Why Washington gridlock spells trouble for COP26

Greetings from New York where the autumn skies are sunny, but the mood around US politics and climate change battles is looking rather dark ahead of the COP26 talks. In recent days Joe Manchin, the West Virginia senator, has been effectively holding the Democrats hostage over their purported $3.5tn spending bill.

Manchin’s threat to veto part of the bill’s measures to fight climate change means that President Joe Biden (and his entourage of 13 cabinet members) may end up in Glasgow with scant evidence of US leadership in the climate battle. In that case, it is unlikely that the Chinese will offer much (if anything), or that the EU will be keen to jump in — let alone the emerging markets.

The White House is frantically seeking to make amends. See our note below about one memo on climate change and financial stability, which matters for the mortgage and municipal bond world. The British are scrambling to create more momentum: yesterday, UK chancellor Rishi Sunak announced new standards to limit “greenwashing”, as part of a set of green finance safeguards ahead of the Budget release.

But will these be enough in the face of Washington gridlock? Read on. And if you need some distraction, education — or reason for cheer — check out the Financial Times’s new set of “Expert Series” videos (aka masterclass-style ESG talks) from luminaries such as Leo Strine, Mary Schapiro, Lily Cole and Paul Polman. — Kristen Talman and Gillian Tett

Can Fannie and Freddie weather climate risk?

As President Joe Biden’s climate plans hit roadblocks in Congress, the White House made a frantic attempt to show it is pressing ahead with efforts to fight climate change. Last Friday the administration unveiled a first step in its road map to “build an economy resilient to climate change impacts” — to cite the official report.

One important but overlooked detail of the report is that the White House wants financiers handling single-family mortgages, including federal lenders Fannie Mae and Freddie Mac, to factor in climate risk.

The Department of Housing and Urban Development will “begin identifying options to incorporate climate-related considerations into the origination of single-family mortgages” the White House report said.

Can the industry cope? Analysts at Fannie and Freddie are drawing up plans to measure these risks more accurately. However, “the mortgage market is unprepared to tackle climate change”, as Sean Becketti, former vice-president and head of portfolio analytics at Freddie Mac, wrote in a recent Mortgage Bankers Association report. “The efforts to quantify the risks will need to be improved,” he added.

The report sets out that climate change may increase mortgage default and prepayment risks, make house prices more volatile and expose lenders to a host of policy, market and reputational risks.

City and state issuers are at risk as well. About a quarter of all US infrastructure is at risk of serious flooding, our colleague Katie Duguid, reported earlier this week, a finding that will impact the creditworthiness of the $4tn municipal bond market. (Kristen Talman)

Can cleantech crack cement’s carbon problem?

The air travel and agriculture industries are regularly pointed to as villains of the climate crisis, but a sector with an even more significant source of CO2 emissions is right below our feet.

Cement production contributes to 8 per cent of all global CO2 emissions. That’s more than most countries’ total CO2 output, according to think-tank Chatham House, and more than double the emissions from the airline industry.

But there are signs change is coming. Last week, the Global Cement and Concrete Association announced a road map to achieve net zero emissions in the sector, with the backing of some of the world’s largest cement companies including Cemex and HeidelbergCement. Delivering on this pledge will be extremely difficult as CO2 production is integral to the very process of creating cement, an ingredient in the production of concrete. But the decarbonisation of the industry is attracting attention — and dollars.

“Decarbonising concrete provides a really big business opportunity,” Beth Heider, chief executive at Heider Sustainability Advisors told Moral Money.

Venture capitalists are among those who have opened their eyes to the opportunity.

Heimdal, a start-up focused on creating carbon-negative cement and glass, just closed its seed funding round with $9.7m in investment from the likes of former Reddit chief executive Yishan Wong and tech giant Marc Benioff.

“Five years ago, no one wanted to talk about ‘green’ or ‘climate’,” said Mike Miller, a partner at Liquid2 Ventures, a venture capital company that has invested in Heimdal. “That has radically changed . . . Now, we’re getting squeezed out of deals.” 

Governments are also putting pressure on the industry to clean up its operations. In Honolulu, Hawaii, city projects “must consider using concrete that stores CO2”. In Sweden, Cementa, the country’s largest limestone producer, was forced to halt its entire limestone production as the nation’s courts suspended its mining licence this summer, citing environmental reasons.

The odds of the concrete industry achieving net zero will grow alongside the rise of clean technology. Cleantech investment reached $32.6bn in 2021 according to PitchBook Data.

“Concrete isn’t a climate villain, it’s the old-fashioned way we have designed, sourced, and placed it that’s the problem,” said Heider. “The race is on for solutions that deliver net-zero concrete.” (Kristen Talman)

Banque Postale’s fossil fuel pledge prompts activists to get aggressive

La Banque Postale, the Paris-based lender and subsidiary of the national postal service, pledged last week to completely withdraw from oil and gas financing by the end of this decade. To bulletproof this promise, the bank’s commitments were validated by the Science Based Targets initiative, a top standards-setter for corporate climate pledges.

