top of page

ESG Monthly News Update: June 2023

General ESG News

  • A 366-225 European Parliament vote passed new rules that require companies to identify and address their activities and value chain’s impact on human rights and the environment.

  • To start, these rules will apply to companies that have over 500 employees and over €150 million in revenue and extend to smaller companies in the future.

  • Companies will be expected to implement climate transition plans that include Scope 1, 2, and 3 emissions and align with the Paris Alignment goal of limiting global warming to 1.5°C.

  • Companies that fail to comply with these rules will face sanctions and supervisory measures, including the potential for goods to be removed from the market, fines as high as 5% of global revenue

  • Since the beginning of 2022, S&P Global Ratings have taken few climate-related rating actions due to the gap between policy pledges and the realistic effects of regulations.

  • While climate risks are changing few corporate ratings, if climate-related transition risks impact the capacity and willingness of an institution to meet its financial commitments, its credit rating would likely be impacted.

  • Of the pillars of transition risk, regulation, and policy risk are the most relevant to a company’s credit and are likely to quickly change the landscape.

  • Although climate-related ratings actions have been historically low, transition and physical risk could become highly significant credit drivers in the future. Future policy will likely drive institutional efforts to reduce emissions and/or calculate GHG emissions so that total social costs are reflected.

  • March-May Ocean temperatures were the highest ever in the 174-year record by the US National Centers for Environmental Information.

  • May was the third warmest ever on land and sea when these temperatures were combined.

  • Tropical cyclones, hurricanes, and typhoons are fueled by warm water temperatures. Heat increases atmospheric moisture quantity and may result in increased storm severity over the next months.

  • Numerous governments where carbon offset projects take place are announcing plans to tax, regulate, and/or restrict the trade of credits produced within their country.

    • Governments are hoping a rule change will allow their nations to obtain more of the benefits and emissions-reduction potential that these projects generate.

    • Compared to foreign project developers, local governments and stakeholders receive a minor share of the revenue that the offset projects generate.

  • The market for carbon offsets is worth approximately $2 billion and is predicted to reach $1 trillion by 2037.

    • The 2015 Paris Agreement included developing countries in emissions targets requirements. Thus, projects that sequester or reduce carbon are tools to help all sovereign nations meet international obligations.

    • The UN is setting up an accounting system within the new trading market to ensure that the credits that are generated are applied to one country’s climate goal.

  • The European Commission has released a series of measures to bolster the sustainable finance framework, including a proposal to regulate ESG ratings providers and a new set of criteria for sustainable economic activities.

  • Demands have been increasing from investors and other groups to regulate the ESG ratings sector, citing that the lack of transparency poses a risk to investors.

  • Under the proposed rules, ESG ratings providers will be supervised by the European market regulator ESMA, and they will be required to use “rigorous, systemic, and objective” methodologies that are “subject to validation.”

  • Germany has announced the launch of its Carbon Contract for Difference (CCfD) program, which is a 15-year subsidy program aiming to help companies in energy-intensive industries invest in low-carbon technologies and production processes.

  • The new program is meant to address the high costs and investment risks that can prevent companies from investing in low-carbon manufacturing. It is based on an auction system that ultimately makes the low-carbon production processes cheaper than conventional methods.

  • The program was designed to include mid-sized companies, and eligible companies are those with emissions greater than 10 kilotons annually.

  • The Science Based Targets Network (SBTN) has launched the first science-based targets for nature, which aim to set the global standard for measurable corporate action to protect nature, starting with freshwater and land.

  • To set and ultimately achieve these targets, more than 200 organizations have already helped test SBTN’s methods and tools, and an initial group of 17 companies – including AB InBev, H&M, Holcim Group, Nestle, Tesco, and more – is preparing to set their nature-related targets this year.

  • The new targets are built from the best science currently available and include a collaboration with the Earth Commission, and they are aligned with existing global climate goals like the Global Biodiversity Framework, the Paris Agreement, and the UN Sustainable Development Goals.

Investment Trends

  • The Biden Administration has asked a federal judge to throw out a lawsuit filed by a coalition of 25 Republican-led states that aims to strike down a rule that allows socially conscious investing in retirement plans.

  • The states moved to permanently block the rule, but the Biden Administration stated that the rule makes it clear that the retirement plans must focus primarily on financial factors, but that issues like climate change and social justice can have an impact on companies’ long-term financial wellbeing.

  • The new rule covers plans that invest about $12 trillion on behalf of 150 million Americans, and the Texas judge presiding over the case has not yet scheduled a hearing on the pending motions.

