top of page

ESG Monthly News Update: February 2024




General ESG News 


  • The emergence of the anti-ESG movement is evident, with politicians and private organizations challenging ESG and DEI initiatives in both corporate and academic spheres. 

  • Statistics show a decline in investor interest in ESG funds and a decrease in mentions of ESG initiatives by S&P 500 companies. 

  • Legal battles surrounding ESG and DEI practices are escalating, with court cases challenging the validity of such initiatives and state legislatures passing laws against them. 

  • In response to anti-ESG and anti-DEI pressures, some companies are adapting by continuing initiatives under different labels or altering their approach to avoid explicit association with ESG and DEI. Coca-Cola, for example, renamed its "Business & ESG" report as the "Business and Sustainability" report, dropping the ESG moniker. 

 

  • Nat Bullard, the long-time climate writer for BloombergNEF, consultant, and industry expert, published his annual decarbonization deck, consisting of 200 charts, which highlights the slow progress in commercial-scale carbon dioxide removal projects despite urgent calls from climate experts. 

  • Currently, durable carbon capture projects have only removed a fraction of the CO2 needed to meet climate goals, with significant challenges in scaling up to gigaton levels by 2030 and beyond. 

  • Cost remains a major barrier to mass adoption, with the current costs of direct air capture far exceeding the desired threshold of $200 per ton. 

  • Bullard emphasizes the need for incentives to accelerate the adoption of carbon removal technologies, citing examples such as advance market commitments, tax credits, and permitting carbon removals for Scope 3 mitigation. 

 

  • B Lab Global, responsible for the "Certified B Corp" designation, proposes revisions requiring companies to meet specific performance requirements across environmental, social, and governance policies. 

  • This marks a departure from the current flexible scoring system, reflecting the intensifying climate crisis and stricter regulatory landscape, especially in Europe. 

  • B Lab's Interim CEO Clay Brown emphasizes the need for change to adapt to evolving markets and business environments. 

  • With over 8,000 Certified B Corps, including large companies like Patagonia and Danone, B Lab aims to introduce more specific thresholds and tiered expectations based on company size. 

  • Proposed guidelines include minimum marks across defined "Impact Topics" and closer alignment with other ESG reporting standards, with public feedback sought until March 26, 2024. 

 

  • The European Union is cautious about implementing further measures to protect its clean-tech industry from cheap Chinese imports, fearing potential disruptions in sourcing key components and increased costs for the green transition. 

  • Negotiators are finalizing talks on the Net Zero Industry Act, aimed at ensuring the region's energy transition without losing critical industries, despite pressure on Europe's wind and solar sectors. 

  • EU industry is reluctant to risk disruptions in the supply chain for solar panels and wind turbines, despite concerns about Chinese state subsidies distorting the market. 

  • The European Commission acknowledges the risk of potential trade wars raising the cost of meeting net-zero climate targets and emphasizes the need to balance any trade measures with energy transition objectives. 

  • Europe's solar industry faces challenges, including the possibility of shutdowns like Meyer Burger Technology AG's production site in Germany, prompting calls for direct support measures to bolster domestic solar manufacturing and concerns about the effectiveness of the Net Zero Industry Act without significant financing. 

 

  • While renewable energy development is crucial for addressing climate change, it poses a threat to biodiversity by encroaching on wildlife habitats.  

  • For example, the grasslands north of Flagstaff are the ideal habitat for pronghorn but are also sought after for solar panel installations due to favorable conditions and existing infrastructure. 

  • There are methods to mitigate the impact of solar farms on wildlife, such as wildlife-friendly fencing, native plant incorporation, and the creation of wildlife corridors, but these measures are often underutilized due to regulatory challenges and insufficient research. 

  • Collaboration between stakeholders, including developers, wildlife biologists, and policymakers, is essential to finding sustainable solutions that balance renewable energy goals with wildlife conservation efforts. 

  • Efforts to integrate wildlife-friendly practices into solar projects, such as the implementation of migration corridors and funding for long-term impact studies are increasing and demonstrate the potential for responsible development that minimizes harm to both wildlife and the environment. 


  • China's major stock exchanges, including SSE, SZSE, and BSE, introduced new sustainability reporting guidelines, requiring larger cap and dual-listed issuers to disclose a broad range of ESG topics starting in 2026. 

  • The move aligns China with other major markets implementing sustainability reporting requirements, such as the EU's Corporate Sustainable Reporting Directive (CSRD), the U.S. SEC's forthcoming climate disclosure rules, and regulations in Australia, Brazil, Singapore, and the UK. 

  • The guidelines adopt the "double materiality" approach, focusing on reporting the risks and impact of sustainability issues on companies and their impacts on the environment and society. 

