Weekly News | 24th to 30th April 2022

Codo Advisory keeps an eye for you on the latest events and trends in climate finance and corporate sustainability, in the world and in Japan. Here’s what caught our attention last week.

World | The largest global finance coalition for climate will now push for transition plans

• The Glasgow Financial Alliance for Net Zero (GFANZ), founded by former Bank of England governor Mark Carney, was founded one year ago. Gathering finance industry’s giants such as BlackRock, JP Morgan Chase and HSBC, the $130 trillion organization now plans to further expand in Asia, where coal finance supporters are based.
• The coalition’s objective was first to obtain from financial organizations their commitment to net-zero targets. Next, it plans to support members’ operationalization of these goals into proper transition plans, reports Carney to Bloomberg. When asked about the accountability of its members, and facing increased pressure from campaigners, he replies that the alliance is not an enforcement agency, but that its contribution is to improve consistency.
• For Carney, finance is a critical catalyst in transitioning toward a green economy, but he wishes that these evolutions are backed soon by “clearer and more predictable” policy mixes.

Comment from Codo: Several major Japanese financial institutions are members of the GFANZ. As in other countries, we now need to see how members apply the GFANZ principles and recommendations into their actual strategies, and operations. A key indicator will be the reality of transition plans, backing net-zero goals that remain virtual so far.

World | Biodiversity financial foundation call for better governance of carbon markets

• While voluntary carbon markets are contributing to the public purpose of transition toward decarbonized economies, their design, mostly relying on too weak pricing mechanisms, often fail to align the competing interests towards this ultimate goal, warns Finance for Biodiversity, a foundation gathering 45 financial institutions.
• According to environment economists, to be deterrent enough, a ton of carbon must be priced at least at $100. Current prices in carbon credit markets are $85 in Europe and $31 in California (mandatory compliance markets), and $5 in the Aviation Industry and $4.5 in the Tech Industry (voluntary carbon markets).

Comment from Codo: Japan doesn’t have a carbon market yet. It was however the first Asian country to implement a carbon tax, in 2012; the aim of this tax was to “reduce 80% of Japan’s greenhouse gases emissions by 2050”. But the amount of this tax, around $3 – one of the lowest in the OECD and G20 – makes it virtually inexistent.

Europe/US | Skyrocketing emissions of green bonds, led by Europe and the US

• Green bonds, together with other sustainability and transition financing debt, rose by more than 55% compared to the previous year, reaching $1.1 trillion, according to Climate Bonds’ calculations. Europe was the biggest emitter of green bonds (total $758 billion), and the U.S. (81.9bn) remained world’s leader at the country level.
• As we are facing life-threatening climate-change, labelled debt markets are powerful tools to scale up the massive investments we desperately need. This expanding market must be supported by adequate policy mix, taxonomies, and reporting practices.
• Read more about this story: Banking Exchange

Europe | Decarbonization to become a key factor in monetary policy making, says the ECB

• Around the world, central bankers are aware of the dangerous inflationary trends (7% in Europe and China, 4% in the US) in the energy sector and are now pushing to reduce investments in fossil fuel-related activities.
• Last week, the European Central Bank’s President emphasized at the IMF the “strong need to accelerate the energy transition” in the face of sharply rising prices. The ECB said that decarbonization, driven by Europe and receiving increasing support from the ECB itself, should not be ignored when making monetary policy.
• To this day, the Bank of Japan only created a dedicated fund to help financial institutions investing into climate-related national initiatives,
• Read more on this story : Nikkei, Politico

US | Comforted by lenient shareholders, big US banks keep resisting climate proposals

• Bank of America, Citigroup and Wells Fargo recently turned down petitions from climate-sensitive investors who were asking them to part from fossil-fuel projects.
• Supporters of the climate proposals (13%) where mostly US pension funds but was disappointingly lacking the support from the Pension Fund of Norway, BlackRock and Vanguard, who are usually very vocal on actions for greening the financial sector and their very own climate pledges.
• Bank of America chief executive said that in the end, the responsibility is on clients’ side, who have to deal with “their transition”. Citigroup head points out that it is impossible to change the fossil fuel economy “overnight”, reports the Financial Times.
• Read more about this story: Vox

Comment from Codo: In Japan, the first climate resolution was submitted by NGOs Kiko Network (Japan) and Markets Forces (Australia) in 2020, who targeted Mizuho bank. It gathered 34.5% of supporting votes – more than was the activist shareholders expected. In 2022, similar efforts continue, targeting Sumitomo Mitsui Financial Group.

UK | Transition Plan Taskforce to support disclosure of corporate climate information

• The British economic and finance ministry launched a Transition Plan Taskforce, with the aims of standardizing disclosure of companies’ climate transition plans and to develop transition benchmarks to fight greenwashing.
• The UK aims at becoming a global hub for green finance: after the introduction last year of an outline for Sustainability Disclosure Requirements (SDR), it was announced that disclosure would become mandatory for UK financial institutions and listed companies.
• The Transition Plan Taskforce will base its work on existing frameworks, such as TCFD, GFANZ and ISSB.
• Read more on this story : FT Adviser, Business Green

China | Overtaking the U.S., China built the world’s second biggest climate funds market

• Last year, Chinese climate funds market doubled up to $47 billion, as regulation is becoming progressively stricter and domestic demand bigger, as reports a sustainability researcher to Environmental Finance. China is now second after Europe ($325 billion).
• This growing trend is global, as climate-related funds’ mandate (to exclude support to fossil fuel related activities) allows them to expand their range of activities. More than passively investing into low-carbon enterprises, climate-sensitive investors are also looking for diversified climates solutions-based investment strategies.
• A key difference of the Chinese market is that it is much more targeted at domestic industries (solar, wind, electric vehicles). It is worth noticing that China is a bit of an outlier in a region where only South Korea is growing its markets, while further innovations are already looming in the field.