Major changes kick in with the second wave

climate narratives: annotated #5

Photo by Pierre Ducher on Unsplash

Welcome to newsletter #5 of Climate Narratives: Annotated, a newsletter about green and sustainable finance.

Today’s edition features a number of big changes - landmark cases - that coincide with the second wave of COVID unfurling rapidly across Europe.

It’s been an incredible five months since I hit send on our inaugural edition and I’m so grateful to everyone for tuning in, supporting the podcast and holding me to account with your feedback and suggestions. If you like this newsletter, please recommend it to someone who you think might also enjoy it. I produce this newsletter and the podcast independently, and word of mouth is the best way for the community to grow.

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Green and Sustainable Finance Highlights

👉 Big news from Australia that shows the growing power of investor pressure on companies to walk the talk.

Mining giant Rio Tinto has given its chief executive and two other executives the heave-ho after pressure from Australian pension funds and other investors calling for accountability after the destruction of a 46,000-year-old Aboriginal site.

This could be a landmark case for shareholder activism.

As an article from Australian public broadcaster commented:

The once cosy relationship between big investment houses overseen by an old boys' club that marshalled retirement savings and insurance premiums through to their mates in the corporate world is unravelling.

How did this happen? Read this explanation of how Rio’s corporate structure meant that indigenous relations were not part of the issues owned by the direct reports to the chief executive.

Watch out for an upcoming podcast episode on this important case which could be a bellweather for shareholder activism globally.

👉 New Zealand is world’s first country to require climate risk reporting

The announcement came earlier today from the Minister for Climate Change, James Shaw, and the big idea is to make sure New Zealand’s financial markets price in climate risks more effectively to help safeguard financial stability.

How does this work? For example, if an airport is built on a waterfront which is likely to suffer sea level rise due to climate change, the company owning the airport must share that information with shareholders.

Following the guidelines of the Task Force on Climate-Related Disclosure (TCFD), New Zealand businesses will have to make annual disclosures, covering governance arrangements, risk management and strategies for mitigating any climate change impacts.

New Zealand has a fine track record of firsts: first country to give women the vote, first central bank to set inflation targets, first country to put well-being at the heart of its economy policy. James Shaw may also be the first government minister to host his own podcast: “What Comes After What Comes Next”.

👉 A Wall Street regulator issues first-of-its-kind report on climate risk

Landing as the west coast was engulfed by unprecedented wildfires, the report from a special climate subcommittee to the Commodity Futures Trading Commission (CFTC) is the first time a federal agency has issued such a clarion call to US financial markets. As we noted in newsletter #3, the U.S. lags Europe on the pace of regulatory change because of the highly politicized context. This report marks a big step forward.

What’s significant is it was a massive exercise in consensus building & synthesis - like an IPCC for financial regulation - across a broad coalition of actors, including banks such as Citigroup and JPMorgan Chase, fund managers such as Allianz Global Investors and Vanguard, commodities and energy companies such as Cargill and ConocoPhillips, and environmental organisations.

Unlike New Zealand, the commission hints at, but doesn’t go so far as to outright recommend mandatory climate risk disclosure.

Given the disparity in the quality and extent of disclosures under the existing regime, clearer and more consistent guidance as well as mandatory disclosure requirements may be needed for climate risk disclosure that covers materiality assessment

👉 Extreme heat slows stock trading, according to a new paper.

Based on an analysis of the trading volumes on the French stock market on days when the weather in Paris is excessively hot during the years 1995–2019, the study found that on average, trading volumes fell between 4-10% when maximum daily temperatures were over 30C.

Extreme heat increases the tiredness, the bad mood and the distraction of French investors, which therefore diminishes their propensity to trade securities.

Why are French traders in particular likely to be more grumpy and listless during a heat wave?

France, in particular Paris, seems unprepared for heat waves. As such, according to the ADEME (Agency for the Environment and Energy Management), 4.5% of housing in France (mostly in the south of France) and less than 25% of workplaces are air-conditioned.

The paper recommends that traders should be allowed to relax their dress code during heatwaves, or work from home. Maybe 2021 will be the summer where we see those Parisian traders wafting around central Paris in khaki shorts and Birks.

From the podcast

After sharing a mea culpa on gender balance among podcast guests last month, it's a pleasure to share that the latest 2 episodes of the podcast have offered some much needed balance.

Episode # 6 looks at company boards and asks whether they are fit to lead the transition to net zero, with Gillian Karran-Cumberlege of Chapter Zero, the director’s forum on climate change.

Episode # 7 is the green bond masterclass with Denise Odaro of the International Finance Corporation. It's the "everything you wanted to know about green bonds but were too afraid to ask" edition.

From Paris, France,

Denise