Stakes are high in climate war as truth becomes the first casualty

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Forget trade wars and technology wars, the new battlefield for global domination will be climate change. Action to mitigate global warming will be the key to economic and political success with the outcome of the climate war determining which companies and countries emerge on top.

That is the conclusion of a report from Bank of America which argues that “climate strategies offer a route to global supremacy”.

Such claims would have sounded over the top only a few weeks ago. But the arrival of President Biden means that climate change is now a top priority for the US, as well as for China, the EU and the UK. In finance, forces are also mobilising with firms scrambling to claim the high ground for the climate war.

It is said that the first casualty of war is truth and some of the combatants in this battle can be careless with facts.

Consider the recent decision to review — again — plans for the first new deep coal mine in the UK in decades. Some opponents claim that the project will increase emissions but this argument is shaky.

The coal would be used for energy-intensive applications for which there are no green alternatives and it would replace imports that are worse for the environment.

Sensibly therefore other critics focus on the PR. Giving the go-ahead would look terrible, they say, undermining the government’s credibility in the run-up to the COP26 UN climate change conference that the UK is hosting in Glasgow in November. And damaging UK leadership now would be bad news for the environment. Maybe they are right, whatever the facts.

Regular readers of this column will know that I regard green bonds as a huge virtue signalling exercise that does not do anything to combat climate change.

I argued that it was a mistake for the government to cave in to pressure by announcing plans to issue green gilts.

But some senior people in the City told me I was wrong. Although they agree that issuing green gilts is virtue signalling, they insist that the signalling is vital.

In order to underpin the City’s claim to be a leading centre of green finance the government needs to show its commitment to the cause and issuing green government bonds is viewed as evidence of that commitment. Maybe this is true.

One area where such government commitment is seen as important is in carbon trading. This is expected to be a big business, particularly if trading in carbon offsets develops as hoped. But recent developments have not been encouraging.

At the moment the world’s biggest carbon market is the EU emissions trading scheme which, just before the end of last year, the government said the UK would leave. The UK will have its own scheme later this year but meanwhile Intercontinental Exchange has announced it will move the EU carbon contracts from London to Amsterdam. Oops.

More awkward still, under the Northern Ireland protocol in the Brexit agreement electricity generators north of the border remain in the EU scheme so trading in emission allowances of Northern Ireland’s power stations will soon be moved to Amsterdam.

This hardly looks good for the City which wants to be a global carbon trading centre. The government should be thinking what it can do to bolster London’s position.

City firms are also keen to signal the importance they place on green finance. JP Morgan has polished its credentials by hiring Chuka Umunna, the former Labour shadow cabinet member, as its head of ESG in Europe.

Many firms believe that helping clients to address climate change is going to be a key battleground in coming years.

Jose Linares, head of corporate and investment banking at Santander, suggests that just as some banks used the arrival of the internet to transform their competitive position 20 years ago the same will happen with ESG over the next ten years.

His aim is to use a focus on ESG to turn Santander into one of the top European investment banks, he said in a recent interview with GlobalCapital. That is a pretty punchy target given that Santander ranked only at 16 in investment banking revenues in Emea last year according to Refinitiv.

If the stakes really are this high, it is hardly surprising that both companies and governments resort to a bit of spin. And maybe it doesn’t matter if it focuses minds on the urgency of the issue.

But there must be a limit. We are increasingly being told that decarbonising the economy will be painless for both taxpayers and consumers while investors who focus on climate change will enjoy higher returns.

These are comforting myths and the sooner we start facing the inconvenient truth the better.

To contact the author of this story with feedback or news, email David Wighton

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