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ESG Monthly News Update: November 2023



General ESG News

  • The U.S. is projected to generate more electricity from solar power than hydropower in 2024, marking the first time this shift will occur on an annual basis.

    • Solar is expected to produce over 318 billion kilowatt-hours of power in 2024, surpassing the 284 billion kilowatt-hours generated by hydropower systems.

  • The transition reflects the substantial growth in solar installations, particularly residential systems, transforming the energy landscape.

  • Monthly data already indicated solar surpassing hydro in September 2022, and the trend is expected to be permanent, given the rapid growth in solar capacity compared to limited growth in hydropower.

    • Hydropower capacity increased by less than 1% from 2009 to 2022, while solar capacity experienced an average annual surge of 44%.

  • The National Climate Assessment warns that climate change poses an immediate and irreversible threat to various aspects of American life, including food, health, safety, and the economy.

  • Global warming, accelerated by human activities, is causing record-setting disasters, and the report suggests it is too late to prevent many harms from worsening over the next decade.

  • Americans are urged to make deeper changes in how they work, manage environments, and move through them, emphasizing the necessity for transformative actions over incremental measures.

  • Climate change has economic consequences, with a loss in economic well-being for every degree Fahrenheit of warming. Efforts to plan for climate threats have expanded, but implementation is deemed insufficient.

  • The clean energy transition could create jobs and offset health impacts. While challenges exist, optimism surrounds navigating hurdles, emphasizing the importance of focusing on existing solutions and future innovations.

  • The pressure to achieve broader ESG values is becoming common and relies on understanding the interconnected interests and expectations stakeholders have for a given company:

  • Investors

    • Shareholders are increasingly holding corporate leaders accountable for ESG performance.

    • Investors integrate sustainability into decision-making criteria, seeking alignment with a company's overarching strategy and measurable ESG initiatives.

    • Third-party ESG scores play a role in investor decisions, emphasizing the need for companies to understand and improve these scores.

  • Boards

    • Boards now view ESG as essential for effective risk management and opportunity identification, shifting from a previous perception of it as a bonus.

    • Boards need to be fluent in the risk and opportunity landscape related to climate change, human rights, DEI, and ethical business practices.

    • Forward-looking companies ensure a Board committee with ESG competence and experience to methodically consider ESG factors for informed decision-making.

  • Employees

    • Sustainability performance is crucial for attracting and retaining employees, with 70% finding sustainability programs making employers more appealing.

    • Employees, especially Gen Z and Millennials, seek companies aligned with their values, and those with strong social impact are more likely to have higher retention rates.

    • Companies tying corporate values to sustainability goals, like Patagonia and GE, enhance employee engagement and satisfaction, contributing to successful initiatives.

  • Customers

    • ESG considerations are increasingly influencing purchasing decisions, with consumers willing to pay more for sustainable brands.

    • Trust in brands is strongly influenced by positive intent, particularly among younger generations, impacting purchasing decisions.

    • Consumers prefer companies with circular business models, emphasizing sustainability through reuse-and-refill systems, take-back programs, and other eco-friendly practices.

  • The EU LIFE Programme is a funding instrument for environment and climate action that recently received a €396 million approval from the European Commission.

  • The 28.5% increase in funding compared to last year will support:

    • 171 EU-based projects.

    • €140 million for nature and biodiversity projects.

    • €94 million for circular economy efforts.

    • €65 million for climate change mitigation.

    • €97 million to improve market and regulatory improvements to support clean energy and efficiency.

  • The European Commission has increased the LIFE Programme funding to €5.43 billion for the 2021-2027 period.

  • Negotiation meetings are underway to create a legally binding global treaty to end plastic pollution.

  • This treaty aims to support countries in the Global South that are relied on to reduce plastic pollution must receive adequate financing to support their role in collecting, sorting, processing, and reusing plastic materials.

  • An environmental nonprofit, Delterra, is developing circular waste and recycling systems in Bali, Indonesia in hopes of replacing localized burning of waste and reliance on full landfills.

  • A $40 billion funding gap is estimated to exist in global municipal waste services, requiring creative financing structures to achieve government and company reduction commitments.

  • October’s record-breaking temperatures that followed the hottest recorded summer nearly ensure that 2023 will be the hottest year ever.

  • Temperatures have increased this year due to greenhouse gases released from burning fossil fuels and the current El Nino climate pattern.

