Consiglieri di amministrazione e top manager di fronte alla sfida della decarbonizzazione - Stefano Pareglio
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Consiglieri di amministrazione e top manager di fronte alla sfida della decarbonizzazione Stefano Pareglio Università Cattolica del Sacro Cuore Fondazione Eni Enrico Mattei Chapter Zero - NedCommunity
Climate
Climate Costs
Change
Global occurrences of extreme weather events
WRI, 2018
5 Warmest Years on Record Globally:
2016 2019 2015 2017 2018
Climate-related risks and
opportunities for firms
Mapping the world’s commitment to Paris Agreement
Staying within a carbon budget: what does it mean? “By the end of 2017, anthropogenic CO2 emissions since the preindustrial period are estimated to have reduced the total carbon budget for 1.5°C by approximately 2200 ± 320 IPCC 2018 (October) Special Report GtCO2 (medium confidence) “ “[It has been estimated a] remaining carbon budget of 580 GtCO2 for a 50% probability of limiting warming to 1.5°C, and 420 GtCO2 for a 66% probability (medium confidence) [or, alternatively] of 770 and 570 GtCO2, for 50% and 66% probabilities, respectively (medium confidence).” “The remaining budget is being depleted by current emissions of 42 ± 3 GtCO2 per year (high confidence).” “[and] … current nationally stated mitigation ambitions as submitted under the Paris Agreement would lead to global greenhouse gas emissions in 2030 of 52–58 GtCO2eq yr-1 (medium confidence).” 1. No/limited overshoot: CO2 emissions must decline by about 45% from 2010 levels by 2030, reaching net zero around 2050 (2045–2055) (high confidence), and negative emissions from 2055. 2. Also non-CO2 emissions must be reduced by 35% by the end of 2050.
What is the level of energy investments required?
Average annual mitigation
investments/disinvestments over the 2016–2030
(relative to the baseline) IPCC 2018 (October) Special Report
Average annual investments over the 2016–2050 (different
scenarios)
+12% (vs 2°C)
+900 bill (vs baseline)
n
ct io r
xtr a
o we
e p
s s il s s il
Fo Fo
The solid bars show the values for ‘2°C’ pathways, while the
hatched areas show the additional investments for the
pathways labelled with ‘1.5°C’.
The cost of carbon emissions is rising Raw data from ICE via Quandl, 2020
The Evolving Macroeconomic Risk Landscape (2016 - 2020)
Top 5 Global Risk in Terms of Impact
Divestment Global movement asking institutions to move their money out of oil, coal and gas companies: fossil fuel divestment. It creates «organisational stigma» (broad perception of discredit for violating social norms) →Revenues uncertainty →Changes in conventions of investment decisions
Loans to coal power companies, 2019 (USD)
CANADA CHINA EUROPE JAPAN US
CHINA EUROPE US
CREDIT
SWISSE,
BARCLAYS, $1.105.424.43
$1.598.953.580 3 BANK OF
AMERICA, CITI,
CREDIT DEUT $1.667.613.766 $1.405.300.743
AGRICOLE, SCHE
$595.643.68 BANK
3 ,… GOLDMAN
BNP PARIBAS, STANDARD BBVA, SACHS,
BANK OF CHINA, $1.053.152.559 CHARTER… $209.… JPMORGAN CHASE, $734.965.17
7
ICBC, $4.547.718.721 $4.037.367.850 $1.174.543.939
UBS, SOC… SA…
$207… MORGAN
INT C STANLEY,
BPCE/N U $619.472.93
HSBC, E… O… WELLS FARGO,
AXITI… N… 0
$845.057.148 R… I… $842.020.506
JAPAN CANADA
SCOTIABANK
SMBC ,
CHINA GROUP $524.789.069
CONSTRUCTION , RBC,
AGRICULTURAL BANK OF CHINA, BANK, MIZUHO, MUFG, $518.6 $529.5 TD, BA
$3.822.186.249 $2.170.729.662 $1.330.213.304 $1.293.073.746 62.702 25.899 $236.… N…
Banking on Climate Change, 2020
Global SRI loans and bonds
Sustainable debt issuanceInvestment decision trends and prospects
More than 2,300 institutional
investors, signatories to the UN
Principles for Responsible
Investments (PRI) with over
AUM $80 Trillion, have
committed to incorporating ESG
issues into investment analysis.
