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Welcome to Moral Money’s first 2021 edition, where we too are locked down and feeling gloomy. So to start, we have compiled a list of Moral Money-themed books to perk you up and escape to a future that hopefully will not be as dreary as this week. Also, we have:

  • Chris Hohn’s say-on-climate advances globally

  • ESG in the courtroom

  • Japan, South Korea help finance coal in Vietnam

ESG boom yields growing green reads

You know that an asset class is getting hot when publishers jump in. Sustainable finance is no exception. In recent months we have received a flood of new books championing ESG, which we worked our way through during the new year holiday.

The verdict? If you want to explain sustainability to Gen-Z, a good option is Who Cares Wins: Reasons For Optimism In Our Changing World, by Lily Cole (the former supermodel). If you need a retail investment guide, try Investing To Save The Planet by Alice Ross (a fellow FT journalist). Or if you know a student or young professional who is interested in finance but wants to improve the world, give them Seeking Virtue in Finance: Contributing To Society In A Conflicted Industry by JC de Swaan, an economics lecturer at Princeton University.

For more sophisticated analysis, read Sustainable Investing: A Path To A New Horizon, a collection of essays edited by Herman Bril, Georg Kell and Andreas Rasche (with a rousing introduction by Mark Carney); or another essay collection called Standing Up For A Sustainable World: Voices Of Change, edited by Claude Henry, Johan Rockström and Nicholas Stern.

On the topic of stakeholder ideals, take a look at Accountable: The Rise of Citizen Capitalism, by Michael O’Leary and Warren Valdmanis, or The Six New Rules Of Business: Creating Value In A Changing World by Judy Samuelson. Or to ponder green finance, read The Green Swan: Central Banking and Financial Stability In the Age Of Climate Change from the Banque de France. Irrespective of the provenance, this is an unusually punchy read.

However, one of our favourites — since it is admirably short and clear — is Impact: Reshaping Capitalism To Drive Real Change by Ronald Cohen. And we would be remiss if we did not salute another title that will be published next month and (happily) shares our name: Making Money Moral: How A New Wave of Visionaries Is Linking Purpose And Profit by Judith Rodin and Saadia Madsbjerg, formerly of the Rockefeller Foundation. Happy Reading. (Gillian Tett)

‘There will be fights’: investors demand say on climate shareholder votes

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Billionaire hedge fund manager Chris Hohn ended 2020 with a win when Moody’s became the first US company to embrace his “say on climate” proposal and hold a vote on environmental efforts at its 2021 annual general meeting at the end of December.

Also last month, Unilever said it would give investors an annual vote to approve or disapprove of the company’s progress on climate-related issues. The proposal, to be voted on in May, stemmed from Sir Christopher’s initiative. And As You Sow, a San Francisco non-profit that files shareholder petitions with investors, launched a “say on climate” proposal at US railroad Union Pacific too.

Such shareholder proposals pose increasing risk for companies in 2021. Not all companies will support the say on climate proposal, Mr Hohn said. “There will be fights. But we can win the votes.”

And the days of quiet engagement are over. While BlackRock has traditionally tried to engage with companies behind closed doors to prod changes in behaviour, it has said that this year it is considering supporting more shareholder proposals.

“Given the need for urgent action on many business relevant sustainability issues, we will be more likely to support a shareholder proposal without waiting to assess the effectiveness of engagement,” BlackRock said. “We see voting on shareholder proposals playing an increasingly important role in our stewardship efforts around sustainability.”

In 2020, investors had strong success with environmental shareholder proposals concerning the Sustainability Accounting Standards Board and Task Force on Climate-related Financial Disclosures as well as climate-change lobbying concerns.

This year, a “what have you done for me lately” attitude prevails. Companies will need to proceed with caution in trying to fend off shareholder proposals in this environment. (Patrick Temple-West)

Banks slam Trump administration’s Arctic lending freeze

US banks are pressuring the outgoing Trump administration to withdraw a proposal unveiled in November to stop banks from denying lending services to Arctic drilling projects and other controversial activities.

The Office of the Comptroller of the Currency, which issued the proposed rule, “does not have the statutory authority to pursue such a rulemaking,” the American Bankers Association said on Tuesday, adding that “the OCC seriously underestimated the cost burden the rule would impose upon covered banks”.

Such opposition from companies makes the path difficult for the OCC to finalise this rule. But with President Donald Trump and his allies, anything is possible. (Patrick Temple-West)

Litigation risk: the latest ESG threat facing companies

We write a lot in this newsletter about the risks of ignoring ESG, but one big issue has largely flown under the radar.

