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It was an important week for climate and environmental news from Brussels.
First, EU environment ministers scrapped a commitment to boost the bloc’s target to cut greenhouse gas emissions. The reversal came after Poland, Hungary and Italy objected to a pledge to increase the bloc’s emissions reduction target to 57 percent by 2030 from 55 percent, compared with 1990 levels.
Members of the European Parliament then shot down right-wing lawmakers’ attempts to block new sustainability reporting standards. Now more than 50,000 companies will have to report how their businesses affect the environment in the EU. Kenza will write more about this on Monday. Stay tuned.
For today, Kaori Yoshida delves into the Indonesian investment plan “Just Energy Transition Partnership”. Next month, Indonesia is expected to unveil details of its plan, which aims to ease costs for developing countries to decarbonize the country. If confirmed, it will be the second country to do so since the model was announced at COP26 in Glasgow in 2021.
And I report that the Securities and Exchange Commission has dropped “ESG” from its research priorities for 2024. So what’s next for Washington’s investigation into the ESG sector?
Thank you for reading. – Patrick Tempel-West
Indonesia faces ‘one of the most complex arrangements’ in finalizing the JETP plan
Developing countries have long lamented the lack of available resources to stimulate the transition to green energy. The Just Energy Transition Partnership (JETP) approach – the first example of which, announced at COP26, promised $8.5 billion in financing for South Africa – aims to help alleviate that financing gap by diverting money from rich countries locks. Since then, the JETP model has been expanded to four more countries.
In the coming weeks, eyes will be on Indonesia, Southeast Asia’s largest economy, which will release its JETP investment plan for public comment in early November – after a three-month delay. The final version is expected to be published within a month.
Indonesia’s JETP Investment Plan will mobilize US$20 billion through a mix of grants, concessional loans, market rate loans and private investments, which will be used for the country’s clean energy transition.
Half of the money will come from a group of developed economies led by the US and Japan, and half from financial companies that are part of the Glasgow Financial Alliance for Net Zero. If approved, this will be the second JETP investment plan to be confirmed, after South Africa completed its plan last year.
The hope is that if Indonesia, the world’s largest coal exporter, can successfully transition away from fossil fuels, other developing countries will follow suit.
But as the slowdown in Indonesia suggests, coming up with the details of the plan – a prerequisite for cash flowing in – came with a host of challenges. In particular, the need to adjust the plan’s target as baseline emissions continue to increase.
The initial target of Indonesia’s JETP set the maximum annual CO₂ emissions at 290 megatonnes and proposed increasing the country’s share of renewable energy sources to 34 percent of the energy mix by 2030. But the goal quickly became unrealistic because it turned out that the growth and capacity of our own power stations were too great. According to Fabby Tumiwa, executive director of the Institute for Essential Services Reform (IESR), a Jakarta-based energy think tank, the issues will be much more important than previously thought.
If all planned power stations, used and operated by the industry for its own consumption, are built, “baseline emissions would change from 360 megatons of CO₂ per year to more than 450 megatons,” he told Moral Money.
The partners’ lack of interest in financing early retirement of coal-fired power stations was another problem. “There is no funding available from it [developed economy JETP partners] for this,” Tumiwa said.
Investors have been reluctant to finance coal retirement projects, partly due to concerns that it could be seen as a form of financial support for the coal energy sector, depending on how the projects are structured.
While Tumiwa admitted that the Indonesian case is “one of the most complex settlements,” he said the challenges the country faced, such as the reluctance of developed country governments to finance certain projects, would have been noted by other emerging economies.
“Other JETP countries [such as Vietnam] are now looking at Indonesia’s experiences,” Tumiwa said. (Kaori Yoshida, Nikkei)
SEC removes ESG from list of exam priorities
In April 2021, the Securities and Exchange Commission shook up financial companies with an unprecedented announcement: the agency was on the hunt for greenwashing in environmental, social, and governance (ESG) investments.
It was the first time the SEC made such a strong statement about the risks of greenwashing. Since then, the ESG has come under intense scrutiny, with the agency’s exams department (responsible for the research) keeping an eye on the market in 2022.
But earlier this week, the SEC announced are research priorities for 2024. ESG in particular was left out of the report.
SEC observers and enforcement attorneys quickly noticed the omission. They privately wondered whether the SEC’s ESG investigation had come to an end. The SEC certainly cannot prioritize everything necessary to oversee the financial markets. The agency knows that if you prioritize everything, you’re prioritizing nothing.
But the death of the SEC’s ESG investigation may be greatly exaggerated, said Jason Brown, a partner at law firm Ropes & Gray.
“I don’t think the omission of ESG from exam priorities is a signal that the SEC will no longer focus on ESG,” said Brown, the firm’s co-head of private fund regulation. “ESG was a key focus of the 2023 investment advisor exams, and we have not seen a slowdown yet. The issues they looked at, mainly greenwashing, [will be] just as relevant in 2024 as in 2023.”
Last month, German asset manager DWS agreed to pay the SEC $19 million to settle allegations of greenwashing, the agency’s largest ESG fine against an investment adviser. The SEC’s enforcement division settled ESG cases with BNY Mellon and Goldman Sachs last year.
And we’ve previously reported that the SEC has subpoenaed other companies as part of ESG investigations. Several more settlements are expected in the coming months.
The SEC’s first ESG action may be over, but the agency is still promoting more greenwashing enforcement cases. That should keep the ESG sector tense until 2024. (Patrick Temple West)
Here’s a spicy piece from Harvard University’s Lina Thomas and Martin Söndergaard on the need to dismantle the troubled carbon offset market.