ESG Weekly News Update: July 11, 2022
General ESG News
Forbes: The ABCs Of Integrating ESG In Company Culture
Companies that do not prioritize ESG risk losing the trust of their employees, customers, and the greater public. Additionally, there is growing evidence that a company’s success with ESG is linked to positive financial performance. The integration of ESG into a company’s daily systems and processes relies on leaders championing ESG as an integral aspect of the company’s culture, which can be done by making the following connections:
Connecting ESG with organizational strategy and purpose
Connecting people and building collaboration
Connecting ESG with processes at all levels.
Wall Street Journal: A Warning From Australia’s Power Crisis
Despite promises to increase green energy, a national electricity crisis in Australia is showing that fossil fuels can be difficult to fully abandon. Regulators were forced to rely on fossil fuels to prevent blackouts, and many in the country blamed fossil fuel companies for manipulating markets. Coal generators were accused of withholding power to drive up electricity prices and boost profits before being forced to close by climate regulation.
While renewables are set to increase in Australia, they do not provide reliable, round-the-clock power. Additionally, investments in lithium-ion batteries are not helping as much as expected.
The U.S. could face similar problems if more transmission lines are not built to connect more green energy throughout the country. This development involves the same permitting and construction obstacles as other energy infrastructure developments.
The main lesson for the U.S. is that a “force-fed green transition” will lead to energy shortages, prompting government intervention and creating even more market dysfunction.
Bloomberg: How Reaching for the Clothes in Your Closet Helps Fight Climate Change
Recent research has revealed that wearing the clothes in our closets twice as many times as we might have otherwise before getting rid of them can help prevent some future climate pollution. Wearing clothes, we already own likely means buying less in the future, thus preventing the GHG emissions from the production of new items.
Skyrocketing clothing sales around the world suggest that people are buying more than they used to and buying more than they really need. The fashion industry currently accounts for between 2% and 8% of global carbon emissions, according to the UNEP. If the industry continues on its current path, it could use up more than 25% of the carbon budget that remains to limit global warming to less than two degrees Celsius by 2050.
Compounding the problem, the fashion industry contributes to the release of plastic microfibers into the ocean and the accumulation of waste in landfills. Less than 1% of clothing collected for recycling is turned into new items.
The new challenge for brands wishing to make real change is to shift the mindset from a demand for ‘newness’ to products that are ‘new to you.’ Pre-worn and rented clothing are already gaining new popularity, and the secondhand clothing market has grown more than threefold from 2012 to 2021.
The way consumers wash clothing also matters from a climate perspective, and to minimize the environmental footprint, people should wash using cooler water and air dry when possible.
Forbes: Boardrooms Keep Getting It Wrong – This Company Is Working With Them To Change That.
Boardrooms are starting to adjust to the need for transparency and ESG subject matter experts to mitigate scrutiny.
Monica Lagercrantz, founder of BoardClic, states that self-reflection and feedback are key for decision making.
BoardClic is designed to give quantitative feedback that allows board members to make better decisions.
Lagercrantz is a big believer that there can't be too much feedback, only bad feedback.
Not only is feedback important for decision making but it also helps keep power imbalances in check.
This is an important aspect of governance in terms of ESG. A balanced board is essential for proper governance practices.
ESG Today: Urgent Corporate Action on Deforestation Needed to Meet Climate Goals: Report
According to a new report released by the UN-backed Race to Zero, generated in partnership with Global Canopy, Science Based Targets initiative, and the Accountability Framework Initiative, indicates that there is a need for an immediate and significant increase in corporate action on deforestation to meet global climate goals.
Deforestation attributable to companies with land-based value chains, especially in the forest, land, and agriculture sectors, is responsible for a major proportion of global GHG emissions. Additionally, a majority of the companies deemed critical to tackling deforestation have yet to set net-zero targets. Also, a number of the companies that have set targets are at risk of missing them.
