Holiday carbon, HSBC on coal, the BIS on crypto

Newsletter #20

End-of-year mood: 11-year-old in a fish mask queuing for a PCR test videobombs live CCTV news footage, becomes internet legend

The year rolls to a close amid a rising tide of dark news, so it’s nice to note that green finance actually has encouraging news to offer.

In this newsletter, we’ll look at a major announcement from HSBC on ending coal financing, the newly passed, long-awaited EU Taxonomy on Green Finance - as well as a holiday gift explainer on decentralized finance from the BIS, and some new research insights on the carbon lock-in of people with international social networks.

Highlights from Green and Sustainable Finance

HSBC phases out coal financing

Europe’s 3rd largest fossil fuel financier announced yesterday that they’re phasing out coal financing. The announcement comes after months of negotiations between the bank and a coalition of investors led by campaign group ShareAction, who filed a shareholder proposal in January 2021 calling on the bank to reduce its exposure to fossil fuels.

👉 Important news, given the bank’s exposure to Asia, but lots of fine print attached.

HSBC has committed to withdraw financing to clients who have made a new commitment after 1 January 2021.

But this only applies at the client level, allowing HSBC to continue supporting groups developing new coal.

HSBC may continue to support companies expanding through M&A.

HSBC may continue to support a significant pipeline of thermal coal expansion projects (pre Jan 2021).

Taxonomy becomes law but the fight isn’t over

The good news angle here is that it happened - in a narrow 14:13 vote.

The first section of the EU’s Taxonomy on Green Finance became law last week, and will come into effect on Jan 1, 2022. Nine countries voted in favour, five abstained, and 13 voted against - among them France, Poland, Finland and Hungary.

But the hardest part is yet to come - the EU still has to decide whether to label gas and nuclear energy as green. France has been lobbying hard to classify nuclear energy as climate-friendly, and argues that without nuclear energy it will be hard to reach the EU’s goal of cutting net greenhouse gas emissions by 2030.

👉 If gas & nuclear are included, this puts the legitimacy of the taxonomy at risk.

Although the Taxonomy, and linked regulations like SFDR, imply more work and a certain “bureaucratic burden” for financial actors, many are keen to have a tool that increases transparency, makes greenwashing harder, and hence have the power to re-orient capital flows into sustainable economic activities. Including fossil gas and nuclear power into the Taxonomy, endangers this legitimacy - Andreas Rasche, a Danish academic, wrote in a recent commentary.

A holiday primer on decentralized finance from the BIS

The Bank for International Settlements (BIS), which is the world’s bank for central banks, gave us an unexpected holiday gift in their latest quarterly review with a piece on decentralized finance which is an excellent primer for the non-initiate, and gives us insight into how concerned they are at the so-called “Wild West” of finance.

Entitled “Defi Risks and the decentralization illusion”, it argues that the core promise of Defi is a mirage; that it is casino-like and has few real world uses, that it could represent a risk to financial stability but for the moment lacks the scale to do so. Conclusion? Regulation is needed before it gets too big.

Whereas the crypto folks like to define their value add as being anything from revolution to a “life raft” for younger investors worried they’ll never afford retirement, the BIS tells us that the point of all this is to

improve efficiency by reducing intermediation layers. Importantly, it also provides users with much greater anonymity than transactions in Cefi (centralized finance) or traditional finance.

👉 Read it for a clear, non-jargony primer on decentralized finance. Great tables too.

It’s us: the carbon lock-in of international social networks

A new paper (disclaimer, it’s paywalled) on travel patterns lands at that moment of the holiday season where people with international social networks & close family in many countries are either feeling guilty about not going to see them, or guilty about the carbon miles they’re about to incur from that travel.

It provides interesting insights on this carbon lock-in from social relations. Living in Paris, this time of the year is usually full of “I’m successful”-type small talk involving trips to Marrakech to beat back the “grisaille” of the sad season. This year, Omicron has turned those tropes into self-pitying sharing about going to Brittany.

Here are some excerpts from the excellent thread from author Giulio Mattioli, a transport researcher at Dortmund TU.

👉 For more on this, I recommend signing up for climate scientist & author Kim Nicholas’s Substack “We Can Fix It”. She recently co-authored a study on shifts in views and representations among Swedes of holiday travel over recent decades.

in looking at the theme of the purpose of vacation, we found that the idea of a holiday as restorative has been consistent over time. But the way to achieve that purpose is shifting from flying to find sunshine, towards searching out experiences closer to home.

The shift in themes over time indicates the start of an important shift in culture, where what constitutes "the good life" is not defined by "what you consume" (travel experiences), or an identity derived from your travel consumption, but instead towards living one's values.

She also debunks the idea of “flight-shaming”, pointing to a recent study of nearly 700 people who had actually stopped flying which found that they did so because of a combination of knowledge and following their conscience, supported by role models and supportive communities. Shame did not motivate their actions; rather, they reported a sense of agency and responsibility.

A heartfelt thanks to everyone for reading and subscribing this year. If you know anyone who is looking for a regular take on the fast-growing net zero revolution, please share this post with them to spread the love.

2022 is the centenary of T.S. Eliot’s epoch-defining poem “The Waste Land”. It’s also the 10-year anniversary of South Korean rapper Psy’s Gangnam style video. If neither of these works as a pandemic burnout buster for you, I recommend the latest Chaoyang Trap newsletter holiday gift guide of cool stuff you can’t buy online because you don’t live in China (like “dark, rich, soft and sweet pu’er which can be broken off into single-serving chunks without a tea knife”). It’s my favourite read on Substack.

See you in the New Year.

Denise