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ESG Monthly News Update: December 2023




General ESG News 


  • COP28 focused on finding consensus for climate finance in achieving a zero-carbon world. Sultan Al Jaber highlighted the necessity of major financial system reform for this transformation. 

  • Despite the Paris Agreement, oil and gas companies continue investing, challenging the goal of limiting global temperature increases. 

  • A significant funding gap of $4 trillion annually by 2030 exists, requiring a shift at COP28. 

  • The private sector, with over $70 trillion in assets, is urged to contribute more to climate finance. Innovative financing models are needed for adaptation projects, which receive limited funding compared to mitigation efforts. 

 

  • Tesla has started Cybertruck deliveries after four years, and the U.S. hit more than one million EV sales in 2023. Global EV adoption continues to rise, with projections of 9% of U.S. auto sales being EVs in 2023. 

  • Despite increasing EV sales, there remains an insufficient focus on decarbonizing manufacturing and supply chain emissions. 

  • A recent report from Polestar and Rivian emphasizes the need for decarbonizing manufacturing to avoid exceeding the automotive industry's carbon budget by 2035. 

  • A future focus on supply chain and manufacturing decarbonization is anticipated in 2024, and Volvo and Polestar are being recognized for their sustainability efforts. 

 

  • The use of fossil fuels, transition to EVs, supreme court action, geopolitical conflict, and Gen Z’s burgeoning political participation are five sustainability-related themes to think about in 2024.  

  1. Oil, gas, and coal extraction to increase in 2030. However, recent large acquisitions by Exxon and Chevron, as well as company claims of large-scale battery manufacturing have demonstrated lower confidence in the industry’s future.  

  1. EV global sales slowed (63 to 49% from last year) and many car makers are decreasing production. Challenges to address in the industry include job security in EV production, supply chain concerns, union negotiations, and unclear economic incentives. 

  1. The potential overturn of the Chevron Deference by the Supreme Court would be consequential to health, environmental, and numerous processes that have been protected since 1986. 

  1. Geopolitical conflicts shift the focus of policymakers and funding capacity for sustainability and climate change action. Existing (technology, fuel reliance, etc.) insecurities will continue to be amplified by geopolitical instability. 

  1. 76 elections will be held globally in 2024. While record numbers of Gen Z voters participated in the 2018 and 2020 elections, it is crucial that candidates continue to support these voters in strengthening their voice and decision-making impact.  


  • A report by Kite Insights found that 80% of employees are willing to take climate action in their jobs and 45% are ready to “become pioneers of climate action” on their teams. 

  • Employee activism on issues including climate and sustainability has supported organizations to strengthen climate change action. 

  • Strong federal, state, and local policy will support the required 50% carbon emissions reduction by 2030 to achieve “planetary-saving benchmarks.” Employees have observed critical company voice being used to further climate-driven legislation. 

  • At the employee level, companies can support employees in finding crucial facts, individual influence, hosting engagement opportunities, and harnessing advocacy to increase positive momentum towards the passing of climate-friendly policy solutions. 

 


ESG Ratings, Standards, and Reporting 


  • Regardless of when the SEC finalizes the Climate-Related Disclosure standards, expectations of ESG commitments and climate-related reporting requirements will stay in place. 

  • The SEC’s Enforcement Task Force Focused on Climate and ESG issues was created in 2021 and actively identifies gaps and misstated climate risk disclosure.  

  • Asset managers and firms using fund names that are likely to mislead investors about ESG investments and risks are subject to fines by the Investment Company Act Names Rule. 

  • The task force recently announced a series of fines totaling over $24 million, penalizing advisors that failed to adequately implement ESG factors to branded ESG funds. 

  • The need to have a defined U.S. climate disclosure rule works in favor of U.S.-based multinational corporations that will have to comply with the EU Corporate Sustainability Reporting Directive (CSRD) that becomes effective in 2024. 

  • Substituted compliance to (yet to be released) U.S. rules could simplify company compliance efforts by proving that their reports satisfy similar expectations to that of European rules. 

 

  • At a Council on Foreign Relations event in early December, SEC Chair Gary Gensler reinforced the importance of establishing U.S. climate reporting rules. 

  • Without these rules, companies will likely have to comply with foreign rules, such as the EU Corporate Sustainable Reporting Directive (CSRD) without the opportunity for ‘substituted compliance’. 

  • The SEC continues to review the proposed climate disclosure rules requiring U.S. companies to examine the climate risks their businesses face, as well as the action plan to address these and the company's climate footprint. 

  • The EU CSRD is more comprehensive, requiring Scope 3 emissions disclosure and a double materiality approach that considers company impacts due to environmental changes, and how company operations affect people and the planet. 

  • If a rule is finalized, the SEC will be able to engage in discussions with Europe about the possibility of ‘substituted compliance’. Without a rule, negotiation opportunities do not exist. 

  • The timeline for the release of the final rule is unknown, however, April 2024 is the listed final action date for the SEC’s climate rule. 

 

  • The Australian Competition and Consumer Commission (ACCC) released its final environmental claims guidance after including feedback from over 150 consumers, businesses, and environmental organizations. 

