ESG Weekly News Update: January 6, 2023
General ESG News
Forbes: 23 Sustainable Habits To Adapt In 2023
To start the new year in a conscious way, there are several actions individuals can take that can lead to the formation of sustainable habits. A few notable adaptations to make on a daily basis include:
Replacing single-use to-go cups with reusable bottles or containers.
Taking the extra minute to properly recycle garbage.
Eating seasonal produce.
Investing time into sustainability education.
Using digital documents instead of printing physical copies.
Making conscious purchasing decisions; selecting brands and shops that are committed to sustainable values.
Bloomberg: Six Climate Breakthroughs That Made 2022 a Step Toward Net Zero
The damage caused by the effects of climate change in 2022 was both evident and disastrous around the globe. However, 2022 also brought new policy developments and paths for potential progress. Six of these encouraging highlights include:
The passage of the Inflation Reduction Act.
The implementation of the EU’s Carbon Border Adjustment Mechanism (or carbon tax).
The 195-nation biodiversity pledge made at the COP15 Conference in Montreal.
The agreement among wealthy nations at the COP27 conference to create a climate loss-and-damage fund for developing nations.
The shift in attitudes among world leaders specifically in China, Brazil, and Australia.
The new focus on methane emissions reduction.
The Wall Street Journal: (Opinion) A Quiet Refutation of ‘Net Zero’ Carbon Emissions
The concept of ‘net zero by 2050’ has become an organizational principle for many multinational corporations, and the term has become almost ubiquitous.
A new report from the Electric Power Research Institute (EPRI) suggests that even with the combination of clean electricity, electrification, and energy efficiency improvements, economy-wide net zero is not an attainable goal. The study also does not fully account for factors like supply chain constraints and operational reliability when assessing the feasibility of a net-zero grid by 2050.
Another new report from the North American Electricity Reliability Corp. suggests that fossil-fuel plants are being removed from the grid too quickly to meet continuing electricity demands, which is putting the U.S. at risk of grid failure, especially during times of extreme weather.
While ambitious climate goals and incremental targets are necessary for creating lasting change, the reality of ‘net zero by 2050’ may be something that needs to be re-assessed and better planned by regulators, utilities, grid operators, and public-service commissions – those most responsible for making a decarbonized grid a reality.
GreenBiz: Emissions Accounting Needs A Makeover, And It’s Coming
The GHG Protocol has not been updated in years, but an overhaul is coming, as well as frameworks to improve Scope 3 data collection. It is important to note that currently, Scope 3 inventories rely heavily on industry averages – these would never be acceptable in financial accounting.
The ultimate purpose of carbon accounting is to identify areas for improvement, reduction, and targeted action; this is only effective if the primary data is accurate.
The initial assumption was that only Scope 1 and 2 emissions calculations were needed to understand the entire emissions impact of a product lifecycle, because “Scope 3 is always someone else’s Scope 1 and 2.” However, there are large discrepancies in the estimates and averages being used, and there is a need for software and digital accounting tools to get accurate, granular data.
WRI and WBCSD are currently accepting stakeholder feedback on proposed changes to the GHG Protocol until the end of February 2023. Additionally, there are other initiatives – such as the Verified Carbon Standard and Partnership for Carbon Transparency (PACT) – dedicated to identifying and implementing best practices for emissions inventories and reductions throughout the value chain.
Sustainable Brands: Politics and Purpose: The US Consumer Response to Purpose-Driven Marketing Across the Political Spectrum
Recent data from Sustainable Brands’ Ad Sustainability Awareness Platform (ASAP) insights tool shows consumers’ reactions to about 50 purpose-driven ad campaigns tested with more than 25,000 consumers in the last two years. A few of the key insights include:
Democrats have a significantly more favorable opinion of a brand after seeing its sustainability campaign (over Republicans and Independents).
Both Democrats and Republicans have a high favorability for ads with messages around circularity. Democrats scored notably higher in favoring ads around supporting women and girls, and Republicans showed the highest favorability for reducing water and food waste.
U.S. women favor brands that support women.
