ESG Weekly News Update: June 3, 2022
General ESG News
Bloomberg: Sun-Starved Sweden Turns to Solar to Fill Power Void
In Sweden, solar power is quickly catching up with wind as developers install panels on rooftops and unused land in populated areas in the southern portion of the country. Sweden typically does not experience an abundance of sunny days, but it is still able to use solar to decrease imports from Europe, where energy prices are high.
In 2020, operations at two nuclear reactors in Ringhals were halted, but current solar targets would more than close the gap left by these reactor closures.
Solar is currently twice as popular as wind in opinion polls in Sweden, largely because it does not disturb the land, change horizon views, or impact biodiversity. The main challenge for solar developers is the lack of sunlight in the country, especially during the winters.
Bloomberg: A Hot, Deadly Summer Is Coming With Frequent Blackouts
As peak heat approaches this summer, especially in the Northern Hemisphere, the energy supplies will be tested to see whether they can meet the demand, and consumers may continue to suffer from rising prices.
Asia’s heatwave caused daily blackouts that lasted for hours. Six Texas power plants failed at the start of summer. Many other U.S. states and countries are at risk to experience electricity outages or power cuts. Blackouts affect human welfare across the world as well as economic shocks. Europe is less at risk of blackouts since fewer people use air conditioning at home, but limited hydropower supplies or cut liquid natural gas supplies from Russia for power may affect many.
Climate change will not only cause heatwaves and impact electricity supplies this summer but will become more common over time as a persistent concern.
ESG Today: Guest Post: The Business Benefits of Improved ESG Performance
David Picton, SVP of Sustainability at Alcumus, discusses how the benefits of improving ESG performance go beyond mitigating risk. A few compelling statistics include:
92% of consumers are more likely to trust a company that supports ESG issues.
53% of people will not work for a company they consider to be unethical.
73% of investors have included efforts to improve the environment and society in their investment decision-making strategies.
While ESG impacts are felt more acutely in large organizations, reports show that companies of all sizes are affected by ESG in some way, and the majority believe that this impact will increase in the next few years.
A focus on ESG leads to cost savings on many fronts, increased sales, improved access to finance, better employee engagement and retention, and more. The organizations that will thrive in the future will be those that “take sustainability seriously, recognizing that it is more than a tick box exercise.”
Bloomberg: Miracle Fuel Hydrogen Can Actually Make Climate Change Worse
Any future hydrogen-based economies must keep leaks to a minimum. Some ideas now being tested include shipping hydrogen in pipelines built to hold natural gas or burning it in individual homes, which can cause unacceptable levels of leakage.
When hydrogen is leaked, it sets off a series of chemical reactions that warm the air, acting as an indirect greenhouse gas. Although it cycles out of the atmosphere far faster than carbon dioxide, it can do more damage than CO₂ in the short term.
“There is great potential using hydrogen to save a lot of emissions of carbon dioxide, but it’s really important to keep the hydrogen leakage rates down,” said Nicola Warwick, lead author of the UK study and a National Centre for Atmospheric Science research scientist at the University of Cambridge.
President Joe Biden has set aside $8 billion to build at least four “hydrogen hubs” where the fuel will be produced and used. US utility companies that now deliver natural gas have announced more than two dozen hydrogen pilot projects in the last two years.
CityWire: An ESG Crackdown In A Year Of ‘Backlash’
In the past few days, BNY Mellon was fined $1.5 million for claiming five of its funds factored in ESG criteria for all securities when, in fact, it only did so for some stocks. Then, Deutsche Bank and DWS were raided by police in Germany after allegations made by the firm’s former sustainability officer that it had been overstating ESG integration in its funds.
Between these two events, the SEC proposed a rule update that would require funds with ‘ESG’ labels to prove that 80% or more of their assets are invested in alignment with the label. This and other proposed rule changes could be problematic for firms that have simply been capitalizing on the ‘sustainability boom’ without backing this up in practice.
These events also shed light on another problem – asset managers who employ at least some people who are sincere about ESG can potentially get in more trouble than those that do not due to whistleblowing.
Bloomberg: Giant Deep Ocean Turbine Trial Offers Hope of Endless Green Power
A Japanese machinery maker, IHI Corp, has successfully tested a subsea turbine that collects energy from deep ocean currents and converts the power into reliable electricity.
