ESG Weekly News Update: December 16, 2022
General ESG News
Forbes: ESG: It’s Not Ideology, It’s Economics
A recent study from the New York Times looked at new course offerings at business schools like Harvard and Yale, and it noted that curricula centered around ESG and DEI are “stepping into the political arena.” However, the schools argue that the new areas of study are in response to the shifting expectations of business’s role in society.
Contemporary ERM practices acknowledge that positively contributing to the health and well-being of communities is good for business, and stakeholders are increasingly demanding it. A focus on CSR and ESG is no longer a “nice-to-have,” and companies can no longer afford to remain silent on major issues.
Companies that refuse to take a stand are often targeted by activists and activist investors who will ultimately demand a response.
Employee preferences are another major area of pressure for companies – younger generations of employees increasingly state that they want to work for companies that embrace the principles of ESG, and they will turn down jobs with companies that don’t.
Despite the mounting evidence that good corporate social responsibility is good for business, there is also growing criticism that views anything other than shareholder capitalism and profit increases as overreaching and/or “wokeism.”
The backlash against ESG has come in the form of statewide bans on firms that stop investing in sectors like firearms and fossil fuel companies. While Republicans in state governments are denouncing ESG as “woke ideology,” for businesses, it has become a reality that can no longer be ignored.
Reuters: World Bank, Partners Launch Tracking System to Clean Up Carbon Markets
The global tracking system launched by the World Banks' ad partners including Singapore looks to help developing countries raise climate finance fast and affordable.
Carbon credits come from planting forests or pulling climate-damaging carbon dioxide from the air to reach net-zero emissions. New projects are coming to create new credits while counties set registers to track them.
Voluntary carbon markets that come from private sectors are still small at $2 billion. This is raising concerns about transparency, a limited supply of credits, and the quality of the projects.
Bloomberg: How a Solar Microgrid Became a Town’s Lifeline in Blackout-Prone Puerto Rico
A microgrid is a network of businesses or homes or both that creates power locally and can function independently from the larger grid.
Puerto Rico has the most expensive and unreliable electricity grid. Luma Energy, a U.S.-Canadian consortium, took over grid management from the bankrupt public power company in 2021.
In Castañer, Puerto Rico, the power can go out several times a week. A microgrid becomes a lifeline for the town of 6,000. This was implemented in May 2022.
It’s the only confirmed microgrid to be tied to a public utility.
The federal government has designated $1.3 billion in Community Development Block Grant Disaster Recovery funds to develop more microgrids across Puerto Rico.
Cooperative Hidroelectrica de la Montaña provides solar panels, and batteries for free while users pay a fixed rate service fee for 20 years.
Microgrids not only offer renewable and reliable energy but also a lower cost of electricity. They will also help Puerto Rico to reach the 2050 target to use 100% green energy.
GreenBiz: Can zero-emission delivery zones cut traffic, pollution and greenhouse gases?
As the demand for e-commerce has increased over the past couple of years, so too have the negative environmental impacts that go along with delivery services; this includes increased air pollution, greenhouse gas emissions, and traffic congestion.
One solution to this problem could be zero-emission delivery zones. A zero-emission delivery zone is an area where only zero-emissions vehicles (ZEVs) have unlimited access.
ZEVs include bikes, electric vehicles, and fuel-cell vehicles.
These zero-emission delivery zones can take the form of parking spots, loading zones, drop-off/pick-up locations, and voluntary or mandatory access zones.
In order to create zero-emissions delivery zones equitably and effectively policymakers should: “(1) engage stakeholders early, (2) take a stepwise approach, (3) provide supportive policies (i.e., bike lane infrastructure), (4) reform federal and state policies, (5) prioritize equity.”
Reuters: Business Want COP15 Nature Summit to Deliver Clarity
Business and corporate leaders at COP15 seek clear, robust policies to ensure that “nature” -- animals, plants, and ecosystems -- will increase in size by 2030 from where it’s now. However, companies are assessing or disclosing the impact of their suppliers on biodiversity.
Investment in biodiversity-focused projects is smaller compared to clean energy. The UN estimates that $384 billion will be needed each year for nature projects by 2025.
Investing in nature for future economics means assessing the impact on nature to understand what nature-related risks are — improving soil quality, bolstering tree density, and clearing water basins.
