ESG Weekly News Update: February 10, 2023
General ESG News
Forbes: Is ESG A Cop Out?
According to the Climate Change Protection Index, which ranks 60 countries based on their commitment to fighting climate change, no country is currently in “first place,” because there is no country performing well enough in all categories to earn an overall “very high rating.”
The article’s author argues that we can’t “promise our way toward a solution,” but we can do a better job at “spending our way out of it.” It is expected that this year, governments and the private sector will both be financially committing to change.
Companies tend to stress their environmental credentials, but there are still no regulatory standards requiring uniform targets or disclosures.
While interest in “ESG” will continue to be criticized, interest in supporting the health of the planet will not, and the world must work together to ensure lawmakers and corporate bosses remain committed and accountable.
Bloomberg: UK Aims to Build Prototype Fusion Plant for Near-Limitless Power
The British government has announced plans to build a prototype of a nuclear fusion plant by 2040 in West Burton, Nottinghamshire on the site of a former coal plant.
This is part of the UK’s plan to achieve net zero emissions and will create a “billion-pound clean energy industry to create thousands of UK jobs.”
The announcement comes after a December 2022 breakthrough in fusion technology.
Large-scale feasibility and process efficiency continue to be key issues in the journey of commercial nuclear fusion which still remains a long way off.
Sustainable Brands: Unlocking the Power of Tax to Drive Climate Action
Some companies, including oil and gas companies, use aggressive tax strategies to keep profits high. However, taxes shouldn’t be viewed as a drain on company profits but rather, as a chance to drive climate action.
The author lays out two methods in which tax policies can be leveraged by governments to push for climate action:
Raise funds from carbon pricing and distribute them in a manner that supports a just transition.
Create taxes specific to fossil fuel combustion to discourage pollution while not punishing renewable energy.
Required public disclosures (similar to the currently optional GRI 207 tax standard) should be put in place to create transparency in tax strategy and stop the domino effect of unsavory tax practices to retain competitive advantage.
Finally, the author calls for partnerships between public and private companies to push governments to put their tax dollars toward climate action.
Bloomberg: 100,000 Green Jobs Announced Since US Adopted Climate Law, Study Finds
Since the enactment of the Inflation Reduction Act, companies have announced they will create more than 100,000 clean energy jobs in the United States, including wind and solar energy, EV manufacturing, and other clean energy sectors.
Climate Power identified over 90 new clean energy projects across 31 states, representing a total of close to $90 billion in new investment. For example, Georgia has attracted the most investment with approximately $15 billion for projects that are expected to produce about 17,000 jobs.
The New York Times: What’s Your Neighborhood’s Climate Impact?
Research from UC Berkeley has shown that household emissions are not only based on individual choices but are primarily on factors that people have limited control over.
Households that are closer to city centers have less impact on greenhouse emissions than households that are farther, as they tend to walk, bike, or take public transportation. In addition to transportation, households closer to cities tend to be smaller, therefore, requiring less energy for heating and cooling.
Higher-income households also increase their climate footprint, as they tend to have bigger households, more cars, appliances, electronics, etc., as well as travel more.
The data suggests that to be able to lower a community’s climate footprint we need to build denser housing in walkable areas with access to public transport by changing the layouts of suburban communities.
ESG Today: Planet First Partners Raises €450 Million for Sustainable Economy Transition Fund
Planet First Partners was founded in 2020 to invest in businesses that promote and encourage healthier lifestyles and develop better ways of protecting the environment, mostly in European companies.
They have raised €450 million. These funds are classified as Article 9 under the EU’s Sustainable Finance Disclosure Regulations (SFDR)
These funds will be invested with up to €50 million in each company with proven products and services that are helping transition to a sustainable economy.
Diversity, Equity, and Inclusion Forbes: Strategic Relationships Can Be Key To Successful DEI Initiatives
The National Association of Black Accountants (NABA Inc.), discusses how to work with other organizations to achieve DEI goals, pulling from its current partnership with PwC.
