Crypto News: Republican ESG campaign falls short

Today's newsletter checks in on the political war against ESG investing in the US. You can read the full story on Bloomberg.com.

Also, read BloombergNEF's latest analysis on the impact of the Inflation Reduction Act. The research group finds it may only halve US emissions by 2050.

By Tim Quinson

For all of the Republican Party's furious opposition to ESG, its efforts to accomplish something on the legislative front have fallen short.

At least that's the view of Cowen Inc. analyst John Miller, who closely tracks regulatory affairs for the firm's Washington Research Group.

House Republicans held a series of hearings last month, which Miller monitored. At the meetings, the lawmakers called for squashing the Securities and Exchange Commission's efforts to enforce more transparent corporate disclosure requirements for environmental, social and governance factors. In addition to taking on the SEC, GOP lawmakers are pushing for stricter oversight of proxy advisory firms and also favor limiting—or even excluding—ESG-focused investments from Employee Retirement Income Security Act (ERISA) funds.

"However, the reality is if you're expecting any meaningful legislation to emerge from all the Republicans' talking points, think again," Miller says.

Of course, the big reason is that while a slim-GOP majority controls the House of Representatives, a similarly small majority of Democrats controls the Senate. Indeed, Miller says the Republican initiative to protect industries responsible for churning out fossil fuels will have little, if any, overall impact on investors. Money flows to clean energy and clean transportation companies will go on unaffected and most money managers will continue to invest anyway that they want, he says.

"While Democrats are increasingly concerned that anti-ESG efforts will slow capital flows, we don't think so because no matter what happens in the Republican-controlled House, there's little chance the Democrat-controlled Senate will take up the issue," Miller says.

The two areas where the Republicans may make headway, however, center on proxy advisory firms and ERISA, Miller says. Still, he adds that such efforts won't have any long-lasting impact on the financial markets.

ERISA is a federal law that sets minimum standards for most voluntarily established retirement and health plans to provide protections for individuals who take part. The debate around it focuses on whether fiduciaries can consider the climate crisis and other ESG factors when selecting investments and exercising shareholder rights.

While Democrats back this position, Republicans want to eliminate any connection between ERISA and ESG. They contend that fund managers should care only about generating the highest returns possible for investors, and nothing else. (This despite research showing ESG investing strategies can be equal to or more profitable than non-ESG strategies.)

As for proxy advisory firms Institutional Shareholder Services and Glass, Lewis & Co., the GOP contends they are "an activist duopoly," Miller says. The party is calling for independent audits of the proxy advisers, arguing that they often back shareholder efforts it sees "as surrendering economic analysis in lieu of social and climate issues," he says.

The party's professed concerns have emerged amid evolving rules from the Biden administration that have led to a larger number of ESG-linked shareholder resolutions. The Republicans want to reverse this trend.

"We expect a full House vote on SEC disclosure rule-making and the proxy situation to occur in the fall, probably in October, but as mentioned, we don't expect the Senate to follow up, meaning nothing will really change," Miller says.

John Cornyn Photographer: Al Drago/Bloomberg

The political infighting is occurring during a summer of record-setting wildfires and deadly heat waves across the globe. Scientists concur that the burning of fossil fuels is behind the growing number of environmental catastrophes human face all over the world.

So far though, Republicans—whose attacks on ESG are being pushed by the very industries who make billions of dollars selling those fuels—remain largely unmoved.

In fact, some are still pushing back against the science behind global warming and this summer's historic heat. GOP Senator John Cornyn of Texas, who serves as an adviser to Senate Minority Leader Mitch McConnell, said last week that drawing a correlation from recent heat waves and wildfires to climate change was "hubris."

SEC Chairman Gary Gensler, however, appears to be feeling pressure from the GOP campaign against ESG. He has indicated that the commission's final climate disclosure rule, delayed for over a year now, will likely need a shift to make the regulation more palatable to the right, given considerable political pushback to date, according to analysts at Bloomberg Intelligence.

The rule will require companies to report how they identify and manage climate risks, in addition to certain audited greenhouse-gas emissions data, and legal challenges are inevitable, given the sizable cost of implementation, BI says.

Like always, the SEC will have to confront "increased policy volatility" as corporate disclosure requirements and various shareholder proposals shift between the Democrats and Republicans, Miller says. But at the moment, "other than the ERISA and proxy stuff, there's not a lot there," he says.

As the Amazon hurtles toward a catastrophic tipping point that's eroding its status as a major carbon sink for the entire planet, a new study maps out which banks have pumped the most money into oil and gas extraction from the world's largest rainforest.

