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ESG Weekly News Update: December 23, 2022

General ESG News

The New York Times: Nearly Every Country Signs on to a Sweeping Deal to Protect Nature

  • As biodiversity is declining globally, nearly 190 nations agreed to preserve 30% of the planet’s land and seas by 2030. Currently, the planet has about 17% of protected land and approximately 8% of protected oceans.

  • The United States is one of the two countries that is not a party to the Convention on Biological Diversity that created a suite of 23 environmental targets, including the 30% preservation goal. The Republicans, who are typically opposed to joining treaties, blocked the United States’ membership. President Biden signed an executive order to similarly place 30 percent of United States land and waters under protection although related proposed legislation may face opposition when Republicans take control of the House in January.

  • There are now questions about how to balance the deal’s ambition with countries’ abilities to pay for it. Developing countries are pushing for more funding.

Bloomberg: Vanguard Exit Has Lawyers Mapping Out Wall Street’s Top ESG Risk

  • The Republican Party has been hostile towards firms incorporating ESG factors into their strategies.

  • At a recent climate-finance meeting, a lawyer read out a disclaimer stating the group of financial giants was not a cartel, then the meeting proceeded to discuss how to improve corporate disclosures on sustainability risks. The disclaimer was not the first occurrence at meetings as it had been done before so the group can ensure it is compliant with various global anti-competition guidelines.

  • Lawyers claim that the GOP investigations into the pro-climate actions of firms on antitrust and consumer protection grounds are unlikely to succeed. Instead, firms should prioritize concerns about lawsuits targeting inadequate climate strategies.

The Wall Street Journal: Climate Change in Arctic Is Changing How People There Live and Work

  • According to the National Oceanic and Atmospheric Administration, warming air temperatures, more precipitation, changes in animal migration patterns, and shorter periods of snow cover affect the health and food sources of those who live in the Arctic.

  • Increased rainfall significantly decreases the ease of travel as it creates a layer of ice; this also prevents grazing by moose and caribou.

  • Additionally, rising sea levels are displacing villages along the coast along with other instances of extreme weather.

  • While the melting of sea ice makes travel for indigenous people to their ancestral hunting grounds more difficult, commercial shipping has taken advantage of this, routes and traffic doubled since 2009.

  • This creates even more risk to the vulnerable land as disturbances to animals and people increase along with the risk of oil spills.

ESG Today: Virgin Atlantic to Fly First-Ever Net Zero Transatlantic Flight

  • In 2023, Virgin Atlantic will fly a Boeing 787 from London to New York using only 100% sustainable aviation fuel (SAF).

  • SAFs are estimated to reduce greenhouse gas emissions from aviation fuel by 80%.

  • This comes after the world’s first military transporter flight using 100% SAF last month and the launch of the UK government’s “Jet Zero” strategy to reach net zero aviation by 2050.

  • Carbon removal through biochar credits, a material that traps and stores carbon from the atmosphere, will be used in conjunction with the flight to reach net zero.

Forbes: Modern Data Is The Key To Disrupt And Innovate In ESG

  • Modern data and technology can improve ESG in many ways, including:

  • Environment: Smart technology allows homes and buildings to become more energy efficient via automatic and manual heating, AC, and lighting

  • Social: AI combined with modern data in the Diversity, Equity, and Inclusion space can help to reduce unconscious bias in the hiring process.

  • Tools like Spotlight that detect child trafficking can be used for social justice along with similar tools for financial tracking.

  • Governance: As data regulation differs from region to region, technology will be key in treating data with respect while also aggregating it and viewing it in real time.

The Wall Street Journal: Nations Pledge to Protect Animal, Plant Diversity

  • A non-binding agreement, the Kunmin-Montreal Global Biodiversity Framework, with nearly 200 countries has been made to take steps over the next ten years to protect animals and plant diversity.

  • Some of the steps are to conserve and restore 30% of the land, inland waterways, and coastal and ocean areas. As well as limited the risks of pesticides and cut nutrient runoff from fats.

  • The U.S. and the Vatican weren’t part of the deal. While Brazil and Indonesia signed the deal but requested funding.

Sustainable Finance Hub: Why ESG Is Failing Sustainable Development

  • Markets are the principal means to allocate capital. Therefore, markets are also the principal means for finance to support sustainable economic activity and delivery of Sustainable Development Goals (SDGs).

  • Economic activity is contributing to several negative social and environmental outcomes and creating systematic risks for investors, businesses, the financial system, governments, and society.

  • Governments could create a market infrastructure that doesn’t have limitations on reporting and transparency in driving change.

Forbes: Amid Ambiguity And Interest In ESG And Sustainability Metrics, Atmos Pioneers Pragmatic Reporting Approach

  • Atmos, a Nashville-based technology startup, recently launched a new transparent and cost-effective tool as an alternative to hiring traditional consultants. Atmos helps mid- and small-sized firms comply with growing interest by regulators and investors to understand firms' ESG strategies.