Throughout the Covid-19
pandemic, total inflows of ESG
oriented funds remained
positive, in contrast to outflow
of generic funds signalling a
strong sustainability market
demand. Actually, inflow for
ESG oriented funds in the first
half 2020 accelerated sharply,
almost matching total yearly
2019 record (῀$21 Billion in the
US alone).
Source: Deutsche Bank, July 2020; Morningstar, May 2020Active and passive funds inflows
Morningstar, 2020
According to Morningstar, European ESG AUM amounts to $870 Billion (82% of
global ESG AUM), while USA ESG AUM amounts to $159 Billion.ESG investments performance Source: Refinitiv Eikon, Refinitiv Datastream, HSBC Climate Solutions Database, FTSE, HSBC Global Research: Climate and ESG outperforming during COVID-19 (25/03/2020)
ESG sensitivity Source: Refinitiv Eikon, Refinitiv Datastream, HSBC Climate Solutions Database, FTSE, HSBC Global Research: Climate and ESG outperforming during COVID-19 (25/03/2020)
FSB calls for the disclosure on C-R risks/opportunities
Financial Impact of Climate Change Reporting themes
TCFD, 2017The Climate Disclosure (1/2)
Non-Binding
Guidelines on
NFRD D.Lgs. Non-Financial
published 2016/254 Reporting (NBG)
2014 2016 2017
The Directive 2014/95/EU on the Non- In 2017, the European Commission
Financial Reporting Directive (NFRD), published a communication regarding
adopted in Italy in 2016 by the legislative non-binding guidelines on non-financial
decree 2016/254, introduced the reporting (NBG) to help companies
compulsoriness of the disclosure of non- disclose relevant non-financial information
financial and diversity information by in a more consistent and more
certain large undertakings and groups. comparable manner.The Climate Disclosure (2/2)
EU Action Plan on Review of the Non-
TEG Reports Taxonomy Final
Sustainable Finance + Financial Reporting
+ NBG Update Report
TEG’s establishment Directive
2018 2019 2020 2021
As part of the implementation of the EU Action Plan, the The Final Report includes updates of the
Technical Expert Group (TEG) published a series of specific technical screening criteria for economic
reports on climate-related disclosures, Climate Benchmarks activites that contribute to climate change
and Benchmark ESG Disclosure, EU Green Bond Standard, mitigation and adaptation and comply with the
and EU Taxonomy. do-no-significant-harm clause. In addition, it
The Commission published an update of the NBG in June, introduces the necessity of a brown taxonomy,
aimed at novating the Directive 2014/95/EU and creating a three level performance evalutation
integrating the TCFD framework. system.Climate change impacts A change of perspective European Commission, 2019
EU Action Plan
Implementation (1/5)
• Renewing the 2018 strategy on sustainable finance
In April 2020 the European Commission has promoted a public consultation on the renewed strategy on
sustainable finance (launched in March 2018 alongside the Action Plan on Financing Sustainable Growth).
The Renewed Strategy on Sustainable Finance will focus on:
1. Strengthening the foundations for sustainable investment by creating an enabling framework, with
appropriate tools and structures;
2. Increasing the opportunities to have a positive impact on sustainability for citizens, financial institutions
and corporates;
3. Managing and fully integrating climate and environmental risks into financial institutions and the
financial system as a whole
The consultation on the new strategy expired on the 15th of July 2020.
New Strategy planned for Q3 2020 but postponed to Q4 2020.
The European Commission explored the possibility of a legislative initiative for an EU Green Bond Standard
in the context of the public consultation on the renewed sustainable finance strategy, closed on the 15th of
July 2020, and the targeted consultation on the establishment of an EU Green Bond Standard, that builds
and consults on the work of the TEG, and is running for an extended period of 16 weeks between 12 June and
2 October 2020.
Based on the outcome of these two consultations, as well as ongoing bilateral stakeholder dialogues, the
Commission will take a decision in Q4 2020 on how to take the Green Bond Standard forward.EU Action Plan
Implementation (2/5)
• A unified EU classification system (taxonomy)
Identify and define harmonised criteria for determining whether an economic activity should
be viewed as environmentally-sustainable. This will lay the foundations for the future
establishment of standards and labels for sustainable financial products.
