Solidarity and bold promises formed the crux of the “Cornwall Consensus” communiqué, published in summary of the recent G7 summit.
As expected, climate was high on the agenda. Though welcome, this isn’t new – the 2016 G7 summit, in the wake of the Paris Agreement, focused heavily on climate issues. What was interesting to note about this year’s meeting was the increased weight given to social and governance factors – or the other pillars of ESG – as well as environmental concerns.
This is reflective of global movements: COVID-19 brought social inequalities into sharp relief. In the past year, citizen voices grew louder, calling for an end to issues including systemic racism and corporate human rights violations. The pandemic has equally redirected investor focus on how companies approach social and governance risks, including human capital management, corruption, diversity, equity & inclusion (DEI), and labour rights. And Edelman’s Institutional Investor Trust survey found that 72% of global investment firms are now applying exclusionary screening based on diversity & inclusion (D&I) metrics.
To that end, here are some of the major ESG developments of the summit:
Environmental
- A global, climate-friendly, $40 trillion infrastructure initiative – Build Back Better World (B3W), an answer to China’s multi-billion-dollar Belt and Road Initiative (BRI).
- Expanding the capabilities of existing impact reporting frameworks and creating a baseline global reporting standard. Notably, G7 leaders expressed support for the move toward mandatory disclosures based on the Task Force on Climate-related Financial Disclosures (TCFD) framework and called for the International Financial Reporting Standards (IFRS) Foundation to finalise plans for an International Sustainability Standards Board (ISSB) before COP26 in November.
- Developing the green finance market, which would mobilise the trillions of dollars of private sector finance needed for leaders to meet their respective net zero commitments by 2050.
- Creating a CERN (European Organization for Nuclear Research) for climate technology.
- Agreeing a shared G7 Nature Compact to address the interlinked challenges of biodiversity loss and climate change.
- Recognising that coal power generation is the “single biggest cause of greenhouse gas emissions.”
Social
- Intensifying scrutiny on China’s human rights record. Whereas three years ago the nation wasn’t mentioned in the G7 communiqué, this year a dedicated section underscored the need for improved responses to issues including human rights abuses in Xinjiang and Hong Kong. The memo promised “action against forced labour practices in the agricultural, solar, and garment sectors,” and called on China “to respect human rights and fundamental freedoms, especially in relation to Xinjiang and those rights, freedoms and high degree of autonomy for Hong Kong enshrined in the Sino-British Joint Declaration and the Basic Law."
- Condemning a number of other human rights violations, such as the ongoing human rights abuses in Belarus, and called for a cessation of conflict in Ethiopia's Tigray region.
- Boris Johnson warned that the COVID-19 pandemic could leave a “lasting scar” of inequality on the world unless country leaders learn from the recession of 2008.
Governance
- Endorsing a 15% global minimum tax on multinational corporations to tackle corporate tax avoidance.
- Announcing a Data and Technology Board to oversee global internet governance and advise governments on tech policy – akin to the Financial Stability Board, which was set up after the financial crisis.
Though encouragingly broad in scope, the outcomes of the G7 talks, including the Cornwall Consensus communiqué, are light on detail and on tangible actions that could start to put the above into practice. As the FT’s Gideon Rachman notes, the talks were “stronger on values than hard cash.” What is clear is the critical role that the global financial and business communities play in achieving these goals.
For instance, the leaders didn’t reach an end-date agreement for global coal power generation – something that won’t escape the attention of China, who said the International Energy Agency’s recent report, which focused on ending the use of coal, was unrealistic as it didn’t make appropriate allowances for developing nations.
The EU delegation tabled carbon leakage – when heavy polluters move operations to other countries with lower emission regulations – but this was not discussed in detail. The group failed to outline a plan for how they would pay for the G7 Nature Compact. And it is unclear if the global minimum tax rate, while commendable, only applies to companies with a 10% profit margin – which would exclude online retail giants such as Amazon.
Max Lawson, head of inequality policy at international aid group Oxfam, said that this G7 summit “will live on in infamy. Faced with the biggest health emergency in a century and a climate catastrophe that is destroying our planet, they have completely failed to meet the challenges of our times.”
However, despite being light on concrete next steps, the Cornwall Consensus still serves a valuable purpose. It shows a clear-cut evolution in a shift in attitudes amongst global leadership towards ESG factors, a sign that understanding is growing of the link between environmental and societal progress, with the understanding that progress on one pillar won’t be possible without progress on the others.
At the end of the summit, Boris Johnson said “I’m not going to pretend that our work is done.” This may be true, but this deepened understanding of how to tackle the world’s environmental, social and economic issues can only be a positive step. On a global stage, the leaders of some of the world’s largest economies sent the message that environmental, social, and governance issues do not exist in silo.
With G7 now thrown against the wall, the real work can begin – and in the next few months until G20 in October and COP26 in November, we will see what has stuck.
Henrietta Hunter is an Account Director at Edelman Smithfield.