Sustainability campaigns are currently resonating most with the Millennial generation.
Across income brackets, there is not much variation in ad effectiveness scores; there is a slightly higher favorability score among wealthier consumers.
Targeted cohorts appreciated a brand’s efforts to reach them, but there is room to improve ad effectiveness with the Hispanic cohort.
Environmentally focused ads score higher on effectiveness than socially focused ads.
GreenBiz: Did The COPs Rise To Meet Our Oceans’ Biggest Challenge?
Oceans absorb annually up to 3 billion metric tons of carbon dioxide from the atmosphere. However, the rapidly increasing carbon emissions around the world have been acidifying the oceans 100 times faster than any other period in the last 55 million years. The most effective way to avoid severe ocean acidification impacts is to urgently reduce carbon emissions.
Although ocean acidification was barely discussed at COP27, global leaders at COP15, the UN’s Convention on Biological Diversity (CBD), had robust negotiations on minimizing the biodiversity impacts of ocean acidification and improving resilience. Leaders of the Global North, including the United States, pledged to conserve, protect or restore at least 30% of global oceans by 2030.
Bloomberg: Big Growth in Electric Heat Set Stage For Blackouts in US South
During the winter storm at the end of December, states experienced blackouts as the power plants were strained and could not meet the demand of homes with electric heat. The outages reflect the challenges that power grids will continue to encounter while climate change remains a global issue, and an increasing number of homes and businesses are switching to electricity from gas, oil, or propane to generate heat.
The electrification of appliances and heating changed consumption patterns in which electricity demand now peaks in both summer and winter. Additional review and innovation are needed to build the resilience of power grids.
Forbes: Transformational ESG Systems Will Present Huge Business And Career Opportunities In 2023
Companies that understand and integrate ESG into their businesses increase growth potential and competitiveness. A growing number of consumers and B2B clients consider the sustainability profiles of products and services. Companies have the power to lead transformation and address global issues.
ESG is becoming prominent with significant strides expected in 2023. In response to investors’ demand for consistent, reliable, and comparable climate risk data, the SEC will be finalizing climate risk disclosure rules soon. Career opportunities will continue to grow this year in the ESG, climate, and sustainability practice areas because such topics are more frequently brought into board and investor discussions.
Four keys to seizing ESG-related opportunities for your business or career are:
Walk the talk.
Know your numbers.
Collaborate, even with competitors.
Identify transferability of expertise.
ESG Today: UK Awards Over £80 Million to Projects Converting Waste to Sustainable Jet Fuel
The United Kingdom’s Department for Transport has awarded £80 million to five projects which will produce sustainable aviation fuel (SAF) from commercial and residential waste as well as industrial waste gases.
The largest award went to a sustainable fuels technology company called Velocys which converts waste into SAF.
The second largest grant was awarded to LanzaTech for project DRAGON, a plant that converts gases from a steel mill into ethanol and finally into SAF.
The five projects are expected to reduce greenhouse gas emissions from aviation by an average of 200,00 tonnes annually and produce 300,000+ tonnes of SAF annually.
Sustainable Brands: Climate Policymakers Denounce UK Approval of New ‘Net-Zero’ Coal Mine
The Woodhouse Colliery, a new coal mine in northwest England has gotten the go-ahead from the UK government to begin construction.
The mine will extract coking coal which is used to produce steel, a vital mineral and a way to produce steel domestically according to the European Union.
The project has seen major pushback as it is projected to produce 400,000 tons of greenhouse gas emissions annually.
Additionally, critics have called out the clear greenwashing as the mine’s operator (West Cumbria Mining) plans to use verified offsets/carbon credits to achieve net-zero operations.
Margaret Kim, the CEO of Gold Standard, the preferred offset vendor for the mine, condemned the plan saying, “We are in a climate emergency and new extraction of fossil fuels is unjustifiable. Our claims guidelines make it clear that to make an offset claim, organizations should prioritize the avoidance and reduction of emissions — something that is clearly impossible for a coal mine.”
This situation brings into question both the message that the UK is sending with this decision as well as the efficacy of offsets.
