ESG Weekly News Update: November 11, 2022
General ESG News
Forbes: The Climate Crisis Is A Miracle
At its core, the climate crisis is caused by the human species moving out of poverty and decreasing starvation, death, violence, and suffering. It is the result of more countries and people entering a type of “middle class.”
Unfortunately, this rapid industrialization in regions like Asia and Africa (as well as the U.S. and Europe, where industrialization occurred earlier) has not been accompanied by the development of the infrastructure and technology needed to do so in an efficient and environmentally responsible way.
While the West should continue regulating its way to net-zero carbon emissions, there is still a need for global, systematic solutions.
Climate change isn’t the fault or the problem of any one country or emissions source – it is the result of a thriving species, and it will be difficult for humans to continue to thrive unless we contextualize the issue and collaborate to adapt and create a more positive pathway.
Bloomberg: Risk Calculators Launched to Help Americans Plan for Climate Change
The Climate Risk and Resilience Portal (ClimRR), developed by the U.S. Department of Energy’s Argonne National Laboratory with AT&T Inc. and the Federal Emergency Management Agency (FEMA), allows users to map future local climate conditions and other data sets to help plan for future population needs.
ClimRR can estimate certain climate conditions down to 12-square-kilometer segments, with the goal of helping to inform community risk mitigation and response planning.
Additionally, the First Street Foundation has launched Risk Factor Pro, which allows users to look at vulnerabilities about 30 years out, down to the level of individual properties.
Sustainable Brands: WWF, Ørsted Partner to Develop Offshore Wind Farms That Enhance Ocean Biodiversity
The renewable energy transition may be able to not only mitigate the effects of climate change but aid in the restoration of one of climate change’s impacts, biodiversity loss.
The World Wildlife Fund (WWF) and Ørsted, one of the world’s most sustainable energy companies, have begun a five-year global partnership to create offshore wind infrastructure that enhances ocean biodiversity.
The partnership aims to:
Develop and test tangible initiatives that improve ocean biodiversity
Develop science-based recommendations for how governments can incorporate ocean biodiversity requirements into offshore wind development
Work to bring together those who use the ocean and those who seek to protect its health and deliver on a common vision for a decarbonized energy system that exists alongside marine life protection and restoration.”
The first goal will require new solutions through collaboration. The partnership will lead a discussion to do so at the COP27 event.
SustMeme: Calculating the true carbon footprint of the World Cup
A recent analysis from FIFA suggests that the overall carbon footprint of the World Cup has previously been underestimated by up to 50%. The new report estimates that the total carbon footprint from the World Cup in Qatar will be comparable to that of the country of Iceland’s total annual emissions (about 3.6 million tons of CO2e).
The main contributors to the World Cup’s carbon emissions are the construction of new infrastructure, air travel and transportation, and digital pollution.
Qatar intends to offset its emissions by purchasing carbon credits, but this may still be insufficient to create a “carbon-neutral” World Cup if the total impact is still underestimated.
GreenBiz: In an economy obsessed with growth, we must find a way to reduce consumption
The world annually uses approximately 1.75 earths' worth of biological resources, even though we are running low on critical minerals needed to power the future economy.
Waste reduction is important and urgent. We need to rethink and redesign products to increase circularity as well as reduce consumption. Packaging, product redesign, and waste reduction typically fall on sustainability or operations teams, but the discussion should be connected to companies’ profitability and new business models.
Reuters: Inflation top worry for G20 countries - survey
G20 countries identify inflation as their top concern. Globally, central banks are aggressively tightening monetary policy to tame inflation and potentially avoid a recession.
As countries are managing more urgent socio-economic issues, addressing environmental concerns is not identified as a top priority despite the continuous impacts of climate change.
Bloomberg: UK’s Climate Crown Slips as Doubts Hang Over Recent Commitments
The UK currently invests annually only a fifth of what is necessary to meet its net-zero targets, and the treasury has not published a detailed plan yet on its approach to the climate transition. Progress is also lacking in reducing methane emissions from the British agricultural sector and updating homes to be more energy efficient.
Although Britain was the first country to set a legally binding emissions target and commit to net zero, the country is facing obstacles to meeting emissions-reduction goals for 2030 under the Paris Agreement.
Forbes: COP27: How the UN’s Global Climate Conference First Started
The 27th Conference of the Parties (COP27) to the United Nations Framework Convention on Climate Change (UNFCCC) is taking place in Egypt. At the Rio Earth Summit in 1992, the framework convention was established as an international treaty “to stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system."
