ESG Weekly News Update: August 19, 2022
General ESG News
GreenBiz: How Biodiversity Loss Could Cause Bankruptcy in Some Countries
Biodiversity is declining at a faster rate than any other time in recorded history, according to the UN close to a million animal and plant species are approaching extinction.
The Royal Society Scientific Journal found that climate change is projected to be one of the largest drivers of biodiversity loss as increased temperatures and altered rainfall patterns could surpass the effects of agriculture and deforestation.
A report by the University of Cambridge cited biodiversity loss as a driver of economics. Economists created the world’s first biodiversity-adjusted sovereign credit ratings, portraying how ecosystem destruction can downgrade credit ratings and cause borrowing costs to spiral.
As nature-loss will affect economic performance, it will be harder for countries to pay off their debt, resulting in strained government budgets and likely increasing taxes, cutting spending, or increasing inflation.
Bloomberg: UK Coal Mine Dilemma Pits Energy Crisis Against Green Goals
West Cumbria Mining Ltd. plans to open the first deep coal mine in more than three decades in the UK. There has been a significant pushback given the country’s key climate pledges and highlighting the dilemma of securing fuel in wake of Russia’s war in Ukraine.
The chair of the UK’s independent climate watchdog stated that the plans would be catastrophic to the nation’s mid-century net zero plan. During public comment, concerns were voiced that the project would go against the legally binding net-zero emissions goal.
The deep coal mine would weaken an additional climate pledge made by the UK to shut down all its coal-fired power plants by October 2024. The fate of the mine sits with Greg Clark, the secretary of state, as many in Whitehaven tout the plan for creating over 500 local jobs.
GreenBiz: 4 insights into voluntary carbon market trends
The value of carbon credits in voluntary markets hit $1 billion for the first time in 2021, and the market has not slowed down in 2022. Increased corporate net-zero pledges and commitments to reduce emissions have led to increased demand for offsets. A few noteworthy trends to consider are:
We don’t know the buyers. More than 28,000 carbon offset purchases were recorded in 2021, but only 6,200 recorded who the buyer was. The secrecy likely stems from criticism around carbon offsets being used in place of real climate action.
Consumer pressure is driving the market. More than two-thirds of disclosed offset buyers in 2021 were business-to-consumer companies.
Corporations are relying on “vintage” offsets, or credits from projects that were completed years ago. According to a report from BloombergNEF (BNEF), more than half of all offsets retired in 2021 were produced before 2015.
Companies are behind on removal offsets. In the 2021 market, more than 90% of all offsets were either avoided deforestation or energy generation, neither of which actually remove carbon from the atmosphere.
Forbes: Why Understanding The ESG Impact Of The Supply Chain Matters For Sales Leaders
For those in sales and business development, ESG credentials are becoming an important part of closing deals, and in some cases, they are the deciding factor. There are a few steps sales leaders can take to prepare for success:
Establishing credibility
Taking a customer-first approach
Communicating strategy first
Aligning expectations with values
Empowering teams.
ESG Today: HSBC Launches ETF Aimed at Helping Investors Manage Biodiversity Risk
The HSBC World ESG Biodiversity Screened Equity UCITS ETF was launched in an effort to enable investors to build diversity into their portfolios and mitigate risks through investment in companies with biodiversity credentials.
The index identifies how environmental pressures, such as climate change or water pollution, impact a company.
The index is made up of 500 companies.
Forbes: Align Company Purpose With ESG For A Profitable Competitive Advantage
Companies have become more concerned with their own net-zero commitments and current social concerns.
Consumers are shifting towards supporting green companies that have social and environmental values and goals in response to current social concerns.
Companies are also investing in ESG strategies as a risk mitigation tactic, working to align profit with purpose.
Climate disasters and COVID are causing companies and investors to focus on sustainable operations to avoid supply chain and workforce disruptions and improve resilience.
Social responsibility has also become a key factor in attracting talent as more employees are concerned with equity, inclusion, and climate-conscious goals.
Companies must incorporate ESG practices that are specific to their industry in order to become a leader in comparison to competitors.
Diversity, Equity, and Inclusion
Forbes: How to Design for Sustained Equity and Inclusion
The term, microaggressions, was first used in the 1970s and entered into the dictionary in 2017. Defining the problem is only the first step toward the path to action.
When promoting diversity, equity, inclusion, and belonging (DEIB), fixing the foundation for issues and implementing the right measure are vital to achieving outcomes consistent with goals.
A survey done by Pew Research Center found that the top three reasons employees quit are related to low pay, lack of advancement opportunities, and feeling disrespected in the workplace. These findings support the reality that while companies can attract diverse talent, it is difficult to retain them if they are not treated equitably.
