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ESG Weekly News Update: January 13, 2023

General ESG News

GreenBiz: The year ahead in ESG: Pledges, politics and biodiversity

  • This article explores three of the key themes expected to shape sustainable finance in 2023:

  • The net-zero landscape – in 2023, there is likely to be more of a focus on the text that supports commitments like those under the Glasgow Financial Alliance for Net Zero (GFANZ). Net-zero pledges are contingent on the implementation of policies and legal ramifications that support the energy transition.

  • ESG political theater – while the use of ESG information to assess risk and value is not inherently political, the concept has been heavily politicized in recent years, and the debate has entered Congress and regulatory agencies.

  • Biodiversity and nature – the green finance community is recognizing that beyond decarbonization, biodiversity issues are rapidly rising to the forefront and are being considered in global disclosure frameworks.

Bloomberg: US Safety Agency to Consider Ban on Gas Stoves Amid Health Fears

  • The U.S. Consumer Product Safety Commission (CPSC) is planning to take action to address the harmful indoor air pollution from gas stoves, which can cause respiratory issues and other health problems.

  • Natural gas stoves – found in about 40% of U.S. homes – emit nitrogen dioxide, carbon monoxide, and particulate matter at levels that the EPA and WHO consider unsafe and linked to numerous illnesses and negative health consequences, especially childhood asthma.

  • Lawmakers are considering options like requiring warning labels, range hoods, and performance standards for gas stoves. At the more extreme end of actions, there could be an outright ban if the appliances cannot be made safe.

  • Equity is another consideration with this issue – Black, Latino, and low-income households are already disproportionately affected by air pollution, and gas stove emissions are a “cumulative burden.”

  • many major cities are adopting policies that encourage a move away from fossil fuel-powered buildings, and the new climate spending bill can help those looking to switch from gas to electric ranges.

  • Republicans criticize the potential actions/bans as government overreach, stating that there are more urgent threats to public health and that the focus on gas stoves is “transparently political.”

Forbes: 2023: More ESG Rage Or A Kinder And Gentler Approach?

  • The New York Times referred to 2022 as the Year of Rage. In the ESG space, BlackRock has been accused of “woke capitalism” but also “greenwashing.” BlackRock’s CEO, Larry Fink, has been attacked for risking profit for an ideological agenda and failing to do more to address climate change and racial injustice. What are business leaders to do when faced with passionate arguments on ESG coming from both sides?

  • A kinder and gentler return to basic values and good citizenship may help alleviate some anger from both perspectives and regain the trust of skeptics. Companies can be good citizens and make a profit too.

The Wall Street Journal: CIO 2023 Priorities: Sustainability

  • Sustainability is a top priority for chief information officers (CIOs) for 2023. CIOs are seeking opportunities to reduce energy consumption in cloud-computing technologies.

  • Amazon’s and Microsoft’s cloud providers claim they can run their data centers with greater energy efficiency than on-site infrastructures while using renewable energy sources.

  • IBM’s sustainability agenda involves adopting a sustainable approach to cloud computing, reducing electronic waste, and supporting the company in tracking sustainability data and extracting insights.

GreenBiz: Chobani, Microsoft, Cargill and RMI bring on CEOs and heads of sustainability

  • Companies are increasingly looking for talent to fill sustainability positions. Sustainability professionals have switched roles from the government to the private sector, created new non-profits, or taken higher-level positions within companies.

  • Melanie Nakagawa was previously the Biden Administration’s senior director for climate and energy at the National Security Council. She recently took on the role of Microsoft’s chief sustainability officer.

  • As for nonprofits, Jon Creyts was promoted to CEO of RMI, a research and advocacy organization focused on transitioning the world to a clean energy economy. Cameron Sinclair is the founder of Architecture for Humanity and created a new organization called Worldchanging Institute to develop innovative solutions for social and humanitarian issues.

  • Carbon management, mitigation, and offsets have also become important to companies, as reflected by their hiring trends.

Bloomberg: Earth’s Ozone Layer Is Recovering as Damaging Chemicals Phased Out

  • Earth’s ozone layer is on the road to recovery thanks to the 1987 Montreal Protocol, an international agreement that phased out chlorofluorocarbons (CFCs), ozone layer-damaging chemicals used in air conditioners and refrigerators.

  • A 2016 Update to the Montreal Protocol then banned hydrofluorocarbons (HFCs) which have a potent climate change effect but do not directly deplete ozone. This ban avoided warming effects by an estimated 0.5C by 2100, an example of what policies can accomplish as far as climate change.

