top of page

ESG Monthly News Update: April 2024



General ESG News 


  • The Science Based Targets initiative (SBTi) plans to extend the use of environmental attribute certificates, like emissions reduction credits, to address Scope 3 value chain emissions within its standard for corporate net zero target setting. 

  • SBTi, established in 2015, aims to standardize science-based environmental target setting for corporations, providing guidance and validation for emissions reduction and net-zero targets. 

  • The organization introduced the Corporate Net-Zero Standard in 2021, requiring 90-95% decarbonization by 2050, with neutralization of residual emissions. 

  • SBTi's decision to expand the use of environmental attribute certificates for Scope 3 emissions follows plans to revise the Corporate Net Zero Standard, providing additional guidance on Scope 3 emissions. 

  • This decision could significantly impact global markets for energy attribute certificates, with the number of companies with validated science-based climate targets doubling in recent years. 


  • The SBTi is facing internal turmoil after staff reacted angrily to proposed revisions allowing increased use of carbon offsets for net-zero targets. 

  • Staff, including various departments and heads, called for the resignation of CEO Luiz Amaral and supportive board members, citing "grave reputational damage." 

  • They demanded immediate action to address concerns about the proposed changes, indicating readiness for further action if necessary. 

  • The proposed changes sparked internal revolt amid concerns that they could undermine efforts to reduce emissions at the source and boost the carbon offset market. 

  • Despite opposition, the SBTi's Board of Trustees announced plans to extend the use of carbon offset credits for Scope 3 emissions abatement, aiming to issue draft rules by July. 

 

  • A recent study reveals that a third of Africa’s gorillas, bonobos, and chimpanzees are threatened by mining operations for metals crucial to the global clean energy transition. 

    • Mining activities are driving deforestation, posing a significant threat to nearly 180,000 great apes in Africa. 

  • Mining not only harms apes through pollution and habitat loss but also increases hunting pressure and disease risk. 

  • Africa holds a third of the world’s mineral resources, with only 5% currently mined, but mining exploration poses a significant threat to great ape habitats. 

  • Companies often lack robust biodiversity data and mitigation measures, highlighting the need for improved regulations and conservation efforts in mining areas to protect great apes. 

 

  • Scientists conducted the first outdoor test in the US to see if spraying sea salt aerosols could brighten marine clouds and reflect sunlight back into space, potentially mitigating global warming. 

  • The technology is in its early stages and faces significant challenges, including potential unintended consequences and the need for further research to determine its effectiveness. 

  • However, proponents argue it could be a valuable tool to address climate change if drastic emission reductions prove insufficient, while critics raise concerns about the safety and ethics of manipulating natural systems. 

  • The research is privately funded and overseen by universities and non-profit organizations, with some government agencies involved in studying the feasibility of solar radiation modification techniques. 

 

  • A European court ruled that Switzerland has violated human rights by failing to adequately address climate change. This sets a precedent for future climate lawsuits against governments. 

    • The court rejected two other climate cases: one brought by Portuguese youth against 32 European governments and another by a French former mayor. These were dismissed on procedural grounds. 

  • The verdict could have significant international ripple effects, especially for countries signed onto the European Convention on Human Rights. 

  • The ruling highlights the rise of climate litigation, where citizens use human rights law to hold governments accountable for inaction on climate change. 

 

  • The UN climate chief has urged citizens to pressure governments for bolder climate action during upcoming elections in major polluting countries. 

  • Public demand for stronger climate action is high (89% according to a survey) despite limited government response. 

  • Simon Stiell, executive secretary of UN Climate Change, warns of severe consequences if climate change isn't addressed, including supply chain disruptions worse than the pandemic. 

  • Stiell reiterated how crucial G20 leadership is to finance the green transition, especially in developing countries. 

 

  • Larry Fink's annual letters to investors used to be influential in shaping the investment community's focus on climate and ESG (environmental, social, and governance). 

  • However, ESG has become politically charged, with some states criticizing BlackRock for promoting it. Fink himself has stopped using the term. 

