ESG Weekly News Update: July 29, 2022
General ESG News
Forbes: Bridging the Gap Between Sustainability and Profitability
A report from Oxford and SAP found that almost 2,000 executives recognized their sustainability plans are siloed in their organization. This is attributed to the lack of comprehensive planning, poor communication, and inadequate data management.
Sustainability is a pressing topic for customers, and they are demanding more than beautiful marketing materials. Customers are looking for concrete actions focused on reducing carbon footprints and moving towards a circular economy.
Out of the businesses creating a circular economy, 80% of leaders found increased compliance, better brand reputation, enhanced innovation, and greater brand loyalty. This report supports the idea that embedding sustainability into a company’s core will lead to long-term profitability.
Steps can be taken to move businesses towards sustainability including top-down sustainability planning, tracking metrics across the value chain, and holding all stakeholders accountable.
New York Times: Congo To Auction Land To Oil Companies: ‘Our Priority Is Not To Save The Planet’
The Democratic Republic of the Congo is auctioning off large amounts of land in a push to become the new destination for oil investments. The oil and gas blocks extend into Virunga National Park, the world's most important gorilla sanctuary, as well as tropical peatlands that store vast amounts of carbon. They will be auctioned in late July.
Congo has taken note of many of the recent global events and its sole goal for the auction is to earn enough revenue to help the struggling nation finance programs to reduce poverty and generate economic growth. “That's our priority,” Tosi Mpanu Mpanu, the nation’s lead representative on climate issues, said, “Our priority is not to save the planet.”
Forbes: ESG Is More Important Than Ever – Here's Why
Stakeholders – including customers, investors, partners, and suppliers – are looking for increased transparency into what businesses are doing to increase their sustainability. Recently, ESG has become a competitive differentiator, and due to the new SEC disclosure rulings, companies have to pay more attention to ESG.
Despite flaws in the system, ESG ratings have helped bring the terminology into common language, and it pays to be proactive with ESG disclosure and initiatives to earn solid ESG ratings and a positive sustainability reputation in the public eye.
Some non-industry-specific actions companies can start taking immediately include gathering master data about emissions (including Scope 3) and encouraging suppliers to move in the right direction when it comes to their environmental footprint, labor practices, etc.
Forbes: Geopolitics Is The New “G” In ESG
Geopolitics has been a frequent topic for board discussion recently as geopolitical risks are immediately impacting companies’ decisions. In response, many companies have been learning new skills to equip themselves for assessing political risks.
Companies should develop plans to address geopolitical issues rather than react when they arise. Some steps boards and management can take are:
Reiterate the company’s purpose;
Take inventory of key stakeholders; and
Strategize how to integrate geopolitical risks into its long-term strategy.
Bloomberg: South Africa to ‘Open Floodgates’ for Private Power Generation
Eskom Holdings is South Africa’s power utility that has $24 billion in debt and failing to meet the power demand, so South Africa is shifting toward renewables and the private sector for power provision.
South Africa plans to resolve its power shortage by easing the process for private companies to build plants and pay households and businesses to produce electricity from solar panels.
The government also wants to work with Eskom to resolve some of its issues, such as repairing broken units, improving the recruitment of skilled workers, and developing a plan to address Eskom’s debt.
Bloomberg: Why Isn’t There a Mass Movement for Climate Action in the US?
According to a survey of US politics and climate change released by Yale and George Mason University, Liberal Democrats rank global warming as their 3rd highest priority out of 29 issues for the 2022 congressional elections while Conservative Republicans rank it last at 29th.
However, A recent Pew Research report further reveals that there is a majority of national agreement on a massive tree-planting campaign (90%) and more tax credits for technologies that capture and store carbon dioxide (79%).
Carry Funk, Pew’s director of research on science and society, notes: “There tends to be support for some of the values and principles around protecting the environment, but there’s so much division over how you get there, over the policy approaches. So that has been our long-standing sticking point.”
Forbes: A Sustainable Future Requires Positive Thinking
According to a report from the International Panel on Climate Change, the world is warming much faster than we had previously anticipated and is on track to raise 3 degrees Celsius this century, which is twice the previous estimate.
What are the positives?
According to Black and Veatch’s 2021 Corporate Sustainability Goal Setting And Measurement Report, more than 80% of the companies surveyed, with revenues greater than $250 million, have set greenhouse gas emission goals.
There are many innovative solutions that are being implemented right now and there are many pioneering technologies to look forward to.
Biofuel is a carbon-neutral fuel option that can be regenerated in a timely fashion and processed using renewable energy.
Hydrogen, a clean and sustainable fuel source, is starting to be used for heating, transportation, storage, and electricity generation.
