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ESG Weekly News Update: December 9, 2022

General ESG News

GreenBiz: 7 opportunities to strengthen ocean-based action in climate strategies

  • Currently, 51 national plans include at least one measure aimed at ocean-based mitigation as the world’s oceans rise on the international climate policy agenda.

  • To meet Paris Agreement climate goals, governments must accelerate the implementation of ocean-based climate solutions – according to new research from WRI, the ocean is key to regulating the global climate and absorbs about 25% of human-caused CO2 emissions released into the atmosphere. Ocean ecosystems can also play a role in further driving down emissions.

  • Opportunities for strengthening ocean-based climate action include:

  • Using targets for ocean-based renewable energy to provide policy signals for private sector investment.

  • Encouraging efforts to decarbonize marine transport through the establishment of domestic targets, and enabling frameworks for zero-emissions fuels.

  • Using coastal and marine tourism to cut emissions.

  • Investing in sustainable, low-carbon “blue food.”

  • Ensuring the protection and restoration of all blue carbon ecosystems

  • Improving access to financing sources that accelerate ocean-based actions.

  • Leveraging ocean-based climate actions to advance general and social equity in national climate strategies using a rights-based approach to support vulnerable communities.

Sustainable Brands: UN Forum on Business and Human Rights, Day 3: Responsible Lobbying vs. ‘Corporate Capture’

  • Recent discussion at the UN Forum on Business and Human Rights has focused on the UN report on rules in corporate political engagement that are against ‘corporate capture.’

  • The underlying argument is that some businesses exercise undue influence in their lobbying, political donations, interference in judicial/legislative systems, and even manipulating scientific evidence to make it compatible with their human rights obligations.

  • At the Forum, there was testimony of examples from the Global South, including Thailand, the Philippines, Guatemala, and South Africa.

  • While businesses agree that there is a need for independent judiciaries, policies for good corporate governance and transparency, etc., some argue that there needs to be a balance so as to not infringe on the right of free expression for the companies, themselves. Others disagree, arguing that the right to free expression cannot be used as a shield to hide the “deleterious effects of corporate activity.”

  • The report does not call for a ban on lobbying or electioneering, but it does seek to ensure that when companies participate in these activities, there must be no “willful obfuscation” that their products or services violate their human rights obligations or obstruct such policies.

The Wall Street Journal: WSJ Opinion: The West Says It Will Pay Reparations for Its Alleged Climate Sins

  • At the conclusion of the COP27 conference, President Biden and other wealthy western nations signed an agreement that commits them to pay into a new fund that will compensate developing nations for climate damage caused by fossil fuels.

  • The agreement comes just weeks after U.S. climate envoy John Carey dismissed the idea and said a reparations fund was “not happening.”

  • Experts have mixed reactions to the agreement. Bjorn Lomborg, president of the Copenhagen Consensus, argues that this latest move puts too much of a focus on money and takes away from efforts to actually decarbonize, develop new technologies, solve the climate crisis, etc.

  • There are also criticisms that the agreement amounts to “rich countries paying poor countries not to use fossil fuels,” which are key to industrialization, and cleaner energy sources cannot yet be deployed at scale to support the development of a nation.

Forbes: Linking ESG Outcomes To Pay Is A Skyrocketing Trend

  • Tying executive compensation to ESG performance has grown from 1% of companies in 2011 (“Executive Compensation Tied to ESG Performance: International Evidence”) to 38% in 2021.

  • Companies may be adopting this practice for reporting, financial interest reasons, or social reputation towards investors. However, the 'how' is more telling than the 'why.'

  • In general, this practice needs more transparency as well as guidance and requirements in order to be effective in improving ESG outcomes. Regulation in the form of the EU’s corporate sustainability reporting directive, approved in November, could make this practice more effective.

Forbes: COP27 And The New Age Of ESG Technology

  • According to the author, COP27 demonstrated that technology is the way forward in the struggle to mitigate the impacts of climate change and emissions.

  • The main challenge is putting words and pledges into actions that result in tangible emissions reductions. This is where technology can step in.

  • “The Role of Technology-Enabled Governance in Combating Climate Change” COP27 panel made the point that technology is key within governance to implement climate solutions.

