ESG Weekly News Update: June 10, 2022
General ESG News
ESG News: China Pilots Low Carbon Bonds To Help Companies Become Greener
As a supplement to green bonds and in support of sustainable financing, China is rolling out low carbon transition bonds to help companies become greener. Companies in eight sectors will issue bonds to fund decarbonization efforts.
China is the world’s biggest producer of greenhouse gases, but China has pledged to reduce emissions to peak before 2030 and become carbon neutral by 2060.
The revenue from the transition bonds will fund green efforts, such as cleaner coal production, green technologies, and the use of natural gas and clean energy.
Forbes: The Topology Of Hate For ESG
Topology is the “mathematical study of the properties that are preserved through deformations, twistings, and stretchings of objects.” Robert G. Eccles, a tenured Harvard Business School professor now at Oxford University, argues that there are four sets that exist in the topological space of ESG.
First, there are the set that believe that ESG and sustainability should not be conflated and who view sustainability, alone, as a superior way of living. Next, there are those who support ESG-related concepts while generally dismissing climate change and climate risks. This group often politicizes such concepts.
Both groups have a form of ‘hate’ for ESG, but they differ in their views on reporting. The first group supports double materiality and intensive sustainability reporting, while the second views ESG reporting as an example of ‘woke capitalism.’
Third, there are ‘sustainability advocates’ who are often in the corporate and investment communities, professional services, and NGOs. A subset of the advocates is the ‘opportunists’ who hope to capitalize on ESG becoming mainstream. Finally, there are ‘sustainability pragmatists’ whose opinions are widely focused and lack an ideological purity present in some other groups, and this group is expected to continue to grow.
Bloomberg: China’s Renewable Energy Fleet Is Growing Too Fast for Its Grid
The Economic Information Daily noted that almost 12% of energy generated by wind turbines in Inner Mongolia and 10% of solar power in Qinghai this year has gone to waste because the grid could not handle it.
In the Gansu province, the utilization rate of wind and solar power could drop below 90% this year from 97% in 2021.
China’s economy and energy use has slowed because of COVID-19 but its installation of renewable energy has not slowed at all. China has set records for wind and solar installations in 2020, 2021, and is set to do the same in 2022.
Bloomberg: Climate Change Is a Military Problem for the US
Among the wide-reaching effects of climate change that are now visible, the rising sea levels are threatening the strategic naval and military base work in the U.S. It also brings unpredictable and destructive storms, placing increasing demands on naval resources.
Climate change is also posing a new national security challenge for by expanding ocean geography. Ice is melting and shipping lanes are opening for longer periods, and the Arctic is becoming a larger venue for competition between Russia and NATO countries.
Climate change is also not helping tensions between the developed world and developing nations, especially as those nations that are working to industrialize are now facing pressure about their environmental footprints that were not concerns when the U.S. and other developed nations were industrializing.
The Defense Department is a high emitter and must reduce its carbon footprint by transitioning to renewable energy sources, and it must make its facilities (especially coastal ones) more resilient. There are also opportunities for the Department to make more investment in R&D for solving climate challenges. A joint, interagency collaboration would also benefit all areas of the government looking to address climate related challenges as quickly and effectively as possible.
New York Times: New Zealand’s Biodiversity Crisis Prompts Extreme Measures
In Wellington New Zealand conservation workers and volunteers have been baiting traps with fresh rabbit meat, scattering poison, and scouring footage from cameras across the headland, all in an effort to address the areas stoat problem. Many of the country’s most iconic native creatures are flightless and as a result they are defenseless against predators like stoats (weasel-like creatures with jagged teeth and remarkable agility).
The government committed in 2016 to eliminate most nonnative predators by 2050. Six years in, the campaign has achieved significant success. The department of conservation has eradicated predators from 117 of its roughly 600 islands and created multiple fenced predator free reserves across the country.
Forbes: What Is ESG’s Significance To Business Leaders?
Harvard economist Michael Porter argues that businesses benefit from thinking about value generation beyond the purely economic – “businesses should focus their value generation on all of their stakeholders, not just shareholders or owners.”
Interpretation of value provides for longer term competitiveness, profit, and business health and drives down risks. ESG performance, alongside the decisions and data that drive it, has become a “form of proxy measurement on the quality of a business management, right alongside its financial data.”
