ESG Weekly News Update: May 19, 2023
General ESG News
Sustainable Brands: Why 2023 Is (Finally) The Year of the Sustainability Pivot
There are four key trends that are converging this year to create a permanent shift toward sustainability:
Workers are seeking work with purpose.
There is broader acceptance and understanding of climate change.
The Inflation Reduction Act signifies a massive investment by the U.S. in climate technologies.
The traditional tech sector is undergoing rounds of layoffs, freeing up top talent for emerging climate tech innovators.
GreenBiz: Surviving the real-world challenges of sustainability communications
At the GreenBiz Comms Summit earlier this year, communications, sustainability, and legal professionals from large companies gathered to discuss the challenges companies are facing as they work to communicate both internally and externally on sustainability matters.
A few of the most critical conclusions from the summit include:
Getting internal alignment and integrating expertise from relevant departments
Avoiding greenwashing, despite the lack of a unified definition
Managing criticism and working to separate adversaries from ‘critical friends’ who will ultimately improve disclosure.
GreenBiz: Why your ESG report isn’t enough
Many companies are proud of the flashy ESG reports they produce, with months of effort going into data collection, writing, and design. Currently, 96% of the S&P 500 and 81% of Russell 1000 companies are publishing ESG/sustainability reports.
With forthcoming regulation, these numbers are only expected to increase.
Companies must now go beyond their reporting to tell a sustainability story that stands out, holds up to scrutiny, and integrates seamlessly into broader corporate communications.
To do this, companies must unite their ESG and corporate communications teams. They must also be consistent with sustainability messaging, recognizing that the annual ESG report is not enough to craft an effective story.
Bloomberg: Ukraine Is Planning Its Green Reconstruction Even as War Rages On
As the war in Ukraine continues, activists and government members are preparing to rebuild energy infrastructure, focusing on distributed renewable power and nuclear energy.
Reliance on clean energy generation will also end Ukraine’s need for Russian gas.
Before the war began in 2021, 1/3 of Ukraine’s energy was sourced from coal. However, as power generation has been under attack throughout the war, these coal plants are now inoperable and will not be repaired.
Solar installations of various sizes have provided Ukrainians with a source of off-grid energy during the coldest months and when diesel prices have increased.
Over $750 billion is estimated to be needed for various Ukranian recovery projects, motivating creative means of rebuilding, such as using rubble to repair existing damage.
As one of the major financial backers of Ukrainian reconstruction, the European Investment Bank has committed €3.34 billion to reconstruct buildings in Donbas.
50% of these funds are “required to go toward improving buildings’ energy efficiency, including heating and insulation.”
Sustainable Brands: 60+ Innovators Against Plastic Pollution Call for Pragmatic, Inclusive Global Plastics Treaty
The Innovation Alliance for a Global Plastics Treaty (IAGPT) has been formed to respond to the existing plastic waste crisis.
Annually, “91% of plastic waste is not recycled, and up to 1 million people die from mismanaged waste.”
The IAGPT, in collaboration with rePurpose Global and The Ocean Cleanup, strives to amplify the scalable technologies that have been created by indigenous entrepreneurs and those that are affected by the plastic crisis.
The second session of the Intergovernmental Negotiating Committee on Plastic Pollution will be held at the end of May.
The IAGPT hopes that over the course of these sessions, a pragmatic and inclusive treaty relying on data, global regulatory frameworks, and improved financing access to address plastic pollution throughout its life cycle will be agreed upon.
ESG News: Wind Power Becomes UK’s Largest Source of Electricity for First Time
In 2023 so far, almost 42% of Britain’s electricity has been supplied by renewable sources.
32.4% of this electricity was produced by wind power, exceeding that produced by gas.
Q1 of this year is a milestone in that “it is the first time wind has provided the largest share of power […] in the history of the country’s electricity grid.”
The UK has transitioned to clean energy over the course of a decade. Coal energy generation has been minimized, and the “largest coal-fired power station in Western Europe, is now the single largest generator of renewable power in the UK.”
