ESG Weekly News Update: January 27, 2023
General ESG News
Reuters: Davos 2023: CEOs face challenge over sluggish climate efforts
The number of organizations that have pledged to reach net-zero emissions by 2050 reached more than 11,000 before the end of 2022, yet the world remains on course to fall short of its climate goals.
Many bankers and executives at the World Economic Forum (WEF) Davos meeting this year are looking for ways to speed up decarbonization. However, there are disagreements over the pace of the global energy transition and the shift away from fossil fuels.
Despite stricter regulations around ‘sustainable’ activities and bad practices being challenged in court, clients are becoming more educated about the energy transition, and demand for green products continues to increase.
UN Secretary-General António Guterres gave a warning about the dangers of corporate efforts falling short, and called for faster action.
The New York Times: Why Some Executives Wish E.S.G. ‘Just Goes Away’
At Davos last week, some executives opened up about their true feelings about ESG – hoping it would “just go away.” These executives clarified that they still believe in the importance of focusing on climate change, but the ESG movement has become too “broad and distracting.”
Some are concerned that executives have overpromised on ESG and fixated on lofty goals, obscuring some of the real financial considerations of ESG.
Others worry that there is an over-emphasis on measurement, and focusing on tracking metrics and achievements can lead to greenwashing and distracting claims.
Still more executives argue that the backlash against ESG and its politicization is an American problem, and European investors are more thorough in their investment due diligence.
Bloomberg: Wind Turbines Taller Than the Statue of Liberty Are Falling Over
Recently, wind turbine failures have increased across Europe and the U.S., according to Fraser McLachlan, CEO of GCube Underwriting Ltd., an insurer of wind assets around the world. McLachlan stated, “We’re seeing these failures happening in a shorter time frame on the newer turbines, and that’s quite concerning.”
General Electric (GE) CEO Larry Culp agrees, stating that the pressure of innovating more powerful turbines puts a strain on manufacturing and the supply chain. Companies like GE, Vestas, and Siemens Gamesa realize that it is time to put a hold on innovation and focus on stabilizing the quality and production of the current designs.
If production quality is not stabilized and turbine failures continue to increase, this could raise insurance premiums and interest rates, creating a setback in wind energy. However, breakdown fears haven’t yet decreased wind farm funding as the pressure to invest in green projects remains high.
GreenBiz: The renewable energy transition is creating a green jobs boom
While the energy crisis has negatively impacted people worldwide, it has created an impetus to secure renewable energy and has led to job creation in the field.
According to the International Renewable Energy Agency (IRENA), renewable energy employment increased by 700,000 in 2020 to reach 12.7 million jobs in 2021 and could reach 38 million by 2030.
4.3 million of the jobs created are in the solar photovoltaic industry, and almost two-thirds of the jobs created are in Asia.
Hydropower and biofuels provided 2.4 million jobs each, followed by wind power, which provided 1.3 million.
Additionally, IRENA’s analysis shows that compared to the conventional energy industry, the renewable energy sector has a better gender balance; however, more needs to be done to increase women’s participation and progress toward a just energy transition.
Reuters: Republican state officials question proxy advisers ISS, Glass Lewis over ESG
While Democratic state officials pressure companies and asset management firms to focus on ESG issues, Republicans amplify their criticism of firms with ESG goals or ESG investments.
Republican attorneys general from 21 U.S. states wrote to Institutional Shareholder Services (ISS) and Glass Lewis to ask how they determine “appropriate” emissions targets and whether the companies' voting recommendations on ESG issues, such as climate and boardroom diversity, violated contractual and legal duties to clients. They requested responses by the end of January.
Sustainable Brands: WWF Tool Helps Companies, Investors Mitigate Biodiversity Risks Across Their Operation
Companies and financial institutions are critical in stopping and reversing biodiversity loss. Biodiversity Risk Filter (BRF) - a free online tool - has been launched by the World Economic Forum (WWF) to help them identify and mitigate biodiversity-related risks.
Understanding biodiversity-related risks is the first step for companies and financial institutions that don’t know where to start looking at their impact on nature. BRF can assess risks for all industries and in all countries. Breaking down complex biodiversity information gives businesses useful information for decision-making.
BRF includes information on species and ecosystems and protected areas; as well as deforestation, habitat destruction, pollution, and land use change for agriculture.
Reuters: Society Watch: Can a Focus on Education Save the S in ESG?
The social part of ESG for many companies has not been a priority nor has it been a measurement of social progress. Social actions are often left with success stories, details about charitable work or employee volunteering; short-term contributions that don’t add up.
Recognizing education’s position at the core of ESG can help produce a method for measuring social progress.
