The Ethical Investor: Half-time score at COP26, and JANA’s Rachel Halpern’s views on ESG
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The Ethical Investor is Stockhead’s weekly look at ESG moves on the ASX. This week’s special guest is Head of Sustainability at JANA Investment Advisers, Rachel Halpern.
We’re sticking with the COP26 theme this week, as the world climate summit in Glasgow goes into full swing, with one full week still to go.
The summit hasn’t produced any mouth-gaping results but instead, has put an exclamation mark on the divide between rich and poor countries.
There was a sense the summit could be derailed unless rich countries meet their ‘obligations’ to the poorer ones.
China and India said they want the West to honour its US$100 billion a year commitment made during the 2015 Paris Agreement, to help poorer countries transition into renewables.
“Justice would truly be served if pressure was put on those countries that have not lived up to their climate commitments,” said India PM Narendra Modi, whose country is the third biggest greenhouse emitter behind China and the US.
Modi, for his part, surprised the summit by announcing a 2070 target for India on zero emissions – compared to China which maintained its 2060 target and Western nations with a 2050 target.
President Biden, in his closing speech, promised US$1.75 trillion to tackle climate change back home, a package that has yet to pass Congress approval.
He also criticised China’s President Xi for not attending, calling it a ‘big mistake’. China responded by saying that it would “do what it says” when it came to its low-carbon development.
In a win for renewables, major coal users have pledged to shift away from fossil fuel.
A statement that was signed by 190 nations vowed to quit coal, but as expected, the list doesn’t include the world’s largest coal-dependent countries like China, India the US, and of course, Australia.
Meanwhile, teenage climate activist Greta Thunberg gave a fiery speech near the COP26 conference venue, leading protestors in a chant “You can shove your climate crisis up your arse” to the tune of nursery “She’ll be coming ‘round the mountain.”
Greta Thunberg has a message for COP26 leaders: "You can shove your climate crisis up your arse!"
— talkRADIO (@talkRADIO) November 2, 2021
Australia’s official commitment to the Summit is a 2030 target of 26-28% below 2005 levels, and net zero by 2050.
PM Morrison used his speech to reiterate the significant role technology would play in meeting this goal.
“18 months the world was staring to the abyss of a one in a 100-year pandemic, the vaccines we would need – not only had they not been invented, had never been a vaccine for the coronavirus.
“But here we are, billions vaccinated, and the world is reclaiming what COVID has taken from us.”
He went on to say that the challenge of combatting climate change will be met in the same way – “by those, largely not in this room. It will be our scientists, our technologists, our engineers, our entrepreneurs that will actually chart the path to net zero.”
But his Glasgow contingent has come under criticism and was the subject of ridicule, after a model of a carbon capture project by major fossil fuel player Santos was displayed at the front of Australia’s pavilion at the summit.
Santos’ $220m Moomba project in South Australia was announced on Monday, in which the government said it could receive carbon credit rebate from taxpayers.
Rachel Halpern has decades of experience in developing investment strategies which minimise regulatory and fiduciary risk through the effective integration of environmental, social and governance (ESG).
She’s the Head of Sustainability at JANA Investment Advisers, with a focus on managing climate change risk for Australia’s leading institutional investment clients.
What key outcomes are you looking for from the COP26 summit?
Co-ordinated alignment between capital markets and policy makers so that there is consistent, fair and efficient direction of resources towards addressing the climate emergency. To this end, we are particularly looking for a resolution of Article 6.
We need to find a mechanism whereby global efforts to decarbonise are funded efficiently and equitably. This is where COP26 can help, and in particular “Article 6,” which looks at ways in which countries can work together — either bilaterally, regionally, or indeed globally — to reduce overall emissions.
Currently, global carbon pricing regimes are uncoordinated and inconsistent. There are currently 64 carbon pricing systems globally, with another 30+ in development. Thirty of the existing systems are carbon markets, with the remaining 34 carbon tax regimes.
Not only is there no agreement on a mechanism, but the prices within these regimes vary from the meaningless $0.10/tonne to an eye-watering $142.40/tonne — against a price widely seen as necessary now for Paris-alignment of $40-$80/tonne.
This fragmented approach is clearly inefficient, and evidence tells us that so far, it is proving ineffective at a global level.
How would this change investments towards the ESG sector?
If an efficient pricing mechanism for carbon could be found, this would remove much uncertainty and ease the way for investing in a net-zero aligned or climate friendly fashion.
In large part due to the high degree of uncertainty around pricing carbon, active management of climate friendly portfolios is needed to navigate the complexity of selecting winners from losers. For example, not all green assets will be winners or sound investments in their own right.
However, if there was an agreed global mechanism on how countries are going to reduce overall emissions, this could potentially remove much of the uncertainty that allows for more effective passive management in climate friendly investments.
To that end, what’s the focus at JANA Investment Advisers?
At JANA, we believe that while markets are often unpredictable, there are always opportunities to add value over time and at all stages of the investment process.
This includes active management of asset allocation, positioning within asset classes, security selection and implementation.
Valuation always guides our approach, as does thorough research and analysis which provides us with valuable insights.
Another key driver in our process is understanding and managing risk. Risk assessments are conducted throughout the process, including liquidity, structural, ESG and climate change risks. We target risks for which we expect to be rewarded while avoiding those where the returns appear too low.
We fundamentally believe that diversification is the best way to manage uncertainty, and seek to build portfolios that will be robust in a range of potential economic markets and conditions – which will therefore achieve sustainable investment outcomes over time.
The company released its 2021 Sustainabilty Report, highlighting achievements during the year that included the development of internal water targets and water efficiency management plans.
Newcrest said it achieved 15 of 16 sustainability targets in FY21, with partial achievement of the remaining target.
Santos and Beach Energy announced a final investment decision to proceed with the US$165 million Moomba carbon capture and storage (CCS) project in South Australia, with startup expected in 2024.
The project provides a crediting period of 25 years, over which the project will qualify for Australian Carbon Credit Units for emissions reduction.
Another company that’s pursuing the CCS opportunity is Pilot Energy. The company has formed a consortium with APA Group (ASX: APA) and Warrego Energy Limited (ASX: WGO), to jointly fund Pilot’s Mid West Blue Hydrogen and CCS feasibility study.
The project will focus on blue hydrogen technology, regional CCS potential, and commercialisation potential in the hydrogen markets.
The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.