ESG Weekly News Update: February 3, 2023
General ESG News
Forbes: ESG At a Crossroads For 2023
Around the world, ESG has become part of policymaking and institutional investment frameworks. In the United States, 2023 is set as a crossroads for ESG. The SEC is preparing to finalize rules on climate disclosures in April. Meanwhile, the anti-ESG movement challenges the SEC’s authority to enforce such regulations.
ESG research from the National Bureau of Economic Research revealed a premium that ESG investors are willing to pay and a value reduction in value that ESG investors have undertaken. However, the research and BlackRock point to a theory that “ESG investors are at the forefront of a shift in what society deems valuable; therefore, ESG investments will receive the benefit of such “tailwinds” in time.” A key question towards ESG is when those risks will come to fruition and when will we see evidence of addressing those risks proactively.
GreenBiz: Younger job seekers drive 'climate quitting'
There is a growing trend of “climate quitting.” Millennial and Gen Z job searchers are providing increased weight on a potential employer’s environmental performance. A KPMG survey found that a third of UK young adults (ages 18-24) have rejected job offers based on the prospective employers’ ESG performance. Regardless of age, there is a significant number of employees assessing employers’ ESG performance when considering new roles. Younger workers also tended to be more interested in fair pay commitments.
Forbes: We Have A Waste Problem – Will ESG And Government Funding Help?
According to the World Economic Forum, only 5% of what we recycle makes it back to manufacturers to be recycled into something else; 36% of all plastic produced is from packaging, and 85% of it ends up in landfills.
Many organizations are working to solve this problem. For example, Patagonia uses captured ocean plastics to make its products.
Funding from the Inflation Reduction Act and Infrastructure Investment Act can improve the current waste management infrastructure. There are also Extended Producer Responsibility (EPR) programs that require manufacturers to take responsibility for their products and packaging through all life cycle stages, including disposal.
Bloomberg: The Future Of Fashion Grows In A Pond
Charlotte McCurdy, a researcher, designer, and assistant professor at Arizona State University has set out to design a raincoat made from marine macroalgae, a.k.a. seaweed, which absorbs carbon.
McCurdy is “trying to emphasize [that] it doesn't matter where they go but where they come from – 60% of clothes are fossil fuels.” She experienced many trials and errors, but she was “able to create this clear, very consistent plastic that is entirely free of synthetics and chemicals and is made only of algae.” McCurdy isn't commercializing her creations.
Global retailers like Sweden’s Hennes & Mauritz AB (H&M) are taking notice. H&M has goals to make all its products from recycled or sustainably sourced materials by 2030.
Renana Krebs developed an algae-based alternative to the chemical and petroleum-based dyes that are so widely used in the clothing industry and founded Algaeing in 2016. She aims to sell a range of dyes, inks, and yarn compatibles.
Forbes: Building A Digital ESG Narrative That Accelerates Moonshot Innovations
The author discusses how companies can establish themselves as leaders in their fields by making bold ESG goals that go above and beyond expectations but remain credible.
To reach these goals, companies need to know the ESG landscape, including trends and potential roadblocks.
One roadblock is the continuation of the anti-ESG movement and the polarization of ESG. As far as trends, the author also notes tighter ESG regulation and ratings which will combat issues such as greenwashing.
Finally, the author recommends that companies, to develop their ESG capabilities, should seek new hires that are experienced in core competencies as ESG experience in the workforce remains nascent. This development, along with ambitious ESG goals, will allow companies to build stronger ESG narratives and set themselves apart in their respective fields.
Forbes: Can Energy Realism Coexist with ESG?
According to Forbes, the metrics for ESG scores and how to measure or weigh them are not currently clear. Therefore, the ideas of ESG are often self-contradictory leading to undesired results. Financial institutions take into consideration the ESG programs and scores of potential borrowers.
The founder and CEO of Blackrock, Larry Fink, suggested that corporate boards should be concerned with more than the financial aspects of the company but focus on ESG. The backlash on ESG got personal for Fink.
FTX was an example of how ESG scoring was disproportionate -- FTC received an ESG score higher for corporate governance than Exxon-Mobil, when the company did not have a corporate board at that time.
