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APRIL 2021

how the Biden administration uses executive action (e.g., fuel
economy standards, oil and gas permitting rules, and tariff
“ policy) to incrementally boost decarbonisation, as well as what
More than 280 large companies around
the world, encompassing nearly every happens at the state level. Much like in the US, many other juris-
dictions around the world are not yet ready to enact sweeping
industry, have committed to source climate reforms but still have some targeted policies, such as a
100% of their electricity from coal phase-out, a carbon tax, a renewable electricity or fuel

renewable sources. ” mandate, or an energy audit requirement for buildings. Con-
trary to conventional wisdom that only high-income countries
have the ‘luxury’ to approve such policies, in reality there are
plenty of emerging markets that are active in energy transition
– most notably China, which in January 2021 launched what
will eventually become the world’s largest carbon trading pro-
POLICY MILESTONES
gram.
On the policy front, there are some specific milestones that we
are tracking in 2021. In December 2020, the European Union SUSTAINABLE INVESTING
approved the European Climate Law, thereby becoming the
world’s largest carbon emitter to impose a legally binding man- Alongside the fundamental drivers mentioned above, sustain-
date for net zero CO2 emissions by 2050. As the details of the able (ESG) investing — and, more specifically, climate investing
implementation roadmap are unveiled over time, the entire — is raising the importance of energy transition for manage-
European economy will need to be transformed — not solely ment teams, particularly at publicly-traded companies. Broadly
the ‘usual suspects’ (power plants and transport). The UK is no speaking, there are two approaches to climate investing, and
longer an EU member, but it has had equivalent legislation these are not mutually exclusive. First, investors can exclude
since 2019. In the run-up to the United Nations climate confer- those companies that are having a disproportionately negative
ence this November, more countries will set net zero targets effect on the climate. Second, they can favour those companies
— China, Japan, and South Africa have already signaled plans that are creating beneficial climate-oriented solutions. Here are
to do so — though the details are more important than the the key statistics vis-à-vis ESG: as of 2020, $16.6 trillion of pro-
headlines. President Biden has proposed the same policy for fessionally-managed assets (equity and debt combined) in the
the US, as well as a 100% carbon-free electricity mandate by US are covered by one or more ESG criteria, up 56% from 2018.
2035 and $2 trillion of federal spending on energy transition Remarkably, this represents fully one-third of all managed
over four years. We are not confident that any of this can get assets. Within the $16.6 trillion pie, the largest single slice — cli-
through the narrowly divided House, and the 50/50 Senate mate funds — accounts for $4.2 trillion. Meanwhile, the
looms as an especially tough hurdle. Thus, we will be watching worldwide total of funds with a fossil fuel divestment policy is
approaching $20 trillion, though the vast majority of the divest-
ments pertain solely to coal, at least for now. Divestments are
Milestones in Sustainable Policy more common in Europe than elsewhere, and more common

1984 1990 2006 2020 2020 2021 2030 2050

Social Investment Launch of the Launch of the European Climate John Kerry China launched UN sustainable EU target date
Forum founded Domini Social Principles Law approved appointed what will become development goals for net zero CO2
Index, the first for Responsible special the world's largest target date emissions
socially Investment presidential carbon trading
responsible (PRI) envoy for program
investment climate
index

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