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ESG Weekly News Update: April 7, 2023

General ESG News

Bloomberg: Investors Seek to Tap Millions in Biodiversity Credits From New UK Project

  • In England, there is a financial experiment underway that allows investors to generate revenue in return for helping restore terrain to attract ‘bugs, bees, and birds’ -- the land is called a habitat bank.

  • Ecologists assess the change in the habitat, and this change is converted into tradeable units that can be sold as credits to developers and builders looking to offset their environmental impacts.

  • This project comes in the wake of a new law in England, taking effect late this year, that requires developers to show they can deliver a 10% net gain in biodiversity to get planning permissions.

  • The new market also supports England’s goal of growing annual private investment in nature to £1 billion by 2030.

  • The EU, Scotland, and other countries are also implementing similar approaches to habitat banks, and experts believe that biodiversity may soon grow to be “one of the most significant asset classes in the world.”

  • Proper governance and oversight of the biodiversity projects will be crucial, as analysis of projects from early adopters has found that the absence of improved governance risks “poor outcomes for biodiversity.” Many biodiversity offset schemes around the world have failed, and there are risks to England’s untested approach to offsetting, time will tell whether habitat restoration will be achieved.

GreenBiz: Authentic inclusion requires more than setting longer tables

  • Recently, there has been talk about diversifying the profession of corporate sustainability, especially considering the disproportionate impact of climate change on under-resourced and underrepresented communities.

  • With the push to amplify voices has come an increase in attrition and burnout among people of color, because organizations have failed to understand the root causes of systemic and environmental discrimination.

  • In listening to these voices, organizations also realize that it is more than ‘just the environment’ -- it is food insecurity, access to education, air and water pollution, etc.

  • Beyond ‘setting longer tables,’ it is important to understand who is at the table, and why. It means ensuring that certain people at the table don’t ‘take all the food.’ It means asking uncomfortable questions and truly listening to the answers, as well as challenging the norms of business practices and HR habits.

Bloomberg: Threat of Hydrogen Greenwashing Stalks Europe’s Net Zero Plans

  • European utilities are pushing to build power plants that would burn natural gas now and eventually switch to burning clean hydrogen, but there are fears that this can open the door for greenwashing.

  • There are currently concerns with the efficiency of hydrogen and the pace of technological improvement, leading to criticism of “hydrogen-ready” claims without any parameters around what that means.

  • Governments are currently working to steer economies through the worst energy crisis in decades while also working to expand low-carbon technologies, so many are counting on the implementation of hydrogen with the expectation that it can compete with gas in the next decade.

  • There is a risk that natural gas plans will not transition to cleaner hydrogen fast enough to meet climate goals, and if the conversions don’t happen, there is no real backup plan for these European countries.

  • The plans are in place, but to ensure the supply and security of clean energy for the future, there needs to be regulation and funding support.

Investment Trends

ESG Today: Republican AGs Warn Asset Managers that ESG Investing Risks Fiduciary, Antitrust Violations

  • 21 Republican state Attorneys General published an open letter to over 50 of the largest asset managers in the United States to warn them of potential violations based on their ESG investment activities and climate-focused alliances. Many U.S. Republican politicians have been participating in anti-ESG initiatives, such as Florida Governor Ron Desantis leading the alliance of state governors against ESG.

  • This open letter broadly attacks ESG investing and cautions asset managers about their ESG commitments and participation with alliances such as the Net Zero Asset Managers (NZAM) initiative and Climate Action 100+ as such activity may “cast doubt on their adherence to fiduciary requirements, representations to consumers about their services, and compliance with antitrust laws.” The letter concludes by stating that the Attorneys General will continue to monitor this activity.

ESG Today: $11 Trillion Investor Group Announces Policy to End Financing New Oil and Gas Projects

  • Investors targeting net zero portfolio emissions under the commitment to the $11 trillion Net Zero Asset Owner Alliance (NZAOA) will call on oil and gas companies to set emission reduction targets aligned with global climate goals.

  • The NZAOA is a member-led initiative of institutional investors committed to transitioning their investment portfolios to net-zero GHG emissions by 2050. According to the NZAOA, their new position is based on frameworks and models such as the Intergovernmental Panel On Climate Change and the One Earth Climate Model. There are expectations for investors to adopt the policies aligned with these positions and it emphasizes the need for asset owners to engage with asset managers.

