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ESG Weekly News Update: December 2, 2022

General ESG News

Sustainable Brands: Harnessing the Power of Social Media for Good Delivers Brand Trust and Loyalty While Driving Meaningful Change

  • New research from Sustainable Brands’ Socio-Cultural Trends Tracker, 78% of U.S. consumers report that they support companies that act sustainably by purchasing their products and services. This marks a 9% increase from 2021. Studies also show that more than half of consumers learn about new brands through social media.

  • Brands can leverage their sustainability initiatives by creating educational and inspirational campaigns that engage consumers but also contribute to key impact areas.

  • As an example, brands can partner with social media influencers to support branded messaging. However, this requires vetting the influencers and maintaining close engagement to ensure authenticity and alignment of values.

  • However, influencers are only one piece of a holistic social media strategy. There are many available tools and resources, as well as agencies and organizations that have developed guidance and playbooks on how to leverage social media to drive demand for more sustainable products and services.

GreenBiz: The Nature Conservancy Debuts New Hawaii Coral Reef Insurance Plan

  • The Nature Conservancy (TNC) and the global advisory firm WTW have announced the first coral reef insurance policy to be offered in the United States. The policy is set to be in place for the upcoming 2023 hurricane season.

  • The reefs provide coastal flooding protection to thousands of people and properties in Hawaii. They also contribute around $1.45B to the state’s economy through tourism.

  • According to research, severe hurricanes can cause 50% or more loss of live coral cover. Healthy reefs can reduce up to 97% of wave energy and are islands' first defense against storms.

GreenBiz: A ‘loss and damage’ climate fund could be a breakthrough — or an empty promise

  • At COP27, wealthy countries agreed to establish a “loss and damage” fund for countries harmed by climate change. Three questions about the fund that need to be considered and further discussed are:

  • Who will pay into this new fund?

  • The fund will be new, but will it be additional beyond existing sources?

  • Who would receive support from the fund?

Forbes: Why The Goal Of Supply Chain ESG Should Be Unconscious Competence

  • PwC published that 76% of consumers will cut relations with companies that they perceive to have poor treatment towards employees, communities, or the environment. A company’s supply chain is central to ESG performance as Scope 3 emissions, which are related to the company’s supply chain operations, typically make up over 90% of a company’s GHG emissions.

  • Current approaches and tools to track supply chain ESG risks are not sufficient. Two traditional approaches are to track (1) spending across various categories, which leaves out quality considerations; and (2) ESG impacts of suppliers but using data from detailed operational audits is cumbersome.

  • An ideal procurement and supply chain ESG program would use the Cycle Approach that is:

  • Driven by data rather than opinion.

  • Easy to implement and maintain.

  • Changing our behavior in meaningful ways.

  • Offering continuous improvement and innovation opportunities.

  • Making impact decreases over time while impact increases.

Bloomberg: It Takes a Village to Map the Urban Heat Island Effect

  • The National Oceanic and Atmospheric Administration’s project to map the urban heat island effect has shown that the heat across urban areas is not evenly distributed.

  • The data is collected and analyzed based on the same route morning, afternoon, and evening to show how communities that have been affected for decades of housing discrimination by federal redlining policies differ in temperature from wealthy – tree lines neighborhoods.

  • The program has been added to President Joe Biden’s Justice 40 initiative in 2021, to help disadvantaged communities fight climate change among other objectives.

Bloomberg: World’s Biggest Nuclear-Fusion Project Faces Delays as Component Cracks

  • The International Thermonuclear Experimental Reactor, or ITER, is a massive structure being built in southern France to experiment with nuclear fusion.

  • Nuclear fusion is the energy creation process that takes place in our sun as well as other stars and has the potential to generate clean energy.

  • However, cracks in the silver lining of a piece of the reactor called the thermal shield, as well as supply chain disruptions due to the Russian invasion of Ukraine will push back the initial start date of 2025.

  • This delay will allow start-ups also experimenting with the process of fusion to catch up.

Reuters: Analysis: Drops of Climate Finance Start to Fill an Ocean of Need

  • A private-public deal in Indonesia has overlapped with COP27 at the UN climate talks, with a low-carbon collaboration chasing $20 billion to shut down Indonesian coal-fired power plants. There is also a similar deal taking place with South Africa pledging $8.5 billion in 2021.

  • Just Energy Transition Partnership (JET-P) are the types of financing to try to reduce the financial gap in climate financing.

  • A report has shown that $1 trillion a year by 2030 in external funding is neededto combat climate change.

  • Developing countries are hoping to raise funding through the private sector. The Nexus of Water-Food-Energy plan has secured nearly $10 billion worth of pledges for transportation and environment projects.

Forbes: How Businesses Can Remain Focused on Long-Term ESG Commitments

  • The following are a few ways in which businesses can maintain their focus on ESG commitments especially through challenging times.

  • Remember that ESG goes beyond doing the right thing. ESG decisions are driven by personal and professional values and by a “desire to future-proof investments.” Mitigating risk is top of mind for many investors and stakeholders. It is imperative for companies to maintain communication of progress and milestones along their ESG journey. This will keep them accountable to themselves and their consumers.

