Who’s in the COP 27 Club?
Plus, Util raises $6m investment round.
But first, news from home. Announced yesterday, Util closed a $6 million investment round led by Eldridge, with participation from the Luxembourg Stock Exchange, the Chicago Board Options Exchange, and founding investor Oxford Science Enterprises. Find out more.
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🚨 Who’s in the COP 27 Club? On the eve of the climate summit in Sharm el Sheikh, COP 26 net-zero pledges are back in the spotlight and their progress—or what little there is—under scrutiny. Most (93%) corporate commitments are on track to fail without more aggressive action, finds Accenture, though 59% will fall short even if they double their rate of progress. One of the bigger disappointments to come out of Glasgow was once its most promising coalition. Last week, GFANZ published its first annual progress report, in which it dropped the requirement that signatories align with UN-approved membership criteria. Effectively making emissions reduction voluntarily, the pivot comes after months of escalating pressure from members claiming that collective net-zero action violates anti-trust law.
🗳️ Let them all vote. One day after Vanguard unveiled a trial program providing new proxy voting rights to its retail clients, BlackRock announced plans to extend its ‘Voting Choice’ program to individual investors. BlackRock describes it a “revolution in shareholder democracy,” but handing proxy power to the people is, most likely, a pragmatic response to backlash against ESG and (what Matt Levine describes as) “the general idea that big asset managers should influence companies.” In any event, shareholder democracy is unlikely to move the needle on any major AGM issues, because dispersed voting doesn’t carry much weight. The mechanisms to hold companies to account “tend to rely on concentration and bigness” of the type afforded to the three biggest index-fund managers, each of whom is a top-five shareholder in most S&P 500 companies. Except, you know, antitrust.
🐘 When is antitrust not antitrust? When it’s anti-ESG, apparently. Republicans are amplifying their attacks on sustainable finance as the US midterms approach. “This is going to escalate,” warns West Virginia Treasurer Riley Moore. “We are going full throttle once we get into 2023. You’re really going to start to reach critical mass as it relates to AUM and capital that can be leveraged against the ESG movement.” Ostensibly, the concept of a uniform ‘critical mass’ of ‘capital leveraged against stuff’ is the very thing against which Republicans are reacting, which is confusing. Generally, however, the ‘anti-ESG is pro-finance’ argument is looking harder to justify in the face of mounting evidence to the contrary, including hundreds of millions in state interest payments in addition to the lost returns and overlooked risk.
🌡️ 2022 has been a “wasted year” for emissions reduction, declares the UN Environment Programme (UNEP) in its Emissions Gap Report 2022. The net-zero transition requires some $4–$6T of annual investment—particularly into critically underfunded developing countries—from a necessarily “coordinated and cooperative” financial system. To date, however, “financial actors have shown limited action on climate change mitigation.” Despite interest, finance flows are not finding their mark. Thanks to its focus on risk mitigation, traditional ESG investing may, in fact, be diverting capital away from in-need developing nations. Navigating the “narrow but achievable” path to net zero hinges, too, on policymakers stoking demand for renewables, reports the International Energy Agency in its World Energy Outlook 2022. Adds Util CEO Patrick Wood Uribe: “Innovation depends on capital (re)allocation, which, in turn, depends on top-down government action.”
There’s a new coal in Sharm el Sheikh
Delegates have yet to arrive, yet they’re already creating a headache for COP 27 sponsor Coca Cola.
The world’s largest non-alcoholic beverage company is also the world’s largest plastic polluter, as it has been for each of the last four years. (In 2021, Coca Cola only narrowly overtook COP 26 sponsor Unilever.) New research from the Ellen MacArthur Foundation finds its plastic use increased by 3.5% during that time. In 2021 alone, Coca Cola produced nearly 3M tonnes of plastic packaging and decreased reusable plastic packaging by 1.3% from the previous year.
Environmental groups are, unsurprisingly, unimpressed. “COP 27 is supposed to focus on solutions for fighting the catastrophic climate crisis,” declared Beyond Plastics: one of the groups urging the UN Climate Change Conference to drop Coca Cola. “Instead, we’re allowing it to be a stage for corporate greenwashing.”
Corporate pledges: What are they good for?
Defending their decision, event organisers cited Coca Cola’s efforts to reach net zero by 2050.
ESG ratings reinforce their faith. Just recently bumped up to an AAA-rating from MSCI, Coca Cola also receives credit from Sustainalytics for its “strong management” of ‘ESG material risk’. In fairness, being appointed sponsor of the world’s biggest climate conference certainly demonstrates ‘strong management’ of enterprise value in the face of reputational risk, regardless of whose responsibility it is.
By 2050, the same date at which Coca Cola directs its net-zero ambitions, the International Energy Agency (IEA) predicts plastics—which are made from fossil fuels—will drive nearly 50% of oil demand growth: more than aviation and shipping. At that point, finds the Centre for International Environmental Law, the cumulative greenhouse gas emissions from plastic could reach over 56 gigatons, or 10-13% of the entire remaining carbon budget.
For its own part, Coca Cola touts its reusable plastic target of 100% by 2025 as evidence of its commitment to the cause. Behind closed doors, its activities paint a different picture. In 2016, a leaked internal map of the company’s lobbying priorities showed that “collection and recycling targets” was one public policy on which Coca Cola planned to “fight back.” As well it might: Most recyclable plastic isn’t, actually, recyclable. Just 9% gets a shot at a second life, because there’s no cheap or realistic way to repurpose plastic at scale.
The “recycling myth,” reports Reuters, is an invention of the oil industry—organised under the lobbying banner The American Chemistry Council—for which plastic production is the new biggest growth market.
We’ve discussed this before. The narrative of ‘oil companies of today being the renewable leaders of tomorrow’ is simplistic, if not deceptive. The DNA of a fossil fuel company is to sell fossil fuels, not to generate low-cost energy. As the world shifts to new sources of energy—well, those fossil fuels need a new type of customer.
The next generation of climate colonialism
“The new coal” will, like its predecessors, have negative environmental impacts most keenly felt in the regions least responsible. Demand for plastics varies significantly between countries. The IEA finds 250kg of plastic is used per capita every year in the US, relative to 25kg in India.
For an event at which the gap between developed and developing nations takes centre stage, those statistics should give pause.
Coca Cola is a textbook example of why corporate pledges are no substitute for systems-wide scrutiny, particularly when they a) target a distant future that outpaces the average management tenure to the tune of some several decades, and b) overlook Scope 3 emissions. Plastic pollution is decimating biodiversity today, and, through its value chain, poses one of the greatest threats to the self-same emissions goals to which its biggest producers and consumers claim to strive.
The world may be weaning itself off fossil-fuel energy, but it doesn’t follow that fossil fuel companies are weaning themselves off the world. Coca Cola may have laudable reputational risk management and well-selected corporate sponsorship opportunities, but none negates its growing market share of negative environmental impact.
Util is not authorised or regulated by the Financial Conduct Authority. Please note that this newsletter does not constitute investment advice nor is it an invitation or an inducement to engage in investment activity. This newsletter is for informational purposes only and you should not construe any such information or other material as legal, tax, financial or other advice.