One thing to start: president-elect Joe Biden named Gina McCarthy, currently a member of the board at the environmental advocacy group Ceres, to be domestic climate tsar. Renewables advocate Jennifer Granholm was named to head the energy department (check out the FT’s coverage of the duo here). Mr Biden has also named North Carolina regulator Michael Regan to lead the Environmental Protection Agency. Stand by for some green reforms.
Today we have:
BP bets on demand for carbon indulgences
Trump’s anti-ESG plan is a hit with private prisons
Stakeholder capitalism — does it actually work?
BP puts down roots in carbon credit market
Since taking the reins of BP in February, Bernard Looney has told anyone who will listen about how he sees sustainability and clean energy as keys to the company’s future success. Markets and environmentalists have been sceptical, to say the least. (Anyone who remembers “Beyond Petroleum” knows how quickly these efforts can fizzle out).
But in recent weeks, the company has started pouring money into some big projects that could help cut its carbon footprint and transition away from fossil fuels.
In November, BP teamed up with Orsted on a green hydrogen project in Germany. It is a big deal because the gas is seen as one of the only low-carbon energy choices for industries (such as steel or shipping) that do not have an easy way to operate without fossil fuels.
And this week, BP bought a majority stake in Finite Carbon, a US company that creates carbon credits by paying landowners to plant trees or refrain from cutting down trees. With BP’s backing, Finite Carbon plans to double in size by 2030.
The Finite Carbon deal caught our attention because it is not just about BP hitting its own net zero goals. The fact that the deal was made through BP’s “launchpad” incubator programme indicates that it sees companies looking to buy these credits to cancel out their emissions as a lucrative new planet-friendly income stream.
However, the timing could have been better. Just as BP went public with the acquisition, Bloomberg published a pair of damning articles questioning the legitimacy of carbon offsets. According to Bloomberg, many carbon offsets being sold today are meaningless — either because they take credit for planting trees that were going to be planted anyway or because they claim to protect forests that were never in danger.
While neither article mentioned Finite Carbon, it could be a significant blow — not to mention bad news for BP — if companies and investors lose faith in carbon credits and stop buying them altogether.
A more likely outcome, however, given the central role these credits play in so many corporate climate plans, is that companies buying offsets will face pressure to demand better verification. Regulators may also have to step in.
Either scenario could work to BP’s advantage.
If buyers get more serious about their due diligence, authentic offset providers should be able to charge a premium. And if regulators drop the hammer on sham offset companies, that would help the real ones seize market share. Assuming Finite Carbon’s offsets are the real deal, this would be music to BP’s ears.
Even if things remain status quo and companies (which were never actually that serious about climate change) keep their heads in the sand and just keep buying any and all offsets they can, it is hard to see how BP loses on this deal.
With BP’s stock jumping 1 per cent the day the deal was announced, it looks like markets may not think BP’s clean energy strategy is so, erm, “Looney” after all. (Billy Nauman)
Sin stocks cheer Trump’s bank lending gambit
In 2019, JPMorgan Chase, PNC and other banks announced they would no longer do business with private prison operators — a sector dominated by two companies: GEO Group and CoreCivic. Both groups have been associated with President Donald Trump’s controversial immigration policies.
The move followed that of more liberal-leaning pension funds that had already jettisoned private prison holdings. MSCI ESG indices, for example, exclude for-profit prison companies in addition to tobacco, munitions, palm oil and other controversial businesses.
Shunned by financial institutions, these so-called sin stock companies can face challenges accessing capital. GEO Group and CoreCivic this year converted to corporations to shore up their balance sheets.
In its waning days, the Trump administration is still pushing to thwart ESG momentum. In November, the Office of the Comptroller of the Currency proposed a rule that would require banks to offer financing services equitably based on impartial risk analysis — rather than pressure from liberal-leaning activists.
GEO Group applauded the new proposal in a letter to the OCC this month. Just as banks are prohibited from “redlining” — denying mortgages to minorities in certain neighbourhoods — financial institutions should not be allowed to discriminate against private prisons, the group wrote.