The report highlights the need for commodity-driven land clearance to halt by 2025 to keep the global goal of limiting warming to 1.5ºC alive.
Forbes: Six Practical Developments To Help Business Leaders Create Both Social AND Economic Value
Forbes has identified six catalyzers for a social and economic approach to creating value:
International banks are aware of the need to finance long-term sustainability projects to offer cities and states solutions to answer challenges such as water provision and social infrastructure (such as schools, hospitals, etc.).
Some multinationals are revising the very nature of their core business structures.
Private companies are seeking to harness big data and AI to drive their partnership with public bodies and citizens, especially in urban settings.
Some major executives have been making great efforts to better secure the quality of ties with their workers.
Managers need to be aware of legislation in some countries where rigid procurement laws for public/private partnerships have been passed.
Business leaders are reconsidering the opportunity to invest in local and regional areas of the global supply chains.
Forbes: Business Models Revolving Around Sustainability – From Iceland with Courage
Iceland’s economy now runs on 85% renewable energy and is on the path to 100%. It is currently supplied 72% by hydropower and 25% by geothermal, and by 2040 wind power will supply the remaining energy to get to 100% renewable.
Green by Iceland is a creative business model that revolves around collaboration and sustainability. It is promoting and sharing its sustainable and renewable energy solutions to help other economies and businesses shift more rapidly to avoid the devastations of climate change.
Creative solutions include multi-use business centers that are designed to use each other’s products and byproducts and are centered around geothermal plants that provide power to the businesses.
The New York Times: Yellowstone to Weigh Climate Change Risks When Rebuilding From Flood
Yellowstone is at an existential crossroads in the time of climate change when considering how to rebuild after flood damage from the June storm forced the two northern entrances to close for months.
The superintendent of Yellowstone, Cam Sholly, acknowledged that “thousand-year events” are becoming more and more frequent and officials need to take this reality into account when rebuilding.
While the inundation of water resulted in an estimated $1 billion in damage, the opposite concern also has scientists worried. Last year marked some of the warmest water temperatures and lowest water levels as the park reached a warming of 2.3 degrees Fahrenheit between 1950 and 2018.
A recent study shows that hotter and drier temperatures could affect the park’s famous geothermal features given less water, even the Old Faithful geyser has historically stopped erupting for decades during a megadrought.
Wall Street Journal: Private Sector Leads Fight Against Climate Change
Businesses and governments are following different paths on climate action now. The war in Ukraine, along with food and fuel shortage has led several governments to focus less on climate change, but the same can’t be said for businesses and investors.
More private funding is now available for green projects and Startups are still raising money, even though markets are melting down. There’s some sense that businesses will do whatever it takes to move forwards, or at least be perceived as moving forward in the fight against climate change.
People care about the impacts of climate change. If the private sector continues to be perceived as the leader in these issues, developing and poor countries will largely be left behind, some analysts warn. As they point out, if we continue with a prolonged recession or economic downturn that hits a lot of these companies, they won’t spend aggressively on climate strategies.
Wall Street Journal: Coal Makes a Comeback as the World Thirsts for Energy
Many of the world’s largest economies, including the U.S., China, India, and European countries, are currently increasing short-term coal purchases to ensure adequate electricity supplies, which have been strained due to several factors, including Russia’s war against Ukraine.
The turn to coal is happening amidst the pledges of many nations to reduce their coal consumption in an effort to combat climate change, and there is now a shortage of coal due to declining investment and the sudden rise in demand. This also means record high prices for the resource.
Countries are being forced to make difficult decisions about which to prioritize: people or the planet. As one industry expert explains, “Right now, the sentiment is that more coal is better than more Russia.” Unfortunately, the resurgence of coal, which emits around twice as much carbon dioxide as burning natural gas, poses a setback to efforts to keep global temperatures from rising above Paris Agreement levels.
Climate activists are concerned about the rise in coal use but see it as a short-term solution in the West, and are more concerned about other geopolitical events.
