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ESG Weekly News Update: January 20, 2023

General ESG News

GreenBiz: Why we can’t stop talking about greenwashing

  • While accusations of greenwashing abound, the question of whether it is as rampant of a problem as it seems remains largely unanswered, and the definition of the term is continually shifting.

  • While ESG-related funds and investment vehicles deserve due scrutiny, consumer products and services may be treated a bit differently. The sustainability claims are geared toward different audiences and serve different purposes.

  • While most will agree that it is immoral for a company to position itself as an environmental leader when it is not, but what constitutes environmental leadership? ESG raters and rankers do not always agree, and disclosure frameworks place different weights on different topics.

  • Additionally, greenwashing accusations separate sustainability claims from other marketing claims and corporate hyperbole. Companies are not vilified for claiming they offer the “best” of something, and consumers generally recognize the subjectivity of preferences. While this is not the same as making claims about the future of the planet, it is still a consideration to note.

  • The lack of clarity around the definition of greenwashing is a major problem. Without proper guidance about what is allowable, it is difficult to produce effective disclosure even with the best of intentions. Companies may be deterred from being ambitious in their goal-setting and disclosure efforts due to fear of backlash.

  • When companies feel they must be overly cautious, real change can be stifled.

  • Some environmental marketing claims should be challenged, and consumers should be provided with accurate information about what they are purchasing. However, to assign a “greenwash” label indiscriminately is ultimately counterproductive.

GreenBiz: The year ahead for water: Creative destruction

  • In 2023, water expert Will Sarni predicts the following trends in the water sector:

  • “Uberization,” or the democratization of water data and solutions.

  • Separation from general climate discussions – Climate COPs have failed to deliver real progress on water issues, and the 2023 UN Water Conference is seen as the most important water event in a generation.

  • Shifting from collective action to “aligned action,” especially with private sector support.

  • Business transformation must be prioritized to support the successful adoption of digital technologies.

Forbes: The Biggest Trends In Supply Chain in 2023, According To Top VCs

  • This article includes quotes and predictions from top venture capitalists focused on investing in supply chains; a few notable predictions include:

  • The rise of both B2B and B2C shopping platforms that use excess stock or that enable the offloading of surplus inventory.

  • Continued automation of global supply chains.

  • Consumer disdain for wastefulness driving strategic shifts.

  • Focus on the ‘cost to the planet’ for SKUs and services becoming a consumer disclosure.

Forbes: How Technology Is Working To Improve Food Safety And Combat Food Insecurity

  • Food security affects millions of American households while simultaneously 30-40% of the American food supply is wasted, much of it through spoilage.

  • To fight food spoilage, three technologies are used to kill germs:

  • Disinfectant sprays

  • Pros: kills germs on the surface

  • Cons: temporary effects, doesn’t reach nooks and crannies

  • Ultraviolet (UV-C) lighting: shone on surfaces

  • Pros: kills germs on the surface

  • Cons: doesn’t reach nooks and crannies

  • Ozone gas

  • Pros: kills bacteria everywhere on the food

  • Cons: harmful or even fatal to humans in high concentrations

  • In order to significantly reduce food spoilage, UV-C lighting and/or ozone gas systems needed to be included in the food transportation process and costs need to be lowered.

Sustainable Brands: Next-Gen Underwater Turbines’ Energy-Capture Rate Blows Wind Model Out of the Water

  • TidalWatt, a Brazilian startup, has begun installing underwater turbines within Brazil.

  • The turbines, which are three meters in diameter, are said to produce five megawatts of power when the water current is 1.87 knots. This is about equivalent to the amount of electricity generation created by a 180-diameter wind turbine.

  • As ocean currents and more consistent than wind, underwater turbines can generate energy 90% of the time compared to 30% for wind turbines.

  • The underwater turbines are also friendly to marine life as they only turn at twelve revolutions per minute; the turbines are also sited away from coral reefs and artificial reefs will be built around the turbine bases.

  • The turbines continue to be tested by institutions such as COPPE’s LabOceano in Rio de Janeiro. The John Cockerill Group contracted with TidalWatt to construct the first prototype and the model is currently being installed in oceans and rivers.

GreenBiz: Why measuring biodiversity co-benefits in carbon credits matters

  • According to the author, as carbon sequestration depends upon ecosystem health and biodiversity, biodiversity should be included in the market for carbon credits.

  • The author calls for quantitative measurements of the biodiversity effects of carbon projects, both good and bad. This will allow carbon credit buyers to choose projects with a positive estimated impact on biodiversity.