One type of support that has been helpful to NABA is financial support; PwC invested one million dollars into the organization which has helped NABA update its technology infrastructure and thus allowed the company to further empower and engage black business leaders.
While choosing a company to work with, NABA suggests asking the following questions and following up with solid due diligence:
“How do our values align?”
“Do we share a common mission or vision?”
“What can we accomplish together that would be more difficult to accomplish alone?”
Organizations should also define their own DEI goals and strategies to better collaborate. A review of DEI metrics for each company is also necessary to reach individual and combined goals.
Finally, internal investment in DEI initiatives is key to success.
Forbes: Black History, DEI, And Becoming A True Ally
Studying history is one way to reassess how well companies are addressing DEI in the workplace. When marginalized groups' contribution to history is ignored or diminished, others can start to see those people as having less value, even if that is subconscious.
True allyship is about useful action. It is actively deciding how to create opportunities and how to strategically align thoughts, strategies, and collaborations with those who you are allying with and advocating for.
ESG Disclosures, Standards, Rankings, and Reporting
ESG Today: Nordea Ties Incentive Compensation for Top Execs to ESG Goals
Nordea, a financial services company based in Northern Europe, announced that it will tie ESG targets to senior executive performance in its Long Term Incentive Plan (LTIP).
Performance will be measured using climate, diversity, and sustainable finance goals, including criteria such as cumulated adjusted earnings per share (AEPS) and total shareholder return as well as an ESG scorecard.
While details of the ESG scorecard have yet to be disclosed, Nordea stated that it was built around the company’s 2025 sustainability and ESG targets.
Investment Trends
Forbes: How Can Retirees Invest Sustainably?
There is a growing interest in sustainable investing with conventional retirement investments. According to Morningstar, 2022 ended with 588 sustainable mutual funds and exchange-traded funds (ETFs), which is an increase from 203 in 2017.
Secure retirement decisions involve balancing income to be greater than living expenses, and better rates of return on retirement investments boost income. Individuals should evaluate environmental and social goals important to them and balance those considerations with their financial needs to evaluate the depth to which they are willing to go for sustainable investments. Some may not find it practical to divest current investments that do not meet personal sustainability goals while others may have high sustainability standards and may divest current investments that fail to meet those expectations.
“Socially responsible investment” funds typically avoid investments and industries identified as harmful, such as tobacco, firearms, and fossil fuels. They may also include investments with an ESG framework that advance environmental and social goals.
Reuters: Aviva Investors issues sustainability warning ahead of AGM season
Aviva, a British asset manager, sent a warning to 1,600 companies it manages that it could sell its bond holdings and equity in any companies which consistently move too slowly in their progress towards meeting sustainability and climate targets.
Mark Versey, the firm's CEO, stated that Aviva wants the companies it manages to keep long-term goals such as climate goals in the forefront despite short-term market risks including rising inflation and recession.
Aviva, in its annual meetings with companies, will focus on companies’ responses to the transition to a low-carbon economy, initiatives to reverse nature loss, and the cost-of-living crisis resulting from the war in Ukraine.
Additionally, Aviva will look “unfavorably” on companies who, through a "disproportionate transfer of costs to employees, suppliers, and customers," attempt to protect profitability.
The Wall Street Journal: ‘Green’ Funds Cost Three Times More Than You Think
People will pay more to feel good, which has spurred part of the interest in ESG investing in recent years. However, many investors may not realize exactly what they are paying for and what they are (or are not) getting in return.
While some ESG funds take conservatively responsible investing approaches, many invest in high-emitting companies, as well as companies with social and governance concerns (i.e., tech and healthcare). It is largely in part of these industries – not the ESG credentials of the individual companies – that ESG-related funds have outperformed for the past five years.
