ZEUS: How NY climate week changes COP26, with Parnassus ESG head Iyassu Essayas
As political pledges grow, so does the risk perspective
A 500-foot tall projection of a siphonophore is being shown on the side of the UN headquarters in New York nightly this week. It was created by Superflex, a Copenhagen-based artist collective, and timed to coincide with the 76th UN General Assembly, which runs through Sept. 30. The projection aims to draw attention to the threat that climate change presents to marine life. Image: UN Photo/Eskinder Debebe.
(David Callaway is founder and Editor-in-Chief of Callaway Climate Insights. He is the former president of the World Editors Forum, Editor-in-Chief of USA Today and MarketWatch, and CEO of TheStreet Inc.)
SAN FRANCISCO (Callaway Climate Insights) — Like the dress rehearsal before opening night of a Broadway musical, everything at the United Nations’ global leaders summit in New York this week started off wrong for climate change.
None of the major polluting nations bothered to show at a huddle called by UK Prime Minister Boris Johnson on Monday to address financial commitments to smaller countries hit by global warming. Johnson’s own speech on uniting to fight climate was overshadowed by an energy crisis at home, and a Twitter storm over his admission he has six kids. China, the world’s largest polluter, hadn’t bothered to send anyone from Beijing to New York at all.
But that changed yesterday as Xi Jinping confirmed in a video statement that China would halt some $50 billion of investment in about 50 coal plants in 20 foreign countries, and the U.S. doubled its pledge of financial assistance to poorer countries to more than $11 billion. A high-level European Union source told Callaway Climate Insights European bureau chief Stephen Rae in Brussels Monday that China would indeed now send a delegation to Glasgow for the COP26 summit in November, despite reports to the contrary. The headlines show how quickly engagement and commitment from the large polluters can change the script.
Forty days before COP26, expectations for progress in curtailing harmful greenhouse gas emissions are as low as they’ve been all year. Which is why we’re watching closely for any other surprises such as China’s this week. And asking investors and CEOs whenever we can. (Read Locus Techologies CEO Neno Duplan’s prognosis here.)
One place to start is right here in San Francisco, home of Parnassus Investments, which runs the largest environmental, social and governance (ESG) mutual fund in the country, the $31 billion Parnassus Core Equity Fund (PRBLX). The fund is up 18% year-to-date despite the difficult year in ESG themes and this week’s overall scare in the U.S. stock market.
Iyassu Essayas is the head of ESG Stewardship at Parnassus, and a long-time student of company climate disclosures and sustainability initiatives. In a podcast with me and our columnist Robert Powell, Essayas said he’s looking at the event as an investor from a position of how a bold new set of climate pledges might affect the market.
“I would look at it from a risk perspective,” Essayas said, citing the biggest emissions producing industries, such as utilities and other energy companies, or airlines. “Companies in these industries could be impacted if they don’t have any plans to move away from fossil fuels.”
At issue is whether global leaders will collectively agree to update their so-called national determined contributions to cutting their greenhouse gas emissions as part of a previous agreement in 2015’s Paris Accord. Essayas said he thinks that could be the biggest thing to come out of the summit, and that if so, it would push many countries to be more aggressive in their cuts, which could impact fossil fuel-heavy industries.
He said it is also possible that investors could see regulators agree to more climate risk disclosure mandates, which would improve the transparency of what companies are doing to be more sustainable and yield a host of investing opportunities.
The Securities and Exchange Commission’s Gary Gensler is weighing new rules on improving corporate disclosures, as opposed to Europe, which focuses more on how the large asset managers invest.
“COP26 could put more pressure on the SEC to move forward with some of their disclosure asks,” Essayas said. “It does need to be standardized.”
But Essayas said the biggest change of all to come out of COP26 will depend on the quantity and quality of clean energy pledges by large, global companies. If the big companies can seriously move the needle on their own emissions, including those from their customers and supply chains, then he said the impact will trickle down to other companies in their industries.
In that manner, it could be more valuable than a regulatory mandate, or even an increase in voluntary commitments from several dozen countries. We’ve seen something like this materialize this past summer in the shipping industry, when Danish giant Maersk agreed to spend more than $1 billion on clean fuel in reaction to pressure from some of its larger shipping clients, the tech companies.
The four Parnassus equity funds, which have all been ranked as leaders in ESG by Morningstar, are solid guideposts for investors looking to incorporate ESG strategies into their portfolios. Big summits like Glasgow don’t often lend themselves to dramatic shifts in markets, but they can establish large storylines through industries that will benefit some business models better than others.
In Glasgow’s case, storylines around carbon pricing, electric vehicles, wind power (maybe solar), forest reclamation, and fossil-fuel reduction are all in play for investors looking to cut risk and beef up on opportunity.
While it’s unrealistic to expect the summit to yield the type of breakthroughs that can move the global warming needle short-term, the improved news out of New York Climate Week at the UN in the past two days shows that despite ragged dress rehearsals, the show must go on.