  • The platform has customized ESG reporting questions that are based on the firm's industry, sector, and size, transforming their answers into generated reports. This includes materiality assessments and ESG metric scorecards.

Bloomberg: EU Set Gas Price Cap At €180 In Effort To Stem Crisis

  • European nations have reached a deal to cap natural gas prices at €180. The so-called gas market correction mechanism will apply for one year from February 15th.

  • This mechanism aims to "take away the war premium,” EU Commissioner Kadri Simson said during a press conference. Officials were seeking an agreement before the arrival of severe winter weather which would drive up demand for gas thus increasing energy costs.

  • For the cap to be triggered, Dutch TTF gas prices must be above €180 per MW hour and must be at least €35 greater than global liquified natural gas prices. These prices would have to stay above both ceilings for three days for a mechanism to become activated. Once triggered it will remain in place for at least 20 working days.

Washington Post: Nations Promise To Protect 30 Percent of Planet To Stem Extinction

  • At the Cop15 biodiversity summit in Montreal last week, almost 200 countries committed to a collaborative global goal of protecting 30% of the planet.

  • This comes as extinction rates continue and one million species are at risk of disappearing.

  • The goal gives countries until 2030 to reach their targets and the estimated global cost is $598-824 billion annually.

  • The pledge also calls for decreasing invasive species introduction and reducing nutrient runoff from farms by half.

  • While this is an important milestone, the pledge included few legal enforcement mechanisms and in the opinion of some, did not include strong enough language as far as preventing extinctions. However, the negotiators did include a monitoring framework to track progress.

Diversity, Equity, and Inclusion

Forbes: Four Ways To Align Your Brand Strategy To Your Corporate DEI Initiatives

  • By fully integrating DEI into their entire business strategy, companies can authentically connect to specific communities and audiences. Inclusive marketing means integrating DEI into brand and messaging strategies. There are four steps companies can take toward developing inclusive marketing:

  • Building an inclusive marketing team that is diverse and multicultural

  • Carefully constructing creative campaigns that mirror the communities they serve

  • Managing the intersection of politics, corporate DEI efforts, and social justice

  • Participating thoughtfully in social action.

JD Supra: FCA Recommends Measures Encouraging Diversity and Inclusion in Financial Services

  • In 2021 and 2022, the FCA conducted a study of firms and their approach to DEI, and they have published a progress update highlighting the following key points:

  • The need for additional metrics beyond gender and ethnicity

  • A focus on social mobility

  • The use of culture as a driver and mitigant of risk

  • A focus on developing junior talent

  • A focus on retaining and developing talent

  • The need for accurate, transparent disclosure of diversity data

  • The need for a well-developed DEI strategy.

ESG Disclosures, Standards, Rankings, and Reporting

ESG Today: ISSB Gives Companies an Extra Year to Disclose Scope 3 Emissions

  • Under the new International Sustainability Standards Board (ISSB) standards, companies will be given an additional year to report on their Scope 3 emissions. The final standards are expected to be published as early as possible in 2023.

  • Forthcoming disclosure requirements from governments in the U.S. and Europe are expected to be heavily influenced by the ISSB standards, with requirements for Scope 3 reporting raising many questions and concerns.

  • Because of this, the ISSB has developed “relief provisions” to help companies apply Scope 3 emissions disclosure requirements, giving them time to engage with suppliers and ensure the data is as accurate as possible.

Energy Voice: ISSB To Add Biodiversity, Just Transition Disclosures To Climate Risk Reporting

  • The ISSB is expanding the definition of sustainability to include biodiversity and just transition. This change resulted from staff recommendations from a meeting held in 2022. The ISSB has also recognized the need to develop its standards to ensure the interoperability of its disclosures with global requirements.

  • In the future, it plans to use the format employed by the Task Force on Climate-related Financial Disclosures (TCFD) and will consider the disclosure requirements of international jurisdictions, such as the EU.

  • Furthermore, it is developing its nature-based disclosure standards in alignment with the Task Force on Nature-related Financial Disclosures (TNFD) and has decided to include mandatory disclosure of Scope 3 emissions as a part of its standards as well.

Investment Trends

Sustainable Brands: COP15 Must Mark a Turning Point for Meat and Dairy Investors

  • A large, oxygen-free dead zone in the Gulf of Mexico that is the result of poor management of fertilizers, manure, and agricultural runoff has those attending the COP15 biodiversity summit concerned.

  • New data from the Coller FAIRR Protein Producer Index shows that only one in five meat, egg, and dairy farms are properly managing the pollution of waterways from manure. Beyond this, only 13% of farms could even identify if their farming operations were in areas of high water stress.

