Globalisation is out
SEC climate disclosures; European (green) protectionism; BlackRock's bye to globalisation.
From the top
🗣️ Climate is finance now. On Monday, the SEC advanced a proposal that would require public companies to disclose “certain climate-related” information in their annual reports. Referencing TCFD, disclosures cover: (1) climate-related risks and their effects on business, strategy, and outlook; (2) governance and risk management; (3) Scope 1 and 2 emissions, plus Scope 3 if material or relevant; (4) the financial cost of risks and transition; (5) targets, tools, and transition plans. Next up, TNFD?
🌊 You know what they say about necessity and invention. In his annual letter, Larry Fink tells shareholders “the Russian invasion… has put an end to the globalization [of] the last three decades.” Short term, “energy security has joined energy transition as a global priority.” Long term, it will “accelerate the shift toward greener energy,” as countries invest in their own sources and the green premium contracts under soaring energy prices. Bad for Russia. Good for renewables. And great for China.
🇪🇺 The end of globalisation is… green? The EU is planning to quit Russian gas for renewables by 2030. To less fanfare, it also reached an agreement on CBAM: its carbon tax on imports. That’s a big deal! CBAM is both climate and good old-fashioned protectionism, enabling the EU to hit its emissions targets while insulating itself from international competition. John Keynes said it first: “Advisable domestic policies would be easier to compass, if… ‘the flight of capital’ could be ruled out.”
🗺️ When do geopolitics matter? Russia’s invasion is drawing scrutiny to the international footprint of ESG investors. ALTSEAN reveals ESG funds hold $13.4B in arms suppliers to Myanmar, 69% of which is guided by ratings from MSCI, FTSE Russell and SPDJI. But MSCI is clear on its website: ESG ratings are about risk, not “a general measure of corporate ‘goodness.’” That arms were used to kill 1,500 Myanmar civilians isn’t good, sure, but manufacturers aren’t at risk judging by their PR tear.
🎐 But ESG is changing. In an open letter, S&P CEO Douglas Peterson makes the case for positive impact, as “an ESG score does not support the basic principles of ESG investing if it considers risk alone.” Guided less by ‘business, business, business’, more by national interest, recent policy decisions are creating a context where the ‘extra financial’—call it risk or impact—is hard for investors, ESG or otherwise, to avoid. Critically for sustainable index funds, that context is proving to be very mutable.