ESG Weekly News Update: August 5, 2022
General ESG News
GreenBiz: Is advanced recycling the answer to plastic waste?
Advanced recycling – also known as chemical recycling or molecular recycling – aims to continuously turn plastic waste (even hard-to-recycle items) into new materials that are indistinguishable from the same molecules made from petroleum and natural gas; a true circular economy.
Chemical companies and the plastics industry are partnering to embrace the new technology, and policymakers are working to decide how to promote innovation and infrastructure growth while protecting the public and the planet.
Previously, waste-to-fuel, waste-to-materials, and incineration were all included under the same umbrella term of “chemical recycling,” which led to misunderstandings and accusations from activists about chemical recycling just being a greenwashing term for incineration.
Now, with improved technology and waste-to-materials processes, incineration is separated from advanced/chemical recycling, and some companies are making substantial progress in lowering the overall lifecycle environmental footprint of plastics.
Circularity also has the potential to bring economic benefits and is becoming part of the growth strategy for many major plastics and chemical companies.
However, there is also a misalignment of perspectives from those who argue that the world is already moving away from so many of the plastics that are now being treated with advanced recycling. Others see advanced recycling as second to reusing and refilling. For advanced recycling to be a real solution, it will require advocacy and regulatory certainty.
Forbes: Consider Your Competitive Positioning In Your ESG Initiatives
Regulatory agencies in the US and EU are increasingly requiring companies to align ESG commitments with ESG criteria for corporate behavior and financial performance. Now, there are more companies acting on their statements about their desire for a cleaner planet and being more socially responsible companies.
ESG drives substantial investment because it stands as a competitive dimension. The process to establish ESG commitments and timelines spans the company, its vendors and service providers, and their vendors and service providers.
Suggestions for a company to influence and monitor its supply chain to meet ESG goals:
Each functional head has the responsibility to meet its portion of the company’s ESG mandates.
Consider joint investment or co-innovation to achieve ESG goals.
For brand differentiation, communicate to customers the company’s ESG goals and commitments and follow up with any progress in achieving those goals.
Reuters: ESG — what directors and officers need to know about insurance
As ESG concerns are increasingly on many investors' and stakeholders’ minds, directors and officers are more at risk for liability. Directors and officers should understand how their company's directors’ and officers' liability (D&O) insurance might protect their personal assets and consider whether those policies include appropriate provisions to address ESG risks.
D&O insurance provides coverage against claims alleging "wrongful acts" by a company's directors or officers in which "wrongful acts" includes, "any error, misstatement, misleading statement, act, omission, neglect, or breach of duty committed, attempted, or allegedly committed or attempted."
Two important implications to consider are:
Directors and officers should be aware that a "claim" may not be limited to lawsuits.
Since D&O insurance is based on the timing of "claims" as opposed to conduct or harm, directors and officers “contemplating the types of ESG claims that may be asserted against them in the future may have the opportunity to seek appropriate enhancements to the company's D&O policies in view of the company's risk profile.”
ESG News: Ireland Sets Target to Halve Greenhouse Emissions
The Irish government agreed to targets to limit carbon emissions in key parts of the economy after a coalition of leaders in the Green Party compromised on a 25% reduction for the agricultural sector.
Ireland’s agricultural sector is currently responsible for about 38% of the country’s greenhouse gas emissions.
The targets set will require a 75% reduction in the electricity sector, a 50% reduction in transport, a 40% reduction for residential buildings, and 35% for industrial activities. Meeting these goals will require about $144 investment from both the private and public sectors.
SustMeme: ESG: ‘Future COO’ in The Times
A successful COO constantly balances the daily demands to achieve operational efficiency and long-term objectives.
As ESG criteria continue to involve more financial and legal obligations, COOs may be the best individuals within organizations to ensure compliance and avoid greenwashing.
Additional reading: Raconteur: Why ESG is a game of risk and reward for a COO and Future COO 2022 Report
Bloomberg: Supergrids Are Critical to the Climate Fight. But There’s a Problem
Supergrids are crucial for global green energy as they are able to spread green energy thousands of miles.
