I have met my fair share of winemakers over the years and Ihave always asked them one simple question, “Is climate change impacting your business?”
The answer is always the same, a resounding “YES!”
Giovanni Gaja, the fifth generation to work for his family's winery in the Piedmont region of Italy, talks about the effects of rain and global warming on this season's crop. "When we think about climate change, we tend to think only about the heat and warmer temperatures," he said. "Climate change is not only that. It's all the rest. It really stretches all the excesses." (JamesSucking.com)
The most recent IPCC report is a code red for humanity and impacts on a macro and micro scale. Climate is the ultimate macro issue.
On a macro scale there is a role for government, for the private sector and notably for the financial sector. The link between Government policy and the financial sector is one of the keys to ensuring that transitioning to manage the climate crisis is done in a relatively orderly manner. The ability to transfer risk at market clearing prices is a key tenet.
The early elements of this transition are forming, and credibility of the process is important even though the solutions won’t be perfect.
There are already many prices of carbon in different markets across the globe. Despite the slow start from China’s ETS market the world needs carbon benchmarks on which to base decisions. This may not take the form of a single global carbon market, but a series of different markets that require credibility to become benchmarks off which different carbon offsets can trade.
There is also a system of bilateral carbon offsetting whereby carbon offsets are purchased on a bilateral basis, and despite some green washing claims, this is the genesis of what I imagine becomes a “corporate carbon” offset market. This will probably trade like corporate credits trade in the interest rate market.
But climate is also a micro issue at the company and individual levels.
According to Ronald Cohen, an ‘impact revolution’ is reshaping capitalism: “The people who haven’t shifted are businesses. But the impact revolution broke out in the open at shareholder meetings this year: there were 200 resolutions on climate proposed at different companies’ shareholder meetings, from ExxonMobil to Procter & Gamble. I think that’s indicative of what is going to happen as there are a couple of hundred resolutions already in the pipeline for next year. (FT Moral Money)
We are seeing significant changes at the company level, an example being Australian resources giant BHP. BHP revealed that existing efforts to exit thermal coal would be complemented by an exit of their oil and gas assets but selling carbon producing assets does little to reduce their carbon emissions if there are simply sold to a different entity.
Additionally worrying, as Bloomberg reports: “China and India are propelling growth in oil products with scores of new plants that will lock in higher greenhouse gas emissions over the next three decades, scientists at Tsinghua University wrote in the report published Friday in the journal One Earth. Without a dramatic overhaul to clean up operations, refiners are poised to emit an additional 8.2 billion tons of pollution beyond mid-century, the study showed.”
The keys remain transparency and integrity. Just as the US accounting standards introduced post the stock market crash in 1929 lead to credibility, carbon standards will lead to accountability and a transparency that can lead to market clearing prices. There are numerous bodies working on this issue lead by the Taskforce on Scaling Voluntary Carbon Markets. The Cop 26 conference in Glasgow in November will be the key event in in building consistency and transparency into carbon pricing.
Without a market that allows hedging and ability to transfer risk, we risk a disorderly financial impact from climate.
The good news is the building blocks are coming together with a tailwind.
These changes will and do impact businesses of all shapes and size. SMEs need to show they are aware and reacting to their emissions, both directly and in their supply chains. This is not easy to achieve, but with the help of the right partners it is not a cost but a competitive advantage. This is fast becoming an essential for business.
Beckon Capital brings ESG and impact analysis and works closely with SMEs in these areas. We combine financial, ESG and impact analysis in our investment and advisory process.
This is part of the sustainability wave that will dominate investing for decades to come. Just as wine gets better with age so will the carbon trading and offset markets providing opportunities in both macro and micro markets and most importantly allowing for a more orderly climate transition.
David 'Bushy' Nolan
+61 (0) 409 881 910