ESTea #7 14/06/21
Cornwall Consensus or Carbis Delay?
The Carbis Bay Communiqué
This week’s newsletter is a close reading of the output from last week’s G7 meeting in Carbis Bay, Cornwall. These ‘Communiqués’ are traditional, formal but important statements published both by the organiser of an event (‘The G7’) and then republished or reiterated by the individual attendee nations.
‘Communiqués’ are standard practice in major diplomatic events and their importance derives not from being ground-breaking or new, but because they typically represent the most advanced unanimous position on any particular topic - acting as a low water mark on a particular topic. Inevitably the text is riddled with wooly definitions, get-out clauses, and weasel-words, however any topic’s inclusion is indicative of its relative priority and universality for the signatories.
In this case, we’re interested in the G7’s view on carbon-neutrality, global warming and biodiversity and will be quoting from the main G7 Communiqué and the Finance Minister’s working group communiqué.
We commit to net zero no later than 2050, halving our collective emissions over the two decades to 2030, increasing and improving climate finance to 2025
This is from the main G7 statement and reiterates that climate and climate finance is a priority for the world’s wealthiest democracies
With the roll-out of SFDR, and the US following with their own work on taxonomy and carbon reporting, a democratic consensus on sustainable investing and accounting has emerged. Japan has made efforts towards its own carbon-reporting structure, and the largest pension fund in Japan and the world, GPIF, is already a leader in sustainable investing.
All this further solidifies sustainable investing as a long term trend and is a setup for the G7 nations heading to COP26 and going up against the world’s largest polluter and largest generator of renewable energy and technology: China.
We commit to properly embed climate change and biodiversity loss considerations into economic and financial decision-making
Since ‘biodiversity’ isn’t currently a major part of any the ESG regulatory landscape it’s a surprise to read this mentioned at the finance minister’s working group. Perhaps the importance of biodiversity is downstream of the UK Conservative Party’s relatively strong existing position on protecting biodiversity, helped along by its extremely wooly definition. Since biodiversity can mean just about anything - it’s easy to agree to.
‘Biodiversity’ has been simmering out there in the policy-universe with The Dasgupta Review, from the UK Gov, and the OECD’s work on accounting for biodiversity loss. If you thought accounting for climate emissions was hard, wait until you hear about accounting for biodiversity loss.
We recognise the growing demand for more information on the impact that firms have on the climate and the environment. We recognise that many jurisdictions and organisations are already developing impact reporting initiatives, including but not limited to reporting on net zero alignment and broader sustainability metrics.
It looks as if the governments of the world have been listening closely to the investment industry, and that the problem of sustainability data has bubbled all the way to the top. An awareness of the problem is clearly welcome especially for those in Europe who are dreading trying to collect ESG data on their overseas equity investments.
We commit to […] addressing the macroeconomic impacts and the optimal use of the range of policy levers to price carbon
I humbly include this knowing that I don’t understand what’s going on here. While there is a (profitable) market for carbon credits in the European Union and progress in Canada, there is no such plan in the US, UK or in Japan - and there may be a great deal of domestic opposition.
In the US a national climate trading scheme is omitted from even the most radical climate policies, and would be robustly fought by congressional Republicans - likely with help from a handful of Democrats in fossil fuel states. With Republicans in staunch opposition to any type of ‘climate tax’ and progressive promoting direct regulation and investment - there isn’t much of a constituency for so-called ‘cap and trade’.
One to watch.