Some important measures to address these issues include structured sponsorship programs holding leaders accountable, transparent and consistent promotion processes, equitable pay, and two-way feedback processes.
Bloomberg: Boston Set to Require Diversity Data on Private Real Estate Projects
Boston officials are proposing that all big private real estate development projects (more than 20,000 square feet) be required to report on how many women and people of color are working on them, aiming to address the historical lack of diversity in the commercial real estate industry.
It is expected that the requirement will soon be approved by the Boston Planning and Development Agency Board.
City officials note that while diversity is already used to help the city win competitive bids on public projects, no such requirements or incentives exist for private projects.
Forbes: Energy Policies for Refugee Assistance: Sustainability and Access
The number of refugees is continuing to increase globally with 274 million people needing humanitarian assistance in 2022, of that population 100 million were refugees.
As people are being disconnected from power grids, unexpectedly energy consumption increases as nine out of 10 refugees lack access to sustainable light sources as energy usage increases with fewer benefits provided.
Refugees are straining Europe’s energy infrastructure as hot meals per person rely on much more energy per person, relying on transportation and inefficient energy sources. As winter approaches, refugees will rely on less efficient portable fuels to heat their “temporary” housing.
NGOs like Practical Action are partnering with Ikea Foundation and other NGOs to provide sustainable energy access for refugee camps, projects supported by agencies like these have been successful in addressing energy problems, though larger action is vital to take steps towards acknowledging that refugee shelters should be outfitted for energy consumption beyond the expectations of a “temporary” stay.
ESG Disclosures, Standards, Rankings, and Reporting
The Wall Street Journal: Proposed Sustainability Disclosure Rules Draw Comments and Concerns
The International Sustainability Standards Board (ISSB) is considering two new rules that would require companies to disclose sustainability and climate-related risks.
This has caused more than one hundred companies to respond
Some companies are concerned that disclosing this information publicly will actually put them at a competitive disadvantage. Other companies recognize the benefits of a global baseline for disclosures.
A letter signed by 80 CFOs asked ISSB to align their standards and new rules with existing standards and focus on developing those standards to create more clarity around the topic.
The proposal from the ISSB that would require climate-related risks disclosure would require companies to share information on sustainability risks by disclosing events such as extreme weather.
The Wall Street Journal: What Brands Should Know at FTC Prepares to Update Green Marketing Guidelines
FTC guidelines for marketing claims using terms like “carbon offsets” are being updated for the first time in a decade. The guidance is currently not specific in some areas, and the term “net zero” is not even included in the guidance. There are a few things marketers should know about the Green Guides and their upcoming revisions:
If marketers make false claims or claims inconsistent with the guidance, the FTC can take action, even if it hasn’t provided specific guidance for the claim.
The agency may revisit labels that were not covered in 2012, including “natural,” “organic,” and “sustainable.”
Marketers are specifically asking for more detailed guidelines in areas like recyclability because recycling programs currently vary widely within the U.S.
Marketers can get ahead of upcoming guidelines by following major environmental policies, guidelines, and regulations in the EU, which leads the world in such matters.
Forbes: On ESG Investing, The Economist Offers The Right Diagnosis But A Faulty Prescription
The Economist recently published a critique of the current ESG framework, stating that there is a lack of clarity in what raters are measuring and what their methodologies are.
Because of the lack of clarity, The Economist suggested companies focus on the environmental aspect of ESG and that the E should only stand for emissions specifically.
This suggestion from The Economist fails to address important social issues that many employees are concerned with, such as supply chain working conditions or diversity in the workplace.
The ESG movement now represents about one-third of all assets under management after significant growth in the past 18 years.
ESG has become a common topic in the political arena with conservative representatives implying that it is only a political ploy that will harm the economy.
The social aspect of ESG is one that investors and company leaders should be focusing more on, although some are weary because addressing some social issues may add additional costs.
Investment Trends
The New York Times: How can private finance accelerate the net-zero energy transition?
The CEOs of Standard Chartered and OGCI Climate Investments discussed the development of private finance and potential solutions to solve energy's most critical issue – net zero emissions.
Standard Chartered’s CEO, Bill Winters shared his views on the importance of energy security and transition. Bill argues that many net-zero transitions are very expensive in the short term and require forward-looking strategies to consider macroeconomic scenarios.
Pratima Rangarajan, CEO of OGCI highlighted how high temperatures in India have forced energy usage for air conditioning. This is a major issue for the country as certain regions ran out of coal to supply the necessary energy.
A 5% increase in energy efficiency in the country could lead to $60 billion in savings.
