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Responsible Resolutions: This is the latest article in a series from sustainable finance practitioners about their hopes for the New Year.
At the end of 2019, the United Nations Environment Programme summarized the state of play on climate in its 10th annual Emissions Gap report. The report reiterated what the IPCC's special report on Global Warming of 1.5C set out over a year prior – the world is in urgent need of a "dramatic strengthening" of national climate policy contributions. This call for urgent policy action mirrors the demands of global protest movements that filled the months between these reports.
But what are the implications for this call for policy action for the financial world? Two trends are worth keeping an eye on as we enter the 2020s.
Firstly, mainstream investor-corporate engagement will be under pressure to undergo a radical transformation. In the last two years, investor focus has already started shifting from operational carbon emissions, corporate disclosure, and CDP scores towards more robust interrogation of company business models, energy transition readiness, and importantly, corporate influence over climate policy globally.
Secondly, the drive to create legally binding frameworks for the financial sector itself on climate and other critical sustainability issues will continue to accelerate. We saw progress here too in 2019, with agreements on key legislative pieces of the EU’s sustainable finance package already in place.
Analysing influence over critical policy streams
InfluenceMap has been tracking corporate lobbying by industrial companies on climate policy for almost five years, working with numerous global investors, including as a data partner for the CA100+ process. In 2020, we will be rolling out a similar methodology to assess the finance sector’s engagement with important sustainable finance policy streams.
As an initial output from this new research stream, InfluenceMap released a report in December 2019, – ‘The EU’s Sustainable Finance Taxonomy’ – which assessed how 50 of the world’s largest financial groups and 22 European trade groups had engaged with the development of the EU’s Taxonomy for Sustainable Activities, a centerpiece of the bloc’s sustainable finance package. This research delivered two key findings which might serve as the basis of resolutions for the new year:
Aligning top-line company statements with industry association lobbying
Of the financial groups analyzed in the research, only a small group led by Aviva, Groupe BPCE, and BNP Paribas appear to have actively and transparently supported a progressive taxonomy. Many more, however, were found to have issued positive, top-line statements on the taxonomy but had not translated these positions into active engagements with policymakers or were not transparent about this engagement.
Despite this, 49 out of the 50 financial groups analyzed retained memberships to financial-sector trade associations that favored a weaker or scaled-back approach to the taxonomy. These associations took highly conservative positions on the scope and implementation timeline for the taxonomy, pushed back on the need for a stringent and science-based classification system, and advocated more flexible definitions of sustainability.
This seeming lack of alignment between top-line statements and the detailed lobbying positions of membership organizations has also been highlighted in our analysis of corporate engagement on climate change policy.
This misalignment is especially apparent in the activities of powerful industry associations, such as the US Chamber of Commerce, the Minerals Council of Australia, BusinessEurope and the Japan Business Federation (Keidanren). These industry associations have continued to oppose critical climate legislation since the Paris Agreement in 2015, seemingly at the behest of their most regressive members while keeping the details of these relationships hidden from public or investor scrutiny.
In 2020, investors will likely step up the fight against poor corporate climate lobbying governance to crack down on such practices. At the same time, it is vital that the financial sector walk the talk and ensure their trade associations align their lobbying with companies’ sustainability values.
Tipping the balance away from the forces blocking, delaying and diluting policy action
Our analysis of corporate climate lobbying finds a battle between a few companies fighting for meaningful, science-based policy to tackle the climate crises against a block of vested interests from the fossil fuel value chain seeking to water-down, delay, or halt much-needed legislation.
InfluenceMap’s new research on the EU Taxonomy for Sustainable Activities found the same players representing the fossil fuel economy intervening on this new front, with particularly strong engagement coming from oil and gas sector industry associations.
The alignment found between certain financial trade associations and the oil and gas lobby was concerning. In their comments on the technical details of the taxonomy, both the Association for Financial Markets in Europe (AFME) and the European Banking Federation (EBF) aligned with the fossil fuel industry to push for weaker GHG emission thresholds for electricity production to ensure the inclusion of natural gas under a "green" taxonomy.
In other cases, however, the negative lobbying positions of industry were in direct conflict with requests from the financial sector. For example, EuropeanIssuers and BusinessEurope opposed corporate disclosure of revenue associated with taxonomy-eligible activities, an important request from the asset management industry.
Separately in the US, it is unsurprising to see the National Association of Manufacturers, an organization which has regularly opposed critical US climate policy including the US Clean Power Plan, pushing for changes to SEC’s proxy rules which would weaken institutional investor power to hold companies to account over their impact on climate change.
Against the backdrop of increasingly dramatic environmental disasters, fence-sitting on policy action will not be an option in the next decade.
Unless the scales of influence are tipped away from those diluting or delaying policy, delivering on the goals of the Paris Agreement – or tackling other critical sustainability issues – will be impossible. For this to work, 2020 will need to be the year the finance sector and its trade associations provide policymakers with their proactive, unequivocal support for progressive policy action.
Edward Collins is Director of InfluenceMap’s Corporate Lobbying and Influence research programme.
Rebecca Vaughan is InfluenceMap’s lead analyst on sustainable finance policy lobbying.