BlackRock Bucks ESG Luddites, "Denial" & the EU's Pioneering Carbon Border Tax
The newsletter for independent thinkers on carbon and climate.
Issue No. 146
Welcome to the latest issue of Carbon Creed - a curated newsletter for independent thinkers on carbon and climate.
BlockRock inflow of $230B dwarfs $4B outflow in ESG backlash.
BlackRock, the world's biggest asset manager, lost around $4 billion in assets under management as a result of a political backlash against environmental, social and governance (ESG) investing in the United States, its chief executive said.
Conservative-run Florida, Louisiana and Missouri have all said they plan to pull investment mandates from the company, citing concerns including that BlackRock's ESG efforts could impact investor returns.
However, Larry Fink, speaking at a Bloomberg News event in Davos, Switzerland on Tuesday, said the asset management group took in $230 billion over the course of 2022 from U.S. clients.
Despite winning much more money than it lost, Fink said he was taking the issue "very seriously" and was trying to "address the misconceptions".
"It's hard, because it's not business...they're doing it in a personal way. For the first time in my professional career, attacks are now personal. They're trying to demonise issues."
Some of those criticising the company have pointed to its efforts to encourage companies to transition to a low-carbon economy in the fight against climate change as an attack on the fossil fuel industry.
Fink, though, said BlackRock was one of the biggest investors in the sector in the world. He also pointed to the global shift towards cutting climate-damaging carbon emissions, particularly in Europe, as a key driver of new business.
"If you do not have a lens towards decarbonization, you're not going to win one euro of business." Fink said.
Creed Thoughts: Larry Fink gets it. The ESG train has left the station, and the deniers will have to eat crow in the end. However, an ESG “reboot” based on the creation of common standards for corporate disclosures, is desparately needed. When executives can’t agree on what concepts like “sustainability” actually mean, we have a problem. But that’s a problem we can fix. ESG needs to be mended, not ended.
Bank of America Chief Executive Brian Moynihan said it well, when he told the World Economic Forum in Davos that official global standards on sustainability and climate were needed to “align capitalism with what society wants from it.” And society wants clear, transparent ESG standards.
We’ll keep you posted on the latest carbon policy and market insights as they happen.
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BOOKS
Denial: A Novel
by Jon Rathmond
The year is 2052, and mankind concedes that earlier environmental disasters were the catalyst for that world's global ecological problems. After massive fires decimated South America, cyclones in the Midwest destroyed U.S. agriculture, and the city of Venice has been submerged due to rising sea levels, humans point fingers at the leaders of the planet's fossil fuel industry. A global protest movement led by a group called The Upheavals helped break Earth's fossil fuel dependency, and the subsequent Toronto Trials convicted the most powerful oil executives and lobbyists for crimes against the environment. However, a few executives escaped arrest and went into hiding, including pipeline mastermind Robert Cave.
Shortly after the trials, a Pacific Northwest journalist named Jack Henry who works for a struggling media company has received a tip that Cave is living in Mexico. Hoping the story will save his job, he travels south and, using a fake identity, makes contact with the fugitive. The two men strike up an unexpected friendship, leaving Jack torn about exposing Cave—an uncertainty further compounded by the diagnosis of a life-threatening illness and a new romance with an old acquaintance. Who will really benefit from the unmasking? What is the nature of justice and punishment? How does one contend with mortality when the planet itself is dying?
Denial is a subtle and morally engaging novel, and thought-provoking read. Raymond's chaste yet exquisitely descriptive language paints the world for what it is—in all of its beauty and destruction—and his well-constructed plot turns the thrill of the chase on its head.
Creed Comments: Acclaimed screenwriter Jon Raymond, known for First Cow, Meek's Cutoff, and HBO's Mildred Pierce, has now written Denial, an enthralling novel that reimagines the current climate crisis and questions the moral obligation that humans have to each other in a dystopian world.
While Denial discusses climate change, that conversation is pleasantly understated as it is seamless woven into in the talk of the characters' priorities that result from the moral dilemmas of their action. The author makes us question much of we think we know about life and death and the consequences of our decisions. This one is definitely worth reading.