ESG Today: Climate Impact X, Puro.earth Team Up To Provide Net Zero Aligned Carbon Credit Solution
On Monday, carbon exchange and marketplace Climate Impact X (CIX) and NASDAQ-backed carbon removal marketplace Puro.earth announced a new collaboration to provide a carbon credit portfolio blending nature- and technology-based removal credits, addressing the demand for net zero aligned solutions for the voluntary carbon market (VCM).
Mikkel Larsen, CEO of Climate Impact X, said, “in a complex and fast evolving carbon market, businesses seek products that are designed to be net zero aligned and that can effectively address tomorrow's demands. The inappropriate mix of nature and techniques solutions helps to facilitate this. We need a blend of solutions to restore ecosystems as well as deliver broader socioeconomic benefits for local communities.”
Antti Vihavainen, CEO of Puro.earth, said, “permanent carbon removal projects are in their infancy and therefore supply is very constrained. A ready-made high-quality portfolio with an annually increasing share of permanent removal will prove companies progress on their carbon net zero pathway. Puro.earth is the multi-methodology standard that focuses on carbon removal with long term sequestration guarantee.”
Diversity, Equity, and Inclusion
Forbes: Transforming Corporate America: The Sustaining Effects Of DEI
Authentically embracing DEI means creating a space that allows people to safely create and contribute to their work in a way that is valued by the company.
According to Dr. Nika White, companies that encourage open communication help foster greater relationships between individuals who might otherwise avoid real and impotent topics.
Dr Nika White’s steps forward to start making an impact in the workplace:
Change starts with you
Help your organization be intentional
Choose courage over comfort
Actively seek out more information
Forbes: Gen-Z Demand Racial Justice, Not Just Diversity, Equity And Inclusion From Brands
Because of consumer demands, companies have made diversity, equity, and inclusion (DEI) commitments and policies for which they are responsible to uphold. Gen-Z is the most racially and ethnically diverse generation in the United States above all others, and most young individuals call for equal access to opportunities and social justice.
In the past, many organizations addressed diversity and inclusion with advertising campaigns featuring diverse talent and that was enough, but that alone today can be seen as performative activism that lacks action towards equity and inclusion.
After internal work on DEI, companies can begin to diversify their supply chains. Brands should also partner with communities and amplify their voices.
ESG Disclosures, Standards, Rankings, and Reporting
Forbes: Holistic ESG Reporting: The New Sustainable Business Imperative
Around the world, there is legislation emerging around ESG disclosure, and reporting and compliance are no longer optional for public companies. However, the lack of standardization around ESG definitions and reporting standards is creating obstacles for many businesses.
Recent studies show that nine in 10 investors plan to increase their engagement on climate risks in the coming years, and employees prefer to work at companies demonstrating a focus on ESG issues, but the existing systems and operations landscapes are hindering their efforts at data visibility and transparency.
Cloud-based and digital processes are essential for helping businesses set targets and track progress, as are new, intelligent footprint management solutions.
ESG Today: WTW Launches TCFD Reporting in Climate Diagnostic Tool
WTW, a Global advisory, broking, and solutions company has announced the addition of Task Force on Climate-Related Financial Disclosures (TCFD) to their Climate Diagnostic tool.
WTW launched Climate diagnostic last year with the goal of helping companies meet climate disclosure requirements and develop a strategic approach h to the net-zero transition.
According to Andy Smyth of WTW risk and analytics, “WTW has developed a comprehensive visual representation of a business’s risk, powered by the client’s own data and analytics.”
Financial Times: The Holes In Holistic ESG Indices
Ratings agencies and the public alike are finding that the task of scoring companies on their ESG performance is not black-and-white – oil and gas companies are included in the S&P 500 ESG index while Tesla is not, and companies like Amazon and Starbucks, which are actively trying to crush union drives, are included, while companies supplying aid to Ukraine are not.
Raters are being forced to assign weight to ESG issues, even in ‘holistic’ ESG indices that are meant to assess every corporation’s attitude and behavior and convert them into a single “goodness” metric. Holistic indices have a large number of categories and weighted, disparate qualitative factors. Carbon footprints are being compared to labor relations and pay equity.
These ESG indices are also highly subjective, and many scoring and screening decisions are inconsistent.
As investors increasingly demand sophisticated strategies aligned with their ESG-related values, the shift toward holistic indices can appear to be the solution, but there is work that needs to be done to improve the sophistication of the indices.
ESG Today: French Regulator AMF Calls for Regulation of ESG Data and Ratings Providers
France’s financial market regulator, AMF, has made a statement urging that providers of ESG data should be subject to a regulatory framework. This call comes in response to an ongoing European Commission public consultation into the functioning of the ESG ratings market and credit ratings.