  • Higher temperatures increase health risks of overheating and amplify the effects of floods, storms, and wildfire natural disasters.

ESG Ratings, Standards, and Reporting

  • CDP and EFRAG will collaborate to align CDP's global environmental disclosure system with the EU’s recently adopted European Sustainability Reporting Standards (ESRS).

    • The ESRS, under the Corporate Sustainable Reporting Directive (CSRD), sets rules for sustainability reporting to over 50,000 companies, expanding from around 12,000, with detailed requirements on environmental, human rights, and social impact.

    • The goals of this collaboration are to accelerate market uptake of ESRS, aiding companies in preparing for new reporting requirements and supporting market readiness for the environmental reporting system.

  • CDP will explore and implement alignment with ESRS, while EFRAG provides technical expertise, access, and guidance.

    • ESRS and CDP's systems align in a key area, employing a double materiality approach, requiring companies to report on how climate and environmental changes affect their businesses and their impact on people and the planet.

  • The collaboration follows CDP's recent decision to align its sustainability reporting questionnaire with the IFRS Foundation’s new climate disclosure standard, with a commitment to consider other emerging sustainability disclosure systems for broader reporting on key environmental issues.


  • Starting in 2026, large companies operating in California will be required to disclose their direct and indirect greenhouse gas emissions, climate-related financial risks, and mitigation plans. This move is expected to shed light on how corporate governance practices impact social and environmental performance.

  • This article argues that traditional governance structures, which prioritize financial value for shareholders, may hinder progress on systemic issues. Despite companies embracing stakeholder capitalism, governance structures often prioritize financial outcomes. The need for stakeholder governance is highlighted to align with the principles of stakeholder capitalism.

  • The article challenges the assumption that stakeholder governance is only viable for niche players or social enterprises. Arguing instead, that stakeholder-governed companies, including publicly traded ones, can survive in competitive markets and attract capital by appealing to customers who value positive impact.


Companies and Industries

  • State Rep. Michael Vose is drafting a bill proposing that nuclear power be defined as clean energy in New Hampshire, allowing generators like Seabrook Station to receive payments for contributing to the grid.

  • The proposal is met with concerns from environmental advocates who fear it could provide unnecessary subsidies to nuclear power and undermine solar projects in attracting investors.

  • Vose argues that the state's renewable portfolio standard, which aims for 25.2% renewable energy by 2025, could jeopardize power supply reliability due to the intermittent nature of renewables.

  • Clean energy advocates express concerns that combining nuclear and renewables in a single standard could flood the market with cheap clean energy certificates, affecting revenue for solar projects.

  • Critics worry that a single standard may impact the funding source for clean energy rebates, as the availability of inexpensive certificates from nuclear power could reduce alternative compliance payments, potentially affecting the state Renewable Energy Fund.

  • Greenwashing Challenges in ESG are still prevalent through tactics like selective disclosure and vague terminology used to create a deceptive facade of responsibility.

  • PR Balancing Act: PR professionals grapple with the challenge of balancing storytelling with transparency in the ESG realm, underlining the pivotal role of trust and transparency in shaping narratives.

  • Two-Way Trust Dynamic: Trust is portrayed as a reciprocal relationship between corporations and PR firms, with the article advocating for strategies like fact-checking and ethical guidelines to ensure mutual accountability.

  • PR as ESG Advisors: Positioned as crucial advisors in ESG initiatives, PR professionals are tasked with translating complex subjects and championing authenticity and transparency to uphold industry relevance and respect.

  • Discussions at VERGE 23 emphasized charging as the primary barrier to advancing fleet electrification, with concerns about access to power, permitting delays, and acquiring infrastructure equipment within reasonable timelines.

  • Various proposals were made to address charging challenges, including prioritizing EV charging deployments by utilities, fostering collaboration between fleets and utilities for shared charging assets, standardizing utility equipment, and enhancing transparency in utility queues for deploying charging assets.

  • A recurring theme emphasized the need for immediate deployment, even on a small scale, to kickstart fleet electrification. Small fleets were encouraged to adopt electrification early, taking advantage of financial incentives and preparing for stricter emissions regulations to avoid becoming obsolete.

