General ESG News
At a recent ESG conference, most bankers in attendance expressed a preference for short-term investments (less than three years) while favoring new energy generation methods, highlighting a contradiction since these technologies require long-term commitments to deliver returns.
Financial institutions' short-term investment focus presents a significant barrier to funding the $215 trillion needed for the global energy transition by 2050, as projected by BloombergNEF.
Leading cleantech investors and venture capitalists emphasized that achieving net zero by 2050 will require diverse technologies like fusion energy, carbon capture, and geothermal, beyond currently commercialized options like solar and wind.
Despite the innovation and capital available, risk aversion and short-term thinking among financiers may undermine the transition to a net-zero economy, risking severe climate impacts for future generations.
The article's author calls for a change in investment strategies to align with the long-term realities of achieving a sustainable, climate-compatible future.
In 2022, the UK experienced an unprecedented 40°C (104°F) heat wave, prompting its first-ever "red" warning, which killed an estimated 1,200 people and sparked a debate on how to better handle future heat waves.
Some experts, including the Physiological Society, advocate for naming heat waves to raise public awareness, similar to how hurricanes are named; early trials in Spain and Greece showed increased public awareness and proactive behaviors.
However, organizations like the World Meteorological Organization (WMO) and the UK Met Office are skeptical, arguing that naming heat waves might cause confusion, warning fatigue, and could be less effective given the complex nature of heat risks.
Opponents believe that instead of naming, more focus should be on practical measures and clear communication about risks, since heat's impact varies significantly by region and can affect vulnerable populations before official thresholds are met.
The debate highlights the need for both awareness and action, as many people at risk from heat do not recognize their vulnerability, and structural factors like inadequate housing and workplace protections also contribute to heat-related dangers.
Sustainable Brands: How High-Integrity Credit Projects Deliver Impacts Beyond Carbon
The voluntary carbon market (VCM) is under scrutiny for the prevalence of low-quality carbon offsets, prompting companies to focus on choosing projects that align with their values, support real decarbonization within supply chains, and demonstrate long-term climate impact and durability.
Ensuring high-quality offset projects requires strong community relationships, transparency, and robust due diligence. Large companies like Microsoft use their purchasing power to demand more credible, impactful nature-based solutions.
Investing in high-integrity projects involves assessing social and environmental benefits, securing local community support, and understanding the fine print in carbon-purchase agreements to promote transparency and reliability.
Experts advocate for a shift toward avoided emissions and durable change rather than relying only on future technologies, emphasizing that buyers and sellers should align on expectations, communicate values, and consider the long-term success of projects.
The World Economic Forum’s Global Risks Report identifies nature-related risks as the top global threats, highlighting that industries with high dependence on nature contribute 52% of global GDP, making nature risks a significant business concern.
“Insetting,” or investing in projects within a company's value chain to mitigate nature impacts, is gaining popularity as a way for businesses to address their environmental footprint, particularly in contrast to traditional carbon offset purchases.
Despite the benefits of insetting, challenges remain, such as uncertainty around definitions, boundaries, and attribution, which complicate the measurement and reporting of impacts and benefits.
The GHG Protocol and standards bodies like Gold Standard and Verra are working to provide guidance and standardization to address these challenges, aiming to improve transparency and effectiveness in insetting practices.
Companies like Nestlé are leading efforts to integrate insetting into their strategies, supported by evolving regulations such as the EU's Corporate Sustainability Reporting Directive and the forthcoming Taskforce on Nature-related Financial Disclosures.
ESG Ratings, Standards, and Reporting
The Science Based Targets initiative (SBTi) is unlikely to include carbon offsetting in its 2025 Net-Zero Standard update, focusing instead on strengthening incentives for companies to mitigate ongoing, unabated emissions.
Two recent reports suggest that SBTi prioritizes corporate accountability over accelerating climate impact and does not plan to provide more flexibility for companies struggling to meet existing standards.
The reports indicate skepticism about the effectiveness of carbon credits for meeting Scope 3 targets, suggesting that their inclusion in future standards is improbable.
As companies face challenges in meeting the stringent Net-Zero Standard requirements, there is concern that many may withdraw from the SBTi program or choose not to participate, especially in the absence of supportive government climate policies.
The EU’s Corporate Sustainability Reporting Directive (CSRD) sets new standards for climate impact and environmental reporting, with the first phase of reporting starting in 2025.
The directive, replacing the Non-Financial Reporting Directive, broadens reporting requirements to include environmental, social, and governance actions.