Sustainable Brands: Purpose Policy: How Governments at All Levels Everywhere Can Accelerate the Purpose Economy
The Purposeful Policy Platform is a set of measures all levels of government anywhere can use to accelerate the Purpose Economy which is an economy empowered by the pursuit of long-term well-being by fostering an equitable, flourishing, and resilient future.
The Scottish government has created the Business Purpose Commission. As well to cities in British Columbia have declared “Purpose in Business Week” promoting social awareness to build a social purpose economy to be inclusive, and sustainable.
Policy reform is necessary to achieve the Purpose Economy. Policymakers have a blueprint and role models to align corporate behavior with public interest.
Diversity, Equity, and Inclusion
GreenBiz: What NOT to Do on International Women’s Day
The UN Global Compact created a workshop series titled “Countdown to International Women’s Day” to give meaningful actions, messages, and tools to women in the workplace on international women's day and every single day of the year.
The workshop includes the actions that they need to avoid, giving public visibility to women without consent; adding to women’s plates; putting women in a box; sharing empty messages without KPIs; and focusing on your HQ only.
The things they do recommend to do are reporting back on what you committed to last year; checking in with your comms and social media team; leveraging men as allies; asking women what they want; and buying from women-owned businesses among other actions and key messaging.
In addition to those messages and actions, they share how to speak out and stand up for gender equality in the workplace.
ESG Disclosures, Standards, Rankings, and Reporting
ESG Today: PRI Updates Responsible Investment Reporting Framework for Investors
The Principles for Responsible Investment (PRI) released its new Reporting Framework for investor and asset owner signatories. Changes include revised terminology and less ambiguity in questions to improve clarity, consistency, and applicability. Some sections were restructured to better align with other sustainability reporting frameworks such as TCFN, TNFD, and ISSB.
ESG Today: EU Regulators Welcome, Critique New European Sustainability Reporting Standards
Following the release of the first set of draft European Sustainability Reporting Standards (ESRS) by the European Financial Reporting Advisory Group (EFRAG), the European Commission called on three EU regulators to give their opinions.
The three regulators included The European Banking Authority (EBA), The European Insurance and Occupational Pensions Authority (EIOPA), and The European Securities and Markets Authority (ESMA).
Overall, the regulators deemed the standards “broadly capable” of achieving the goal of investor protection without “undermining financial stability.”
To reach a rating of “fully capable,” the regulators recommended two areas for improvement:
The clarity of value chain boundary definitions to guide the materiality assessment process across the value chain.
The consistency between other global sustainability reporting standards (existing and forthcoming) such as the International Financial Reporting Standards (IFRS) drafts by the International Sustainability Standards Board (ISSB) and the EU rules.
The opinions from the regulators will now be considered and the ESRS standards will be adopted into law with an expected date of June 30.
Reuters: UK accounting watchdog tightens scrutiny of ESG in company audits
The Financial Reporting Council (FRC) in Britain has announced that it will be monitoring whether auditors are making spot checks on their compliance with ESG reporting requirements in company audits.
The FRC stated that it will focus on the use of ESG data and the link between investors and company ESG reporting, with the intention of improving transparency on climate and other ESG risks and opportunities.
The regulator also stated that it will consider selecting listed companies with notable exposure to environmental risk and monitor whether their senior auditor has completed the appropriate training. It will also introduce new requirements for actuaries to account for ESG-related risks in their work.
ESG Today: UK Accounting Regulator to Ramp Focus On Key ESG Disclosure Areas
The Financial Reporting Council (FRC), the UK regulator for auditors, accountants, and actuaries, announced Monday the release of its “ESG Statement of Intent,” outlining areas it has identified as key challenges within ESG reporting and actions on how to address these areas.
The FRC will develop guidance and best practices on the distribution and consumption of ESG data and will update its guidance on climate-related risks for financial reporting.
Investment Trends
Reuters: U.S. States Challenge Biden Rule on Socially Conscious Investing
Two U.S. states, Utah and Texas, are challenging a rule passed by the Biden administration which allows the consideration of ESG factors in investment selection by retirement plans.