  • BlackRock now emphasizes "energy pragmatism" acknowledging a continued reliance on fossil fuels for a transition period. 

  • The firm maintains it is not boycotting oil & gas and invests in both traditional energy and energy transition strategies based on client preferences. 

 

 

ESG Ratings, Standards, and Reporting 


  • Over 40% of publicly traded companies worldwide are now reporting on Scope 3 emissions, according to MSCI data—a significant increase from previous years, indicating a growing recognition of the importance of disclosing indirect emissions. 

  • Despite global progress, the United States lags behind other regions in Scope 3 reporting, with only 25% of U.S. companies disclosing these emissions. 

  • European companies lead the way in Scope 3 reporting, with nearly 60% of European firms disclosing their indirect emissions. 

  • Scope 3 emissions include all indirect emissions associated with a company's activities, such as those from its supply chain, transportation, and product use. Improving Scope 3 reporting is essential for companies to understand and address their carbon footprint and environmental impact. 

  • The disparity in Scope 3 reporting highlights the need for greater transparency and disclosure requirements, especially in regions where reporting levels are low. 

 

  • The TNFD aims to encourage voluntary market adoption of nature-related financial disclosures. 

  • Due to the demands of her role as Assistant Secretary-General of the United Nations and Deputy Executive Director of the United Nations Environment Program (UNEP), Elizabeth Maruma Mrema is stepping down as the Co-Chair of the Taskforce on Nature-related Financial Disclosures (TNFD) but will continue as a senior advisor. 

  • A new Co-Chair will be selected to lead the TNFD alongside David Craig. 

  • Eight other senior advisors have been appointed to provide strategic counsel on the next phase of TNFD’s work. 

 

 

Companies and Industries 


  • At a Responsible Investment Conference, the U.S. insurance industry's frontline role in the climate crisis was highlighted. 

  • Insurers struggle to price climate-related risks like wildfires, flooding, and storm damage, leading to increased costs and non-renewals of policies. 

  • Catastrophe models haven't kept pace with escalating climate risks, prompting insurers to step back from the market. 

  • This impacts the US economy, with homeowners facing expensive insurance or loss of home value due to non-renewals. 

  • The situation underscores the urgency for the financial services industry to engage with the climate crisis to avoid similar challenges. 

 

  • Oregon's new Right to Repair law, HB 2698, aims to enhance consumer rights by allowing individuals and independent repair shops access to tools, parts, and manuals to fix electronic devices. 

  • The law mandates manufacturers, including Apple, to provide repair parts and information to consumers and third-party repair shops for devices sold in the state. 

  • Apple opposed the bill, arguing that it would compromise device security and consumer safety. Competitor Google demonstrated support for the law. 

  • Apple's lobbying efforts against the bill were unsuccessful, leading to its passage and enactment. 

  • The law is significant for consumers and independent repair shops, as it promotes repairability, reduces electronic waste, and provides more affordable repair options. 

 

  • The recent LogiChem EU 2024 event in Rotterdam highlighted the significance of Scope 3 emissions reduction in the chemical industry's logistics operations. 

  • Reducing Scope 1 and 2 emissions from suppliers and logistics providers ultimately facilitates Scope 3 emission reduction however, achieving this goal is complex. 

  • Scope 3 emissions account for over 70% of industry greenhouse gas emissions and over 80% in the chemical sector but remain largely unaddressed. 

  • The "No-Excuse" Framework to Accelerate the Path to Net-Zero Manufacturing and Value Chains, developed in 2022, offers practical guidance for Scope 3 decarbonization, featuring 12 opportunities supported with real-world case studies. 

    • These opportunities, organized into four action levels, aim to inform strategic decisions and foster decarbonization partnerships within the supply chain. 

  • Collaboration across the value chain is essential for accelerating Scope 3 emissions reduction and achieving net-zero targets, emphasizing a collective responsibility and a "no excuses" mindset. 

 

  • The U.S. Department of Agriculture (USDA) released the second edition of "Quantifying Greenhouse Gas Fluxes in Agriculture and Forestry: Methods for Entity Scale Inventory," offering farmers, ranchers, and forest landowners updated tools to assess their operations' greenhouse gas (GHG) footprint. 