  • This guidance addresses the findings of a previous ACCC study where 57% of companies made alarming claims about their environmental credentials, ensuing greenwashing investigations. 

  • The ACCC outlines eight principles in this guidance to support the creation of clear and accurate green claims using evidence, explanation, and research. 

  • Companies revealed to have made false and/or misleading statements will be monetarily penalized depending on the violation, revenue generated, or assessed value from the claim. 

  • In 2024, the ACCC expects to release additional emissions and offset claims guidance, and resources to support consumers' verification of green claims made by companies. 

 


Companies and Industries 


Forbes: ESG Metal: The Rise Of Responsible Mining 

  • Ethically sourced materials in renewable energy are crucial to avoid a "green" technology paradox where the source undermines the sustainability goals.  

  • ESG practices are becoming essential for minimizing the environmental and social impact of mining, paving the way for a more sustainable future. 

  • Consumers' demand for ethical products and the premium associated with ESG metal create a strong economic argument for responsible mining practices.  

  • Companies should diversify their supply chains and promote responsible practices throughout, reducing reliance on unsustainable or unethical sources.  

  • Collaboration among consumers, investors, and the industry is key to advocating for responsible mining and building a sustainable future for the sector. 


  • The World Economic Report indicates that 85% of CEOs and companies are prioritizing the advancement of AI strategies to modernize and transform their organizations in 2024. 

  • The coming year will also usher Global AI ethical frameworks and laws into effect, promising a stronger regulatory environment for high-risk AI applications. Balancing ESG policy positions on AI is crucial, particularly in the realms of Social and Governance within AI. 

  • The article emphasizes the need for stakeholder risk management as AI models consume substantial power and resources.  

  • Ultimately, the article anticipates AI ESG specialization will become a new career path, requiring technical skills in addition to policy and compliance expertise. 

 

  • Amazon has boosted its rail & sea shipping in Europe by 50% in 2023. This move reduces carbon emissions by nearly 50% compared to traditional truck transport. 

  • This shift supports Amazon's goal of net zero emissions by 2040, targeting its major carbon footprint in "Scope 3" supply chain activities.  

  • Over 100 rail lanes and 300 sea routes were established across Europe through partnerships with major carriers, and flexible trailers seamlessly switch between ships, trains, and trucks for optimal emissions reduction. 

 

  • Bill Gates's Breakthrough Energy Ventures invests in thermal storage startup, Fourth Power, to address long-duration power backup needs. Fourth Power's technology converts renewable power to heat, storing it using liquid tin and carbon blocks, potentially solving intermittency issues with renewables. 

  • The Series A funding round raised $19 million, led by DCVC with participation from Breakthrough and Black Venture Capital Consortium. 

  • Fourth Power plans to build a prototype facility in Boston, storing one megawatt-hour of energy, with potential completion by 2026 and commercial deployment by the end of the decade. 

  • Breakthrough Energy Ventures aims to advance low-cost, utility-scale renewable grid solutions, and Fourth Power's technology is expected to be up to 10 times cheaper than lithium-ion for long-term energy storage.  

 

  • Regulatory and funding challenges threaten U.S. plans to build up its nuclear industry with a new generation of smaller and more efficient reactors. However, a COP28 declaration signed by 22 nations could triple the amount of installed nuclear energy by 2050, marking a step forward in this journey. 

  • Many nuclear startups and installers are facing delays and setbacks due to investor aversion, rising interest rates, permitting issues, poor project planning, and more.  

  • Despite these headwinds, some projects are expected to continue in 2024, and installers see the value in focusing on smaller project scopes for now, as these are easier to actualize and are not ‘major infrastructure projects.’ 

  • There is bipartisan support in Washington for the nuclear industry, and the Biden administration recently asked Congress to provide more than $2 billion to support U.S.-based companies looking to boost their enrichment and conversion capacity for nuclear fuel. It also offers tax credits for eligible nuclear projects through the Inflation Reduction Act.  

  • There are currently dozens of nuclear reactor startups in the U.S.; what is needed now is momentum behind contracts and beginning project development to reach the commercial scale that is required to generate the clean power needed by 2050.  

 

  • At COP28, the UN Food & Agriculture Organization presented the first part of its inaugural roadmap to transform the global food system into a carbon sink and adhere to 1.5C of warming. 

  • Efficient food production and re-balanced consumption patterns are crucial to curb emissions, reduce the number of people experiencing hunger, and increase access of over 3 billion people to healthy diets. 

  • A third of global greenhouse gas emissions are released by the food system. To address these emissions, milestones of the roadmap include: 

  • Between 2020-2030: 25% methane emissions reduction by livestock 

  • Between: 2020-2040: >75% growth in sustainable aquaculture 

  • By 2035: Zero-gross deforestation globally 

  • By 2020: 50% decrease in per-capita global food waste at retail and consumer levels 

 

  • Insurers are likely to face “material exposure” to climate change due to fossil fuel and energy-intensive industry investments, natural catastrophe risk underwriting, and reinsurance activities. 

