The Biden administration is approving a scaled-back version of the ConocoPhillips $7 billion oil and gas drilling project (Willow) in Alaska. The decision comes as opponents argue that this development conflicts with the President’s highly-publicized efforts to fight climate change and shift toward cleaner energy sources.
Elected officials in Alaska stated that the project will create hundreds of jobs and bring in billions of dollars in revenue. Representatives argue that the state of Alaska, alone, cannot carry the burden of ‘solving global warming,’ and the state relies heavily on revenue from oil production, which has been declining.
The UN has criticized the move, and the Interior Department – which approved the project – said last month that it was concerned about the greenhouse gas impacts of Willow.
The compromise is the smaller-scale version of the project, which will hopefully reduce the impact on the surrounding habitats and species like polar bears. The administration has also announced new protection for undisturbed Alaskan lands and waters, effectively making three million acres “indefinitely off limits” for oil and gas leasing.
However, environmental groups criticize that the administration is trying to “have it both ways” on climate change, and “promoting clean energy developments is meaningless if we continue to allow corporations to plunder and pollute as they wish,” according to Food & Water Watch Executive Director Wenonah Hauter.
Also covered in Bloomberg: Biden Backs $8 Billion Alaska Oil Project Despite Climate Peril
The New York Times: Banking Turmoil: What We Know
Last week, Silicon Valley Bank (SVB), a major lender to startups and technology companies, became the largest bank to fail since the 2008 financial crisis. The failure was largely caused by the bank’s investments (like Treasury bonds) becoming less valuable when the government began raising interest rates.
Another factor in the bank’s failure was its unique niche in lending to technology start-ups, which are some of the first companies to see investments withdrawn in times of economic instability.
A third factor in the failure of SVD is the Trump-era rollback of the Dodd-Frank financial regulatory package, including a bill that reduced how often regional banks needed to submit stress tests by the Financial Reserve. Some banking experts believe these tests could have forced the bank to better handle its interest rate risks.
Regulators closed the bank and the FDIC took over and is upholding its insurance to depositors. Two days later, regulators also closed Signature Bank – which was seeing a rush of clients seeking to withdraw – to mitigate risks to the broader financial system.
President Biden has issued reassurance that the banking system is safe, there is no need to withdraw from regional banks, and the government will ensure that depositors at SVB will have access to all of their money. He also assured the public that the cost of the resolution will not fall on taxpayers.
Climate tech startups mostly avoided crisis after the closure of SVB thanks to the government-backed guarantee of deposits. However, SVB was well-known in the renewables industry for supporting small-scale projects, including community solar projects.
These projects are often avoided by lenders due to the legal- and tax-related obstacles.
It is not yet clear how much financing SVB was offering to community solar developers, but its website stated that the bank was leading or participating in 62% of financing in U.S. developments. What is clear is that these specialty projects may need to find a new financial ally. Other financiers will step in, but pipelines will likely be delayed and/or put on hold.
General ESG News
Alaska’s coastline sees the largest concentration of marine debris in the country, most of which comes from outside of the state. Much of this accumulation is due to the combination of ocean currents and increasingly devastating natural disasters.
Dealing with the plastic pollution accumulating on distant shores requires international strategies, but local actions are playing an impactful role.
A collaboration between Gulf of Alaska Keeper (GoAK), Pyxera Global, and the Alliance to End Plastic Waste is leveraging communities around Alaska to build a network of individuals dedicated to plastic waste cleanup.
Another issue with waste removal in Alaska is the current infrastructure – many landfills no longer accept marine debris – and while the U.S. is working to overhaul national recycling infrastructure, Alaska’s geography makes this challenging.
Because of this, FedEx provided shipment of the plastic waste from GoAK and its partners free of charge to the Center of Regenerative Design and Collaboration in Pennsylvania.
Other efforts in the region include educational initiatives, such as those undertaken by the Rivers Are Life project, which include films, podcasts, and other awareness efforts.
In 2018, hundreds of companies signed onto the Ellen MacArthur Foundation Global Commitment to tackle plastic pollution, with several targets for 2025. Now, many of these targets seem a little too ambitious for some companies, even those who set their own progress metrics.
While it appears that some of these commitments are ‘empty,’ there are multiple factors at play. The economic downturn and other crises since 2018 have had a major impact on a number of businesses and supply chains, and most Ellen MacArthur signatories have made progress on at least one key metric, indicating genuine effort.
Unfortunately, pledges can only go so far. Factors that have not progressed much in the past five years have been the economics of recycling, recycling infrastructure, and the lack of unified legislation around recycling and packaging.
Due to the looming recession, it is expected that companies will further deprioritize sustainability investments, and it is likely that there will be large consumer-facing sustainability programs in the coming years to try to distract from the unmet commitments.
Less than 10% of plastic in the U.S. is recycled each year. Global plastic consumption has quadrupled in the last three decades with forecasts for 2030 saying new plastic production will outpace recycling.