Only one coal-fired power station is left in Britain.
Four of the six power station’s generating units now use sustainable biomass.
GreenBiz: These organizations are working to bring diverse perspectives to climate solutions.
There is a clear link between marginalized communities and the effects of climate change, but there is a mismatch between those in need and those building the solutions. Diverse perspectives are shown to make good business sense, including in climate tech and venture capital.
One way to support diverse perspectives in the climate tech innovation ecosystem is to back more female-founded companies, as well as those founded by people of color. Now, there are firms that specifically focus on funding these underrepresented groups.
Additionally, it is crucial to increase the number of female and BIPOC investors, provide democratized access to education and resources, and help underrepresented founders build and maintain networks.
Investment Trends
Financial Times: Venture capital in the climate spotlight
According to the founder of Bloomberg’s New Energy finance research service, venture capitalists do not need to worry much about things like ESG ratings and net-zero goals when deciding which start-ups to invest in.
Instead, they should be looking for “pinch points” like technology failings or the expenses involved in electrifying heating systems, for example.
Tesla is an example of this concept – the company does not translate well into ESG ratings, and there are questions about its employment practices, but the company has moved the electrification of cars forward at an accelerated rate.
Venture capital is now also seeing rising interest in B Corp certification. While there has been recent criticism that B Corp standards have slipped and the status is easy to attain, it is still very difficult for smaller companies to achieve, and it is a way for these firms to advance their values while still prioritizing performance.
Additionally, the world's largest climate finance group launched a venture capital arm recently, and smaller energy-focused funds are signing onto alliances like the Glasgow Financial Alliance for Net Zero.
Currently, venture capital does not have an established framework for measuring carbon emissions, but carbon is not necessarily the best metric for evaluating a start-up's potential for impact.
Market forces are already pushing more venture capitalists toward more climate-friendly investments, especially with legislation like the U.S. Inflation Reduction Act and the EU Green Deal.
ESG Clarity: FTSE Russell launches ESG-risk adjusted indexes
FTSE Russell’s new ESG-risk-adjusted indexes are part of the expansion of its multi-asset ESG and climate index product range, and it includes ESG-adjusted variants of the FTSE 100, 250, 350, and All-Share indices.
The series applies product and conduct exclusions and reduces the carbon emissions exposure of the index.
Companies and Industries
The Washington Post: Is BlackRock’s Larry Fink blowing it for the climate?
As conservative lawmakers continue their attacks on “woke investing” and seek a singular target, they seem to have settled on Larry Fink, CEO of BlackRock. With this pressure has come a shift at BlackRock, away from commitments to climate targets and net-zero emissions and toward financial action that will both drive and profit from the clean energy transition.
The firm frames this transition as an ‘obvious evolution,’ but climate-focused regulators see this as an abandonment, and Fink is not accustomed to losing control of the narrative.
ESG investing has become part of the existing culture war, and companies seen endorsing ESG-related principles are now in the crosshairs.
The question now is whether Fink will be able to navigate this storm while receiving pushback on all sides, from those saying he is doing too much to those saying he is not going far enough.
BlackRock now argues that its investments are consistent with a commitment to a “responsible and order” energy transition, rather than one that is rushed and reckless.
ESG Today: UK High Court Dismisses Climate Lawsuit Against Shell Directors
A lawsuit launched in February by the environmental law organization ClientEarth argued that Shell’s strategy for approaching the energy transition is flawed and puts shareholders at risk. The organization asked the court to order Shell’s Board to strengthen its climate plans.
Last week, the UK High Court ruled that the legal action will not be allowed to proceed. The lawsuit claims that the Board has a duty to promote the success of the company and to exercise reasonable care and diligence in several climate-related duties. In the ruling, the court agreed with Shell’s argument that these apparent duties are vague and that the suit argues for an “inappropriate elaboration of the statutory duty of care.”
