ESG Essentials: SBTi internal revolt and landmark climate case in Switzerland

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Climate targets group under fire over carbon offsets policy 

Following an internal revolt, the Science Based Targets initiative (SBTi) has retracted its endorsement of carbon credits as a means to address greenhouse gas emissions.

Three days after declaring that companies would be able to use carbon offsets to meet their climate goals, the initiative stated that there would be no change to its standards and that there had been a misunderstanding of its position on offsets.

The decision to allow offsets was backed by Bezos Earth Fund, a significant supporter of a US effort to boost the carbon credit market in return for the replacement of energy systems powered by fossil fuels.

The SBTi’s board made the decision on offsets without the consultation of SBTi’s technical and advisory groups. 

SBTi’s chief executive, Luiz Amaral, said that the group’s guidance had not changed and that the initiative would issue a formal draft set of rules on carbon offsetting in July.  Any changes to standards would follow governance procedures including public consultation.

Concerns that global investment in mining is too low to support clean energy transition

Rio Tinto chairman Dominic Barton has expressed concern over the low rates of investment in the mining industry putting the global energy transition at risk, resulting in a widening supply gap of critical minerals needed.

The global effort to reduce climate-warming emissions relies on securing extensive supplies of minerals like copper, lithium, and cobalt for solar plants, wind farms and electric vehicles. The amount of metals required for each kilowatt of generation capacity has risen by 50% since 2010, with electric cars requiring six times more minerals than traditional combustion engines.

In comparison, the mining industry has significantly reduced its investments in the global mining industry since 2015-2016, leading to it being hundreds of billions of dollars below what is needed for the clean energy transition.

As a result of its reputation, the mining industry needs to build trust and ensure the public that it will play a vital role in global decarbonisation as the industry could offer enormous opportunities in the race to reach net zero.

2000 Swiss women take government to court on climate

For the first time in history, Europe’s top human rights court has ruled that a government’s failure to cut greenhouse gas emissions can be considered a violation of citizens’ rights – a decision that will set a benchmark for future climate litigation. 

The European Court of Human Rights has ruled that Switzerland had failed to protect citizens from the “serious adverse effects of climate change on lives, health, wellbeing and quality of life” by not meeting its own climate targets. 

The case, brought by a group of 2000 Swiss women mainly in their 70s, highlights the court’s recognition of the climate crisis as a human rights issue and emphasises the importance of government accountability in addressing climate change.

While the court dismissed a similar case brought by Portuguese youths, it emphasised the urgency for all European countries to align their climate targets with scientific evidence and the goals of the Paris Agreement. Furthermore, the ruling sets a precedent for corporate climate litigation, encouraging companies and financial institutions to consider human rights arguments in climate-related cases.

Three quarters of European funds to promote environmental and social objectives

New research from PwC Luxembourg, has found that investment in the EU into funds classified as Article 8 and Article 9 reached €6.2 trillion at the end of 2023 and are anticipated to surpass €9 trillion by 2027. The upsurge will mean that three-quarters of all funds will either be Article 8 or 9 by 2027.

The graph below breaks down the current and forecasted compound annual growth rate of European funds divided into Article 8, 9, and those not linked to ESG criteria.

The report also found that Luxembourg is by far the leading country to invest in ESG-linked funds in the EU, with 45.7% of the total AuM of Article 8 funds and 60.8% of the total AuM of Article 9 funds. Luxembourg is followed by Ireland, France and Sweden.

Since the enactment of the Sustainable Finance Disclosure Regulation in 2021, investments in sustainable finance have surged and are expected to keep rising. As the SFDR undergoes review, investors can anticipate increased transparency and standardisation, potentially accelerating the expansion of sustainable investing in the EU.

Source: PwC Global AWM & ESG Market Research Center

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