  • Reporting requirements cover various ESG categories, including climate change, ecosystem protection, circular economy, energy use, supply chain security, rural revitalization, anti-corruption, and anti-bribery, with a notable inclusion of reporting on Scope 3 value chain greenhouse gas emissions. 

  • The mandatory reporting applies to over 450 companies, including those on prominent indices like Shenzhen 100, SSE 180, and Shanghai Science and Technology Innovation 50, representing around half of the listed market value. Reporting for the mandatory requirements is scheduled to start in 2026 for the 2025 reporting period. The Beijing Exchange is introducing voluntary guidelines for smaller enterprises. 

 

  • JPMorgan Asset Management and State Street Global Advisors are leaving Climate Action 100+, a major initiative aimed at pressuring companies to address global warming, while BlackRock is shifting its participation to its smaller international arm. 

  • The departures represent a significant setback to Climate Action 100+, since none of the world's five largest asset managers support the effort to use shareholder influence to pressure polluting companies to decarbonize. 

  • The moves highlight a growing divide between the largest US-based asset managers, facing pressure from Republicans on climate issues, and their smaller competitors and European firms that have largely remained committed to various climate coalitions. 

  • Climate Action 100+, launched in 2017, challenges companies to reduce their carbon footprint. The group recently shifted its focus from climate disclosures to actively pushing companies to reduce greenhouse gas emissions. 

  • State Street Global Advisors (SSGA) cited concerns over the "phase 2" corporate engagement requirements, stating they were not consistent with its independent approach to proxy voting and portfolio engagement. 

  • BlackRock cited a conflict with US laws requiring money managers to act solely in clients' long-term economic interest and is setting up a new stewardship option allowing clients to prioritize decarbonization in their investment objectives. 

 

 

ESG Ratings, Standards, and Reporting 


  • The Global Reporting Initiative (GRI) has introduced a new mining sector reporting standard, GRI 14: Mining Sector 2024, aimed at enhancing transparency and disclosure on sustainability impacts within the mining industry. 

  • The standard addresses 25 material topics, including emissions, waste, human rights, climate change, and community engagement, covering all facets of mining operations from exploration to support services. 

  • This standard, the fourth in a series by GRI, seeks to balance the industry's critical role in providing minerals for societal needs with its environmental and social impacts, addressing concerns such as tailings management, artisanal mining, and operating in conflict zones. 

  • Developed with input from various businesses, investors, civil society, and industry bodies, the standard aims to improve transparency, accountability, and trust between mining companies and their stakeholders by facilitating detailed and globally comparable reporting on key sustainability issues. 

 

  • The European Union released the Corporate Sustainability Due Diligence Directive (CS3D) draft on January 30. 

  • CS3D aims to address environmental, social, and governance standards within companies and supply chains, with phased implementation starting in 2027. 

  • CS3D complements the Corporate Sustainability Reporting Directive (CSRD), but delays in adopting additional standards may push CSRD implementation back by two years. 

  • The CS3D proposal includes key elements: climate plan requirement, risk-based approach, regulation by Member States, and establishment of civil liability for adverse impacts. 

  • The legislative process involves a straight up or down vote without amendment, expected in the European Council and European Parliament's Committee on Legal Affairs (JURI), followed by final votes and adoption into national laws within two years. 

 

  • Since 2022, the EU has been developing the Corporate Sustainability Due Diligence Directive (CS3D), which expands corporate liability for environmental and human rights concerns within operations, subsidiaries, and value chains. 

  • CS3D requires approval from the European Parliament, European Commission, and European Council. 

  • Opposition from Germany, particularly over concerns about the burden on small- and medium-sized enterprises, may result in rejection from the Council vote. 

  • The CS3D adoption process involves negotiation between the three EU bodies, with potential consequences for sustainability legislation and upcoming European Parliament election. 

 

  • Companies face increasing pressure to disclose ESG impacts and social responsibilities, driven by regulators and public expectations, with over 60% of C-level leaders feeling pressure to act on climate change from various stakeholders. 

  • New regulations in 2024 and beyond are expected to expand ESG reporting and compliance standards, affecting public companies primarily but also urging private companies to embrace ESG reporting. 

  • Various levels of government are developing new ESG regulations, such as California's climate legislation requiring companies to report climate impacts and greenhouse gas emissions, and potential SEC rules mandating disclosure of ESG strategies by registered investment advisors. 

  • Private companies are increasingly in the climate spotlight due to stakeholder demands and regulatory trends, and proactive ESG reporting can offer benefits including improved reputation, strategic relationships, and attractiveness to investors. 

  • Building a robust ESG reporting process involves assembling a diverse team, monitoring and adapting to regulatory developments, and providing comprehensible ESG information for stakeholders, positioning companies for potential future regulations and long-term business value. 

