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Investors mull tougher European climate rules as G20 ministers meet

By: Jack Dominy


France’s new Climate and Resilience Bill establishes President Emanuel Macron’s ambitions for the country to become Europe’s first major decarbonised economy, achieving carbon neutrality by 2050.

The bill — produced by the Citizen’s Climate Convention together with some amendments by the French parliament — aims to accelerate the country’s Paris Climate Agreement targets of cutting greenhouse emissions by 40% by 2030, compared to 1990 levels.

Now under examination in the Senate, the bill focuses in particular on the transport, housing, manufacturing, and agricultural sectors.

However, it has drawn a backlash from both environmental groups, including Greenpeace, who call it insubstantial, and industry lobby groups who claim it places unnecessary restrictions on businesses coming out of a pandemic-induced recession.

Despite this, the contents of the bill will be championed by the French delegation when the G20 Environment Ministers meet on 23 July 2021 ahead of the global summit of world leaders in October.

The French government know that the bill offers a chance to secure the green vote at home ahead of the forthcoming elections, and that of an increasing number of young climate-minded individuals across France.

Risks to returns

Investors should take note. The bill will impact high-polluting, high carbon-emitting sectors and companies could face harsh penalties if they fail to comply.

Manufacturers, for instance, will need to drastically restructure their business models. Those that fail to comply with circular economy operations and to maintain a stock of spare parts lasting a minimum of five years, will face penalties of up to 75,000 euros, as stated in article 13. Products where spare parts are required have been extended to include DIY appliances, bicycles (including electric), and other transportation vehicles.

Car makers will be banned from producing vehicles that emit more than 95g CO2 per km by 2030.

Domestic flights will be banned in circumstances where an alternative train journey of less than 2 hours 30 minutes is available and expansion of airports leading to increased air traffic capacity will also be banned. Airlines will need to comply with carbon offsetting for domestic flights that increase emissions, including financing nature projects in France and elsewhere.

Supermarkets in France will be required to increase bulk packaging, in accordance with article 11 of the bill stating 20% of supermarket capacity will be bulk sales by 2030, an attempt to reduce plastic waste.

While divestment out of polluting sectors may seem an easier option for some, investment into renewables will certainly advance. The Climate and Resilience Bill lays out plans for the extension of a government loan service to people wishing to exchange a polluting vehicle for a bicycle, for instance.

Changing attitudes

Research in Finance (RiF) examined the changing attitudes towards responsible investment among retail and institutional investors in its recent Responsible Investment Study.

It found investors are increasingly analysing how their investments are impacting climate change and using this as a key consideration to guide decisions on fund selection.

In interviews conducted between December 2020 and February 2021, 152 institutional investors (consultants, professional trustees, trustees and scheme managers) were asked about their approaches to ESG investments.

The polls showed that investors primarily look at an asset manager’s engagement approach to responsible investing, but they also look closely at climate and physical risk exposure.

The latest research found that 53% of respondents said they looked at climate change risks in their investments, with an appetite to anticipate future regulation and legislation.

European rule changes

Of course, France is not alone in toughening up the legislative agenda.

In the Netherlands, Shell became the first company to be forced to align its policies with the Paris Agreement, after the oil giant was ordered to implement strategies to achieve net carbon emissions of 45% lower than in 1990, by 2030, in a district court in The Hague.

The general change in the regulatory landscape underscores that risks could be extreme for investors who still have capital allocated to polluting sectors. They may even find their investments rendered worthless if consumers and creditors abandon companies that appear not to have a transition plan.

This could result in ‘stranded assets’, for now mainly a concern of investors in fossil fuel polluters – oil, gas and coal companies. But industries that are carbon intensive – plastics, cement, and some types of agriculture – could also be at risk of the same fate.

Not all polluters and not all investors are getting the message. Shareholders of French multinational oil and gas company Total backed the company’s plans to increase fossil fuel extraction at a recent vote, with a staggering 91.88% majority vote at the latest AGM.

Similarly, MSCI recently released an analysis on whether Shell, and US gas company Exxon, would meet net-zero based on the climate targets they have set.

It concluded that Exxon’s targets are not set to reach net-zero because its targets don’t cover Scope 3 emissions – indirect emissions that occur in a company’s value chain.


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