  • Organizations such as ServiceNow combine risk and strategic project management with ESG reporting and management so that companies can focus on “informed action.”

The Wall Street Journal: Climate Change Summit Leaves Hope for Limiting Global Warming

  • According to the UN, global greenhouse gas emissions must decrease by about 43% by 2030 compared to 2019 levels to limit the global temperature increase to 1.5 degrees Celsius. Although governments doubt the achievability of 1.5 degrees, analysts claim limiting the temperature increase to 1.7 degrees is a more realistic and cheaper goal, which is still a significant achievement.

Bloomberg: A Global Plastics Treaty Is Coming. Everything About It Is TBD

  • Last week, the UN completed a week of negotiations regarding a global treaty to end plastic pollution, and it is expected that the first legally binding treaty will be issued by the end of 2024.

  • Ideas shared during the discussions include banning toxic substances in plastics, as well as reducing both production and usage. Plastics industry groups have called for more of a focus on recycling.

  • Campaigners are hoping to avoid repeating the issues from the 2015 Paris Agreement, which allows all countries to set their own goals and plans for emissions reductions. The U.S. supports taking this approach for the plastics treaty, but the EU and others argue that there should be a global set of rules and production controls.

  • The next set of negotiations – where countries must agree on the technical measures – will be more challenging.

GreenBiz: In a world upside down, boards must drive stakeholder capitalism

  • To date, the COVID-19 pandemic has walked back more than four years of progress toward eradicating poverty, and one-quarter of the global population is living in conflict. A record 100 million people worldwide have been displaced, the majority of which have been due to the effects of climate change.

  • At the same time, the window to avert the climate crisis is quickly closing. Ultimately, the world’s Balanced Scorecard is in the red. Political leaders lack the power to turn the tide, so it is up to business leaders to reevaluate their measures of success over the long term.

  • While there are criticisms of “woke capitalism” and the ESG movement, there is no way back to shareholder capitalism. The issues at the top of the ESG agenda are those that will have a material impact on long-term value creation, and stakeholder capitalism is entering the mainstream.

  • Recent survey findings from Boston Consulting Group and the INSEAD Corporate Governance Center found that more than 91% of board directors think their boards should devote more attention to strategic ESG issues. The survey also found that boards can add the most value in their stewardship of the company by ensuring that ESG is integrated into the overall corporate strategy.

Reuters: Calls Grow for Companies to Disclose Impacts on Nature in Bid to Plug Finance Gap

  • The UN Environment Programme (UNEP) has reported that financing for nature needs to increase up to $384 billion per year by 2050 – compared to the current amount of $154 billion per year to stay on target with global climate and biodiversity goals.

  • Governments contribute 83% of the financing, while the rest is covered by the private sector. The latest will have to increase their investment to decrease the gap.

  • Companies need to disclose and integrate into their reports their impact on nature and climate. This will fill the knowledge gap for investors to support investments in biodiversity.

ESG Today: Airbus to Test Hydrogen Powered Aircraft Engine on A380

  • Airbus's hydrogen-powered fuel cell engine is a drive for a potential solution to zero-emission aircraft as it can be produced carbon-free and contains more energy per weight than jet fuel. 2-3% of GHG emissions are from the aviation industry

  • While many other initiatives are being targeted at the decarbonization of the aviation industry, hydrogen power is the most promising long-term solution.

  • The company has announced the zero-emission commercial aircraft to be developed by 2035.

Diversity, Equity, and Inclusion

GreenBiz: Confidence could be the key to increasing funding for women-led startups

  • While more deals were closed by female founders in the first half of 2022 compared to the entirety of 2021, this only accounts for 6.9% of all deals made in Q1 and Q2 of 2022.

  • In the climate sector, the number is even lower with just 128 deals closed by female-founded companies in the first three quarters of 2022 compared to the 2,232 closed by all-male-founded companies.

  • The author suggests that this gap can be reduced by increasing the confidence of women to ask for the funding that they want and to network more boldly.

  • According to the author and her interviewees, because venture capital can feel like a “boys club” it will take more confidence and women helping women to open up the field.

