On a recent trip to the store, I bought my son a snack. He took it and then asked me, “Dad how was this made?”
I assumed he was asking how cookies were made so I started to talk about flour and butter, etc, but he cut me off and asked, “No, I mean was the factory using renewable power?”
I did not know the answer, so I asked him, “Why do you want to know if the factory uses renewable power?”
He answered, “Because I want to save the environment.”
My son is 11.
Change is constant, but to the beholder, change is sometimes difficult to grasp. It’s usually pointed out to you. When I was growing up, my consideration in buying a snack, apart from taste, was if it had “bad” ingredients. Take sodas, for instance, I would look to see if they had Sodium Benzoate as a preservative because I read that the chemical, when kept in the sun, produced Benzene.
Benzene sounded bad, so I cut down on Coca-Cola and switched to Sprite.
My son is concerned if the snack was made sustainably. It is a demographic thing, younger people across the world have a more heightened awareness of “climate change.” A 2018 Gallup analysis, found a “global warming age gap” in some beliefs, attitudes, and risk perceptions, where 70% of adults aged 18 to 34 say they worry about global warming compared to 56% of those aged 55 or older. These attitudes have business implications.
Six of America’s largest banks (Wells Fargo & Co, Goldman Sachs Group Inc, Citigroup Inc, Bank of America Corp., Morgan Stanley, and JPMorgan Chase & Co) have updated or announced new lending policies to align their balance sheets to meet the goals set out in the Paris Climate accord. In simple English, they are going to cut back on lending to the fossil fuels industry. This is a big deal, these six banks alone have invested more than $980 billion in coal, oil, and gas companies since 2016. Now from their language, all six banks have said they will not fund any artic energy project and will exit this billion-dollar market by 2050.
Do the banks love the environment more than $980 billion? Well… not exactly! The banks are responding to pressure from their customers, the regulators, and shareholders to take a stance on the climate.
In America, a resolution can be introduced by shareholders to be voted on at annual general meetings, so a bank can be forced to disclose its policies on lending to specific sectors like the fossil fuels industry. If a bank says it is funding fossil fuels, then the next wave of consumers (like my son and others his age) will not do business with that bank. Last year, an investor advocacy group did file such a resolution against JP Morgan Chase and received 49% of the total shareholder vote. So, banks do care but they are “motivated” to care for the climate by considerable outside pressure including the White House.
President Biden has said the US government will focus on the climate; Treasury Secretary Yellen has linked the economy to the climate. The European Investment Bank, the biggest multilateral lender in the world, will stop funding fossil fuel projects in 2021.
In summary, the power of the consumer, the regulators, the shareholders, and the government are going to force changes in US and European banking policy and lending which will have a direct effect on Nigerian banks’ sources of financing. It is not a stretch to see Nigerian banks that seek to issue Eurobonds being asked to submit their policy on “climate.” Can you imagine Zenith Bank disclosing they run their entire banking business with diesel? Fossil fuels! Do you see where I am going with this?
It is not just crude oil and fossil fuels, the European Union will be implementing the Renewable Energy Directive (RED) II which classifies palm oil as a high indirect land-use change product, that raises its greenhouse gas emissions to unacceptable levels and thus, will be gradually phased out of the EU renewable energy mix by 2030. The EU Commission is essentially arguing that the cultivation of palm oil results in excessive deforestation. It should therefore not be eligible to count toward EU renewable transport targets for national governments. France for instance has already banned using Palm oil as a biofuel feedstock since January 2020.
This is a blow, and as we have seen from fossil fuels, it will not stop at use in “biofuels,” it will continue to include the ban on the use of palm oil as ingredients to make cookies and reduce imports by food giants like Nestle. For nations like Nigeria who are seeking to “diversify” their economies away from fossil fuels, this is a double blow. Europe seems to prefer “second-generation” biofuels made from things like algae.
Overall, the picture is changing, profitability is no longer enough, companies seeking an international affiliation or access to funds must also demonstrate a green and healthy working environment. For example, the US has banned imports of Palm Oil from FGV, one of the world’s largest producers of Crude Palm Oil because of allegations of physical and sexual violence, withholding of wages, debt bondage, and abusive working conditions.
The question of course is, can Africa turn the ship around in time? The Ivory Coast and Ghana for instance are forming a Cocoa Cartel to raise prices, yet Mars, Nestle, and Hershey were all sued in the US under Child Slavery laws for buying Cocoa grown in Africa by child labourers. The African and other developing nations that are unable to meet the new social criteria for doing business will lose out. Not being green and ethical in 2021 is akin to not being online in 2000.
The EU can ban palm oil for impact on the environment because it does not produce it, neither does it’s largest trading partners – US and China.
What is the positioning of China and US on the use of coal ? What impact does palm oil use have compared to coal ? Yes, there is clearly a generational increase in interest in climate change, but I am convinced that there is also an underlying self-interest leading to a lot of posturing and symbolic “actions” regarding climate change and ESG that are designed for maximum PR effect with limited net impact on western economies.