According to Japan’s New Energy and Industrial Technology Development Organization (NEDO) estimates the Kuroshio Current, the presently proposed commercial turbine site, could potentially generate as much as 200 gigawatts of power or about 60% of Japan’s present generating capacity.
It is important to note that the potential for ocean energy is geographically dependent, taking into consideration: current strength, grid access, maintenance, shipping, marine and other environmental factors.
Bloomberg: FIFA World Cup’s Green Claims Are Misleading, Report Says
The 2022 FIFA World Cup will be held in Qatar and organizers claim the event will be carbon neutral, but a new report revealed that they may have been misleading fans and sponsors.
According to a study by the nonprofit Market Watch, organizers are underestimating the carbon footprint of the event, as well as relying on offsets that cannot be guaranteed to reduce emissions elsewhere.
Recently, several sporting events including the World Cup and the Beijing Winter Olympics have made claims of carbon neutrality based the purchasing of carbon offset credits, not by actually reducing the GHG emitted into the atmosphere.
Sustainable Brands: European Retailers Called Out for Cutting Corners on Curtailing Plastic Pollution
For the first time European supermarkets are being ranked against one another based on their commitment to reducing use and waste of plastics and the ranking exposed their lack of meaningful action.
According to Sustainable Brands, the ranking, created by the Changing Markets Foundation, “revealed a near-complete lack of consistency and follow-through across three categories of questions on the topics of Transparency and performance, Commitments, and Support for government policy.”
The foundation reached out to 130 retailers and only 39 retailers (30%) actually responded to the coalition’s questionnaire.
Additional analysis of 74 retailers across 13 countries exposed a substantial lack in action to address the plastic crisis.
McKinsey: Spotlight on Davos: Highlights from the 2022 annual meeting
At the World Economic Forum annual meeting last week, with the backdrop of a war in Europe, climate events, supply chain constraints, ongoing pandemic lockdowns, and inflation, discussions focused on the resilience of the global economy and preparedness for future events.
McKinsey provides insights, deep dives, and a Q&A session on the topics that were prominent in this year’s WEF sessions.
Diversity, Equity, and Inclusion
Forbes: More Women Were Appointed To Boards In 2021. Do They Improve Their Company’s Sustainability?
A study completed by Dr. Mark Goergen found that organizations with female board members use more renewable energy than those consisting of only males. Furthermore, a board with female directors and the use of renewable energy creates shareholder value.
According to Heidrick & Struggles’s 2022 U.S. Board Member Report, the number of women appointed as board directors and directors with backgrounds in sustainability have increased in 2021. The increase in ESG experience was not only seen in boards altogether but also among the female directors particularly.
As C-suites are pressured by the several global concerns and the consequential economic impacts, the energy sector is especially experiencing demands to reduce their carbon footprints, convert to use renewable energy, and overall improve the company's environmental impact. For example, Shell is receiving increasing opposition and protests from climate activist shareholders.
MSCI research found that a company’s carbon emissions decrease when there are more women on the board.
ESG Disclosures, Standards, Rankings, and Reporting
New York Times: Trump Policies Sent U.S. Tumbling in a Climate Ranking
Every two years, researchers at Yale and Columbia publish the Environmental Performance Index. This year, they found only Denmark and Britain to be on sustainable paths to net-zero emissions by 2050. Namibia and Botswana also appear to be on track with some caveats, but the other 176 nations in the report are expected to fall short of net-zero goals.
The U.S. fell from 24th place in 2020 to 43rd overall in the most recent report. On climate metrics, the U.S. fell from 15th to 101st place (trailing every wealthy Western democracy except Canada). It is important to note that the rankings are based on data through 2019, so they do not yet account for Biden-era policies.
China, India, the U.S., and Russia are on track to account for more than half of global emissions by 2050, according to the report. The few recent years of inaction in the U.S. have thrown the country off course, meaning much more drastic emissions reduction measures are needed to get back on track.
One positive finding in the report is that many countries, including the U.S., have started to ‘decouple’ emissions from economic growth, meaning their economies no longer directly depend on the burning of fossil fuels.
