ESG Weekly News Update: March 3, 2023
General ESG News
Forbes: 5 Ways To Mitigate Greenwashing – And Greenhushing – Risks
While greenwashing is the accusation that a company’s sustainability claims are inaccurate, overestimated, or misleading, “greenhushing’ refers to the attempt to avoid greenwashing allegations by under-communicating and/or reporting as little as possible regarding sustainability objectives.
These accusations usually fall upon the CFO, and in recent months, allegations of greenwashing are only increasing. Five strategies CFOs can use to avoid these types of allegations include:
Engaging the end-to-end process
Being proactive in mitigating risks (and not waiting for disclosure rules to be published)
Preparing to address the Board’s concerns
Extending greenwashing scrutiny beyond financial statements and public disclosures
Expanding internal communications and fortifying disclosure controls.
The Wall Street Journal: Conservatives Have a New Rallying Cry: Down With ESG
Conservative activists are working to transform ESG into nothing more than “woke capitalism” and arguing that people with retirement plans through big firms like BlackRock never consented to have their money invested in “liberal” causes.
Opposition to ESG is going to receive more national attention soon, with the House of Representatives planning hearings to discuss the “politicization” of investments and the “forced agenda” of ESG requirements.
While most ESG opposition comes from conservatives, there are those across the political spectrum with criticisms, such as those who have embraced ESG but say that it has failed to live up to its promises.
BlackRock and other firms are fighting back, defending their policies, and working to recalibrate how their talk about ESG factors – walking a “political tightrope” as they do so.
Forbes: Empowering Your ESG Journey: Five Best Practices In ESG Communication
Many businesses initially viewed ESG as just a compliance matter but now consider ESG as a source of competitive advantage. ESG has become a priority for companies. The following are five actions to empower a company’s employees and leadership to positively influence ESG outcomes.
Demystify ESG and communicate its values at a basic level to provide widespread and complete understanding.
Conduct a gap analysis and establish the company’s ESG maturity.
Perform a gut check to identify issues, open communication silos and provide more informed conversations.
View materiality as dynamic instead of static to identify current and emerging risks.
Create ambassadors for cross-organizational ESG communication and development.
GreenBiz: How much will we sacrifice for plastics?
Cancer Alley is an 85-mile stretch of land in Louisiana along the Mississippi River. The area is dubbed a “sacrifice zone” as the home to over 200 plastic and petrochemical plants and some of the most polluted air in the country. The industrial corridor releases high volumes of approximately 50 toxic chemicals and known carcinogens. Cancer Alley also has "unequivocal scientific evidence of racial discrimination.”
400 million tons of plastic are produced worldwide each year. Plastic consumption has quadrupled over the last three decades, and global plastic production increased by 6 million tons annually over the last several years. If these rates continue, harmful pollutants will also continue to plague the most vulnerable communities around the world. The addition of petrochemical plants will threaten water, air, and lives.
Forbes: Decarbonizing The Shipping Sector Is A Long Trip But Within Reach
Shipping giant Maersk has ordered several ocean-going ships that run on cleaner fuels to hit its net zero goals by 2040. The global economy is comprised of 50,000 vessels carrying 90% of the world's cargo. The shipping sector emits 1000 million tons of CO2 annually, equating to 13% of the greenhouse gas emissions from global transport.
The chief executive of Maersk stated that their “2030 targets will align with the Science Based Targets initiative.” They are also looking into green hydrogen power but acknowledged that today's vessels are not equipped for that transition so new vessels will have to be designed and manufactured.
Reuters: Activists Sue BNP Over Energy Loans, TotalEnergies Over Human Rights
Last week, activists Oxfam, Friends of the Earth, and Norte Affaire a Tous argued that BNP Paribus loans to oil and gas firms breach a legally binding duty to ensure its activities do not harm the environment. The MENA rights group sued TotalEnergies on behalf of people that say they were subjected to detention and torture by UAE forces at a gas liquefaction plant.
Both lawsuits were filed before the Paris Court of Justice using a “2017 French law that places the onus on large French companies to identify and prevent risks to human rights and the environment that could occur as a result of their business activities.”
Bloomberg: This Road Could Save The Planet And Carve Up Alaskan Wilderness
Workers in Coldfoot, Alaska are working to build a 211-mile private “industrial access” corridor that will “slice through one of the largest and most pristine wilderness areas on earth.” The project is titled the Ambler Access Project and aims to connect the world to a mineral belt known as the Ambler Mining District.
The Inflation Reduction Act (IRA) authorizes investments in energy projects, including mining for the elements key to decarbonization. Many are concerned about whether it will ever be economically viable, what the environmental impact could be, and who would truly benefit from the mining besides executives.
