It’s been more than a month since I wrote my last column on the irony of investing in “responsible” companies. As an investor or just a college kid paging through the news, it helps to look at whether or not institutions are really walking the walk when it comes to climate change.
The 2021 United Nations Climate Change Conference (COP26) is a 12-day conference held in Glasgow, Scotland where more than 200 countries were represented. We saw many key figures like U.S. President Joe Biden, French President Emmanuel Macron, alongside Israeli Prime Minister Naftali Bennett and Indian Prime Minister Narendra Modi, among many others. The COP is held to ensure countries are committed to mitigating climate change every five years, prompting national pledges on how countries are limiting the damages of climate change. However, it was hard to ignore the wishy-washy nature of this conference.
The strength of conferences like this one is often undermined by countries failing to sign agreements created to help the environment. The pledge, “Global Coal to Clean Power Transition Statement,” has been signed by more than 20 countries, but is missing signatures from major producers and consumers of coal energy like the U.S., China, India, and Australia. Furthermore, the texts do not implore urgency to the matter, allowing countries to phase out coal by the 2030s “or soon thereafter,” which significantly downplays the severity of non renewables impact on climate change.
The U.S., especially, falters on its national policies towards green energy. The Biden administration has been particularly concerned with being carbon free by 2035, but also concerned with making sure to not upset coal-producers states. This past week, the administration was able to pass a $1.2 trillion infrastructure bill that sets aside $225 billion towards clean energy investments and revamping the energy grid. However, the initiative surrounding improving the energy grid (which makes the largest dent in slowing down climate change) soured after a reduction in funding for the Clean Electricity Performance Program (CEPP), which would make the goal to be carbon free by 2035 much more attainable.
Energy companies celebrated their profitability due to the supply shortages and the rise in demand for coal as the temperatures slowly drop across the world, and cities return to the hustle and bustle. According to the International Energy Agency, more than 140GW of coal plants are currently under construction, and 400GW are currently being planned. Despite the funding opportunities available to boost renewable energy grids, there is still a large gap between the abilities of renewables powering cities and homes and the demand for electricity, resulting in coal and other nonrenewables filling this void—shrouding any attempts to a greener future.
Practically speaking, to make the aggressive change towards mitigating climate change requires a more strategic approach to incentivizing producers to revamp the power grid completely. Such a policy cannot be attained with a meagre—granted its in billions—production incentive to utilities. Due to a gap between supply and demand, we see many institutions profiting from the arbitrage available in prices that have surged as high as $150 per ton for high-energy Australian coal. When such profitability opportunities still exist, and as we continue to face harsher winters due to climate change, the flimsy agreements and high talk at COP26 seem to groan nothing but dismay.
In other more positive news, the SEC has put the anchor down on not letting companies reject shareholder proposals to take more active roles in mitigating climate change and social governance. This policy will likely lead to more resolutions being filed that would ideally lead to more approvals by the SEC. In the past, companies have been able to downplay the importance and role that they can take as corporations to improve human rights issues and help the environment. The biggest arguments were micromanagement, and that usually proposals were filed by opponents of the organization. Now, the current environment and administration seems to be more perceptive of their investors, keeping caveat venditor in check in markets.
Not to be a debbie downer, but I wonder if such a policy will actually be what investors and shareholders desire. The agreement comes with a clause that targets issues like greenhouse gas emissions to be determined by whether “proposals transcend ordinary business of the company with their broad social impact.” This means that whether or not a proposal that can very much likely boost society is determined by a subset of individuals at the SEC — and whether or not they believe that the social impact presented in the proposals are worthy of discussion. To me, this requires building standards upon which a proposal is accepted or rejected — when in reality, many proposals are equally important! To make standards, will mean defining the limits and opportunities for every single industry, for every single sector, and for every single company that is publicly traded. While the power to impact company operations in the hands of shareholders may seem nice, it does not appear to me to be the olive branch it poses to be.
So while we may celebrate the progress being made in mitigating climate change through our administrations and the companies we are shareholders in, it requires us to continue forcing institutions and corporations to have a much clearer stand.
Not Financial Times (NFT) is an Opinion column written and created by Roshni Revankar ’22 to share insights and research into her favorite companies, industry trends, and anything in financial markets that really irks her curiosity.
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