  • The ozone layer is expected to recover to 1980 levels (before the hole was detected in 1985) by 2040 for most of the world, 2045 over the Artic, and 2066 over the Antarctic.

  • A few setbacks to look out for in this recovery process are atmospheric geoengineering, rocket launches, and increased frequency of intense wildfires.

GreenBiz: Is nuclear fusion the next big trend in renewable energy?

  • Nuclear fusion is the process of creating large amounts of energy by colliding two light atomic nuclei (hydrogen and helium) to form one single heavy one, thus releasing energy. This is the same process that occurs in stars like our sun.

  • This process is complicated as it requires creating an environment like the sun (I.e. extreme heat) which can be produced via high-powered lasers; however, these lasers demand a large amount of energy, usually more than is produced in the fusion process.

  • Once fusion is achieved, it produces enough energy to power a house for hundreds of years without emitting any nuclear waste or carbon.

  • At the end of 2022, the Lawrence Livermore National Laboratory successfully completed a fusion reaction that created more energy than the lasers consumed, a big win for nuclear fusion.

  • Research into fusion will continue with the help of R&D funding including a $50 million fusion program announced in September and tax credits and incentives from the Inflation Reduction Act.

  • While this recent breakthrough is promising, fusion isn’t likely to enter commercial energy production until 2060 or 2070 as there are many challenges when bringing the process to scale.

Forbes: Digital Operationalization: The Key To Self-Sustaining ESG Performance Excellence

  • It appears many companies are treating the collection and disclosure of ESG performance data as obligatory reporting “when, in reality, the return on investment of an ESG performance measurement, management, and disclosure effort lies in how it guides business management and investment decision-making.”

  • Many business leaders have reported that using an external provider for ESG management and support led to more operationalized driven data and stakeholder-influenced ESG programs.

  • Simply issuing standardized disclosures is not enough. ESG programs must accommodate a wide array of external and internal stakeholder expectations and must be addressed by different facets of a company to ensure collaboration and effective and long-lasting results. This can be achieved through the continuous collection and analysis of data.

Sustainable Brands: Organizational Change 2022 Lessons: How to Improve Employee Engagement Through Responsive Company Culture

  • Many events around the world have been making employees re-evaluate what they want and expect from their employers.

  • Executive leaders are listening, and acting on disengaged employees as they can cost the world $7.8 trillion in lost productivity.

  • The Great Resignation changed the way companies approach benefits for employees, such as creating greater flexibility, offering employee assistance programs, and improving employee wellbeing. Trying to give them a sense of belonging.

  • Some things employers should do to focus on workers' safety, role clarity, and effective communication by supporting employees’ well-being and connecting with internal and external communities to avoid burnout. This can be accomplished by giving them a sense of individual and collective purpose by offering skill-based volunteer programs.

GreenBiz: Detoxifying Chemistry for a Circular Future

  • 3M announced their end of making PFAS by the end of 2025, but they will still be hard to remove from use. Chemical transparency has become more common, pushing suppliers to disclose the chemistry in their products.

  • Many regulatory frameworks, voluntary programs, and pressure for suppliers to disclose have helped companies move toward safer materials and work toward achieving a circular economy without relying on harmful chemicals. The author states, “All materials should be chemically harmless before we consider them recyclable.”

GreenBiz: Can Tax Incentives Help Green Hydrogen Outgrow Its Promise?

  • Hydrogen production contributes to over 100 million metric tons of carbon emissions to the atmosphere annually. Most hydrogen in the market today is produced through a process known as steam methane reformation, with the final product being called gray hydrogen.

  • Green hydrogen uses a process called electrolysis, which splits water into hydrogen and oxygen and can release volumes of hydrogen replacing methane and other fossil fuels. The widespread barrier to using green hydrogen is cost. The Inflation Reduction Act should begin to narrow this cost discrepancy.

  • The National Clean Hydrogen Strategy and Road Map estimates that the U.S. has the potential to reach around 20 million tons of green hydrogen production by 2030.

Diversity, Equity, and Inclusion

GreenBiz: 12 Women Cultivating Sustainable Food Systems In 2023

  • The following are some of the women that are currently cultivating the sustainable food system space.

  • Barbara Guerpillon, Senior Director Ventures, Transformation, and Sustainability at Dole Sunshine Company. Barbara has been leading a $2M annual fund at Dole that aims to support global strategic partnerships and innovation for sustainability, food access, and waste.

