Ursula von der Leyen speaking at a podium
European Commission president Ursula von der Leyen used her speech in Davos last week to lay out a response to the US Inflation Reduction Act © Reuters

This article is an on-site version of our Moral Money newsletter. Sign up here to get the newsletter sent straight to your inbox.

Visit our Moral Money hub for all the latest ESG news, opinion and analysis from around the FT

As I was leaving Switzerland on Friday, at the end of the World Economic Forum meeting, I spotted a tweet from Ngozi Okonjo-Iweala, head of the World Trade Organization, celebrating a meeting of trade ministers in Davos. So far, so unremarkable, you might think. But this came with a striking wrinkle: this was the first time that trade ministers had specifically convened to consider climate issues, such as the contentious Inflation Reduction Act, under the newly formed Coalition of Trade Ministers for Climate.

And that, in turn, underscores a shift in the zeitgeist: climate issues crept into numerous debates last week at Davos, even those which were not specifically billed as “green”. For as the cost of extreme weather events rises, the idea of sustainability is no longer being relegated to a “do-gooding” silo, but rippling through discussions about fiscal policy, tech, politics and more.

This is notable. But did WEF actually achieve anything tangible? Read below for our summary of some of the top takeaways and a striking little story from the Swiss hosts. And from today we are back to our regular Moral Money schedule (publishing on Monday, Wednesday and Friday). Let us know your reactions to Davos — and anything else — by writing to us at moralmoneyreply@ft.com, or just reply to this email. (Gillian Tett)

Our top takeaways from WEF 2023

Did Davos produce anything other than hot air? Greta Thunberg, the environmental activist, would argue not: when she arrived in the mountains last week, she lambasted business leaders over the lack of new commitments to abandon fossil fuels. No surprise there, perhaps. But several notable ESG-linked themes did emerge from the debate that will matter in the coming months.

1. Biden’s IRA is still sending shockwaves

Six months after Joe Biden’s Inflation Reduction Act was passed, Davos delegates were still gripped by the implications of its $369bn in green spending, which is triggering a rush of investor interest into technologies from vehicle batteries to green hydrogen (see below).

There was much talk, too, about the furious reaction from the EU, which has cried foul on the IRA’s “discriminatory” provisions around local production. However, in Davos both sides seemed eager to paper over the cracks. The European Commission president Ursula von der Leyen laid out the EU’s plans for a green incentive package of its own, in a speech that was notably light on complaints about US behaviour.

Meanwhile, US senator Joe Manchin, author of the IRA, travelled to Davos and told EU officials that he had never intended to upset Europe. The issue, he said, was that Congress had been so obsessively focused on cutting a backroom deal to get something done that they had paid little attention to Brussels — not least because Europe had previously urged Washington to do more in climate. This message was echoed by Katherine Tai, US trade representative, who stressed that while Congress could not rewrite the IRA, they did want to soften the impact. The more collaborative type of transatlantic approach that’s been used to handle computer chips is seen by some as a model for the future.

Maybe so. But what is clear is that business leaders at Davos clearly now expect Europe to follow suit with their own subsidies. So too, in countries such as South Korea, which have been more reluctant to attack America in public. This will run — and run.

2. Scope 3 is (increasingly) unpopular

In previous years, the Davos meeting has staged debates about how to advance green accounting standards. This happened last week around the International Sustainability Standards Board framework too; some delegates now expect this to emerge this summer. But a more notable theme of WEF was that there is a swelling backlash in the corporate and financial world against Scope 3 carbon reporting, which deals with the emissions from a company’s suppliers and customers.

Why? One factor is that companies are getting worried about the legal liabilities they could incur through comprehensive green accounting, since entities such as the Securities and Exchange Commission are cracking down on false reporting. A second is that big American financial companies are fretting about the rightwing political backlash against ESG. But the third — and perhaps most important — issue is that as corporate boards finally get serious about implementing these new standards, they are discovering how hard it is to get the granular data they need to report Scope 3. That is particularly true for companies with supply chains that rely on small businesses in developing markets such as south-east Asia. Expect to hear a lot more complaints about this in the coming months, along with calls in Asia and America in particular to limit Scope 3 requirements.