Forbes: How to Meet the Sustainability Challenge
Companies that are serious about ESG understand that trust takes time and losing it can happen in seconds. A sincere and serious ESG mission gives employees a sense of trust that they are working for a company that is ethical, mindful of its impacts, and striving to do good and affirmatively mitigate harm.
Tech companies can use ESG programs to build credibility with employees, customers, and investors. Multiple factors have contributed to declining tech trust: data privacy and control challenges, rising cybersecurity risks, the influence of social media in politics, job volatility, and social equity concerns. Ignoring these issues is increasingly likely to create serious reputational harm.
Integrity is the key word here; ESG should be woven into the business at every layer, up to, and perhaps especially including, the board
The New York Times: Skyrocketing Global Fuel Prices Threaten Livelihoods and Social Stability
The increasing volatility in gas and oil prices has encouraged more investment in renewable energy sources, however, when clean energy experiences a boost in investment fossil fuels are as well.
In June 2022, Premier Li Keqiang of China called for increased coal production in order to avoid power outages during a heat wave in the northern and central parts of the country to meet the subsequent rise in demand for air conditioning.
According to Fatih Birol, the executive director of the International Energy Agency, “We will still see high and volatile energy prices in the years to come."
ESG Disclosures, Standards, Rankings, and Reporting
Reuters: SEC’s Gary Gensler: ‘There needs to be clear rules of the road for disclosing climate risk’
Sustainable finance has been taking off in the U.S., and the SEC’s proposed rules on climate risk disclosure will mandate the publication of climate risk data, signaling that sustainability matters are becoming integrated into “mainstream” business and finance in the country.
The main pressure for ESG progress and reporting is coming from investors, many of whom prefer active engagement and enacting change with their power as shareholders rather than divesting from companies with poor ESG performance and/or ratings.
Critics of the newly proposed rules argue that they will pose a significant burden to companies, while others criticize that the rules only require disclosure and do not mandate a reduction in carbon footprint. On all sides of the debate, there is agreement that one of the biggest barriers to both reporting on and mitigating climate risk is a lack of actionable data.
There is also a confusing reporting landscape, with competing industry standards and indices.
ESG Today: FCA Pushes Back Process to Introduce Sustainability Disclosures, ESG Labels for Investors
The Financial Conduct Authority (FCA), which is the conduct regulator of financial markets and service firms in the UK, has recently announced that it is extending the process for introducing sustainability disclosure requirements for asset managers and ESG labeling rules for investment products.
The rules aim to improve transparency with common standards, clearly defined terminology, and helpful product classifications to assist investors in navigating the rapidly growing ESG investing landscape, as well as to reduce greenwashing risks.
The new disclosure and labeling requirements are being delayed from the original target of Q2 2022 until the fall of this year, with the purpose of allowing the FCA to “take account of other international policy initiatives and ensure stakeholders have time to consider these issues.”
Wall Street Journal: Audit and Consulting Firms at Odds Over Who Should Verify Climate Data
Firms that verify businesses' climate data are at odds over who is qualified to perform the work. The US securities regulator in March said it wants companies to seek independent verification of certain new disclosures. The assurance requirement would apply to companies with at least $250 million in publicly traded shares.
Under the SEC proposal, the attestation report could be prepared not only by external auditors but also by service providers. If adopted, assurers of environmental, social, and governance details would likely see greater demand for their services.
About 6% of S&P 500 companies last year used an accounting firm to verify at least some of their ESG information, compared with 47% who hired a non-accounting firm, according to the latest data from the Center for Audit Quality.
Investment Trends
Financial Times: Wealth Managers Must Put ESG Into Practice
One survey found that one in four UK millionaires believe that ESG investing options are very important. This is backed by another survey’s findings that 59% of wealth managers thought ESG options were either extremely or moderately important.
Wealthy UK members have a unique role in the aim for net zero emissions because they contribute the most to climate change while dodging the negative effects but, as the previous surveys stated, ESG has become more important to the wealthy and in turn implies a want for a sustainable future.
