ESG Weekly News Update: November 18, 2022
General ESG News
Reuters: Sustainable Switch: Who pays the climate bills?
Small island nations are currently suffering the worst effects of climate change due to things like ocean storms and rising sea levels, and they are demanding that Big Oil pays.
At the COP27 conference in Egypt, Antigua’s prime minister stated, “The oil and gas industry continues to earn almost three billion United States dollars daily in profits. It is about time that these companies are made to pay a global carbon tax on their profits as a source of funding for loss and damage.”
Additionally, the U.S. wants businesses to pay companies to stop burning coal through carbon markets. The proceeds from the carbon credits can then be used to fund renewable energy projects in countries seeking to transition away from fossil fuels.
Developing countries also must work with investors, banks, and wealthy nations to secure financing for climate action and boosting resilience.
The Wall Street Journal: U.S. Climate Envoy John Kerry Rekindles Contact With China At COP27
At the COP 27 United Nations Climate Conference, John Kerry said he spoke with his Chinese counterpart, rekindling contact between countries. He stressed how critical it is that our two countries communicate as we are two of the biggest economies and biggest emitters in the world.
At COP27, John Kerry push back on the issue of whether industrialized countries should pay compensation to developing countries that are most affected by extreme weather events. He also called on the private sector and banks to provide more capital as these modern challenges are complex.
Bloomberg: Mexico Pledges Tougher 35% Emissions Cutting Target For 2030
Mexico is vowing to cut greenhouse gas emissions by 35% by the end of the decade. The effort rural require $40 billion in investment and around 40 gigawatts of additional clean energy generation. Methane reductions will also be essential.
Other countries, including Turkey, are expected to file an update of their Paris Agreement pledge next week.
The Wall Street Journal: Corporate Executives Call for Action-Based Approach at COP27
At the UN COP27 climate summit in Egypt business leaders called for clear policies and specific actions to fight climate change.
A letter written by executives from 101 companies asked companies and governments to meet the 2015 Paris Agreement goals with already existing solutions.
This letter mentioned easing the red tape and costs of the transition to renewable energy by “simplifying regulations to speed along renewable-infrastructure permitting and research-and-development spending” as well as creating tax credits for carbon removal, renewable energy, and recycling.
Governments were called on to phase out fossil fuel subsidies, put a price on carbon emissions, and support the labor transition to renewable energy. Additionally, more companies were urged to set science-based emissions targets in alignment with the Paris Agreement.
This letter demonstrates that businesses are a driving force in combating climate change and that collaboration and consistency with governments are essential.
Bloomberg: COP27 Deal Looks Distant As Loss And Damage Slows Process
Eygpt’s COP27 presidency outlined an ambitious schedule for week two, with the goal of getting all countries to agree by Friday on a political statement that lays out the goals and commitments agreed upon. A range of key issues remain deadlocked and the most contentious issue is loss and damage – how developed nations should compensate developing countries for the climate-fueled extreme weather events they suffer.
These statements do “not need to be agreed upon by all countries so the final wording will likely reflect the lowest common denominator and leave many unsatisfied.”
With discussions around many critical issues still entangled, there is a possibility that some negotiations may be delayed by a full year, until COP28.
Sustainable Brands: IBM Collaborates To Accelerate Clean Energy Transition For Vulnerable Populations Around The World
IBM has announced new members of the IBM Sustainability Accelerator – its “global, pro bono, social impact program that applies IBM technologies and an ecosystem of experts to enhance and scale projects focused on populations vulnerable to environmental threats, including climate change.”
These are a few of the organizations that IBM selected to become the clean energy cohort of the program:
United Nations Development Program
Sustainable Energy For All
Net Zero Atlantic
Miyakojima City Government
Environment Without Borders
ESG Today: Guest Post: Should You Build or Buy An ESG Supply Chain Solution
Sarah Carpenter, Director of Corporate Responsibility at Assent, Inc., poses the question, “What is the best way to confront the litany of business challenges that come with managing ESG risks and opportunities in the supply chain?”