Bloomberg: Chile’s Green Hydrogen Ambitions on Show in Patagonia
Chile set a goal of closing or repurposing all coal-fired plants by 2040. The country already generates 50% of its electricity capacity with renewable energy.
President Gabriel Boric has promised a green economy and is looking to utilize Punta Arenas winds that go as high as 75 miles per hour to capitalize from it. Chile wants private investors to harness those winds for commercial purposes. This incentive is a boost to the local economy for those communities that relied on oil and coal.
The pilot project Haru Oni is a giant wind turbine tower over a collection of buildings, one of which houses an electrolyzed machine that splits water molecules into oxygen and hydrogen. The former is released into the atmosphere, while the hydrogen is captured and combined with carbon dioxide to make methanol, a gasoline substitute that burns more cleanly.
Chile is the first country in Latin America to set a hydrogen strategy and has the potential to be one of the lowest-cost producers in the world. In addition, the country is strategically located as it can access both the eastern and western U.S., as well as Asia and Europe.
Chile already has 41 green hydrogen projects underway. Haru Oni is among the most advanced: The plant delivered its first batch of synthetic gasoline in December, with production slated to climb to 130,000 liters by yearend.
Biodiversity issues are being voiced by environmental groups, on how expanding the windmills could affect over 60 species of birds that inhabit Patagonia, same as dolphins and whales.
Diversity, Equity, and Inclusion
Reuters: Analysis: With record diversity on their boards, Fed bank chiefs see lower chances of policy error
This year, a record number of women and minorities hold seats on the boards of the Federal Reserve’s 12 regional banks. Many U.S. central bankers view Fed bank directors as a critical resource, especially when navigating current economic conditions.
Some argue that the wide spectrum of voices in leadership will help facilitate a best-case outcome and a gentle transition toward tightened policies. The diverse perspectives help banks to understand how their actions “affect Americans living in a very broad range of circumstances.”
Despite progress, some critics still say that Fed bank directors are still too heavily influenced by (and pulled from) big business and finance and do not adequately represent areas like nonprofit organizations and labor.
Forbes: Why So Many DEI Programs Are Failing And How To Improve Them
According to a survey by WebMD Health Services, 62% of surveyed workers say Diversity, Equity, Inclusion & Belonging (DEI&B) programs are not effective, and 46% say the programs had failed them personally. A majority (73%) said managers or supervisors, as opposed to senior leaders, should be responsible for promoting and implementing DEI&B.
DEI&B is a key component of employee well-being that also impacts how employees experience the workplace. However, the study found a discrepancy between employer and employee perceptions of DEI&B efforts.
The effectiveness of DEI&B programs depends on two important factors: 1) an organization's true intentions and 2) engaging leadership to promote and be role models for DEI&B programs. Organizational DEI&B programs should focus beyond diverse and equitable hiring policies.
Successful DEI&B goals and initiatives need to be integrated throughout the organization and a significant component of the culture by setting measurable goals, creating accountability, and building organizational processes and learnings to develop inclusive teams and leaders for growth and opportunity for all.
Forbes: Balancing Leadership and Politics In An ESG World
Socially conscious investors are looking for leaders who set and achieve high ESG standards. ESG leadership must balance public perceptions and reactions with the overarching aim of positive business outcomes.
A 2019 McKinsey Report found that companies with strong ESG propositions could yield higher equity returns and reduce downside risk by balancing those concerns with top-line growth, cost reductions, productivity, and optimization.
Small decisions can build a reputation for investing in more general social well-being. Leadership and politics are integrated into our every day responsibilities to take action to create a better future.
Forbes: The Three Rs to Attracting and Retaining Talent
Reputation, responsiveness, and representation are considerations a company needs to make while hiring and retaining employees.
Reputation will be both external and internal. The latter will be more important to keep employees happy and for them to recommend the company.
For a company to have talent and intelligence, it's necessary to ask employees to think about themselves and their working conditions. Recognizing that the needs and wants of prospective talent require prioritization.
Transparency in the hiring process is another key factor to the company’s reputation.
Responsiveness when management promises employees to change, they must deliver it.
Showing employees, they can be as responsive to internal needs as they are to external ones.
Giving the employees what they need to feel secure.
Representation to have a sense of organizational belonging is a desire employees have.
Lack of communication can lead employees to feel like outsiders and not part of the company.
Support for DEI to set representational goals. Including all ages. This will help to improve access to talent, retention, and productivity.
Understanding demographic trends combined with authentic actions from the company leaders to put employees first.