Forbes: Reinventing DEI to Acknowledge the Diversity of Everyone

  • Most large companies as well as smaller ones have formal programs dedicated to promoting a diverse workforce. However, these programs are not always successful. Diversity in C-suite positions is still low.

  • DEI has been implemented to label and focus on people with “simple demographic identities, and then building solutions around them”. By doing this it does not recognize the diversity of everyone who can benefit from DEI efforts.

  • Expanding DEI beyond physical identities will benefit employees with different needs and allow them to have an impact on their own lives. Implementing a program that stressed predictable time off based on their “real needs that are shaping their workplace experiences."

ESG Disclosures, Standards, Rankings, and Reporting

Sustainable Brands: Record Number of Companies Recognize Biodiversity Risks, But Struggling to Turn Commitments Into Action

  • Based on the companies that responded to CDP’s climate change questionnaire, the responses present corporate readiness to disclose biodiversity data. This is significant as governments prepare to discuss and negotiate mandatory environmental disclosure at the COP15 summit in Montreal next week.

  • According to CDP’s 2022 biodiversity data collected from companies, 31% have made a public commitment and/or endorsement of biodiversity-related initiatives. 25% plan to do so within the next two years, which will raise the overall percentage to 56% with voluntary biodiversity commitments or endorsements by the end of 2024. However, 55% of companies have not acted on their biodiversity commitments, and 70% do not assess their value chain impacts on biodiversity.

Reuters: EU says making sustainability rules easier to apply is a top priority

  • The European Union, using an underpinning taxonomy, is establishing courses of action such as disclosures from companies and asset managers to assist the economy in reaching net zero emissions by 2050.

  • The taxonomy is a work in progress according to the chief of financial services, Mairead McGuinness; the main priority is to make it easier to apply this taxonomy.

  • More guidance will be published to help businesses with reporting obligations, to clarify disclosures for asset managers, also known as SFDR, to provide more disclosure details from CSRD, and company sustainability disclosures in annual reports.

Investment Trends

Forbes: Is ESG An Investment Strategy Or The Path To A Sustainable World?

  • In 2022, the ESG landscape evolved tremendously. Capital inflows to ESG-related funds continued to increase, but ESG definitions remain inconsistent and more than half of global CEOs interviewed by KPMG said they would pause or reconsider their ESG efforts in 2023 to prepare for the recession.

  • Despite recent issues, the business case for ESG remains positive, and 70% of global CEOs surveyed said their company’s ESG programs have improved their financial performance.

  • However, there is more to this. A recent survey from EY found that 34% of CEOs surveyed said the impacts of climate change and the pressure to build sustainability were the most significant risks to their business growth. Increasing regulatory requirements also mean an increased burden of compliance.

  • The technology sector will have a significant role in helping other sectors with ESG tracking and measurement, as ESG data management still presents a major barrier to ESG initiatives.

  • Additionally, it is anticipated that there will be a shift in focus toward startups, which have been traditionally left out of the ESG discussion but are small and agile enough to embed ESG practices into their company’s strategy early and track how it helps avoid additional costs and contributes to growth and success.

Bloomberg: UN Says New Biodiversity Credits Can Succeed Where Carbon Offsets Failed

  • The United Nations, after results from a recently published study, is backing “biocredits” to bolster conservation financing in place of carbon offsets.

  • Biocredits are “measurable, traceable and tradeable units of biodiversity” leading to a “positive investment in nature” which are being researched to potentially bridge the annual $700 billion conservation financing gap.

  • However, critics say that biocredits may run into the same greenwashing problem as carbon offsets, resulting in little tangible impact. UN authors argue that a clear distinction must be drawn between biocredits and biodiversity offsets.

Forbes: Unlocking ESG Investment Through Monitored Infrastructure

  • As investors are motivated to support ESG-focused companies and initiatives, they need to be provided with clearer metrics and improved auditing to properly evaluate ESG impact. Predictive analytics and metrics with lifetime values are effective means to assess and address climate change.

  • Monitoring is key to improving efficiency and progressing to achieve goals. Companies should assess monitoring solutions based on customizability and flexibility to integrate with legacy systems and align with industry or regulatory practices.