INSIGHTS
The EU’s pioneering carbon border tax
After a year of intense talks, and a series of marathon negotiations in the lead-up to Christmas, the EU late last year agreed on a carbon border tax — the first of its kind globally. It could be vital for the bloc’s net zero ambitions. If it galvanises other trading partners into pricing their carbon emissions, it could also be a pioneering stride forward in the global fight against climate change. While the levy makes sense in theory, its success will depend on how effectively the EU can navigate the numerous practical challenges of actually implementing it.
The carbon border adjustment mechanism (CBAM) requires firms in the bloc to pay tariffs on some carbon-intensive imports linked to the domestic carbon price under its Emissions Trading System (ETS). As such, it aims to level the playing field for European industries that already pay for their emissions via the ETS, and prevent dirty production from shifting to where it is less heavily taxed — also known as “carbon leakage”. While it raises trading costs, the lure of retaining access to the world’s largest trading bloc could support the wider adoption of carbon prices — which is vital for cutting global emissions. Indeed, the more countries adopt carbon pricing, the less carbon-related tariffs would actually be applied.
By moving first the EU hopes to sustain support for the green transition at home. Europe’s competitiveness has been strained over the past year. High energy costs, supply chain disruption, and the potential impact of the US Inflation Reduction Act have raised fears of industrial decline. Decarbonisation is not cheap: while CBAM would put the bloc’s businesses on a fairer footing, the EU will need to grapple with demands for more support. Free emission allowances are being phased out, albeit slowly, as the CBAM comes in. Meanwhile, some businesses and officials are calling for export rebates, which analysts say may contravene WTO rules.
Keeping international partners on side, and not intensifying existing trade tensions will be hard. While some nations are mulling similar schemes, the CBAM has already faced accusations of creating protectionist trade barriers. The US and China have expressed concerns. Countries are worried their manufacturers may face a wave of cheap imports diverted from the EU, alongside weaker access to the bloc. Developing nations, which are less able to cushion regulatory costs and measure emissions, may also suffer without concessions. This risks spurring WTO challenges, retaliation, and a hodgepodge of carbon border taxes with varying rules.
Over time the CBAM could also lead to unintended consequences. Given its initial scope — covering a few imports including iron, steel, fertiliser, and electricity — EU businesses could adjust their supply chains to avoid the tax, for example by importing finished products instead. Companies outside could also simply send their cleanest products to the bloc and carbon-intensive ones elsewhere without slashing emissions. Indeed, the scope of CBAM may need widening to make it more effective, but this would also intensify the domestic and international challenges.
The CBAM is a key instrument in the EU’s climate toolkit. Ideally, it would catalyse a broader international discussion on how trade can be used as a tool to help meet global goals on climate change. To make carbon border taxes work — and ultimately redundant — there needs to be transparency and common standards on how carbon content is measured and priced. German chancellor Olaf Scholz’s push for a G7 “climate club” offers hope that nations can band together. The EU must redouble efforts on such initiatives with international partners, otherwise global carbon pricing will remain a pipe dream.
[This post was adapted from the original by the Editorial Board of the Financial Times]
Creed Thoughts: The new year is shaping up to be epoch for carbon trade policy. As governments launch new economic policies to curtail climate change, trade tensions are rising. The EU CBAM and the US Inflation Reduction Act demonstrate 1) the very different approaches nations have chosen to incentivize decarbonization, and 2) the challenge finding equivalence between the two will be.
The EU, for now, is adamant that only carbon pricing schemes like the EU ETS will be acceptable for CBAM-free trade and is concerned that the very generous US subsidies on offer might incentivize the delocalization of EU industry. The United States, on the other hand, is clear that it will not introduce carbon pricing or significantly change the Inflation Reduction Act. And we have yet to see what course India and China will choose, as they likely will account for most industrial carbon emissions in the future.
One thing is clear; we need to find a way to square the need to take climate action with the fundamental principles that underpin the global trading system. The year 2023 will be critical in working through how best to do this.
RESOURCES
The Science of Climate Change Explained: Facts, Evidence and Proof, published by the New York Times
Currents a podcast featuring in-depth discussions with experts on clean energy and sustainability, published by Norton Rose Fulbright.
Advancing Inclusion Through Clean Energy Jobs a report by the Brookings Institute.
Congressional Policy Tracker a summary of current federal energy legislation.
Click Clean your favorite apps and tech company clean power rankings.
The Keeling Curve a daily record of global atmospheric CO2 concentration.
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