  • “And until positive impact for biodiversity is measured and valued by markets, biodiversity loss will continue.”

ESG Today: WEF Launches Initiative to Channel $3 Trillion per Year to Tackle Climate Change & Nature Loss

  • The World Economic Forum (WEF) has launched Giving to Amplify Earth Actions (GAEA) to raise $3 trillion per year to finance initiatives to achieve net zero, nature loss reversal, and biodiversity restoration by 2050.

  • The program has been launched with the purpose of funding and growing new public, private and philanthropic partnerships (PPPPs) to address the “slow and inadequate” of climate and nature solutions.

Forbes: How Sustainability, Community and Profitability Interact in Artisan Businesses

  • One way to shorten the supply chain for the selling of global artisan goods is for sellers to act as the distributor or wholesaler. This allows for a more direct connection with the community and brings sellers closer to retailers.

  • Be overly attentive to ethical business practices. Shortening the supply chain should be about efficiency and increased fairness for artisans.

  • As for sustainability, take a step back to see where there are gaps or opportunities for these smaller artisans to invest in or organize themselves and their businesses in a more sustainable way. Consults with artisans and find partners for them that are fair and transparent. As a seller, work to be the artisan's champion for sustainability.

Bloomberg: Danone Vows To Cut Methane Emissions From Milk By 30%

  • Danone aims to cut methane emissions from its fresh milk supply chain by almost one-third by 2030. Danone has signed the Global Methane Pledge, a collective commitment that was launched at COP26 in 2021 and has been signed by 150 countries.

  • Danone will focus on three ways to reduce methane: ensuring farmers take better care of cows, managing manure better by converting waste into renewable biogas, and altering cow feeds so that it leads to less burping which can reduce emissions.

  • Danone said it has already reduced its methane emissions by 14% between 2018 and 2020. Many small-scale farmers find measuring emissions across their supply chain to be quite challenging. New Zealand, the largest dairy exporter, will begin taxing agricultural emissions by 2025. Irish farmers are expected to cut emissions by 1/4 before 2030. Denmark wants its farming and forestry sectors to cut emissions by as much as 65%.

Sustainable Brands: Food Donation Improvement Act Brings Measured Change, Opportunity to Reduce U.S. Food Waste

  • President Biden signed an amendment to the 1996 Emerson Act in December of 2022. The Emerson Act initially provided certain protections for large entities that donated food to organizations working towards solving food insecurity.

  • The amendment is titled Food Donation Improvement Act (FDIA) which modifies the Emerson Act by calling on the US Department of Agriculture (USDA) to provide clarity and updated guidelines around food donations. This amendment is aimed at helping to reduce the legal liability of donating unsafe food to organizations such as food banks.

  • Challenges in this space continue as many are calling on the government to increase the national minimum wage and increase the Supplemental Nutrition Assistance Program (SNAP) benefits as real drivers toward food security. The evolution of policies such as SNAP would move the U.S. even further toward true food security for families and communities.

Diversity, Equity, and Inclusion

ESG Today: Fidelity Commits $250 Million To Support Access To Education For Underserved Students

  • Fidelity announced Tuesday the launch of its new social impact initiative, Invest in My Education (ME), aimed at providing access to education and support for historically underserved students. The program aims to reach up to 50,000 students over its first five years. Fidelity engaged with several strategic partners, including UNCF, to inform the initiative's work.

  • Key components of the program include the Fidelity Scholars Program, retention and completion grants, and ecosystem-building grants. The program will launch initially in three regions including Boston, Raleigh/Durham, and Dallas/Fort Worth.

Reuters: Most British Firms Track Race, Ethnicity Data But Targets Still Lacking – Study

  • According to a new survey from Mercer, nearly three-quarters of British firms are tracking race and ethnicity data, but most are not publishing it and only about one in three have set targets to improve things like workplace equality and linking DEI efforts to management pay.

  • Additionally, more than half of the 70 firms surveyed stated that they were feeling pressure to improve racial and ethnic diversity outcomes in recent years.

  • Critical to improvement in diversity is an understanding of the relationship to all pillars of ESG, and how racial and ethnic equality should be a “cornerstone of governance frameworks for policies, boards, and metrics.”

ESG Disclosures, Standards, Rankings, and Reporting

ESG Today: S&P, UNEP Launch Methodology to Measure Companies’ Nature & Biodiversity Risk

  • S&P Global Sustainable1 and the UN Environment Programme (UNEP) have partnered to launch Nature Risk Profile, which is a methodology for assessing companies’ nature- and biodiversity-related risks and was developed by experts from across the conservation, business, and finance communities.

