Shearman & Sterling LLP 45 | A Deeper Look at the Global Framework Principles for Decarbonizing Heavy Industry
Progress is indeed being made on this front. One of the
latest Notices of Intent from the U.S. Department of Energy,
through the Bipartisan Infrastructure Bill, has authorized
$8 billion in funds for investments in hydrogen hubs to
decarbonize hard-to-abate industrial sectors.
8
Earlier,
Germany pledged $10 billion to fund 62 hydrogen projects.
The European Union President, Ursula von der Leyen,
recently announced that the continent's Covid recovery
plan is worth €750 billion over four years, and that more
than one-third of the funds are earmarked for the goals set
in the European Green Deal to ensure sufficient renewable
electricity to produce renewable hydrogen.
9
Calibrating these targeted financial injections to align with
GHG emission reduction commitments in reality has been
much more challenging, and financial institutions worldwide
continue to under-invest in green assets. Some of this could
be due to unforeseen circumstances that perhaps have
suggested a slower drawdown of legacy power generation
sources than previously projected. More than ever, there
is a pressing need to unlock capital globally for clean
industrial decarbonization efforts, clean energy production
and energy storage. The financial sector will be a critical
player in both areas, and cooperation in this endeavor will
be absolutely necessary, as the financial players all share
nearly the same systemic risk.
Banks and private equity firms alike have increasingly
devoted more attention and capital in these areas
of industrial decarbonization and sustainability. The
emergence of the Glasgow Financial Alliance for Net Zero
(GFANZ) from COP26 was a noteworthy evolution of the
financial sector. GFANZ now includes over 100 global banks
committed to helping clients achieve net-zero by 2050
commitments, as well as science-based 2030 emissions
reduction targets. Over the last few years, Ara Partners,
a pure-play decarbonization investor, has raised a total of
$1.7 billion across three funds. Blackstone, one of the largest
investment management companies, has committed over
$15 billion energy transition-related investments, and plans
to invest an estimated $100 billion in energy transition and
climate change solutions projects over the next decade —
a significant amount of which are expected to be directed
to focused decarbonization efforts. Together, firms like these
are actively prioritizing funding for deployment of low and
zero carbon technologies to help phase out fossil fuel use.
Another framework principle calls for the implementation
of policies to create demand for low-carbon, circular and
resource-efficient basic material products, supported by
the use of standardized lifecycle carbon footprint labeling
and performance incentives for end products. In this regard,
there has been significant progress on the corporate front.
As companies are increasingly disclosing their sustainability
efforts and metrics, there has been a renewed focus on
lifecycle carbon footprint reporting. While these efforts
remain voluntary, investor pressures are filling in the gaps
for legal obligations while the SEC plays catch-up. The SEC,
however, has proposed recent amendments that would
require enhanced disclosures by funds to even include the
emissions that their portfolios are responsible for, including
the carbon footprint and intensity of the companies they
invest in.
10
The rationale behind this move, as explained
by the SEC's Chair Gary Gensler, is that "investors should
be able to drill down to see what's under the hood of
these strategies ... allowing them to allocate their capital
efficiently and meet their needs."
8
See U.S. Department of Energy, "Notice Of Intent To Issue Funding
Opportunity Announcement," https://oced-exchange.energy.gov/Default.
aspx#FoaId4e674498-618c-4f1a-9013-1a1ce56e5bd3.
9
See European Commission, Opening speech by President von der Leyen
at the European Hydrogen Energy Conference 2022, https://ec.europa.eu/
commission/presscorner/detail/en/SPEECH_22_3185 (May 18, 2022).
10
See U.S. Securities and Exchange Commission, "SEC Proposes to Enhance
Disclosures by Certain Investment Advisers and Investment Companies
About ESG Investment Practices," https://www.sec.gov/news/press-
release/2022-92 (May 25, 2022).