The rule that they are contesting reversed Trump administration restrictions on “socially conscious investing.”
The states are arguing that the new rule fails to protect retirement assets and does not offer adequate justification for the change.
“The case is Utah v. Walsh, U.S. District Court for the Northern District of Texas, No. 2:23-cv-00016.”
The OPEC Fund for International Development is a multilateral development finance institution from Vienna, Austria that committed U.S. $1.5 billion to 41 projects in 2022. The OPEC Fund aimed to support partner countries to strengthen economic resilience, create jobs and develop social and economic infrastructure. The OPEC Fund also launched a US$1 billion Food Security Action Plan and adopted its first Climate Action Plan, which includes a commitment that 40% of all new financing will be for climate action by 2030.
Forbes: What’s Behind The ESG Investment Backlash
The recent concern and criticism around ESG investing have mostly been about how to better measure and implement the strategy, but the majority agree that ESG concerns are financial concerns. However, right-wing political forces in the U.S. have been working to undercut investment managers’ ability to account for ESG risk in their investment strategy.
These ESG opponents call into question what it means to be a “sustainable investor,” and subsequently punish companies that are taking a “principled stance.”
Currently, the backlash is happening at the state level; a Republican-controlled House of Representatives could take ESG investing hostility to a new level, but there is disagreement within the party about whether to interfere with asset managers’ decisions to consider ESG factors.
New research from the University of Pennsylvania suggests that state policies restricting ESG activity are causing financial losses, which runs contrary to conservative financial principles. ESG restriction causes some banks to leave the market, which increases borrowing costs.
Interestingly, some of the firms being criticized for being too “woke” are actually receiving backlash from both sides – firms like BlackRock are heavily-criticized ESG proponents, but BlackRock remains the world’s biggest investor in fossil fuels. Even Vanguard, which has worked to remain “neutral,” receives criticism for taking no stance.
Despite the backlash, there is a growing recognition that asset managers must take a position, and they should be placing climate risk at the center of their business strategy.
ESG News: EU Partners with South Africa to Invest €280 Million in its Just and Green Recovery
EU investments in South Africa will go to support policy reforms on green recovery, unlock green investments, and build a knowledge-based transition aligned with the recently-launched framework of the Just and Green Recovery Team Europe Initiative for South Africa.
€40 of the EU grant funding will help facilitate investment in public infrastructure in South Africa, and more will go to support projects that boost the greening of municipal services across South Africa, as well as the repurposing of coal power plants, improving energy efficiency in public buildings, and accelerating circular economy start-ups.
Companies and Industries
ESG Today: T-Mobile Commits to Net Zero Emissions Across the Value Chain
This week, T-Mobile U.S., a wireless network operator, announced a new net zero target. The company aims to reach net zero carbon emissions by 2040 across its entire value chain; this includes the company’s operations in addition to emissions from suppliers and customer device usage.
T-Mobile will be the first U.S. wireless company to set SBTi Net Zero Standard validated targets for all Scope 1, 2, and 3 emissions.
T-Mobile also announced that it has joined The Climate Pledge, an Amazon Global Optimism-founded group of companies that are aiming to reach net zero 10 years earlier than The Paris Agreement.
The Wall Street Journal: Walmart CEO Says Companies Should Make Sustainable Products More Affordable
Walmart’s CEO and executives note that shoppers and manufacturers need financial incentives to sell products that are more sustainable and climate-friendly. CEO Doug McMillon said, “Our job becomes one where you must design a system so that the easiest path, the lowest-cost path, no negative tradeoff associated with it is actually the more sustainable path.”
Large companies like Walmart, Cargill, and Proctor & Gamble should be willing to pay the premiums to provide financial incentives and lift the costs from farmers and those who bear the burdens to create more sustainable products.
Bloomberg: Russia’s War in Ukraine is Accelerating the Shift Away From Oil and Gas, BP Says
BP’s latest annual energy outlook concluded that Russia’s war in Ukraine will push companies to prioritize domestic renewable energy sources to increase the security of supply and cut carbon emissions, which will accelerate the shift away from oil and gas. The demand for fossil fuels in 2035 is expected to decline more sharply. The Russia-Ukraine war will also cause at least a 2% lower global GDP by 2025.