It is important to consider ways to improve the current infrastructure without utilizing the available resources and systems in place.
The scale and pace of decarbonization need to be increased; it is important to deliver a reduction by half in eight years of emissions.
The Wall Street Journal: Temasek Sustainability Chief Doubles Down on the ‘Carbon Ecosystem’
Temasek Holdings Ltd., Singapore’s state-owned investor, established a new platform to invest in companies that will help make carbon markets play a larger role to contain global warming. Five billion Singapore dollars were initially committed to the platform, GenZero.
GenZero aims to target companies that can play a part in the carbon ecosystem, including businesses developing carbon-removal technologies, establishing carbon offset projects, and quantifying carbon storage.
Steve Howard, Temasek’s chief sustainability officer, outlines the importance of GenZero in tackling climate change more cost-effectively by helping to create a high-truest, high-liquidity carbon market in an interview with the WSJ.
ESG Today: Alphabet Deploys $5.7 Billion from Largest-Ever Corporate Sustainability Bond
Alphabet recently published its 2022 Sustainability Bond Impact Report, marking the completion of its 2020 $5.7 billion sustainability bond. Key investment deployment areas include green buildings and renewable energy, as well as affordable housing and COVID-19 response.
Alphabet estimated that its renewable energy power purchase agreements (PPAs) will avoid nearly 25 million metric tons of CO2 equivalent emissions, contributing to its commitment to operate on 100% carbon-free energy by 2030.
Alphabet also allocated $185 million in contractual commitments that offer loans to small businesses, and the company estimates that this investment will result in nearly 50,000 loans to small- and medium-sized enterprises. It also allocated $148 million to racial equity initiatives, including contributions to organizations supporting Black business owners, artists, and creators.
The Wall Street Journal: Wall Street, Like the Climate Bill, Bets on Both Green Energy and Fossil Fuels
Investors continue to back oil and gas companies along with renewable energy as they believe oil and gas companies will still be profitable for years to come.
Both green projects and oil and gas companies obtained about $570 billion last year through bonds and loans.
Many investors believe that because oil, gas, and coal account for 80% of the world’s energy, it’s unrealistic to completely avoid investment in the fossil fuel industry.
Climate investors believe the energy spending package, that’s part of the Inflation Reduction Act, will let the markets determine what solutions to favor. Many Republicans disagree as they believe the legislation will harm the economy.
Some investors believe the best way to lower emissions is by working with energy firms.
Financial Times: Record outflows from commodity ETPs obscure long-term demand
Investors pulled about $11.2 billion from commodity exchange traded products (ETPs) in July yet industry observers believe investors aren’t paying attention to important long-term factors.
The director of exchange traded fund strategy at abrdn said that the green energy transition would be a driver for commodity ETPs.
Investment flows will also be influenced by supply constraints and inflation.
Companies and Industries
Bloomberg: Coal Giants Are Making Mega Profits as Climate Crisis Grips the World
Russia’s invasion of Ukraine created major energy-market shockwaves, confirming the world’s dependency on fossil fuels.
Top energy companies, such as Glencore Plc, reported major earning increases while global temperatures increase, and climate change-related disasters become more frequent.
The lack of investment in the fossil fuel industry has benefitted the industry as it has constrained supply. Furthermore, the demand for supply has increased as Europe has moved to greener energy sources, which has left less fuel for other countries to obtain and fight over.
GreenBiz: US government must ensure responsible offshore wind development
The U.S. government must consider the fine line between promoting clean energy projects and protecting waters off the West Coast while the Department of Interior prepares to sell the first West Coast offshore wind leases in Morro and Humboldt Bays located in California.
Wind energy is a promising source of energy that will help create a cost-effective and affordable transition into clean energy.
California coasts have unique ecosystems that need to be considered, especially when floating wind turbines haven't been thoroughly tested.
It's recommended that the Department of Interior conducts an environmental review of how offshore wind development will affect California's coast.
Reuters: Bayer Launches sustainable agriculture hub to connect U.S. farmers, food and fuel makers
The new digital farming platform was launched on August 15th to help U.S. farmers implement environmentally friendly farming growing practices and to help connect them to companies looking for sustainable food, feed, or biofuel ingredients.
The platform should help the farm data collection effort.
The platform will use data to recommend practices that will boost soil health, cut emissions, reduce water use, and more.
It will also allow companies to create and implement incentive programs for farmers in their supply chain to grow crops that will benefit the company’s environmental goals.
Forbes: Is Sustainability Sustainable In Retail?
According to new research from First Insight, on average, 75% of all generational groups care about retail sustainability and brands offering sustainable products. However, the same study also shows that consumers are not willing to pay more to cover the costs.