One option is to build an internal solution while the other option could be buying a platform to assist in these efforts.
Building a solution refers to any internal effort that leaves manufacturers solely responsible for their programs' creation, maintenance, and effectiveness.
Buying a solution refers to the purchase of a dedicated compliance, ESG, and/or sustainability supply chain solution that is contracted to support and enable the success of a manufacturer's program.
Bloomberg: Low-Income Apartments That Set a High Standard for Energy Efficiency
The Chestnut Commons, a mixed-use building that includes ground-level retail space and affordable housing in Brooklyn, is the largest multifamily building in New York City to follow the energy-efficient Passive House guidelines.
The Passive House guidelines are a set of standards created in Europe which include energy-efficient design solutions in conjunction with advanced technology for airtightness and insulation as well as an energy recovery ventilation system.
These features reduce energy costs by 70% which lowers the utility bills for residents.
The lead architect, John Woelfling, describes this project as “an environmental equity measure” because the building reduces air pollution and health costs for these vulnerable communities and decreases noise pollution for people who live close to highways and trains.
Bloomberg: Africa Wants Climate Reparations Now and Debt Help, Creecy Says
Barbara Creecy, South Africa’s Environment Minister, calls out to the U.S. and European countries for immediate financial support for developing countries affected by climate disasters. She claims that wealthy countries should provide aid through the loss and damage mechanism, and multilateral development banks should be recapitalized to finance and address global warming.
Although China and India are two of the world’s greatest greenhouse gas emitters, Creecy thinks they should not be required to pay because they are still developing economies.
GreenBiz: The latest climate fight is in finance
By the end of 2022, ESG investing is projected to reach $55 trillion. Republicans want to reverse ESG efforts and trends with anti-ESG legislation, ESG bans from pensions, and claims that BlackRock is misusing public money.
ESG critics hold two main arguments:
ESG investments have lower returns. Yet, many studies find that ESG investments have above-average returns.
ESG-focused investment managers breach their fiduciary duty. However, “fiduciary duty” does not mean maximizing returns but rather advising clients based on their investment goals and not misrepresenting the facts.
Sustainable Brands: Many Business Leaders See Sustainability as Costly Obligation Rather Than Investment in the Future
A new report published by Capgemini Research Institute found that there is a gap between long-term climate ambitions and short-term, concrete actions, and the business case for implementing sustainability is largely misunderstood. Many organizations lack collective vision and collaboration on sustainability as teams work in silos.
Current and future employees are the main drivers pressuring employers for sustainability initiatives, but most companies are holding back efforts for fear of short-term costs. Change needs to come from the top as an investment for the future.
Sustainable Brands: Climate Change in the Divided States: Why Polarization Should Be Sustainability’s Most Important Issue
Political polarization over climate change is distracting and hindering the U.S. from making significant progress and may prevent the avoidance of the devastating impacts of climate change.
The underlying sources of political polarization must be addressed if we are to move forward.
The author discusses several events and changes that led up to this polarization including less socialization between parties, the creation of the mechanism for corporations to fund electioneering, and the rejection of the Fairness Doctrine, which would require broadcasters when discussing controversial issues to present opposing views.
Disinformation as well as the predatory use of social media were also cited as sources of polarization.
The author calls for programs and policies such as media reform to bridge the gap between parties.
Diversity, Equity, and Inclusion
Forbes: The Intersection Of Risk Management And DEI
An organization’s ERM should incorporate strategies through a DEI lens, challenging everyone to look beyond their scope of work to realize their decisions can impact the broader organization and that both ERM and DEI are “everyone’s job.”
Everyone has an intrinsic bias, so to make ERM the responsibility of one person, there is a risk that their bias will keep the program from remaining objective. The nature of bias encourages the need for multiple and diverse viewpoints in ERM. Using DEI assessments across the organization can also help course-correct where there may be risky behaviors.
Creating a framework where DEI is integrated into decision-making is essential for effective risk management and can support a “strong risk culture.”
