ESG Weekly News Update: February 17, 2023
Breaking News
East Palestine, Ohio train derailment and the controlled explosion of chemicals CNN: Six Key Things to Know After the Toxic Train Derailment in Ohio
A Norfolk Southern train carrying a variety of hazardous materials derailed on February 3rd in the small town of East Palestine, Ohio. The derailment was quickly followed by a controlled explosion in an attempt to control the hazardous chemical leakage.
Many chemicals, some of which are known carcinogens, are said to have been involved in the explosion. The Ohio Environmental Protection Agency has been conducting air, soil, and water tests since the incident.
Many residents have been urged to only drink bottled water for the time being.
It is estimated that about 3,500 fish died from the water contamination washing down streams and rivers.
The volatile organic compounds released by the explosion can cause headaches, sore throat, and nose and eye irritation in humans.
As of right now, officials have mentioned possible long-term impacts that include environmental and wildlife degradation and harm, with the biggest concern being PFAs migrating downstream and throughout the Ohio River Basin.
General ESG News
Sustainable Brands: Store Shelves of the Future: Packaging for a Circular Economy
Fast Company and Dow brought together leaders from Unilever, McKinsey, and Colgate-Palmolive to discuss the future of grocery store shelves and what they will look like in 2035.
Andre Argenton, Chief Sustainability Officer of Dow, brought insights from Dow’s Sustainability Next Summit as well as other forums; he highlighted the three trends of “collaboration, meeting customers where they are, and phasing in reuse.”
Argenton further elaborates on these three trends. As far as collaboration, he writes that companies will have to work together to solve the challenges of circular packaging solutions such as supply chain management, design, and materials.
To meet consumers where they are, transparency is needed to bridge the gap between what the consumers say they want (living more sustainably) and their ability to act on this desire. Information such as recycling information will have to be straightforward and readily available for recycling and reuse to succeed.
Finally, these leaders in sustainable packaging expect to see more reusable packaging pop up on shelves by 2035.
Bloomberg: The Climate Pledges of Leading Global Companies Don’t Add Up
Carbon Market Watch and the NewClimate Institute looked at 24 of the biggest global companies that have pledged to achieve neutrality and consider themselves climate leaders; they have found that most of these companies’ net zero goals and current climate claims are “exaggerated, false, and misleading.”
The authors found that 15 of the 24 companies’ climate strategies have low or very low integrity.
Just five committed to decarbonizing their emissions by at least 90%
10 out of the 24 companies have limited progress in transparency or integrity of their climate strategies.
The net-zero plans of these 24 companies would only reduce 36% of the planet’s emissions.
Bloomberg: How Lack of Copper Could Slow the Energy Transition
Copper is essential to shift to net-zero carbon emissions, as it’s an efficient electrical conductor. The amount of copper necessary to transition to renewable energy and electric cars will double to 50 million metric tons by 2035. Recycling more copper will not be enough to supply the demand. Therefore, mining will be necessary to meet the forecast.
China has dominated metals like copper, lithium, and cobalt extracted from Latin America and Africa, making them leaders in manufacturing electric vehicles.
Higher demand for copper and supply shortages could cause an increase in prices and risk the economics of smart grids and renewables, delaying the transition to net-zero emissions. Miners will need to invest in new mines, also delaying the transition.
Nations with larger reserves of metals are asking for a bigger share of the profits from mining to address economic inequalities, which could cause investors to stay away.
Regulations, environmental risks, and storage for extracting cooper are some issues that can slow the transition.
Green Biz: The Incredible Shrinking World of Sustainability Communications
Awareness of corporate sustainability has grown among consumers, investors, and regulators. However, companies are not communicating clearly in their messages.
Companies are concerned about the backlash from the left, “too little, too late,” and the right, “too much, too soon.” This leads to corporate announcements on sustainability lacking context for the reader.
Communications about sustainability are not wide view as important to put up there for everyone yet, thinking it wouldn’t get much attention.
