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RI ESG Briefing, August 1: ClientEarth comes out on top in legal fight over investment risk of Polish coal plant

The latest ESG market developments

Environmental

Permission to build a major Polish coal plant has been deemed legally invalid by a District Court following a lawsuit brought by ClientEarth. The London-based law firm became a shareholder in Enea – one of the two companies behind the €1.2bn, 1GW coal-fired power plant, known as Ostrołęka C – and brought a case arguing that the project was unjustifiably risky for shareholders, because of rising carbon prices and the uncompetitiveness of coal. When the plant was originally planned, the EU carbon price was less than €6 per tonne, but it’s rocketed to nearly €30 per tonne since. “The plant is a stranded asset in the making, facing clear and well-documented financial risks,” said ClientEarth lawyer Peter Barnett. “This should prompt a major rethink by the companies and their boards, and could spell the end for the costly project, which still lacks over PLN3bn,” the lawfirm said in a statement.
The Chilean government is currently reviewing a proposal to shift investments within the country’s $14bn Economic Stability Fund and $10bn Pension Reserves Fund to more sustainable assets according to a Bloomberg report. The review began in May. Chile is hosting this years climate summit, COP25, in December.
Market Forces, an investor pressure group, will continue with a planned shareholder resolution requesting Australian insurance group Suncorp to set targets for phasing out exposure to fossil fuels despite Suncorp recently announcing its forthcoming exit from thermal coal. A Market Forces spokesperson said: “While Suncorp’s progress on thermal coal is exciting, the fossil-fuel sector is far broader and without action on oil & gas, there is a risk that Suncorp ends up trading one massive climate risk for another over time.”
ASEAN, the regional grouping of Southeast Asian countries, has published the Guidelines on Responsible Investment in Food, Agriculture and Forestry to address the risks of badly executed “private sector investments”. These include “perpetuating or creating even deeper levels of inequality” – particularly among smallholder farmers and indigenous peoples – and “the exploitation and depletion of precious natural resources”.
Dutch pensions asset manager PGGM has upped its stake in the Walney wind farm after acquiring 9.9% interest from investment manager DIF’s Ampère Equity fund. This brings PGGM’s total ownership to 24.8%. Walney – the world’s largest wind farm – is operated by Danish renewable energy provider Ørsted (formerly DONG) and is located in the Irish sea.CDP, the investor-backed environmental data NGO, expects the steel sector to fall short in delivering the emissions reduction required to limit global warming to 2 degrees by 2050. According to recent analysis of the world’s largest 20 steel companies, CDP estimates that corporate commitments add up to less than 50% emissions reduction across the board, some way off the 65% targeted for the sector. In addition, elevated carbon prices of $100 per metric tonne is expected to result in an average value at risk of 14% for the 20 companies.
Separately, a CDP report on deforestation finds that 70% of 1,500 companies with a high impact on forests fail to report deforestation data. Additionally, over 350 companies have declined to report this information for the past three years. The report finds that transparency on deforestation lags behind other environmental issues such as climate change or water security.

Social

The Interfaith Center on Corporate Responsibility (ICCR) has released its annual report reviewing its areas of focus within the past year. This includes investor engagement with private prisons over current US “zero tolerance” immigration policies, extracting corporate commitments to outlaw exploitative recruitment practices and addressing methane-related risks which is a by-product in the natural gas sector.
Nuveen, Neuberger Berman and PIMCO were among buyers of a $100m bond for social impact issued by non-profit Low Income Investment Fund. The deal was LIIF’s first, and was more than 10x oversubscribed. Proceeds will target “community development projects” and its framework is aligned with the SDGs. The bond has a second-party review from Sustainalytics.

Governance

Trustees of UK-based pension funds will now be required to tender out all fiduciary management contracts and set specific objectives before retaining investment consultants under newly-introduced regulations to be policed by The Pensions Regulator (TPR). Local authority pension schemes, however, are exempt, as they do not have any trustees and are regulated by a separate government agency.
Australia’s Sustainable Finance Initiative (ASFI) has opened its first consultation, as it seeks to develop a sustainable roadmap for the country’s financial sector over the next 18 months. Responses to the consultation will inform the work of its five working groups, which were named earlier this month. The consultation will end on the 30 August.