Insights

TTYL says IPCC

Cleantech in the crosshairs. Biden backs ESG. Plus, IPCC warns 1.5°C is do or die.

In the world

🇺🇸How does the banking crisis affect climate tech? In the aftermath of the SVB collapse, concerns were raised about climate startup exposure. But that’s not all, warns the FT. Beyond Silicon Valley, banking stress may curtail cleantech development and even infrastructure: Community banks play a critical role in funding commercial real estate.

🇺🇸 In the first veto of his presidency, Biden overturned a Congress resolution to overturn the Department of Labor rule that overturns a Trump rule that overturned the right of US fiduciaries to consider ESG. “There is extensive evidence showing environmental, social, and governance factors can have a material impact on markets, industries, and businesses,” he added.

🇪🇺 The EU is clamping down on greenwash. On Wednesday, it tabled new legislation that penalises misleading product information and introduces tighter rules for ecolabels. Under the Green Claims Directive, companies could be hit with fines of up to 4% for making unsubstantiated marketing claims. 

🇨🇳 Deglobalisation and decarbonisation are uneasy bedfellows. European renewable companies are, reportedly, complaining that limits on Chinese imports, introduced under the recent European Net Zero Industry Act, will stymie production. The solar industry, in particular, relies heavily on China, as do electric vehicles, and, well, really any sector that requires metals.

🇬🇧 The FCA had stern words for benchmark administrators this week. In an open letter, the UK regulator outlined a list of issues with and areas of improvement for ESG-related disclosures made by administrators, including inadequate detail around ESG factors and underlying data and rating methodologies.

In the spotlight

While the rest of the capital-markets community was distracted by a deepening banking crisis this week, the UN Intergovernmental Panel on Climate Change (IPCC) delivered its “final warning” on climate change.

Hardened green finance veterans may be inured to warnings, final or otherwise, from the IPCC.  This one, however, hits differently. It’s the last time we’re going to hear from the UN body until 2030, when the scientists next convene.

The IPCC takes a well-deserved (if terrifyingly timed) break.

Like a parent setting boundaries, there’s something reassuring about the near-annual regularity of IPCC warnings. Even if we suspect we’re likely to disappoint the adults a teeny tiny bit. Especially if we suspect we’re going to disappoint the adults a teeny tiny bit. 

Since 2018, the IPCC has published six reports across two series. Each represents a concentrated summary of the world’s peer-reviewed expertise on climate change. Each takes on one theme. The first batch includes seminal recommendations for limiting global warming to 1.5°C (2018) — which put 1.5°C on the map — followed by reports on land use emissions and on the interaction between ocean and climate change (both 2019). Then came the Sixth Assessment Report (2021-2022), which addressed the causes of climate change, its impacts and recommendations for adaptation, and mitigation, respectively. 

Published Monday, the Synthesis Report is the 18-point summary of the six reports prior, themselves a summary of thousands of academic papers. (You have to feel for the hundreds of volunteer scientists instructed to turn their first six summaries into something more concise, more palatable, for politicians.) It is, in the characteristically punchy words of UN Secretary General António Guterres, the “how-to guide to defuse the climate time-bomb” for policymakers.

The IPCC leaves the world with a warning: Bring down global emissions within (effectively) the next couple of years, or — the next time we catch up — your carbon budget will be spent and the 1.5°C jig will be up. (Say goodbye to 2°C, as well, unless you can crack carbon reduction before 2030; hope everyone working on that has access to secure financing). Later!

The IPCC reports are a microcosm for sustainable finance.

Because the IPCC reports are so influential, the language in which they’re couched shapes global climate awareness and action. It matters. Admittedly, it appears to matter less to IPCC scientists, on whom the magic of copy editing, Twitter live-streaming, snappy soundbites, and UI/UX eye-candy is lost. Their job is to deliver the facts. 

So is Util’s.

Unlike financial data, the social and environmental information gathered on companies by investors lacks uniform parameters. That makes it vulnerable to similar tailoring as afflicts IPCC reports. 

Invariably, companies use language to make themselves look good to shareholders. Bias makes first-party disclosures notoriously unreliable and is one of the reasons investors turn to third-party data providers. But here, too, information can be selective. To appeal to an audience used to ‘buy’ and ‘sell’ signals, providers may lean into bundled E+S+G scores (instead of individual metrics), relative performance (instead of absolute impact), and opinions (instead of evidence). 

There’s clear value in user-friendly information — what use are facts delivered but not received? — but too much reduction can be dangerous. 

All of this is of interest to us at Util, a sustainable data provider whose evidence base is — much like that of the IPCC — the world’s academic knowledge. Every social and environmental score for every one of the 50,000 companies in our wheelhouse derives from scientific conclusions in 120M peer-reviewed articles. We don’t water it down with net E+S+G or positive and negative performance.

If the IPCC is telling investors to act, we can tell them how. 

The last report before 2030 will up the ante for investors. They may choose to finance a 1.5°C future or something more balmy instead. That’s a discretionary decision, the relative merits of which are up for debate. Not up for debate, however, is the science that tells us what further fossil fuel financing does to the odds of 1.5°C. No matter the ESG score.

Util in the news

🎧 What can you learn from Util data? CEO Patrick Wood Uribe joins the ImpactFull podcast to discuss unexpected insights (think: sports and peace, COVID-19 and gender equality). 

🗞️ “As research firm Util put it in a recent note: “The first rule of ESG is, don’t talk about ESG.”” Bloomberg nods to last week’s newsletter. 

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