Greenwashing, ESG backlash and transitions

While major banks publicly announce more funding for green projects and India strengthens its transition policies, several US states are moving in the opposite direction

The world’s focus should be on phasing out emissions from fossil fuels rather than fossil fuels themselves. That is the message coming from the president of the next global climate conference.

“In a pragmatic, just and well-managed energy transition, we must be laser focused on phasing out fossil fuel emissions, while phasing up viable, affordable zero-carbon alternatives,” COP28 President Sultan Al Jaber, who also heads Abu Dhabi National Oil Co, was quoted as saying at the Petersberg Climate Dialogue in Berlin earlier this week.

Yet, bans on certain fossil fuels are a way of life in many parts of the world. In New York, Governor Kathy Hochul announced the first statewide ban on the use of natural gas in new buildings for heating or cooking this week. For buildings with seven stories or fewer, the ban will kick in from 2026. The provision will take effect in 2029 for all other buildings.

“Buildings are the largest source of emissions in our state, accounting for a third of our greenhouse gas output,” Ms Hochul had said in her State of the State address in January. She had also proposed ending the sale of any new fossil-fuel powered heating equipment by 2030.

The financial industry is also gradually veering away from fossil fuel financing. Analysis by BloombergNEF shows that the ratio of financing low-carbon energy to fossil fuels should be at least 4:1 by 2030 to meet the 1.5°C climate goal, and steadily increase in the subsequent years. Bank financing for energy supply totalled $1.9 trillion in 2021. Of that, $842 billion went to low-carbon energy projects and companies, and $1.038 trillion went to fossil fuels.

The ratio will likely improve with a host of banks publicly announcing their climate transition plans. Banks that have unveiled plans in 2023 include Citigroup, Spain’s Banco Bilbao Vizcaya Argentaria and NatWest Group in the UK. HSBC intends to do so later this year.

US backlash

As many as 11 large financial institutions — the latest being HSBC — and 348 investment funds are now on Texas Comptroller Glenn Hegar’s list of companies that boycott the oil and gas industry. Those on the list are subject to divestment provisions.

“HSBC’s policies threaten Texas jobs, our state economy and our national security, and the tax dollars of hard-working Texans should not be leveraged to force policies that undermine Texas’ fiscal health and stability,” Mr Hegar said. “I will continue my work to protect the Texas economy, ensure the state has a diverse energy portfolio to meet the needs of our rapidly growing state and fight for Texas taxpayers and retirees who expect their hard-earned money to be invested in a manner that prioritises returns over progressive social and political agendas.”

Florida’s public or state-controlled funds can no longer invest their money based on environmental, social and governance factors under a bill signed by Governor Ron DeSantis earlier this week. The law broadly directs all Florida pension funds to prioritise returns without considering  (ESG) factors in investment decisions. Over a dozen states in the US have enacted anti-ESG-related bills or policies, while many have similar proposals in discussion.

India’s transition

India’s green transition would require a multi-pronged action plan, the Reserve Bank of India said in its report on currency and finance released earlier this week.

“India’s CO2 emission level may rise from 2.7 gigatonnes (in 2021) to 3.9 gigatonnes by 2030. A policy mix comprising a carbon tax of rupee equivalent of $25 per tonne, current plans on progressively increasing the share of non-fossil (solar, wind) fuel in the energy mix, production and use of EVs [electric vehicles] and green hydrogen, and regulatory measures to incentivise resource allocation for green projects, could reduce CO2 emissions to 0.9 gigatonne by 2030,” RBI said. Higher rates of carbon tax could reduce the emissions even further.

The stock market regulator, Securities and Exchange Board of India, already mandates ESG disclosures for the top 1,000 companies. In early February, it joined many others around the world to flag the risk of greenwashing — making false, misleading, unsubstantiated, or otherwise incomplete claims about the sustainability of a product, service, or business operation. It asked issuers of green debt to ensure that funds mobilised are used for the stated purpose, and the negative externalities associated with usage of the funds are quantified. A consultation paper on ESG disclosures, ratings and investing has subsequently been issued.

The writer is New York-based senior editor – global policy for BloombergNEF, vgombar@bloomberg.net