The court also pointed out that ClientEarth’s very small stake in Shell (just 27 shares) indicates that its real interest is “not in how best to promote the success of Shell for the benefit of its members as a whole.”
Also covered in ESG Clarity: ‘Disappointment’ as High Court dismisses ClientEarth case against Shell
Reuters: Albemarle aims to expand Chile lithium mine in 2028 with new technology
In Chile, lithium is primarily produced by two companies, Albemarle and SQM.
Albemarle hopes to use direct lithium extraction (DLE), a commercially unproven technology, to expand its operations in the Atacama Desert.
DLE differs from mass evaporation and uses 10 tonnes of fresh water to produce one tonne of lithium by filtering it from underground brine. This brine could potentially be reinjected underground and preserve water tables.
As the Atacama Desert is one of the world’s driest places, the use of water for lithium mining is controversial in its impact on indigenous communities and wildlife.
A pilot program is underway to examine the potential for brine reinjection, and positive results could help Albemarle expand its lithium production.
As the demand for lithium has increased to meet electric vehicle demands, Chile has failed to expand its operations to efficiently mine from its world’s largest reserves.
Chilean President Boric released a plan for state-controlled public-private partnerships to control the lithium industry in Chile.
Albemarle’s current contract with Chile’s state development agency (Corfo) continues until 2043, but the current Chilean government is likely to outline the outcome of lithium mining in the Atacama Desert by 2026. This will guide Albemarle’s negotiation decisions.
ESG Ratings, Reporting, and Standards
Financial Times: Industry awaits update to FTC’s 'green guides’
The FTC just concluded a public consultation into its 11-year-old greenwashing guidelines, and the feedback indicates that several groups are at odds over how to both define and enforce greenwashing infractions.
Several consumer advocacy groups proposed stricter enforcement for financial products. Others are fearful of increased regulation and enforcement that could put them at risk of “potential substantial civil penalties.”
Many companies believe the FTC’s green guides must remain ‘flexible’ and should be updated more frequently as business and technology evolve.
Parallel to the FTC, the SEC is also writing out separate rules related to greenwashing in the financial sector, especially as consumers and markets increasingly place a premium on corporate sustainability and climate-change-related policies and labels.
Amid the growing tension between regulators and certain politicians, companies will need to spend even more time and resources evaluating their own green claims before making the public. Some worry about ‘greenhushing’ – that companies will no longer try to be green, when they will really just need to be more scrupulous with the controls and procedures they use to verify their sustainability claims.
ESG Today: Only 20% of “Sustainable” Investment Funds Meet Proposed Anti-Greenwashing Criteria: Study
According to a new report from Clarity AI, the marge majority of sustainability-labeled invested funds classified as Article 8 under the EU Sustainable Finance Disclosure Regulation (SFDR) would meet the criteria of new proposed fund labeling rules.
Currently, more than one-quarter of Article 8 names contain ESG or Sustainable in their names, but the study found that very few of these would meet the proposed criteria for new rule systems.
The study also found that there are barely any funds carrying the ‘sustainable’ label that would meet proposed fund-naming rules in the EU, UK, and U.S.
The proposed rules include an 80% threshold for the use of ESG-related rules, a 50% threshold for “sustainable” or sustainability-related terms, as well as rules for funds that use exclusion criteria.
Government Policy
ESG Today: EU Parliament Proposes Ban on Green Claims Based Solely on Carbon Offsetting
European Parliament lawmakers voted to approve “the adoption of new proposed rules requiring companies to substantiate and verify their environmental claims and labels.”
This decision advocates for consumer protection from greenwashing and responsible communication about product lifetime.
A recent study noted that over 50% of EU companies made vague or misleading green claims, with 40% being unverified.
The proposals created by the Commission outline requirements for companies to prove, communicate and verify the environmental impacts of their green claims.
This requirement also calls for quantifiable, science-based targets to substantiate company claims.
A list of generic ‘environmentally friendly’ claims that lack detailed evidence is also slated to be banned in the Commission’s proposal.