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    Top-Down View from the ESG Balloon

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    Stockholm (NordSIP) – This week NordSIP attended the Sustainable Investment Forum Europe 2023 in Paris, hoping to finger the pulse of ESG to see whether it is alive and well.  Sometimes as sustainability specialists it is too easy to get bogged down in the detail of Article 14(1) of Regulation (EU) No 346/2013, and it pays to catch a ride on a sustainably fuelled hot air balloon to take a proper birds-eye view of the situation.

    In this case the balloon is piloted by the indefatigable Sean Kidney, CEO of the Climate Bonds Initiative.  Kidney reminds us of the seriousness of the situation, referring to small global temperature changes that occurred in the 1600s, which caused pandemics, war and famine.  While that was global cooling, Kidney points to the similarity with events of the past few years as global warming continues.  Nevertheless, Kidney remains an optimist, explaining that the capital to solve the problem exists – it is just not in the right place.  The market’s voracious appetite for green bonds is evidence enough for Kidney to continue battling for rapid change.  Joining him in the Macro balloon is Olivier Rousseau, Executive Director of the Fonds de Réserve pour les Retraites (FRR), the French pensions buffer fund.

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    Rousseau is also an optimist, despite the war in Ukraine and the deep mistrust between the West and China.  For him, these problems have been a positive catalyst for a more concerted move towards greater energy independence in the form of wind and solar.  He believes the Western nations’ research and development into resolving the challenge of intermittency is doing a service to the whole planet.  Nevertheless, Rousseau says we need to build manufacturing capacity closer to home to reduce reliance on China, which he deems untrustworthy.  He is also a fan of nuclear power as a low carbon energy source, with the latest generation of plants able to use spent fuels from older facilities.  There is no time to elaborate on the pros and cons of nuclear, but Rousseau assures us that everything is possible.  He also supports greater European investment in the global South, especially in education and sanitation, all of which helps with political and economic stability.  He does not mention the fact that China may be well ahead of us in that respect.

    Elizabeth Press, Director of Planning at the International Renewable Energy Agency is also looking down with us from the balloon.  She is also blowing hot and cold.  What is hot is that 83% of new additions to the global energy mix last year were renewables.  What is not is that the volume is still far too low, the vast majority of these projects were concentrated in Europe, and there is too much focus on wind and solar.  She wants a much greater diversity of clean energy solutions.  Press also says that while there is a lot of talk about hydrogen, nobody seems to be addressing the lack of supporting infrastructure like pipelines.

    The balloon needs some more positivity to stay afloat, so we turn to Dr. Tony Rooke, Executive Director and Head of Transition Planning at the Glasgow Financial Alliance for Net Zero (GFANZ).  This coalition of allegedly climate-minded major banks came together in the aftermath of the mildly disappointing COP26 in Glasgow.  NordSIP has covered GFANZ’s quite sketchy track record so far, so we really need something good from Dr. Rooke here.  He tells us that his members have set 310 interim climate targets in just 2 years, but he nevertheless feels that success will ultimately depend on policymakers.  Fairly luke warm then.  The balloon inches lower.

    The European Investment Bank’s Chief Sustainable Finance Advisor speaks up from the rear of the balloon’s basket.  Eila Kreivi says gas is not a solution to the Ukraine war crisis, despite industry efforts to promote it and have it included in the sustainable finance taxonomy.  For Kreivi, the intermittency associated with renewables also applies to oil and gas, in the form of unreliable supply and vast price fluctuations.  She calls for a more pragmatic approach based not just on renewables but also a big push on reducing energy use.  “The idea of abundant cheap energy is dead,” she tells us, somewhat lowering the altitude of the hot air balloon.  Kreivi also addresses the rarely discussed problem of our power grids, which are not fit for purpose.  This week we found out that there is a 10-15 year waiting list for new renewable energy plants to be connected to the power grid in the UK.  We will not solve the climate crisis like that, Kreivi reminds us, as the balloon drifts further down to earth.

    NordSIP’s trip in the Macro Sustainability balloon was a useful reality check.  The money to solve the problem is abundant, it is just not being redirected fast enough.  There is far too much concentration of supply and development projects in renewables, with inherent geopolitical risks.  While there is a lot of positive news to keep the balloon afloat, it was good to hear some down-to-earth pragmatism from this panel of experts, for that is what might get us out of the current mess.

    Image courtesy of NordSIP
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    Richard Tyszkiewicz
    Richard Tyszkiewicz
    Richard has over 30 years’ experience in the international investment industry. He has worked closely with major Nordic investors on consultancy projects, focusing on the evaluation of external asset managers. While doing so, Richard built up a strong practical understanding of the challenges faced by institutional investors seeking to integrate ESG into their portfolios. Richard has an MA degree in Management and Spanish from St Andrews University, and sustainability qualifications from Cambridge University, PRI and the CFA Institute.

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