ESG Today: Bloomberg Launches Suite of Paris Aligned Benchmark Indices
Bloomberg launched seven equity and 12 fixed incomes indices within its Bloomberg Climate Index Family. The new indices include EU Paris-Aligned Benchmarks (PAB) and others that fall across a broad range of market cap and geographic, corporate, and sovereign categories.
Under EU rules, the PABs indices must satisfy certain criteria for asset selection to align with the long-term climate goals of the Paris Agreement.
Chris Hackel, Bloomberg’s Head of ESG Indices, said, “To be at the forefront of the net zero transition, investors can also rely on Bloomberg’s Paris-Aligned Indices, built using Bloomberg emissions data. We will continue to build upon this family to support customer demand of solutions backed by Bloomberg’s sustainable finance expertise and look forward to working with investors to leverage our ESG data sets to create additional custom climate strategies to meet their specific needs.”
ESG Today: G7 Commits to Ramp Hydrogen, Decarbonize Electricity Sectors
The G7 Climate, Energy and Environment Ministers announced last week a series of commitments aimed at accelerating the decarbonization of their economies and advancing global net zero goals. The meeting resulted in a first ever commitment to phase out coal fired power generation.
Other key commitments that emerged from this meeting include the pledge to achieve predominantly decarbonized electricity sectors by 2035, the launch of the G7 hydrogen action pack, pledges to achieve a highly decarbonized roads sector by 2030, plans to double the provision of climate finance to developing countries for adaptation by 2025, and an agreement to establish a definition of near-zero-emissions steel and cement production to help decarbonize industry, among other things.
Forbes: Building Trust For A Sustainable Future: New Regulations For Reporting Climate-Related Information
In March 2022, the SEC introduced new proposed regulations to better standardize climate related reporting by basing the new disclosures on existing frameworks such as TCFD and GHG Protocol.
The SEC also proposed for companies to include specific new disclosures in company financial statements.
With the rising interest in ESG reporting, public company auditors know the value that a strong and consistent reporting strategy can have on the quality of a company’s report.
Investment Trends
Bloomberg: Investor John Doerr: Silicon Valley Should 'Triple Down' on Clean Tech
Venture capitalist John Doerr believes that clean energy financing is currently in a boom period, rather than a bubble, that will, like other booms, “produce much greater investment, full of employment and rapid innovation.”
Kleiner Perkins, Doerr’s firm, invested in electric vehicles, batteries, and carbon accounting. Climate tech companies set a record by raising $53.7 billion in private financing in 2021. However, some startups are concerned as they face brutal market turndowns. On the other hand, Doerr shares that the struggle is not that bad as his firm received celebratory positive returns, and the market conditions invite additional funding, not hesitation.
ESG Today: Net Zero Asset Managers Initiative Passes $60 Trillion AUM
More than 270 asset managers have joined the Net Zero Asset Managers (NZAM) initiative, committing to decarbonize their investment portfolios to achieve net zero emissions by 2050.
Recent additions to the group include T. Rowe Price, Frontier Investment Management, and Credit Suisse Asset Management.
The most recent NZAM report indicates that 83 asset managers (39% of signatories) have set their initial targets.
ESG Today: Vanguard Aligns $290 Billion in Assets to Net Zero Goal
Vanguard is one of the largest investment managers in the world and has pledged $290 billion of its actively managed assets or 17% of assets to be invested in line with the goal of net-zero emissions by 2050.
Vanguard made this announcement as a part of its commitment to the Net Zero Asset Managers initiative (NZAM), a coalition of asset managers committed to supporting the goal of net-zero GHG emissions by 2050.
Vanguard also noted that these assets are not included in its initial NZAM commitment, it stated that over 70% of its index equity assets are invested in companies with publicly stated emission reduction goals.
Reuters: Engine No. 1 Rushes To Back ESG Disclosures At Top Companies
Engine No.1 is a sustainability-focused hedge fund that has backed 83% of shareholder resolutions' ESG topics. The voting trend that Engine No.1 has established is opposing to the general corporate election trends currently taking place.
Engine No.1 founder and CEO Christopher James said he agreed with recent criticism by Elon Musk that current systems used to rate corporate ESG performance are flawed after Tesla was removed from a high-profile ESG framework.