The technology for supergirds is available but selling the idea of power lines cutting through private land and linking nations that are hardly friendly has proved to be difficult.
Europe has progressed with various connections that allow for the trading of electricity across borders.
China is in the process of creating a line that would be powerful enough to bring renewable energy from the west to the east.
Forbes: Why It’s So Hard For Companies To Get ESG Right
Forbes research has found, that most companies now recognize that ESG metrics are linked to performance, not just compliance
Forbes suggests that companies need to set ESG objectives, then develop goals to reach these targets then determine:
Where to get the data necessary to measure (and report upon) the progress of ESG initiatives.
How to understand, analyze and respond to the regulatory framework.
How to establish consistent, understandable messaging; and
How to separate environmental risk (that is, the physical problems the company faces) from environmental intent (the company’s plans to become a good citizen in terms of ESG measurement).
The journey to proper ESG execution begins with starting, learning, building, and improving. This process can’t be done all at once and shouldn’t be.
Diversity, Equity, and Inclusion
Forbes: Why Promoting True Racial Diversity Needs To Go Beyond Slogans
In a recent report from think tank Coqual in the UK, a survey of more than 1,000 college-educated professionals found that black professionals are more than 81% more likely than white professionals to say their companies are not fair or only slightly fair. Additionally, about half of all black men and women respondents said they intend to stay at their company for two years or less, compared with just over 30% of white respondents.
Black professionals were also the most likely to describe themselves as very or extremely ambitious. Now, consultants and professionals are speaking up more than ever about what likely is really like for the black people working at various companies – even those who have advanced to senior positions – with the additional understanding that this can resonate with other under-represented groups.
Most crucial to note is that there are practical steps to take to improve the situation beyond social media and lip service. It is also important to understand what is at stake for companies that choose to ignore the biases and challenges black employees face, including losses of resiliency and sustainability, as well as barriers to black professionals being able to thrive in the workplace.
ESG Disclosures, Standards, Rankings, and Reporting
Paul Simpson, the co-founder of CDP who spent 12 years as chief executive, has decided to pursue new directions. In reflecting on the past two decades since the founding of CDP, Simpson is proud of what the nonprofit organization has been able to accomplish and the change it has affected in the world by pioneering climate and environmental disclosure.
In its first year, CDP saw 245 companies responding to its disclosure request. In 2021, more than 13,000 companies representing nearly 65% of global market capitalization disclosed through CDP, and around 3,000 have committed to set a science-based target.
Despite this progress, the climate crisis is still accelerating, and Simpson urges that more must be done to drive rapid action, with regulation being the key. Unfortunately, the key to regulating global markets is that there is no global government. CDP can help fill this void with its global system that can adopt standards into its disclosure platform.
As part of its 2025 strategy, CDP is committed to expanding its work to cover all nine planetary boundaries (including biodiversity, land, oceans, and waste) needed for humans to maintain a sustainable world
Forbes: What Is All The Fuss About ESG Ratings?
Some argue that ESG ratings and reporting promote the practices of greenwashing and the generalization of issues that should be looked at individually.
The increased use of ESG ratings and semi-frequent opposition has caused a greater need for clearer metrics.
Many in the U.S. still question the validity of climate change and in turn the E in ESG.
There is a question as to whether public businesses should be the only group rated or if governmental entities should be included in ESG ratings and rankings as well.
When S&P announced it would rate ESG risks for states, leaders from Utah objected.
Considering social risk/responsibility should be measured, who is primarily responsible for it? The government?
Whether ESG principles should be measured in the private sector, public sector, or both, there are benefits and needs improvement and clarification for continued positive outcomes.
As ESG disclosure regulations are expected to expand, it is important to understand that these requirements are not a comprehensive solution. They are an intermediate step on the way to making sustainable practices integral to a business's operations.
While ESG reporting and disclosure is not a panacea, harmonizing the different sustainability standards and reporting requirements globally is urgently needed.