3. Green hydrogen excitement is mounting

Davos was abuzz with talk of green technology and innovation, as delegates tried to sniff out the hottest investment opportunities: the WEF programme was brimming with discussions about new types of biodegradable plastic, green jet aviation fuel, fusion energy and new tech-focused systems to cut emissions from buildings, to name but a few.

But we were particularly struck by the focus on green hydrogen — a technology still at the earliest stages of its rollout. “Our goal is nothing less than an electrolysis boom,” declared German chancellor Olaf Scholz. Fertiliser executive Svein Tore Holsether urged EU leaders to move more quickly in their support for hydrogen, while Australian billionaire Andrew Forrest vowed to pioneer its use in the mining sector.

“Everybody’s got a hydrogen plan now,” Sumant Sinha, founder of India’s largest renewable energy company ReNew Power, told Moral Money. “Every energy company is thinking about hydrogen; every user company is thinking about how they’re going to procure it.”

4. A raging debate about COP28

Moral Money (and many of our readers) might still be recovering from November’s COP27. But the United Arab Emirates used the Davos week to unveil their preparations for COP28, which they will host later this year in Dubai.

The choice of the UAE as host is wildly controversial, particularly since the head of its national oil company has been appointed as the conference president. Greta Thunberg slammed the decision as “completely ridiculous” when she hit town, a sentiment which some Davos participants echoed.

But others were far more upbeat. UN climate chief Simon Stiell said that holding the event in a major oil-producing state provided a chance to engage with “hard questions” — since it will be hard to achieve net zero without serious engagement from the fossil fuel giants. And Rachel Kyte, dean of Tufts University’s Fletcher School, reckons the UAE will have a serious point to prove at COP28, precisely because of its carbon footprint. The fact that the COP process now has a business leader at its helm — for the first time — might also get the private sector more involved, optimists argue.

They cite two other potential advantages. The UAE’s “crossroads” position in the geopolitical system might possibly make it easier for the country to broker deals between east and west, and north and south. And the fact that the Gulf is sitting on oodles of cash today (due to the current energy shock) could give it scope to help push forward climate-related aid to poor countries and/or capital to kick-start blended finance initiatives. Here, at least, is hoping. (Gillian Tett and Simon Mundy)

Switzerland wants to see finance flow with ‘blue peace’ bond

With a captive audience of investors and sustainability advocates in Davos, Swiss officials this week launched a roadshow for their “blue peace” bond initiative, designed in partnership with the UN to channel fresh funding to a pivotal but neglected aspect of development: access to water.

The bonds are designed to raise funds for local authorities and other non-sovereign entities to develop infrastructure to tackle both the absence and excess of water — significant drivers of poverty, conflict and migration around the world.

The aim is to launch a first bond next year for the Gambia River Basin Development Organisation to increase access to clean and affordable energy, safe drinking water, food security and other water-related services in vulnerable populations.

All that sounds good in principle, notably if it allows municipalities and entities such as river basin organisations to gain access to affordable finance that was previously limited to national governments and multilateral groups.

But the costs and practicalities of ensuring that local communities benefit from infrastructure projects will not be simple, and previous ambitious water projects such as dam construction have proved contentious. (Andrew Jack)

Smart read

Just when it seemed that the debate about gas could not get more frenzied in Europe, here comes another twist: the Netherlands is thinking of closing the continent’s biggest gasfield this year, due to safety concerns. Some green activists might cheer; industrialists will not.

Recommended newsletters for you

FT Asset Management — The inside story on the movers and shakers behind a multitrillion-dollar industry. Sign up here

Energy Source — Essential energy news, analysis and insider intelligence. Sign up here

Copyright The Financial Times Limited 2024. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article

Comments