Companies and Industries

Bloomberg: Solar and Wind Are Growing Faster Than Fledgling Nuclear and LNG Once Did

  • Shell Plc has published two energy security scenarios - the first called Archipelagos, which is an extension of the world’s current path, and the second called Sky 2050, which works backward from an idealized outcome of net zero emissions and limited global temperature increase.

  • Nuclear power now supplies more than eight times as much energy as it did fifty years ago. Solar and wind together are now generating more electricity than the world’s nuclear power fleet but must continue to grow at a fast pace.

  • Wind has risen at a faster pace than LNG, now supplying nearly 30% more energy in its 14th year past the milestone than nuclear did. Solar has accounted for almost one-and-a-half times as much energy as nuclear and nearly two-and-a-half times as much energy as LNG six years post-exajoule.

ESG Ratings, Standards, and Regulation

Financial Times: Hundreds of funds to be stripped of ESG rating

  • MSCI has plans to make changes to which hundreds of European ETFs with triple-A ESG ratings will be downgraded, and the number of those with no ratings will increase. The changes are the result of pressure from index providers to tighten up the criteria of a qualified ESG-compliant fund as regulators are concerned about “greenwashing.”

  • Under MSCI’s changes, all “synthetic” ETFs that use swaps to track the value of assets will lose their ESG rating, and most “physical” funds are likely to have lower ratings. The changes will take effect by the end of April and apply to all ETFs and mutual funds globally.

Sustainable Brands: GRI Update Enforces Imperative of Transparency Around Businesses’ Impacts on Human Rights

  • In 2021, the Global Reporting Initiative (GRI) updated its Standards to incorporate the UN Guiding Principles on Business and Human Rights and call for more transparent reporting and due diligence on social impact and human rights issues.

  • Businesses and communities thrive better in environments with respected human and civil rights. Stakeholders recognize that profitability and productivity increase with human rights that are promoted and respected, and local communities and civil society have improved relationships with businesses engaged in responsible business practices.

  • In November 2022, the European Parliament adopted new reporting rules, such as the Corporate Sustainability Reporting Directive to require more ESG transparency from large businesses. The GRI followed suit with its updated Standards, which have three components:

  • GRI 1 focuses on impact, material topics, due diligence, and stakeholder engagement.

  • GRI 2 requires more detailed information on reporting practices, activities and workers, governance, strategy, policies and practices, and stakeholder engagement, including compliance, respect for human rights, and due diligence.

  • GRI 3 involves a broader approach to materiality with due diligence.

GreenBiz: TNFD Releases Final Draft of Nature-Related Financial Disclosure Framework

  • The Taskforce on Nature-related Financial Disclosure (TNFD) has released the final draft of its proposed framework ahead of the scheduled final publication of the new guidance in September.

  • The draft draws from relevant standards including those from the International Sustainability Standards Board and the Global Reporting Initiative. The Taskforce also translated concepts of Scope 1, 2, and 3 emissions reporting to apply to multiple nature-related impacts.

  • The framework also proposes a tiered approach to different performance indicators that aim to address science-based and practical for market participants to incorporate into annual reporting cycles.

  • The TNFD co-chair and deputy director of the UN Environment Programme stressed the importance of ongoing collaboration with standards development partners and regulators in ensuring nature-related reporting becomes standard business practice over time.

Government Policy

ESG Today: Canada Announces Over $80 Billion Clean Tech & Energy Investments to Compete with U.S. Inflation Reduction Act

  • Canada has announced plans for clean tech and energy investments, including more than $60 billion in tax credits ad $20 billion in sustainable infrastructure investments in its 2023 budget.

  • This plan comes in response to the Inflation Reduction Act, as the ‘race’ to capitalize on the opportunities associated with the global clean energy transition really kicks in.

  • The budget also acknowledges the need for Canada to respond to remain competitive in the global transition, calling for swift action to avoid being undermined by the incentives in the U.S.

  • The largest portion of the budget’s investments will be made through the Clean Energy Investment Tax Credit (representing more than $25 billion through 2035). Beyond the tax credits, the budget also announces that the Canada Infrastructure Bank will invest at least $10 billion in its Clean Energy priority area.

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