  • There are concerns that pushes to overhaul industry practices could leave parts of the industry inoperable and lead to investors having stranded assets.

  • Fortunately, some investors and producers are working to get ahead of this problem. Major producers are investing more money into both sustainable meat production and alternative protein sources and production methods.

ESG Today: ABN AMRO to Align Lending, Investment Portfolios with Net Zero

  • ABN AMRO, a Netherlands-based bank, recently joined the Net Zero Banking Alliance (NBZA) and published a climate strategy that aligns its portfolios with a scenario limiting global warming to 1.5°C and supports the transition to a net zero economy by 2050.

  • The NZBA consists of banks, representing approximately 40% of global banking assets, committing to align their portfolios’ operational and attributable emissions with pathways to net zero by 2050 or sooner.

  • ABN AMRO set 2030 targets for various sectors and aims to increase its lending commitment to renewables and other decarbonization technologies.

GreenBiz: How Are Asset Managers Doing on Net Zero?

  • Asset managers have key roles in addressing climate change as they consider investments and can pressure companies and policymakers to make net-zero commitments.

  • An MSCI report on the ten largest global asset managers found that European asset managers were marginally less carbon-intensive than their U.S. peers. Assets under management (AUM) were proportional to larger financed emissions, particularly at U.S. fund managers. Asset managers with net-zero commitments should assess all their assets to have a baseline for target setting and to be able to monitor alignment progress, engagement, and decarbonization efforts.

  • NZAM signatories have committed 39% of their portfolio, on average, to net-zero status by 2050. The achievement of this depends on clients, regulations, and policy developments, so asset managers cannot achieve net-zero status alone.

  • The recently published second report of the Glasgow Financial Alliance for Net Zero (GFANZ) estimates that an additional $1 trillion per annum will be required by 2030 for clean energy investment globally to put the world on track to reach net zero by 2050.

Reuters: ESG Funds Set For First Annual Outflows In A Decade After Bruising Year

  • In 2022, more money was pulled than added from sustainable funds, and for the first time in five years, the performance of ESG funds is lagging behind that of non-ESG funds.

  • Political hostility, market turbulence, and inflation which decreases demand for riskier assets are all cited as reasons for this downturn and are a reminder that ESG funds are not immune to market movements.

  • However, non-ESG funds have also seen withdrawals, just less so than ESG-related funds.

Companies and Industries

Bloomberg: Carbon-Removal Startups Win Early Backing From Stripe and Shopify

  • A group of new carbon-removal startups has received pledges totaling $11.5 million from Stripe and Shopify. The goal of the support is to select promising carbon-removal companies and help get them off the ground by committing to being an early customer or by providing research grants.

  • This announcement of support includes funding for nine startups doing work in the U.S., Kenya, Brazil, Germany, Canada, and Australia. The companies have carbon-removal methodologies ranging from removing it from the ocean, injecting it into volcanic rock formations, and even burying biomass to prevent it from decomposing.

  • Carbon-removal technology is still new and expensive, but it will need to accelerate quickly to meet 2050 carbon neutrality goals. Experts are now urging for policy change, as it is becoming clear that voluntary markets alone will not likely be able to scale carbon-removal technology at the rate that is needed.

Reuters: Investors Ramp Up Pressure on Big Oil Firms To Set 2030 Climate Targets

  • A group of investors has brought forth resolutions for four of the top oil and gas companies in the world – BP, Chevron, Exxon Mobil, and Shell – to set robust climate targets for 2030.

  • The resolutions call for the companies to set emissions reduction targets including Scopes 1, 2, and 3, as Scope 3 emissions account for the majority of the sector’s carbon footprint.

  • BP, Chevron, and Shell have all set 2030 emissions reduction targets that include Scope 3, but activist investors argue that these targets are not aligned with the UN’s ambitions or Paris Agreement commitments.

  • Exxon has not set a Scope 3 target, stating that the way these emissions are calculated is flawed. The level of serious consideration with which these resolutions will be met has yet to be fully seen.

Forbes: As ESG Is Gamed With Greenwashing, Better Energy Uses Future Fit.

  • ESG has become a key performance indicator for companies and a risk for greenwashing, which is “deceptive marketing to create the illusion of goodness to hide malpractice perpetuated by ESG practices and regulation.”

  • The Future-Fit Business Benchmark is a management tool developed by a UK non-profit that provides guidance to perform without negatively impacting people, society, and the planet.

  • Traditional ESG metrics of carbon emissions or energy consumption are used to measure sustainability progress, but typically, performance is merely incrementally improved and celebrated as sustainability when it is just performance that is “less bad” as the negative impact still exists. Collaboration and a systems perspective will help solve the challenges and maximize the opportunities.

  • A better power grid will facilitate the green transition and good business. Better Energy is a solar power producer that has a unique Power Purchase Agreement (PPA), which is a contract with corporate customers to supply legitimate, certified green energy. Better Energy engages with local communities for local value creation while restoring nature on-site, protecting groundwater, fostering biodiversity, and establishing recreational areas.

