ESG Focus | Apr 19 2021
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World leaders are gathering for World Earth Day this week and major announcements are expected; US Climate Envoy John Kerry claiming the day will change the way in which global capital is allocated.
ESG Focus: Heads Up For Biden’s Climate Summit
-Global capital markets eye off World Earth Day
-Coal, gas, auto and agriculture industries in the spotlight
-Methane considered low-hanging fruit
-Eyes on AUD
By Sarah Mills
All eyes will be peeled to Biden's climate summit on World Earth Day this Thursday (April 22) to which 40 of the world’s leaders, including China’s Xi Jinping and Russia’s Vladmir Putin, have been invited.
Markets are expecting major announcements to emerge from the summit after former Obama Secretary of State and now recently appointed Climate Envoy, John Kerry, said that the day would herald a change in the way in which global capital is allocated.
President Biden is expected to unveil an aggressive plan to cut US gas emissions by up to -50% by 2030.
The Administration is aiming for carbon neutrality by 2035 as opposed to former plans for 2050.
Kerry is touring Asia next week prior to the two-day virtual Earth Day summit to no doubt shore up support from major carbon emitters and finalise details.
Despite rising tensions with China, climate is one area in which the interests of the two nations overlap given China’s dominance as an electro-state.
China has not yet confirmed its attendance to the summit, but Kerry is reported to be meeting his Chinese counterpart Special Climate Envoy Xie Zhenhua.
It is unlikely China would like to be trumped by the US, so it is likely China will either abstain or have a few announcements of its own to make.
Kerry is also visiting India.
Australia’s coal industry will be keeping a keen eye on any commitments from China and India, as will the government, given the impact on the Balance of Payments and the Australian dollar.
The Biden move is touted as the most important thing the US can do to convince other polluting countries to cut their emissions, given the expense of transitioning.
Biden has already promised a clean government vehicle fleet, has paused new oil and gas leasing on public lands, promised to increase conservation, and is pushing for a clean energy infrastructure bill.
New commitments are likely to include US$60bn for green transit projects, US$46bn for climate-related research and development, and the installation of electric vehicle charging stations across the country, according to The Washington Post. It will be interesting to see if Australia adopts a view on charging stations.
All US federal agencies are now looking for ways to curb emissions, and Australian state governments are on the same path, as is the Reserve Bank of Australia.
Of particular interest to Australia and the gas industry will be US determinations on methane. Given methane is a powerful but short-lived pollutant compared with carbon dioxide, it is considered low hanging fruit and an easy target.
Given the environmental and social impact of coal seam gas and shale gas development, relatively low upfront costs and dubious long-term economies, they are likely to be targeted prior to LNG.
The other industry likely to be impacted by upcoming announcements will be the automobile industry.
At a minimum, vehicle markets are expected to be subject to regulation on tailpipe emissions, and this should have implications for new and second-hand markets over the next five years.
Agriculture and logging are other industries also in the spotlight given the push to lock carbon in the soil and create carbon sinks and to provide a carbon offset opportunity during the transition.
Construction and property refits are also likely to get attention but there hasn't been much signalling on that front.
Biden has also declared his intention to end the War in Afghanistan, consistent with the declining relevance of petro-states. The war cost the US nearly -US$1trn in 2020, funds that could well be redirected to transition priorities and security in the Pacific.
Meanwhile, ComprarAcciones.com predicts global spending on renewable energy will rise 8.5% in 2021 to US$243bn in 2021, just -22% less than forecast oil and gas spending, which is forecast to grow by 1.6%.
Earth Day will provide markets with the first major insights on the direction of the transition.
The tide has already turned, the only question now is the pace.
FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/
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