  • Recognize where you are and where you are going. Understand who it is that you are impacting, positively and negatively, through your business operations. What do they believe is most helpful in supporting the environment and community?

  • Share best practices with other. The ESG space is broad and busy. Communicating progress towards ESG goals not only boosts a company’s own reputation but can also help inform others of effective ways in which to tackle their own metrics and targets.

Bloomberg: World’s Top Plastic Users Likely to Miss Sustainability Goals

  • Many of the world’s best-known companies, such as Nestle SA, Unilever Plc, PepsiCo Inc., Coca-Cola Co., and Mars Inc. have signed on to the 2025 plastics promise. Together, these companies represent five percent of all plastic packaging produced globally.

  • Reports from the Ellen MacArthur Foundation and the UN Environment Program found that the share of reusable, recyclable, and compostable plastic packaging has increased slightly among this group, to 65.4% in 2021.

  • Many companies claim that one of the barriers to producing more environmentally friendly packaging options is the lack of infrastructure. Governments must do more to improve the general infrastructure of recycling while companies must collaborate with governments to make a more substantial impact.

Diversity, Equity, and Inclusion

Forbes: Five Reasons Diversity And Inclusion Are Essential To Product Management

  • Workforce diversity has been shown to produce positive outcomes, such as:

  • Cultivating innovation from collaborators with varying perspectives

  • Fostering a better understanding of the consumer with a more representative team

  • Creating an atmosphere of skill sharing and productivity

  • Bolstering employee satisfaction

  • Increasing company revenue.

ESG Disclosures, Standards, Rankings, and Reporting

Reuters: Britain takes first step to regulate company ESG raters

  • Britain’s Financial Conduct Authority (FCA) will soon be asking ESG rating providers to apply a voluntary best practice code, and the British government is considering giving the FCA the authority to directly regulate the sector.

  • The voluntary best practice code will be based on recommendations from IOSCO and other regulatory developments that are currently underway in Japan and the EU.

ESG Today: EU Corporate Sustainability Reporting Legislation Adopted

  • The Corporate Sustainability Reporting Directive (CSRD) was the last step and expansion of corporate sustainability reporting in the EU.

  • While the rules have been approved and passed by the EU Parliament, they will start taking effect for:

  • Large public-interest companies with over 500 employees beginning in 2024.

  • Companies with more than 250 employees €40 million in revenue beginning in 2025.

  • Companies listed SMEs beginning in 2026.

  • CSRD targets to update from 2014 Non-financial Reporting Directive (NFRD), which is the current EU sustainability report framework, by:

  • Expanding the companies who must report their sustainability disclosures to 50,000 from 12,000.

  • Requiring reported information to be independently audited.

  • Requiring the reporting of issues from all topics within envrionment, social, and governance.

Investment Trends

ESG Today: DHL Publishes Sustainability-Linked Finance Framework Tying Cost of Debt to Climate Goals.

  • DHL has presented the Sustainability-Linked Finance Framework that will allow the company to issue sustainability-linked bonds as an incentive to deliver on its environmental intentions.

  • Sustainability-linked bonds will be tied to payments to DHL’s target to reduce emissions. If those targets are missed the company will be responsible for paying higher rates to investors.

  • In 2021, DHL planned to invest seven billion euros over ten years to reduce its CO2 emissions.

GreenBiz: Global market for 'nature tech' poised to triple to $6B by 2030

  • The market for nature-based climate solutions technology is expected to triple from about $2 billion to $6 billion by 2030.

  • As more businesses look to meet their climate and environmental goals, the nature tech market will grow to meet this demand.

  • Solutions such as the restoration of peatlands, forests, and mangroves, which combat climate change, will benefit greatly from the increased investment.

Reuters: BOJ To Conduct Annual Survey on Climate Finance to Nurture ESG Market

  • Bank of Japan (BOJ) Deputy Governor Masayoshi Amamiya announced the central bank will conduct a survey annually of financial institutions and companies in an effort to seek ways to nurture the country’s growing climate finance market.

  • Last year, the BOJ implemented a funding scheme that targets activities aimed at combating climate change. It offers zero-interest loans twice a year that boost green and sustainable loans. Thus far, it has lent $26B to financial institutions.

The Wall Street Journal: ESG Regulatory Divide Poses Challenges for Asset Managers

  • The anti-ESG focus investment trend has been accentuated by the win of the Republican majority in the House.

  • Republicans have launched or proposed rules that require state pensions and treasuries to consider only “pecuniary factors” that can lead to influence investments’ risk and return.

  • Many in the party argue that the new rule issued by the Labor Department makes it difficult for state pensions to ignore ESG factors, allowing retirement plans that are covered by the Employee Retirement Income Security Act to consider ESG investments.

  • ESG issues can present material risk or opportunities to companies, however, considering the conflicting views on ESG between Democrats and Republicans creates difficulties for asset managers.

  • Consequently, in Republican states, asset managers would play down their ESG focus and reduce their expansion in states and counties that favor ESG.