The carbon budget is running out as carbon emissions have been increasing since the Paris Agreement despite various government climate ambitions. BP’s most conservative scenario regarding climate goals finds that global oil demand would still be about 73 million barrels a day by 2050, which is a 25% decrease from 2019. However, BP forecasts that oil demand needs to be less than a third of that amount in order to reach net-zero carbon emissions by 2050.
Bloomberg: Feeding Chickens Stale Bread and Unsold Cookies for Zero-Carbon Eggs
Ruud Zanders, the owner of the Dutch company Kipster, has created a more sustainable model for egg production.
Instead of feeding his chickens grains which humans might otherwise eat, Zanders feeds his hens food waste and scraps saving them from landfills and composting and thus avoiding food waste emissions.
Along with low-carbon chicken feed from food waste, Kipster also uses sustainable and humane building design, with advanced ventilation systems, solar panels, natural light, and space for the hens to roam.
Kipster, in 2021, announced that it will license this system to Kroger Co. and one Kroger egg supplier in Indiana has already adopted the model.
While there are challenges with the model, namely, not being able to label their eggs as organic as well as the limitations in food waste supply for future expansion, Kipster is leading the way in sustainability.
Ultimately, lowering emissions in the agricultural sector will require people to eat more plants and fewer animal products; Zanders stated, “It may sound strange coming from a poultry farmer,” he says, “but we need to eat fewer eggs.”
Bloomberg: A Machine That Sorts Moth-Eaten Sweaters Is Helping to Stem Textile Waste
The Salvation Army in the UK is now using the Fibersort machine (produced by Valvan) to sift through clothing items that are unfit for resale. The machine recognizes the textiles in each clothing item and sorts them appropriately; the items are then passed onto buyers in the textile recycling industry and to companies that can use the fibers.
The technology helps keep clothing items from landfill, and according to the Salvation Army, another ambition is to turn polyester pellets that can be used in new clothing.
So far, Valvan has sold 12 Fibersort machines, with an accuracy rate up to 99% for pure fibers and 95% for blends.
According to experts in the industry, while clothing manufacturers are under pressure to address the problem of textile waste, regulatory intervention is needed to give the industry the ‘jolt’ it needs.
Sustainable Brands: A Sustainable Future Requires Healthy Animals
The Food and Agriculture Organization (FAO) estimates that wider adoption of best practices and currently available technologies in animal husbandry and health could reduce livestock emissions by up to 30%.
This reduction is essential to a sustainable future as nearly 8% of the global population or 670 million people are expected to be undernourished in 2030, according to the FAO’s State of Food and Nutrition report.
This increasing demand for food in combination with a 50-70% increase in demand for animal protein products by 2050 means that animal products and their production cannot be overlooked on the path to a more sustainable future. Moreover, food and agriculture need to become a larger focus in global climate-related discussions.
GreenBiz: Alternative Protein Beefs Up for The Mainstream
Alternative proteins can only fulfill their promise to slash the food system's greenhouse gas emissions by getting mainstream meat eaters to substitute at least some of their meets with plant-based alternatives. The main problem in getting these beads to be eaters eat plant-based alternatives is taste, perception, and price.
To address the problem of taste, many companies are looking towards cultivated products from real animal cells, for which animals were not killed or otherwise harmed. Brands are also putting taste front and center for consumers and are trying to place products in meat aisles rather than separate plant-based sections.
As for price, alternative protein companies must “improve their economies of scale by reaching beyond the startup and funding community and gain support from governments, large scale investors, and big food companies.”
ESG Today: Ukraine War, Inflation Reduction Act Driving Fossils Fuel Demand Down, Renewables Higher: bp
Many events from 2022 have accelerated the clean energy transition. BP has announced its Energy outlook for 2023, which included lower demand for fossil fuels-based energy and a greater share of renewable energy.
BP’s outlook reports included the scenarios, "Net Zero,” “Accelerated,” and “New Momentum,” aiming to shift societal behavior and preferences while capturing the current trajectory of the global energy system
Global energy supplies, government support to transition to renewables, and low-carbon energies and infrastructures to decarbonized hard-to-abate sectors were some of the key themes from bp’s 2023 outlook.