 

  • The Science Based Targets initiative (SBTi) doubled the number of companies with validated GHG emissions reduction commitments to 4,204 in 2023. To keep this momentum, SBTi is restructuring into two units - a standards-setting body and a target validation team. 

  • SBTi urges companies to focus on emissions reductions in Scope 3, including emissions from supply chains and activities beyond a company's direct control. The goal is to approve pledges from 10,000 companies by the end of 2025, with 2,000 companies already committed. 

  • SBTi appointed an independent Technical Council in the fall of 2023 to review science-based target requirements and address scrutiny. 

  • During 2024, SBTi plans to review the corporate net-zero standard, standards for financial institutions, and sector-specific standards for industries like oil and gas, electric utilities, and apparel. Additionally, SBTi is seeking to develop closer partnerships with other standards-setting organizations to improve integration with different frameworks. 

 

  • EU states and the European Parliament have agreed on the bloc's first-ever regulations for Environmental, Social, and Governance (ESG) ratings, aiming to bring more rigor to ESG investing and prevent 'greenwashing' practices. 

  • The new rules require ESG ratings providers in the EU to obtain authorization and supervision from the European Securities and Markets Authority, and those outside the bloc must have their ratings endorsed by an EU-regulated entity. 

  • Ratings must explicitly disclose coverage of a company's impact on the environment, social factors like human rights, and not solely focus on the financial implications of ESG factors. 

  • The objective is to promote "double materiality," considering the impact of ESG on both the company and the environment, aligning with existing EU sustainability disclosures for listed companies. 

  • Smaller EU-based ESG raters will have a lighter regulatory burden in the initial three years to support their growth in a sector dominated by major players like MSCI, S&P Global, London Stock Exchange Group, Moody's, and Morningstar's Sustainalytics. The formal approval of the deal is anticipated in 2025. 

 

  • The SEC is nearing a vote on Climate Related Disclosure Standards (CRDS) requiring public companies to disclose greenhouse gas emissions and environmental concerns in annual filings. 

  • CRDS draft rule adopts three levels of reporting for greenhouse gas emissions: Scope 1, Scope 2, and controversial Scope 3, which indirectly regulates privately held companies, possibly facing legal challenges. 

  • The SEC may make Scope 3 optional, leaving companies to decide its materiality, with mandatory disclosure if a public commitment is made. 

  • Regulation S-X, requiring companies to amend previous disclosures for severe weather events and sustainability transition costs, lacks clarity on its future. 

  • Anticipated adoption of CRDS in 2024 with an effective date in 2026 faces potential political and legal challenges from the Republican-controlled House of Representatives, states, and U.S. Chamber of Commerce, with uncertain outcomes given legal arguments against the SEC's authority. 

 

  • The SEC is finalizing a rule to standardize climate-related disclosure, prompting questions on preparation for companies and investors. 

  • Despite criticism, demand for consistent and comparable sustainability information remains high among investors, outweighing concerns about regulatory changes. 

  • European and Californian regulations already mandate certain disclosure requirements, indicating a global trend toward standardized sustainability reporting. 

  • Some companies may opt to wait due to uncertainties surrounding the regulatory landscape, such as potential shifts in political climate and legal challenges. 

  • Anticipated SEC rule changes might include modifications like excluding Scope 3 emissions disclosure, but investor pressure for sustainability information remains strong regardless of regulatory outcomes. 

 


Companies and Industries 


  • A survey conducted by Salesforce and GlobeScan reveals that while 90% of senior executives see sustainability as crucial to their organizations' success, only 37% consider it very integrated into their businesses. 

  • Access to high-quality sustainability data remains a challenge, with only 27% of respondents reporting having such data, despite 95% agreeing on its importance. 

  • Executives anticipate difficulties in complying with new sustainability reporting regulations, such as the EU Corporate Sustainability Reporting Directive and the IFRS' International Sustainability Standards Board requirements. 

  • Collaboration between finance, technology, and sustainability departments is lacking, although there have been some improvements reported over the past two years, this highlights the need for greater cross-functional integration and resource allocation to sustainability efforts. 

 

  • According to a 2024 PwC survey, 73% of businesses in the U.S. use AI, with generative AI products like ChatGPT being the top choice. The article lists 3 suggestions for improving the intentionality of how and when to utilize AI.  

  • Many organizations lack cohesive internal AI systems and regulations/policies, leading to a scattered approach to AI adoption.  

  • It proposes strategies such as establishing AI governance standards, defining clear purposes for AI products aligned with business goals, and laying out comprehensive AI plans.  

  • These measures aim to ensure responsible and effective AI utilization while addressing consumer concerns about AI implementation. 

