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Welcome back. Drawn-out negotiations in Egypt at the U.N. climate summit have reached a late agreement. The headline achievement was a new fund to help climate-vulnerable countries cope with loss and damage from climate change. It is a win for developing nations that have long sought this type of support, but the details about who contributes cash and who is in line for payouts still need to be worked out. (Other notable steps are discussed further below)
The three big takeaways from the conference agreement for businesses were around carbon credits, net-zero commitments and international investments.
So-called offset credits—granted for avoiding deforestation or carbon emissions—were revived at COP27, despite being widely discredited because of past failures to actually reduce emissions. Unfortunately, decisions about what is and isn’t a “credible” carbon credit were kicked down the road. Continued uncertainty means companies will have a wider range of cheaper credits available to buy, but also increased reputational risk that some credits may be viewed as greenwashing in the future.
Scrutiny of corporate net-zero commitments is rising again. COP27 has set out a new set of stringent requirements about what a company must and must not do to credibly claim it is on the road to net-zero. It seems very unlikely these rules will make it into the Security and Exchange Commission’s mandatory reporting requirements coming soon. However, they might somehow feed into the International Sustainability Standards Board's work on reporting standards.
Lastly, companies making international investments in clean-energy projects could see a boost to so-called blended funding and reduced risk in climate-action projects if international financial institutions are actually reformed.
This week: Other COP27 takeaways; Activists rising
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Content from our Sponsor: DELOITTE |
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Going Green: Accounting and Reporting for Environmental Credits |
Environmental credits can help entities accomplish their carbon emissions reduction targets and goals, although valid accounting and reporting questions can emerge. Read More ›
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80+
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Number of countries backing a COP27 proposal to phaseout all unabated fossil fuels according to EU Vice President Timmermans
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While the loss-and-damage fund grabbed most headlines, there were other notable steps forward.
One is the push to reform the international financial system. Strong support for Barbados’ Prime Minister Mia Mottley’s Bridgetown initiative means we will see a proposal at the World Bank's and International Monetary Fund's spring meetings, followed by a summit in Paris in June to get to work. The intention is to find creative ways to free up cash for more climate-action funding.
COP27 also provided backing for the stringent U.N. proposal to crackdown net-zero commitments from companies and other non-state actors. Other achievements of the summit include more countries signing on to the pledge to reduce methane emissions, the resumption of China-U.S. climate cooperation and more multibillion dollar Just Energy Transition Partnerships to help select big economies shift away from coal more quickly.
On the flipside, a push to expand the coal phaseout to all fossil fuels didn’t make it into the deal despite significant backing from countries and there was scant progress on other items including carbon credit rules, emissions mitigation commitments to curb global temperature rise and funding for adaptation.
Business played an important part of last year’s climate summit in Glasgow, but had a smaller presence on the ground in Sharm el Sheikh this year, although the oil-and-gas sector was out in force. While some might have stayed away, groups of big company executives did club together to publicly call for higher ambitions and quicker policy action from political leaders in the COP27 negotiations and G20 leaders meeting last week in Bali.
Microsoft President and Vice Chair Brad Smith told our reporter Dieter Holger that he was surprised there wasn’t more senior level business leaders present in Egypt. “I think businesses need to show up and roll up their sleeves and do more,” said Mr. Smith.
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First-Timer Activists Rising
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Sinking stock prices and a change in proxy-voting rules are emboldening many first-time shareholder activists to seek changes at some of the biggest names in American corporations, writes Lauren Thomas.
Companies are feeling particularly vulnerable as a result of new rules imposed by U.S. regulators in September that means company-nominated directors must be listed on the same ballot as those put forth by activists, enabling investors to pick and choose, rather than voting entirely with either the company or the activist.
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Advisers to companies say the likelihood of at least gaining one board seat will increase significantly for smaller players.
Even before the proxy change, a surge in newcomer activists had been building, with many taking their cue from then-little-known hedge fund Engine No. 1 LLC, which prevailed in a proxy battle against Exxon Mobil Corp. in 2021. The first-time activist won three board seats after arguing the oil giant was a climate laggard, while owning just a tiny fraction of its stock.
Since then, a raft of other rookie activists have launched campaigns. Overall, there were 171 activist campaigns launched globally as of Sept. 30, up 39% from the same period in 2021.
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U.K.'s Order to Sell Facility May Put Wingtech Governance in Spotlight
BY CATALINA MAKHMUDOVA
Nexperia, a subsidiary of the Chinese manufacturing company Wingtech Technology, has been ordered by the U.K. government to sell at least 86% of Newport Wafer, a manufacturing facility it owns in Wales, according to the Wall Street Journal. The request might have long-term negative implications for Wingtech Technology's management of systemic risks, which addresses a company's contributions to large-scale weakening or collapse of systems upon which a society or economy relies. According to the British Secretary of State for Business, Energy and Industrial Strategy, the ownership and location of the facility could pose a risk to national security and undermine the country's own capabilities in this area. The notice of final order represents the first time the UK government has taken action since the new National Security and Investment Bill came into force early this year, which
significantly strengthened its powers to investigate and potentially prohibit transactions on national-security grounds. The application of the bill could represent the beginning of more stringent regulatory focus on industries such as the manufacturing sector that could be considered critical national infrastructure.
This is a sample of exclusive analysis of sustainability news from the Journal’s environment, social and governance (ESG) research analysts, whose work is primarily published by Dow Jones Newswires to help institutional investors and wealth managers integrate ESG factors into portfolio models, risk management programs and financial advice. The commentary by our research analysts is independent of the news coverage by reporters at the Journal. For more information about Dow Jones Newswires, click here.
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