A new Harvard study found that ESG funds have 68% of their assets invested in the “exact same” holdings as their non-ESG counterparts – only about one-third of the money in ESG funds is “distinctly green.” The study also found that ESG funds more closely reflect the fluctuations of the S&P 500 than conventional stock funds.
For the most part, “bad” companies are not punished when ESG investors decline to buy their stocks, nor are “good” companies rewarded when these investors choose to buy them. Ultimately, someone will still own the shares whether the ESG investors choose to buy or sell them.
The Wall Street Journal: Why It's So Hard To Be An ESG Investor
There is a great deal of confusion in the marketplace right now regarding the topic of ESG. The following are four main reasons why being an ESG investor remains a challenge:
Gauging greenness is complicated. There will always be some subjectivity in comparing the ESG-worthiness of one stock versus another.
A heavy focus can pose investment risk. Some funds exclude fossil fuel companies that hurt their relative performance in recent years as energy stocks were surging.
Investors might be fuzzy about their own ideals. Some advisors who pursue ESG strategies remind clients to see their purpose as doing well along with doing good.
Names might not tell the whole story. The SEC’s so-called Names Rule requires a fund that claims to emphasize sustainability to put at least 80% of its assets into ESG-worthy securities. This leads to confusion about how the rest must be allocated.
Reuters: Goldman Sachs to Invest Over your $1 billion in Europe Biomethane Venture
Biomethane is a lower carbon alternative to fossil-based natural gas which is produced from the decomposition of organic waste. It can be used the same way as natural gas and delivered using the same infrastructure.
The EU wants to reach a target of 370 terawatt-hours per year (TWh) by 2030. To achieve this an investment of 80 billion euros is necessary to produce biogas and biomethane.
Verdalia Bioenergy is investing in both early-stage biomethane development projects and existing assets.
ESG Today: NTAM Launches Climate And Natural Capital Investment Strategy
Last week, global investment manager Northern Trust Asset Management (NTAM) announced the launch of the World Natural Capital Paris-Aligned Index strategy. The goal of the strategy is to provide institutional clients with enhanced net zero solutions integrating climate and natural capital considerations.
The index aims to meet the EU Paris-Aligned Benchmark (PAB) standards, which include criteria of minimum reduction in greenhouse gas emissions intensity of at least 50% compared to the market index.
Companies and Industries
Reuters: Brazil's Cargill unveils $240 mln 'ESG Time Deposit' - statement
Cargill’s Brazilian unit announced its partnership with Banco do Brasil and $240 million “ESG Time Deposit,” which will be the first in Latin America. The time deposit will fund ESG projects in South America to promote sustainable development and a low-carbon economy. Farmers and entrepreneurs may take out loans with Cargill if they meet sustainable finance criteria defined by Banco do Brasil.
Reuters: Concrete traps CO2 soaked from air in climate-friendly test
Heirloom Carbon Technologies, a California startup, partners with Canada’s CarbonCure Technologies to use carbon dioxide (CO2) from the air and mineralize the gas in concrete. Heirloom heats crushed limestone to release naturally absorbed CO2, then over three days, the CO2-starved rock acts like sponges and soaks up nearly half its weight in the gas. The rock is then heated to release the collected ambient carbon dioxide, and the cycle repeats.
CarbonCure, the concrete technology company, mixes CO2 with concrete ingredients to transform it into a mineral that strengthens the concrete. This process cuts the need for cement, which is the part of concrete that has the largest carbon footprint.
Sustainable Brands: CPG Giants Partner to Scale Captured Carbon in Consumer Products
Fifteen key players in the UK’s chemicals and pharmaceuticals industry agreed to collaborate and launch Flue2Chem, a program to transform the sustainability of the UK’s consumer products and reduce greenhouse gas emissions. This partnership will also support the UK in achieving its net-zero target by 2050 as one of the Flue2Chem goals is to demonstrate how the UK could eliminate 15-20 million tons of carbon dioxide emissions annually.