  • Perteet Spencer, Co-founder of Ayo West African Foods. Perteet Brings authentic, convenient, and sustainable West African cuisine to America's tables. She's generating social, economic, and environmental benefits along her supply chain, tapping into underused crops from the West African diaspora to create scalable demand. She also partners with Girl Power Africa to source ingredients from women farmers that were victims of the country's civil war.

  • Arohi Sharma, Deputy Director, Regenerative Agriculture, Nature Program at the Natural Resources Defense Council. Arohi Is working to achieve policies for the food and agricultural systems that center soil health as a climate solution. The Regenerative Agriculture Farm Policy for the 21st Century report was published last year. She wants farmers to be rewarded for using methods that build soil health and in turn reduce the farm's climate risk.

Forbes: Pillar Two Of The Path To Inclusive Capitalism: Source Diverse Talent

  • As the fourth article in a series on establishing inclusive and diverse institutional investment portfolios, the authors list three strategies to source diverse talent.

  • The first strategy, “Build Diverse Investment Teams,” suggests changing recruitment and interview processes to increase diversity. Examples include creating inclusive job postings, conducting blind first-round interviews, and removing candidate names or schools from resumes in the screening process.

  • “Source Diverse Investment Firms,” strategy number two, focuses on a top-down approach, encouraging asset owners and investment teams to seek out diverse managers or create minimum diversity thresholds.

  • The third strategy, “Invest in Diverse Portfolio Companies,” mentions extending networking opportunities to diverse companies, such as women-led companies, thereby giving them more exposure to venture capitalists and funding.

ESG Disclosures, Standards, Rankings, and Reporting

The Wall Street Journal: ISSB Plans to Finalize Rules in Disclosure of Climate-Related Risks in 2023

  • In 2023, the ISSB is planning to finalize two rules to cover companies' climate-related risk disclosures, and it plans to broaden the focus to include biodiversity and other topics.

  • One of the proposed rules would guide companies in disclosing major climate-related risks, and the other would require them to disclose information on how they manage and measure certain sustainability risks.

  • The rule proposals drew more than 1,300 comments, with many wondering how the ISSB rules will interact with SEC rules for mandatory climate-related disclosure. According to the ISSB chair, the group is monitoring regulatory action and is not “standard-setting in a vacuum.”

  • Additional topics the ISSB will explore in 2023 as new topical disclosure areas include biodiversity, human capital, and human rights.

Investment Trends

Forbes: When ESG Investing Falls Short Of Expectations, There Are Alternatives

  • ESG funds are typically more expensive than their non-ESG counterparts, which may contribute to why some firms push for them; however, the returns produced by these funds don’t always outweigh higher fees.

  • There is also mixed response in terms of the actual impact of ESG investing – there is little evidence to support the idea that ESG funds have an effect on the ability of non-ESG firms to source capital (while the intent is to make the cost of capital higher for these firms).

  • Despite recent criticism, support for ESG investment strategies continues to grow. The U.S. Department of Labor recently finalized a rule allowing retirement plan sponsors/providers to consider ESG factors in investment decisions.

  • For those wary of ESG investing, there are alternatives that can still allow investors to know that their funds are making a difference. One option is to support/invest in companies critical to the clean energy transition or that are working to develop new energy infrastructure.

Reuters: Green bonds are set to drive corporate ESG debt out of slump in 2023 - Barclays

  • The volume of green bonds fell 22% in 2022, but green bond sales are expected to increase by 30% this year to over $460 billion, exceeding the 2021 green bond sales. There is a strong demand for green bonds as companies seek funding to support green projects and decarbonization action plans.

  • The International Energy Agency estimates that it will cost $2 trillion annually by 2030 to transition the planet's energy system away from fuels that emit greenhouse gases.

ESG Today: India to Launch Inaugural $2 Billion Green Bond Offering this Month

  • This month, India’s government is issuing its first green bond with the hopes of raising $2 billion USD to reduce economic carbon intensity and support green infrastructure projects.

  • The bond will be issued and auctioned on January 25th and February 9th in two 80 billion rupees ($970 million USD) tranches with maturities of both five and ten years.

  • This comes as India has made climate-related strides in recent years, including:

  • Their COP26 pledge of achieving net zero by 2070

  • Commitments to transition to 50% electric power from non-fossil-based sources

  • A plan to reduce emissions intensity by 45%

  • Reducing carbon emissions by one billion tons by 2030

  • Achieving a non-fossil energy capacity of 500 GW, etc.

