In recent decades, the pressure on corporations to be environmentally responsible has grown exponentially. An increasing awareness of global environmental problems among investors and the population at large has been reflected by more companies pledging to do their part to save the planet. The Intergovernmental Panel on Climate Change (IPCC) has warned governments that the world has only a decade or so to set global greenhouse gas emissions (GHGs) on a sharplydownward path, and more regulatory and market-based mechanisms are being devised. From the introduction of environmental and social governance (ESG) reporting, to green investors making their voices heard at boardroom and shareholder levels, there are widespread initiatives to make a difference. Under previous United Nations Framework Convention on Climate Change (UNFCCC) protocols, abatement markets have taken on a more prominent role. Moreover, those calling for more sustainable businesses have been urging corporations to take more responsibility towards alleviating the harms they generate. But howmuch effect do these practices have? Can Socially Responsible Investment (SRI) or abatement markets, for example, encourage corporations to change their practices, when the drive the make a profit is still the most important factor? This is a system that encourages a better financial future, but often at a cost to the environment, such as climate change or soil degradation. The future impact of a corporation’s activities on the Earth System is irrelevant to its current value. The problemwith the above solutions is that they are heavily embedded in the system. Abatement markets and SRI try to deal with issues that extend beyond finance, but they are driven by financial metrics – profit, return on investment, and so forth. SOCIALLY RESPONSIBLE INVESTMENT SRI has its origins in the 1920s, when conscientious investors asked themselves ‘why are we investing in the so-called “sin stocks”, like tobacco, alcohol or arms producers, because they are clearly doing more harm than good?’ In the 1970s and 1980s, they realised they needed to do something about corporations’ environmental damage. SRI is now part of a broader universe where you have ESG reporting evaluating companies’ performance. ESG is conducted by a range of organisations who aim to hold corporations to account in the absence of a global public governance structure. Reporting provides companies with a source of procedural legitimacy, but adverse ESG outcomes keep them vulnerable to scandals, reputational ruin and economic harm. SRI’s share in total assets under management has expanded spectacularly as these systems have grown in popularity and application. In the USA, SRI funds grew from $640bn to $3tn between 1995 and 2011, quadrupling to $12tn by 2018 – 26%of all assets under management in the USA. In Europe between 2008 and 2018, the share of investments with an SRI aspect in their management jumped from 11% to 49%. This might seem a success, yet the whole enterprise of SRI, as the name says, is for investment, and there are other problems. While levels of SRI have increased, there are many markets, like bonds and bank loans, where SRI is not noticeable. Yes, there are green bonds, and maybe banks are promising not to finance fossil fuel companies, but those are just promises – financial underwriting for existing and new fossil fuel production projects has increased annually since the 2015 Paris Agreement. And within ESG there can be a decoupling between reporting and reality – greenwashing – as corporations use a range of tactics to manage perceptions of their green credentials. For financial accounting, there is only one standard and it is universally accepted. There might be slight differences globally, but you cannot get away with a scandal. Unfortunately, there are a proliferation of ESG rankings, and no set standards. Companies may be ranked differently by each of them, allowing them to pick and choose which to highlight and which to quietly ignore. Investors might realise that companies are doing something a bit dodgy by picking and choosing, but what can they do? Even the rewards for ESG efforts often result from procedural efforts rather than actual carbon performance – a business can subscribe to the Global Reporting Initiative or the Carbon Disclosure Project without actually reducing its C02 output. The SRI framework, despite its issues, can help change corporate behaviour. If ESG reporting and management standards succeed in denying funding and legitimacy to activities harming the environment, it will be all for the better. However, at present, it is hard to translate talking the talk to walking the walk. ABATEMENT MARKETS The same can be said for abatement markets, which commodify economic externalities – namely, unpriced outcomes of economic activity, such as C02 emissions and have companies trade them in markets with an overall emissions cap. Compared to nonmarket solutions, such as taxation, abatement markets are thought to be a cheaper solution. All participating companies have an allowance, and if you are polluting 100 tons and I am polluting 400 tons, you can sell your excess to me. You can still reduce your own pollution, and have a greater excess to sell at a profit. This mechanism initially worked in terms of reducing emissions. The first applications were in the United States for pollutants that cause acid rain, and they were successful in reducing emissions by 40-50%. But again there are issues. People like your company, because you will continue to reduce pollution, but people like me are lazy and do nothing, and we will continue to exist. The planet cannot wait for the market mechanism to reduce emissions by trading in this way. In the last 20 years, the largest abatement market, the European Union’s Emissions Trading System (ETS) has had difficulties stabilising the price of carbon . The price of polluting crashed a few times, so for a long time 40 |
RkJQdWJsaXNoZXIy NTI5NzM=