This is not the first call to bring the sector under regulatory oversight – last year, the EU markets regulator ESMA issued a similar letter.
Forbes: Defining The 'S' In ESG And Navigating Disclosures
PWC’s recent survey found that “83% of consumers think companies should be actively shaping ESG best practices, and 91% of business leaders feel their company has a responsibility to act on these issues.”
As the SEC proposed climate-related disclosure rules earlier this year, the author anticipates new proposed rules on human capital disclosures later in the year or next year. The complicated ESG regulations and lack of reporting standards have been identified by PWC as top barriers to ESG progress.
Companies can get ESG in order within their organizations by:
Being proactive on reporting and voluntary disclosures;
Being consistent across all the organization’s messaging;
Considering starting a U.S.-focused conversation; and
Focusing on continuous improvement.
Investment Trends
New York Times: Fossil-Fuel Shares Lead the Stock Market. How Awkward
In February 2022, the UNs Intergovernmental Panel on Climate Change found that globally, cities, farms and coastlines are not properly protected from the dangers that climate change has already wrought, including increasingly severe droughts and rising seas.
The climate crisis and recent events that have impacted the economy have presented investors with a dilemma how to focus on green and sustainable investing without alienating fossil fuel investing, the market’s best performing sector.
Thanks to Engine No.1 taking on Exxon Mobil, and winning, they have set a precedent for fund managers asking what shareholders prefer as opposed to just voting on their behalf.
Bloomberg: ESG Investing Is Heading For A Reckoning, Says One Veteran Manager
James Penny, London-based Chief Investment Officer at TAM Asset Management, predicts that several companies owned by ethically focused funds will struggle to refinance their debt. “A lot of ESG companies out there that probably can't survive with interest rates going where they are. There will be ESG companies that will go to the wall because of this market,” Penny said.
For TAM Asset Management, their goal is to find ethically sound investments that are uncorrelated, which could include dividend paying stocks, property, infrastructure, or funds with an overweight to health care, according to Penny.
Financial Times: How ESG investing came to a reckoning
The “ESG” term was first used by the UN in a 2004 report that called for “better inclusion of environmental, social, and corporate governance (ESG) factors in investment decisions.” Over the next fifteen years or so, ESG was mentioned in fewer than 1% of earnings calls but evolved to be mentioned in almost 20% of earnings calls in May 2021.
The discussion and use of ESG frameworks in investing is rapidly growing, but now there is a greater concern about greenwashing or making misleading or unrealistic claims, particularly on environmental credentials.
Others are starting to question the meaning of ESG and whether it still has any meeting. Desiree Fixler, former DWS executive, previously stated, “I still believe in sustainable investing, but the bureaucrats and marketers took over ESG and now it’s been diluted to a state of meaninglessness.”
The Russian invasion of Ukraine and its effects on supply chains, oil, and gas prices, and generally ESG has shaken international business and investors’ ESG considerations. The author poses an important question, “The war has brought another question to its head: should responsible investors exclude entire countries from their investable universe?” Ultimately, the war instigates discussion on the meaning of ESG and the challenge of not having a “universal, objective, rigorous framework for ESG investing.”
Companies and Industries
CNBC: Why The Global Soil Shortage Threatens Food, Medicine And The Climate
The UN has declared soil a finite resource and has predicted devastating loss in 60 years.
According to the UN Convention to Combat Desertification Soil degradation could cost up to $23 trillion worth of loss of food, ecosystem services and income globally by 2050.
The Secretary Global Soil Partnership, Ronald Vargas, notes, "We have identified 10 soil threats in our global report … Soil erosion is number one because it's taking place everywhere."
Soil also plays a significant role in combatting climate change because soil has amazing carbon sequestering properties. There is 3 times the amount of carbon in soil than in the earth’s atmosphere.
According to research performed by the Rodale Institute in Kuztown, Pennsylvania regenerative organic agriculture can produce up to 40% higher yields during drought and releases 40% less GHG emissions than conventional agriculture.
SustMeme: Offsite: ‘Future of Construction’ in The Times
A report by Raconteur, Future of Construction, studies the risks and opportunities within the mainstreaming of modern methods of construction (MMC) and offsite technologies.
Offsite technologies such as modular and volumetric solutions, plus design for manufacture and assembly (DFMA), also structural insulated panels (SIPs) offer the possibility of more efficient and less wasteful building and engineering.