Bloomberg: How to Think About Your Carbon Footprint
“[There is a] responsibility with every person and every institution,” says Mike Berners-Lee, an environmental professor at Lancaster University in the UK. “As an individual, the question to be asking is: What can I do to help create the conditions under which the world is capable of big systematic change that we so urgently need?”
A few actions individuals can take:
Vote for politicians who take climate change seriously
If you can afford it, spend money on greener products and services
Reduce your personal emissions
It's important to note that purchasing power sends a message to businesses that you support their investment in a climate-friendly world. It's also important to point out the opposite of that, not purchasing from certain businesses because they don't invest in a climate-friendly world, can also send a strong message.
ESG Today: Dow Scales Plastic Recycling and Circularity Capacity
Chemicals and materials giant Dow announced last week a series of investments aimed at accelerating the company's circularity abilities, significantly scaling its plastic recycling capacity.
The company stated that the new initiatives will make Dow the largest consumer of recycled plastic feedstock for polyethylene globally. The project invests in both advanced and mechanical recycling systems.
Dow also announced an agreement with advanced recycling company Nexus Circular to secure the production output of a new facility in Texas. The facility will “process over 26,000 tons of previously non-recycled plastic, converting into raw material for new plastics for food contact, health, hygiene, and fitness applications.”
Bloomberg: Where Are All the Climate Warning Labels on Gas Pumps?
Gas pumps in Cambridge, MA now display labels that warn drivers of the health and environmental consequences that come with burning gas.
These warning labels are the first of their kind in the U.S. per a mandate of installation from the Cambridge City Council.
The hope and goal of these warnings are to inform drivers of the risks associated with the burning of gas as transportation has the biggest greenhouse gas footprint in the US and in turn, it can encourage the increased use of electric vehicles.
Northern Vancouver was the first to use these warnings in 2016 with the help of the nonprofit Our Horizons.
Our Horizons was created by Robert Shirkey and they focused on creating and applying these warning labels.
So far, there is no track record of these labels making a difference but there is potential for the labels to increase public support for greener solutions.
Diversity, Equity, and Inclusion
Forbes: The Business Case For Tackling Diversity, And Private Equity’s Role
Amit Sinha, of the Forbes Technology Council, has prepared a business case that “explores DEI and why the private equity (PE) industry’s position enables them to drive meaningful change.
Sinha notes the statistics that inform the current state of DEI in finance:
6% of finance organizations broadly have female CEOs.
Of the top 18 private equity and venture capital organizations, only 1% of board roles were held by Black or Latino directors.
Discrimination witnessed in the workplace was 13% higher for private equity-owned organizations versus public organizations.
Sinha notes that PE firms have an opportunity and a role to play in driving DEI:
Publicly commit to a DEI target -- this will allow the business to gain from the benefits of embarking on the journey whilst holding itself accountable.
Make DEI a strategic priority with executive sponsorship- This will ensure leadership provides the attention and support needed.
Monitor and report on DEI initiatives- Update company policies and processes where necessary.
Monitor DEI performance across portfolios with incentivization- This will help spread the initiative to portfolio companies.
Forbes: Embrace Diverse Types of Intelligence
The different types of intelligence include linguistic-verbal, musical, logical-mathematical, interpersonal, intrapersonal, visual-spatial, naturalistic, and bodily-kinesthetic intelligence.
These categories of intelligence are defined by how a person is able to find and solve problems.
It's important to create a work environment that is inclusive of all types of intelligence to reach full potential.
The Dunning-Kruger effect suggests acknowledgment and removal of biases that can interfere with success.
These biases tend to be based on overestimating one's own true intelligence.
The New York Times: Justice Dept. Will Investigate Environmental Racism in Houston
Lone Star Legal Aid submitted a complaint to the Justice Department (JD) after monitoring resident complaints from Houston’s northeast side, which has become a dumping site for “household furniture, mattresses, tires, medical waste, trash, dead bodies and vandalized A.T.M. machines,” said Kristen Clarke of the JD.
The Biden administration announced the JD’s investigation as part of a broader plan to address racial inequalities that have left people of color at a disproportionate risk of exposure to carcinogens and harmful pollutants, flooding, and varying destructive environmental events.
According to Clarke, these illegal dump sites in Houston “not only attract rodents, mosquitoes and other vermin that pose health risks, but they can also contaminate surface water and impact proper drainage, making areas more susceptible to flooding.”
ESG Disclosures, Standards, Rankings, and Reporting
ESG Today: ESG Book Launches Fund Sustainability Scoring Solution
Research indicates that major indices are not currently on track to reach global climate goals. ESG Book, a sustainability data and technology company, announced the launch of Fund Scores, a solution allowing investors to analyze and compare the sustainability of thousands of funds.