CCEP Ventures is an investment arm of Coca-Cola Europacific Partners that formed two new partnerships to accelerate research on carbon-capture technologies. These research and development projects “will explore how captured CO₂ can be turned into useful products for the supply chain including packaging materials and sugar, used to carbonate CCEP’s soft drinks, or to create synthetic fuels to power its factories.”
GreenBiz: Purifying the ‘miracle metal’: How to decarbonize aluminum
Aluminum, which is often described as a “miracle metal” due to its strength, versatility, and recyclability; however, producing aluminum is an emissions-intensive process. For every metric ton of primary aluminum produced, 16 metric tons of CO2 are emitted. Additionally, the need for aluminum is only expected to grow.
To decarbonize the industry, existing forms of renewable energy can be used such as hydro or solar. Additionally, the emissions-intensive aspects of aluminum production need to be replaced with new technologies such as replacing anodes that produce CO2 with inert anodes that emit oxygen instead.
Aluminum is also infinitely recyclable, using only five percent of the energy needed to produce new aluminum.
The author calls for government funding, subsidies, and incentives to decarbonize aluminum production, similar to that of lithium or copper, as it is also a vital piece in the low-carbon transition.
Bloomberg: Adani’s Crisis Points to Big Risk in India’s Net Zero Plan
The recent crisis within the Adani Group has revealed a potential flaw in India’s emissions-reduction plan – it relies heavily on the country’s most powerful and wealthy private citizens.
Billionaire Gautam Adani pledged a $70 billion investment in green energy infrastructure, and other individuals have committed to spend far more than the government on the energy transition.
However, recent allegations about companies linked to the Adani Group have led to doubts about the firm’s future, including the green energy investment and the firm’s green energy arm, Adani Energy.
Policy experts are arguing that the country cannot rely on investments from a small number of companies in the private sector to meet its climate targets; it needs a “populated sector.”
Also covered in: Reuters: S&P cuts two Adani firms’ rating to negative from stable
ESG Today: BMW Says it Could Reach 50% EV Sales Earlier than 2030 Goal
BMW has announced its plan to invest €800 million ($860 million USD) into a Mexican EV production site and battery assembly facility. The company says it is “accelerating its ramp-up of e-mobility" and could reach its target of 50% EV sales company-wide before 2030.
The company has also pledged to avoid more than 200 million tons of CO2 emissions by 2030 and to focus on circular economy measures in vehicle production and end-of-life.
The new plant in Mexico will produce fully-electric models for BMW’s new vehicle class, NEUE KLASSE, which is expected to launch in 2025.
Bloomberg: Wall Street’sCO2 Agenda Drives Green Bank To Quit Alliance
GLS Bank has quit the world’s biggest climate-finance alliance in protest. They are citing concern that Wall Street is preventing the group from achieving its stated goal.
GLS Bank is a founding member of the Net-Zero Banking Alliance and has stated they do not wish to be a part of a group where big signatories in the U.S. still are supporting oil, gas, and coal projects in emerging markets.
Bloomberg: PG&E Will Pay Sunrun Battery Owners for Power to Avoid Blackouts
PG&E and Sunrun Inc. have partnered to pay homeowners with solar and battery systems in the California grid when demand is high during hot weather. With 7,500 new and existing customers the “virtual power plant” will be able to provide power to 22,000 homes during summer evenings.
California’s power grid during hot weather has prompted Gov. Gavin Newson to declare a grid emergency in 2022 and urge utility companies to find ways to reduce the strain on the grid.
PG&E has also partnered with Tesla home battery owners for when the grid operators declare conservation alerts.
GreenBiz: McDonalds's New Strategy to Bring Renewable Energy to Its Supply Chain
McDonald’s has executed plans to reduce supply chain-related electricity emissions to reduce their Scope 3 emissions. Five of their logistics partners, Armada, Earp Distribution, Martin Brower, Mile Hi Foods, and The Anderson-DuBose Company have signed a virtual power purchase agreement with Enel North America to purchase renewable energy. McDonald’s is the first corporation to serve as an anchor buyer for an aggregation deal for its suppliers.