  • The organizations stated that the new methodology aligns with the Task Force on Nature-Related Financial Disclosures’ (TNFD) emerging disclosure approach, and will support the implementation of the framework.

ESG Today: Guest Post: Europe’s Corporate Disclosure Landscape Has Taken a Big Leap Forward – How Business Leaders Can Keep Their Footing

  • Guest writer Peter Walsh, who is the Director of ESG Market Strategy & Partnerships at Benchmark ESG, discusses how business leaders should use new disclosure requirements to their advantage.

  • He states that as companies in the EU begin to comply with the Corporate Sustainability Reporting Directive and the cross-border carbon tax, they should use this as an opportunity to gain value and maximize benefits.

  • In order to do this, Walsh recommends that companies create company-wide oversight and increase margins by identifying ESG risks to target and manage. He also suggests incorporating internal and stakeholder feedback into the process.

  • Another recommendation is to establish a fully integrated data collection system to meet compliance requirements and identify data gaps which can lead to improved operational efficiency.

  • Finally, he suggests that companies focus on incorporating ESG throughout their value change to get ahead of the ESG game.

Investment Trends

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

  • Australia has the third-largest retirement savings pool, which is attributed to supporting global fossil fuel and iron ore companies. Now, Australia is deliberating on how to shift away from those industries and transition toward cleaner energy. This dilemma involves considering how turning down fossil fuel investments reduces gains and can result in poor outcomes on a national performance test that fails products with low returns over a seven-year period.

  • The United States has some states proposing rules that require state pensions and treasuries to only consider factors material to investment risks and returns while others are including ESG goals in state pension investment policies and divestment from fossil fuels. According to Morningstar Inc., retirement investment funds with ESG principles total $2.2 trillion as of September 30th.

Reuters: Anti-ESG drive in U.S. could have cost taxpayers up to $708 mln - study

  • The Sunrise Project performed a study that estimated the anti-ESG movement to cost taxpayers as much as $708 million in higher interest payments due to lowered competition to underwrite government bonds in six states. These states like West Virginia barred banks and large underwriters, such as JP Morgan, Goldman Sachs, Morgan Stanley, Wells Fargo, and BlackRock, from obtaining business with the state due to their sustainable finance approach.

The Wall Street Journal: A Solution Is in Sight for the ESG Controversy

  • Backlash in 2022 led to debate over the use of ESG factors in capital allocation, and the resulting discussions led the “big three” asset managers – BlackRock, State Street, and Vanguard – to implement some reforms to mitigate legal and liability risks.

  • Despite criticism, ESG is ‘far from dead.’ One solution to help alleviate concerns is to improve disclosure to and seek consent from capital owners.

  • If dedicated ESG funds accurately disclose their policies and ensure capital owners are informed before making investment decisions, there are no legal issues – people can use their money to further any social causes they like.

  • ESG principles can also be promoted through portfolio stewardship, including proxy voting and shareholder engagement practices. This is where some criticism arises, when these practices are clearly advancing non-financial objectives.

  • Enhanced disclosure can help mitigate some risk for ESG-promoting asset managers; if allocators are receiving transparent disclosure and continue to invest in ESG-promoting funds, managers can argue that they implicitly consented to the non-financial considerations.

Reuters: Davos 2023: BlackRock U.S. inflows dwarf $4 bln lost in ESG backlash -CEO

  • At the World Economic Forum 2023 hosted at the Davos Congress Centre in Switzerland, Larry Fink, Chairman and CEO of BlackRock, the world’s largest asset manager, spoke about ESG investing in 2022.

  • While BlackRock lost about four billion dollars in assets due to political backlash against ESG investing, the asset management group gained $230 billion in new U.S. investments in 2022.

  • Larry Fink stated, "It's hard, because it's not business... they're doing it in a personal way. For the first time in my professional career, attacks are now personal. They're trying to demonize issues."

  • He then discussed how despite polarizing opinions on ESG investing, business is shifting towards decarbonization, and reducing emissions is a “key driver of new business.”

Reuters: Strong ESG Issuance in Asia Defies Global Decline

  • Bankers say the pipeline of decarbonization projects in Asia is likely to keep deals flowing in 2023. Issuance of bonds tied to ESG themes grossed $142 billion in Asia Pacific last year. Chinese entities issued 59.3% of the ESG bonds in the Asia Pacific region in 2022.

  • Globally, ESG issuance fell last year as debts rose. Analysts say the size of green promises, such as China's pledge to almost double wind and solar capacity by 2030, means larger fundraising will be necessary.