  • Ultimately, sustainability starts in the boardroom as business leaders optimize returns for the climate and investment.

The Wall Street Journal: Florida To Pull $2 Billion Out of BlackRock, Citing Its ESG Investing

  • Jimmy Patronis, Florida’s Chief Financial Officer, announced that Florida’s treasury will pull $2 billion of assets out of BlackRock and transfer them to another asset manager by early 2023. He stated, “BlackRock CEO Larry Fink is on a campaign to change the world...Using our cash, however, to fund BlackRock’s social-engineering project isn’t something Florida ever signed up for.”

  • In October, Louisiana pledged to pull funds totaling $794 million from BlackRock.

Reuters: Investors with $30 trln to push companies on human rights, social issues

  • “Advance” is a new coalition consisting of over 220 investors that manage $30 trillion with the aim to pressure companies about social and human rights issues, particularly focusing on the mining, metals, and renewables sectors.

  • The Principles for Responsible Investment (PRI) is organizing the coalition and each member signed a public statement “acknowledging the urgency and systemic nature of human rights issues” and the need to meet their own responsibilities per international standards. 120 members will have active roles leading or supporting engagement with an initial 40 companies.

Companies and Industries

Sustainable Brands: Closing the Loop: Rethinking Operations, the Economy to Save the Planet

  • At its core, the concept of a circular economy comes down to limiting waste in the manufacturing process and finding ways to extend the lifecycle of products. Companies across all industries are looking for ways to increase circularity in their operations.

  • In the food and beverage industry, companies are taking steps to minimize raw material usage and eliminate wasted material in packaging. Some are using off-spec materials and converting them into renewable energy and fertilizers.

ESG Today: L’Oreal Introduces Impact Labelling System for Products in U.S.

  • L’Oreal announced that it will begin Product Impact Labeling in the U.S. which will provide consumers with 14 environmental impact factors from across the product lifecycle including greenhouse gas emissions, biodiversity, packaging, transportation, and disposal.

  • Each product will be scored from A (best in class to E).

  • This program, first launched in France in 2020, will align with the European Commission’s Product Environmental Performance recommendations and was developed in collaboration with independent and international experts as well as having been verified for data accuracy and methodology by Bureau Veritas, an independent auditor.

ESG Today: Fed Releases Climate Risk Management Proposals for Big Banks

  • The U.S. Federal Reserve Board has released a series of proposals for large banks (over $100 million in assets) for monitoring and managing climate-related risks.

  • The Board notes that the guidance comes as “the financial impacts that result from the economic effects of climate change and the transition to a lower carbon economy pose an emerging risk to the safety and soundness of financial institutions and the financial stability of the United States.”

  • The proposals were drafted in consultation with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), and they cover six areas for the identification, monitoring, and management of both physical and transition climate risks: Governance; Policies, Procedures, and Limits; Strategic Planning; Risk Management; Data, Risk Measurement, and Reporting; Scenario Analysis.

ESG News: PepsiCo Introduces New Goal to Double Reusable Packaging by 2030

  • In alignment with the Ellen MacArthur Foundation’s “Reuse - Rethinking Packaging” framework, PepsiCo committed to doubling the percentage of all beverage products delivered using reusable models from 10 to 20 percent by 2030.

  • This aids in their goal to become net zero by 2040 and to reduce virgin plastic use per serving by 50% by 2030.

  • This goal will be achieved by increasing reusable and glass bottle offerings, expanding its SodaStream business, building out its production of concentrates and powders, and promoting its fountain drink business with refillable cups.

  • As Sander Defruyt, the Ellen MacArthur Foundation’s Plastic Initiative Lead, stated, “We know we cannot recycle our way out of this plastic pollution crisis.” PepsiCo seems to agree, and there is hope that this goal will encourage other global brands to follow suit.

ESG Today: Deloitte Acquires Infrastructure-Focused Consultancy PACER to Target Energy Transition, Climate Opportunities

  • Deloitte announced its acquisition of PACER, a Netherlands-based engineering and consulting firm focused on infrastructure and investment projects. Together, the companies seek to help corporate and government clients conduct projects responsibly with sustainability-oriented transitions.

