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TURNING UP THE HEAT ON ENVIRONMENTAL SOLUTIONS
Unprecedented heat waves in China, relentless droughts in Spain, devastating wildfires in Canada and a historic dip in Panama Canal’s water levels: these climate-related calamities continuously underscore the pressing need for both policymakers and investors to spring into action. Successfully navigating this complex situation requires a comprehensive grasp of crucial factors such as increasing government support, regulatory modifications, emerging investment opportunities, market responses, and shifts in climate focus.
Thankfully, many political programs are starting to provide substantial support to environmental solutions with initiatives like the US inflation reduction act, the European Green Policy and Japan’s Green transformation program. Simultaneously, worldwide climate risk monitoring is on the rise, with countries implementing TCFD recommendations or Taxonomy requirements, effectively assessing climate risks. This highlights the growing focus on climate change prevention, mitigation, and adaptation through increasing regulatory oversight.
Clean energy technology investments continue to grow, too. Technologies like solar power, wind, and heat pumps could triple their value to USD 650 billion by 2030, if countries follow through on their climate pledges. This potential growth is driving demand from sectors seeking affordable, green energy.
Markets are beginning to respond to companies’ objectives and assurances. However, we do not yet observe stock price adjustments in instances of downward revisions to environmental goals, as we might typically see with earnings revisions. That said, recent examples like BP or Shell, which have announced plans to scale down their renewable targets, have prompted significant institutional investors to publicly divest from these companies. At this stage, it’s too early to determine the financial impact of such divestments versus the companies’ higher profitability, but in the medium and long term, these are influenced by such outflows.
The increased focus on climate change, industrial decarbonisation, water availability, and biodiversity will likely shape future investment strategies and policy decisions. Our recent partnership with the Taskforce on Nature-related Financial Disclosures (TNFD) perfectly illustrate this growing trend. We also teamed up with Plasteax, a global plastic waste management organisation and database by Environmental Action. As a leader in plastic footprint research, Plasteax allows investors to analyse a country’s Mismanaged Waste Index (MWI) for insights into their anti-plastic pollution strategies. The MWI quantifies unhandled plastic waste, including uncollected and improperly disposed waste in unsanitary landfills, offering a complete metric of plastic waste mismanagement.
UNWEAVING THE SOCIAL FABRIC
The ongoing changes to our environment will not only put more stress on social structures but will also delineate a new trajectory for human rights, supply chain management and labour markets worldwide.
On one hand the growing use of renewable energy comes with significant risks, as the urgent need for green transition often clashes with equity and justice. The primary concern lies in the labour and human rights conditions in critical sectors such as mining, where practices remain controversial. It’s important to note that the production of clean energy technology is often largely controlled by specific nations, such as China – and such monopolies will only worsen existing social issues in years to come. The ongoing violations of human rights along corporate supply chains also require urgent global recognition and appropriate action. To counter these challenges, nations like the UK, France, and Germany have bolstered their regulations, and financial sector initiatives like the Corporate Sustainability Due Diligence Directive (CSDD) are pushing companies towards greater accountability.
On the other hand, the shift towards sustainable energy also brings promising opportunities, particularly in the form of employment. Predictions indicate that by 2030, the number of jobs in clean energy manufacturing could surge from six to nearly fourteen million, primarily driven by electric vehicles, solar power, wind, and heat pumps. However, labour markets face difficulties due to disparities in geographical distribution, expertise levels, and the tension between short-term and long-term trends. The competition for talent is fierce, and the fight for workers’ rights will continue to intensify amid the looming threat of an aging workforce. As China’s population declines and Japan’s birth rates continue to plummet, demographic shifts might have more profound impacts on economies and health systems than short-term economic issues (i.e. inflation and economic slowdown).
These developments highlight the complex interplay between climate change, human rights, labour markets, and demographic shifts, shaping the social landscape in the face of climate change challenges.
A GOVERNANCE OF CHANGE ACROSS BORDERS AND BUSINESSES
When it comes to governance, it is important to consider both the corporate and the country perspectives. Both aspects play significant roles in shaping the policies and actions that drive environmental and social progress. We try our utmost to get involved in both these areas through active engagement, aiming for a balanced and responsible approach, while keeping in mind that businesses and countries face inherently different problems and opportunities.
From a country-perspective, the focus from governments should be on building secure, resilient, and responsible supply chains for sustainable and clean energy. To implement this, each country must explore its unique strengths and weaknesses, especially in the face of an aging population.
Through systematic engagement with stakeholders along the sovereign bonds supply chain, we aim to raise awareness about the significance of sustainability in government bond investments, to scrutinise both strengths and areas for improvement through our proprietary ESG model. Then, we can challenge commitments to the Paris Alignment, decarbonisation and the broader inclusion of green finances, to be fully aligned with our NZAM commitment
Simultaneously, within the corporate realm, we have continued to promote best ESG practices by using the full extent of our voting rights. This has sometimes led to voting against certain proposals, and even co-filing shareholder proposals as was the case with Amazon. Our collaboration with ‘Follow This’ further demonstrates our commitment to sustainability as we worked together to apply pressure on oil majors, including Total Energies, urging them to increase their ambition and include scope 3 emissions in their strategies.
As we look to the future, our ambition is to augment our efforts in advocating for sustainable governance. Our strategy hinges on the synergy of environmental and social progress with financial considerations. This past half year’s activities stand testament to our proactive approach, where we have leveraged our voting power and worked collectively with other stakeholders to effect positive change and encourage sustainable practices. This, we believe, leads to a robust and responsible way to navigate the months ahead.
In conclusion, the intertwined challenges of climate change, societal upheaval, and cross-border governance require us to consider a holistic approach. We’re bolstered by the strides made in policy development, clean tech investment, and in how the markets are beginning to respond. Yet, we recognise that our path forward isn’t just about the environment. It also means addressing critical social issues, like labour rights and supply chain management. Balancing environmental, social, and financial considerations is no easy feat, and will require continued strategic efforts with stakeholders to achieve sustainable objectives. Finally, our efforts in governance, both in the corporate and public sectors, signal our unwavering commitment to sustainable action.
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