Green Biz: 5 Reasons Why Sustainable Timber Must Become a Core Global Building Material
Timber construction benefits the environment as trees absorb carbon from the atmosphere. Much of that carbon stays stored within the tree’s woody biomass, even when it is cut down and processed into the wood. It cuts down carbon emissions compared to using concrete and steel.
In addition, mass timber can be fireproof and earthquake resistant. Climate Smart Forest Economy Program (CSFEP) is working with Easy Housing to scale timber-based affordable housing.
Wood from sustainable and well-managed forests is easy and cost-effective to construct and run. It gives the flexibility to prefabricate off-site, is easy to manufacture, speeds up the building process, and creates insulation, requiring less energy.
In many nations, requirements for a new building to contain a certain percentage of wood will create a mass timber supply chain worldwide. The CSFEP is engaging relevant stakeholders interested in supporting and investing in a climate-smart forest economy to develop a network that can support growth and help address barriers in the value chain.
Evidence shows that people like to be connected to nature, and buildings with wood can cater to that desire.
GreenBiz: Wind And Solar Power Generated More Electricity In The EU Last Year Than Gas. Here's How
The REPowerEU Plan “aims to increase the share of renewables in final energy consumption overall to 45% by the end of the decade.”
In 2022, solar and wind power generated more than a fifth (22%) of the EU's electricity. Coal generated just 16% and fossil gas just 20% of electricity.
Solar power grew by a record 24% last year, with wind growing by 8.6%. 20 EU countries achieved solar records in 2022 with Greece predicted to reach its 2030 solar capacity target by the end of this year.
To stick to the 2015 Paris Agreement target of limiting global warming to no more than 1.5 degrees Celsius, Europe must fully decarbonize its power system by the mid-2030s.
Forbes: Has The ESG Train Left The Station?
Texas, leading a coalition of 24 states, just sued the Biden Administration to stop a new Department of Labor rule that is said to prioritize ESG concepts into ERISA regulations. However, the current political pushback does not seem to be slowing the ESG movement.
The following are just some of the ways in which public opinion, private capital, government capital, and human capital are all heading in other directions toward "green” or “sustainable” investing:
According to a Pew Center poll, 72% of Democrats, relative to 22% of Republicans, feel that human activity contributes to climate change. Millennial and younger Republicans are at least ten points more likely than baby boomers and older Republicans to say the federal government is doing too little to address climate.
One-fourth of all new venture capital went to climate startups in 2022.
The Inflation Reduction Act provides around $369B of subsidies and incentives for “green” projects.
Increased pressure has been placed on CEOs by employees as silence has not remained an option due to a highly educated workforce that demands leadership speak out on social issues.
Sustainable Brands: Stok Highlights 5 Key Priorities in the Evolution of the Workplace
Stok, a building services provider and designer of sustainable, high-performance workplaces, released a report titled "High-Performance Buildings and the Evolution of the Workplace: Insights for a People-First Approach.”
In this report, Stok gathered feedback and insights from industry professionals across fields such as human resources and facilities to determine the perceived impacts of the workplace experience. Five aspects were highlighted as making the most positive impact on employee experience:
“Access to daylight
Increased flexibility in work hours
Connections to nature
Physical health programs
Hybrid work policy.”
Considering these aspects is crucial in the workplace to retain and attract top talent.
Bloomberg: Startups Aim to Curb Emissions of the Super Bowl Ad Blitz
Good-Loop estimates that the ten most popular ads online from last year's Super Bowl accounted for 422 tons of emissions.
Good-Loop is a company that tries to track and reduce the greenhouse gas emissions of the online ad complex. They developed a piece of software that works like an online cookie - measuring how many middlemen are behind each digital ad, then calculating the energy demand.
Google, YouTube, and Facebook have set ambitious goals to run on clean energy and, if it works, they could improve the internet's efficiency on their own without the help of a company like Good-Loop.
Diversity, Equity, and Inclusion Bloomberg: Hiring for Diversity Officers Stalls 2 Years After Big Promises
The movement to increase diversity and equality in the workplace that surged after George Floyd’s murder has not only decreased but has reversed course.