Oceanworks provides brands with a clear path to reduce their plastic footprint through reliability and transparency. They work to measure plastic footprints, fund plastic waste removal, find sustainable alternatives, and track supply chains from shore to shelf.
Oceanworks have found that there is a lack of raw material accountability at the brand level, specifically related to plastics. A lack of knowledge about recycled plastic commodity pricing can hurt brands in the long run. Brands need material experts to help them navigate their supplier networks, marketing teams who are committed to full transparency, and trusted sustainability partners who can provide assistance.
Diversity, Equity, and Inclusion
Judy Heumann – known to many as the “mother of the Disability Rights Movement” -- passed away this past week, but her work and her legacy live on.
Heumann was instrumental in advancing legislation like the Section 504 Rehabilitation Act, the Americans with Disabilities Act, and even the UN Convention for The Rights of Persons with Disabilities.
Heumann was an activist, a teacher, a writer, and much more. Her vision was for a new model of the Disability Rights Movement, where social activism is combined with social enterprise to help define a new, more equitable society.
ESG Disclosures, Standards, Rankings, and Reporting
BlackRock has cut in half the time it takes for companies breaching ESG-related standards to be removed from many of its iShares ETFs – its new “fast-exit” rule, which went live in December but has not previously been reported.
The change is in response to conversations with German wealth managers, who sought to have poor ESG performance be reflected more quickly across the ETFs.
The changes will be triggered if a company’s MSCI ESG Controversies score drops to zero or if MSCI finds a company to be in violation of the UN Global Compact. Companies will be reviewed for exclusion from BlackRock’s MSCI customer indices monthly.
Fund managers, consultants, lawyers, and regulators interviewed by Reuters said that despite EU rules requiring more disclosure, funds are still difficult to compare and greenwashing is not easier to identify.
The European Commission has tried to provide more clarity with the Sustainable Finance Disclosure Regulation (SFDR), but even then, definitions are inconsistent and many managers are wary of the Article 9 “sustainable investment” classification.
The main criticism of the rules is that they are becoming stricter but the clarity around definitions and fund classifications is not improving.
The European Central Bank (ECB) and Europe’s three primary financial regulators – the European Supervisory Authorities (ESAs) -- have announced plans to introduce new climate-related disclosure requirements for structured finance products.
This action forms part of the regulators’ efforts to enhance transparency and disclosure for financial institutions and products. The organizations also added that the lack of climate-related data on the assets underlying structured finance products poses a challenge to the classification of the products under the EU Taxonomy and SFDR.
Congressional Republicans (with a handful of Democrats) voted to overturn the Department of Labor regulation that would allow retirement funds to consider climate change and other ESG-related factors in investment decisions. President Biden is expected to veto the decision, but it still may mark the beginning of a new Republican strategy to declare war on “wokeism” and as a by-product, ESG.
While the legislators argue that considering ESG principles in investing “unfairly politicizes” how companies allocate resources at the expense of shareholder returns, the truth is that companies make investments based on a variety of factors, not all of which are directly related to returns.
For example, to attract and recruit new and diverse talent, companies must promote causes that matter to the talent they seek to attract.
Most conservatives would not want to see companies that espouse more conservative values blocked from acting on these values, so the same respect should be afforded to companies with values that align with ESG principles.
The solution to the argument that ‘liberals use ESG investing to advance their woke agenda’ is not to block all companies from using their influence, but to be competitive by offering an alternative ethical vision (which has yet to be fully developed).
Support for social causes is not purely a left-wing or liberal phenomenon, despite the way it has been viewed in recent years.
Making a profit is the minimum expectation of businesses in a capitalist society, but it should not necessarily be the sole expectation. We generally expect businesses to uphold ethical treatment of both customers and employees, as well as to be citizens of the broader community.
According to industry experts, ESG investing has become “totally mainstream” and is integrated into every major investment company because it is “common sense.” However, ESG investing is seeing growing political backlash as part of an ongoing partisan war.
For the Labor Department rules that Republicans want to overturn – the rules that allow the use of ESG factors in retirement investing decisions -- the stakes are larger than just retirement plans. They also have the potential to advance shareholder democracy in publicly traded corporations.
For most, ESG investing is based on the simple notion that a thinking and aware person understands that public companies have an impact on and are impacted by the world around them, so they must take into account factors beyond earnings numbers.
To make informed investment decisions, it is important to understand how companies treat people, for example. Unfortunately, topics like diversity and inclusion and access to healthcare have become heavily politicized.
The current fierce opposition to the Labor Department rules and the actions taken by the Biden Administration to support them could not only hinder the expansion of ESG investing but have wider-reaching impacts on proxy voting and shareholder rights.
The Global Alliance of Securities Lending Associations (GASLA) recently published an updated version of its Global Framework for Environmental, Social, and Governance (ESG) and Securities Lending (GFESL).