There is a further need for C-suite executives and board of directors to create a systemic integration of businesses’ financial and non-financial metrics and performance.
Global development and education of professionals who are experts in monitoring and evaluating businesses’ progress in sustainability are essential. These professionals should have skillsets that differ from conducting financial audits, rather they should focus on achieving sustainability with both retrospective and prospective outlooks in an interdisciplinary fashion.
GreenBiz: Are we comparing green to green?
Regulatory oversight is important to achieve sustainability targets. Many institutions identify the need for robust corporate ESG disclosure to minimize greenwashing. The European Union (EU) endeavors to enforce consistent and accurate green classifications for sustainable economic activities.
The Disclosures Delegated Act (DA) sets the foundation for the EU Taxonomy reporting, which applies to both financial firms and non-financial corporations. The Disclosures DA reporting template guides consistent and accurate corporate disclosure although “the reporting volume is minimal and only a handful leverage the standardized reporting template with most firms leaning towards a more qualitative approach.”
GreenBiz: ESG credibility under threat from lack of standardization, report warns
The current lack of ESG standardization and clarification has the potential to increase greenwashing practices in the financial sector according to Oxford Analytica.
There are disagreements on what ESG funds should include and how metrics and data should be applied or used.
A report by Oxford Analytica and EY, argues that there needs to be transparency about how ESG ratings are calculated, independent assurances around the scores, and sustainable finance taxonomies should be developed to clarify what is considered sustainable.
Reporting needs to move beyond the connection between ESG reporting and financial reporting to create a more rounded reporting system.
Investments and Pensions Europe: TNFD releases second beta version of nature-related risk framework
In July, the Taskforce on Nature-Related Financial Disclosures (TNFD) released its second beta version of its disclosure framework, following the first iteration of its release in March. It includes TNFD’s approach to metrics and additional guidance for market participants to start pilot testing. Other enhancements in the second iteration include:
An overview of TNFD’s approach to the development of future guidance, including sector classification aligned with SASB, TCFD, and the ISSB.
Further guidance on how to handle dependency and impact evaluation, as well as the identification of priority locations
Enhancements to the LEAP approach for financial institutions (first introduced in March).
Investment Trends
ESG News: More sovereign wealth funds adopt a formal ESG policy – Invesco study
75% of the world's sovereign wealth funds (SWFs) now have formal policies on ESG investing. The SWFs identify a lack of clear regulatory standards on ESG investing, data quality, ESG ratings, and greenwashing concerns as challenges in implementing ESG policies.
30% of SWFs have set carbon emissions targets. Their carbon emissions reduction efforts involve selling assets with heavy emissions, pressuring companies to lower their emissions, favoring greener companies in their portfolios, and investing more in climate-friendly technology such as renewable energy.
Reuters: Positive ESG performance improves returns globally, research shows
Companies with positive ESG scores performed better when compared with stock funds over the last 5 years
The analysis performed by ESG Book excluded companies with low market capitalization and daily trade volumes to avoid distortions.
ESG Book also launched in December 2021 corporate sustainability data more transparent and comparable with support from groups such as HSBC, Deutsche Bank, and Swiss Re.
Portfolios tilted towards companies with strong corporate governance metrics, for example, beat their benchmarks across the four regions ESG Book analyzed, with average annual outperformance as high as 2.17% in Europe.
Reuters: Managers’ Use of ESG in Fixed Income Surges, Survey Finds
The Index Industry Association reported that the number of asset management firms that incorporate ESG criteria into their fixed income investments rose significantly during the past year.
The 2022 survey of 300 investment management firms in the U.S. and Europe found that 76% of managers implement ESG within fixed income, a significant increase from 42% in 2021.
This rapid adoption of fixed income is a reflection of both managers’ improved ability to assess ESF signals and investors’ enthusiasm about diversifying beyond ESG equity funds. Flows into ESG funds have moderated this year given the onset of a bear market, though the slowdown has been less notable for fixed income than equity funds.
While inflows have softened, managers’ projections for ESG growth have accelerated since last year, expecting 40% of portfolios to include ESG components over the next year, an increase of 13% from the 2021 survey.