• The Regulation has been published in the Official Journal on the 22nd of June 2020;
• The Regulation is aimed at creating a legal basis for the EU Taxonomy, and supplemented
by delegated acts containing detailed technical screening criteria for determining the
Taxonomy-aligned economic activities, and identifying the firms that have to draft a
climate disclosure compliant with it;
• The Commission services are currently preparing the delegated act, taking into account
the requirements of the Taxonomy Regulation and the stakeholder feedback received on
the TEG reports and on the inception impact assessment. The delegated act will be
accompanied by an impact assessment and will be subject to stakeholder feedback for a
period of four weeks in autumn 2020.
• The TEG’s mandate, begun in July 2018, expired in September 2020, and it will support the
Commission until the creation of the Platform on Sustainable finance, which will be
encharged of updating the Taxonomy.EU Action Plan
Implementation (3/5)
• Investors’ duties and disclosures
Establish consistency and clarity on how institutional investors (i.e. asset managers,
insurance companies, pension funds, or investment advisors) should integrate ESG
factors when making investment decisions.
• In December 2019, the Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial
services sector has been adopted. In order to protect end investors, the Regulation introduces
harmonised legislative provisions for institutional investors and financial advisors on the integration of
sustainability risks, on the consideration of adverse sustainability impacts, on sustainable investment
objectives, or on the promotion of environmental or social characteristics, in investment
decision-making and in advisory processes;
• The Regulation’s adoption allows the European Supervisory Authorities (ESAs) to develop draft
regulatory technical standards to further specify the content, methodologies and presentation of
information in relation to disclosure-related issues (i.e. sustainability indicators with regard to climate
and other environment-related adverse impacts, social and employee matters, respect for human rights,
etc.);
• The three ESAs (EBA, EIOPA and ESMA - ESAs) have issued a Consultation Paper seeking input on
proposed environmental, social and governance (ESG) disclosure standards for financial market
participants, advisers and products (closed on 1st September 2020).EU Action Plan
Implementation (4/5)
• Low-carbon benchmarks
Design a new category of benchmarks, including the low-carbon benchmark or “decarbonised” version of
standard indices and the positive-carbon impact benchmarks. This new market standard should indicate
companies’ carbon footprint and provide investors with further information on portfolios’ carbon footprint
• Two categories of low-carbon benchmarks: ( i ) a EU climate transition benchmark (EU CTB) ,
which brings the resulting benchmark portfolio on a decarbonisation trajectory , meaning a
measurable, science based and time bound trajectory to reduce carbon emissions ; (ii) a EU Paris
Alignment benchmark (EU PAB) which brings investment portfolios in line with the Paris
Agreement goal to limit the global temperature increase to 1.5˚above pre industrial levels;
• In November 2019, the Regulation (EU) 2019/2089 on EU Climate Transition Benchmarks, Paris-
aligned Benchmarks, and sustainability-related disclosures for benchmarks has been approved;
• The Delegated Acts, on which the Commission has launched a public consultation, contain
technical details on the requirements for defining benchmarks «Climate Transition» or «Paris-
aligned»;
• The delegated acts have been adopted on the 17th of July 2020.