ESG Today: DHL, Ford Sign Deal for 2,000 Electric Vans for Global Last-Mile Delivery

  • DHL and Ford have announced a collaboration for the use of electric vans for ‘last-mile’ delivery around the world, which will include the deployment of more than 2,000 electric delivery vans by the end of 2023.

  • The agreement will also permit potential access to innovative products, like Ford Pro digital and charging solutions, and future products for DHL operations.

  • The companies said that the first “E-Transits” have already been provided to DHL ahead of peak delivery time at the end of this year.

GreenBiz: Will Big Tech Downsize Clean Energy Commitments?

  • Tech deflation has opened questions on how committed companies will stay to their clean energy goals with the economic uncertainty.

  • Big Tech has been essential for the rapid increase in clean energy demand while bringing the cost down of new technologies and developing new contract models for other corporations and communities to follow suit.

  • Economic and public policies are creating incentives for companies to keep investing and transitioning into climate initiatives.

ESG News: Lowe’s Sets Goal to Reach Net Zero Emissions by 2050

  • Lowe’s has set its goal to reach net-zero emissions across the company’s Scope 1,2, and 3 greenhouse gas emissions by 2050, starting with decreasing its Scope 1 and 2 emissions by 40% and reducing its Scope 3 emissions by 22.5% by 2030 (from 2021 levels). Their strategy includes:

  • Increasing operational efficiency and working to reduce emissions within Lowe’s footprint.

  • Continuing to expand sustainable products and services offered to customers.

  • Partnering with suppliers to help reduce upstream emissions.

  • Working to reach 50% renewable energy for Lowe's facilities by 2030.

Bloomberg: Big Oil Backs Israeli Startup That Sucks CO2 From the Atmosphere

  • The startup RepAir, founded in 2020, has raised $10 million to help increase its technology for CO2 capture and storage

  • The prototype operates in Haifa, Israel, and it is currently the size of a shoe box. Scaling up quickly after investors is the goal. Other goals for the technology include:

  • Capturing as much as one metric ton of CO2 annually in the real world with a system the size of a residential air conditioner.

  • Next, scaling up to a module to capture about 200 tons of CO2 per year, with a building block for larger-scale plants to operate commercially.

  • Calculating how much energy is needed to capture CO2. As of now, it requires 650 kilowatts hours of power with plans to use renewable sources in the future.

  • Expanding to the U.S. by 2023, to take advantage of the provisions in the Inflation Reduction Act.

Government Policy

Bloomberg: Biden Backs Adding Manchin Energy Bill to Must-Pass Defense Measure

  • The Biden Administration plans to attach the stalled energy projects bill to a defensive authorization bill that is expected to pass.

  • This legislation could speed up the approval of clean-energy, pipeline, and electricity transmission projects by shorting some federal permitting reviews and setting limits on court challenges.

  • The defense bill authorizes pay increases and compensation for troops in harm’s way, and it has wide bipartisan support. It also includes things like weapons-buying and geopolitical policies.

  • However, some progressives have vowed to block the defense bill if the energy permitting measure is included, because it could mean the loosening of environmental regulations around new energy installations, and could ultimately have consequences for vulnerable communities.

GreenBiz: The US is finally getting serious about nature-based solutions

  • Last month, the Biden administration issued a nature-based solutions roadmap “to fight climate change, strengthen communities and support local economies.” The roadmap includes five actions for federal agencies to:

  • Make it easier to consider and adopt nature-based solutions;

  • Prioritize nature-based solutions in funding decisions;

  • Increase the use of nature-based solutions in the design, retrofitting, and management of federal facilities;

  • Expand educational and workforce trainings related to nature-based solutions; and

  • Advance research and innovation for opportunities from nature-based solutions.

  • Shaun Martin, the World Wildlife Fund’s vice president for climate change adaptation and resilience, defines nature-based solutions as “the purposeful use of nature to help solve some of the problems that we human beings have created for ourselves, often by degrading nature in the first place.” Nature-based solutions not only protect nature but also the people relying on natural systems.

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