CRRM3 (Episode 8): Climate Conflicts and Challenges

The week began with forward motion from regarding sustainability disclosures; it closes with climate conflicts in Washington and silence from the G20. Language data illuminates pressure points

Welcome to Episode 8 of CRRM3 -- the podcast that helps climate finance professionals and strategists chart strategic priorities based on concrete, objective data generated directly from the policymakers that move the needle regarding sustainability policy. 

Few things are more consequential from a risk perspective than low frequency, high value events.  These events increase the possibility of unanticipated outcomes and, thus, risk.  Those outside the public policy arena –like portfolio managers--view policymaking as a highly random discipline because they depend on journalists to provide them with information about what is happening in public policy.

This past week in climate finance illustrates why measuring public policy risk provides particularly powerful perspective and predictive analytics pertaining to the trajectory of public policy.  Exactly three things occurred of consequence concerning climate finance:

1.      The ISSB moved forward (albeit incrementally) with climate-related and sustainability disclosure standards.

2.      The United States nominated a new President for the World Bank.

3.      Three senior members of Congress used a letter and document production request to slow down climate-related disclosure standards in the United States.

Even the UN Security Council was in play. What is missing? The G20 Finance Ministers and Central Bank Governors. The three moves above are deeply consequential, but more action would likely have occurred but for Russia’s war in Ukraine. Which brings us to our chart of the week.

Listen to the Podcast:

CRRM3 (Episode 8): Climate Conflicts and Challenges

Chart of the Week

Let’s be honest. Three data points make for boring charts and data feeds, 

It was not supposed to be this way.  As we noted on Monday, the International Sustainability Standards Board (ISSB) started the week providing the G20 Finance Ministers and Central Bank Governors with forward traction regarding sustainability and climate-related disclosures for securities issuers.   On Wednesday, the U.S. Congress reacted (see our Quote of the Week Below) and the United States nominated the next President of the World Bank.

The stage was set for a G20 Ministerial Communique or Statement that would advance the ball. 

But the first anniversary of Russia’s second invasion of Ukraine has paired with the Congress’ indirect reaction to the ISSB has halted all activity.  There will be no statement from India this weekend.

Data regarding climate-related policy and climate finance policy specifically has two sides.  The obvious one relates to sustainability policies, which our system is designed to capture. But the other side relates to fossil fuels, which our system also captures using a set of energy-related lexicon terms.  So when sustainability policy registers only low level readings, the question becomes whether energy policy is registering activity.

So when we saw that “natural gas” was generating activity in our system this week

the natural next move was to dig deeper.  Being a data company, the first thing to do was to check the data on natural gas exports.

U.S. Secretary of State Blinken at the United Nations Security Council this week drew a direct connection between the war in Ukraine and the energy transition in Europe:

“When President Putin tried to weaponize energy, we redirected natural gas supplies from across the world, so that countries Russia targeted could keep their people warm in the winter.  And Europe took extraordinary steps to end its dependence on Russian energy.”

But the war leaves little room for major policy moves this week regarding sustainability.

And the word cloud from Secretary Blinken’s statement makes clear that neither energy nor climate policies were the focus of his statement — understandably? — to the leading geopolitical and foreign policy body: the Security Council at the United Nations.

Which brings us to the Quote of the Week.

Quote of the Week

The Quote of the Week also illustrates another important component of policy dynamics.  They can be discontinuous over time.  This feature can make it challenging to line up policy shifts with market data.  The chess pieces can move slowly. 

Consider the following sequence of events.  48 hours after the ISSB announcement regarding sustainability and climate-related disclosure standards, senior members of Congress sent a a blistering 6-page letter to SEC Chairman Gensler….regarding a regulatory proposal that was issued last year. 

Specifically, the letter was written by the Chairman of the House Financial Services Committee, the Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs, and the Chairman of the Subcommittee on Oversight and Investigations.  

Members of Congress did not mention the ISSB in their letter to SEC Chairman Gensler on Wednesday, but it is not hard to see a reaction function. 

Like Secretary Blinken’s statement to the UN Security Council, sometimes what policymakers do NOT say is as important as what they do say