ESG Disclosures, Standards, Rankings, and Reporting
ESG Today: Guest Post: Seven Ways ESG Reporting is Already Here
Guest post by Maura Hodge, KPMG U.S. ESG Audit Leader and Samuel Jeffery, KPMG US, Partner, Deal Advisory and Strategy ESG Reporting Leader.
There are many factors in the U.S. and the world that are driving both public and private companies to prioritize ESG-related reporting; seven of these include:
Doing business in the EU
Doing business in Germany
Doing business in select U.S. cities
Planning to go public
Customer and/or supplier demands
Investor proxy voting
ESG is a competitive advantage.
ESG Today: Republican Lawmakers Attack SEC Climate Disclosure Rule “in Any Form”
A group of U.S. Republican Congressional leaders has announced a letter to the SEC regarding its proposed climate-related disclosure rule. The lawmakers argue that the rule exceeds the SEC’s authority and demonstrates the pursuit of a “progressive social agenda.”
In a recent interview, SEC Chair Gery Gensler stated that the SEC is considering some adjustments to the proposed rule prior to its release in April. The two most criticized aspects of the rule are the requirement for climate costs to be reported if they represent more than 1% of a financial statement line item and the requirement for Scope 3 emissions reporting.
The letter asks Gensler to provide information “to allow the Congressional committees with jurisdiction over the SEC to fully examine the SEC’s proposed rule and the SEC’s actions related to it.”
GreenBiz: Preparing for Climate Disclosure in The Largest Capital Market
Preparing for the shift from voluntary to mandatory climate disclosure. This is designed to satisfy the investors.
Intangible assets are those without physical forms, such as brand reputation, relationships, and goodwill they account for 90% of S&P 500 market value.
The proposed disclosure rule brings concerns about legal liability. A public company will have fraud liability on whatever they say.
The SEC’s proposed rule on climate disclosure will have a safe harbor element if a company acts in good faith reporting Scope 3 emissions it will have protection from liability.
Investment Trends
Reuters: Majority of global asset managers still not investing responsibly, ShareAction says
ShareAction surveyed 77 global asset managers, controlling a total of $50 trillion of assets, and found that they are failing to invest sustainably to consider ESG risks and protect climate, biodiversity, and people.
J.P. Morgan Asset Management improved significantly as it rose nearly 60 places to 13th after adopting social and biodiversity policies and engaging in human capital management.
ESG Today: Investor Association Warns that Proposed EU ESG Fund Labelling Rules Won’t Address Greenwashing
In November 2022, the European Securities and Markets Authority (ESMA) proposed rules to provide asset managers with clear criteria for ESG or sustainability-related terms for funds and ensure that investors are not misled about the investment products’ ESG characteristics.
The European Fund and Asset Management Association (EFAMA), Europe’s central investment industry trade association, claims that ESMA’s rules will not fulfill its primary objective of protecting investors from greenwashing risks. One concern is the confusion that may result from the use of different terms, including “ESG” and “sustainable,” because retail investors typically cannot make distinctions between the terms. EFAMA suggested that ESMA should revise the proposal or delay the guidelines until it addresses clarity and interoperability issues.
Companies and Industries
ESG Today: HSBC Unveils FInanced Emission Reduction Targets for Cement, Steel, Automotive, & Aviation Sectors
HSBC has announced a new series of targets aiming to reduce the bank’s financed emissions in some heavy-emitting sectors.
These goals include 2030 targets to reduce on-balance sheet financed emissions intensity by 28% for the cement sector, 42% for iron, steel, and aluminum, 25% for aviation, and 65% for automotive (all from a 2019 baseline).
HSBC has also announced a new policy to no longer provide financing to new oil and gas projects, as well as a requirement for new energy sector clients to provide transition plans that are consistent with the bank’s climate targets.
Sustainable Brands: Sobering Report Says Auto Industry Will Spend Remaining Carbon Budget Well Ahead of Schedule
EV makers Rivian and Polestar commissioned a report that details the actions required by the auto industry to actually meet its climate targets. The report argues that even with a full-scale, accelerated adoption of battery EVs, the auto industry will still not meet its emission targets unless there is a concerted effort to reduce Scope 3 emissions across the board.
According to the report, three levers would need to be pulled concurrently and at full speed for the industry to stay on track:
A fast transition away from fossil-fuel-powered vehicles to battery EVs
Increasing renewable energy integration in existing power grids
Reducing GHG emissions throughout the industry’s value chain.
Bloomberg: Ford’s Electric Pickup Is Built From Metal That’s Damaging the Amazon
Bloomberg conducted an investigation to trace much of the aluminum in the new all-electric Ford F-150, where it is accused of sickening thousands of people in and around a refinery in Brazil.
