In the world

🗺️ In the world of voluntary disclosure standards, climate comes first. Having announced a publication date of June for its two frameworks, the ISSB has decided to give companies an extra year to provide information for ‘general sustainability-related’ risks so they have more time to focus on the ‘climate-related’ ones. 

🇺🇸 Not coincidentally, climate comes first for (TCFD-oriented) regulation, too. Right now, all eyes are on the SEC and its long-awaited (and much-debated) climate disclosure rules, which are expected this month. Given fresh reports about the scope of EU standards, however, US companies may want to keep at least one of those eyes on the far stricter CSRD. 

🇪🇺 The EU is struggling to please everyone. Draft criteria for the final four objectives of the EU taxonomy have been published, and some critics are (very) unhappy to see aviation and shipping included. Responding to discontent elsewhere, the EU’s financial regulatory agencies have proposed amendments to “extend and simplify” [not a paradox in Europe] SFDR. 

🇬🇧 How do you solve a problem like ESG ratings? To what extent is it a problem? Responding to criticisms about inconsistency, UK recently signalled its intent to regulate the raters to improve transparency of both methodologies and objectives. In a must-read FT op-ed, former BoA head Craig Coben argues that while transparency is desirable, uniformity is not.

🗺️ Sustainable finance is chugging away cheerfully. Though sustainable vehicles and capital markets have had a rocky quarter, their technical troubles haven’t dented demand for green bonds. Bloomberg data reveal record issuance: Driven by investor demand and regulatory pressure, global sales rose by 13.9% to $282.5B in Q1 2022. 

🗺️ The IMF and World Bank are sorting things out. Their spring meetings bring together the great and good to steer the world economy; this year, the unfurling global ‘polycrisis’ takes centre stage. Priority items include how to a) fix an emerging market sovereign debt crisis, and b) expand multilateral development bank support for green projects. 

In the spotlight: E isn’t everything

In recent weeks, a number of developments have thrust shipping — and the question of its sustainability credentials — into the spotlight. 

The UN passed its landmark High Seas Treaty to protect maritime biodiversity, a first for the international community. The World Bank is reported to be pushing for a carbon levy on shipping fleets. Most recently, the EU marked LNG-powered shipping as a ‘transition activity’, prompting furious backlash from critics who claim the inclusion is the “nail in the coffin” for the taxonomy. 

From one angle, the criticism is well founded. Similarly, regulatory scrutiny is well deserved. The difficult-to-decarbonise sector is a significant contributor to environmental pollution and climate change: Per Util data, international shipping accounts for approximately 3.3% of CO2 emissions, which equates to about 1,000 million tons of CO2 each year. 

But it is just one angle. 

Though regulators and standard setters have made Scope 1 and 2 emissions the primary focus of corporate reporting frameworks (as was underscored by the ISSB announcement this week), those, too, represent just one angle — albeit a crucial one. 

On the one hand, we welcome progress on sustainability disclosures. Climate change is the most urgent sustainability issue, and direct emissions are a logical place to start reporting. Companies can’t do everything all at once. That said, we worry that the emphasis on emissions obscures an important distinction: More urgent does not mean more important.

There are more than one ways to evaluate, report, and think about ‘sustainability’, as former Bank of America head of equities Craig Coben argued this week. It’s why there exist differences between sustainability ratings, methodologies, and even objectives. Though companies must ‘start somewhere’, investors aren’t held back by the same constraints. Were that the case, ESG funds would be a remarkably small and (even more) concentrated pool.

Back to shipping. 

Though our data flags their negative environmental impact, it also surfaces other, more unusual, findings about freight shipping companies.

On SDG 8 (decent work and economic growth), we find evidence of “economic development and the expansion of international trade.” The industry is fantastic for productivity: It “increases national employment and growth in personal income and the GDP of a region, and improves the quality of life of its citizens.”

This leads to positive outcomes for SDG 17 (partnership for the goals). Shipping improves economic stability. It’s the lynchpin of international trade and economic development. Per one source, the industry is “a powerful and positive force, making a major contribution to global trade and prosperity” — environmental impact notwithstanding. 

Don’t let the urgency of climate change, nor the endless talk of deglobalisation, distract you from the importance of equitable international economic growth. Next to green financing, it’s the highest-priority issue at the IMF and World Bank meetings taking place this week.

Lest we forget, too, it’s on supply chains and shipping that the green transition depends. The metals crucial to decarbonisation cannot be decoupled from international trade entirely. 

Pollution — be it of land, air, or sea — is one a host of important social and environmental priorities. Away from corporate disclosures, sustainability isn’t a zero-sum game. It would be a mistake to treat investment data and vehicles as though it were.

‍