Forbes: Strategies For Prioritizing DEI In Your Business
Incorporating Diversity, Equity, and Inclusion (DEI) into business while essential in its own right, also increases performance when comparing diverse companies to those less diverse (McKinsey). Implementing these strategies can advance DEI:
“Recruit with purpose”
Establish consistent inclusivity and equity messaging throughout the recruiting process.
Focus on a DEI hiring process that leads to retention and “transformational change in your industry.”
“Get buy-in from employees and the C-suite"
Create meaningful DEI trainings that can be correctly used by the C-suite and employees.
“Manage the change”
Educate the C-suite about DEI, company DEI goals, and why they are being implemented to create support from the top down
Celebrate the small wins
Track and demonstrate progress with benchmarks and metrics
Enmesh DEI into the company culture
Reward inclusive actions and provide safe spaces to discuss DEI
Advance DEI by working with minority-led organizations
GreenBiz: Why Amazon Is Putting $53 Million Toward Climate Funding For Women
Women led 49% of new businesses started in the U.S. in 2021.
Amazon is committing $53 million centered specifically on supporting female founders working on climate solutions.
$3 million of that will go to support the new climate gender equity fund which is a public-private partnership established by the U.S. Agency for International Development. The other 50 million is part of the climate pledge fund. Amazon dedicates that money to women-founded and women-led climate tech companies, as well as incubators and accelerators that support initiatives centered on gender equity.
ESG Disclosures, Standards, Rankings, and Reporting
ESG Today: Climate Tech BeZero Carbon Raises $50 Million to Expand Carbon Credit Ratings Platform
The London-based carbon credit ratings startup BeZero has announced that it raised $50 million in Series B funding, with proceeds meant to expand its efforts to provide transparency in environmental markets.
As demand for carbon offset projects grows with companies looking to meet their net-zero emissions targets, there are still issues with insufficient and inconsistent data to assess the effectiveness of the offset projects.
This is where BeZero comes in. It is a rating agency for carbon markets, and it provides carbon ratings and research and data products that are backed by a team of climate and data scientists, earth observation specialists, and financial analysts.
According to BeZero, the funding will be used to support the development of ratings, risk, and analytics tools and the expansion of the company’s proprietary automation toolkit, its earth observation capabilities, and its talent.
Reuters: COP27: Sustainable standard setters close in on regulatory gap
The International Sustainability Standards Board (ISSB), which sets standards for global corporate disclosures, may be only weeks away from aligning the European Union’s disclosure standards with its own.
Emmanuel Faber, chair of the ISSB hopes to have as many countries adopt the ISSB’s standards as possible. This will make the disclosure process easier for companies and increase interoperability across companies.
One of the larger challenges is reconciling differences in the definition of materiality.
The ISSB gained more support when, at COP27, CDP announced that it will “apply the ISSB's climate disclosure standard in its work.”
ESG Today: Biden Unveils Rule Requiring Federal Suppliers to Disclose Emissions, Set Climate Targets
As part of the Federal Sustainability Plan for the federal government to reach net zero by 2050, President Biden proposed the Federal Supplier Climate Risks and Resilience Rule; the rule would require suppliers of the federal government to disclose “climate-related financial risk data” and greenhouse gas emissions.
Under this rule, federal contractors with the largest annual contracts (>$50 million) would have to report their Scope 1, 2, and 3 emissions, and climate-related risks, and set science-based emissions reduction targets.
As the world’s largest buyer of goods and services and thus a large supply chain emissions footprint, the U.S. government needs data from its suppliers to create a more efficient supply chain and to reduce climate-related risks.
Forbes: ESG Commitments Before ESG Communications (NOT The Other Way Around)
Companies may struggle with ESG reporting as it has become more complex and critical with fear of greenwashing accusations.
Sustainability and ESG reports may have a narrow purpose, but they can be crafted creatively with interactive graphics and memorable narratives to support numerical data and initiatives. Tie the company’s sustainability story with its purpose. Be authentic and advocate for the company’s beliefs and efforts for change.
