Investment managers are coming under increasing pressure to measure environmental, social and governance criteria in their portfolios. In recent days, a large number of banks, pension funds and insurers have committed to promoting climate-friendly investment at the United Nations Climate Action Summit in New York. But a lack of data is making it hard for banks to assess long-term risks and rewards, putting a brake on the market.
AI, whereby computers perform tasks traditionally done by humans, will act as a catalyst for sustainable investment because it will filter essential data that investors currently lack, according to the CEO of one ESG data and analytics firm.
- Artificial intelligence could play a major role in unearthing key data for investors seeking sustainable investments, but discerning unreliable information will be a key challenge, and humans will not be replaced any time soon, ESG experts say.
- TruValue Labs uses computing power to comb through data related to ESG information on 16,000 securities in real time.
- Jeroen Bos, head of specialized equity and responsible investing at NN Investment Partners Holdings N.V., said his firm is increasingly using machine learning, big data analysis and natural language processing, through which computers analyze speech, in ESG investing.
UN Climate Summit
Despite the fact that the US government pulled out of the 2015 Paris Agreement, the organizers of the UN event credited, in part, US corporations with taking the threats of climate change "seriously" and see assertions by US utilities that they are actively pursuing zero carbon emission programs into the future, as a justification for holding the summit.
- The United Nations launched its Climate Action Summit on Monday that is expected to promote a cut in coal-fired power generation while endorsing the use of renewables to help meet global power demand.
- The UN has said its goal for the summit is to bring forward what organizers have called "concrete plans and strategies" to bring about carbon neutrality by 2050.
- With representatives of 60 countries present, French President Emmanuel Macron on Monday said climate change must be looked at as an urgent problem, and even suggested that trade negotiations should be linked to commitments on emissions.
- Many US utilities and companies in recent weeks and months have been announcing zero-carbon-emissions plans.
EU Green Taxonomy
An EU classification system for sustainable investments will reduce confusion in the rapidly growing sustainability industry and will likely be adopted on a global scale, according to the head of a United Nations investor network.
A proposed new European Union green classification system would help investors and companies identify and make environmentally friendly decisions and may evolve over time to include rules for social and governance-related investments, experts explain on the latest episode of ESG Insider, an S&P Global podcast.LISTEN TO THE ESG PODCAST
A push from some U.S. lawmakers and presidential candidates to transition the U.S. entirely to renewable or zero-emission electric power poses a bigger challenge for some states than others. But proposals in Congress for utilities to gradually raise sales from renewable or carbon-free sources may offer a more measured path for states to boost clean generation, supporters say.
- Most states are far from obtaining all their power from emissions-free sources. Only 13 states had renewable and/or nuclear plants generate more than half their electricity during 2018.
- While a full transition to renewable or zero-emissions power may be far off, legislation in Congress to establish national clean energy standards could be more achievable in the near term.
Trading tags guaranteeing renewable or low-carbon properties could be a key way to secure the EU gas industry’s long-term future in a decarbonized energy system.
The EU will soon consider enshrining a 2050 netzero emissions goal into law, after the European Commission’s president-elect, Ursula von der Leyen, promised to propose this by early 2020.
A net-zero commitment is a step up from the current EU goal to cut emissions by at least 80% on 1990 levels. Von der Leyen promised to focus on decarbonizing energy demand from transport and buildings – both sectors where renewable and decarbonized gases could contribute to emission cuts.
- Setting up an EU-wide guarantees of origin (GO) system for such gases would be an efficient way to promote them, according to energy traders and gas industry representatives.
- The EU extended the legal framework for GO systems to cover gas, including hydrogen, when it updated its renewable energy directive last year.
- EU-funded pilot project CertifHy is trialing the first European GOs for green and low-carbon hydrogen.
In July 2018, an energy lobbyist emailed three New Mexico state lawmakers to urge them not to give utility companies a free pass to recoup their investments in abandoned coal-fired power plants.
Environmentalists were drafting a bill to shield utility shareholders from the cost of closing coal plants in the state, and Bruce Throne, a lawyer and, at the time, a lobbyist for power producer Southwest Generation Operating Company LLC, warned that ratepayers could pay a steep price if regulators were stripped of their authority to "balance the interests of [utility] customers and investors." Unswayed, lawmakers cleared the way for utilities to recover their coal investments by selling bonds that are paid off by ratepayers, a process known as securitization.
- The fight in New Mexico over how to finance coal-plant retirements highlights one of the biggest obstacles to quickly eliminating the fuel from the U.S. power system.
- Of the 50 largest U.S. coal plants by generation, only about a dozen are scheduled for retirement, some a decade or more in the future, according to CreditSights.
- Now, environmental groups are pushing policymakers for tools like securitization to help ease utilities' concerns about the cost of shuttering coal generators early.
Climate Change Lawsuits
At least 28 countries have seen lawsuits relating to climate change action as campaigners and investors try to force states to step up their battle against global warming and put pressure on big corporate greenhouse gas emitters, new research shows.
Climate-related litigation continued to expand across the globe over the past year, including in Europe, although more than three-quarters of the more than 1,300 cases recorded since 1990 have been filed in the United States, according to an analysis by researchers at the London School of Economics and Political Science, or LSE.
- In addition to pressing governments to strengthen climate action, litigants are increasingly starting to target the highest greenhouse gas-emitting companies, both to change corporate behavior and seek compensation for losses and damages.
- More and more investors and shareholders around the world are also pressuring corporations and investment funds to disclose and incorporate climate risk and implement adaptation measures.
- However, of all the lawsuits decided in the U.S. before 2016, more have resulted in rulings that hindered climate change efforts than enhanced them. Outside the U.S., the picture is reversed, with significantly more rulings in favor of stronger climate efforts.
EU Green Bond Standard
The green bond market will get a boost from new EU proposals to set standards for the fledgling debt instrument, but do not expect a sudden flurry of issuances just yet.
The proposed EU Green Bond Standard aims to provide investors with a framework for issuing green bonds — debt that finances environmentally friendly projects such as wind farms or solar power — and could make the market more mainstream, experts say.
- The EU is proposing the verification process be under the auspices of the European Securities and Markets Authority, which might take up to three years to establish. But Aho said she did not think that would hinder growth.
- The introduction of the standards will help gather data on green bonds and climate financing, something the market has been lacking, and that in turn should help spur issuance and create a "positive spiral."
- Other market watchers say the standards will give an impetus to strong underlining demand.