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Week in Impact: Fourth industrial revolution kicks into gear

Does BlackRock's watershed CEO letter suggest the finance industry is finally taking climate risk seriously?

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💂 The UK Sustainable Investment and Finance Association, which collectively oversees £7trn, has called on the Treasury to back EU green finance rules or risk falling behind.

💰 Investors are "lining up for the post-pandemic green recovery" as they look to dovetail into policymakers’ ambitions to ‘build back better’, reports the FT.

💶 The landmark EU taxonomy regulation came into force this month. What does it mean for green (and social) covered bonds? ING looks beyond the taxonomy in a new report.

🌱 EU regulations mustn’t force sustainability on clients or encourage asset managers to breach their fiduciary duty, asset management industry body EFAMA has warned.

📈 The trends driving the relevance of ESG to credit ratings are intact, even accelerating, despite the pandemic, Fitch Ratings says in its ‘ESG Credit Quarterly: 2Q20’ report.

🏭 Nine big businesses, including Danone, Mercedes-Benz, Microsoft, Nike, Starbucks and Unilever, launched an initiative to accelerate progress to a net-zero future.

🏦 Morgan Stanley joined the Partnership for Carbon Accounting Financials to help establish a framework for measuring (and reducing) 'financed emissions.'

🗞️ Impact investing alone won’t save capitalism while the game continues to entrench shareholder capitalism and ignore stakeholders. The rules need to change. 

Company spotlight: ExxonMobil

ExxonMobil was last week highlighted by BlackRock as a key 'high-emission' company failing to act on climate. The asset manager pushed for better disclosures, which "would allow shareholders to better assess how [ExxonMobil] is considering climate-related risk in its strategy and how its portfolio aligns with the transition to a low-carbon economy."

But talk is cheap. The FT this week reported that ExxonMobil is among a number of companies that publicly affirmed their commitment to the Paris climate accords, while behind closed doors giving thousands of dollars to Republican attorneys-general who then stopped the Obama administration's climate plan. 

"There is a real conflict between the companies' rhetoric and the impact of their spending," CAP president Bruce Freed told Moral Money. "That is known as hypocrisy."

As far as our analytics show, there's really no way to spin it: Exxon is falling short on multiple environmental fronts.

The fourth industrial revolution kicks into gear

An energy paradigm shift is underway, kicked into high-speed gear by the global pandemic.

This month, Tesla's market value overtook that of ExxonMobil. Described by Bloomberg as a "symbolic energy shift," the milestone moment is "a sign that investors are increasingly betting on a global energy transition away from fossil fuels.” Tesla is now worth almost $225 billion, while the top three American automakers—General Motors, Ford and Chrysler—collectively represent around $70 billion. Bloomberg New Energy Finance estimates 57% of cars sold in 2040 will be electric. 

Meanwhile, data released on Wednesday shows renewable energy has overtaken fossil fuels as Europe's main source of energy. The report, issued by think-tank Ember, found renewables now generate 40% of European Union electricity, while fossil fuels generate 34%."Uncompetitive economics" are likewise behind a raft of premature mine closures in Australia, the world's top coal exporter.

Ember notes that fossil fuels have been squeezed "by rising renewable generation and a 7% fall in electricity demand due to COVID-19"but that's only part of the story. Writing in the FT, Charles Stanley's John Redwood argues that "the top-down green revolution will be reinforced by policymakers as a way out of the slump." Regulation is hitting fossil fuels where it hurts. 

The EU is the most prolific green regulator (only yesterday the European Commission revised the Energy Taxation Directive with implications for the ways in which fossil fuel companies are taxed and subsidised). Others are catching up, however: Japan this week took a step away from coal, as calls grow for China to follow suit. A November victory for US Democrat nominee Joe Biden, who last week issued an extensive climate plan, would put the US at the vanguard of the fourth industrial revolution.

That revolution is already yielding new and exciting investment opportunities, particularly in renewable energy, new modes of transportation and digital technology. COVID-19 has simply accelerated the inevitable. As per a recent report from Carbon Tracker, "now is the time to plan an orderly wind-down of fossil fuel assets and manage the impact on the global economy rather than try to sustain the unsustainable."