As of the July 6 deadline, only eight EU member states have enacted the CSRD, while nine have fully implemented it. Several others are in consultation or legislative phases.
The directive's implementation is required at the national level, and non-compliance by member states may lead to penalties, though complete repeal is unlikely.
The UK plans to introduce a law next year to regulate ESG rating providers, aiming to enhance transparency and strengthen its position as a leader in sustainable finance.
Currently, ESG raters in the UK follow a voluntary code of conduct, but Finance Minister Rachel Reeves has called for mandatory regulation to prevent ‘opaque’ ratings that could mislead investors.
The proposed regulation will align with recommendations from the International Organization for Securities Commissions (IOSCO) and help ensure that companies in critical sectors are not unfairly penalized.
The UK Sustainable Investment and Finance Association (UKSIF) and consultants Hymans Robertson support the regulation, emphasizing the need for greater transparency and consistency in ESG ratings.
The International Accounting Standards Board (IASB) proposed new guidance to help companies more clearly demonstrate the impact of climate change on their financial performance, addressing investor concerns that standalone disclosures lack sufficient clarity.
The IASB's guidance seeks to integrate sustainability disclosures, such as net-zero commitments, into financial statements to better reflect their impact on assets, liabilities, income, and expenses.
This proposal responds to investor demands for transparency on whether assets will retain their value amid climate-related risks, as current disclosures outside financial statements are often audited less rigorously.
ESG Today: EU Commission Publishes CSRD FAQ to Help Companies Implement New Sustainability Reporting Rules
The European Commission released a new set of FAQs to help companies and stakeholders implement the sustainability reporting requirements of the Corporate Sustainability Reporting Directive (CSRD), with initial reports starting in 2025 based on the 2024 financial year.
The CSRD, an expansion of the EU’s Non-Financial Reporting Directive (NFRD), significantly increases the number of companies required to disclose sustainability data and introduces more detailed reporting on environmental, human rights, and social impacts.
The FAQs aim to clarify key aspects of the new rules, reduce administrative burdens, and ensure compliance, covering topics like scope, exemptions, auditing requirements, and guidelines for using estimates when full data is unavailable.
ESG Today: Only 22% of CFOs Are Ready for Climate Reporting and Assurance Requirements: Accenture Survey
According to an Accenture survey, only around 22% of finance executives feel well-prepared to meet upcoming climate-related reporting requirements.
Nearly 85% of finance executives expect an increase in mandatory sustainability disclosures over the next three years, with 90% anticipating ESG issues to be a major focus in the next five years.
Over 80% of finance executives feel pressure from multiple stakeholders to act on sustainability, including regulators and shareholders.
The Survey concludes that companies who are proactive and well-versed in ESG measurement and management are more likely to see sustainability as a value driver and growth opportunity compared to less prepared companies.
The International Accounting Standards Board (IASB) proposed new guidance to help companies better reflect the impact of climate change on their financial performance.
The guidance aims to improve clarity for investors, as current standalone sustainability disclosures outside financial statements are seen as insufficient.
The IASB's consultation seeks to show how sustainability commitments, like net-zero plans, affect financial aspects such as assets, liabilities, income, and expenses.
Investors have raised concerns about the adequacy of climate-related information in financial statements, emphasizing the need for consistency with external sustainability disclosures.
Companies and Industries
The Integrity Council for the Voluntary Carbon Market (ICVCM) announced it will not grant its Core Carbon Principles (CCP) label to carbon credits issued under existing renewable energy methodologies, which represent nearly a third of the voluntary carbon market, due to concerns over additionality.
The ICVCM aims to build a high-integrity voluntary carbon market by ensuring that carbon credits create a verifiable impact and adhere to its Core Carbon Principles, which require that emission reductions would not have occurred without carbon credit revenues.
While excluding existing methodologies, the ICVCM supports the need for renewable energy projects, particularly in developing countries, and is open to reviewing more robust renewable energy methodologies in the future to align with its standards.
Financial Times: The uninsurable world; rethinking how to cover for climate change
Thomas Brennan, an insurance broker, highlights the increased difficulty for businesses, particularly in flood-prone areas like New Orleans, to secure affordable insurance due to rising costs and extreme weather events that are exacerbated by climate change.
The insurance market is evolving with innovative solutions like parametric insurance, which pays out based on predefined triggers like flood levels, and adaptation measures like Coca-Cola’s factory reconfiguration to handle future floods better.