The announcement was cheered by environmentalists. Reclaim Finance, a Paris-based environmental group, called it “a crossing of the Rubicon”, as French banks have often struggled to make progress on combating global warming.

Earlier this year, BNP Paribas was called out for a big jump in its funding to fossil fuel companies. BNP and Crédit Agricole restrict some unconventional oil-and-gas financing, but both banks continue to do business with big polluters.

As a regional lender, Banque Postale has flexibility to take a strong position against oil and gas that international French financial companies do not, Lucie Pinson, Reclaim Finance’s executive director, told Moral Money. But she said the announcement should prompt the other French financial groups, such as insurance company AXA, to at least stop entering new oil-and-gas projects as the International Energy Agency has said must happen to slow global warming.

AXA is among the 10 principal insurers for the oil and gas industry, said Alexandre Poidatz with Oxfam France. “It is no longer conceivable [for AXA] to be the leader of the Net Zero Insurance Alliance while continuing to insure new climate-destroying projects in every corner of the world,” he said. (Patrick Temple-West)

Tips from Tamami

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

China’s lingering energy crisis has prompted growing concern that the world’s largest emitter will backtrack on its climate goals and revive its reliance on coal.

Some China energy experts, however, say the crisis will actually support the country’s green transition.

The surge in fossil fuel prices will make renewables more cost-competitive, said Xunpeng Shi, the principal research fellow at University of Technology Sydney’s Australia-China Relations Institute. This will accelerate the development of renewables, while coal and natural gas suffer from supply shortages and price volatility.

And there is reason to believe that the current spike in coal usage is “temporary”, according to Jiyang Wang, senior researcher at Tokyo-based Renewable Energy Institute.

“As the Chinese government has already installed measures to curb coal consumption, the current crisis won’t affect the country’s mid- and long-term goals in decarbonisation,” he added.

Some have interpreted Beijing’s new policy directives, which allow coal-fired power utilities to charge customers higher prices and an order for mines to boost production, as China renewing its commitment to coal, but David Fishman, manager at the Lantau Group, disagrees.

“I do believe that focusing on the short-term effects of the power pricing relief for coal generators neglects the long-term implications of the rest of the reform package,” Fishman said.

Fishman argued that the policy reform lays the groundwork for the “invisible hand of the market” to guide investment and power consumption behaviour. “As long as coal is expensive or viewed as potentially volatile and unreliable, then that hand is steering away from coal,” he said.

“China’s energy crisis highlights a common challenge during the energy transition: maintaining a reliable and affordable energy supply,” Shi of the University of Technology Sydney, said, reminding us of the importance of transition finance. The crisis suggests that China needs a new power system to support its energy transitions, and it will create “new investment opportunities” for overseas investors, he said.

Chart of the day

As companies transition towards net zero, BoardReady, a boardroom research advisory, analysed 159 global companies to see if board diversity could drive corporate action on climate change. Companies with more gender diversity were more likely to show stronger performance in eight of nine climate disclosure indicators.

Smart read

• To international human rights and democracy groups, Bangladesh’s long-serving prime minister Sheikh Hasina is cause for concern. Her most recent general election victory was marred by severe and widespread allegations of voter intimidation and vote rigging by her Awami League party. She has rejected all such claims, but Freedom House warns that her party “has consolidated political power through sustained harassment of the opposition and . . . critical media and voices in civil society”.

  When it comes to climate change, however, Sheikh Hasina is one of the most high-profile spokespersons for the interests of the developing world. This week in the FT, she outlined her hopes for COP26, highlighting the urgent need for rich nations to support developing countries’ green development efforts. Her critics will hope she can apply similar enthusiasm to strengthening democracy and civil liberties in Bangladesh.

COP Watch

The UN’s COP26 conference convenes in early November. As we look ahead to this highly anticipated event in Glasgow, here are some reports we’re reading.

• The London Stock Exchange yesterday announced a partnership with Transition Pathway Initiative’s Global Climate Transition Centre, which will track 10,000 companies’ decarbonisation efforts. Set to launch in early 2022, the centre will aim to support the growth of sustainable finance in the wake of COP26.

• Boardroom directors for companies incorporated in Delaware could face legal trouble for failing to consider climate change, according to a new analysis from the Commonwealth Climate and Law Initiative in London.

Recommended reading

• UK selects two carbon capture schemes for fast track (FT)

• Amazon, Ikea and Unilever commit to zero-emission shipping by 2040 (FT)

• ‘We are on a war on combating greenwashing,’ says climate tech entrepreneur (CNBC)

• One taxonomy to rule them all? Investors face myriad of green investing rules (Reuters)

• A recipe for fighting climate change and feeding the world (Washington Post)