SustMeme: Circular economy investment set to spike
Circular economy investment is forecasted to increase significantly in 2022 after a 64% increase in deals from 2020 to 2021.
BGF has become the most active in the UK circular economy sector as they have completed 12 deals in the past four years.
33% of deals have been done in the manufacturing and industrial sectors, 22% in retail, leisure, and consumer markets, and one-third in the food and drink industry.
Consumers are far behind in comparison to investors as most don’t understand what a circular economy is or have never heard of it. A study found that 13% of survey respondents have heard of the circular economy and know what it is.
Bloomberg: Climate Deal Spurs Record Gains for Renewable Stocks
Following a climate deal struck between Senators Joe Manchin and Chuck Schumer, renewable stocks have garnered record gains.
If approved by Congress, the Senate-proposed $369 billion for energy and climate has the potential to stimulate years of green economic growth.
According to Martin Wilkie, Citigroup Inc., “Following many false starts for US climate legislation, and a recent hiatus in US wind orders, we see this as a significant step forward.”
Companies and Industries
ESG Today: Renewable Energy Developer Longroad Raises $500 Million to Fund Transition to Asset Ownership Model
Longroad Energy Holdings focuses on wind, solar, and storage project development, operating assets, and services. Today, it owns 1.5 GW of wind and solar projects across the U.S.
The new investment will boost the expansion of its current 1.5 GW portfolio of owned assets, to 8.5 GW of wind, solar and storage projects over the next five years.
The deal was made in the form of an equity investment by MEAG, the asset manager of Munich Re and ERGO, alongside two of the company’s existing investors, NZ Super Fund and Infratil.
The Wall Street Journal: Amazon's Carbon Emissions Rose in 2021 Fueled by Pandemic Shopping
Amazon’s emissions increased to 71.54 million metric tons of carbon dioxide equivalent – a metric that converts the warming impact of other pollutants into carbon dioxide – marking the biggest rise since it began disclosing its carbon footprint
The company doubled its fulfillment network and installed more data centers to power its cloud-computer arm, Amazon Web services, between 2020 and 2021.
The number of deliveries in recent years passed the 100 million mark, weighing on its effort to lower emissions tied to the delivery business.
On the e-commerce platform, Amazon reports emissions arising from the use of its own-branded goods and not those of the hundreds of thousands of other products sold on the site.
ESG Today: BP to Invest up to $60 Million in UK EV Battery R&D Center
BP is planning to invest $60 million in a new electric vehicle battery testing center and analytical laboratory located in the UK.
The center will be opening by the end of 2024 at BP’s global headquarters for Castrol.
BP will also use this initiative to create new technologies for faster-charging stations for BP’s electric vehicle charging business, BP Pulse.
ESG Today: Sustainable Battery Tech Company VoltStorage Raises $24 Million for Lithium Alternative Solution
Cummins, an engine and power systems company, is investing $24 million in VoltStorage, a sustainable battery technology company.
VoltStorage uses vanadium redox flow technology to produce energy storage systems as an alternative to lithium-based storage technologies. The company’s redox flow system is fully recyclable and does not require rare materials or conflict raw materials.
The new investment is intended for the development of “larger-scale redox flow storage systems for commercial and agricultural enterprises and residential neighborhoods, and for product development of the iron salt technology.”
ESG Today: Sprite Ends Use of Green Bottles to Boost Green Packaging
Sprite will lose its iconic green design and now be packaged in clear bottles as a part of changes made by the Coca-Cola Company to improve the sustainability of its packaging.
On August 1, Sprite will be shifting all its plastic PET bottles from green to clear. While green PET is recyclable, the material is often made into single-use items that cannot be recycled back into new PET bottles. When processing PET, green and colored PET is usually put aside from the clear plastic to prevent discoloring recycled packaging needed to create new PET bottles.
This transition is part of Coca-Cola Companies' larger efforts to promote a circular economy for plastics. The company’s water bottle brand, DASANI, will be offered in 100% recycled plastic in the U.S., this transition is expected to save over 20 million pounds of new plastic.