  • India’s Sovereign Green Bonds framework, published in November, will guide the usage of these bonds and also lists excluded projects such as fossil fuel extraction and nuclear power generation.

  • India is entering the green bond market as “the issuances of green, social, sustainability and sustainability-linked (GSSS) bonds have grown to a record share of global bond volumes, reaching 16% of the overall market in Q3 of 2022.”

Reuters: Environmental, Social Credit Risks To Rise In 2023, Moody’s Says

  • Economic and political turmoil caused by the COVID-19 pandemic and the invasion of Ukraine will likely heighten ESG credit risks this year according to Moody's. Crises like the war in Ukraine, along with supply chain and cost of living issues, are likely to raise credit risks.

  • Moody's also wrote that companies could see their cost of capital increase if investors begin to lose confidence in their ability to manage the transition to a low-carbon economy.

Companies and Industries

Bloomberg: Ford to Partner With LG on Turkey Battery Plant, Drops SK

  • Ford has dropped a deal with SK On Co. in favor of a partnership with LG to build a new battery plant in turkey. The new development is intended to speed up the shift to clean cars, and the facility in Turkey is scheduled to open as soon as 2025.

  • Ford will continue to work with SK On for other projects, including two new battery factories in the U.S. and increasing the capacity at a plant in Hungary.

ESG Today: NFL’s Houston Texans Offset Travel Emissions with Carbon Removal Credits from Occidental

  • Occidental’s (Oxy) carbon capture and sequestration subsidiary, 1PointFive, has announced an agreement with the Houston Texans for the purchase of carbon removal credits. Under the agreement, the Texans will purchase credits from 1PointFive’s first direct air capture (DAC) plant, which will be operational until 2024.

  • The agreement will allow the team to offset emissions for air travel to regular season away games for three seasons.

  • 1PointFive has plans to build the world’s largest DAC plant to date in the Texas Permian Basin, with the initial capacity to capture up to 500,000 metric tons of CO2 per year and the potential to scale up to one million tons annually.

ESG Today: Zendesk Achieves Carbon Neutrality Across Product Supply Chain

  • Zendesk provides customer relationship management (CRM) software. At the end of 2022, Zendesk announced a series of climate-related accomplishments, including achieving carbon neutrality across its product supply chain, on employee travel and commuting-related emissions.

  • Zendesk also joined the Science Based Targets initiative (SBTi) and committed to setting climate goals aligned with SBTi’s 1.5°C target. SBTi aligns corporate environmental sustainability action with the global goals of addressing and limiting climate change. The organization’s Net Zero Standard sets stringent criteria to assess and certify corporate commitments to achieve net zero emissions. SBTi only accepts targets aligned with its 1.5°C warming ambition as required to avoid the worst impacts of climate change.

ESG Today: HSBC Picks Up Green Energy Infrastructure Investment Team

  • HSBC Asset Management announced the expansion of its Alternative Investment business in Asia with a new energy transition investment team focused on infrastructure. HSBC aims to enable its investors to diversify their portfolios with a new and sustainably focused asset class.

  • HSBC created a business transfer agreement with Green Transition Partners, which is an asset manager in Hong Kong. Green Transition Partners specializes in green energy infrastructure assets in Asia and is an expert in private equity, project development, and corporate advisory.

Sustainable Brands: Panasonic, Samsung Unveil Latest Sustainability Innovations at CES 2023

  • At the Consumer Electronics Show this week in Las Vegas Panasonic announced an electronic personal care device recycling program called “Take Back for Tomorrow.” This program will keep viable components from devices such as trimmers and shavers out of landfills.

  • The program is administered through a website in which owners of these devices can sign up and receive a pre-paid label to ship their used device to ERI, Panasonic’s end-of-life product partner.

  • The recycled battery materials will be sent to Panasonic’s electric vehicle battery facility, which is currently under construction, starting in 2025. This is Panasonic’s first step towards promoting a circular economy.

  • At the same conference, Samsung announced several sustainable home innovations including:

  • SmartThings, Samsung’s platform which connects consumers to their appliance energy use data. The platform now has an AI Energy Mode which adds another level of automation to energy savings. The platform was awarded the market’s first Smart Home Energy Management Systems (SHEMS) certification.

