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October 3 | Financial institutions threaten to leave green finance alliance; One year old startup crowned unicorn

Companies in this issue: JP Morgan (JPM.US), Morgan Stanley (MS.US), Bank of America (BAC.US), Citigroup (C.US), Wells Fargo (WFC.US), JLL (JLL.US)

MioTech Research2022-10-03
#GFANZ#MarkCarney#Fed

*Glasgow city view; Picture Source: Unsplash

Party is Over: Financial institutions threaten to green finance alliance over compliance burden

As COP26 enthusiasm cools down, financial institutions are realizing that commitment to net zero may actually bear consequences and are threatening to leave. According to the Financial Times, JP Morgan, Morgan Stanley and Bank of America, among other Wall Street banks have warned of departure from the world’s largest climate finance coalition as a result of the rising compliance costs with more stringent targets of decarbonisation and coal phase-down being proposed.

*Glasgow Financial Alliance for Net Zero (GFANZ)

The Glasgow Financial Alliance for Net Zero, or GFANZ, was established in April 2021 by Mark Carney, UN special envoy on climate action and former governor of the Bank of England as well as the COP26 president, in partnership with the UNFCCC Race to Zero campaign. As of last November, the total capital committed to net zero through the organisation had reached USD 130tr, from over 450 firms across 45 countries.

Members of the alliance are required to meet the climate targets set by the Race to Zero, including a recent ban on support for new coal projects, which members will need to comply starting June 2023. According to an August report by FT, financial institutions may see their GFANZ membership being revoked if they fail to meet such targets.

FT cited a senior executive at a US bank who said it is “immoral and irresponsible” that a third-party body creates legal liabilities for the bank and its shareholders. A bank might be subject to mistakes and misinformation in meeting these targets and could be sued, which the executive considers as “an unacceptable risk”.

A Bloomberg report said US banks may also suffer from legal charges in the fallout of the anti-ESG moves of some US states to blacklist banks and investment firms that appear to “boycott” fossil fuel to their recognition. European banks, including the Spanish Santander have also sensed the difficulties to align its business with GFANZ visions. So far, no Chinese bank has joined the GFANZ.

According to Bloomberg, the GFANZ has seen the withdrawal of two firms in the past month. An Austrian pension firm called Bundespensionskasse AG, and a construction private equity fund named Construction & Building Unions Superannuation Fund, also known as Cbus also officially left the alliance. Some private equity firms have commented that eliminating carbon footprints by 2050 is nearly impossible, making it an unnecessary burden to join GFANZ.

Climate activists are worried about the greenwashing risks. Former US vice president Al Gore called out the green-washing phenomenon and questioned the credibility of the net zero pledges.

One year old startup crowned unicorn thanks to booming solar energy industry

Lihao Semiconductor last week announced the completion of series B funding which injected RMB 2.2bn (USD 309m) of capital into the company. Lihao Semiconductor is a producer of high-purity crystalline silion, a key material of photovoltaic cells. The funding has attracted Changjiang Securities Innovation Investment, China Belgium Direct Equity Investment Fund, and China-U.S. Green Fund.

It has been less than two years since the company was established in Qinghai, a part of western China. An investor who wishes to remain anonymous told PEdaily, a private-equity-focused Chinese media in the latest funding, the company has hit a valuation of over RMB 11bn (USD 1.6bn), making it a unicorn.

Fed taps six largest US banks for first ever climate stress test

In a latest announcement on September 29, the Federal Reserve has underlined Bank of America, Citigroup, Goldman Sachs, JP Morgan Chase, Morgan Stanley, and Wells Fargo to take part in its inaugural pilot climate scenario analysis exercise. The exercise, to be launched in early 2023 and span across the whole year, is designed to enhance the ability of supervisors and firms to measure and manage climate-related financial risks.

Over the pilot exercise period, the six banks will analyse the impact of the scenarios on specific portfolios and business strategies. The Federal Reserve Board will review the analysis results and engage with the banks regarding building capacity to manage climate-related financial risks. Unlike normal stress tests, the climate stress test is “exploratory in nature” and will not impact the capital reserves of banks.

Catching up on biodiversity

As the second part UN Biodiversity Conference (COP15) is approaching, attention paid to biodiversity is growing globally. At the UN General Assembly in New York, Olaf Scholz, Chancellor of Germany, announced to expand its biodiversity funding to EUR 1.5bn (USD 1.5bn) per year, Caixin reported.