  • Agriculture Secretary Tom Vilsack emphasized the significance of the updated methods in supporting climate-smart agriculture and forestry, guiding conservation efforts, and facilitating participation in carbon markets. 

  • Mandated by the Food, Conservation, and Energy Act of 2008, USDA developed science-based guidelines for estimating environmental benefits from land management activities, laying the groundwork for participation in emerging environmental services markets. 

    • These methods form the basis of COMET-Farm, an online GHG accounting system aiding farmers and ranchers in creating farm-scale GHG inventories and exploring management scenarios for emissions reduction. 

  • The 2024 update ensures alignment with the latest scientific knowledge, offering guidance to stakeholders interested in quantifying GHG benefits and assisting USDA in evaluating conservation programs' efficacy. 

  • USDA's commitment to GHG research underscores its role as a leader in conducting national and regional GHG inventories and collaborating with universities to advance agricultural science in mitigating and adapting to climate change. 

  

 

Investment Trends 

 

  • ESG factors are increasingly influencing mergers and acquisitions (M&A) decisions. ESG regulations, like mandatory reporting, are seen as suppressing deals by almost a quarter of senior M&A executives. 

  • Conversely, an equal number of respondents believe ESG strategy will drive M&A activity, especially in the U.S. 

  • The tension between ESG considerations is evident in Nippon Steel's takeover bid for U.S. Steel, which emphasizes decarbonization efforts and labor relations. 

  • To navigate ESG considerations in M&A, companies are advised to incorporate ESG sections into their playbook, including enhanced due diligence, understanding reporting requirements, and addressing ESG concerns post-transaction. 

 

  • Three weeks ago, W23 Global, a $125 million collaborative grocery VC fund, was launched by five leading grocery retailers: Tesco, Ahold Delhaize, Woolworths Group, Empire Company Limited/Sobeys Inc., and Shoprite. 

  • Focus areas for the fund’s investments include:  

    • Enhancing customer experience (in-store and online) 

    • Increasing productivity across the grocery value chain 

    • Addressing sustainability challenges (agriculture biodiversity, sustainable packaging, etc.) 

  • W23 Global will invest in early-stage businesses and proactively seek solutions for emerging problems in the grocery sector. 

  • W23 Global is the first retailer-led VC fund to focus on a range of common sustainability challenges, including those using technology to benefit consumers, create efficient grocery value chains, and reduce emissions and waste. 

 

 

Government Policy

 

  • The U.S. Federal Reserve has opposed efforts by the Basel Committee on Banking Supervision to incorporate climate risk into financial regulations. 

  • The Basel Committee proposed that banks disclose detailed information on climate change impacts starting January 2026, aiming to aid investors and regulators. 

  • The European Central Bank (ECB) supported further proposals for banks to disclose strategies for meeting climate commitments, but U.S. officials raised concerns about the committee's scope. 

  • U.S. companies and states have resisted strict climate disclosure proposals, with some challenging new federal rules requiring climate-related risk reporting. 

  • Supporters argue that climate disclosures are necessary to restrict financing to the fossil fuel industry, while critics accuse regulators of prioritizing political goals over financial regulation. 

 

  • The European Council formally adopted the revised Energy Performance of Buildings Directive (EPBD) to reduce energy use and emissions from buildings across the EU. 

    • Buildings account for 40% of energy consumption and 36% of energy-related GHG emissions in the EU, making them a key target for emissions reduction. 

  • The directive sets ambitious targets for all new buildings to be zero emissions by 2030 and to phase out fossil fuel use in building heating systems by 2040. 

  • It requires member states to incorporate the new rules into national legislation within two years and sets goals for the phase-out or improvement of the lowest-performing buildings. 

  • The legislation also includes measures to support building renovation, establish national renovation plans, and require all new buildings to be solar-ready. 

