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Teneo UK ESG Insights 3.10.22

March 10, 2022
By Edward Bottomley

Welcome to Teneo's UK ESG Insights. Each fortnight, we’ll help you to cut through the noise around ESG by exploring some key market developments and the implications for companies.

UK Under Pressure to Drive Net Zero Transition

A new study by the House of Lords Industry and Regulators Committee – written before the start of the war in Ukraine – has called out the UK government on its goal of net zero emissions by 2050, and its plans towards a carbon-free power system by 2035. The report claims the government has failed to introduce “credible plans” to drive investment in alternative technologies and concludes that the government is likely to miss its targets. The report also calls for the implementation of an “Energy Transformation Taskforce” and insists that the government explains how the transition will be funded.                                 

  • Teneo takeaway: This report is a significant contribution to the debate around net zero targets and represents another high-profile voice calling for clarity and action from the UK government. Chair of the Committee Lord Hollick claimed that “there is no point planning a carbon-free energy future if you haven’t got a clue how you will get there or how it will be paid for.” The committee estimates that annual spending will need to be ramped up to £50bn by 2030 to meet the transition to net zero but observes that without clarity from government on how it should be directed, the capital will not be forthcoming.

UN Plastics Treaty

Last week, The UN Environment Assembly agreed to commence negotiations on the drafting of a treaty to take action on the “plastic crisis”. Plastic has contributed to an ongoing pollution problem, with production rising from 2 million tonnes in 1950 to 348 million tonnes in 2017 and is projected to double by 2040. The agreement will start conversations that will set out rules on the production, use and disposal of plastics – which will encapsulate the entire plastic lifecycle. Negotiations will start in the second half of 2022, with the aim of agreeing a treaty by the end of 2024.

  • Teneo takeaway: The announcement, following rounds of talks at the UN Environment Assembly held in Nairobi, is a significant breakthrough regarding one of the most damaging materials to the environment today. Many have spoken out in praise of the announcement, including Inger Andersen, executive director of the UN Environment Programme, calling the creation of a treaty as: “the most significant environmental multilateral deal since the [2015] Paris accord”. With participation from 173 countries, it is hoped that this announcement will represent a turning point on single-use plastic and, if talks produce a strong deal, could reduce plastic waste globally.

ESG Divestment

With the war in Ukraine, companies have been reviewing and, in some cases, ceasing and even divesting their operations in Russia. Similarly, financial investors – in particular ESG focused funds – have made significant divestments of Russian assets. According to Morningstar research, 14% of sustainable funds globally held Russian assets right before the war, and now, they are now selling or plan to sell over €5.2bn of Russian investments. Many investors have already announced that they will divest, and it seems likely that there will be more to come, with general market sentiment encapsulated by Legal & General Investment, which refers to the invasion of Ukraine as contravening “almost every measurable ESG metric”.

  • Teneo takeaway: It remains likely that the divestment from asset managers out of Russian funds will continue. Pressure on ESG investors to act is rising, and now more than ever funds need to reassure clients that they are abiding by ESG metrics, however, where will the line be drawn? Philippe Zaouati, chief executive of sustainable asset manager Mirova, has called the current situation a “moment of recalibration for ESG investors”. With funds divesting from Russia, questions are being asked about whether investors should act similarly in other global areas of conflict.

"Chairman" to "Chair"

Leading business groups including the Institution of Directors, Make UK, British Chambers of Commerce, and the Confederation of British Industry have signed an open letter to ask for the eradication of the use of the word “Chairman” by the government, as it is still used by Companies House as a default term. The letter proposes the change to the gender-neutral word “chair” – and states that changes could be easily updates in upcoming corporate governance legislation.

  • Teneo Takeaway: Whilst the change to gender neutral language in the business space may seem like a small step on the way to further gender acceptance, changes like this may help to break down subconscious bias that exist and send a message to future generations that regardless of gender identity- everyone has an equal role to play in the running of businesses.

Looking Ahead: Upcoming ESG Events & Happenings

The views and opinions in these articles are solely of the authors and do not necessarily reflect those of Teneo. They are offered to stimulate thought and discussion and not as legal, financial, accounting, tax or other professional advice or counsel.

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