Although there is a small portion of UK millionaires that do not share the desire to increase ESG options, these wealthy members are older and will soon be overtaken by the younger generation.
It is important that wealth managers respond to this increased desire for ESG options in measurable ways to avoid any public greenwashing accusations.
Reuters: Green investors to step up pressure on utilities after court ruling
A new set of constraints on the U.S. Environmental Protection Agency’s authority to regulate greenhouse gas emissions from coal- and gas-fired power plants will put the responsibility on investors looking to slow climate change. The new ruling from U.S. Supreme Court on Thursday diminished the power of federal environmental regulators.
According to Mindy Lubber, president of Ceres, a Boston climate advocacy group that works with asset managers and others, said having invested heavily in clean power technologies like solar panels and battery storage, utilities won’t likely change course whatever regulations are limited by the court’s decision.
The consequences of the new ruling can be expected could also spell trouble for an effort by a U.S. Securities and Exchange Commission to force companies to disclose their emissions, legal experts pointed out.
Reuters: ESG Watch: Climate activist investors were sidelined this earnings season, but they’ll be back
The world’s largest asset manager, BlackRock, which supported 47% of environmental and social shareholder proposals in 2021, announced that it would support fewer proposals in 2022 because “many of the climate-related shareholder proposals coming to a vote in 2022 are more prescriptive or constraining on companies and may not promote long-term shareholder value”.
There has been a backlash against the concept of ESG after it was liberally appropriated by asset managers for a range of products.
Some key market players were downhearted at this apparent change in fortunes and U.S. climate envoy John Kerry told the World Economic Forum that the war in Ukraine and the energy crisis were no excuse to reverse the energy transition and continue our dependence on fossil fuels.
Companies and Industries
The New York Times: Nuclear Power Gets New Push in U.S., Winning Converts
Under pressure to meet clean energy goals while also meeting growing energy demands, political leaders are increasingly taking another look at nuclear power, focusing on building new and more efficient reactors as well as extending the life of existing reactors. The movement is attracting bipartisan support.
The nuclear power industry knows it has an image problem and is plagued with the same issues that existed decades ago. However, with recent supply chain issues disrupting wing and solar power development, the Biden administration has established a fund to help keep nuclear reactors running and to make them more economically competitive.
Experts argue the need for a power generation source that is not weather dependent to help make the grid more reliable, and coal-fired power plants could become sites for new nuclear reactors.
Brownouts and blackouts are an increasing concern across the U.S., and coupled with solar, wind, and hydroelectric power, proponents of nuclear energy argue that new small modular reactors and extended existing reactors could make 100% clean energy possible. The next obstacle is to gain certification by the Nuclear Regulatory Commission for the smaller modular reactors.
Bloomberg: Giant UK Electric-Car Charging Station Also Will Supply the Grid
The project, Energy Superhub Oxford, is opening in the UK and will include 42 rapid electric-vehicle chargers and supply power to the UK grid.
Pivot Power, a division of the Electricite de France SA, worked with the Oxford City Council to develop this $50 million facility that could serve as an example for building storage capacity to achieve climate goals.
The charging station will be able to provide 300 miles of range to a car in 20 minutes, supplying extra energy for hundreds of cars a day, addressing one of the biggest barriers to large-scale electric vehicle charging, access to power.
ESG Today: Pfizer Announces 2040 Net Zero Commitment
The pharmaceutical giant announces new climate commitments, including the Net Zero Standard launched by Science Based Targets initiative (SBTi) to certify a company’s commitments to net zero emissions.
The company has committed to net zero greenhouse gas by 2040 and an emissions reduction by 95% in its operations and by 90% in its value chain.
Pfizer signed a pledge by the U.S. Department of Health and Human Services (HHS) which calls on stakeholders in the U.S. healthcare system to reduce GHG emissions and increase climate resiliency in healthcare infrastructure.