Advances in risk modeling, including detailed local risk assessments and machine learning, are helping insurers better understand and cover individual property risks, though this approach risks creating disparities between properties deemed "good" and "bad" risks.
Efforts to address the insurance gap include government-backed initiatives, such as the potential for a pan-EU catastrophe scheme, and smaller programs like emergency cash payouts for flood victims in New York’s high-risk areas.
Community engagement and proactive risk management are increasingly seen as crucial for maintaining insurability, with organizations like InnSure advocating for insurance-focused assessments in development planning to mitigate economic impacts and ensure affordable coverage.
Mars reduced its greenhouse gas emissions by 8% in 2023 and 16% since 2015 while growing its business by 60%, with a target to cut emissions by 50% by 2030.
The company is focusing on sustainable sourcing and reformulating products, particularly in key ingredients like beef, cocoa, and palm oil, to reduce its environmental impact.
Mars has committed $1 billion over the next three years to support innovations and efficiency measures, with 40% of executive incentives tied to sustainability goals.
The company emphasizes “performance over promises,” with plans to achieve net-zero emissions by 2050, though it acknowledges the need for more detailed strategies beyond 2030.
U.S. demand for electric vehicles has slowed in 2023, with Tesla's sales dropping 6.3% in the second quarter, contributing to the overall industry slowdown.
In contrast, California saw a 25.7% share of new vehicle sales being electric, plug-in hybrid, or hydrogen-electric models, the highest rate ever, driven by the state's push for zero-emission vehicles by 2035.
Tesla's slowdown is being offset by rising competition from other automakers like Rivian and Ford, which aligns with California's goal to foster competition in the EV sector.
Governor Gavin Newsom highlighted the ongoing progress in California as crucial not just for the state but for the nation, emphasizing the importance of continued growth in EV adoption.
Investment Trends
Goldman Sachs' fund division has exited Climate Action 100+, a global investor initiative aimed at pushing the world's largest corporate greenhouse gas emitters to take action on climate change, joining other U.S. firms withdrawing due to political pressure from Republican lawmakers.
Republican lawmakers are scrutinizing climate-focused coalitions, citing concerns over potential antitrust violations and pressuring firms to clarify their ESG goals.
Climate Action 100+ asserts that its members act independently in their investment and voting decisions, despite the political pressure.
Several U.S. financial firms, including major players like Invesco and JPMorgan, have also recently exited Climate Action 100+ amidst growing political scrutiny.
Silva Capital announced the launch of the Silva Carbon Origination Fund, targeting large-scale, high-integrity carbon credits from reforestation and sustainable agriculture projects in Australia.
The fund secured A$80 million (USD$53 million) from Rio Tinto, BHP, and Qantas as foundation investors, with a goal of raising A$250 million.
The fund will invest in agricultural land to develop carbon sequestration projects, combining reforestation with productive farming to generate Australian Carbon Credit Units (ACCUs).
The fund aims to attract both corporate and institutional investors, supporting Australia's decarbonization efforts, with investors like Qantas and BHP viewing high-integrity carbon credits as crucial for meeting their climate targets
Sustainable Brands: US Invests $2.2B Into Grid Upgrades for Climate Resilience
The U.S. Department of Energy (DOE) invested $2.2 billion in eight projects across 18 states to strengthen the grid against extreme weather, lower costs, and increase capacity for growing manufacturing and data centers.
Funded by the Bipartisan Infrastructure Law’s GRIP Program, these projects will add nearly 13 GW of grid capacity, attract nearly $10 billion in public-private investments, and create at least 5,000 jobs.
The projects will involve deploying advanced technologies, upgrading over 1,000 miles of transmission lines, and integrating more clean energy, including 4,800 MW of offshore wind.
These efforts align with the Biden-Harris Administration’s agenda, aiming to enhance grid resilience, support clean energy growth, and facilitate nationwide collaboration on modern grid technologies.
Government Policy
The U.S. SEC defended its new climate reporting rule in court, asserting that it provides critical information for investors and falls within the agency's authority to mandate climate risk disclosures.
The SEC argued that current climate-related risk reporting is inconsistent and poses an obstacle to informed investment decisions. It emphasized the need for more detailed, consistent, and comparable information to meet substantial investor demand.
Legal challenges against the rule claim it is too burdensome, expensive, and beyond the SEC's authority. The SEC countered by detailing economic considerations and modifying the rules to reduce costs while maintaining usefulness for investors.
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