The Econmist - USA (2021-11-06)

12 Leaders TheEconomistNovember6th 2021

so, shamelessly, bringing Parliament into disrepute.

This tawdry episode adds to a pattern set by thegovernment

of Boris Johnson. Having strode victorious into DowningStreet

as one of the architects of Brexit, the prime ministerbehavesas

if laws are for other people. Lord Frost, the government’sBrexit

negotiator, is demanding that the eu rewrite aspectsofthewith­

drawal treaty relating to Northern Ireland that Britainsignedup

to in a push to get Brexit done (see Charlemagne).InSeptember

2020 Sir Jonathan Jones, the head of the governmentlegalser­

vice, advised that the government’s plan to overridepartsofthe

Brexit withdrawal deal would break internationallaw.MrJohn­

son ignored his advice, so Sir Jonathan felt obligedtoresign.

The  prime  minister  is  also  seeking  to  undermineBritain’s

precarious  system  of  checks  and  balances.  Whenofficialsre­

sponsible for holding ministers to account have triedtodotheir

job, they are made to suffer. Two months after SirJonathanquit,

an  independent  adviser  on  the  ministerial  codereportedthat

Priti Patel, the home secretary, had bullied underlings.WhenMr

Johnson  said  he  would  ignore  that  report,  too,  theofficialfol­

lowed Sir Jonathan out of the door.

The government is neutering independent bodiessupposed

to hold it to account. It wants to put the ElectoralCommission,a

watchdog, under the thumb of a Conservative­dominatedcom­

mittee  of  mps,  and  to  strip  it  of  the  power  to  initiatecriminal

prosecutions.  It  is  trying  to  parachute  in  Paul  Dacre,a former

editor of the Daily Mail, a tub­thumping Brexiteerandall­round

scourgeofliberals,asthebossofOfcom,themediaregulator,

eventhoughtheappointmentpanelconcludedthathislackof

impartialitymadehim“unappointable”.Thempwholeadsthe

parliamentarycommitteeconcernedwithcultureandthemedia

hassaidpubliclythat,inchoosingitsnextpoliticaleditor,the

bbcshouldpicka Brexiteer.

Thegovernmentisalsotryingtotamethecourts.Itwantsto

tightenrulesgoverningjudicial reviewofpublicbodies’de­

cisions.Anegregiousproposalbythejusticesecretary,Dominic

Raab,wouldmakeiteasierandquickertochangecourtrulings

thatitdeemstobewrong(seeBritainsection).Ratherthande­

fendingjudicialindependence,theattorney­general,SuellaBra­

verman,hasjoinedtheattack,implyingthatinsomecasesrelat­

edtoBrexitpro­Europeansentimentmeantjudgeshadentered

thepoliticalarena.

Aswewritethis,thegovernmentwasstartingtohavesecond

thoughtsaboutMrPaterson.Aftera furiousbacklashandoppo­

sitionthreatstoboycottthenewcommittee,itpledgedtoseek

cross­partysupportforchangestothesystem.Itisnottoolate

forMrJohnsontolearnthemoralfromthissleazyaffair.Brit­

ain’sconstitutiongrants theexecutivegreatlatitude.Having

broughtBritainoutoftheeuagainstthewishesofthe“liberal

elite”—bywhichtheymeaneveryonefromjudgestojournal­

ists—Brexiteersseethemselvesasbeholdentonoone.Ifthe

governmentcontinuestoactasifrulesareforlosers,itwill

bringdemocracyitselfintodisrepute.n

A

las, the cop26summit in Glasgow is shapinguptobea dis­

appointment. The hope that emerging markets,whichbelch

out much of the world’s greenhouse gases, wouldannounceam­

bitious proposals is being dashed. The plans of China,Indiaand

Brazil all underwhelm. There is no sign this willbethecopthat

kills coal, as Britain, the host, wanted. World leadershavestill

not agreed to stop subsidising fossil fuels.

But one area where enthusiasm is growing is climatefinance.

Financial  institutions  representing  nearly  $9trn in assets

pledged  to  uproot  deforestation  from  their  in­

vestment portfolios (see International section).

The  most  striking  announcement  has  come

from the Glasgow Financial Alliance for Net Ze­

ro (gfanz), a coalition co­chaired by Mark Car­

ney, a former governor of the Bank of England.

Its members, which include asset owners, asset

managers,  banks  and  insurers,  hold  about

$130trn of assets. They will try to cut the emis­

sions from their lending and investing to net zero by 2050. Can

the financial industry really save the world?

In principle, it has a huge role to play. Shifting the economy

from fossil fuels to clean sources of energy requires a vast reallo­

cation of capital. By 2030, around $4trn of investment in clean

energy  will  be  needed  each  year,  a  tripling  of  current  levels.

Spending on fossil fuels must decline. In an ideal world the pro­

fit incentive of institutional investors would be aligned with re­

ducing emissions, and these owners and financiers would con­

troltheglobalassetsthatcreateemissions.Assetownerswould

haveboththemotiveandthemeanstoreinventtheeconomy.

Therealityofgreeninvestingfallsshortofthisideal.Thefirst

problemiscoverage.TheEconomistestimatesthatlistedfirms

whicharenotstate­controlledaccountforonly14­32%ofthe

world’semissions.State­controlledcompanies,suchasCoalIn­

diaorSaudiAramco,theworld’sbiggestoilproducer,area big

partoftheproblemandtheydonotoperateundertheswayofin­

stitutionalfundmanagersandprivate­sectorbankers.

Asecondissueismeasurement.Thereisas

yetnowaytoaccuratelyassessthecarbonfoot­

printofaportfoliowithoutdoublecounting.

Emissionsfroma barrelofoilcouldappearin

thecarbonaccountsofthefirmsthataredrill­

ing,refiningandburningthestuff.Methodolo­

giesbehindattributingemissionstofinancial

flowsare even sketchier.Howshouldshare­

holders, lenders and insurers divvy up the

emissions from a coal­fired power plant, for instance?

The third problem is incentives. Private financial firms aim

to maximise risk­adjusted profits for their clients and owners.

This is not well­aligned with cutting carbon. The easiest way to

cut  the  carbon  footprint  of  a  diversified  portfolio  is  to  sell  the

part of it invested in dirty assets and put the proceeds in firms

that never emitted much, such as, say, Facebook. Together, the

five biggest American tech firms have a carbon intensity (emis­

sions per unit of sales) of about 3% of the s&p500 average.

Why the net-zeropledgesoffinancialfirmswon’tsavetheworld

Financial firms with

net-zero targets, global total

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Apr 2021

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The uses and abuses of green finance

Climate change and investing