ESG Ratings, Standards, and Reporting

  • The IFRS has issued its first Sustainability Disclosure Standards to provide a unified, global baseline for sustainability-related disclosures in capital markets. A few key things to know about the standards include, but are not limited to:

    • The standards are globally adoptable and have international support.

    • The standards both consolidate and build on existing initiatives like the SASB and TCFD frameworks.

    • The information required in the standards is designed to coincide with financial statements and be part of the same reporting package.

  • The EU has recently enacted new sustainability reporting legislation, with frameworks aiming to bring climate and other nonfinancial disclosure in line with financial reporting.

  • For companies headquartered in the EU, the scope of companies affected by the new rules has increased from previous regulations, as well as for companies listed on regulated EU markets.

  • Companies already covered under previous legislation are expected to submit 2025 reports based on 2024 data, and by 2026, those covered under the new scope will submit reports on 2025 data.

  • One of the biggest shifts in the new requirements is the discussion of materiality, and companies will be required to assess both the internal impact of sustainability matters on their operations, as well as how their operations impact the planet and society.

  • There are expected to be challenges in implementing and enforcing the requirements, as well as in unifying existing standards and frameworks under the new rules. However, this presents new opportunities for software and data providers to enter the space.

  • The International Public Sector Accounting Standards Board (IPSASB) has announced that it will be developing climate disclosure standards for both governments and private sector entities.

  • This announcement follows a call from the World Bank in 2022 for the development of public sector-specific sustainability reporting guidance.

  • According to the project brief, the scope of the reporting standards project (the first draft of which is expected in mid-2024) will include the development of requirements that encompass climate-related impacts on the economy, environment, and people, exposure to climate-related risks, and opportunities.

  • The European Union (EU) is rolling out the corporate sustainability reporting directive (CSRD) which will require 50,000 listed companies to make environmental, social, and governance (ESG) disclosures in annual reports for 2024 and beyond.

  • Rules have been drafted by the European Financial Reporting Advisory Group (EFRAG), but the EU is due to ease them amid pushback from lawmakers. Most of the draft standards proposed by EFRAG are based on materiality, though disclosures on carbon emissions would be mandatory. The commission is expected to put a revised version of EFRAG’s proposals to public comment imminently.

  • Targets of the Advertising Standards Authority (ASA), the UK’s advertising regulator, have made more than 20 enforcement actions against greenwashing. Both the ASA and European Commission point to greenwashing strategies that include unclear comparisons and vague buzzwords.

  • The following are examples of greenwashing, according to the ASA.

    • The promise of guilt-free flying. An Etihad Airways ad suggested the airline is “taking a louder, bolder approach to sustainable aviation,” and the ASA stated the claim “exaggerated the impact that flying with Etihad would have on the environment.”

    • Kinder cleaning products. Unilever Plc advertised its Persil laundry detergent with the slogan “tough on strains, kinder to our planet.” The ASA told Unilever that “kinder” was considered an unclear claim as the ad offered no basis of comparison. It also cautioned that Unilever “failed to explain the impact of the entire life cycle of its product, from manufacturing to use to disposal.”

Companies and Industries

  • During Circularity 23’s opening keynotes, participants heard from attendees of the global plastics treaty negotiations that were held in Paris a week prior. This meeting, also known as “INC-2” hosted the second round of negotiations for the UN Global Treaty to End Plastic Pollution.

  • Erin Simon, U.S. Vice President for Plastic Waste and Business at World Wildlife Fund, stated “We truly need this global alignment on how we are going to, as a global community, address this shared threat. And there has never been a major global crisis that has been solved without that global alignment.”

  • A “zero draft” agreement came out of the talks in Paris, representing a rough draft of the treaty with all options negotiators brought forth and what that would look like. Simon also made a call out to companies stating “No matter what this treaty looks like… it is going to change the way we do business. That is happening.” Companies should get involved with shaping that change or prepare for what’s to come down the line.

  • The new debt ceiling compromise – The Fiscal Responsibility Act of 2023 – includes provisions to overhaul current permitting review processes, which have been a major obstacle in the development of new energy projects (both renewable and fossil fuel-based).

    • The act established a single agency to review individual projects applying for permits to develop infrastructure in the chemical industry or energy sector.

  • According to a 2022 report, 92% of energy projects waiting for review and permitting are wind- and solar-based, and about one-third are connected to battery storage. The new support for reviewing these requests should help accelerate the implementation of clean energy projects across the country.

    • Despite the helpful provisions, the bill still underserves some of the other aspects that are critical to the energy transition, such as transmission lines for connecting large urban centers to renewable energy plants. Some critics worry that faster permitting won’t matter “if the energy can’t ultimately make it to its final destination.”