There is currently a class-action lawsuit on behalf of 11,000 residents in the surrounding neighborhoods citing aluminum pollution in waterways that has allegedly caused numerous health problems. The lawsuit names Norsk Hydro ASA as the responsible company and the owner of the polluting refinery.
Electric vehicles require more aluminum than their non-electric counterparts, so as demand for EVs rises, so does the demand for aluminum. Researchers studying the area around the refinery in Brazil found highly elevated levels of toxic metals in rivers and streams.
While this case continues to play out, it is important to keep in mind that for consumers seeking to lower their carbon footprints, the environmental and social costs of EVs may be higher than they realize.
Bloomberg: NY Battery-Recycling Project Gets $375 Million US Backing
The Biden Administrated offered a $375 million loan to the U.S. subsidiary of Li-Cycle Holdings Corp. to expand a lithium-ion battery recycling plant in New York. According to the Energy Department, the facility recycles old lithium-ion batteries into chemicals that can be used for the batteries of more than 200,000 electric vehicles annually. The funding is from the Energy Department’s Advanced Technology Vehicles Manufacturing Loan Program.
Sustainable Brands: 3 Energy and Sustainability Trends to Watch in 2023
The following are three key trends expected in the energy sector this year:
As electric infrastructure is transitioning to more decentralized models, the utilities and the industries of energy production, transmission, and distribution will undergo a pivotal transformation with technological evolutions.
Massive water consumption for energy systems will diminish, and there will be more interest in low-carbon and low-water alternatives for energy production.
More businesses are pursuing LEED and other certifications for their offices, plants, and other dedicated facilities to achieve energy efficiency and sustainability goals.
GreenBiz: Battery Recycling, Two Ways
A new sector of tech companies is hoping to change the lithium-ion battery industry through urban lithium mining, a.k.a. battery recycling.
Ascend elements is a company that collects old batteries and battery manufacturing scrap and funnels it back into a facility in Georgia where the materials are sorted and waste is recycled or sold off but never sent to a landfill.
The American battery technology company is taking a different approach by D manufacturing batteries through a selective extraction process. The company is able to recover small quantities of high-value materials and medium-value materials that most recyclers don't pursue.
ESG Today: BNP Paribas Sued Over Fossil Fuel Financing
A lawsuit against Paris-based bank BNP Paribas has been launched by a group of Friend NGOs.
The legal action would force BNP Paribas to stop its support of fossil fuels, as they are the leading funders for it.
The legal basis of the case rests on the “duty of vigilance” law, requiring large companies to have plans to assess and prevent their operational impacts on the environment and human rights.
Pressure from investors calling for a commitment from the banks to end financing for new oil and gas fields this year.
Sustainable Brands: Addressing Fashion’s Footprint at Farm Level Through Verified Sustainability Data
Disclosure demands are giving brands and retailers the opportunity to invest in data and transparency giving them greater visibility into their supply chains.
A new French law that took effect on January 1st, 2023 made it mandatory for brands and retailers to disclose information about the environmental characteristics of their products via labels detailing precise climate impact. They banned the claim of “biodegradable”; “environmentally friendly” or any similar claims for new products.
Brands and retailers are partnering and using membership in sustainability programs to address the data needs driving visibility.
Regenerative agriculture practices have seen an increase in interest. The U.S. Cotton Trust Protocol helps deliver quantified, verifiable goals and measurements.
Implementing regenerative practices positively influences the entire biosequestration and the storing of carbon, which is directly helping to reduce greenhouse gas emissions while fostering biodiversity.
Government Policy
ESG Today: Wyoming Joins A List Of States Rejecting Anti ESG Measures
A rule that would restrict government entities from doing business with banks, investors, or companies that restrict businesses with other companies for a range of ESG-related reasons and another aimed at eliminating the consideration of ESG criteria by investment managers have both been voted down in the Wyoming legislature.
The Stop ESG Eliminate Economic Boycott Act outlined rules for investment managers for state funds, effectively disallowing the consideration of ESG factors including emissions reduction or emission disclosure from being mentioned.
Reuters: UK Must Align Sustainable Rules with EU Where Possible or Risk Losing Capital, Say Advisors
Britain’s sustainable finance legislation can be leading them too far from rules emerging in Europe and the United States. The consequence of this will put them behind in attracting green capital.
Taxonomies set out conditions for labeling an economic activity as sustainable and tries to help investors into green and sustainable investments.
The UK will need to adopt where possible the same concepts, methodologies, and metrics as the EU’s taxonomy.
The Green Technical Advisory Group (GTAG) provides independent advice on the design and implantation of a UK Green Taxonomy.
The UK should push for global harmonization and interoperability between taxonomies to avoid market fragmentations.