Companies and Industries
Bloomberg: Small Nuclear Reactors Won’t Avoid the Problem of Radioactive Waste
There are currently substantial regulatory and other barriers preventing the construction of small modular reactors (SMRs), which promise clean power that is less expensive and cumbersome than conventional reactors.
A recent report states that highly radioactive wastes could fall 94% by mass and 80% in long-lived radioactivity with the switch to SMRs, and reports like these are coming under scrutiny. Other analyses suggest that the volume and chemistry of the waste produced could pose safety challenges. Experts argue that these challenges are generally being ignored with SMRs but should be solved at the beginning of development.
Other reports argue that SMRs would generate up to 5.5 times more spent nuclear fuel per unit of power than existing reactors. Experts note that the U.S. may need to restart its nuclear waste storage projects that have been defunded in recent decades.
Wall Street Journal: Deutsche Bank, DWS Offices in Frankfurt Searched Over Greenwashing Claims
Authorities recently raided Deutsche Bank in Frankfurt and its subsidiary, DWS Group, for greenwashing allegations in its mutual funds. The U.S. Securities and Exchange Commission (SEC) along with federal prosecutors have also been investigating Deutsche Bank’s sustainable investing claims after the firm’s former head of sustainability stated that the funds’ claims were overstated.
Regulators have been intensifying scrutiny over disclosures for funds that are claimed to use ESG factors when choosing investments. The SEC fined Bank of New York Mellon Corp $1.5 million last week for ESG funds with misleading claims.
Sustainable Brands: Collaboration, Communication Key to Scaling Sustainable Forestry in Supply Chains
Only 11% of the world’s working forests are certified as sustainably managed, yet the world could move a quarter of the way to limit the 1.5-degree Celsius global temperature rise by practicing sustainable forestry and agriculture.
Many companies currently use products that are certified by sustainable forestry standards like FSC, but that is just a start. Consumers seek products that are people- and plant-positive, and they do not have the time to investigate and verify the sources of products.
Some best practices for stakeholder engagement for sustainable forest procurement commitments are to:
Engage suppliers and stakeholders with shared values and trust;
Foster accountability and communication with shareholders; and
Support and partner with others who are doing things right.
Bloomberg: As Natural Gas Expands in Gulf, Residents Fear Rising Damage
Residents of Southwest Louisiana are facing the challenges of recovering from devastating hurricanes and the increasing development of liquefied natural gas (LNG) export facilities, which are among the largest greenhouse gas emitters in Louisiana.
Although President Biden expresses his intentions to fight climate change by eliminating fossil fuels and reducing emissions, the United States has become the world’s largest LNG exporter as the LNG demand intensified, especially after Russia’s invasion of Ukraine.
Some note the boom of high-paying jobs and tax revenue, but residents across the Gulf from Louisiana to Texas are in distress living in areas damaged by hurricanes. The LNG facilities and their emissions are also exacerbating LNG leakages, global warming, and storms.
ESG Today: Southwest Airlines Invests in DOE-Backed Sustainable Aviation Fuel Project
Southwest Airlines recently announced an investment into SAFFiRE Renewables, which is a new company piloting technology for the production of low-cost, sustainable aviation fuel. SAFFiRE is backed by the DOE as part of a project aimed at decreasing transportation-based emissions through the development of advanced biofuels.
The aviation industry currently accounts for 2-3% of global GHG emissions, and sustainable aviation fuel (SAF) is seen as a critical tool for decarbonizing the industry. It is expected to reduce GHG emissions relative to fossil fuels by more than 80%. It is also expected to be produced at a minimum fuel selling price that is well below that of traditional jet fuel.
Forbes: Can Fashion Finally Move the Needle on Sustainability
The fashion industry is worth upwards of $3 trillion and plays a big part in the global economy. It is estimated that the industry accounts for around 8% of the world's greenhouse gas emissions. The industry is increasingly bearing more responsibility for many key issues around water efficiency, chemical release, land conversion, and biodiversity loss.
The industry is beginning to shift towards integrating ESG practices further into all facets of production. Many are collaborating with the UNFCCC Fashion Industry Charter for Climate Action or with non-profits like Responsible Business Coalition’s Fashion Conveners.
Here are some ways in which the fashion industry can begin to focus its efforts toward a more sustainable system
Tackle the transparency question
Bring consumers on board
Think of S as well as E in ESG
ESG makes good business sense
Innovate with circularity.