  • Over $19 billion in property value is at risk from anticipated sea level rise by 2100.

  • Cities, states, and counties across the US are suing oil companies over climate change to hold these companies culpable for the climate disruption and disasters caused by their operations.

  • In Honolulu, the major complaint is that the oil industry lied to the public about the impacts of their products and that these companies have known their role in climate change for decades.

    • These cases have momentum at the state, rather than federal, level by stating that the oil companies have “violated common law rules... involving nuisance, failure to warn and trespass.”

    • Holding oil companies responsible and receiving funds for climate adaptation efforts are two crucial outcomes of these cases to pay for the outstanding costs of climate change.

  • Two recent proposals have emerged from the U.S. Environmental Protection Agency (EPA) that aim at reducing the emissions of greenhouse gases (GHG) from power plants and internal combustion engines. The controls propose to use different scientific and policy tools.

  • The EPA plans to apply its regulation to emissions from the power sector that occur within a plant’s fence line rather than authorizing fuel switching across multiple plants. It will not require any specific kind of technology or fuel to achieve regulation objectives.

  • Currently, none of the nation’s 3,400 coal and gas-fired power plants use carbon capture and sequestration/storage (CCS) at any level or scale. Hydrogen-based technologies, and more specifically “green” hydrogen technologies, currently lack operational scale or competitive economics.

  • The EPA proposals are also calling to significantly reduce internal combustion engines (ICE), calling for two-thirds of all new passenger vehicles sold in the U.S. to be electric by 2032.

  • Author Joel Makower posed five inquiries to six different chatbots reflecting questions sustainability professionals may ask. Two of the six chatbots, GreenGPT and Climate Q&A, focus on sustainability. Both are specifically designed to answer climate-related questions using information from Intergovernmental Panel on Climate Change reports.

    • Chatbot questions and answers can be found here.

  • It is important to note that AI still has many potential pitfalls. It can easily spread climate misinformation and takes an immense about of energy to train and run the language models needed for these chatbots.

  • A commercial released by Delta Air Lines Inc. in 2021 aims to highlight the commitment to “become the world’s first carbon-neutral airline on a global basis.” This pledge debuted in February 2020 along with plans to spend $1 billion mitigating greenhouse gas emissions over the next decade. This pledge is now involved in a “class-action lawsuit arguing that Delta’s carbon-neutrality claims amount to little more than greenwashing.”

  • Regulators stress the importance of how “it could be quite problematic for the climate movement to have companies putatively saying, ‘we have climate covered, don’t worry, we made net-zero pledges,’ if they are not actually doing anything.”

Government Policy

  • Canada is staking billions of public dollars on an industry plan that relies on technology meant to extract carbon emissions produced by the equipment at oil sands sites.

    • The system is expected to capture 10 million metric tons by 2030 and as much as 40 million metric tons of carbon by 2050.

  • This plan is contingent on the scaling of carbon capture and storage technologies, which has been an issue for decades, making the project and investment a high-risk strategy for Canada.

  • Canada is a climate laggard in the industrialized world, and the plan is seen as a key approach to meeting the nation’s emissions reduction targets, though the government faces pushback from the country’s large oil industry and difficult-to-curb emissions.

    • Critics argue that the carbon capture strategy does not address downstream emissions and is therefore not a legitimate net-zero pathway – the end product is “still a barrel of oil produced via open pit mines and processing facilities that have devastated local ecosystems – a barrel of oil that will be burned and emit CO2.”

  • While many countries have set climate targets in recent years, Switzerland has put the issue – the Climate Protection Act – up for a vote. The campaign in favor of enacting a net-zero target comes from a coalition of 200 groups, including political parties, scientists, and activists.

  • According to the co-campaign manager in favor of the act, it is meant to frame the currently disjointed laws around climate topics. The upcoming vote offers a chance to align policies with aspirations.

  • The reason the issue has come to a vote is that the right-wing Swiss People’s Party (SVP) opposed the implementation of the target last year, but it gathered enough signatures to get it on the ballot for a direct vote.

  • To rally support in opposition to the target, the SVP has labeled it the Energy Eater Law and has cited dubious research arguing that the law will cause energy prices to skyrocket.

  • UPDATED in EuroNews: Climate ‘victory’: Swiss citizen vote in favour of new law to reach net zero emissions by 2050

    • A majority of voters in Switzerland have voted yes to the new net-zero target law, which also incentivizes replacing oil and gas with clean energy.


bottom of page