Forbes: Sustainability Is Becoming a Priority for Digital Advertising
Sustainability has become one of the priorities for long-term investment strategy. The industries that are leading in this are architecture, construction, consumer packaged goods, energy, process and utility, life sciences, and transportation and mobility.
Sustainability conversations are becoming more commonplace as consumers choose to support companies that lead on key sustainability issues. The digital industry is also working on becoming aware of its impact on the environment by factoring in future collaborations and building out tech stacks.
Ad Net Zero – which is an industry-wide initiative -- conducted a climate study that showed that 84,000 metric tons per year of CO2 emissions come from the UK digital advertising industry.
Their goal is to achieve net-zero emissions from all activities associated with the advertising industry by the end of 2030 by:
Improving efficiency in the supply chain by “batch-based buying”
Cutting down on middlemen in the ad tech process to reduce processing power
Transparency to move environmental initiatives forward.
Reuters: World Bank to Lend $500 million to Help Brazil Meet Climate Goals
As part of the World Bank’s and its partner Global Tracking System's commitment, $500 million was lent to Brazil to help expand sustainability-linked finance (SLF) and strengthen the private sector’s capacity to access carbon credit markets and curb deforestation.
Brazil needs to show a reduction of up to 90 million tons of CO2e by 2030 to stay on track with its net-zero commitments.
The project projections are:
Mobilize up to $1.4 billion in private capital through the scale-up of financing by Banco de Brasil and private investors to access carbon markets through a “one-stop shop”
Adopting an “innovative, outcome-based financing approach”
Providing small and medium-sized companies with ESG services to measure their carbon footprint to generate returns from carbon credits.
Stopping deforestation in the Amazon.
Forbes: Governor DeSantis, Larry Fink, And the ESG Debate: How Climate Policy Could Avoid Culture Wars
Since 2012, Larry Fink has been publishing annual “Dear CEO” letters to lay out his investment philosophy. In 2016, Fink used the term ESG for the first time, noting ESG issues have “real and quantifiable financial impacts.” He has expressed his desire for companies to transition to net zero by 2050 as well.
Florida’s Governor DeSantis has taken several initiatives to address the insurance program that coincides with the state's increase in severe weather events, such as hurricanes. He has assisted in creating a $2 billion reinsurance program and a $1 billion optional reinsurance program for this coming hurricane season. These actions implicitly recognize that climate change is posing a major threat to the state’s economy.
The Wall Street Journal: Intel's New Compliance Chief Navigates Geopolitics, Supply Chain Shift
Carol Tate, Intel's new CCO, has been forced to undertake cost-cutting measures and supply chain restructuring. The U.S. has placed tighter restrictions on semiconductor industry exports forcing many companies to aid in the effort for the U.S. to regain technology leadership throughout the world, mainly combating China and its dominance in the space.
Intel has maintained its human rights principles policy and has partnered with its international trade group around export controls and sanctions, and it continues to collaborate extensively with supply chain-oriented organizations to revolutionize the way they think about compliance.
Diversity, Equity, and Inclusion
Forbes: How To Frame The “Social” Of ESG To Create An Inclusive Future For All
While many businesses focus on the environmental (E) and governance (G) aspects of ESG and their connection to economic performance, the social (S) is often neglected.
To better incorporate the social aspect, company managers need to collaboratively innovate and refine new methods to cultivate equal opportunities and diversity.
Trust from stakeholders and customers is essential to give companies the space for this innovation.
Inclusive business initiatives and social projects can also work to regain the trust of employees as companies worldwide have seen employee disengagement.
The process of adopting these initiatives will likely be accelerated via the European Union Corporate Social Responsibility Directive (CRSD) which will require all large companies to report on social standards and inclusion by 2024.
To reach a more inclusive future companies must make strides in environmental and governance categories while also taking responsibility for the social; additionally, the author calls for more transparency policies to allow scholars to assist in the process.