Companies and Industries

Bloomberg: Japan Studies Plan to Extend Life of 60-Year-Old Nuclear Plants

  • As Japan increases its reliance on nuclear power, its officials are studying a plan to exclude periods when reactors were offline from the existing 60-year lifespan limit. This would allow some plants to remain operational for several extra years.

  • Governmental and public opinions about nuclear power in Japan are recovering after the tragic Fukushima meltdown in 2011, especially as fossil fuel import prices continue to increase, and the country’s power grid becomes increasingly stressed.

  • Japan’s prime minister has also stated that the country will be exploring the development and construction of new reactors, and it will work to restart several idle reactors in 2023. Japanese manufacturers have also announced plans to develop next-generation reactors in the coming year.

Reuters: Toyota launches second hybrid vehicle in India amid green car push

  • Toyota launched the Innova HyCross this past week, its second hybrid car in India. The vehicle can transport seven people.

  • Toyota has been criticized by green investors for engineering hybrid models instead of moving their product line to all-electric; however, the company stated that they need to make hybrid options in places where the infrastructure is not in place for EVs.

  • The uptake of all-electric vehicles in India has been slow.

ESG Today: Amazon’s AWS Pledges to be Water Positive by 2030

  • Amazon Web Services (AWS), Amazon’s cloud provider service, announced a commitment to become water positive by 2030. AWS aims to return more water to communities than it uses in its direct operations.

  • Four priorities to achieve this target include improving water efficiency, using sustainable water sources, returning water for community reuse, and supporting water replenishment projects.

Bloomberg: Lithium’s 1,200% Frenzy Tempered by Blip in China’s EV Market

  • The price of lithium in China tripled over the last year, but its price is currently declining as EV sales slow down. At the end of 2022, Chinese subsidies for EVs are to be phased out, and BYD Co., a Chinese EV giant, is already increasing the price of some cars due to the changing government subsidies and input costs.

  • Keith Tan, an associate regional pricing director for Asia metals at S&P Global Commodity Insights, said, “Whether the downturn in lithium prices remains sustainable would hinge on whether consumers would ultimately foot the bill of higher priced EVs. With government subsidies on EVs out of the picture next year, some in the industry think that the odds are stacked against further gains.”

Sustainable Brands: Brand Blind Spots, Empty Promises Hindering Effective Action Against Plastic Pollution

  • Last month, Greenpeace USA’s Circular Claims Fall Flat Again report highlighted some of the systematic problems associated with plastic recycling and noted that plastic use and waste are going to almost triple by 2060.

  • No type of plastic packaging in the US meets the definition of recyclable used by the Ellen MacArthur Foundation’s New Plastics Economy initiative. An item must have a 30 percent recycling rate to receive the “recyclable” classification. The most often used plastics, PET #1 and HDPE #2 only achieve a reprocessing rate of 20.9 percent and 10.3 percent.

Sustainable Brands: Breaking Through the Logjam to Accelerate Decarbonization in the Energy Sector

  • Despite country-specific climate pledges, emissions reduction, and carbon neutrality goals, total annual anthropogenic emissions continue to increase and are expected to pass the 1.5°C warming budget within the next decade.

  • According to the article author, there are “three reasons why high-level pledges are not translating into concrete actions — and what’s needed to break through.”

  • Carbon-neutrality pledges for 2050 are a poor and ineffective measure; a country or company’s total tons of carbon emitted annually from 2020 to 2050 would be more analytically useful.

  • Company targets do not but should align with regional and sector targets so that the cumulative company goals in a sector equal the overall sector goal.

  • Current cap and trade and taxes don’t push companies to meet their goals. Market mechanisms that incorporate company-specific targets are needed.

Government Policy

Forbes: DOL’s New ESG Rule ‘Unremarkable’

  • The Department of Labor (DOL) has released its “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” which amends existing regulations and allows fiduciaries to consider ‘collateral benefits’ as a tiebreaker in some circumstances when selecting investment plans.

  • Specifically, the new rule will allow fiduciaries to consider ESG factors when creating retirement plans, instead of purely financial factors (which was the existing Trump-era regulation). The goal is to make the plans more resilient.

  • Despite initial criticism that the DOL was attempting to force the intrusion of ESG in retirement plans, the rule does not necessitate change, because it only states that fiduciaries “may” consider non-financial factors; it does not require the consideration of ESG when making retirement plan investment decisions.

  • Also covered in The Wall Street Journal: Labor Department Clears Path for 401(k) Plans to Offer ESG Funds

The Wall Street Journal: Goldman Sachs to Pay $4 Million to Settle Investigation Over ESG Funds

  • The SEC recently investigated Goldman Sachs on its management of mutual funds and other products that select stocks based on ESG criteria. Goldman Sachs agreed to pay $4 million as a settlement for incompliance with the SEC but did not admit nor deny the SEC’s allegations.

  • The SEC noted that Goldman’s compliance policy states investment analysts use a questionnaire to screen investments before adding them to funds or other portfolios. However, the forms were not always completed before stocks were added.

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