  • Industry leaders highlighted the importance of sharing success stories and failures in fleet electrification to facilitate collaboration, overcome challenges, and drive progress. The call for more case studies and industry sharing underscored the need for a collective effort in the transition to decarbonize fleets.

  • Green groups have criticized Danone, Nestlé, and Coca-Cola for claiming their plastic bottles are “fully recyclable or made from 100 percent recycled content” while using ‘green’ imagery.

  • ClientEarth and other groups have joined forces to file an external alert with the European Commission and the Consumer Protection Cooperation Network (CPCN) that these companies mislead consumers using these statements since PET plastic is not a fully circular material.

  • Representatives of Danone and Nestlé acknowledged that improvements could be made to their package messaging. Both companies have reduced the amount of virgin plastic in their bottles.

  • The impacts of climate change have affected the insurance industry since it not only insures assets and activities but also invests in these assets, such as fossil fuels.

  • The European Environment Agency reported that €650 billion of insurance losses were caused by weather and climate-related extremes from 1980-2022.

  • Although the business of the insurance industry is to assess risk, many firms provide 12-month contracts causing them to take a short-term view of what they underwrite.

  • In 2017, a campaign by Insure Our Future began to put pressure on firms to decrease the underwriting of fossil fuel companies, aiming at the “top 25 fossil fuel insurers [that] control 69% of the market.”

  • Natural catastrophes have caused insurers to pay over $100 billion in losses. In response to these natural disasters, State Farm no longer sells wildfire insurance in California. Additionally, residents of Colorado, Florida, Louisiana, New York, and Texas also face home and business insurance challenges.

  • Due to the number of global natural disasters in 2023, it is likely that premiums and the number of markets unable to be insured will increase.

  • As efforts to decarbonize are occurring across various industries, it is imperative that insurers “thoroughly think what they sell, how they sell it, and to whom they sell.”


  • ESG Commitments and Emissions Reduction: Sustainability reports indicate Deutsche Bank AG, Citigroup Inc., and Mizuho Financial Group Inc. appear to be fulfilling promises to cut carbon emissions as part of their commitment to eliminating financed emissions.

  • Technical Factors Impacting Emissions: Despite reported reductions, the footnotes reveal that the emissions decline is influenced by technical factors beyond the banks' control. Factors include changes in exchange rates, the market value of fossil-fuel clients, and, in Deutsche Bank's case, the impact of the war in Ukraine on its lending to oil and gas companies.

  • Methodology Challenges: The banks use the Partnership for Carbon Accounting Financials (PCAF) methodology to calculate financed emissions. However, the article highlights challenges, such as the impact of energy prices on valuations of fossil-fuel companies, leading to a potential misrepresentation of the banks' environmental impact.

  • Need for Improved Metrics: While financed emissions remain a key metric for assessing banks' climate commitments, concerns about accuracy persist. There is a growing discussion about supplementing or adjusting metrics like enterprise value including cash (EVIC), and investors are urged to interpret financed-emissions disclosures with caution.

Investment Trends

  • The U.S. SEC’s 2024 examination priorities did not ESG considerations for the first time since their addition in 2021. This absence has led to speculation about a potential shift in priorities away from the ESG movement or a temporary pause awaiting new ESG regulations.

    • ESG investing, which considers non-financial factors, encompasses environmental, social, and governance categories. The environmental aspect has gained prominence in sustainability efforts and regulatory developments.

  • While the SEC is not emphasizing ESG in its 2024 priorities, recent actions include a $25 million settlement with DWS over ESG investment misstatements and a rule amending the Investment Company Act to include ESG and sustainable funds.

    • The SEC's delayed release of final Climate-Related Disclosure Standards and the omission of ESG in examination priorities raise questions about the future direction of ESG regulations and oversight by the SEC.

  • The social pillar of ESG investing is often considered the "middle child" due to data challenges, making it less understood and harder to quantify.

  • Despite challenges, ESG has gained broad awareness, with increasing attention on defining and quantifying the "S" (Social) pillar as investors seek to understand its significance and integrate it into investment strategies.

  • Challenges in obtaining standardized data persist, but advocates are hopeful for a potential human capital disclosure rule from the SEC, which could lead to a publicly available database of information from companies, marking the first "S" disclosure rule in the United States.

  • In the absence of standardized data, some investors use creative approaches, such as assessing part-time vs. full-time workers, benefits for contract workers, and engagement data. Companies are urged to be accountable for issues that matter, including human capital and social responsibility.

