ESG Essentials: New IPCC report, an ongoing banking crisis and a new letter from Blackrock

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The world-changing difference between 1.5ºC and 2ºC of warming revealed by IPCC report

On Monday, the Intergovernmental Panel on Climate Change (IPCC) warned that the goal of keeping average planetary warming at a ceiling of 1.5ºC above pre industrial levels will require a massive and immediate effort from all nations in the world. The report argues that to have even a 50% chance of reaching this goal, all industrialised nations will have to slash greenhouse gases in half by 2030 and achieve overall net zero by 2050.

As decision makers in parliaments and corporate boardrooms endeavour to find a solution to climate change, data such as this reminds us what the stakes of those decisions are. The Paris Climate Agreement commits governments worldwide to keep warming below 1.5ºC above pre industrial levels on average, a level that in itself will affect countless habitats and change the lives of millions. 

The consequences of allowing global warming to reach 2ºC above pre industrial averages will be disastrous, reducing crop yields and destroying swathes of animal habitats. According to these projections, heating at this level will almost entirely eliminate coral reefs, which are currently home to a quarter of all marine life

To achieve these goals, dramatic changes in politics and daily life will be necessary. Current projections show that at current rates, the earth is due to heat by up to 2.9ºC this century.

This data illustrates in stark terms that even small interventions can be meaningful in fighting climate change, given that even small additional degrees of warming could be catastrophic.

70% of firms have not assessed value chain biodiversity impacts, leaving investors in the dark

A recent study has revealed that a startlingly small number of companies have assessed the impact of their value chains on biodiversity and the natural world, and among those that do, only 45% of companies took action to progress their biodiversity-related commitments this year. 

This is a worrying figure for investors, who are left in the dark without the proper data to inform their decisions. 

Biodiversity has become a greater priority in the finance world this year after COP15 set a landmark “30×30” goal, aiming to conserve 30% of the planet for nature by 2030. Most recently, UN delegates agreed on the language for a far-reaching treaty on biodiversity in the high seas

Ongoing fallout from SVB collapse ripples across the global economy

Last week, one of America’s largest banks, SVB, collapsed in dramatic fashion over the course of a weekend, destabilising the global financial system and worrying analysts who saw echoes of the 2008 financial crisis. 

Governments around the world are scrambling to intervene to calm markets. Closely following the collapse of SVB, the US government moved to save Signature Bank, an institution which had staked its financial survival on cryptocurrency and fell victim to a bank run. Later in the week, a group of major banks injected $30 billion to save First Republic Bank. The federal reserve will be meeting this week to decide whether to increase interest rates again- many see a moderate increase of between 0.25-0.5% to be likely.

In Europe, Credit Suisse was bought out by rival UBS for just $3.3 billion after its stock faltered and then cratered. The price per share represented a 99% decline on its 2007 peak. Governments and financial markets judged the bank to be too systematically important to fail, but increases in global interest rates had made it’s assets toxic, reflected in its price.  

Meanwhile, the European Central Bank (ECB) raised interest rates by a further 0.5%. This measure will attempt to blunt inflation but could further destabilise the financial system by devaluing government bonds. 

BlackRock CEO Larry Fink releases annual letter- pointedly avoiding the topic of ESG

Larry Fink, BlackRock’s chairman and CEO released his annual letter to investors and CEOs this week. 

BlackRock in particular has weathered intense controversy amid a wider backlash against ESG investing in the US which has intensified in 2023

Surprising many, ESG was a glaring omission from Fink’s letter, not appearing once in the 9,000 word document. Responsible Investor notes the word “sustainability” only appears once in the letter in stark contrast to 2021, where it appeared three times in the first paragraph alone. 

The letter did defend BlackRock’s position, albeit indirectly, by implying that clients are driving the growth of ESG, arguing that “There are many people with opinions about how we should manage our clients’ money…But the money doesn’t belong to these people. It’s not ours either. It belongs to our clients, and our responsibility and our duty is to them”.

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