  • The Smart City Project is a net-zero home initiative that plans to create a sustainable housing community in Littleton, Colorado with the ability to house 30,000 residents.

  • The Less Microfiber Cycle and Filter is a feature on Samsung washing machines that will filter out microplastics from microfiber clothing, preventing plastic pollution from entering our waterways.

ESG Today: Bain, Schneider Electric Partners to Deliver Corporate Decarbonization Solutions

  • Corporate energy management and decarbonization solutions have been the focus of the new strategic partnership between the companies Bain & Company and Schneider Electric.

  • To achieve its goals, in 2021, Bain launched “Further” to support its clients' ESG initiatives, while providing postgraduate-level ESG training to all of its global consultants. Recently, the company launched its "Further Academy" to provide post-graduate-level ESG training to its global consultants.

  • Bain will focus on their expertise in decarbonizations and its industry-focuses such as supply chain enchantment, while Schneider Electric will focus on carbon reduction and energy use transformation experience.

Bloomberg: California Wine Town to Fight Blackouts With Batteries, Hydrogen

  • PGE Corp. and Energy Vault Holdings Inc. are planning on implementing a microgrid covering most of Calistoga, CA, where there are restaurants, tasting rooms for wine, and shops in Napa Valley.

  • They will be using lithium-ion batteries and fuel cells running on hydrogen to supply the small town, without GHG emissions.

  • PG&E and other California utilities have had to shut off power lines due to high winds, and some wildfires. The microgrid will provide protection during public shutoffs without having to use diesel or natural gas generators.

Reuters: France’s Danone Faces Legal Action Over Plastic Use and Reporting Practices

  • Some environmental groups have taken legal action against Danone over its plastic use and failure to account for all the materials and its production cycles.

  • Non-governmental organizations who are fighting against large companies using a 2017 French law establishing a “duty of care”

  • Surfrider and its partners, Client Earth and Zero Waste France, want Danone to “re-publish its compulsory duty of care report and specifically account for its plastic use, including a concrete strategy to reduce it”

Reuters: Despite Their Net-Zero Pledges, Deforestation Remains A Big Blind Spot For Bankers

  • Deforestation caused by commodities accounts for 10% of global CO2 emissions. Global canopies Deforestation Action Tracker showed that of the “557 financial institutions that signed the Glasgow Financial Alliance For Net Zero (GFANZ), only 17% had recognized deforestation as a risk.”

  • Trase, a data-driven transparency initiative tool that maps supply chains, uses trade documents to monitor which companies are buying and selling commodities from areas where deforestation is high. Global Canopy is launching Forest IQ this year which will combine Forest 500, Trase, and ZSL Spott data to assess key companies with forest-related products in their supply chain (i.e., timber, paper, palm oil).

Sustainable Brands: Moving Toward a Circular Economy For Packaging

  • The U.S. accounts for about 10% of the world’s plastic waste. California recently joined eight other states in passing a law aimed at phasing out single-use plastics and reducing other plastic packaging waste.

  • The Ellen MacArthur Foundation’s Global Plastics Commitment is focused on eliminating all unnecessary packaging with an absolute reduction of virgin plastics by 10% or greater by 2025.

  • A circular economy for plastics is achievable in our lifetime, but manufacturers and consumers must work together.

Government Policy

Reuters: New climate review guidelines take big-picture look at renewable energy projects

  • The White House Council for Environmental Quality (CEQ) recently released the National Environmental Policy Act (NEPA) guidance which directs agencies on how to consider climate change when permitting large infrastructure projects.

  • The guidance tells agencies to consider the broader impacts of the projects, including net benefits from renewables, indirect emissions, and life-cycle emissions from fossil fuel infrastructure.

  • While the guidance isn’t binding, it will help in justifying projects, like the construction of high voltage transmission lines, that will have a net benefit despite local negative impacts during the construction.

  • Similarly, it holds projects such as fossil fuel pipeline construction to stricter standards as far as the environmental analysis and quantifiable impact, an area which environmental groups could point to in court if any corners are cut.

The Wall Street Journal: Australia’s Push to Invest More Responsibly Gets Reality Check

  • Australia’s retirement-saving pools were built partly by backing companies selling fossil fuels and iron ore to the world. Perusing zero-emission goals might lose the country’s pension funds.

  • Around the world, more funds are invested according to ESG principles as demand for a cleaner future grows.

  • In Australia ESG investing is complicated by their compulsory superannuation system that reduced the burden of again population by supplementing government-funded pensions with private plans.

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