ESG Disclosures, Standards, Rankings, and Reporting ESG Today: IFRS’ International Sustainability Standards Board to Open China Office
China’s Ministry of Finance signed an agreement with the IFRS Foundation Trustees to open an office for the International Sustainability Standards Board (ISSB) in Beijing.
The ISSB has been developing its first two standards on company sustainability and climate-related disclosures, which may be finalized in 2023. Regulators around the world have also been preparing mandatory sustainability reporting requirements for companies, which will highly likely take the ISSB standards into consideration.
China has not yet implemented mandatory requirements on sustainability reporting for companies, but some efforts have been made to support ESG disclosures. If China adopted ISSB standards, companies globally would be required to provide ESG data based on consistent rules and guidelines.
ESG Today: Switzerland to Address Greenwashing with Sustainable Investment Label Rules
In Swiss markets, financial products and funds labeled as “sustainable,” “green,” or “ESG” will need to align with specific sustainability goals, and providers will need to disclose their plans for achieving these goals, according to new rules proposed by the Swiss Federal Council.
This proposal comes as regulators in the U.S., the UK, and the EU are all moving to address issues with greenwashing and with funds having ESG-related terms in their names without clear definitions or criteria for assigning these terms.
The Swiss Council announced that a working group under the Federal Department of Finance was formed to implement the rules, and a full plan will be presented by the end of September, 2023.
Reuters: Pace Of New Climate, Sustainable Business Rules Will Not Let Up
2022 was a year for increased sustainability and climate rulemaking and regulatory practices.
Some of the year’s notable policies include the European Union’s sustainability rules for asset managers as well as improved labeling of sustainable funds and investment ratings.
These policies, which hold companies accountable for their ESG claims, become increasingly important as more money is invested into companies that promote their ESG credentials.
These rules will hopefully lead to more transparency within ESG and push companies and firms to maintain higher ESG standards.
In 2023 the pace of rulemaking doesn’t seem to be slowing down anytime soon; especially as guidance for the new, global International Sustainability Standards Board (ISSB) rules for climate-related disclosure is expected to be rolled out throughout the year.
Investment Trends
Bloomberg: Republicans Ramp Up Anti-ESG Campaign for 2023
There is growing sentiment among Republican legislators that ESG is synonymous with “woke capitalism” and is inherently bad for returns. Because of this, they are pushing for things like bans on the consideration of ESG factors in investment decisions (in direct contrast to new rules from the Biden Administration that allow this), and many states are pulling funding from BlackRock, which remains a leader and a strong voice in the world of ESG investing.
With Democratic control of the Senate, it is unlikely that any anti-ESG legislation will pass in the next two years, but proposals are still being presented. Some are even claiming that Congress will be working to find out if antitrust violations are being committed “in the name of ESG.”
However, with rising opposition to ESG comes increasing support, and the increased scrutiny is leading to more focused efforts to define ESG investing strategies and to mitigate instances of things like greenwashing.
There are also new efforts to better communicate about ESG investing and to prevent the spread of misinterpreted information and misleading claims. Some are taking legal action against those launching investigations into financial institutions that include ESG factors in their investment strategies, arguing that these investigations overstep state authority.
The Wall Street Journal: Oil-and-Gas Companies Seek ESG Loans, Pledging Emissions Cuts
Oil and gas companies have been increasingly pledging to reduce emissions while pursuing ESG-linked financing. Generally, ESG-linked securities involve ESG goals set by the borrowers, such as emissions intensity reduction or improving workforce diversity. Green bonds differ because they allow companies to use the proceeds for general funding, not only environmental projects.
The ESG-linked loans lack firm standards or penalties for missed targets. The oil and gas companies can set ambitious goals, but issuers must implement and qualify the commitments. Ultimately, these loans are quickly growing as they diversify investor bases and provide oil and gas producers with spend and use flexibility.
Reuters: U.S. Finance Faces ESG Backlash, More To Come In 2023
Despite the growing pushback against ESG as states bar business or pull investments, financial firms and shareholder activists have been making efforts to support companies shifting to a low-carbon economy or integrating ESG.