While it is important to understand financial risks, such as stranded assets or the threat of divestment campaigns, companies are also facing a growing likelihood that ESG failures can result in them being dragged into court.

A lot of ESG litigation is climate-centric, but there are an increasing number of cases being brought over social and governance issues — such as modern slavery in the supply chain or corporate reporting failures, writes law firm Latham and Watkins.

One such lawsuit, a child labour case brought against Nestlé and Cargill, was recently heard by the US Supreme Court — and depending on how it rules, there could be others to follow.

So what can companies do to protect themselves? The first thing they should do is educate themselves on the specific risks they face and dedicate the resources they need to monitor ESG issues at the board level, Latham and Watkins said.

It is also important that companies examine their supply chains and take extra care to ensure the ESG data they report is accurate.

This is particularly important for large multinationals, which are the “primary target of NGOs, activists, and similar organisations that are agitating for ESG-related claims,” Latham and Watkins said.

As more regulators and investors start requiring companies to disclose ESG data, it seems inevitable that these cases will increase. “Treat public disclosures in relation to ESG matters as seriously as those deployed in respect of financial disclosures, and adapt similar processes,” Latham and Watkins said.

Even if companies prevail in these lawsuits, simply being caught up in court can damage their reputation — and cost a lot of money. So the most important thing is to not open the door to potential litigation in the first place. But that may be easier said than done. (Billy Nauman)

Chart of the day

We would take a rather firm guess that the first thing you did this morning after rolling out of bed was brew a cup of coffee (pod system or Moka pot?). Mark Maslin, Professor of Earth System Science at University College London alongside PhD Candidate Carmen Nab, found that “changing how coffee is grown, transported and consumed can slash the crop’s carbon emissions by up to 77 per cent”.

Decarbonising your espresso could decrease its carbon footprint from 0.28kg per espresso shot to as little as 0.6kg, they said in a piece on The Conversation website. Better still, there is no effect on the pep in your step after consumption.

Tips from Tamami

Nikkei’s Tamami Shimizuishi helps you stay up to date on stories you may have missed from the eastern hemisphere.

As Japan and South Korea push forward with a controversial coal project in Vietnam, the two countries have decided to provide roughly $1.77bn in loans for the project despite strong opposition from international investors and environmental NGOs.

The Japan Bank for International Cooperation, a public export credit agency, announced it would join the financing framework and offer up to $636m for the Vung Ang 2 project. Other lenders include the Export-Import Bank of Korea and private financial institutions. The closely monitored decision was released at the end of 2020, when most investors and journalists had already left for the new year’s break — the most important annual holiday in Japanese society.

Japan and South Korea pledged to be carbon neutral by 2050 and decided to phase out overseas coal project financing last year, but they excluded existing or pending projects such as Vung Ang 2.

“This is a serious double standard that should be criticised,” said Ayumi Fukakusa, campaigner at Friends of the Earth Japan.

While JBIC’s press release didn’t list the names of co-financiers (it’s unusual for such an announcement, according to Ms Fukakusa), Japan’s top three banks also reportedly participated. Ms Fukakusa added: “They should disclose the details of loans, as a signatory of Task Force on Climate-related Financial Disclosures.”

The campaign to stop funding the Vung Ang 2 project is gaining momentum. Greta Thunberg, the world’s most famous teenage climate warrior, showed her “full support” for the effort, retweeting a video message produced by the group leading the charge.

A group of NGOs, including FoE Japan, has demanded big shareholders of Mitsubishi Corp, Japan’s leading trading house and an investor in the project, to engage and divest if necessary. Japan and South Korea’s “green” declaration in 2020 will face a real test in 2021.

Smart read

Unilever is about to begin consumer trials of a patented compound derived from seaweed that it says can create self-cleaning surfaces with applications from banknotes to odour-proof shoes, the FT’s Judith Evans writes. The technology prevents micro-organisms from forming so-called biofilms on surfaces by disrupting their communications systems.

Further Reading

  • Analysts expect as much as $500bn of green bonds in bumper 2021 (FT)

  • UK banks to launch wave of green products (FT)

  • Christine Lagarde expected to make ECB a climate change pioneer (FT)

  • ‘A Slap in the Face’: The Pandemic Disrupts Young Oil Careers (NYT)

  • Tesla director Hiro Mizuno picked as UN sustainable investment envoy (Nikkei)

  • There’s a simple way to green the economy — and it involves cash prizes for all (Guardian)

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