CEOs flag Bitcoin equivalent in carbon market

Ahead of COP26, Allianz’s Oliver Baete and Enel’s Francesco Starace join a panel discussion at the PRI’s annual conference on what policy makers urgently need to achieve.

Two leading executives voiced their hopes ahead of next week’s COP26 but also their concern that the climate conference won’t bring the change that is needed to tackle the environmental emergency.

Speaking at the PRI’s digital conference in a panel session ‘A Net Zero Future: Credible Ambition and Solutions,’ Oliver Baete, CEO, Allianz, the Munich-based insurance giant and founding member of the UN-convened Asset Owner Alliance, urged COP policy makers to urgently eliminate fossil fuel subsidies that still exist in so many countries – including his native Germany.

“It would be a great step if we could eliminate these subsidies,” he said.

He also called for urgent progress on enforcing transparency, particularly in the private sector and in government-owned assets. He argued that the lack of ESG transparency in these sectors could create a shadow market, impossible to scrutinize. He also urged policy makers to do more to shape a just transition. Developing countries, emerging from the pandemic and navigating the energy transition need support from developed countries.

“It needs to be fair,” he said, adding that developed nations “have created the problem” and now have an obligation and motivation to support emerging economies.

For Francesco Starace, CEO, of Italian energy giant Enel, the biggest win from the conference would be a global carbon price. He said technicalities like whether the price should be based on a cap-and-trade system or taxation, mustn’t side-track from the bigger goal of putting a price on carbon.

“This is the missing part,” he said. “We need to achieve a carbon price.”

Panellists were joined by Hiroshi Shimizu, president, Nippon Life Insurance, a new member of the Net-Zero Asset Owner Alliance who stressed the importance of corporate engagement and better disclosure.

Starace also voiced his concerns about a disorderly transition, urging COP governments to do more to prepare for the years ahead. He said that disorderly transitions created inequality and losers; those that were slow to move will fall into the second category. He said governments need to “tell the truth” to companies and employees so they understand the transition and said that small adjustments are preferable to one seismic shakeup.

“It is much better to have a series of small earthquakes rather than nothing, and a big one at the end.”

Reflecting on the energy crisis in Europe, he said it showed how the market is structured for the short-term. Volatility would be dampened if we bought and sold sizeable quantities of energy over longer five to 10-year horizons, he said.

He said that Enel is preparing for the transition, embarking on a huge investment initiative stretching over the next 10 years to decarbonise.

It will treble renewable generation, install millions of charging points for electric vehicles round the world, and phase out coal.

“We have the technology and the money; the limiting factor is policy,” said Starace, adding that policies are the deciding factor as to whether countries slow down, or accelerate decarbonisation. The other factor is skills and manpower.

Baete also urged politicians to do more to explain to their populations the challenges that lie ahead. Asking people to pay for the cost of climate change through additional taxes will become increasingly difficult.

“You can’t, always, just add the cost to the end consumer,” he said, calling for “intelligent policy” that doesn’t “just penalise people when they use their cars.” He concluded that although there is very strong public support for the transition, research shows people are not prepared to commit more to finance it.

“We need to resolve this dichotomy,” he said.

Baete added that the pandemic has led to a short-term focus at the expense of long-term planning to combat climate change. He said the changing economics of insurance and risk raised the spectre of misallocating capital over the next decades. He also noted that much of the change today has been driven by the private sector.

Reflecting on greenwashing, Starace warned of the dangers of companies not decarbonising, opting instead to compensate via carbon offset initiatives.

“Zero is a clear word,” he said. “The whole issue of compensation and carbon offsets needs to be well understood, otherwise we risk the equivalent of bitcoin in the carbon market.”

Of course, some industries can’t get to zero and offsets and sinks are important, but it must be science-based, concluded Baete.