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ESG Round-up: ECB Board Member warns of costs to green transition

The latest developments in sustainable finance: Sweden asked to create green investment bank, HSBC to pledge climate targets for capital market activities.

A European Central Bank executive warned of “climateflation, fossilflation and greenflation” in a speech yesterday. Isabel Schnabel, a member of the bank’s executive board, addressed rising commodity prices on the back of the invasion of Ukraine, saying that “every solar panel installed, every hydropower plant built and every wind turbine added to the grid are taking us a step closer to energy independence and a greener economy”. However, she continued: “As we build a more sustainable economy, we face a new age of energy inflation with three distinct but interrelated shocks that can be expected to lead to a prolonged period of upside pressure on inflation.” Schnabel pointed to a rise in the cost of food because of droughts (climateflation); and a rise in the price of metals and minerals because of demand for green technologies (greenflation). She also noted that “the fight against climate change” has contributed to high energy costs. “Many institutional investors in financial markets have started to materially reduce their exposures to fossil fuel energy producers, leading to increased funding costs and contributing to the sluggish response of crude oil production in large parts of the world,” she said. “Overall, therefore, monetary policy cannot simply ignore the effects of the green transition if they threaten to jeopardise the achievement of our primary mandate of price stability… We will align our policies with the Paris objectives as quickly as possible, so that all the actions we take in the pursuit of our primary mandate will contribute to the greening of our economies and not undermine incentives to accelerate the green transition.”   

Canada’s second largest oil company, Imperial Oil, has “committed to working on strengthening its absolute greenhouse gas emissions targets” following pressure from union-focused pension provider Bâtirente and mutual fund manager Ferique. Imperial, which is 69 percent owned by Exxon, has committed to set mid-term targets to help its oilsands operations become Net Zero, as well as extending its climate goals to downstream activities. The shareholder engagement was undertaken on behalf of the two investors by Æquo – a specialist engagement house currently headed by Daniel Simard, former CEO of Bâtirente.   

Sweden’s Climate Policy Council – an independent group tasked with assessing whether government policies are aligned with climate goals – has called for the country to create a green investment bank. In its latest report, the Council said that such an institution would help direct expertise and channel finance to smaller projects and companies. “A specially focused investment bank for climate change would be in a position to adapt lending based on prevailing conditions and needs, and to ensure that the financing really complements, and does not replace private financing,” the authors said.   

ISS ESG has launched a series of “Net Zero solutions” which offer investors information on whether companies have published climate targets and strategies, and Net Zero modelling based on company-reported emissions data. The ESG arm of ISS has also updated its work tracking energy and extractives companies to assess their plans for green and fossil-based energies.  

The University of Nottingham has published a new database tracking corporate responses to alleged human rights abuse perpetrated by the Chinese government in the Xinjiang region. The resource currently documents the public responses of over 250 companies from around the world on the issue – including a large number from China. The publication comes ahead of new US law which will prohibit the import of goods from Xinjiang made by forced labour from this year onwards; the EU has indicated that it is considering a similair ban. 

HSBC has pledged to publish climate targets for its capital market activities, such as the underwriting of bonds, in Q4 of this year. The targets will be based on an upcoming accounting standard for capital market activities which is currently under development by PCAF, a banking initiative to measure and disclose emissions which are financed by loans and investments. HSBC recently came under fire for excluding capital market activities from its climate targets, even though such financing represents over half of overall general corporate purpose financing received by oil and gas companies since 2016.