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If you had asked me a couple of years ago to guess which issue might prompt US president Joe Biden to use his veto, I would not have said “ESG”. After all, sustainable investing used to be a niche corner of finance; it did not excite any Congressional passion.
No longer. This week Congress is on track to overturn a labour department rule that permits public sector pension funds to consider ESG factors in their investment decisions. Cue horror from most Democrats — and indications that Biden will veto this move to enable ESG investors to fly free.
To my mind, this whole battle seems daft. After all, the current framework does not actually force anybody to use ESG metrics; it simply gives them the choice to incorporate this, if they think ESG screening is helpful. And in a world where issues like climate change can affect the value of assets, it seems perverse — if not un-American — to remove that choice.
However, bizarre or not, the battle shows how ESG has become embroiled in swelling political complexities (which is something that US financial firms are now reporting in their corporate filings). To see another facet of these complexities, read our story below about Ukraine’s desperate hunt for energy — and a striking tale about South Korea’s effort to crack down on greenwashing. Let us know what you think at [email protected]. (Gillian Tett)
Coal and war
Last week I was travelling back from a visit to Kyiv, on a 14-hour train ride, when I smelt something I had not encountered for a while: coal dust. I duly opened a compartment in the carriage and saw a stash of the black stuff, carefully stored away.
The reason? In recent years Ukraine has electrified most of its railway network. But Russian attacks on the electricity grid have forced Ukrzaliznytsia, the national railway group, to get creative: trains are being equipped with stores of diesel and coal, and old steam engines have been brought back into service too.
“Coal and diesel are backups,” Alexander Kamyshin, the outgoing head of the railway group tells me. (Check out his Twitter feed to see his group cooking eggs on the furnace of a steam train, between de-mining missions and initiatives to improve timetable punctuality in a war zone.)
Environmentalists might weep at this — and not just because of the sight of coal on trains. Three decades ago, Ukraine was an environmental blackspot, with its economy heavily reliant on Soviet-era heavy industry (and coal). But then it started to install some renewable energy infrastructure, in the form of wind turbines and solar panels. It was also trying to develop biofuels, officials in the infrastructure ministry tell me. But the Russian invasion and missile strikes destroyed most of this; infrastructure such as solar panels are fragile and hard to repair. And as the electricity grid has faltered, diesel generators and coal-fuelled heaters have become ubiquitous; Ukrainians (like poor people anywhere in the world) are scrambling for energy, from whatever source they can find.
“Today Ukraine is desperate for every kilowatt. Every megawatt of energy, every kilowatt is precious . . . crucial for our existence,” Oleksiy Chernyshov, chief executive of Naftogaz, the Ukrainian energy giant, told me.
But Chernyshov, like the rest of the Ukrainian government, vehemently insists that these black tactics are only temporary. “We need green energy — we have restarted solar and are looking at wind energy, we definitely want this in the future,” he added.
And officials at groups such as the European Bank for Reconstruction and Development and other multilateral agencies say that if — or when — Ukraine starts rebuilding its infrastructure, they want to make it ultra green. And they hope this will spark some creative blended finance projects that could be a model for elsewhere.
Hopefully so. But right now, the conflict is, tragically, still in full swing. So the next time I take a train to Kyiv, I will sniff it again for coal; it is a potent symbol of a world that has gone backwards — in every sense. (Gillian Tett)
South Korea gears up to issue more greenwashing fines
Are financial penalties the answer to corporate greenwashing? South Korea’s government is sending a mixed message on this front — introducing the threat of fines, yet at a level far too low to worry large companies.
The Asian country’s Ministry of Environment has revealed a draft law that would introduce penalties of up to 3mn won (approximately $2,300) for companies that have pursued false or exaggerated advertising on climate change claims.
It is not the first time that the world’s eighth-largest carbon emitter has tried to combat this problem. South Korea has already prohibited false or fraudulent advertisements that have the potential to deceive or mislead consumers. Under the Development and Support for Environmental Technology Act, violators can be handed administrative guidance, corrective orders, or penalties.
In particular, the law is intended to regulate unfair profits gained through greenwashing, Sungjoon Jin, a member of South Korea’s national assembly, told me. But proving intent and calculating profits associated with a particular violation is difficult. For these reasons, no one has ever been fined using this law. One of the main aims of the new provision is to make it easier for the ministry to issue a greenwashing fine, compared with the existing law. Jin, a member of the main opposition Democratic party, supports the new draft law and believes that it will probably be passed within the year.
Greenwashing is “a very serious problem” in South Korea, Jihyeon Ha, head of legal operations at climate group Solutions for Our Climate, told me. Public interest in green issues is high in South Korea: 88 per cent of citizens are concerned that global climate change will harm them personally at some point in their lifetime, the highest among advanced economies which Pew Research Center researched.
But the nation’s “large corporations are concentrated in high-emitting sectors such as the steel, oil, and petrochemical industries,” Ha said. The greenwashing fine of $2,300 is a small amount for companies but “a positive indicator of the government’s will to strengthen greenwashing regulation”, she added.
The environment ministry is also expected to release new guidelines on greenwashing in October, setting standards for what kind of information the companies need to provide on their environmentally-friendly claims.
The Korean government’s action is part of a global wave to clamp down on greenwashing activities. France has banned the use of the phrase “carbon-neutral” without sufficient evidence, while the EU is preparing a law to require companies to back up their green claims with science-based methodology. (Tamami Shimizuishi, Nikkei)
It’s been a difficult period for the much-hyped alternative protein sector, with market leaders Beyond Meat and Impossible Foods both announcing lay-offs. That’s worrying for those who have been backing it to tackle the meat industry’s huge environmental impact. But a new source of hope is emerging, writes Yasmin Tayag in The Atlantic — plant protein laced with cultivated animal fat.