  • While insurers are “significantly less risky than banks,” they still invest in large assets with risk that is difficult to monitor. 

  • Inflation, decreased house purchasing power and continued geopolitical strain may also impact the insurance sector in 2024. 

 

  • New York's lawsuit against PepsiCo alleges that single-use packaging is a public nuisance and a health concern, accusing the company of misleading consumers about recycling effectiveness. 

  • Described as a test case, legal experts highlight the lack of uniform standards governing how companies communicate their environmental commitments. 

  • The 39-page complaint focuses on PepsiCo's contribution to plastic waste along the Buffalo River, seeking remediation measures such as adopting alternatives to single-use packaging and adding labels warning about environmental and health issues. 

  • The lawsuit uniquely holds the manufacturer liable for plastic pollution and challenges PepsiCo's public statements about recycling and reducing virgin plastic, setting a precedent for similar cases. 

 


Investment Trends 


  • Low-carbon transition fuels $4 trillion annual energy investment by 2050, driving major private market opportunities in clean energy and electrification infrastructure like storage, electric transport, and alternative fuels. 

  • Climate resilience and reconstruction projects gain traction, offering investment potential as the world prepares for and recovers from climate-related events. 

  • Low-carbon shift sparks an infrastructure boom, creating significant private market opportunities in areas like energy grids and sustainable transportation. 

  • Digital disruption, demographics, the future of finance, and geopolitical fragmentation emerge as additional megatrends with investment potential. 

  • BlackRock positions itself to capitalize on these megatrends, launching climate-focused funds and attracting major investment commitments. 

 

 

Government Policy 


  • The draft deal from COP28 in Dubai urges countries to reduce the consumption and production of all fossil fuels, including oil and gas, marking a historic shift in the UN treaty on climate change. 

  • The 21-page agreement, if adopted, would be the first to call for a reduction in fossil fuel use but is criticized by some nations for not going far enough, allowing loopholes, and lacking a complete phase-out. 

  • Sultan Al Jaber, the COP28 leader, faced challenges in reaching a compromise, with Saudi Arabia and other OPEC+ nations opposing the phase-out language. 

  • While praised as a step toward ending the fossil fuel era, many countries, including the EU, find the draft insufficient, and the text's optional actions raise concerns about its ambition and effectiveness. 

  • Also covered in Financial Times: COP28 fossil fuels pledges will not limit global warming to 1.5C, says IEA 


  • Saudi Arabia is accused of obstructing UN climate negotiations and pressuring the UAE presidency to shift focus away from oil and gas-producing nations, according to insiders. 

  • Sultan al-Jaber, COP28 president and head of the Abu Dhabi National Oil Company, faced pressure from Saudi Arabia during the conference which led to concerns about how discussions would conclude in Dubai. 

  • OPEC, dominated by Saudi Arabia, remains adamant about undue pressure against fossil fuels, leading to backlash from European ministers, emphasizing the tension around the future of fossil fuels at COP28 and future COPs. 

  • Geopolitical tensions rose as the talks approached their final days, with the Republic of the Marshall Islands stating that the phasing-out of fossil fuels is non-negotiable for the prosperity and future of all people. 


  • The UK's Competition and Markets Authority (CMA) is investigating claims made by Unilever pertaining to certain household essential items which the company "may be overstating how green certain products are.” 

  • The CMA's scrutiny is part of a broader crackdown on greenwashing, where companies exaggerate their environmental efforts to attract environmentally conscious consumers. 

  • Unilever, the maker of Dove soap, denies the allegations, expressing surprise and disappointment, and states it will cooperate with the investigation. 

  • Possible outcomes for the Unilever investigation include commitments to operational changes or legal action.  

 

  • Lawmakers in the European Parliament and Council have reached a provisional agreement on a new regulation to decarbonize the gas sector and promote renewable and low-carbon gases, including hydrogen. 

  • The regulation is part of the European Commission's plan to decarbonize the EU gas market under the European Green Deal, aiming for climate neutrality by 2050 and a 55% reduction in emissions by 2030. 

  • The agreement establishes common internal market rules for renewable and natural gases, emphasizing joint scenarios for electricity, gas, and hydrogen in national network development plans. 

  • Key amendments include the creation of the EU entity for Hydrogen Network Operators (ENNOH) to promote hydrogen infrastructure, contributing to the European Green Deal and the REPowerEU Plan. 


  • The Monetary Authority of Singapore (MAS) has introduced a finalized Code of Conduct for ESG Rating and Data Product Providers, aiming to enhance transparency, comparability, and reliability in the ESG ratings and data sector. 

  • The code is voluntary, utilizing a "comply or explain" approach, as pressure increases to regulate ESG rating and data providers amid growing demand from investors incorporating ESG considerations into their decisions. 

  • MAS's COC builds on recommendations from securities regulator standards setter IOSCO, urging regulators to focus on transparency in the ESG ratings and data space and apply regulatory oversight. 

  • Key principles in the COC include adopting written policies for thorough analysis, transparency in methodologies and data sources, independence, and disclosure of potential conflicts of interest, and supporting informed decision-making by investors funding the climate transition. 

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