Investing in education will drive a socio-economic that will not only help quantify social progress but will have a positive outcome for the company's business as well. The benefits of having a societal impact that can be measured by creating a talent pool for the future and ending child labor in the supply chain.
Many companies such as Estee Lauder have recognized the benefits of investing in education to drive progress on ESG goals around equity and diversity.
Forbes: How Boards Can Leverage ESG To Navigate Economic Uncertainty And Inflation
Corporate boards are being held responsible for a range of challenges including inflation, new disclosure requirements, transformative technological changes, and stakeholder shifts in demands. Many boards are looking to find ways to bring resiliency to the head of the conversation. The following are some ways in which boards can navigate this pivotal moment in our history.
Increase resources to, and listen more to, the sustainability teams.
Add “rigor” to ESG and sustainability-related reporting.
Ask the right questions. How do we ensure we are resilient? Do we have all the information that we need?
Explore how to bring more stakeholders to the table.
Use ESG as a hedge against inflation.
Reuters: Global Shareholder Activism Sees Record Number Of European Campaigns
Activist shareholders put pressure on corporate boardrooms last year, starting more than 200 campaigns to “shake up companies,” representing a 36% increase compared with the year earlier.
TotalEnergies, Unilever, and Shell We're among some of the European companies targeted by activists. Unilever’s CEO is to retire this year following the arrival of activist Nelson Peltz on the board while Shell is facing pressure from a U.S. hedge fund to split the company.
Diversity, Equity, and Inclusion
Forbes: Martin Luther King Day’s 40th Anniversary: 3 Steps To Assess DEI Progress
2023 marks the 40th anniversary of the bill being signed into law that created the holiday in Martin Luther King Jr.’s honor. Still, inequities persist, and businesses can play an important role by furthering their social and DEI initiatives and critically assessing their progress. A few steps businesses can take to improve their DEI efforts include:
Identifying and communicating the problem
Establishing clear DEI goals and monitoring results
Incentivizing doing the right thing.
Forbes: Representation Matters: DEI And The Underrepresentation Of Black Women In The Technology Sector
Since 2016 there has been no change in the percentage of black employees in STEM jobs, according to Pew Research; although a majority of undergraduate and advanced graduate degree earners are women, women still make up just a small share of STEM graduates and workers.
The lack of black women in the tech space leads to fewer perspectives when innovating, potentially limiting the target audience to a less diverse group. Additionally, a lack of inclusion can negatively impact a company’s culture, diverse thinking, and teamwork.
In order to address this issue, the author recommends several solutions, including:
Altering job descriptions in format and scope to encourage a more diverse candidate pool
Creating mentorship programs within companies
Evaluate employee retention and retention initiatives
Establishing programs such as town hall meetings to make employees feel heard
Forbes: Embracing Diversity and Transferrable Skills in Leadership
Many organizations are facing challenges and disruptions. Embracing diversity and inclusion (D&I) can help them navigate and thrive in today’s changing business environment.
Diversity provides fresh approaches to problem-solving by tapping into a range of perspectives and experiences.
An inclusive organization will use inclusive language, host team-building activities that celebrate diversity, and actively seek out and value the input and ideas of all team members.
Transferrable skills are essential for organizations looking to enhance leadership opportunities.
ESG Disclosures, Standards, Rankings, and Reporting
ESG Today: Broadridge Launches Tools Enabling Companies to Compare ESG Performance Against Peers
Broadridge has launched its ESG Analyzer, a new ESG disclosure and data analytics tool that enables companies to benchmark and compare their ESG performance against their industry and peer group.
The new tool includes a repository of public ESG disclosures and underlying metrics covering more than 5,000 issuers in North America. It enables companies to view their ESG metrics all in a single dashboard, and it allows users to view how well they and their peers align with the leading global ESG frameworks.
Reuters: India regulator opts for principles-backed approach on ESG ratings - sources
The Securities and Exchange Board of India (SEBI) will, over the next few months, release its first set of rules for ESG ratings; these rules will adopt a principles-based approach rather than a prescriptive one.
This will allow more companies to receive ESG ratings and thus allow investors to make company comparisons.
The “principle-based” approach aims to avoid the over-complexity of a prescriptive approach by focusing on three facets: what information is being used for the rating, the weights assigned to the E, S, and G policies, and who is paying for the rating.
To provide more flexibility, either the company or investors can pay for the rating, and two types of rating providers are permitted: those that use publicly available information and those that receive direct information from the company.
Overall, SEBI calls for transparency of methodologies throughout the process.
Investment Trends
Bloomberg: Barclays Sees Real Greenwashing Risk in ESG Debt-Swap Market
Some emerging-market countries are exploring debt relief options in exchange for commitments to preserve nature, but researchers warn that this type of labeling might be too good to be true, and could lead to greenwashing.
