Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
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Speaker: Hello and welcome to the ESG Brief, our review of environmental, social and governance issues catching the attention of our analysts and strategists here at HSBC Global Research.
Speaker: I'm Jack Reed and I'm joined by Chris Brown-Humes, our managing editor, to kick off the first edition of 2021.
Speaker: Thanks, Jack.
Speaker: We're focusing on climate.
Speaker: We'll be talking about US policy under Joe Biden, China and important diary dates for 2021.
Speaker: This podcast was recorded for publication on Monday, the 1st of February 2021.
Speaker: All of HSBC's relevant disclosures and disclaimers must be viewed on the link attached to this podcast.
Speaker: In addition to COVID-19 and the inauguration of Joe Biden as U.S. president, climate occupied a big spot on the global agenda in January.
Speaker: Biden ordered the U.S. back into the Paris Agreement on Climate, and a number of other executive orders elevated the fight against global warming.
Speaker: And that's where we start today.
Speaker: We're joined by our two co-heads of ESG Research, Wei-Shin Chan in Hong Kong and Nashin Pown here in the UK.
Speaker: So Wei-Shin, we've already had one very significant event on the climate front this year with Joe Biden immediately after his inauguration deciding that the US will rejoin the Paris Climate Accord.
Speaker: How significant an event is that?
Speaker: Thank you, Chris.
Speaker: Yes, I think it's difficult to underestimate how significant this event is.
Speaker: actually is.
Speaker: Rejoining means the US becomes the 109th party to the agreement.
Speaker: They were only out of the agreement for 107 days, roughly.
Speaker: But the important part behind that is the fact that the US has so much international climate diplomacy involved.
Speaker: They go around knocking on doors and asking the various countries, what will it take you to join this part of the agreement?
Speaker: Or what will it take if you need to do this?
Speaker: So they're ensuring that all sides have smoother climate talks.
Speaker: And very, very recently at the Global
Speaker: Climate Adaptation Summit.
Speaker: We've seen the climate czar, John Kerry, basically having a call to arms and really trying to muster various people to do things.
Speaker: And that's really, really important for the international climate scene.
Speaker: And it's also an area where the US is really wanting to work with China, isn't it?
Speaker: That is correct.
Speaker: I mean, if we go back to September 2016, the US ratified the agreement for the first time, actually, simultaneously with China.
Speaker: So this was at the time,
Speaker: President Obama and President Xi Jinping, sending a powerful signal that maybe they have their differences on the geopolitical stage, but climate change is definitely one of those areas that they would like to cooperate together with.
Speaker: And we think that's definitely going to be the case going forward.
Speaker: So, Ashim, it's already very clear that climate is extremely important to the new administration.
Speaker: What steps have they already taken and what else are you expecting?
Speaker: So we've looked in reports we put out at a number of areas where Joe Biden's administration may seek to use executive authority
Speaker: to, in many cases, to re-regulate where the previous administration had deregulated.
Speaker: And this includes steps around the fossil fuel value chain.
Speaker: So already underway last week, the day after the inauguration, were a raft of measures, a large proportion of which related directly to climate and energy.
Speaker: And these included calls for agency reviews and amendments of actions, including around methane emissions from oil and gas drilling.
Speaker: fuel economy standards for vehicles, protecting the Arctic National Wildlife Refuge from energy production, buildings efficiency standards, and then associated with air pollution as well.
Speaker: And do you expect more steps?
Speaker: Definitely.
Speaker: I mean, Joe Biden was clear in his campaigning for the presidency that this is a major focus for him.
Speaker: It may be some time, maybe a quarter or two, maybe into the second half of this year before the major climate change plan, which is $2 trillion backed and includes a net zero emissions in 2050 target.
Speaker: That larger plan may take a while
Speaker: to come through given competing priorities in the US around rolling out the vaccination program and relief packages and broader economic restructuring.
Speaker: We think really that's where the focus of Congress will be.
Speaker: But steps will continue to be taken.