Reuters: To Get to Net-Zero, We Will Need to Make Mining ‘Nature-Positive’, Says Mining Council Chief
The mining industry is expected to grow to meet the demand for minerals to power renewable energies and vehicles. The Global Investor Commission on Mining 2030 is an initiative looking into increasing extractions without harming people, communities, and the environment.
The areas where they are focusing are artisanal mining, child labor, impact of automation, indigenous peoples’ rights, impacts on biodiversity, climate change, tailings dams, conflict reconciliation, and corruption.
According to the chief executive of the Internal Council of Mining and Metals (ICMM) Rohitesh “Ro” Dhawan, mining only represents 0.1% of the world’s total landmass its often in spaces that are close to key biodiversity areas or habitats that are protected.
Dhawan explains the ‘Nature-Positive’ actions while mining, such as rehabilitation to offset the disturbance of mining. Illegal mining is a challenge. ICMM pushes governments and other public agencies to strengthen pro-nature rules and regulators.
Recycling copper, lithium, nickel, and cobalt by 2040 could reduce by 10% the need to extract these minerals, but it's not enough to meet the expected demand.
Government Policy
ESG News: Biden-Harris Administration Announces $47 Million To Develop Affordable Clean Hydrogen Technologies
The Biden-Harris Administration, through the U.S. Department of Energy, announced up to $47 million in funding to accelerate research, development, and demonstration (RD&D) of affordable clean hydrogen technologies.
The projects funded will reduce costs, enhance hydrogen infrastructure, and improve the performance of hydrogen fuel cells. This project will also advance the department's Hydrogen Shot goal of reducing the cost of clean hydrogen to $1 per kilogram within this decade.
The application process will include two phases: a Concept Paper phase and a Full Application phase. Concept papers are due on February 24, 2023, and full applications are due April 28th, 2023.
Reuters: EU Urged To Speed Up Permits For Critical Mineral Projects
The EU is using upcoming legislation to speed up permitting, encouraging investments in projects needed to meet targets for cutting carbon emissions.
Chief Executive Bernd Schaefer of EU-funded EIT Raw Materials said Europe is struggling to keep up with China and the United States. EIT is implementing an EU plan to provide critical raw materials needed to meet the target of moving to net zero greenhouse gas emissions by 2050.
EIT proposes an investment fund to help finance projects worth up to €100 million, plus €3 billion in grants for sustainable mining projects and another €2 billion to boost research and innovation capacity.
GreenBiz: Could just three policy levers trigger a cascade of climate action?
A new collaborative study from the University of Exeter, Systemiq, WRI, and the Bezos Earth Fund suggests that there are three “super-leverage points” that could trigger a cascade of decarbonization in sectors responsible for 70 of global GHG emissions.
The report also argues that taking advantage of these points could be as simple as three policies:
Mandates for electric vehicle sales
Mandates requiring green ammonia to be used in the manufacturing of agricultural fertilizers
Public procurement of plant-based proteins.
The report’s rationale suggests the development and rollout of EVs would decarbonize road transport and drive down costs for batteries, which would boost renewable energy deployment. This could then help cut costs and increase capacity for producing green hydrogen for things like steelmaking and shipping, as well as for green ammonia in agriculture.
Additionally, the report demonstrates the potential of plant-based proteins to transform land use and cut GHG emissions worldwide.
The central point of the report is that the net-zero transition is less like a domino effect heading in a single direction and more like a “handful of pebbles creating multiple ripple effects that can cross the expanse of an entire lake.”
A lawsuit against Biden’s administration was led by attorney generals to stop the implementation of a new Department of Labor (DOL) law that would allow for the consideration of climate and ESG factors in private employer-sponsored retirement plans (ERISA).
The DOL reversed the Trump administration’s block of integration of climate and ESG factors by allowing fund managers for ERISA plans to include ESG considerations and allowing climate and ESG components to be considered when applying shareholders' rights.
Addressing some concerns on how ESG factors would be, the DOL clarifies that it must be based on factors that the fiduciary reasonably determines are relevant to a risk and return analysis.