What’s more? BNP Paribas Asset Management has launched a eurozone biodiversity fund, BNP Paribas Easy ESG Eurozone Biodiversity Leaders PAB ETF. Categorised as an Article 9 fund under the EU SFDR, the fund will track a portfolio of eurozone companies that have a lower impact on biodiversity than their peers. According to Responsible Investor, it is the first ETF aligned with the EU’s Paris-Aligned Benchmarks (PAB).

Estimated substantial loss caused by hurricane Ian

One of the strongest storms ever to hit the US, Hurricane Ian has left more than 2 million people living off the grid as of Thursday morning last week. This is not the first time climate experts have warned us about having this type of catastrophic storm striking the west coast of Florida, where population and development skyrocketed in recent years, despite the potential risk of being hit by massive storms.

This massive category 4 storm has hit Florida with exceptional force, and this is likely linked to climate change. Had this hurricane occurred a hundred years ago, the intensity certainly would not be as strong, climate scientist Katharine Hayhoe of Texas Tech University and the Nature Conservancy commented on social media.

Potential Australian coal mine development undermines climate agenda

Climate advocates express concerns as the Australian government proposes a pipeline of coal mine projects in the country. According to a study by Move Beyond Coal, a Sydney-based climate advocacy group, if the 29 proposed new mines and mine expansions are developed to their full capacity, it would lead to a staggering increase of 250 million of CO2 emissions per year and eventually 17 billion tons – more than half of the global emission in 2021.

Despite the Australia’s Green Party and pro-climate independent lawmakers’ appeal to push for more stringent environmental laws, ministers currently are not required by law to consider climate impacts when considering these new coal mine projects.

Pemex pressured to reduce emissions as it seeks financing from HSBC and Goldman

The Mexican oil & gas company Petroleos Mexicanos, also known as Pemex, is pressured to reduce emissions as the company seeks financial funding, after the government ceased paying for the company’s debt service due to unsatisfactory liquidity performance.

According to Bloomberg, the company has reached a preliminary agreement with HSBC and Goldman Sachs Group Inc. to provide financing amid their liquidity crunch. It was alleged that USD 1bn financing would be provided under the conditions that the company fulfils certain emission reduction goals.

Connecting workplace: BNP Paris AM names APAC head of stewardship, JLL’s new chief sustainability officer

BNP Paribas AM has appointed Jane Karen Ho as Head of Stewardship, Asia Pacific, within its Global Sustainability Centre in Singapore, as reported by ESG TODAY. She will lead BNP Paribas AM’s stewardship activities in the region, including researching key corporate governance issues, undertaking direct and collaborative engagement on sustainable themes, and working with policymakers on issues relating to sustainable finance. Prior to the appointment, Jane worked as the Director of Investor Practice at the Asia Investor Group on Climate Change (AIGCC).

Leading real estate and investment management-focused professional services provider JLL announced the appointment of Erin Meezan as Chief Sustainability Officer (CSO). Erin brings along more than 19 years of experience in the sustainability field. Prior to joining JLL, she was the VP and Chief Sustainability Officer of modular flooring company Interface. According to the official announcement, Erin will be leading the expansion of JLL’s sustainability program, continuing the firm’s commitment to playing a leading role in sustainable real estate operations.

Sources
[1] FT - US banks threaten to leave Mark Carney’s green alliance over legal risks
[2] FT - Finance groups risk being kicked out of Mark Carney-led climate coalition
[3] Bloomberg - JPMorgan, Morgan Stanley Signal Doubts on Carney’s Climate Group
[4] Bloomberg - Al Gore Calls Out ‘Greenwashing’ Risks as Funds Quit Green Club
[5] 丽豪半导体 - 丽豪半导体完成22亿元B轮融资,打造新一代高纯晶硅产业标杆
[6] 投资界 - 青海西宁,罕见诞生一个超级独角兽
[7] Federal Reserve - Federal Reserve Board announces that six of the nation’s largest banks will participate in a pilot climate scenario analysis exercise designed to enhance the ability of supervisors and firms to measure and manage climate-related financial risks
[8] 财新网 - 德国宣布增加生物多样性资金至15亿欧元
[9] Responsible Investor - Friday Funds: BNP AM launches first biodiversity PAB ETF
[10] Bloomberg - Hurricane Ian Is a Climate Disaster for the History Books
[11] Bloomberg - Mega-Polluting Coal Plans Clash With Australia’s Climate Goals
[12] Bloomberg - Goldman, HSBC in Talks With Pemex on $1 Billion ESG Financing
[13] ESG TODAY - BNP Paribas AM Appoints Jane Karen Ho as Head of Stewardship for Asia Pacific
[14] JLL - JLL appoints Erin Meezan as Chief Sustainability Officer