ESG Today: Shell to Build the Largest Renewable Hydrogen Plant in Europe
Shell announced it will build Europe’s largest renewable hydrogen plant, Holland Hydrogen I, to be fully operational by 2025 and produce 60,000 kilograms of renewable hydrogen per day.
Though hydrogen is the most abundant element in the universe, there are no pure deposits on earth. It must be extracted from other materials through a process that often releases pollutants and greenhouse gases.
Shell aims to produce hydrogen for the plant using electricity generated by the offshore wind park, Hollandse Kust Noord.
Forbes: Sustainability 2.0 And The Promise Of Green-Line Growth
Shameek Ghosh, CEO and co-founder of TrusTrace, a leading platform for supply chain traceability within fashion and retail, thinks that sustainability, specifically in the fashion industry, is going to go through a similar evolution as the Internet. This means that just as the internet has evolved from simple, static webpages, sustainability is destined to become a part of everyday life and might increasingly actively define everyday life.
He states Sustainability 1.0 has been about realization, regulations, and catching up. Sustainability 2.0’s critical measure is green-line growth, strategic attention to sustainability that drives the business that is measured in three main ways: by the detail of the company ESG criteria and demonstrable steps, by the number of products it offers that are made responsibly, and in accordance with applicable laws or standards, and by planned resilience of its business model to the risks of climate change.
He predicts Sustainability 3.0 brands are sustainable enterprises first and business is second (e.g., Patagonia and Allbirds). It is imperative for more companies to make sure to incorporate accurate, comparable, and granular level data when evolving sustainability goals. When promoting green credentials, there needs to be action behind the claims, and they need to be able to stand up to scrutiny. Use data to make predictions, run scenarios, identify unnecessary resource consumption, respond faster to changes in demand, and minimize the impact of internal and external shocks.
ESG News: ECB Takes Further Steps To Incorporate Climate Change Into Its Monetary Policy Operations
The European Central Bank (ECB) has decided to account for climate change in the Eurosystems corporate bond purchases, collateral framework, disclosure requirements, and risk management, in line with its overarching climate action plan.
The goal of these measures is to reduce financial risk related to climate change on the Eurosystem’s balance sheet, encourage transparency, and support the transition to a green economy.
These measures are also set to be regularly reviewed to ensure that they are aligned with the objectives and purpose of the Paris Agreement and the EU’s climate neutrality objectives.
ESG Today: SMEs Lagging on Climate Action Due to Cost, Lack of Information: Report
According to a survey conducted by Lloyds Bank for Business, over 75% of small and medium-sized businesses (SMEs) in the UK lack a strategy to address their climate impact despite acknowledging the importance of sustainability.
The study found that more than 80% of SMEs recognize the importance of being more sustainable, and 68% are aware of the UK government’s targets to reach net zero. However, less than 50% knew the meaning of “net zero,” and 77% either do not have or are unsure of their business strategy to reduce their carbon footprint in the next three years.
The study also found that younger business owners were farther along in their climate strategies, with 50% of those under the age of 35 concerned about their carbon footprint, and over a third being able to calculate it.
Bloomberg: Battery Makers Warn EU That Lithium Proposal May Hurt EV Sector.
The EU is currently looking to classify lithium as a reproductive toxin, yet many battery makers are adamant that this classification will severely harm the electric vehicle industry.
The move for the new classification of lithium is based on studies done in the 1980s and 1990s.
Lobby groups question the validity of the scientific reasoning and worry about investment cuts to the electric vehicle sector.
Government Policy
ESG Today: Supreme Court Decision a Big Setback for US Climate Strategy
Last week, the Supreme Court ruled that the Environmental Protection Agency (EPA) did not have the authority to regulate limits on carbon emissions from coal plants – this ruling can have major repercussions on the government’s ability to achieve its climate goals.
President Biden referred to the ruling as “another devastating decision that aims to take our country backwards.” The ruling may prevent the government from carrying out its climate initiatives through federal agencies, and many sustainability-focused nonprofit and NGO leaders have spoken out against the ruling.