The new version replaces the previous framework that was produced in partnership with the five member associations of GASLA, and it provides a comprehensive, global view of the intersection of ESG considerations and securities lending.
The new GFESL provides insights into five key areas where ESG and securities finance intersect: voting rights, collateral, lending over record dates, facilitating participation in the short side of the market, and transparency in the lending chain.
According to a new study released by responsible investment NGO ShareAction, the world's largest asset managers have increased the use of voting policies and engagement to target ESG-related issues in their portfolios. ShareAction reviewed the governance and stewardship practices of the world's largest 77 asset managers, with a combined $77 trillion in assets under management.
An increasing amount of investors have been holding boards responsible for ESG-related matters. 82% of asset managers currently have voting policies on climate change, compared to only 56% in 2020. 88% of asset managers are also disclosing their voting records publicly, compared to 55% in 2020. 83% of asset managers are reporting financial incentives related to responsible investment, compared to only 7% in 2020.
Clean energy ETFs are funds that invest in renewable energy companies. They are a part of ESG funds, which have standards for investments that fall outside of the traditional financial model.
Some clean energy ETFs exclude energy producers altogether and invest only in renewable energy companies. Others may not exclude oil companies altogether but implement a screening process to only invest in oil companies that actively invest in renewable energy.
Some examples of clean energy ETFs include Invesco Solar ETFs, First Trust NASDAQ Clean Energy Green ETF, iShares Global Clean Energy ETF, and VanEck Low Carbon Energy ETF.
Companies and Industries
For clients in several agriculture and land-use sectors, Morgan Stanley has committed to strengthening its deforestation policies, according to the environmental- and social-focused investor Green Century Funds.
The new policies will enhance standards for Morgan Stanley’s palm oil and forestry clients, and it will create new written standards for soy and beef clients that operate in regions with high deforestation risk.
The firm will be adopting “No Deforestation, No Peat, No Exploitation” (NDPE) policies and will require Forest Stewardship Council (FSC) certification for timber clients in high conservation value forests.
Numerous surveys show consumers are unanimous in their expectations for retailers that they want and expect them to be sustainable and responsible.
Companies that communicate how sustainable they are must use language that is clear and well-defined, especially when it comes to the retail industry, when companies say less waste at every stage, they must prove that to their consumer.
As consumers continue to demand more from the retail industry, the capital available for the industry may shrink, putting brands under more pressure to integrate sustainability on a level that consumers will be satisfied with.
The train derailment last month in east Palestine OH has initiated many conversations about which actors in our economy played a role in what happened. Those responsible could include corporations that fake chemical safety regulations, the brands they are working with, the materials producers in these supply chains, or the government, to name a few.
The author of this article points out this equation: Risk = Hazard x Exposure. Hazard is the inherent property of a chemical substance to cause harm under the right circumstances. Exposure refers to the dose. Risk is the likelihood that harm will occur. Knowing this, risk can only occur if a chemical carries an inherent hazard and there is sufficient exposure to cause harm, which is what we have seen in East Palestine.
Many are calling for new railway safety measures but they fall short of significantly decreasing the risk. Government Policy
Late last year, French President Emmanuel Macron criticized features of the Inflation Reduction Act as “super aggressive” toward European companies. However, in the months since the passage of the climate law, the EU is now considering a policy in response that improves on the Green Deal roadmap. The measures are set to be proposed this week.
While the IRA focuses on enticing manufacturers to bring clean energy jobs to the U.S., the EU’s policies have focused on subsidies that boost the adoption of green products and technologies. The simpler incentives in the U.S. have driven many companies to move to and/or increase investments in North America rather than Europe.
For European companies, the increased regulations and paperwork required to access funding have been an obstacle that is avoided with the IRA’s tax incentives.
European lawmakers see this as a challenge for good that has spurred the continent into action. Pascal Canfin, a French lawmaker who heads the European Parliament’s environment committee, stated, “I would rather have a positive competition with the U.S. on climate than to complain that the Americans are doing nothing.”
Unlike the U.S., where Democrats must contend with Republican opposition to climate legislation, Europe has the benefit of a more unified stance against global climate change and does not need to worry about marketing a clean-energy support package as anything other than a climate bill.
German Chancellor Olaf Scholz it's said to have resolved the dispute with the EU over plans to ban new combustion engine cars in the bloc from 2035. In the past, Germany has put pressure on the EU Commission to come forward with a proposal that would allow for combustion cars running on E-fuels to continue to be sold after the cutoff date.
The EU has a goal to cut emissions by 55% this decade, working towards climate neutrality by 2050.
E-fuel is made by capturing carbon dioxide and combining it with hydrogen split from water in a process powered by renewable energy, creating synthetic hydrocarbon fuel. The e-fuel creates carbon dioxide when burned but many argue that it is climate neutral because it was made from previously captured CO2.