Minimal Technical Requirements
In order for benchmarks to be labelled as EU Climate benchmarks, their allocation to the sectors that
highly contribute to climate change should not be less than the exposure of their underlying
investable, the Greenhouse Gas (GHG) intensity will have to be significantly lower than that of the
investable universe, they will have to reduce their carbon emissions from one year to the other, and
exclude assets that significantly harm ESG objectives.EU Action Plan Implementation (5/5) • Incorporating sustainability in prudential requirements Work towards incorporating climate risks into institutions' risk management policies and on the potential calibration of banks' capital requirements in the Capital Requirement Regulation and Directive to take into account climate change-related risks while safeguarding financial stability and ensuring coherence with the EU taxonomy. • European Banking Authority (EBA) has published in August 2019 its advice on the implementation of Basel III in the EU; • The European Insurance and Occupational Pensions Authority (EIOPA) published in August 2019 an opinion on Sustainability and Solvency II. The opinion addresses the integration of climate-related risks in Solvency II Pillar I requirements; • (Re)insurance undertakings are called to implement measures linked with climate- related risks, especially in view of a substantial impact to their business strategy. Consequently, EIOPA stresses the importance of scenario analysis in the undertakings’ risk management.
The European Green Deal Sectors of intervention Masoni, P., 2020
Climate strategy and energy lending policy
European Investment Bank’s moves
• The EIB will end financing for fossil fuel energy projects from the end of 2021;
• Future financing will accelerate clean energy innovation, energy efficiency and
renewables;
• EIB Group financing will unlock EUR 1 trillion of climate action and environmental
sustainable investment in the decade to 2030;
• EIB Group will align all financing activities with the goals of the Paris Agreement
from the end of 2020.
The new energy lending policy details five principles that will govern future EIB
engagement in the energy sector:
• prioritising energy efficiency with a view to supporting the new EU target under
the EU Energy Efficiency Directive;
• enabling energy decarbonisation through increased support for low or zero carbon
technology, aiming to meet a 32% renewable energy share throughout the EU by
2030;
• increasing financing for decentralised energy production, innovative energy
storage and e-mobility;
• ensuring grid investment essential for new, intermittent energy sources like wind
and solar as well as strengthening cross-border interconnections;
• increasing the impact of investment to support energy transformation outside the
EU.The European Green Deal
Circular Economy
Circularity, alongside a carbon neutral economy, is an objective that requires the full mobilization of
industry, and the transition represents an important opportunity to expand sustainable and job-
intensive economic activity.
To support and accelerate the transition, the Commission has set up two instruments:
1. Circular Economy Action Plan;
2. EU Industrial Strategy.
Circular Economy Action Plan (March 2020)
The Action Plan intends to implement the following measures:
• Making sustainable products the norm in the EU by proposing a Sustainable Product Policy,
aimed at restricting single-use products and ensuring products’ circular life-cycle;
• empowering the consumers by providing reliable information on products;
• taking advantage of the sectors where the potential for circularty is high: concrete actions will be
take in various sectors such as electronics and ICT, batteries and vehicles, packaging, plastics,
textiles, construction and buildings, and food;
• ensuring less waste by transforming it into high-quality secondary resources that benefit from a
well-functioning market for secondary raw materials.The European Green Deal
Industrial Strategy
EU Industrial Strategy (March 2020)
Three drivers:
• Green transition;
• Global competitiveness;
• Digital transition.
The Commission has identified the fundamental factors that would
make Europe’s industrial transformation happen:
• Deeper and more digital market
• Upholding a global level playing field
• Supporting industries towards climate neutrlaity
• Building a more circular economy
• Embedding the spirit of industrial innovation
• Skilling and reskilling
• Investing and financing the transitionThe European Green Deal Adopted initiatives • Communication on the European Green Deal (non-legislative, Q4 2019); • European Climate Law enshrining the 2050 climate neutrality objective (legislative, Article 192(1) TFEU, Q1 2020); • European Green Deal Investment Plan (non-legislative, Q1 2020); • EU Biodiversity Strategy for 2030 (non-legislative, Q1 2020); • EU Strategies for energy system integration and hydrogen (non-legislative, Q3 2020); • “Farm to Fork” Strategy (non-legislative, Q1 2020); • Just Transition Fund (legislative, Article 175 TFEU, Q1 2020); • New Circular Economy Action Plan (non-legislative, Q1 2020).