The framework acknowledged that not all signatories contributed equally to global emissions nor have equal resources to address climate change, but all would contribute to emissions reduction and adaptation efforts.
The framework came into effect in 1994, and the first conference (COP1) took place in Berlin to discuss how to implement the framework and agree to meet annually to discuss progress and action on climate change. During the following two years, the nations developed the Kyoto Protocol, committing industrialized nations to reduce their emissions of the six most important greenhouse gases.
Forbes: From “Who Cares Wins” To Pernicious Progressivism: 18 Years Of ESG
In its beginnings, ESG was seen by financial institutions as a way to strengthen investment markets and aid in sustainable societal development.
In the 2004 UN Global Compact report titled “Who Cares Wins: Connecting Financial Markets to a Changing World” ESG was regarded as “a way to ensure long-term value creation.”
However, in the 18 years since then, ESG has become a politically polarizing topic despite the fact that at the very least shareholder value creation and markets haven’t been impaired by ESG.
The author discusses that ESG and environmental issues, if ignored, can lead to greater financial risk whether lawmakers believe ESG is “pernicious progressivism” or not.
This is an interesting dynamic considering, as the author points out, that many company executives identify as Republican and yet continue to treat ESG as value enhancing.
The New York Times: Michael Bloomberg Announces A New Initiative To Phase Out Coal In 25 Countries
Michael Bloomberg, now a special envoy on climate change for the United Nations, announced a new international plan on Monday to help 25 countries in Africa, Asia, and Latin America phase out coal by 2040.
The initiative will focus on helping develop business plans, national policies, and technical resources that countries need to mobilize big-dollar investments in clean energy. Coal is the single largest source of planet-warming emissions and is still a major source of energy generation in many of these nations.
For developing countries, Bloomberg stressed that policy analysis and technical assistance were “the side of energy development that doesn't get a lot of attention but can mean the difference between investment and coal and clean power.”
Bloomberg: China Starts COP27 With Call For Climate Aid To Poorer Nations
China, the world's largest carbon emitter, sent a delegation group of more than 50 people to COP27 this year. China's top envoy for climate change exclaimed the need for more aid to be sent to developing nations.
Bloomberg: Ethiopia Taps Into Geothermal Riches To Diversify Its Grid
Geothermal energy is a renewable source of power stored deep inside the earth and it is generated by the earth's core. If the operator is looking for other sources of clean energy to diversify its grid. Today, 96% of the country's energy still comes from hydropower plants.
Geothermal is a constant source and can supply power throughout the year consistently. Ethiopia and Kenya are currently the only two countries in Africa with ongoing geothermal projects.
Sustainable Brands: Recycling Isn’t Enough: Our Goal Should Be ‘Upcycling’
A study released by the EPA found that in 2018, just under 9% of the 35.7 million tons of consumer plastic created in the US was recycled into new products. A study by McKinsey found that approximately 5 to 10 million metric tons of plastic waste were dumped into the ocean in 2018.
A very simple and effective action people can take in their daily lives is using a refillable water bottle instead of using a single-use plastic water bottle. A single person switching to a reusable water bottle could save roughly 340 plastic water bottles per year.
Our society cannot continue to recycle the way that we have been - we must begin to increase our upcycling, reducing the use of single-use plastic products down to zero.
Forbes: The World Is Falling Short On Climate Adaptation Plans
The Adaptation Gap Report 2022, published by the United Nations Environment Program stressed preparation for the floods, droughts, heat waves and many other consequences of climate change is incredibly deficient.
84% of countries now have some sort of adaptation plan in place however many of these plans do not follow the same metrics or targets and are also not of the utmost priority.
Diversity, Equity, and Inclusion
Forbes: When Inclusion Efforts Fail, Look To Cognitive Diversity
While the call for DEI is louder than ever, it may be difficult to create sustained change without cognitive diversity, which is the practice of “filling decision-making tables with people of varying skill sets, backgrounds, and levels of experience.”
The path of leadership has followed the same trajectory for a long time, and traditional organizational hierarchies seem engrained into the way both businesses and societies operate. By maintaining past structures, we will continue to see the same results.
The modern workforce possesses knowledge beyond the boardroom and the C-suite, and with technological advancements, it is no longer reasonable to assume that those with the most experience/seniority are those with the most wisdom, power, and leadership ability.