Reuters: How A Battery Shortage Is Hampering The U.S. Switch To Wind, Solar Power
Many U.S. renewable energy developers delayed or canceled large battery or energy storage projects, affecting the transition away from fossil fuels. The delays may last several months to a year, and the states and companies affected include, California, Hawaii, Georgia, Tesla and Fluence.
European energy storage projects are also experiencing delays but not to the extent of the United States. A fund manager for investments in British battery projects noted two-to three-month delays due to shortages and shipping issues.
Energy storage is increasing in the U.S. and currently makes up 3% of U.S. operating clean energy capacity. China produces about 75% of lithium-ion batteries, and the prices of such have risen 20% in the last year and continue to rise as lithium and nickel costs increase.
This week, the Biden administration “announced it would waive tariffs for two years on panels from countries impacted by a Commerce Department investigation, an attempt to revitalize solar installations.”
ESG News: H&M And Lululemon Back $250 Million Fashion Climate Fund To Decarbonize Supply Chain
The Apparel Impact Institute (Aii) and its lead partners have established the Fashion Climate Fund to drive collective action to tackle fashion supply chain emissions.
Many fashion brands and retailers have pledged support to the Science Based Target initiative (SBTi) to reduce supply chain greenhouse gas emissions but large barriers to action remain. 96% of the fashion industry's emissions come from third party farms and factories that are shared across the industry deemed too risky to make necessary upgrades and overhauls.
The Fashion Climate Fund provides pragmatic funding for supplier interventions across the value chain. Lewis Perkins, President of Aii, said, “by aligning industry leaders and climate focused philanthropists behind scalable solutions, the Fashion Climate Fund opens a pathway for greater collaboration and cross pollination of solutions, facilitating greater investment and stronger collective action towards the industry goal of housing emissions by 2030, while also seeking climate justice for the citizens and communities where our fashion is made.”
SustMeme: Net Zero Road Transport Is Still Possible by 2050
Urgent action is required from policymakers and industry participants if the road transportation sector should reach net zero emissions by 2050 through electrification.
According to the latest Long-Term Electric Vehicle Outlook (EVO) from BloombergNEF (BNEF), “certain segments, such as buses and two or three Wheelers are close to being on track for net zero, but there's no room for complacency and more action is needed elsewhere - especially in medium and heavy commercial vehicles.”
TF inancial Times: r a net zero global fleet by 2050, zero emission vehicl represent 61% of global new passenger vehicle sales by 2030.
Government Policy
Bloomberg: Biden Plans Solar Manufacturing Push to End Project Slowdown
President Biden is taking executive action to invoke the Defense Production Act, which will provide support for U.S.-made solar panels. He is also expected to announce a two-year halt on the new solar tariffs, allowing solar project developers to continue to ramp up production using foreign-made equipment while domestic manufacturing works to increase capacity to meet growing demands.
Industry leaders and experts view this as the right decision during the current struggle with the Department of Commerce investigation into imported solar components, which raised the possibility of retroactive tariffs that could undermine the nation’s efforts to combat global climate change and reduce emissions from the power sector.
The administration is also planning to use the federal government’s purchasing power to help support clean energy manufacturers in the U.S.
ESG Today: Canada Launches Emissions Offset Program to Spur Investment in GHG Reduction Projects
The Canadian government has launched a new GHG offset credit system as part of its 2030 Emissions Reduction Plan and its goal to cut emissions by 40-45% by 2030 and to achieve net zero by 2050.
The new system allows registered participants to enact specific types of emissions reduction projects based on federal offset protocols to generate credits that can be sold to other companies or organizations. The first federal protocol category launched this week is the Landfill Methane Recovery and Distribution protocol.
ESG Today: New Solar and Storage Awards to Enable New York to Reach 66% Renewable Electricity Capacity
New York’s Governor Kathy Hochul announced the planned construction of 22 large-scale solar and energy storage projects across the state. These new projects and the state’s current renewables pipeline will result in renewable energy powering over 66% of New York’s electricity. This will help New York to surpass its 70% goal set for 2030.
The operations of these new projects will generate enough power for more than 620,000 New York homes, about 4.5 million MWh of renewable energy annually, and will reduce carbon emissions by more than 2.2 million metric tons annually, which is equivalent to removing over 492,000 cars from the road every year.
Moreover, New York expects the projects to stimulate more than $2.7 billion in private investment and create over 3,000 short- and long-term jobs across the state.