 

  • The U.S. EPA has introduced new regulations aimed at reducing harmful emissions from chemical plants and eliminating carcinogenic substances from tap water, in line with the climate goals of the Biden administration. 

  • Expectations are high for legal opposition from fossil fuel organizations and Republican-controlled states, arguing that the EPA's measures overstep federal jurisdiction, particularly with the anticipated support from the Supreme Court. 

  • Republican-governed states have launched numerous legal challenges against federal mandates, covering issues such as air quality, methane emissions, and the approval process for energy projects, highlighting a broader pattern of legal disputes against climate-focused policies. 

    • These legal contentions arise from perceived weaknesses in the Biden administration's climate directives, which utilize existing legislation not explicitly tailored for climate-related regulations, as noted by legal scholars. 

  • Elected state attorneys-general are leveraging these vulnerabilities for political advantages, leveraging legal proceedings against climate policies to enhance their visibility and contest the initiatives of the Biden administration. 

 

  • U.S. regulators, particularly the Federal Reserve, have obstructed efforts to prioritize climate risk in global financial regulations, opposing proposals advocated by European central bankers within the Basel Committee on Banking Supervision. 

  • Despite European calls for lenders to disclose green strategies, U.S. officials have expressed concerns about the committee's mandate and potential overreach, citing national interests. 

  • The opposition to climate regulations mirrors broader pushback in the U.S., including legal challenges against financial firms incorporating ESG factors, and Fed Chairman Jerome Powell's stance against the Fed assuming a climate policy role. 

    • The Basel Committee's consensus-building process reflects national interests, with significant U.S. influence, as it navigates jurisdictional differences and sets international standards. 

  • Europe's climate agenda faces internal resistance, with concerns about cost implications and opposition to ambitious emission reduction targets from some member countries like Poland. 

  • Powell emphasized that climate policies fall under elected officials' jurisdiction, distancing the Fed from climate policymaking. 

  • The Basel Committee's power lies in setting global standards, not enforcing them, and its Task Force on Climate-related Financial Risks (TFCR) plays a pivotal role in shaping climate risk management. 

  • U.S. officials, including those from the Fed and other regulatory bodies, have actively engaged in Basel Committee discussions, pushing for revisions to climate-related frameworks and cautioning against policies that could hasten fossil fuel transition. 

 

  • A new EU law was signed in an effort to prevent foreign companies from using state support to undercut European competitors in clean energy sectors.  

  • As a result, the EU has launched investigative probes into Chinese firms they suspect are bidding for a Romanian solar park project with aid from Chinese state subsidies. 

  • The EU aims to balance promoting clean energy production with protecting its domestic industries from cheap Chinese imports. 

  • China argues the investigations unfairly target Chinese companies and distort market competition. 

 

  • The European Parliament approved a new law to establish a certification system for quantifying, monitoring, and verifying carbon removals, aiming to combat greenwashing and enhance trust in carbon removal practices. 

  • The adoption, endorsed by MEPs in a 441-139 vote, represents a significant step towards implementing a comprehensive carbon removal and soil emission reduction framework within EU legislation, encouraging the adoption of carbon removal technologies and promoting income opportunities for industries and land managers. The legislation will now undergo approval by member states in the EU Council before implementation. 

    • Carbon removal solutions encompass both industrial technologies like Direct Air Capture projects and natural carbon sinks, requiring financing from various sources such as carbon credits or government incentives. 

  • Initially proposed by the European Commission in 2022 as part of the European Green Deal, the certification framework aims to ensure the quality and comparability of carbon removals, addressing concerns raised by environmental groups regarding vagueness and susceptibility to greenwashing. 

  • Following negotiations between the EU Parliament and Council, the finalized rules differentiate between permanent and temporary carbon removal activities, encompassing carbon storage, carbon farming, wetland management, and soil emission reduction, while also introducing liability mechanisms to address cases of carbon release. 

  • Additionally, the legislation extends its scope to cover carbon farming activities, incorporating sustainability requirements to generate co-benefits for biodiversity and ecosystems, ensuring that all carbon removal activities avoid significant harm to the environment. 


Comentários


bottom of page