According to a recent LinkedIn report, hiring for Chief Diversity and Inclusion Officers decreased by 4.5% last year despite a 168.9% growth in hires between 2019 and 2022.
Additionally, diversity, equity, and inclusion departments have been hit harder than others in this year’s layoffs. Textio, a hiring resource company, found a 19% decrease in DEI job listings last year.
This is reflected in a study by McKinsey and LeanIn.org which found that 18% of women leaders in the last two years left companies due to a perceived lack of prioritization of DEI efforts by their employer.
Forbes: Psychometric Discrimination the Polarized And Misunderstood World Of Personality Assessments
Recently, there has been heavy debate around whether personality tests are effective for diversity, equity, and inclusion efforts.
Many argue that they are biased, foster strong in-group bias, and can reactivate devaluation that could limit learning or the ability to have constructive conversations.
The three key takeaways are as follows:
Everybody has bias. No one is completely unbiased or without judgment.
Discrediting tools instead of those who misuse them is not useful. Performance evaluation and recruitment should not rely on personality tests as they measure preferences, not skills.
Incomplete solutions cannot deliver complete results. Using psychometric assessments without cultural intelligence is careless.
Inclusion starts with self-inclusion. “The next time we have the urge to dismiss a “biased” idea, let's remember it might be because we are just differently biased.”
The key element of the Mindset Matters column is to “continually illustrate the significance of the disability narrative as a throughline for the growth of business culture.” One of the key characteristics of the disability narrative is “the innate ability to embrace integrative thinking as a central component of daily life.”
Rapid interest rates, weaker consumer demands, and the COVID-19 pandemic have forced businesses to reassess their overall strategies. Leadership can reevaluate their organizations to better understand what is needed internally and externally to increase value, drive growth, and develop a competitive advantage.
Organizational culture is where diversity becomes a critical initiative that increases possibilities in periods of economic uncertainty. Leadership must view the disability narrative as a core tenet of their management style. Looking for innovative tools to enhance progress and for diverse experiences in employees can help cultivate the disability community as a pipeline to human capital needs.
ESG Disclosures, Standards, Rankings, and Reporting Reuters: ESG tops regulatory demands in finance as UK, EU rules diverge, KPMG says
KPMG’s Regulatory Barometer which aids firms in the compliance planning process recently showed that financial firms in the EU and the UK have been “under significant pressure” to comply with divergent EU and UK ESG regulations over the past six months.
Kate Dawson, a director at KPMG's regulatory insight center, stated, "the volume of emerging requirements for ESG and Sustainable Finance may lead to further divergence despite global standard-setters' best efforts."
While the UK states that it will edit inherited EU rules to better fit UK markets and continue to ensure international standards, the author states that the UK will need to align with EU rules to “regain access to the bloc's financial market.”
In the meantime, financial firms will have to adapt to these divergent rules.
ESG Today: Regulator Pushes for Tougher EU Sustainable Investment Rules
France’s financial market regulator, The Autorité des Marchés financiers (AMF), proposed the requirement of specific ESG approaches for sustainable and ESG investment product providers in the EU.
The EU’s Sustainable Finance Disclosure Regulation (SFDR), put in place in January 2023, categorizes sustainability-focused investment funds into two levels, Article 8, and Article 9 funds. Article 8 funds “promote environmental or social characteristics or a combination of those characteristics” and Article 9 funds are stricter and “have sustainable investment as their objective.”
This new proposal from regulators aims to establish minimum criteria for these classification levels and requires providers of Article 8 and 9 products to report on principal adverse impacts (PAIs) of investment decisions, among other things.
The overall goal of the proposal is to bridge gaps created by the SFDR and to protect the system against greenwashing by adding clarity and further definition.
Forbes: Pushback On The SEC’s Proposed Climate Risk Disclosure Rules Is A Good Sign
The SEC's proposed climate risk disclosure rules will unify the standards, including the metrics to be used, which are expected this spring. The rules have received pushback from environmentalists for not going far enough and from companies for going too far and being too expensive to comply with.
Investors will benefit from these new SEC rules to compare companies’ financials consistently.