Companies and Industries

Forbes: Achieving Next-Level Value From AI By Focusing On The Operational Side Of Machine Learning

  • Gartner, Inc., a technology research firm, estimates that 85% of artificial intelligence (AI) and machine learning (ML) projects fail to produce returns for businesses for reasons such as poor scope definition, bad training data, and insufficient experimentation.

  • Four recommendations for greater value from AI are:

  • Adopt a software mindset to develop an “industrial” approach that provides efficient and effective production.

  • Build an ML platform team with the responsibility to bring models into production.

  • Establish end-to-end processes to standardize processes and boost confidence in the processes and models.

  • Incorporate an operational platform for the implementation phase after experimentation and training.

Sustainable Brands: 3 Leadership Keys to Climate-Tech Success

  • The climate-tech sector needs bold leadership for success, particularly these three elements:

  • Resilience to fail, learn and adjust for progress and achievements;

  • Trust in teams and partnerships; and

  • Collaboration and strong communication to fight the climate crisis.

ESG Today: Pfizer to Offer Full Portfolio of Medicines to 1.2 Billion People in Lower-Income Countries on Not-for-profit Basis

  • Pfizer has an initiative called “An Accord for a Healthier World” that provides medicines and vaccines to lower-income countries on a not-for-profit basis. To date, the initiative has been delivering nine medicines and vaccines for the treatment of certain cancers, and infectious and inflammatory diseases in Rwanda, with plans to expand to 16 countries.

  • Pfizer recently announced its expansion to now include its full portfolio of approximately 500 products. Treatments will now include chemotherapies and oral cancer medications as well as antibiotics that help address the rising morbidity, mortality, and costs associated with antimicrobial resistance (AMR).

Bloomberg: Heavy-Duty Electric Truck ‘Subscriptions’ Could Clean Up Polluting Ports

  • Diesel drayage freight trucks – which transport shipping containers between ports – are a major source of greenhouse gas emissions and air pollution. A proposed regulation in California, expected to be approved this year, would allow only zero-emission trucks to be added to the authorized list of vehicles permitted to work at California ports starting in 2024 (with the goal of phasing out all diesel trucks by 2035).

  • While more electric trucks are coming to market, charging infrastructure has not kept pace, and electrification is expensive. This is where startups like Forum Mobility come in – it aggregates rebates for electric trucks and infrastructure to buy the vehicles and install charging depots, then provides them to operators for a monthly subscription fee.

  • There are substantial rebates available, but many independent operators simply don’t have the time or knowledge to navigate the regulatory landscape. Companies that can do this work and create a more convenient way for drayage operators to electrify – the business model adopted by Forum Mobility and others – are cropping up around major ports in California.

ESG Today: Honda, LG Launch $4 Billion JV to Build EV Batteries in U.S.

  • Honda and LG Energy Solution (LGES) have announced a joint venture – called L-H Battery Company, Inc. – to mass produce lithium-ion batteries for EVs produced by Honda. The venture includes a plan to build a $3.5 billion plant in Ohio.

  • The announcement follows the release of Honda’s aggressive electrification goals, including targets to make battery electric and fuel cell EVs account for 100% of its vehicle sales by 2040.

GreenBiz: Zero-Emission Fuel Offtake Is Key to Transitioning Global Shipping

  • 90%of all globally traded goods are shipped by sea and this percentage is projected to triple by 2050. Currently, the vessel's emissions account for 2.9% globally.

  • Green methanol is the alternative and market-ready clean shipping fuel. E-methanol is produced by combining green hydrogen and CO2. It's also easy and safe to handle, store (or “bunker”), and it can be used in well-known infrastructure. This is a short-term solution to decarbonization.

  • Geen ammonia uses nitrogen as a carrier of hydrogen, extracting it from the air. This offers a medium-term solution as it's cheaper to produce in the long run. Nonetheless, it's a highly toxic, flammable, and corrosive chemical.

  • Maersk, being one of the world's largest shipping carriers, wants to be the pioneer in introducing dual-fuel container ships.

Bloomberg: Boston Startup Raises $40 Million to Develop New Low-Carbon Cement Technology

  • The cement industry accounts for 8% of global emissions, but the industry is looking to align with Paris Agreement net-zero targets.

  • Two issues for the industry to reduce and achieve net zero include:

  • Low-carbon cement is much more expensive.

  • Emissions also come from burning limestone and sand in a coal-fired kiln; replacing with clean energy alternatives cannot always fix this.