Fund Scores are part of ESG Book’s initiative to scale globally as clients are demanding technology-based ESG data solutions. The Fund Scores offer coverage of over 30,000 mutual funds and 4,000 ETFs.
ESG Book also provides data on the climate profile of the world’s largest funds, revealing that none of these are on track to limit warming below 1.5 degrees Celsius by 2050. The Dow Jones Industrial Average has the lowest emissions intensity ratio (EIR) of 40 tons per million dollars of revenue, while Australia’s ASX has the highest EIR of 327 tons.
ESG Today: Accenture Invests in ESG Measurement Platform PulsESG
Accenture announced its strategic investment in PulsESG, an ESG measurement platform. Both plans to collaborate and build joint product offerings. PulsESG’s software as a service (SaaS) platform “utilizes internal data sources and external systems to help organizations define, measure and report on ESG performance and address issues around ESG data quality and timelines.”
Murat Sönmez, one of PulseESG’s co-founders, stated, “With a shift toward real-time ESG reporting becoming standard practice for companies worldwide, we designed this platform to be the ultimate system of record for ESG – one that has the flexibility and modularity required of today’s rapidly transitioning regulatory landscape.”
Investment Trends
Bloomberg: Climate Tech Funding Is Showing Signs of Resisting Market Turmoil, But It’s Complicated
According to a recent BloombergNEF review of flows into six climate-related sectors, venture capital and private equity investment held steady at nearly $12 billion in Q2 from a year earlier. The $27.9 billion investment in the first half of 2022 was 47% more than the same period a year ago.
CB Insights, an analytics firm, reported that “the signs of strength in climate funding contrast with the dim picture in the global market for venture capital, where both the dollar amount of funding and the number of deals fell on an annual and quarterly basis.”
The BloombergNEF data found that energy-related companies made $5.3 billion, beating transportation startups by more than $2 billion, normally, EV and other mobility companies make more than energy technologies.
Reuters: Investment fund assets to miss climate goals, research says
According to ESG Book Chief Executive Daniel Klier, markets still lack the accurate information required to allocate capital more effectively to sustainable, higher-impact assets. This is a direct response to some of the largest investors who pledged to cut emissions in line with the 1.5-degree target.
ESG Book analyzed $40 trillion of equity and fixed income funds and assigned temperature scores to their assets based in part on emissions per million dollars of revenue, or emission intensity ratios.
The research also found that emission profiles may be even higher in reality because the firm doesn’t consider Scope 3 emissions – which refers to emissions generated by suppliers and customers across a company’s value chain.
Bloomberg: One Fund, Three Names and Lots of Questions for ESG
In a period of six years, BlackRock rebranded its funds in order to sell the idea of investing with a social purpose. This loose investment category in general tends to promise to do good while doing well.
The SEC is examining how asset management firms are portraying ESG-type funds as officials worry ordinary investors may be misled. SEC Chair Gary Gensler has been saying change is overdue. Regulators want to bring fund names more in line with the investments that funds hold.
According to Morningstar Inc., since 2019, at least 65 funds have at a large of asset management companies were re-purposed as “sustainable.”
Forbes: Proxy Advisory Firms And The ESG Risk
ESG portfolios are on the radar of the most prominent Wall Street banks. However, if the subject doesn’t provide strong results, funds will suffer financial outflows and eventually close.
Corporate ESG programs enhance shareholder value if they reflect consumers’ desires or enhance worker productivity. When companies implement these programs, they efficiently provide customers with the products they desire.
Studies suggest that ESG-related proxy measures typically harm financial returns. The top two major proxy advisory firms establish their ESG positions without adequate transparency and use a one-size-fits-all approach. A study from the American Council for Capital Formation concluded that ESG recommendations from proxy advisory firms, particularly small and mid-sized companies, are in favor of large companies that have the resources to comply.
Companies and Industries
Bloomberg: Northvolt to Develop Wood-Based Batteries with Stora Enso
The Swedish battery maker Northvolt AB is exploring using carbon in wood to make batteries and lower the environmental footprint and cost of production and use.
The sustainable batteries will use lignin-based hard carbon on an industrial scale and will include an anode sourced from all European raw materials. Lignin is a plant-derived polymer in the cell walls of dry-land plants and trees.
Stora Enso, the world’s largest lignin producer, is making 50,000 tons of kraft lignin a year and is leading a feasibility study on the first industrial production of a lignin-based battery.
The Wall Street Journal: The Upside-Down Logic of Electric SUVs
For consumers looking to buy the new large-battery, long-range EVs automakers are producing, they would need to drive them tens of thousands of miles to accumulate the CO2 emissions savings needed to offset those associated with the production of their batteries.