Diversity, Equity, and Inclusion
Sustainable Brands: Why Activism, Advocacy and Allyship Are Essential to Corporate Diversity.
Broad adoption of the "Rooney Rule" has not been successfully applied, not because of the failure of the policy, but rather because of allegations of ham interviews, lack of enforcement, and illusionary results.
Implementing diversity strategies with a checkbox approach does not work with the Rooney Rule's objective to establish a fair and consistent system rather than the “appearance of fairness;” Implementing a culture shift from self-interest to interconnectedness to achieve more diverse positions at C-suite levels.
The shift to a more diverse workplace is achieved by combining activism, advocacy, and allyship.
Activism will bring collective awareness by bringing attention to the issue.
Advocacy increases collective intensity within organizations.
Allyship allows public support and builds momentum on the issues.
ESG Disclosures, Standards, Rankings, and Reporting
Forbes: Beyond ESG —Rating Corporations’ Impact On Society And The Earth
Impaakt is a Swiss startup that launched a comprehensive corporate ESG rating service that evaluates companies’ impacts across several metrics. The impact measure platform assesses a company’s impact on people and the planet with positive and negative scores. Impaakt’s scoring method is more detailed to address critics' complaints that other ESG raters lack transparency and consistency.
As Impaakt has over 60 fully trained analysts and vast data on environmental topics, Impaakt is developing an AI engine and has already calculated and published scores for 3,500 companies from over 40 countries. The advancement of ESG regulation is driving the demand for better ESG ratings.
ESG Today: Dow Jones Sustainability Indices Results Announced: Walmart, Disney In, Starbucks, UPS Out
S&P Dow Jones has announced the results of the DJSI North America Index for 2022. Notable additions to the index include Eli Lilly, Walmart, and Disney, and companies like UPS, Starbucks, and Texas Instruments have been removed from the index.
The key factor in selecting companies for a DJSI index is the company’s S&P Global ESG Score, which is calculated under S&P’s Corporate Sustainability Assessment (CSA). For the 2022 CSA, a record 1,728 companies participated (a 9% increase from 2021).
The article provides lists of key additions to the DJSI in different global markets.
ESG Today: Australia Plans Mandatory Climate Reporting for Companies
The Australian government has begun planning for mandatory climate reporting via the launch of a consultation paper this week. This comes as more countries and investors move towards climate disclosures.
A phased approach beginning with large companies in 2024 is being considered. Key items to be ironed out are greenhouse gas emission Scope 3 reporting requirements, alignment with international disclosure frameworks, data challenges, assurance requirements, and materiality assessments.
Additionally, Australia’s government is developing a sustainable finance strategy including climate risk disclosure; the Treasury realizes that climate risk is “a material risk to global financial risk.”
The Wall Street Journal: U.S. Bank Regulator’s Climate Push About Mitigating Risk, Not Steering Policy, Official Says
Chief climate risk officer, Yue Chen, from the Office of the Comptroller of the Currency (OCC), is guiding large banks to conduct climate-risk management. While mid-size and community banks should “use their time wisely”.
The OCC is not pushing for banks to lower their GHG emissions or have net-zero targets. The push to have banks consider their climate risks comes from how they mitigate those risks as they can harm individual banks or the overall financial system
Investment Trends
Bloomberg: Fund Managers Brace for ESG Correction With $4 Trillion at Stake
New regulatory proposals in Europe have the potential to upend the region’s biggest ESG fund category. Europe’s market watchdog, ESMA, has plans to set quantifiable ESG investing standards that require portfolio managers to rethink the design and marketing of the ESG fund class Article 8.
Morningstar estimates that only 18% of Article 8 funds, accounting for about $4 trillion in assets, currently meet the proposed threshold for sustainable investments.
These regulatory pressures are causing investment managers to apply more caution to how they are classifying products, and there is a “mass frustration” among fund managers struggling to keep up, and they can’t afford to downgrade from Article 8 if they want to keep their ESG clients.
Under the Sustainable Finance Disclosure Regulation (SFDR), Article 8 funds must “promote ESG characteristics.” This is a broad requirement that has led to confusion and greenwashing allegations.
Under the newly proposed regulations, a fund with ESG-related words in its name must have at least 80% of its holdings in investments that actually meet the strategy description. Managers that don’t meet these requirements will have to remove the ESG- and sustainability-related words from their fund names.