  • Building carbon-capture units can solve the GHG but it will require more energy and cost if the end products can double,

Reuters: Analysis: Vanguard’s Climate Group Exit Shows Retail Investors Trail on ESG

  • Vanguard said it would be dropping out of the Net Zero Asset Managers (NZAM) initiative. This initiative requires members to make their portfolios emissions-neutral by 2050. BlackRock and State Steet have stuck with NZAM.

  • Vanguard’s initial commitment with NZAM was to make just 4% of its assets align with 2030 net-zero goals. State Street committed 14%, and BlackRock expects more than half of its assets to meet the 2030 target.

  • A coalition of 13 republicans state attorneys general is pushing on with a motion to limit Vanguard’s ability to invest in public utilities. many believe the firm's decision to leave the NZAM was in response to backlash against ESG from the same politicians.

GreenBiz: The Technological Evolution of Materials Recycling

  • Materials Recovery Facilities (MRF) have massive amounts of materials that flow through the facilities which can lead to missing valuable materials in the sorting process. Some of the innovators that have popped up over the last decade to help MRFs operate more efficiently include Amp Robotics, TOMRA, MachineX, Zen Robotics, Blue Green Vision, and Recycleeye.

  • JD Ambati, Founder and CEO of EverestLabs, discusses a few company solutions to unlocking the promise of extracting valuable materials from the vast amount of waste created in our world.

  • It is imperative that we address the MRF data gap. Historically, MRFs have operated with two main metrics - quantity of materials in and sorted quantity of material out. To capture more material, companies need more insight into the data gaps outside of these two main metrics.

  • EverestLabs technology can enable MRF operators to fill these data gaps. The company has built its software engine from the ground up and has software that is material agonistic which means its software can be applied to organic material sorting, construction, and demolition waste facilities.

The Wall Street Journal: U.S. Solar Manufacturing to Get $2.5 Billion Investment From South Korean Conglomerate

  • South Korea’s Hanwha Group plans to spend $2.5 billion to build a solar manufacturing supply chain in Georgia. The investment would allow the conglomerate’s Q Cells unit to build new facilities in that region that would manufacture 3.3 gigawatts of solar panels a year. These solar panels could supply about 18% of the estimated U.S. demand in 2022.

  • Q Cells' announcement is the latest example of a surge in proposed clean energy investments in the U.S. The company is continuing to consider building plants in other parts of the U.S. as well.

  • In solar power alone, the U.S. is on track to quadruple its manufacturing capacity from what it was two years ago.

Government Policy

Bloomberg: Biden’s Green Energy Bank Races to Leverage $394 Billion to Scale Cleantech

  • The U.S. Energy Department is striving to leverage as much of the $394 billion from the landmark climate law with the urgent climate crisis and potentially limited time left in President Biden’s term. In the past, the U.S. Energy Department provided loans to Tesla, the first largest U.S. solar farm, and Solyndra, a solar manufacturer that later flopped. However, the office is trying to move the U.S. forward in commercializing clean technologies.

Bloomberg: EU Must Be Realistic About US Climate Act, Trade Chief Says

  • The European Union identifies “problematic aspects” of U.S. climate law, such as the billions of dollars of subsidies. Europe’s trade commissioner commented that the EU needs to be “realistic” about how it addresses its concerns on U.S. climate law and responds with its own policy. A U.S.-EU task force was set up to address differences, but officials have become skeptical about the U.S. and any major concessions. Paolo Gentiloni, EU’s economy commissioner, noted the importance of strengthening European competitiveness.

Reuters: U.S. securities regulator lists April for climate rule action

  • The U.S. Securities and Exchange Commission will release its rules on climate-related disclosures in April, according to a January fourth federal notice.

  • The draft of these rules included Scope 1 and 2 disclosures for public companies as well as some Scope 3 disclosures.

Bloomberg: Why US Regulators Are Scrutinizing Gas Stoves

  • Gas stoves have been under fire recently from U.S. regulators due to their global warming effects as well as health concerns.

  • Natural gas when burned releases nitrogen dioxide, carbon monoxide, and fine particulate matter among other pollutants.

  • The levels of pollutants emitted when using a gas stove are deemed unsafe by the U.S. Environmental Protection Agency and the World Health Organization as they are linked to several health conditions including respiratory illness and cancer.

  • In addition to producing atmosphere-warming carbon dioxide, gas stoves leak methane, a very potent greenhouse gas.

  • This comes as nearly 100 cities across the U.S. have encouraged a move away from fossil-fuel-powered buildings through various policies.

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