Companies will not be able to do voluntary corporate social responsibility reports and show only good stories, as the new rules for reporting will be mandatory and must be third-party verified and audited.
ESG Today: SEC Chair Gensler Says Commission Considering Adjustments to Climate Disclosure Rules
The SEC has released its proposed climate disclosure rules to protect investors with consistency and comparability to disclosures. The new rule will require U.S. public companies to companies to provide information on their climate risks and the plans to address those risks, along with metrics detailing the companies’ operational climate footprint and, in some cases, emissions emanating across their value chains.
Two of the issues with this proposal include a rule requiring climate costs to be reported if they represent more than 1% of a financial statement line item and the requirement, in some cases, to report on emissions in company value chains beyond the company’s direct control or Scope 3 emissions. The comments and concerns are based on the cost of providing these disclosures and delivering precise information.
For those companies' disclosing beyond those recommended by the TCFD would increase the cost of complying with them, lowering comparability, and recommending a more flexible approach to Scope 3.
The EU’s Corporate Sustainability Reporting Directive (CSRD) extends the reporting for non-European companies generating €150 million in the EU, and the same for the recent bill proposed in California to report their emissions from all scopes.
Reuters: Greenpeace To Sue EU Over Green Label For Gas And Nuclear
Greenpeace will be taking the European Commission to court over its decision to include gas and nuclear energy in the EU’s list of investments that can be labeled as “green.”
Greenpeace is arguing that CO2 emissions limits for gas-powered plants are too loose for the EU to achieve its climate goals.
The Wall Street Journal: SEC Considers Easing Climate Disclosure Rules After Investor Pushback
People close to the SEC have said the agency is considering a softening of planned rules requiring companies to disclose the effects of costs related to global warming when regulators complete climate change proposals.
The commission is contemplating making the requirements less difficult than originally proposed. The proposed reporting rules would require public companies to include a portfolio of climate data in their audited financial statements. Companies would have to analyze climate-related costs and risks for each item of their financial statements. Any climate costs that are 1% or more of each line-item total would have to be reported.
Many fear that the SEC's proposed 1% threshold, known as the bright line test, would reduce the risk of companies under-reporting climate-related information in their financial statements
ESG Today: Regulator Unveils New Rules For Advertising “Carbon Neutral” And “Net Zero” Claims
Advertising Standards Authority (ASA), a UK ad regulator, announced the release of new guidance for advertisers making environmental sustainability claims to consumers.
The new guidance follows a project conducted by ASA which identified the use of carbon neutral and net zero claims as a priority area. The guidance includes recommendations to “avoid using unqualified carbon neutral, net zero or similar claims in advertising, and to ensure that information explaining the basis of the claims is included.”
Investment Trends
Reuters: France Says EU Rules On ESG Funds Need Tightening To Cut Greenwashing
The EU Sustainable Finance Disclosure Regulations (SFDR) help asset managers classify funds as sustainable, but France’s market watchdog AMF stated there should be a targeted review given it contains no minimum requirements, or a definition of what sustainable investment is.
Last year, managers downgraded funds “holding a total of €175 billion of assets from Article 9 to Article 8 due to uncertainty over what qualifies as a sustainable investment.”
“It therefore seems necessary to take new steps in order to avoid this ambiguity and to better meet the expectations of savers,” the AMF said. They also stated Article 9 funds should exclude investments in fossil fuel activities.
Forbes: What Is Fat-Free ESG?
Responsible investors are asking whether ESG is like 'fat' or like 'weight.' Gary Gensler, SEC chair, asked, “Is it easy to tell if milk is fat-free?” while discussing the topic of greenwashing. “It might be time to make it easier to tell whether a fund is really what they say they are.” As an industry, ESG has developed solutions that meet very diverse needs as different stakeholders want to meet different objectives and have different priorities.
Transparent data is what gives confidence and authority in explaining the composition of portfolios. Sustaining the potential benefits of managing ESG risks and opportunities depends on clarity and transparency, which are the only way to build genuinely client-centric ESG propositions.