The court’s ruling was based on West Virginia’s challenge to the 215 Clean Power Plan, and the court found that the EPA did not have the authority to institute emissions caps that promote a shift away from high-emissions energy generation sources.
The New York Times: What to Know About California’s Landmark Plastics Law
On Thursday of last week, California Governor Gavin Newsom signed Senate Bill 54, the same day the US Supreme Court limited the EPA's ability to restrict greenhouse gas emissions. This new law provides another route for curbing carbon emissions and trying to sidestep the worst consequences of global warming.
The plastics industry is expected to consume 20% of oil produced worldwide by 2050. Less than 10% of plastic gets recycled and instead ends up in landfills or the ocean. This new legislation gives plastic makers an extra two years to comply, among other points.
Some of the key tenets of this new legislation include:
By 2032, plastic producers must reduce the amount of plastic in packaging by 25%.
All single-use packaging, including paper and metals, must be recyclable or compostable by 2032. The law also mandates that California raise its recycling rates for all plastic products to 65% by 2032.
Plastic manufacturers must pay $5 billion into a fund over the next 10 years that would mitigate the effects of plastic pollution on the environment and human health, primarily in low-income communities.
The New York Times: Is Gas Green?
The EU is planning to cut greenhouse gas emissions by 55% by 2030, but they are most likely going to use natural gas to reach this goal.
Natural gas is methane or fossil gas that produces less CO2 than coal but more than wind or solar energy.
Parliament is proposing to categorize natural gas as “green,” which then allows for loan borrowers to access subsidized loans at a better rate.
Currently, the EU uses gas for the majority of its heating needs and a quarter of electricity needs.
Many European lawmakers believe this change will not help in transitioning to net-zero greenhouse gas emissions.
Bas Eickhout, an EU Parliament member, believes this potential categorization of natural gas will send the message that gas is as green as renewable energy.
Many policymakers argue that this change will be critical for the EU to reduce and remove any dependency on Russian energy.
ESG Today: European Lawmakers Defeat Move to Keep Nuclear and Gas out of Green Investment Taxonomy.
An overall vote against the resolution that would not allow for nuclear energy and gas to be cut out of the Green Investment Taxonomy will now pave the way for the two energy sources to be classified as green activities.
The resolution was voted down 328 to 278.
Some groups do not agree with this vote as they do not believe these energy sources should be considered green. There is a probability some sustainability groups will take legal action against the decision.
Wall Street Journal: The Supreme Court Restores a Constitutional Climate
West Virginia vs. EPA was revived by the DC Circuit Court of Appeals last year. The Supreme Court announced the major decision of 6-3 on Thursday on the question of Whether the EPA could invoke an obscure statutory provision to re-engineer the nation's electrical grid. Prior to the 2015 Obama rule, the EPA had used the provision only a handful of times to regulate pollutants from discrete sources. The rule would have effectively required coal and gas-fired generators to subsidize renewables.
The justices are not blocking climate regulation, they are merely saying that the decision on whether and how to do it rests with Congress. But as with many other decisions, the court is telling Congress and the executive branch to stay in their proper constitutional lane.
ESG Today: Climate Watchdog Warns of “Major Risks” of UK Missing Net Zero Goals
The Climate Change Committee (CCC), the UK government’s climate advisor announced the publication of its annual progress reports to parliament.
The CCC assessment utilizes a revamped framework for monitoring progress, focused on the changes needed to achieve net zero. The analysis identified several areas of strength, including the deployment of renewable energy and the increase in adoption of electric vehicles. The report did warn that government policy is falling short in several vital areas, with food security and biodiversity goals being the weakest areas assessed.
The CCC stated that the UK's current strategy will not deliver net zero. Lord Deben, Chairman of The Climate Change Committee, said, “I welcome the government's restated commitment to net zero, but holes must be plugged in its strategy urgently. The window to deliver real progress is short.”