The Wall Street Journal: London Stock Exchange Launches First Fund Under New Market for Carbon Credits
The London Stock Exchange has a new market for carbon credits and launched its first fund. The aim is to provide capital to green projects and improve transparency in sustainable finance.
Currently, companies can purchase carbon credits through brokers and private-market intermediaries, which can be difficult to attain project information. The new market under the London Stock Exchange requires developers to disclose the percentage of total assets invested in climate-change mitigation projects as well as industry standards used to certify their projects. While companies are increasingly making net-zero commitments and striving to improve the environment, the demand for voluntary carbon markets is growing.
Reuters: FTSE Russell, Ping An jointly launch China ESG indexes
FTSE Russel, a global index publisher, is partnering with Chinese financial conglomerate Ping An to combine Ping An’s China-specific ESG considerations with FTSE Russel’s China indexes. The first index will target onshore investors, but they plan to serve international investors in the future.
ESG approaches vary as there are different ways to apply data within indexes. In China, internet censorship is not considered an ESG factor. China is starting to harmonize more with the West on environmental issues. For example, China’s government made a carbon neutrality pledge by 2060, and its green bond market is moving towards adopting global standards.
ESG Today: Investor Group Launches Initiative to Engage Companies on Biodiversity and Nature Loss
A group of investors at the COP15 UN Convention on Biological Diversity has announced the formation of an engagement initiative called Nature Action 100. The initiative includes investors such as AXA IM, BNP Paribas, Federated Hermes, Robeco, Vancity, and more.
According to the initiative’s launch statement, it is being formed as “financial risk from biodiversity and nature loss grow, with $44 trillion of economic value generation – more than half of the global GDP – reliant on nature’s services, and tens of billions of dollars potentially at risk over the next five to 10 years from the continued production of deforestation-linked commodities.”
Nature Action 100’s workstreams will be co-led by Ceres and the Institutional Investors Group on Climate Change (IIGCC).
Reuters: Investor group launches campaign to help companies protect nature
On Sunday, 11 investment firms launched a campaign called “Nature Action 100,” with the goal of selecting 100 companies whose “business burdens nature” and assisting them in lessening their impact and tracking progress.
The campaign, along with protecting nature, will mitigate risk for these companies. Additionally, this will help participating companies meet the expected global biodiversity protection agreement being drafted at the UN nature summit in Montreal.
The list of 100 companies will be announced in 2023.
ESG Today: Kering, L’OCCITANE Launch Nature Protection Fund for Luxury Fashion & Beauty Sectors
Luxury brand owner Kering and product manufacturer L’OCCITANE Group launched The Climate Fund for Nature which will support nature restoration and protection projects.
The fund already has €140 million committed and is targeted to reach €300 million. The funds will support projects in the countries where the investor’s raw materials are sourced.
Projects will include nature protection and restoration, carbon credits, community benefits, the transition to regenerative farming, and women empowerment.
Fund operations are expected to begin in the first quarter of 2023.
Reuters: Investor drive to halt deforestation must move faster -IPDD report
The Investor Policy Dialogue on Deforestation (IPDD), an investor group created to bring attention to the risk of deforestation and whose members manage $10 trillion in assets, just released their first progress report.
The report stated that 22% of global greenhouse gas emissions come from agriculture, forestry, and land use; of these emissions, half can be attributed to tropical deforestation and degradation and land use change in countries such as Indonesia and Brazil.
The IPDD is calling for participants in the UN COP15 nature summit in Montreal to commit to “halting and reversing forest loss and land degradation by 2030” as well as stricter enforcement of Brazil’s Forest Code.
Deforestation and degradation in Indonesia have dropped significantly since 2017, it has been increasing in Brazil since 2019; to combat this the IPDD launched an initiative to reduce commodity-driven deforestation by working with companies that source products from these vulnerable regions.
Bloomberg: Investors With $3 Trillion Launch Nature-Protection Campaign
An investor group has launched a program called Nature Action 100 to get 100 firms to invest in ecosystem protection and restoration; this program mirrors Climate Action 100+ whose goal is to reduce greenhouse gas emissions.