If there were real incentives to reduce CO2 emissions, consumers would look for small EVs and hybrids that stand a better chance of offsetting their lifecycle emissions.
Automakers are also struggling with the financial implications of expanding EVs – Ford recently released plans to lay off workers to increase profits from conventional vehicles and to offset the losses from EVs.
Conventional vehicles are expected to be starved for investment, and automakers are expected to invest more in big-battery, luxury EVs, which can ultimately lead to the same or worse overall emissions than otherwise.
Norway has become the global model for countries looking to structure their EV industries, but Norway’s model of subsidies for EV buyers is not feasible everywhere.
ESG Today: Amazon Kicks Off Rollout of 100,000 Electric Vehicle Delivery Fleet from Rivian
The rollout of 100,00 electric vehicles is in response to Amazon’s net zero emissions goal by 2040 across their operations.
These vehicles are made by Rivian and Amazon has invested over $1.3 billion in their company.
These vehicles are now being used as of Thursday, July 21, 2022, across multiple states in the US including Chicago, Nashville, and San Diego.
Amazon plans to have these vehicles operating in more than 100 cities by the end of 2022.
Amazon also plans to have about 100,000 vehicles in use by 2030.
The Wall Street Journal: German Lessons for the Energy Transition
Uniper, one of the largest European electricity producers, agrees after being bailed out by Germany that buying from Russia is a bad decision due to them being untrustworthy.
This untrustworthy behavior is emphasized during the current geopolitical climate and Russia’s weaponization of energy.
Germany stepped in with about $15.3 billion in both equity and credit lines which caused a decrease of about 37% in the stock market.
Most of Europe is looking to leave Russian energy behind and the increase in green energy might be the key to doing so.
There is concern that regardless of the outcome of the war in Ukraine, there most likely won't be energy that was as affordable or plentiful as before.
Two-thirds of energy in the EU is generated in areas where it would be cheaper to install solar or wind facilities than it is to continue with the current coal and gas facilities.
Extreme weather is also affecting these current facilities.
Government Policy
New York Times: Manchin, in Reversal, Agrees to Quick Action on Climate and Tax Plan
Senator Joe Manchin of West Virginia announced Wednesday that he has agreed to include the funding for climate and energy programs, as well as tax increases in a package to address health care and prescription drug costs. This comes less than two weeks after he blocked the bill this summer.
The package will include $369 billion for climate and energy proposals, the biggest investment Congress has ever made in climate action. The deal would reduce the federal deficit by $300 billion, reducing the price of health care, prescription medications, and electricity.
Manchin now champions the bill as a realistic energy and climate policy that will allow the country to decarbonize while ensuring that American energy remains affordable, reliable, clean, and secure.
Manchin’s change in mindset may be related to a recent announcement that Congress has approved a measure to permit energy infrastructure, likely including natural gas pipelines. This policy could allow a project Manchin is personally interested in, the Mountain Valley Pipeline, to transport gas from West Virginia to Virginia.
The U.S. Department of Energy (DOE) has announced a Notice of Intent (NOI) to provide $225 million to state and local governments to implement new building energy codes.
According to U.S. Secretary of Energy Jennifer M. Granholm, “raising the efficiency standard of America’s new buildings will rapidly save Americans money on their utility bills and strengthen the nation’s building stock against extreme weather events.
Emissions from building energy consumption currently account for about 35% of America’s carbon emissions, and reducing these emissions is a key component of President Biden’s goal to achieve net-zero emissions by 2050.
ESG News: DOE Announces $96 Million for Advancing Clean Vehicle Technologies to Reduce Carbon Emissions
The new DOE funding will focus on expanding EV charging accessibility, creating cleaner non-road vehicles and alternative fuels, and developing electric drive components and materials to maximize EV efficiency and affordability.
The funding will also support President Biden’s goal of having EVs make up half of all vehicle sales in the U.S., by 2030. To achieve this, the nation also needs to expand charging infrastructure and drastically increase its focus on underserved areas.
The New York Times: What Would a Climate Emergency Mean? Here Are 4 Key Points.
In a crisis, a president can invoke emergency power, which is a unique, temporary authority to respond quickly to urgent, typically unforeseeable circumstances. Emergency power allows the president to act within an exception to rules.
If President Biden declared an emergency, he may reinstate the ban on crude oil exports, stop new oil and gas drilling on federal waters, or restrain fossil fuel imports and exports.
Some argue that a climate emergency declaration is an overreach of presidential power and an inappropriate method to act around Congress. They believe that doing so would set a dangerous precedent that outweighs the benefit.