 

  • FirstEnergy Corp. has abandoned its 2030 greenhouse gas emissions reduction target due to challenges in replacing coal plants in time, signaling a significant shift in climate protection efforts. 

  • Despite regulatory pressure and investor demands for cleaner energy, most US utilities are struggling to make substantial progress towards long-term carbon-neutrality goals, according to a Sierra Club report. 

  • The decision stems from the critical role of coal-fired power plants in ensuring regional electricity supply adequacy, particularly the Fort Martin and Harrison plants in West Virginia, which are expected to remain profitable amid changing market conditions. 

  • FirstEnergy's CEO Brian Tierney cited challenges such as resource adequacy concerns in the company's ability to meet the interim goal during an investor conference call. 

  • While the 2030 target is scrapped, FirstEnergy maintains its long-term goal of achieving carbon neutrality by 2050, with plans to shut down the West Virginian coal plants by 2035 and 2040, respectively. 

 

  • Climate activist investors have accused ExxonMobil of using "bullying" tactics and attacking shareholders' rights by suing them after they withdrew a resolution on greenhouse gas emissions. 

  • Follow This, a Dutch shareholder group, and Arjuna Capital, an investment adviser, filed a motion to dismiss Exxon's legal action against them, alleging it breaches US securities rules. 

  • Exxon sued the shareholders last month to block the resolution vote, claiming it violated securities rules, despite their withdrawal of the resolution. 

  • Follow This founder Mark van Baal criticized Exxon's preference for litigation over shareholder voting rights, calling it intimidation and bullying. 

  • Exxon maintains the lawsuit despite shareholder withdrawal, arguing for clarity on a process they believe is abused, while activists argue for shareholder voting rights and climate action. 

 

 

Investment Trends 


  • A landmark climate finance framework has been endorsed by world leaders to fund the green transition in poorer countries but is struggling to raise capital, resulting in the continuation of polluting coal plants. 

  • The Just Energy Transition Partnerships (JETP), championed by the US, EU, and UK, aimed to mobilize significant funds for green transitions, including a $20bn package for Indonesia's shift to renewable energy. 

  • Frustration has grown as the promised capital has not materialized, forcing lower-income countries to maintain their reliance on coal plants. 

  • The Rockefeller Foundation warns that the current JETP model may not be scalable due to inconsistent support and premature announcements of deals, advocating for a new approach to accelerate renewable power transition. 

 

  • Exxon Mobil is continuing a lawsuit against activist investors even though the investors withdrew their climate resolution proposal, reflecting a shift in the company's perspective on sustainability and shareholder value. 

  • There is a perceived shift in the U.S. and growing opposition to ESG considerations from the political sector. Examples of this shift include declining interest from Wall Street investors and the absence of the phrase ESG in this year's Davos program. 

  • Family offices must continue to recognize that increased legal actions and activism, particularly led by younger generations, will influence governments and corporations in their approach to sustainability over the next decade. 

  • Family offices are advised to adopt a global perspective on impact investing, looking beyond their own country. Europe leads in impact investment initiatives, and regions like Singapore position themselves as attractive hubs for family office investments in impact-related initiatives. 

  • Cultural differences, regulatory landscapes, and geopolitical challenges contribute to varying perspectives on sustainability and impact investing between the United States and Europe. Family offices should stay engaged, as increasing corporate accountability and transparency make ESG factors inherent in due diligence considerations, facilitating the prioritization of sustainability in business operations. 

 

 

Government Policy 


  • The European Commission has proposed to reduce net GHG by 90% by 2040, compared to 1990 levels, as a stepping stone toward the EU's climate neutrality goal by 2050. 

  • The Commission estimates an additional annual investment of 1.5% of GDP, diverting resources from less sustainable uses like fossil fuel subsidies. The private sector is envisioned as the primary source of investments, supported by a policy framework encouraging low-carbon investments and discouraging carbon-intensive ones. 

  • An average annual investment of around €660 billion in the energy system and €870 billion in the transport sector from 2031 to 2050 is deemed necessary. Key areas include decarbonizing industrial processes, enhancing energy efficiency, promoting electrification, and producing sustainable alternative fuels for the transport sector. 

  • The Commission anticipates full decarbonization of the energy sector shortly after 2040 and an almost 80% reduction in transport emissions by 2040. 

  • The recommendation emphasizes dialogue throughout the agriculture and industry sectors. While the Commission doesn't specify methane and nitrogen emission reduction targets for agriculture, it acknowledges the sector's role in the transition, emphasizing fair incomes, food production, and environmental services.  

  • The EU Commission’s recommendation initiates the process of setting the EU's 2040 climate goal, with a legislative proposal expected after the June European elections. 

 

Comments


bottom of page