This program aligns with the pact being developed at the COP15 nature summit in Montreal to stop and reverse biodiversity loss by 2030. This will require $700 billion per year, a gap that delegates still need to bridge.
With the global decline of biodiversity, investors hope that this initiative will create more tangible results than the current emissions reduction programs have garnered.
Companies and Industries
Reuters: Vanguard quits net zero climate effort, citing need for independence
Vanguard has pulled out of the Net Zero Asset Managers Initiative (NZAM), which launched in 2020 and currently has 291 signatories that represent about $66 trillion in assets under management. The firm has been facing pressure from Republican politicians over its use of ESG factors in selecting and managing securities, and it explained that it wants to “demonstrate independence and clarify its views for investors.”
Vanguard’s exit is seen as a major blow to efforts to organize industries to move away from fossil fuels. However, the firm has stated that its exit from the initiative will not affect its commitment to helping investors “navigate the risks that climate change can pose to their long-term returns.”
Criticism of the move includes the fact that this summer, Vanguard was touting the commitments it made in line with the NZAM’s goals, but recently posted a statement on its website saying that industry initiatives like NZAM can create confusion.
Vanguard's main rivals like BlackRock have taken an opposite stance, stating their NZAM participation does not conflict with their independence.
Bloomberg: A Giant Drill Near a Hamptons Beach Marks Offshore Wind’s Arrival in the US
After more than a decade of delays, construction has finally begun for a massive offshore wind farm in U.S. waters that will help displace the use of fossil fuels. Offshore wind has grown in popularity in recent years due to vocal support from the Biden Administration and targets set by many east coast states.
The wind farm – the South Form project – is being developed through a partnership between Orsted and Eversource Energy. The project is expected to start generating power in late 2023, which is about the same time as the Vineyard Wind project off the coast of Massachusetts is expected to become operational.
Developers have plans for more wind farms on the east coast, with the potential to generate as much electricity as 40 large nuclear power plants.
Issues with inflation, supply chain disruptions, regulatory concerns, and rising energy and materials prices have all contributed to delays and doubts from developers. The development of a domestic U.S. supply chain has been key to getting some of the new renewable energy projects off the ground.
Bloomberg: US Says Scientists Make Breakthrough in Nuclear Fusion Energy
California scientists had a key breakthrough in nuclear fusion as the US Department of Energy’s Lawrence Livermore National Laboratory produced “a fusion reaction that generated more energy than it consumed.” The Financial Times reported that the reaction produced nearly 2.5 megajoules of energy, which is more than the 2.1 megajoules used to power the lasers. This is a major milestone suggesting the potential future technology for abundant carbon-free electricity.
Jeff Bezos, Bill Gates, and Peter Thiel are among those who contributed to the billions in investments. If fusion is scaled up, it may be able to provide around-the-clock clean power with less risk and hazardous waste than fission, which is widely used in commercial nuclear power plants.
GreenBiz: Could insurers pull the plug on renewable energy?
The insurance sector and climate change continuously involve challenges and opportunities. The main concern is that rising weather-related payouts threaten the profitability and potentially the survival of property and casualty insurers. Such payouts can price insurance out of reach for many companies and projects.
If insurers are not willing or able to affordably cover climate tech projects or geographies, it could cut financing and impede the relevant markets when their growth is critical to meeting global decarbonization goals.
Alex Wittenberg, a partner in the insurance and asset management practice at Oliver Wyman, discussed a concern that renewable energy projects are becoming increasingly larger in size and typically located in catastrophic-weather-prone areas. He said, “It's kind of a double whammy. We're building much larger new-technology-type projects at the same time as insurers, already reeling from having catastrophic weather losses, are retreating from the market. So, the whole notion that we're going from a carbon-intensive energy base with traditional power generation to a greener option — the ability to ensure that transition is kind of thrown into question."
ESG Today: Iberdrola Launches Biodiversity Plan, Pledges Net Positive Impact by 2030
Iberdrola, a global energy and electricity provider, launched its Biodiversity Plan, pledging to achieve a net positive impact on the ecosystems and species where it operates by 2030. The three primary actions of the plan are to establish an accounting framework to calculate its biodiversity impacts, improve biodiversity conservation and regeneration, and integrate biodiversity into the company’s strategies.