NY Times: Hit Hard by High Energy Costs, Hawaii Looks to the Sun
Electricity rates in Hawaii have gone up 34% in April compared to a year earlier due to many of its power plants burning oil.
The state's electricity rates now stand at 39 cents a kilowatt-hour, which is nearly three times the national average of 14 cents.
About a year ago, regulators in Hawaii created a performance-based system that rewards utility companies for quickly connecting rooftop solar and battery systems to the grid. Moving towards renewable energy would cost a large sum of money but will help reduce energy price spikes associated with oil, natural gas, and coal.
Bloomberg: Battery Startup Eschews Costly Metals for Thermodynamic Storage
Italian startup Energy Dome is harnessing those attributes through a system that can store power generated from wind and solar to dispatch electricity as demand rises. The “battery charges by drawing CO2 gas from a sealed dome through a compressor and condensing it into liquid, which is then stored under pressure at ambient temperatures in vessels. The heat generated during the compression process is captured and stored. The system evaporates the liquid CO2 with the recovered heat, which then pushes the gas through a turbine to generate power and back into the Dome. There are no emissions from the closed-loop cycle.”
There is a huge demand for long-duration energy storage technologies because lithium is so expensive and has two short a lifespan. Many companies and governments have expressed interest in this technology.
Wall Street Journal: Time to Take The ‘E’ Out Of ESG Investing
Scrutiny of the environmental piece of ESG investing is rising. On Wednesday, Asoka Woehrmann, Chief Executive of DWS, Deutsche Bank’s Minority listed asset management subsidiary, said he would resign after its coming annual general meeting. The news came a day after German authorities raided the offices of both companies amid allegations that DWS made misleading claims about ESG funds.
There are many increasing concerns about greenwashing as well. European officials as well as the SEC are working on a new set of rules to publish definitions of what is and is not green. Tighter rules around what qualifies as environmentally friendly could mean it is time to reevaluate the ‘E’ of ESG investing.
Bloomberg: How to Push Wall Street to Ditch Fossil Fuels for Clean Energy
According to Rhian-Mari Thomas, a former Barclays banker, “The challenge of how to incentivize the banks to transition from high carbon to green activities is really a challenge of how to incentivize the bankers.”
In reference to incentivizing lending to green ventures former renewables banker, James Vaccaro, notes “capital shifts may not be the best approach. Instead, he suggests that blended finance would be a better tool for funneling large sums into renewables.”
Agnieszka Smolenska, professor at the Polish Academy of Sciences, notes, “the best solution for pushing banks to support the energy reformation could be simply requiring them to detail how they will change their operations and financing activities in line with a target of limiting global warming to 1.5°C.”
Government Policy
Reuters: U.S. SEC Unveils Rules To Ensure ESG Funds Follow Through On Investments
Last week, the SEC proposed two rule changes (which are now subject to public input) that aim to prevent unfounded ESG claims by funds and enforce more disclosure standardization. The proposals outline how ESG funds should be marketed and how advisors should disclose the reasoning behind their fund labeling.
The proposals come amid growing concerns that funds and fund managers may be misleading shareholders in an attempt to cash in on the popularity of ESG investing.
The “Fund Names” proposal would expand the number of funds required to invest 80% of their assets in line with their names and investment policies. It would also prohibit funds from using “ESG” labels if those factors are not central to investment decisions.
Industry groups are now warning that the SEC’s efforts to standardize ESG labels could end up reducing investor choice.
ESG Today: UK Launches Review Of The Role Of Financial Sector In The Net Zero Transition
The UK Parliament’s Environmental Audit Committee (EAC) announced Monday the launch of a new inquiry examining the role of the financial sector in the UK's net-zero transition. The EAC is seeking submissions from the industry in several key areas including pathways to reduce fossil fuel extraction, planned investment in areas including renewable energy generation, and distribution in storage.
One key focus of the initiative is to examine the role of the Glasgow Financial Alliance for Net Zero (GFANZ) in the transition. The EAC noted that despite the rapid growth in net-zero commitments, “few nation states, nor financial institutions, are yet to make explicit commitments rapidly to phase out fossil fuels, or to be transparent regarding their exposure to fossil fuel investments.