Bill Winters: Governments have failed on carbon markets

Hello from Davos, where the first day of discussions at the World Economic Forum has featured some eye-catching remarks on everything from the war in Ukraine to the worsening threat of global hunger and the push for higher standards in the carbon offset market.

Another hot topic among delegates we have been speaking to is the continuing storm around comments made by Stuart Kirk, HSBC Asset Management’s head of responsible investment, at last week’s Moral Money Summit Europe. Kirk has now been suspended pending an investigation into his speech, in which he poured cold water on concerns about climate risks, and claimed that central banks had deliberately designed climate stress tests to make banks “look sick”. HSBC executives have been keen to distances themselves from the remarks, but they have also added to doubts about just how committed their bank — and the financial sector as a whole — is to sustainability.

For the corporate bigwigs gathered in the Swiss mountains, the pressure is on to show that their talk of responsible business and stakeholder capitalism is more than just mealy words. Read on for more on the key takeaways from Monday — and on some important developments at the US Securities and Exchange Commission. (Simon Mundy)

Davos day one in brief

• Ukrainian president Volodymyr Zelensky called for a unique reconstruction model, in which individual countries, cities and companies would take leading roles in rebuilding specific cities and industries in Ukraine. The nation has suffered more than $500bn in losses from the war, Zelensky said.

• Saudi Aramco chief executive Amin Nasser said the energy shock from the war in Ukraine has shown the need for continued oil and gas investment. “The crisis is just indicating to us [that] you are running the whole world with not enough spare capacity,” Nasser told the FT.

• The global economy is facing perhaps its “biggest test since the second world war,” IMF head Kristalina Georgieva said, warning that the outlook had darkened since the IMF last month cut its 2022 growth forecast from 4.4 per cent to 3.6 per cent.

Debate over corporate and financial sector’s role in setting carbon offset standards

Together with former Bank of England governor Mark Carney, Standard Chartered chief executive Bill Winters has been a key driver of the Integrity Council for the Voluntary Carbon Market, an initiative aimed at creating standards for carbon offsets.

That market is under heavy scrutiny from critics who warn that the carbon impact of many offset projects is badly overstated, and that companies could use low-quality carbon credits to claim “net zero” status while continuing to heat the planet. Concerns have been raised, too, about how strong a role the corporate and financial sector plays in the standard-setting initiative.

But Winters told a Davos audience yesterday that without action on this front from the private and non-governmental sectors, there might be no progress at all. “The voluntary carbon markets only exist because governments have failed,” he said.

And despite some critics’ claims that corporate players might seek to tilt the development of the ICVCM’s standards in their own interests, Winters argued the group would do a better job than elected representatives. “Governments may or may not set the standards objectively. They’ve got political considerations,” he said. “We’ll set the standards, and they’ll be very high.”

There is growing interest in a rapid scale-up of carbon removal technology, such as the system developed by Switzerland-based Climeworks, which we profiled in a recent edition. But Winters argued it would take time to roll out that technology at scale, meaning there was a need for rapid investment in nature-based offset projects. “If we don’t solve the nature problem first, it doesn’t matter what technology we build — it will be too late,” he said. (Simon Mundy)

Millions knocking on famine’s door, as food crisis grows

Food systems to tackle the global crisis in agriculture will be given as much weight as energy conservation at the COP28 conference scheduled next year in the United Arab Emirates, a top official told the World Economic Forum yesterday.

Mariam Mohammed Saeed Al Mheiri, minister of climate change and the environment, called for leaders to give greater priority to the “food crisis”, stressing that the world would need 50 per cent more food by 2050.

She called for a sharp increase in innovation, the importance of keeping markets open to prevent famine and redoubled efforts to reduce meat consumption and food waste.

Her comments came at a time of growing concern over the widespread international repercussions from Russia’s war against Ukraine, which has restricted agricultural exports and fertilisers, and damaged infrastructure.

The failure to end Russia’s blockade of ships leaving the Ukrainian port of Odesa threatens widespread global starvation and migration, according to David Beasley, executive director of the World Food Programme. Up to 323mn people were “marching towards starvation” and 49mn people were “knocking on famine’s door” in 43 countries, he added.

“Every 1 per cent increase in hunger [leads to] a 2 per cent increase in migration,” Beasley said. “It’s a perfect storm within a perfect storm.”

Philip Isdor Mpango, vice-president of the United Republic of Tanzania, called for more investment — including from international financial institutions — in irrigation, rural roads, smart agriculture and efforts to tackle land ownership as a way to turn Africa into a net food exporter.

However, Beasley cautioned that money invested in Africa had not led to sufficient progress to date, and called on lenders “to be more strategic and effective” in how funds were used.

Erik Fyrwald, chief executive of Syngenta Crop Protection, said: “Agriculture has to be part of the solution to climate change.” He called for greater efforts to work with farmers on crop rotation, reduced tilling, adding carbon to the soil and other regenerative practices to increase yields while reducing greenhouse gas emissions.

He also highlighted how the Chinese government was working with farmers, food companies and consumers to support sustainable production across “the whole value chain” and provide information to purchasers seeking healthy food. (Andrew Jack)

Quote of the day

While some (including Saudi Aramco’s boss, as we noted above) are calling for new fossil fuel investments amid the energy crisis, International Energy Agency head Fatih Birol issued words of caution yesterday.

“My worry is that some people may well use Russia’s invasion of Ukraine as an excuse for a large-scale new wave of fossil fuel investments,” he said. “I worry about that for two reasons. It will forever close the door to reach our climate targets. [And] it may not be, as it seems now, a lucrative business.” 

Elsewhere in ESG: US cracks down on greenwashing

The US is often chided for moving too slowly on rules for sustainable investing. Europe, for example, has already required that asset managers publish their sustainable investing methods and categorise funds based on sustainability. The European parliament is expected to vote in July on a sustainable investing taxonomy.

But the US this week is taking a big step toward policing environmental, social and governance investing. The Securities and Exchange Commission on Monday fined BNY Mellon for allegedly misstating and misleading investors on ESG claims. Though the SEC’s penalty was just $15mn for a bank that earned $699mn in the first quarter, the case speaks volumes. Every investment house in the US will be scrambling to get on the phone with lawyers to see if they are vulnerable to similar SEC enforcement concerning ESG claims.

But the agency is not done yet. On Wednesday, the SEC will unveil proposed rules aimed at cleansing potential greenwashing from funds and investment advisers. These proposed rules include mandating funds require more information when they use “green,” “low carbon” or some other eco-friendly term. The agency is also looking at standardised ESG disclosures for investment advisers.

When viewed in tandem with the big SEC’s climate disclosure rules for companies, these proposed rules for the investment management universe show the US is suddenly serious about regulating greenwashing. (Patrick Temple-West)

Smart read

• Australia is set to become less of an outlier on climate change among rich-world countries. After years of Scott Morrison’s pro-coal policies, Labor’s strong election showing over the weekend could halt new gas and coal projects in the country.