  • Investment firms like Harbor Capital and Irrational Capital have created ESG-themed exchange-traded funds (ETFs) centered on employee satisfaction, using survey data to drive investment decisions. There's recognition of the overlap between environmental and social themes, emphasizing the importance of a just carbon transition.

  • 89% of the investors who responded to a Bloomberg Intelligence study believe that environmental, social, and governance metrics are mainstream.

  • Analyzing the responses of 250 C-suite executives and 250 senior investors, the Bloomberg Intelligence survey found that 85% of the respondents view ESG's purpose as creating “better returns, resilient portfolios, and enhanced fundamental analysis.”

  • Laws aiming to ban ESG are likely to lose traction as some of the biggest investment firms, including BlackRock intend to maintain their sustainable strategy efforts.

  • As regulation intertwines ESG with financial markets and corporate strategy, 86% surveyed feel that ESG is their fiduciary responsibility while 90% anticipate that ESG investments will produce better annual results.

  • The Netherlands-based activist group Follow This targeted top western oil firms, including Shell, BP, Exxon Mobil, Chevron, and TotalEnergies, with climate resolutions aimed at aligning their 2030 emissions targets with the Paris climate pact's goals (reducing GHG emissions by 45% from 2019 levels).

  • However, big U.S. investors (BlackRock, Vanguard, State Street, and JPMorgan) voted against this resolution at the shareholder meetings of the five major oil companies.

  • In contrast, European investors like France's Amundi and Britain's HSBC consistently voted in favor of the resolutions at all five energy companies. Germany's Allianz supported the resolutions at Chevron's and Exxon's meetings, and Switzerland's UBS voted in favor of all companies except BP.

  • Voting Results and Shareholder Influence: In 2022, these resolutions received between 15% and 33% of votes at the five major oil firms (excluding TotalEnergies), indicating varying levels of shareholder support. The article highlights the role of investors, such as Amundi, Allianz, and UBS, in using their voting power to address the climate crisis.

  • The California Public Employees’ Retirement System (CalPERS) has launched its Sustainable Investments 2030 Strategy, committing to invest $100 billion in climate solutions by 2030 to accelerate its transition to a net-zero emissions portfolio.

  • CalPERS will engage with portfolio companies on their net-zero plans, exit investments in firms without credible decarbonization strategies, and reduce portfolio emissions intensity by 50% by 2030.


Government Policy

  • Ahead of COP28, the UN’s climate summit in Dubai, the U.S. and China, the world's largest polluters, have pledged to enhance joint action on climate change, a collaborative effort deemed crucial for the success of the summit.

  • The bilateral agreement involves supporting global efforts to triple renewable energy capacity by 2030 and cooperating to limit emissions of nitrous oxide and methane.

  • However, concerns remain over whether these commitments will translate into tangible outcomes, given challenges such as China's continued construction of coal-fired power plants.

  • Parliament has adopted a new position on an EU certification framework for carbon removals, aiming to help the EU achieve carbon neutrality by 2050.

  • The new framework intends to establish a system for improving the EU’s capacity to quantify, monitor, and verify carbon removals. This should help build trust between stakeholders and the industry.

    • Officials stress that the new system must align with international standards and must be set up to “ensure transparency, provide information to the public, and avoid the risk of fraud and double counting of carbon removals.”

  • The French Socially Responsible Investment (SRI) label is being updated to exclude oil and gas companies while demanding climate-focused investments.

    • Since 2016, the SRI label has been granted to almost 1,200 funds valuing more than €770 billion after a strict compliance process by a third party.

  • The updated SRI requirements will require funds to have a Paris Agreement-aligned transition plan as well as ensure that SRI funds exclude companies that are involved in coal and fossil fuel processes.

  • The U.S. General Services Administration (GSA) has announced a $2 billion investment in government building construction projects focusing on low-embodied carbon (LEC) materials, including asphalt, concrete, glass, and steel.

  • The investment, funded by the Inflation Reduction Act, aims to catalyze the market for American-made low-carbon materials, reduce greenhouse gas emissions, create jobs, and support over 150 federal infrastructure projects across 39 states.

  • The projects will prioritize the procurement of LEC materials such as concrete ($767 M), glass ($464 M), steel ($388 M), and asphalt ($384 M).


Opmerkingen


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