost 200 government delegations shaping global climate policy.

The UAE presidency invited more than 9,000 to the formal business area in the “blue zone”, including about 5,000 guests outside of its own extended delegation, based on Financial Times analysis of a provisional UN list of attendees. Total attendance in Dubai is unconfirmed but estimated at about 80,000, based on the list.

The roster of chief executives on the UAE guest list included interim BP chief executive Murray Auchincloss, BlackRock’s Larry Fink, commodity trading group Trafigura’s Jeremy Weir and Brookfield Asset Management’s Connor Teskey. BlackRock and Brookfield were involved in the $30bn fund launched by the UAE on Friday to invest in climate-related projects. Bankers were one of the most represented professions among badge holders invited by the UAE, as climate finance moves to the forefront.

Bankers led a COP28 conversation December 4 about how sustainable finance can promote ESG goals. But some in the industry argue sustainable finance is poorly defined:

Banks including Morgan Stanley, HSBC Holdings Plc, Goldman Sachs Group Inc. and JPMorgan Chase & Co. have announced individual sustainable finance targets for 2030 that range from $750 billion to $2.5 trillion. Yet such statements leave investors with little real insight into the very different ways in which banks are defining what’s sustainable, according to senior bankers familiar with how the figures were compiled but who asked not to be identified discussing private deliberations.

The differences in accounting range from how banks treat mergers and acquisitions and debt underwriting to how they calculate revenue from market making, private equity investing, money-market funds, private banking, mortgages and revolving credit facilities, the people said.

Emily Farrimond, a partner at London-based consultancy Baringa Partners LLP, said the absence of a consistent methodology “can impact the credibility of the entire market, raising fears of greenwashing.” And Greg Brown, a partner in the banking practice of law firm Allen & Overy, points to the lack of “a law or regulation” to steer the industry.

Reports question UAE climate conference leadership

The BBC reported on November 27 that UAE leaders intended to use the conference as an opportunity to discuss oil and gas deals with representatives from other countries, raising questions about their impartiality:

The United Arab Emirates planned to use its role as the host of UN climate talks as an opportunity to strike oil and gas deals, the BBC has learned. Leaked briefing documents reveal plans to discuss fossil fuel deals with 15 nations. …

The documents – obtained by independent journalists at the Centre for Climate Reporting working alongside the BBC – were prepared by the UAE’s COP28 team for meetings with at least 27 foreign governments ahead of the COP28 summit, which starts on 30 November.

They included proposed “talking points”, such as one for China which says Adnoc, the UAE’s state oil company, is “willing to jointly evaluate international LNG [liquefied natural gas] opportunities” in Mozambique, Canada and Australia.

Before the conference, UAE Sultan Al Jaber—president of COP28—argued that scientific evidence, in his view, did not demonstrate a need to phase out fossil fuels to prevent climate change, sparking pushback:

The president of Cop28, Sultan Al Jaber, has claimed there is “no science” indicating that a phase-out of fossil fuels is needed to restrict global heating to 1.5C, the Guardian and the Centre for Climate Reporting can reveal. Al Jaber also said a phase-out of fossil fuels would not allow sustainable development “unless you want to take the world back into caves”. …

Al Jaber made the comments in ill-tempered responses to questions from Mary Robinson, the chair of the Elders group and a former UN special envoy for climate change, during a live online event on 21 November. As well as running Cop28 in Dubai, Al Jaber is also the chief executive of the United Arab Emirates’ state oil company, Adnoc, which many observers see as a serious conflict of interest. …

Al Jaber said: “I accepted to come to this meeting to have a sober and mature conversation. I’m not in any way signing up to any discussion that is alarmist. There is no science out there, or no scenario out there, that says that the phase-out of fossil fuel is what’s going to achieve 1.5C.”

In the states

New York Supreme Court could hear case opposing NYC pension plans’ ESG investment considerations

Four New York City employees, with the help of nonprofit legal organization Americans for Fair Treatment, filed a lawsuit in May opposing New York City pension plans’ environmental investment considerations. The court, according to E&E News, could be the first to hear a legal claim against investment managers who consider ESG:

The case charges that de Blasio, a Democrat, vowed in 2018 that New York City’s pension funds would divest from fossil fuel companies — but did not “discuss, cite, or refer in any way” to any financial studies that suggested the move would benefit the participants in the pension plan.

The decision “to pursue an environmental agenda instead of safeguarding the retirement security of plan participants and beneficiaries has had, and will continue to have, a detrimental impact on the financial health of the plans,” the lawsuit says.

The lawsuit argues that the three public pension funds that pulled money out of the oil and gas industry in 2021 “breached their fiduciary duties and abused their control” by divesting holdings in what the complaint calls a “misguided and ineffectual gesture to address climate change.”

On Wall Street and in the private sector

ESG investments decline

The Global Sustainable Investment Alliance (GSIA) released on November 29 the numbers from its latest biennial report on ESG assets under management, showing a decline in ESG investment ownership:

A decline in the US has resulted in an overall slide in the global market for ESG investing.

That’s according to the latest assessment by the Global Sustainable Investment Alliance (GSIA), which provides updates on the size of the market every two years. The 2022 review, published on Wednesday, shows that investors had $30.3 trillion in sustainable assets, down from $35.3 trillion in 2020.

The GSIA argued that the decline was primarily due to a change in the method used to calculate assets under management. The alliance also says ESG is still growing almost everywhere but the United States:

In the rest of the world, ESG-related assets are still growing, according to GSIA. Sustainable investments rose more than 20% in Europe, Japan, Australia and New Zealand between 2020 and 2022, the alliance said.

ESG opponent Stephen Soukup, author of The Dictatorship of Woke Capital, argues that evidence suggests the drop in ESG assets under management—especially in the United States—will likely continue, especially as the Financial Times reports the pushback against ESG continues to reshape the investment world:

Last month, when BlackRock put $550mn into one of the world’s largest carbon capture projects in Texas, Fink focused on moneymaking potential rather than its contribution to the planet’s welfare. Describing it as “an incredible investment opportunity”, he also highlighted BlackRock’s decision to continue to work with big energy companies. …

Investor support for environmental and social shareholder proposals has fallen sharply; the flow of US money into ESG-labelled funds has slowed after poor performance; prominent financial groups including Allianz, Lloyd’s of London and Vanguard have pulled out of net zero alliances; and JPMorgan Chase has redefined its climate goals to move away from that benchmark. Even supporters of sustainable investing warn of “greenwashing”, in which money managers overstate the environmental impact of their investments. …

US money managers have also pulled back significantly when it comes to advertising and talking about ESG, especially after Texas and other red states used membership in Net Zero Asset Managers, an initiative launched in December 2020 to support global climate goals of limiting warming to 1.5C by 2050, as evidence of hostility to fossil fuel.