It is inconceivable that banks would reject GEO based on its credit quality, the group said, since the company has prison contracts with the federal government. Instead, “it is succumbing to ongoing political pressure, not a sudden lack of experience, that is leading banks to drop their longstanding relations”.
Even if the OCC can finalise the proposal before Mr Biden’s inauguration, bank lobbying groups might try to kill the rule. Regardless, banks are certain to be caught in the middle of a moral authority fight going well into 2021. (Patrick Temple-West)
Stakeholder capitalism . . . but how?
A few months ago Lucian Bebchuk, the James Barr Ames professor of law, economics, and finance at Harvard Law School — and a longstanding sceptic about ESG — produced research that should give sustainability evangelists pause for thought.
He and a colleague asked a few dozen of the big companies who had signed the Business Roundtable’s stakeholder letter in 2019 if their chief executives had bothered to consult board members before penning their names. The response? As he told a lively debate last week co-hosted by London Business School and Harvard Law School, a mere 2 per cent asked the board. Is that because companies were already backing stakeholder ideas? Or chief executives do not care about the board? Or they just regard stakeholderism as an empty PR gesture without strategic significance?
Mr Bebchuk presented strong arguments in favour of the latter, insisting that stakeholderism was misguided and reflected “ill-defined purpose”.
“I may be viewed as cynical to stakeholder capitalism, but I am more sceptical. I’m a big fan of stakeholders, I just don’t think stakeholderism is the way forward,” Mr Bebchuk told the audience of more than 800 virtual listeners last week. “The more effective way [to protect stakeholders] is to adopt laws, regulation and governmental policies.”
Alex Edmans, professor of finance and academic director at London Business School, took the other side, arguing that stakeholderism can both work for stakeholders and increase shareholder wealth. Ignoring ESG values is likely to damage a company, he insisted.
The debate clearly arouses strong feelings, judging from the frenzy of questions that the discussion unleashed. It could be a preview of what’s to come in 2021. (Kristen Talman)
UK Treasury: climate action presents opportunities, risks
The UK is pushing ahead with climate change mitigation plans as it prepares to preside over the G7 in 2021 and host the next UN climate change conference.
In an interim report on climate change action published on Thursday, the Treasury said the cost of the transition to net zero carbon emissions by 2050 will probably be small. Still, there are concerns about “carbon leakage” — where policy changes to lower emissions in one area inadvertently increase emissions elsewhere.
In its global leadership roles in 2021, “the UK is determined to use these opportunities to encourage ambitious international climate action and reduce global emissions”, the report said. “Collective action to reduce global emissions worldwide helps to reduce the risk of carbon leakage globally.”
ICE TO HOST UK CARBON TRADING FROM NEXT YEAR
As part of its interim report on achieving net zero emissions, the Treasury highlighted carbon trading and said the UK introduce a domestic emissions trading scheme after Brexit. On Thursday, Intercontinental Exchange confirmed it will be the venue for UK carbon allowances to start trading in 2021, the FT’s David Sheppard reported.
Grit in the oyster
Between April and September, one of the most tumultuous economic stretches in modern history, 45 of the 50 most valuable publicly traded US companies turned a profit, the Washington Post said in an article on Wednesday.
But despite their success, at least 27 of the 50 largest companies announced lay-offs this year, collectively cutting more than 100,000 workers, The Post found.
Chart of the day
Is the world turning the corner on climate change? Last weekend’s virtual climate summit shows cause for optimism. Global temperatures are still rising, but the “warming trajectory” is getting better, and scientists say the goals of the Paris climate accord may actually be in reach. (FT)
Finance chiefs face pressure to get to grips with sustainability (FT)
Trump’s grandstanding in the Arctic (FT Energy Source)
Valuing grandchildren (Investors Chronicle)
Covid-19 has posed new challenges to the world’s waste-pickers (The Economist)
Why no one is impressed with Exxon’s emissions pledge (FT Energy Source)
Why Going Green Saves Bond Borrowers Money (WSJ)
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