Coca-Cola Company announced a new reusable packaging goal earlier this year, aiming for at least 25% of beverages across all their brands to be sold in refillable or returnable glass or plastic bottles by 2030.
ESG Today: GM Issues its First Green Bond to Power Clean Transportation Investments
General Motors (GM) announced it recently launched its first offerings of green bonds, pricing its clean transportation strategy at $2.25 billion.
This announcement comes a week after GM introduced its new Sustainable Finance Framework, which outlines eligible categories for investment for the company’s green and social financings, along with the process for project evaluation and selection, management of proceeds, and reporting obligations.
According to a prospectus filed by GM “proceeds from the offering will be used to finance or refinance green projects, under the ‘Clean Transportation’ category outlined in the framework, including R&D, facilities and infrastructure investments, and operational expenditures for solutions ranging from zero-emission vehicles and charging solutions to fuel and battery cell technology and vehicle-to-grid investments.”
Reuters: Britain to investigate ASOS, Boohoo and Asda's environmental claims
Competition and Markets Authority (CMA), Britain’s competition regulator, has begun investigating fashion brands ASOS, Boohoo, and Asda for greenwashing, noting that the brands may be misleading consumers with their environmental claims.
According to Sarah Cardell, CMA Chief Executive, “the CMA will take enforcement action, including in court, if necessary. The probe is just the start of the CMA's work in the clothing sector.”
Regulators across the U..S and Europe have begun closely examining ESG-related claims made by companies across sectors and investor funds to check that they are backed up.
Also covered in ESG Today: UK Competition Regulator Investigates Green Claims of Fashion Retailers
Government Policy
The Wall Street Journal: Climate Bill Stands to Give Green-Energy Investors a Lift
The proposed Senate bill focusing on energy and climate-spending package includes tax incentives aimed at channeling billions of dollars to wind, solar and battery-storage projects that put clean power onto the grid in the U.S.
Top private-equity firms and players focused on green energy have increased their stake in promising startups despite the industry's recent downturn.
The bill was designed to expand the country’s energy independence with provisions to increase fossil-fuel production and to bolster the domestic supply chain for products like batteries and solar panels.
Efforts to produce green hydrogen and to remove carbon from the atmosphere have for years failed to become economical and reach the scale necessary to limit climate change.
The New York Times: Climate Bill ‘Transformative’ for Auto and Energy Industries
The proposed Inflation Reduction Act of 2022 involves an estimated $369 billion in expenditures related to energy security and climate change programs (“Climate Bill”), including tax and other incentives to promote the United States’ production of electric vehicles (EVs), renewable energy technologies, and critical minerals.
The Climate Bill provides cash incentivizes to consumers who purchase electric vehicles and cleaner technologies by making their purchases more affordable with tax credits. Companies producing wind, solar, and other renewable energy will receive a 10-year extension of tax credits.
Investments in the U.S. and its allies are reinforced in this legislation, as it favors companies that get components and raw materials for EVs from the United States or allies and effectively excludes China. Including $280 billion to subsidize U.S. semiconductor manufacturing.
The New York Times: As India Takes On Throwaway Plastic, This State Shows How It’s Done
While many states in India have begun to impose restrictions on plastic waste, Chennai was the first to truly enforce its law forbidding retailers to use disposable plastic bags.
Many retailers were initially hesitant and concerned about the added cost of providing cloth bags, but now – about three years after the ban took effect – most customers bring their own cloth bags, and the streets are largely free of plastic waste.
Many in Chennai still defy the ban, stating that alternatives to plastic are too expensive or too inconvenient, but it is still mostly successful. Now, India is looking to impose a countrywide ban on making, selling, importing, and using certain single-use plastics.
India is currently the world’s third-largest producer of plastic waste, after China and the U.S. With the new ban on disposable cups, plates, cutlery, straws, and more, the plan is among the most ambitious enacted by countries that have worked to impose similar bans.