Organizations that embrace cognitive diversity can combat turnover and help cultivate a sense of belonging for individuals, which can lead to increased innovation, productivity, and profitability.
GreenBiz: Moving beyond the diversity checkbox
For companies looking to implement robust DEI programs, it cannot start and end with unconscious bias training. Additionally, it cannot stop with diversity in recruiting and “giving a seat at the table.”
When working to move beyond diversity checkboxes, access is key – including access to professional development opportunities, leadership positions, feedback, mentorship, and more.
Impactful DEI programs also involve intersectionality, considering DEI in concert with social justice and the broader historical context.
It is also important to consider that while many companies are making a genuine effort, no one has completely ‘solved’ DEI and implemented a perfect strategy. Organizations and figuring it out in real-time and must be willing to give a voice to those who can drive real change.
Forbes: 11 Types of Diversity To Cultivate In A Professional Network
Having a diverse team of employees who feel valued by their organization helps to ensure that people with innovative ideas and various experiences can come together to produce better business outcomes. Forbes Coaches Council members each shared one type of diversity that they value in their own network, some of the tips are noted here:
Ensure your network of professionals thinks differently than you. Value those who are aware of their mindsets and are interested in continuous learning.
Value those with physical differences as they have had to develop different skill sets that would be most useful for improving and challenging everyone's empathy and listening skills.
Cross-functional collaboration and learning are important for professional development and should be given higher priority.
Forbes: ESG In Asset Management: Breaking The Glass Ceiling
According to the Global Sustainable Investment Alliance, ESG assets hit $35.3 trillion in 2020, accounting for 36% of all assets under management.
Women are driving the rise of ESG. Female clients are “more than twice as likely as men to say it's extremely important that the companies they invest in integrate ESG factors into their policies and decisions.” Many are encouraging ESG-focused funds and asset managers to integrate ESG into their investment processes. women are also creating more opportunities for women in the find management industry which in turn is increasing the pressure for gender diversity.
GreenBiz: The time to invest in gender is now: A call to action for climate financiers
As the 27th United Nations Climate Change Conference (COP27) is held this week, gender in terms of climate change resilience and solutions are on the brain.
However, gender is not often considered a tool to strengthen climate investments even though using this lens can improve efficacy in finance, sustainability, and equity.
The author notes four main calls to action to “improve gender equality when designing, delivering, and accessing climate finance.”
Improve women’s inclusion in the financial system and ability to access climate finance.
Integrate gender into public and private climate policy frameworks.
Develop gender metrics in a climate context and integrate them into climate finance reporting.
Improve gender-balanced representation in decision-making roles in climate finance and climate-smart businesses.
Now is the time to invest in and embed gender concerns in both public and private finance as a step towards stronger climate investment.
ESG Disclosures, Standards, Rankings, and Reporting
ESG Today: Moody’s Looks to Launch Scores of Corporate Net Zero Transition Plans
Moody’s has announced that it is seeking feedback on a new proposed framework for assessing the strength of companies’ net-zero transition plans. The new framework, the Net Zero Assessments (NZA) would initially apply to non-financial corporate entities around the world, including both public sector and nonprofit entities.
The score will rely on two components – an Ambition Score and an Implementation Score – and it will be reflected on a five-point scale, with a score of NZ-1 being the top score and demonstrating alignment with Paris Agreement targets.
Sustainable Brands: UN Releases Manual for Companies to Conduct Authentic, Context-Based Sustainability Assessments
The United Nations Research Institute for Social Development (UNRISD) has released the Authentic Sustainability Assessment: A User Manual for Sustainable Development Performance Indicators with a set of indicators for assessing the changes needed to achieve the UN Sustainable Development Goals (SDGs).
The Sustainable Development Performance Indicators (SDPIs) enable broad implementation of GRI’s Sustainability Context Principle, with guidance on how to measure and manage environmental and social performance and how to close the “sustainability context gap.”
Reuters: EU seeks better alignment with global sustainability rules
The European Union is aiming to better align its sustainability disclosure rules with a global initiative such as the International Sustainability Standards Board (ISSB).
Mairead McGuinness, the EU's financial services commissioner, says that the EU is likely to go further and set higher ambitions in its disclosure rules; however, companies and regulators state that the more aligned the EU’s approach is to the ISSB’s, the easier it is for investors to compare companies.
The Wall Street Journal: Why Do ESG Ratings Vary So Widely—and How Can Investors Make Sense of Them?
ESG ratings are a complex matter, especially as investors rely on external ratings, which differ in approach depending on the provider.