ESG Today: EY Survey: Investors say Companies are Cherry-Picking Reported ESG Data
A new EY survey found that over 75% of investors believe that companies “cherry-pick” the sustainability data to disclose, providing only useful disclosures as required by regulators. 99% of investors use ESG disclosures from companies for investment decisions. However, 73% state that “organizations have largely failed to create more enhanced reporting, encompassing both financial and ESG disclosures.”
Companies are also aware of potential improvements in ESG reporting, and some claim their current reporting would not satisfy basic assurance standards. The survey reports on the shortcomings of effective ESG reporting and the disconnection between investors and companies on long-term value creation and sustainable growth that could impede access to capital and progress on ESG commitments.
GreenBiz: Rules for a net-zero energy strategy
In an effort to combat greenwashing the United Nations panel created a list of 10 recommendations to evaluate whether a company is serious about its climate pledges.
The recommendations include:
Phasing out the use and support of fossil fuels and
Doubling down on renewable energy.
Investment Trends
Reuters: Analysis: Money before climate; market downturn spurs ESG fund exodus
Funds that adhere to ESG principles have seen unprecedented outflows in the market downturn since investors are prioritizing capital over climate change targets.
The drop in market values is proving to be a test for ESG investment strategies. At the same time, policymakers at the COP27 climate conference are trying to secure financing from the private sector to help reduce carbon emissions.
Recent data from Refinitiv shows that responsible investing assets have seen net outflows of $108 million this year, marking the first time investors have withdrawn money from them over such a long period since the firm started tracking it in 2017.
Additionally, investors in some regions are showing more loyalty to ESG than in others – in the U.S., investors have stuck with responsible investing funds longer than those in Europe.
The significant outflows indicate that ESG investors’ focus on the needs of the planet and society does not make them indifferent to poor financial returns.
The Wall Street Journal: This Former BlackRock Executive Says ESG Investment Model Is Broken
After years of assisting clients in putting money towards companies that value ESG, Terrence Keeley, former BlackRock asset manager, says that the strategy doesn’t work.
Instead, he argues in his book, “Sustainable: Moving Beyond ESG to Impact Investing,” that money should be shifted towards “companies with persistent environmental and social problems and engaging them to change,” not companies who already have ESG ratings.
While many, including BlackRock CEO Larry Fink, may disagree, Fink welcomes these opinions and others to this “critical dialogue.”
Forbes: The Corporate Proxy Ballot Takes Center Stage For ESG
The surge of investments into environmental, social, and governance funds is helping to increase the visibility of the actions demanded by investors and activists. By 2025, it is expected that around 33% of all global assets under management will have ESG mandates.
During the 2022 proxy season, the number of shareholder proposals on the ballot at corporate annual meetings increased by 25% from last year, With a 133% jump in the number of climate-related initiatives.
Moving forward, companies and boards of directors need to find ways to effectively communicate both their commitment to ESG and their strategies for achieving their ESG goals.
Reuters: Explainer: Decoding COP27: The Many Shades of Green Bonds
At the COP27 conference, companies and country delegates discussed ways of enhancing the market for green bonds.
Other bond options that were discussed include the sustainable development goal bonds that raise money for a project that relates to sustainable development goals, or social bonds that might fund affordable housing projects or rehouse people displaced by climate events.
Reuters: Canada's PSP fund to double issuance of long-term green bonds
By 2026, Canada’s Public Sector Pension Investment Board (PSP Investments) aims to more than double the C$1 billion ($749 million) value of sustainable bond issuance. In February, it issued its first green bond as a progression to reach net-zero emissions. Other Canadian pensions have also issued green bonds but have not set targets for green bond issuance.
Currently, PSP Investments invests 4.2% of its capital debt in green bonds. As part of its new climate strategy, PSP plans to cut its exposure to greenhouse gas emitting assets by 20-25% by 2026.