A blanket ban will be difficult to implement unless local governments are on board and take real action against violators, including fines. One of the keys to successfully curtailing plastic pollution will be finding cheap alternatives, such as vending machines for cloth bags that are affordable, accessible, and already exist in Chennai’s wholesale market.
Bloomberg: Oil, Gas Industry Methane Fee Survives Manchin Spending Deal
Under a breakthrough spending agreement reached last week by Senate Majority Leader Chuck Schumer and Senator Joe Manchin, the oil and gas industry would face a new fee (up to $1,500 per ton) on excess methane emissions from wells, pipelines, and other infrastructure.
The deal also includes hundreds of millions of dollars of incentives for the industry to prevent and clean up methane leaks. The new methane fines would also come alongside separate EPA efforts to limit methane emissions, including requirements for companies to fix leaks at hundreds of thousands of wells.
It still remains unclear whether the deal will be supported by the full Democratic caucus in the Senate, and it would also have to pass the House, where progressives have been seeking a much more expansive plan.
Bloomberg: Egypt to Fight Against Backslide of Climate Goals at COP27
With the current food shortages, inflation, and energy challenges, many leaders are struggling to keep up with previous climate change commitments and goals.
Egypt specifically is worried about backlash, as they are hosting COP27 this year. (They recently submitted updated targets and goals to account for slow progress.)
Sameh Shoukry, the Egyptian Foreign Affairs Minister, is concerned that the food, inflation, and energy issues might distract countries from climate change initiatives that need to be a priority.
The Egyptian Foreign Affairs Minister wants to focus on keeping climate change as a priority issue and helping developing nations gain funding for transitioning to greener energy and adapting to current climate concerns.
Europe’s transition away from Russian energy has caused an increase in the cost of natural gas which could be a major concern for countries. This price increase puts energy transitions at risk.
There is also discussion around developed countries compensating developing countries as the developed countries are largely responsible for the current climate crisis.
Bloomberg: Biden Has a $5 Billion Plan to Eliminate America’s EV Charging Deserts
The Biden administration is planning a nationwide network of 500,000 EV charging stations to link urban and rural areas from the east to the west coast in an effort to encourage Americans to switch from gas-burning cars.
$5 billion in funding was allocated to these efforts in last year’s infrastructure law. Along interstate highways and major roads, the administration wants a station every 50 miles, with four charging ports or more per station.
Biden’s climate fight relies heavily on EVs, as the Supreme Court has limited the federal government’s ability to regulate greenhouse gas emissions. It will require convincing millions of Americans to shift to electric vehicles a feat that is only attainable if they are assured that they won’t run out of power on the road.
There are currently requirements that charging stations cannot be more than 50 miles apart. In the Great Plains and the West, however, this requirement does not match local reality as there are stretches with more than 50 miles between gas stations.
The Wall Street Journal: Biden’s Climate Plans Are Unsustainable
Biden’s climate agenda in the midst of economic, geostrategic, and political challenges has an aggressive timeline with goals seeking a transition to 100% clean electricity by 2035 and net-zero emissions by 2050.
The climate plans are unsustainable as the global demand for energy will rise nearly 50% by 2050, yet fossil fuels still account for approximately 75% of the world’s supply.
The agenda is geostrategically unsustainable as “Russia and China view aggressive Western climate commitments as an opportunity to increase their power and influence.” Europe is struggling with its heavy reliance on Russian natural gas, and China is seeking to dominate Western markets for renewables.
Lastly, the climate agenda is politically unsustainable without commitments made by the Group of Seven nations.
The new guidance and $7.3 billion in funding are part of the current effort to combat climate change and are meant to help communities prepare for and respond to extreme weather as a result of climate change.
These extreme weather events include extreme heat, flooding, and wildfires.
The goal is to help protect public transportation infrastructure and make it easier for first responders to arrive at a disaster scene.
The PROTECT (Promoting Resilient Operations for Transformative, Effective and Cost-Saving Transportation) program funding will be available over 5 years to states creating new resilient infrastructure and maintaining existing transportation infrastructure.