The authors researched the differences in ratings among six providers and found three main differences as well as their contribution to overall rating divergence:
38%: Which indicators are included
6%: Importance of each indicator
56%: Indicator measurement approach
Solutions include requiring uniform mandatory reporting across companies to increase comparability and mandatory auditing of ESG data.
While rating will inevitably have its challenges and some amount of divergence, some degree of competition may encourage innovation in rating methodology leading to improved ratings.
European Parliament: Sustainable Economy: Parliament adopts new reporting rules for multinationals
The EU recently adopted the Corporate Sustainability Reporting Directive (CSRD) with an overwhelming majority of votes, and it will require businesses to disclose more information about their environmental and social impacts.
The new reporting requirements will apply to all large companies, whether they are listed on stock markets or not. The rules will start applying between 2024 and 2028.
ESG Today: Guest Post: Global Agreement on Sustainability Reporting has Never Been so Close, or More Urgent
One key development since the COP26 last year is the International Sustainability Standards Board (ISSB), which is progressing to produce the first two IFRS Sustainability Disclosure Standards. The process has included support from global bodies such as the G20 and G7 to establish “a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs.”
Global alignment in sustainability reporting is evolving and urgent. The EU’s European Financial Reporting Advisory Group (EFRAG) and the U.S. Securities and Exchange Commission (SEC) have also proposed requirements as investors, consumers, and stakeholders demand companies provide detailed sustainability reporting.
The Wall Street Journal: Companies Expand Efforts to Add Diversity to Their Supply Chains
After events in 2020 shed a light on systemic racism, U.S. public companies planned to spend $50 billion on diverse suppliers – minority, women, veteran, differently abled, or LGBTQ+ owned by 2023 according to a McKinsey & Co. study.
Although using a diverse set of suppliers “improves financial results,” the practice still has its challenges; finding diverse suppliers calls for more creative procurement management and strategies. Additionally, it is often viewed as disruptive.
To overcome these challenges some companies, such as Allstate, are mentoring diverse vendors through the procurement process.
Tying senior management bonuses to diversity goals, including supplier diversity, seems to be successful.
Greater transparency in the progress of diverse supplier goals may also be beneficial; overall there is still work to be done in covering more types of diversity in the goal-setting process.
Investment Trends
The Wall Street Journal: ESG Investors Face a Choice: Do You Use a Positive or Negative Screen?
In ESG investing, negative screens exclude companies in certain sectors/industries deemed to be contrary to ESG principles. Positive screens, on the other hand, do not specifically exclude companies but may select companies that score higher than others in certain ESG criteria.
According to a 2021 survey from BNP Paribas, more than half of the investors surveyed said they relied on negative screens. However, some experts warn that this practice may create a ‘bubble’ of acceptable stocks, which can have an impact on risk and returns.
Because of this, and with the acknowledgment that companies in ‘unacceptable’ sectors may be working to increase their ESG credentials, many investors are turning toward positive screens or adopting a hybrid approach for their ESG investing strategies.
What experts are increasingly finding is that a hybrid approach, where both positive and negative screens are deployed to build a portfolio that avoids the ‘worst’ players but also allocated capital to emerging businesses and companies working to become more sustainable, is appealing to the ESG community.
The New York Times: BlackRock Sees a ‘Revolution’ Coming in Corporate Governance
BlackRock will start allowing more of its investors to choose how to vote in corporate elections through an initiative called Voting Choice.
The company aims to keep up with a growing democratization trend in the next generation of investors.
Voting Choices will now provide more voting options for many of BlackRock’s investors at annual shareholder meetings.
Larry Fink, chairman and CEO of BlackRock, acknowledges that this move could “make the business of running a publicly traded company messier than ever.” While this could create a more politically driven atmosphere, it may also address the criticism that large shareholders have too much sway over publicly traded companies.
The Wall Street Journal: Investors Aren’t Adding ESG to Their 401(k)s—Even When They Have the Option
Retirement-plan sponsors, consultants, and regulators have been increasingly interested in investment strategies focused on ESG issues. However, a recent study found that retirement-plan participants are not as interested in the same. Less than 10% of DIY investors put money in an ESG fund when offered in their 401(k) plans, which typically made up only approximately 20% of the total portfolios.
The study observed that the retirement plan participants invested in ESG funds to build larger portfolios unless there was a “plan level effect” in which there is a strong culture or business alignment with ESG factors and the plan participants’ employers.