Brands are hesitant to be leaders in sustainability largely due to the risk of loss – if they absorb the costs instead of increasing prices, and their competitors do not follow suit, they lose profits and market share. However, if their competitors also embrace sustainability, it is more likely that the overall costs will come down and fall back into equilibrium.
Many retail executives are stuck in the decision-making process, and the best way to prepare them for the future is through data, testing, and listening to consumers.
Reuters: Chasing green goals, corporations push car fleet managers toward EVs
Firms that lease and manage car fleets are being pushed to convert to EVs faster than they thought possible, and they are setting ambitious goals that are being driven by clients chasing their own ESG goals.
This push then puts pressure on the auto industry to remove carbon and other materials from their supply chains.
However, a lack of public charging infrastructure currently means that for many companies with fleet vehicles that must travel long distances, plug-in hybrids are the only viable option.
In some markets, like Africa, Asia, and parts of Europe, EVs are not available and the common EV models may not be able to make the trips through more rugged terrains.
Fleet vehicles are seen as “low-hanging fruit” for companies working to reduce their emissions, and in Europe, EVs are even becoming a determining factor in the battle for top talent. North America is starting to catch up to this progress.
ESG Today: BMW Launches Initiatives to Improve Sustainable Packaging, Reduce Emissions in Supply Chain
BMW has announced its overall aim to reduce carbon emissions in its supply chain by 20%, and it has begun initiatives like using more recycled material in its packaging. The expanded polypropylene packaging contains 25% recycled material and will allow the company to save almost 280 tons of CO2 per year.
The company has also stated that pilot schemes with 100% recycled material are currently underway. It will also begin using folding plastic alternatives made from more than 90% recycled material instead of pallet cages made of steel. The use of 15,000 of these containers is expected to decrease carbon emissions by 3,000 tons annually.
Government Policy
Bloomberg: The Inflation Reduction Act Is a Climate Bill. Just Don’t Call It One.
Experts note that the name of the new bill is a bit confusing for the public, but it is a product of today’s political and media landscape and the need for politicians to “brand” the proposal. With inflation being a major concern for many Americans, it is unsurprising that the new bill – which deals largely with climate change mitigation and clean energy business and infrastructure – was named as such.
Additionally, the provisions in the bill do aim to help lower energy and healthcare costs, as well as pay down the national debt. Keeping “climate” terminology out of the forefront of the title and initial message of the bill may have contributed to it being one of the first to break the cycle of failed U.S. climate bills throughout history. Focusing on health and jobs creates a more powerful message for most Americans, though this may be slowly changing.
Bloomberg: Methane ‘Loophole’ Shows Risk of Gaming New US Climate Bill
Several energy companies have used a different interpretation of EPA rules to misreport their methane emissions which in turn can affect the potential of new legislation meant to reduce greenhouse gas emissions.
There is variation in how a company reports its emissions based on its own interpretation of the complex and extensive EPA rules.
Specifically, the interpretation of one word in the ESP rules has allowed companies to slash their reported emissions.
Some companies interpret the word "operational" to refer to the moments a controller is releasing gas when the controller is actually operational all the time.
Researchers have pointed out in the past that the EPA's formulas undercount methane emissions which is a problem as methane has 80 times more of a short-term impact than carbon dioxide.
There are proposals that the climate disclosures should be based on actual measurements, not estimates from equipment counts.
Bloomberg: Biden’s Freeze on Oil, Gas Leases on Public Land Is Reinstated – for Now
After a U.S. appeals court found a judge’s order against the moratorium too vague, Biden got temporary permission to halt energy leasing on federal land and water.
Under the Inflation Reduction Act, the Department of Interior is required to auction off oil and gas leases in the Gulf of Mexico.
The law also makes future projects on federal lands and waters dependent on leasing.
ESG Today: Biden Signs Largest Ever US Climate Investment Package into Law
Biden signed the Inflation Reduction Act into law solidifying the largest climate investment from Washington; the $370 billion dollars will be allocated to renewable energy and industrial decarbonization solutions.
This marks a significant step toward action on the President’s climate plan, complementing the return of the U.S. to the Paris Agreement and the national emission reduction targets established last year.
Many aspects of the bill focus on climate and energy, including provisions to lower the cost of renewable energy for consumers, promote domestic clean energy production, and investment in resiliency and mitigation in low-income communities.
The package includes $60 billion for domestic manufacturing of clean energy and transportation, $9 for consumer home rebates on electrifying home appliances, consumer tax credits for rooftop solar, and over $60 billion toward environmental justice priorities.