The European Green Deal Next initiatives to be adopted • Strategy for smart sector integration (non-legislative, expected by Q2 2020, delayed); • 2030 Climate Target Plan (non-legislative, incl. impact assessment, Q3 2020 (Consultation closed)); • Chemicals strategy for sustainability (non-legislative, Q3 2020 (Consultation closed)); • Renovation Wave (non-legislative, Q3 2020 (Consultation closed)); • 8th Environmental Action Programme (legislative, Article 192(3) TFEU, Q4 2020); • European Climate Pact (non-legislative, Q4 2020); • FuelEU Maritime – Green European Maritime Space (legislative, incl. impact assessment, Article 100(2) and/or Article 192(1) TFEU, Q4 2020); • Offshore renewable energy (non-legislative, Q4 2020); • ReFuelEU Aviation – Sustainable Aviation Fuels (legislative, incl. impact assessment, Article 100(2) and/or Article 192(1) TFEU, Q4 2020); • Renewed Sustainable Finance Strategy (non-legislative, Q4 2020); • Strategy for sustainable and smart mobility (non-legislative, Q4 2020); • Empowering the consumer for the green transition (legislative, incl. impact assessment, Article 111 TFEU, Q2 2021); • New EU Forest Strategy (non-legislative, Q1 2021); • New Strategy on Adaptation to Climate Change (non-legislative, Q1 2021); • Review of the Non-Financial Reporting Directive (legislative, incl. impact assessment, Article 114 TFEU, Q1 2021),
The Recovery Fund
Next Generation EU overview
The Commission proposed to deploy a reinforced EU budget to help repair the immediate economic and social damage
brought by the coronavirus pandemic, kickstart the recovery and prepare for a better future for the next generation.
To mobilise the necessary investments, the Commission is putting forward a two-fold response:
• Next Generation EU to boost the EU budget with new financing raised on the financial markets for 2021-2024;
• Reinforced long-term budget of the European Union for 2021-2027.
Next Generation EU of €750 billion as well as targeted reinforcements to the long-term EU budget for 2021-2027 will
bring the total financial firepower of the EU budget to €1.85 trillion.
Next Generation EU will be rolled out under three pillars:
European Commission, 2020Divergence in ESG Ratings
Example
Scope divergence
Number of indicators per Categories
Berg et al., 2019Divergence in ESG Ratings
World Economic Forum’s Climate Governance
Principles and Guiding Questions
Principle 1 – Climate Accountability on Boards
The board is ultimately accountable to shareholders for the long-term stewardship of the company.
Accordingly, the board should be accountable for the company’s long-term resilience with respect to
potential shifts in the business landscape that may result from climate change. Failure to do so may
constitute a breach of directors’ duties.
Principle 2 – Command of the Climate Subject
The board should ensure that its composition is sufficiently diverse in knowledge, skills, experience and
background to effectively debate and take decisions informed by an awareness and understanding of
climate-related threats and opportunities.
Principle 3 – Board Structure
As the stewards for long-term performance and resilience, the board should determine the most effective
way to integrate climate considerations into its structure and committees.
Principle 4 – Material Risk and Opportunity Assessment
As the stewards for long-term performance and resilience, the board should determine the most effective
way to integrate climate considerations into its structure and committees.World Economic Forum’s Climate Governance
Principles and Guiding Questions
Principle 5 – Strategic and Organisational Integration
The board should ensure that climate systematically informs strategic investment planning and decision-
making processes and is embedded into the management of risk and opportunities across the
organisation.
Principle 6 – Incentivisation
The board should ensure that executive incentives are aligned to promote the long-term prosperity of the
company. The board may want to consider including climate-related targets and indicators in their
executive incentive schemes, where appropriate. In markets where it is commonplace to extend variable
incentives to non-executive directors, a similar approach can be considered.
Principle 7 – Reporting and Disclosure
The board should ensure that material climate-related risks, opportunities and strategic decisions are
consistently and transparently disclosed to all stakeholders – particularly to investors and, where required,
regulators. Such disclosures should be made in financial filings, such as annual reports and accounts, and
be subject to the same disclosure governance as financial reporting.
Principle 8 – Exchange
The board should maintain regular exchanges and dialogues with peers, policy-makers, investors and
other stakeholders to encourage the sharing of methodologies and to stay informed about the latest
climate-relevant risks, regulatory requirements etc.You can also read