There is evidence that the amount of money that actually goes toward nature conservation goals is only a small fraction of the overall transaction size, which means the products are misleading in their packaging.
The debt-for-nature swap market has been revived as the finance industry continues to explore ESG strategies, but there is concern over the use of ‘blue bonds,’ which are meant to be a type of green bond – the point of green bonds is that 100% of the proceeds raised are spent on environmental projects.
The term ‘blue bond’ may not be used accurately in some of these situations, where the additional parties involved all take a cut from the proceeds instead of directing it all to ‘blue products.’
GreenBiz: Carbon technology captures billions in funds
Carbon technology, technology that captures, stores, and utilizes captured carbon raised $10.7 billion in venture capital investments in the first three quarters of 2022.
This growth in investment is due to several factors, including new federal regulations, the increasing potential of the coming carbon market, and the likelihood of investment in mitigation tech from carbon-intensive industries.
Amendments to the 45Q tax credit, specifically, will aid this growth as the tax credit will increase from $50 per ton of captured and stored carbon to as much as $180 per ton.
One area of controversy is the role of fossil fuel companies in this process; as they have large amounts of funding available, their participation can lead to carbon technology advancements that help other industries.
However, these companies can then use that same mitigation technology to further extend the viability of fossil fuels.
ESG Today: ESG Emerging as a Key Driver of Growing Investor Allocation to Real Assets: Survey
Aviva Investors released a new study, Real Asset Study 2023, with findings from a poll of 500 institutional investors from Europe, North America, and Asia, representing $3.5 trillion in assets under management.
Interest in real asset investments is growing as about two-thirds of investors plan to increase allocations to real assets over the next two years. The primary motivations are diversification and sustainability factors. 93% of investors consider ESG factors in real asset investment decisions, and 17% consider ESG factors as “critical and deciding.” Over a quarter reported plans to increase allocations to sustainable real assets, and renewable infrastructure was identified as a primary beneficiary.
The study also revealed the greatest risks to sustainable real assets investments. More than half of the respondents claimed greenwashing, followed by high valuation and difficulty in measuring impact.
ESG Today: Eni Double Sustainability Linked Bond Offering To €2 Billion On "Extraordinary" Demand
Italian energy company Eni announced Monday the completion of a €2 billion sustainability-linked bond issuance.
The cost of debt will be tied to companies' renewable energy and decarbonization goals, including targets relating to installed renewable energy capacity, and the company's upstream scope one and two carbon footprint.
The five-year bond will initially pay a gross annual coupon of 4.3% and will increase by 0.5% for the final payment at maturity if the company's goals are not met.
Bloomberg: Europe's Biggest Pension Fund Issues ESG Warning To Banks
ABP, Europe’s largest pension fund, is putting banks on notice saying it must see proof that claims of portfolio decarbonization are matched by action. The fund is setting key performance indicators that financial firms must meet in order to avoid being sold off in the next three years.
ABP Made headlines in 2021 when it announced it was divesting from a €15 billion portfolio of fossil fuel assets. Many global regulators are warning that climate risk cannot be treated separately from financial risks. The European Banking Federation stressed that imposing higher capital requirements for loans to the fossil fuels industry will boost the price of capital and reduce the overall lending capacity of banks.
Companies and Industries
ESG Today: Holcim Granted €328 Million by EU for Building Materials Decarbonization Projects
The European Union Innovation Fund has granted €328 million to Holcim, a building materials company, for their decarbonization projects.
These funds, up by €3 billion from about €1 billion, have increased due to the EU Emissions Trading System’s auctioning allowance revenues.
Holcim was chosen as building materials companies make cement, an ingredient in concrete and whose production accounts for 8% of carbon dioxide emissions globally.
Holcim plans to use the funds to develop its carbon capture utilization and storage (CCUS) projects; the company also announced initiatives to utilize the captured carbon in cement production.
Reuters: Steel Recycler Beats Wind Firm to Become World’s Most Sustainable Company
Corporate Knights has announced that Schnitzer Steel Industries is the world’s most sustainable company. In second place is Vestas Wind.
Schnitzer Steel Industries, a U.S. scrap steel recycler, is leading in improvements with energy, carbon, water, and waste in 2021 and is expected to lead the 2023 Global 100.
The company has reported 100% of its $2.8 billion revenues, and all of its %0.1 billion investments went to sustainable projects in 2021.
The Wall Street Journal: Bank of America CEO Says ESG Movement Is Here to Stay
In response to the anti-ESG movement, Bank of America Chief Executive Brian Moynihan stated that ESG is "here to stay." Moynihan shared that CEOs view ESG goals as integral to the long-term health of their companies. Moreover, universal reporting standards will pressure large companies and their suppliers to commit to ESG goals that help society while also increasing profits.