The Wall Street Journal: Why It’s So Hard to Be an ESG Investor
Using investments to support societal change is a popular financial trend of late. However, it can be confusing for investors to determine where to put their money.
The author proposes four reasons why the process of ESG investing remains difficult:
“Gauging greenness is complicated.” Many climate-risk disclosures are not specific enough about their ESG performance to be helpful for investors. Additionally, determining the “ESG-worthiness” of various stocks will always be a bit subjective.
“A heavy ESG focus can pose investment risk.” Portfolios that concentrate too much on sustainability are less diverse and thus are vulnerable to volatility.
“Investors might be fuzzy about their own ideals.” It is important that investors prioritize their values and the impact they want to create before deciding where to invest.
“Names might not tell the whole story.” Although funds that claim sustainability must “put at least 80% of their assets into ESG-worthy securities” via the Securities and Exchange Commission’s Names Rule, that leaves 20% for unexpected holdings which may not be so sustainable, such as those for energy companies.
There are many online resources available to assist in the ESG investing process (see article for more details).
GreenBiz: How Green Is Your Green Bond?
A green bond is a fixed-income security that specifically targets environmental projects to benefit from its sale. Green bonds are often more expensive for issuers to sell because they carry the need for external independent review.
Unfortunately, not all green bonds are the same as regulations and laws differ around the world, so what is green in one market might not be green in another.
The Green Bond Principles (GBPs) judge whether the bonds investor is considering is as green as they want it to be. The four core components of the GBPs include:
Use of proceeds
Process for project evaluation and selection
Management of proceeds
Reporting
Bond issuers can obtain independent verification that their process is sound or can have their green bond certified against a green bond standard or label.
Companies and Industries
Reuters: Climate-focused investors irked by BP's pivot back to oil
BP announced last week that it is lowering climate targets from a 40% cut in hydrocarbon output from 2019 levels by 2030 to a 25% cut and will “produce more oil and gas for longer.”
The company is still committed to reaching its net zero emissions goal by 2050 and is still committed to utilizing 50% of its budget on low-carbon businesses by 2030.
However, many investors are concerned by the announcement as they believed their funds would go towards accelerating BP’s low carbon transition.
GreenBiz: Another milestone for green steel production
Steel production is an emission-intensive process; for example, two metric tons of carbon dioxide is emitted for every ton of steel produced and the largest steel mill in North America releases two billion pounds of CO2 annually.
However, some companies, such as Boston Metal, have been working to produce steel more sustainably. The company recently announced that it will receive $120 million to decarbonize the steel and metals production process. Boston Metal is looking to build upon its molten oxide electrolysis process which converts iron ore or other materials to high-purity liquid metal using renewable energy.
These funds, along with those that Boston Metal has raised, will go towards designing a new commercial facility, likely in the Northeast where the grid already has incorporated renewable energy. The money will also go into the construction of a high-value materials recovery facility in Brazil.
The Wall Street Journal: Shell Directors Are Sued Over Action on Climate
ClientEarth, a group of environmental lawyers that holds a small shareholding in Shell, has sued the directors of Shell for failures to act on the climate crisis.
The group has said that while Shell has high exposure to the risks of climate change, it did not set enough targets for emissions reduction, nor did it prepare the company for the net-zero transition.
Shell posted its annual profit for last year, surpassing BP PLC, which is also under scrutiny over its plans to reduce emissions.
Sustainable Brands: Alaska’s Move to Eliminate Inflight Plastic Reveals Issues Within US Recycling Infrastructure
Alaska Airlines announced their switch from plastic to FS-certified paper cups in all inflight services. The airline has partnered with kitchens in the hub cities to sort all inflight waste to be composted, recycled, or landfill.
The idea for the paper cups was to send them to different mills for processing and reintroducing the paper into the product supply stream. However, they have encountered the ability to do this as they are lined in plastic to retain temperature and avoid leakages. Those cups would instead end up incinerated or landfilled.
Alaska decided not to use biodegradable or compostable cups to replace plastic ones, as these options required special facilities to break them down.