JPMorgan Chase and Citigroup are at the top of the list.

An analysis by Stand.earth, a nonprofit with offices in Canada and the US, lists the two Wall Street behemoths as the two banks that have dominated financial backing to atmosphere-warming fossil fuels in the Amazon basin over the past 15 years. In all, JPMorgan and Citigroup were behind $3.8 billion in loans and bonds for oil and gas production and infrastructure, the group says.

Scientists have found that parts of the Amazon have begun to emit more CO2 than they absorb. JPMorgan Chase and Citigroup were behind $3.8 billion in loans and bonds for oil and gas production and infrastructure in the South American river basin. Photographer: Mauro Pimentel/AFP/Getty Images

Intensifying global warming is poised to increase borrowing costs for cities, countries and companies as ratings firms struggle with climate risk in a $133 trillion market.
A majority of investment bankers tasked with setting industry standards for calculating carbon footprints of capital-markets activities favor banks reporting only one third of emissions tied to stock and bond underwriting.
Swift condemnations of missteps by top executives at NatWest Group Plc may have been fueled in part by growing UK conservative opposition to the bank's environmental and social advocacy.

For unlimited access to climate and energy news — and to receive the Bloomberg Green magazine — please subscribe.

President Joe Biden's signature climate law, the Inflation Reduction Act, will cut emissions in the US, but perhaps not as drastically as some are hoping to see. New analysis from BlooombergNEF finds the law's $369 billion in financial incentives will speed up the transition to renewable power and electrified transportation, driving the country's emissions down from 5.3 gigatons last year to 2.3 gigatons at mid-century — far from eliminating them entirely. The analysis represents BNEF's first attempt to forecast how the IRA, passed last year, will affect energy-related emissions across the entire US economy, rather than specific industries such as renewable power.

US President Joe Biden shakes hands with Senator Joe Manchin, a Democrat from West Virginia, left, after signing H.R. 5376, the Inflation Reduction Act of 2022. Photographer: Sarah Silbiger/Bloomberg

Europeans lack insurance protection. Almost 90% of natural disaster-driven losses in Europe weren't covered by insurance in the first half of 2023, according to Munich Re. The predicament is particularly troubling as the continent continues to suffer a summer of devastating heat, wildfires and drought.

Meanwhile, solar farms are harder to insure. Property insurance premiums for US solar facilities have soared as much as 50% over the past year. Ironically, storms, floods, wildfires and other disasters amplified by global warming are inflicting damage on them.

UAE's Adnoc seals a carbon capture deal. Occidental Petroleum Corp. has agreed to partner with the top oil producer in the United Arab Emirates to explore investment in the US and overseas for giant plants that suck carbon dioxide out of the sky.

By Brian K. Sullivan

While the streak of temperatures of 110F or more ended on Monday, Phoenix hasn't had a high below 105 since June 24, according to National Weather Service records.

Tuesday's high reached 109 and is forecast to peak at 108 Wednesday. Readings will once again rise to 110 and higher through end of the week.

Things aren't any better further south. Heat is bearing down across northern Mexico, where temperatures could reach 104 to 113 across parts of Baja California, Baja California Sur, Sonora, Sinaloa, Coahuila, Nuevo Leon and Tamaulipas, the Servicio Meteorológico Nacional said on its website.

In other weather news:

China: The deluge of rain that triggered floods and killed at least 20 people in northern China this week was the heaviest to hit Beijing since record-keeping began in the 19th century.

Typhoon: Taiwan's markets will be closed Thursday as Typhoon Khanun approaches, according to a statement from the stock exchange. The government earlier said schools and offices in Taipei would also be shut.

Tropics: In the eastern Pacific, Hurricane Dora is heading due west into the barren regions of the ocean. Dora's winds are forecast to hit 125 mph making it a Category 3 hurricane on the five-step Saffir-Simpson scale, according to the US National Hurricane Center.

Europe: Summer heat is set to return to Spain this week, while the threat of wildfires is spreading across the Mediterranean from the French Riviera to the Greek islands.

UK: An unseasonably "deep area of low pressure" will bring strong winds and heavy rain to the UK on Wednesday, the UK Met Office said. Wind gusts could reach 50 miles per hour across the southern parts of the country, Clare Nasir, a meteorologist with the Met Office said in a video briefing. In addition to the winds, upwards of 40 millimeters of rain could fall in a few hours during thunderstorms.