The anti-ESG wing of the Republican party argues that ESG is causing lower investment from oil and gas companies in the United States. However, ESG is unlikely to be the primary reason, but rather likely investor demands unrelated to ESG. On the other hand, the pro-ESG wing urges oil companies to invest less in oil and gas and more in renewables, but it does not have the strongest case for major oil companies to underinvest in renewable energy as it is not obvious that there is a shortage of venture and government capital in the world for renewables.
GreenBiz: The corporate hunger for climate tech
There was approximately $40 billion invested in climate tech last year. Most of the investors were not venture capital firms but corporate venture arms. The reason is self-interested to accelerate the development of technologies that could support corporate emissions reduction targets and a potential future acquisition.
In 2018, Anheuser-Busch InBev launched one of the most high-profile corporate climate tech accelerators, the 100+ Accelerator, co-funded by AB InBev, Coca-Cola, Colgate-Palmolive, and Unilever.
Startups are typically chosen because they address a specific challenge that at least one corporate partner is trying to address, such as smart agriculture, water stewardship, and climate action. For example, Zafree Papers is a woman-owned company from Ethiopia that is working on a business plan to turn pulp from agricultural waste such as barley and wheat straw or banana stalks into a source of "tree-free" paper for packaging. AB InBev is working on a pilot to use the materials for beer cartons.
ESG Today: Lenovo Commits to Net Zero Emissions Across the Value Chain by 2050
Lenovo has announced its goal to reach net zero GHG emissions by 2050, being one of the 139 companies to have their targets validated by Net Zero Standards in 2021.
The company's long-term goals are to reduce Scope 1, 2, and 3 GHG emissions by 90% by 2050, compared to 2018-2019 base year. Its near-term goals include an absolute Scope 1 and 2 GHG emissions reduction by 50% by fiscal year 2029-2030.
For Scope 3, Lenovo is committed to reducing 3% from sold products, 66.5% from purchased goods and services per million U.S.-dollar gross profit, and 25% from distribution per tonne-km of the transported product by 2030.
Bloomberg: Cutting Coal Mine Methane Offers Steelmakers Quick Climate Win
Steel is made by heating iron ore with coking coal. However, mines producing coking coal emitted about 12 million metric tons of methane in 2021.
According to the think tank Ember, cutting coke coal could reduce the methane emissions from steelmaking. Methane leaks associated with mining have a 27% impact on global warming.
While new technologies are being developed, the projection for 2030 is only 1% of primary productions for them.
GreenBiz: Real Estate Bosses Pledged To Reach Net Zero By 2050
Many of the world's largest real estate firms have pledged to reduce their emissions by 50% by 2030 and deliver net zero emissions by 2050. Chief executives from JLL are among those who pledge to have building-related emissions across their businesses ahead of the World Economic Forum Annual Meeting this week in Switzerland. Other companies who have signed the net 02050 pledge include Edge, GPFI Group, Schneider Electric, and Signify.
Companies say that they will meet their emission targets by implementing the World Economic Forums Green Building Principles, which were released last year and provide guidelines for companies to follow in order to deliver net zero emissions across their portfolios.
Reuters: Davos 2023 – Fortescue Sees Renewable Overtaking Iron Ore Business
Renewable energy is likely to overtake Fortescue Metals Group’s iron ore business. The company will continue growing it iron ore business, but the scale of the green energy transition would boost the demand for renewable energy much more than iron ore.
The world's fourth-largest iron ore producer has several projects lined up to rapidly develop technology to produce green hydrogen, transitioning from a pure-play iron ore producer to a green energy firm. Fortescue is expected to sign a deal to supply German company, Covestro AG, with green hydrogen and its derivatives.
Government Policy Bloomberg: Fine Print on Labor in US Climate Bill Complicates Rush for Tax Credits
The historic U.S. climate bill under the Inflation Reduction Act boosted tax credits with subsidies worth billions of dollars for clean energy sources, such as hydrogen to nuclear power. However, projects must meet certain new wages and labor requirements.
The U.S. Department of Labor set a wage level and the percentage of labor workers registered in qualified apprenticeship programs as thresholds that developers must meet to receive the full value of a 30% investment tax credit for the construction of solar power, fuel cell, and other clean energy projects. If projects do not meet the requirements, they only get a 6% base rate. The rules apply to other Inflation Reduction Act credits, including a production tax credit typically used for wind projects, tax incentives for carbon capture projects, and new tax subsidies for hydrogen and nuclear power.
The pay and hiring requirements will go into effect later this month, and renewable energy and construction trade associations claim it will not be easy to meet them.