The company’s efforts to eliminate single-use plastic started in 2018 by removing plastic straws and stir sticks. Continuing in 2019 with the campaign FillBeforeYouFly to bring and fill your water bottle before boarding.
They partnered with Boxed Water, saving 2.2 million pounds of plastic annually with recyclable cartons and paper cups and cutting down waste by weight by roughly 8 grams per cup.
Forbes: Not So Fast, Euro Major BP Reconsiders Pace of Energy Transition
BP announced last week that it is reconsidering the pace of its plans to transition to clean energy. BP famously rebranded itself in 2001 from “British Petroleum” to “Beyond Petroleum.” In 2020, Bernard Looney, CEO, announced they would cut their emissions by as much as 40% by 2030.
Looney recently announced BP is scaling back its energy transition plans to include an increase in oil and natural gas production. There was an 8% surge in BP's share price after this announcement, demonstrating how embracing “socially conscious” investing can be held back by stock prices.
The Wall Street Journal: Sustainable Packaging Is Sometimes Doubling As Easier To Open Packaging
Companies have begun to respond to regulators, shareholders, and consumers pushing for sustainability by reducing plastic packaging, using recyclable materials, and using fewer materials overall. By doing so, many of these companies are making their products easier to open.
Mattel Inc. has made changes to its Barbie dolls by “removing the plastic window from some boxes and replacing a majority of its plastic straps with elastic staples or paper ties.”
The Lego Group adopted a goal of producing all its packaging from sustainably sourced materials by 2025. They began introducing paper brick bags coated with thin plastic linings designed with tear-off tops and flat bottoms so the builders could stand them upright.
Colgate Palmolive Co. introduced a recyclable Colgate toothpaste tube in 2019 that allowed the toothpaste tube to stand up on its cap. Many consumers enjoyed this design as the toothpaste was easier to administer but it was not the original intention of the improved tube design.
Bloomberg: New US Offshore Energy Boss Takes Over As Wind Industry Falters
The U.S. government has begun to move towards offshore wind and carbon storage industries, with Elizabeth Klein assuming the role of director of the Bureau of Ocean Energy Management.
The government's ability to issue renewable energy rights is tied to the sale of oil leases under the Inflation Reduction Act (IRA). With carbon capture and storage initiatives supercharged by the IRA, there is a chance to cultivate a brand-new industry in the US.
ESG Today: Comcast Issues Its First $1 Billion Green Bond
Last week, Comcast announced its first green bond offering, raising $1 billion, with proceeds from the 10-year bond aimed at supporting the company’s sustainability goals. Last month, Comcast published its Green Financing Framework which outlined the eligible use of proceeds for green bond offerings as well as project evaluation, management, and reporting obligations.
In 2021, Comcast announced its 2035 carbon neutrality goal. Recently, the company entered a long-term agreement with the clean energy solutions supplier Constellation and has pledged to cut electricity consumed per unit of data in its network in half by 2030.
The Wall Street Journal: CIOs Confront Sustainability Mandates
Gartner Inc., an IT consulting, and research firm, estimates that “by 2025, 50% of CIOs will have specific performance metrics tied to energy consumption.”
CIOs need to constantly monitor how much energy is actually being used from running different workloads. It has become increasingly complicated as different vendors provide consumption information via different dashboards.
Gartner predicts that by 2026, “75% of organizations will increase business with IT vendors that have clear sustainability goals and seek to replace vendors who don't.”
Some of the biggest hurdles for CIOs is predicting consumption levels of applications the company itself builds and runs, and convincing developers to build algorithms more sustainably.
Government Policy
ESG Today: EU Sets Rules Defining What Counts As "Renewable Hydrogen"
On Monday, the European Commission announced the release of proposed detailed rules outlining the definition of what constitutes renewable hydrogen in the EU.
These new rules form part of the EU regulatory framework for hydrogen which includes energy infrastructure investments, state aid rules, and legislative targets. These rules will apply both to domestic and external producers.
In 2022, the EU Commission announced plans to scale up hydrogen production in Europe and proposed a Hydrogen Accelerator, envisioning scaling renewable hydrogen domestic production.