Speaker: And as an example, just yesterday, Joe Biden announced that he wanted the entire national federal fleet, that's hundreds of thousands of vehicles to be all converted to electric.
Speaker: And so we think, you know, really these executive orders, which is passed
Speaker: So far, Mark, a real focused start by the new administration and really signal that intention to meet his campaign promises around energy and climate change and the environment.
Speaker: And just how partisan are climate politics in the US?
Speaker: Are the Republicans on board with this?
Speaker: Well, I mean, I guess it's fair to say that they have been fairly partisan so far.
Speaker: One thing I have wondered is whether this particular issue could become more bipartisan in the approach to it going forward.
Speaker: And the reason I think this is because
Speaker: the impact of many categories of extreme weather event, those are storms and wildfires and droughts and floods, which are exacerbated by and linked to global warming, the impact of those are getting more severe in the US and at a greater rate than other large developed or emerging countries anywhere around the world.
Speaker: And so we see many more people suffering damage to property and requiring medical assistance and food assistance after these events come through.
Speaker: Much higher dollar costs occurring year on year in the US.
Speaker: And so whoever you vote for, you're increasingly impacted by these climate change exacerbated weather events.
Speaker: And so you're going to need a response to it wherever your political allegiance is set.
Speaker: Thanks, Ashim.
Speaker: We'll come back to you a bit later.
Speaker: But switching to Wei Xin, we've been talking about one of the world's big emitters there.
Speaker: Let's switch to the other one, China.
Speaker: What developments are taking place on the climate front there?
Speaker: Ashim already mentioned that the US intends to set a target of net zero by 2050.
Speaker: China has already set something similar.
Speaker: Now, in September of last year, President Xi Jinping announced that China would like to achieve carbon neutrality by 2060.
Speaker: Without giving details at the time, so what we're looking out for this year
Speaker: is for China to provide a lot more details on how they will implement that.
Speaker: And more details should come out of the 14th Five-Year Plan.
Speaker: We're expecting that in March at the National People's Congress meeting.
Speaker: We're looking specifically at structural changes, more targets on renewable energy, more capacity for energy efficiency, more changes to industry, buildings, agriculture, as well as transportation.
Speaker: What I'll be looking out for in particular with reference to China is whether there will be a cap on Chinese carbon emissions.
Speaker: in the future.
Speaker: What they've already done this year is to issue the rules for its carbon emissions trading scheme.
Speaker: This is a national carbon emissions trading scheme in China.
Speaker: We're hoping to see that launch sometime this year, but some of the key points have already come through.
Speaker: So they're looking at including emitters that emit more than 26,000 tons of carbon dioxide equivalent per year.
Speaker: They're starting with the power generation sector.
Speaker: There's a few fines, but they're not too large, topping out at about $5,000.
Speaker: And the allocations are going to be free to start with.
Speaker: So we'll expect more on the emissions trading scheme later on in the year.
Speaker: And Ashim, perhaps then coming back to you and sticking with the emissions side of things, just how, let's take stock here and look at where we are with emissions.
Speaker: And was the pandemic good for climate?
Speaker: On the one hand, greenhouse gas emissions from all of human activity were down in 2020 versus 2019 as the economy slowed in most parts of the world.
Speaker: We used less energy and there was less economic activity and that led to around 7% lower greenhouse gas emissions on average year on year.
Speaker: And so, yeah, sure, that's a good thing, but it's not that the amount of carbon in the atmosphere was down 7%, instead that continued to rise
Speaker: And it went from 410 parts per million of atmospheric carbon up to 413.
Speaker: It's just that that increase was down by 7% year on year.
Speaker: And so we continue to put more carbon into the atmosphere.
Speaker: And indeed, actually 2020 was by many methodologies, the warmest year on record.
Speaker: And accompanying that, we saw, of course, some
Speaker: truly devastating extreme weather events.
Speaker: The wildfires in Australia at the beginning of the year, probably the most standout example, but there were many others in all corners of the world.