Reuters: BlackRock Plans No Big Changes to ESG Stance Despite Backlash

  • Republicans have been challenging BlackRock on their stand on climate change to push companies to make changes as part of a global transition to a low-carbon economy.

  • Despite Florida and oil companies threatening to pull billions in investment from BlackRock, the world’s biggest assets manager doesn’t plan to make big changes on ESG in the year ahead.

Forbes: PureWest’s Digital Sustainability Report Raises The Bar on ESG Transparency

  • Customers have increasingly been demanding transparency on things they consume, such as oil and natural gas. PureWest Energy has included an interactive tool on its 2022 Sustainability Report for its readers to view well pads, emissions monitoring technology, groundwater sampling, and other aspects of its operations.

  • For PureWest having one of the industry’s lowest methane intensity rates nationally, gives them the advantage to be able to enter the California market by developing certified gas.

  • They are a large producer on federal lands in Wyoming, which is another reason why they are committed to transparency.

  • PureWest has been able to limit the consumption of water in recent years by using 100% recycled water for completions.

Sustainable Brands: A Completely Different Definition of ‘Waste’: 5 Key Takeaways from the Sustainability Next Summit

  • Last month, Dow Packaging and Specialty Plastics and Fast Company co-hosted the virtual Sustainability Next Summit with a global lineup of 16 expert speakers. The following are five key takeaways from the Sustainability Next Summit.

  • Partnerships power progress.

  • The future of waste is that will be no longer viewed as waste.

  • Building a sustainable ecosystem for plastics requires engaging a vast set of stakeholders - public and private.

  • The future of recycling technology is not either/or, but all.

  • There is a significant opportunity in packaging and consumer goods to meet the demand for sustainable choices.

ESG Today: Carbon Capture Tech Provider Svante Raises Over $300M

  • Carbon capture and removal technology provider, Svante, announced that it has raised $318 million, in a deal led by Chevron's low carbon solutions-focused business Chevron New Energies.

  • Svante provides structured adsorbent beds and modular rotary contactor machines that capture and remove CO2 from industrial emissions. The company's solutions are targeted at industrial decarbonization activities. Chevron initially invested in Svante in 2014 and the companies launched a pilot project in 2020 for the capture of CO2 from post combustion of natural gas.

Reuters: Unilever Ever Ice Cream Saga May Sour ESG Deals

  • Unilever announced Thursday that its litigation with the independent board of Ben & Jerry's over the sale of its Israeli ice cream business has been resolved.

  • Ben & Jerry’s halted sales in the occupied West Bank because it said it was inconsistent with its values. The move sparked a legal battle with Ben and Jerry's which sought damages and demanded its trademarks be returned.

Government Policy

Bloomberg: Anthony Albanese, Australia’s Environment Advocate

  • Anthony, Albanese, Australia’s prime minister and leader of the Labor Party is moving full steam ahead in fighting climate change.

  • His ambitious emissions target of reducing carbon emissions by 43% from 2005 levels by 2030 puts Australia in line with Japan and Canada, though still less ambitious than the UK and the EU.

  • Reaching this goal will depend on scaling up mineral mining (for batteries) and reducing fossil fuel imports and use.

  • Albanese has a serious challenge ahead in transitioning the economy as he only has a small majority in parliament.

Bloomberg: EU Targets Big Plastic With Rules to Cut Packaging Waste

  • European Commission seeks to decrease packaging waste by 5% from 2018 levels by the end of this decade and 15% by the end of next. They are targeting coffee pods, hotel toiletries, and throwaway water bottles.

  • Packaging products would have to be recyclable and/or compostable.

  • Beet bottles will suffer stronger EU rules. They will have targets for reusing packaging. This will have an impact on the upfront cost for customers. “Under the measures, countries would have to set up systems for recycling bottles and cans in which consumers pay extra for the item upfront and then get that money back when it’s returned.”

ESG Today: EU Revamps Emissions Trading System with Tougher Goals, More Sectors

  • Revisions to the EU Emissions Trading System (ETS) – which puts a price on carbon emissions for key greenhouses gas (GHG) intensive sectors – have been reached to include increasing the system’s targets emissions reduction goals and expanding the system to additional sectors.

  • The new agreement will have an increase of 62% in directing emissions reductions in the covered sectors. As well the pace of emission reductions will increase to 4.3%. In addition, current free allowances under the EU ETS will end over the next several years.

  • The new sectors will cover shipping emissions from the maritime sectors and the establishment of a separate emissions trading system for building and road transport and some other industrial sectors in 2027.

  • A Social Climate Fund, with €65 billion finance from the EU budget and 25% co-financing from member states to support those impacted by the prices of an ETS.

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