The incorporation of ESG strategies within contribution plans is difficult and ambiguous as ESG fund ratings and investor preferences differ across all factors.
The Wall Street Journal: How Investors Feel About ESG Initiatives
New survey research by Stanford University found that investor support for ESG measures and their willingness to potentially lose money in that cause varied by their age and wealth. Generally, investors 58 years old and over were the least likely to support ESG objectives in general, and those between 18 and 41 were the most likely.
More than one-third of the younger investors said that they'd be willing to lose 11-15% of their retirement savings to encourage companies to have gender and racial diversity mirroring the general population, while only 3% of older investors said they would forfeit any amount.
ESG Today: Sustainable Bonds Hit Record Share of Global Bond Issuance: Moody’s
Issuances of green, social, sustainable, and sustainability-linked (GSSS) bonds fell in the third quarter of 2022 but are resilient in the broader bond market.
Corporate volumes account for the bulk of the decline in GSSS issuance this year. Green bonds continue to hold the largest share of the sustainable bond market. Moody’s noted strong fundamental drivers for the market anticipate improvement on issuance in the future.
Companies and Industries
Sustainable Brands: Outdoor Drinkware Brands Join Forces to Drive Supply Chain Sustainability
Klean Kanteen, Stanley, Yeti, and MiiR have partnered to create the Drinkware CoLab, looking to find opportunities for reducing greenhouse gas emissions in their supply chains. The project also supports the Outdoor Industry Association (OIA), which has a goal to become the first climate-positive industry by 2030.
The OIA has provided project management for the Drinkware CoLab brands, and a sustainability consulting agency has been hired to oversee goals, progress, and areas of improvement.
GreenBiz: Made in America: A lithium supply chain for EV batteries
Lilac Solutions, a Nevada startup, is working to extract lithium from saltwater deposits called brines.
The company makes ion-exchange beads which are already used to clean water among other industrial uses. However, these are the first beads of their kind to extract lithium and have the potential to make the process faster and more efficient.
With an increase and projected increase in demand for electric vehicles which use lithium-ion batteries, as well as the fact that only 1% of the world’s lithium is produced in the U.S., Lilac Solutions is taking the opportunity to fill this niche domestically.
Additionally, as a lack of a domestic lithium supply is a liability, a collective effort is underway to ramp up U.S. production including $3 billion in grants to 20 such companies.
The factory in Fernley, NV is expected to begin production in phases over the next two years with the help of a $50 million grant from the Department of Energy. At full capacity, the factory is expected to extract 200,000 tons of lithium per year (almost half of the global production in 2021).
Forbes: Moving Beyond Virtue Signaling: ESG And The Energy Workforce Of The Future
Students pursuing careers in the energy industry identify ESG stewardship as a priority for the industry. They also prefer working for a renewable energy company recognized as being an ESG leader, even with a lower salary, especially compared to working for an oil company that is not satisfying ESG standards.
Two issues identified as least important to the students are a company’s recycling strategy and disclosure of the board’s ESG oversight. Furthermore, studies show that younger generations lack confidence in recycling in terms of how to recycle, its efficacy, and its impact.
Ultimately, students are not disillusioned by or disconnected from ESG. Employers that want to attract young talent must communicate that they share the same concerns and values as the young candidates.
GreenBiz: How Adobe built an all-electric office tower
Adobe’s new 18-story corporate office tower in San Jose, CA is the first of its size to run on all electric.
The North Tower, which is expected to open in 2023, uses 100% renewable energy from California wind and solar.
The energy-efficient design includes air source heat pumps and electric ovens as well as other elements as the result of diverse employee input.
The construction of the North Tower aids in Adobe’s goal of using 100% renewable energy company-wide by 2035.
Government Policy
GreenBiz: Political heavyweight or yesterday’s voice? Trade associations and environmental policy
Over time, trade associations have been criticized for “defeating, delaying or watering down pro-environmental legislation or regulation.” Trade associations originally functioned to promote their industries, foster policies to support economic development, perform economic analyses, develop standards, and communicate benefits to members. However, in the 1970s, significant health, environmental, safety, and consumer protection laws and regulations transformed business associations as they began interfering with legislation and regulation processes.
Judicial deference started toward federal agency rulemaking, mainly because of conservative appointees to the bench by the George W. Bush and Trump administrations, which reduced the influence of trade associations. Trade associations now prioritize business-sector-specific regulatory, legislative, and public relations issues and have been disengaging with the political process of broader issues.