The Wall Street Journal: BlackRock Draws Activist Gunning For CEO Fink
Activist investor Bluebell Capital Partners Ltd. Has argued that BlackRock has failed to follow up on its commitment to ESG initiatives.
Bluebell is asking BlackRock to review its stance on ESG and replacement with a new independent director.
Blackrock is trying to balance the ESG debate while not losing funds.
Bloomberg: Microsoft, Salesforce Join Startups With Products to Track Emissions
Companies are facing U.S. SEC rules that will be decided in 2023 mandating disclosure on carbon emissions, as well as other governments around the world and ESG investors.
Public-traded companies to disclose emissions and whether any lines of revenue are threatened by climate change.
Disclosing Scope 1,2, and in some cases, Scope 3.
Software services will play a big part in companies forecasting and accounting for their emissions.
Salesforces launched Salesforce’s Net Zero Cloud platform globally in 2022.
Microsoft launched its emissions tracking platform in June 2022.
Venture capital and private equity firms have invested $5 billion into startups that offer software, satellite, and other tech-to-table climate solutions.
GreenBiz: Amazon Offers Sneak Peek at New Carbon Credit Label
Amazon and crediting organization Verra have shown their plan to create an Abacus Verified Carbon Unit label that will indicate a higher carbon credit standard. Helping companies trust that they are buying the “good type of credit.”
Abacus Verified Carbon Unit will focus on agroforestry and land restoration where additionality, leakage, and durability have been hard to confirm, stop and extend.
Additionally, this criterion was considered at the project’s beginning but was not revisited later. The credit label will use a dynamic baseline instead, allowing the project area to be compared to a similar control plot.
The displacement of agriculture causes leakage from one location to another. Abacus will focus on investing in reforesting to allow productivity and eliminate leakages.
Durability will be nature-based solutions. Investing in extra forestation to cover possible losses for projects due to natural disasters as a buffer pool.
Abacus will also shorten the crediting periods from the standard 50 years to 30.
Sustainable Brands: 6 Principles for Building a Pathway to Circularity for Plastics
Eastman Chemical is developing and optimizing a fully circular plastic value chain without virgin fossil feedstocks.
Just 12% of the 260M metric tons of plastics disposed of each year get recycled due to a lack of infrastructure. Molecular recycling uses plastic waste as feedstock to make new plastics, keeping the carbon in play and plastic out of landfill by breaking it down into molecular levels and using the original building blocks to create new materials.
Eastman chemicals are certified and audited by International Sustainability and Carbon Certification (ISCC) for transparency on what happens to the content.
Forbes: A Suggested Corporate Target For House Hearings on ESG: NextEra Energy
NextEra Energy plans to lead the oil and gas companies to move from non-renewable to renewable resources to generate energy.
“A Real Plan for Real Zero” is their statement on their website as they plan to “lead the decarbonization of America.” by providing low-cost renewable energy to customers while reaching Real Zero by 2045.
NextEra Energy is one the largest capital investors in infrastructure, with plans to invest between $50 and $55 billion through 2022 with “American energy.” Creating sustainable energy that is affordable, efficient, and clean.
Government Policy
ESG Today: EU Lawmakers Raise the Price of Carbon Emissions for Airlines
Under the new European Council and Parliament agreement, airlines will have to pay for excess carbon emissions. The European Emissions Trading System forms one of the EU’s key policies tools addressing climate change,
The agreement forms part of the European Commission’s “Fit for 55” road map that aims to reduce GHG emissions by 55% by 2030.
Currently, the EU provides free allowances to avoid paying for emissions, however, the new agreement, creates a new system for airlines to monitor, report, and verify non-CO2 emissions.
Bloomberg: EU Nears Deal on Landmark Carbon Levy as Trade Tensions Rise
The European Parliament and member states are trying to reach a preliminary deal on putting a carbon price on imported goods from developing countries to help with the green transition and reduce pollution.
There will be discussions about The Carbon Border Adjustment Mechanism to decide what will be included in it while ensuring that EU exporters aren’t penalized by higher costs as they phase out from free allowances for CBAM-cover sectors in the bloc’s emissions trading system.
The EU plans have created diplomatic issues with China, India, and Russia, who might not comply. The growing tensions with the U.S. over the Inflation Reduction Act, which only provides subsidies to American manufacturers to develop clean technologies, might be a contravention of WTO rules.