The criticism comes at a critical time for global climate efforts to address global warming. Meanwhile, the SEC is facing pressure to scale back proposed rules on climate-related financial disclosures. The increasing pressure and attention on ESG will continue in 2023 as market watchers observe how leading investors exercise their voting power, and the SEC releases climate disclosure rules.
Companies and Industries
The Wall Street Journal: Toyota Chief Says ‘Silent Majority’ Has Doubts About Pursuing Only EVs
Akio Toyoda, president of Toyota Motor Corp. has voiced doubts about transitioning the company’s vehicles to EV only; Toyoda reasoned that hybrids are an important option to reduce carbon emissions in the short term while also meeting consumers halfway.
As some of Toyota’s competitors such as General Motors Co. and Honda Motor Co. have announced dates for when their vehicles will be all EVs, investors are concerned that Toyota may be falling behind.
This comes as EVs remain expensive, primarily due to the rising cost of battery materials and the lack of battery production in the U.S.
However, sales for EVs have increased in markets such as California. Whether this demand will continue across the country after supply increases remains to be seen.
Bloomberg: Gates-Backed Venture Plans to Build $760 Million Battery Plant
Form Energy Inc. will build a $760 million battery plant in Weirton, West Virginia; the energy-storage company is funded by Bill Gates’s Breakthrough Energy Ventures.
Construction is expected to start in 2023 and manufacturing will begin in 2024.
The factory will use iron in its batteries instead of the usual and less readily available lithium-ion, an innovation in battery technology that has attracted investor attention.
Form Energy previously stated that it will “spend less than $6 per kilowatt-hour of storage for its battery cell system,” which is a significant reduction from other current technologies and could make electrification more competitive with fossil-fuel plants.
The Wall Street Journal: 3M to Stop Making Discontinue Use of ‘Forever Chemicals’
3M has announced they would stop making “so-called forever chemicals” and stop using them by the end of 2025, which was influenced by the increased regulations of the chemicals PFAS.
3M’s net sales of PFAS chemicals represent 4% of the company’s total annual sales.
PFAS are chemicals that are used for their resistance to heat, and their ability to repel water, grease, and stains. However, recent research has shown a link with health problems as they can leach into soil, water, air, and food.
3M has committed billions of dollars to clean up the plants in Minnesota and Belgium where PFAS chemicals are produced and are under increasing regulatory focus for soil contamination.
Bloomberg: Inside Big Plastic’s Faltering $1.5 Billion Global Cleanup Effort
In 2021, the largest plastic spill in history occurred off the coast of Sri Lanka with a container ship X-Press Pearl catching fire and then sinking into the Indian Ocean.
In consequence, Sir Lanka’s government imposed a fishing ban as scientists were concerned the fish would mistake the pellets for food.
Alliance to End Plastic Waste (AEPW), donated eight machines called “Sweepy Hydros” to clean up the beaches, accelerating the process by collecting up to 250,000 nurdles a day. One year later, the machines are not being used. According to six women who clean the beaches by hand, the machines get clogged up when the sand is wet, and they require fuel and spare parts. Only collecting 34,000 tons, which is 0.2% of its original target of removing 15 million tons over five years.
AEPW has been focusing on “downstream,” such as collecting and recycling instead of their initial statement to “advance solutions to eliminate plastic waste in the environment.”
Eleven companies that are on the executive committee at AEPW produce petrochemicals, including BASF SE, Chevron Phillips Chemical CO., Dow Chemical Co., among others; these companies pay a membership fee which is meant to fund AEPW’s commitment to invest up to $1.5 billion to tackle plastic waste but 60% reflects “members directed. Commitments" which are projects managed by them.
Sustainable Brands: Putting Recycling to Work for People, Communities and the Planet
The current U.S. recycling infrastructure is not designed to support all plastic, the recycling rate is only 35%.
To create a circular ecosystem for plastics, innovation is necessary. Innovation is about not one but several solutions, such as educating consumers on how to recycle plastics on top of the infrastructure for flexible plastics and packaging.
Collaborations across producers and brands, consumers, recyclers, and more will help move from “aspiration to action on plastic recycling.”