Apple and McDonald’s both have a goal to decarbonize their global supply chains by 2030. Walmart is targeting its Scope 3 emissions through Project Gigaton, with the goal to avoid one billion metric tons of emissions by 2030.
McDonald’s 189 MW virtual power purchase agreement in Texas will mean its logistics supply chain for the U.S. restaurants will be 100% supported by renewable energy.
However, the company's plan for decarbonization doesn’t include transportation of goods, suppliers’ operations, and beef and packaging – which are addressed in McDonald’s climate action plan.
GreenBiz: A Sea Change for Carbon Capture
The ocean absorbs about 30 percent of atmospheric carbon dioxide. It's unknown how much more CO2 the ocean can swallow without harming sensitive ecosystems and further accelerating acidification endangering sea life.
Captura is proposing a solution to direct ocean capture by using electrochemistry to absorb CO2 from ocean water and then return the CO2-depleted water back into circulation, using renewable energy. The CO2 then can be used for feedstock by other companies such as synthetic fuels companies or sequestered at storage sites.
They have raised $12 million in Series A financing. They won the Carbon XPrize, and Frontier has signed a $500,000 prepurchase relationship with them to capture 508 tons of CO2. In addition to having the backing of some companies, they have the DOE too.
Their pilot site is in Newport Beach, California, and it's capable of removing 1 metric ton of CO2 annually. The cost to remove the CO2 will be “well under” $100-per-ton price.
Bloomberg: Making Companies Pay For Trash They Produce Boosts Recycling, Study Finds
Recycling rates for printed paper and packaging in the U.S. could increase by almost 50% if the country adopted laws making manufacturers bear responsibility for the afterlife of their products.
Extended producer responsibility (EPR) laws are common in Asia and Europe and require companies to join funds or organizations that facilitate the recycling of products. Interest in EPR laws is rising in tandem with increased awareness of plastic pollution.
The Recycling Partnership, an industry-financed NGO, advocates for improving recycling infrastructure and accessibility.
Sustainable Brands: Farm Level Data, Regenerative Practices Shaping The Future Of US Cotton
Consumers are placing increased value on company manufacturing processes. Fashion companies are beginning to assess how to unravel their own supply chains.
In the U.S., there are more than 16,000 cotton farms and many are working hard to reduce their environmental footprints. Over the past 35 years, U.S. cotton production has used 79% less water and 54% less energy, reduced greenhouse gas emissions by 40%, and reduced land use by 42%.
In 2020, the U.S. Cotton Trust Protocol was launched to share U.S. cotton growers’ cotton with the world and has a goal to become a leader in sustainable cotton. The Trust Protocol growers often use regenerative agricultural practices and maintain soil health.
Government Policy
Sustainable Brands: England’s Partial Single-Use Plastic Ban Greeted with Lukewarm Response
The new, partial single-use plastic ban in England will take effect in October of 2023 and will include “single-use plastic plates, trays, bowls, cutlery, balloon sticks, and certain types of polystyrene cups and food containers.”
It is worth noting that Scotland, Wales, and the EU have already implemented similar bans, and the new ban in England falls short of many of these as it does not include plastic bags or foam carry-out containers. It also does not include many of the largest contributors to plastic pollution, including single-use plastic water bottles.
The broad consensus is that the new ban does not go far enough to combat plastic pollution, and more progressive action should be pursued.
ESG Today: Republicans Launch Group to ‘Combat Threat’ of ESG, ‘Rein in’ SEC
U.S. Congress Republicans launched a new ESG Working Group to coordinate the party’s approach to ESG proposals. Bill Huizenga, the recently appointed chair of the Oversight & Investigations Subcommittee on the House Financial Services Committee, will be leading the ESG Working Group. The group is particularly focusing on the anticipated SEC climate disclosure rules to “rein in the SEC’s regulatory overreach.”