Speaker: Just to add to that, Ashim, I think what was really scary is that at its peak, emissions were down, I think it was between 17 and 19 percent during the height of the lockdown restrictions.
Speaker: The UN is telling us that we need those restrictions, sorry, those emissions to decline in
Speaker: at that rate going forward to 2030 and beyond.
Speaker: So it just gives you a sense of the scale of how difficult it is to achieve the global climate targets.
Speaker: Yes, Weishin, and it's against that backdrop that policymakers will be considering their next steps.
Speaker: What's on the climate agenda for this year?
Speaker: Thank you, Chris.
Speaker: There are lots of exciting things on the climate agenda this year.
Speaker: If you talk about the policy agenda, the key event of the year will be COP26.
Speaker: That's the 26th
Speaker: conference of parties, the climate negotiations that were postponed from last year due to the pandemic.
Speaker: COP26 has been held as the most important COP since the Paris Agreement in 2015 because it will determine the ambition that the world takes collectively.
Speaker: What the UK has said, and the UK are hosting the talks in November in Glasgow, they've asked various parties not to bring targets to
Speaker: which is very interesting.
Speaker: They've said, please, can you bring action?
Speaker: Please can you tell us how you will actually implement your climate pledges?
Speaker: So we're expecting a lot to happen throughout the year.
Speaker: Now, this 2021, we'll see the return of science in a more general way.
Speaker: The UN's climate science body, that's the fantastically acronymed IPCC or the Intergovernmental Panel on Climate Change, will be publishing its update, its sixth update report
Speaker: on the climate science and on the impacts and also what we can do to mitigate climate change.
Speaker: What is important here is that it will cement the role of science in influencing government policy and also highlight the urgency of ambitious action.
Speaker: If I could take you back to 2018 when the UN science body issued a special report on climate change of one and a half degrees,
Speaker: That was credited with catalyzing the whole net zero movement that we see today.
Speaker: And what we'll also be looking out for throughout the year are various countries announcing possibly net zero targets, but also importantly, are the corporations announcing net zero targets as they try and contribute to solving the problem of climate change.
Speaker: Weixin, Ashim, that's a great note to end on.
Speaker: Thank you very much for your time today.
Speaker: Thank you very much, Chris.
Speaker: Thank you, Chris.
Speaker: Ashim Pown and Wei-Shen Chen are global co-heads of ESG research.
Speaker: Our reports covering the subjects they touched on here are available in full on the research website at research.hsbc.com.
Speaker: A quick look, Chris, at some of the other big reports in January from our ESG team.
Speaker: Dolan Whitfield, our forensic accountant, launched a new publication called The Forensic Lens,
Speaker: The first edition focuses on the potential for related party transactions to lead to accounting scandals and the sorts of questions that investors might ask as part of their corporate reviews.
Speaker: And ESG analyst Lucy Acton published her latest report on the future of food, focusing on food waste in Asia.
Speaker: It's a topic rising fast up the global sustainability agenda, given estimates that roughly a third of all food produced for human consumption goes to waste every year.
Speaker: Well worth picking up that report from the ESG section of the research website if you haven't already.
Speaker: And a quick plug for this podcast, the ESG Brief.
Speaker: It's accessible on iTunes and Spotify.
Speaker: You can find it and subscribe by searching on either platform for HSBC Global Viewpoint.
Speaker: And those podcasts are available to everybody.
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Speaker: From the browser on your mobile phone, log in to the Research website and click on the podcast icon in the upper right and follow the prompts.
Speaker: And of course, if you have any questions about this podcast or feedback, just email us at askresearch at hsbc.com.
Speaker: That's it for this edition.
Speaker: Special thanks to Ashin Pown and Weishin Chan.
Speaker: From Jack and me, thanks for listening.
Speaker: We'll be back soon with another edition of the ESG Brief.
Speaker: Thank you for listening today.
Speaker: This has been HSBC Global Viewpoint Banking and Markets.
Speaker: For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.