Companies and Industries
Forbes: New Coffee Pod Brewer Aims For Sustainability
Bruvi, founded in 2018, just came out with a new branding system that incorporates the convenience of single-serve coffee with a better solution than traditional pod disposal. The bio enzyme-infused coffee pods (B-Pods) break down in a landfill faster than untreated plastics and leave no microplastics behind.
However, where there are sustainability benefits, there are drawbacks – the pods are not interchangeable with other major brands, requiring more purchases for each individual user. Additionally, it is worth noting that many eco-minded consumers tend to avoid single-serve coffee pods in general.
While the concept is admirable and sustainable alternatives to wasteful practices are needed, these types of options can have trouble gaining traction in the market.
Bloomberg: Electric Truck Stops Will Need as Much Power as a Small Town
Tesla plans to launch the first of its electric semi-trucks next month, which can pull a 40-ton load about 500 miles on a single charge. However, according to a recent study of highway charging requirements, by 2030, electrifying a standard highway gas station will require as much power as a professional sports stadium (just for electrified passenger vehicles).
By 2035, to meet the needs of large electric trucks on the road, it is projected that a big truck stop will require the power equivalent of a small town, according to researchers at the utility company National Grid Plc.
The authors of the study were even surprised by the results and discovered how quickly highway power demands will change. If power upgrades do not start soon, the transition to electric vehicles will be hindered by grid constraints. According to Bart Franey, vice president of clean energy development at National Grid, “the market is going to outpace infrastructure.”
Ultimately, the shift is going to require major shifts from a policy and regulatory perspective. Utilities can build the factories and the infrastructure needed, but the required processes may not have started early enough to not cause a bottleneck in the electric vehicle transition.
Outdated energy infrastructure is a major concern – some towers raised by teams of horses in the early 1900s are still being used – but standards have evolved and are continuing to evolve at a rate faster than ever before. Building connected energy highways will present a competitive advantage for states that move the fastest.
Bloomberg: Companies Commit to Buying Super-Green Cement in Corporate Climate Club
PepsiCo, Apple, and Rio Tinto are among the members of a corporate buyers club that have now committed $12 billion to buy near-zero-carbon steel, aluminum, and more, with the goal of developing more sustainable supply chains.
There is also the First Movers Coalition, with members like General Motors and Vattenfall AB, which has committed to buying green cement and concrete for at least 10% of their needs by 2030. This commitment is especially impactful due to the fact that steel-making currently accounts for about 6% of global carbon emissions.
These joint efforts demonstrate not just procurement commitments, but companies collaborating to create entirely new business models. Additionally, the purchase commitments mean guaranteed demand, which is necessary to ensure the sustainable solutions – such as carbon-neutral steel – are developed and adopted.
While cost reductions and wider deployment of renewable energy sources are helping the global energy transition, there still needs to be a shift in hard-to-abate sectors like aviation and shipping. This shift can be started when the technologies needed come down in cost and come to market.
Sustainable Brands: Tramontina Courts Circularity, First by Addressing Packaging Pain Points
Tramontina, a Brazil-based cookware conglomerate, acknowledges that its biggest pain point is single-use plastic, and it aims to transition to 90% recycled materials in its single-use bags. This could reduce the CO2 output from the company’s packaging by as much as 60%.
The company is also working to replace styrofoam with cardboard in as much packaging as possible, and it is using envelope-like packaging to reduce the overall weight of product shipping.
Tramontina has been an early adopter of sustainable practices, with efforts dating back to the early 1990s. Now, the company’s circularity efforts include 93.5% of its waste being recycled or converted to energy and 918 tons of waste being composted for agricultural use in 2021.
Forbes: 7 Fashion Brands That Put Sustainability, Not Greenwashing, First
The following are seven brands that truly put eco-consciousness first.
For Days: For Days is a closed-loop fashion brand that rewards shoppers with store credit for returning their clothing items when they are done with them. The company accepts any used clothing by any brand in any condition in exchange for store credit via its Take Back Bag.
Kindly: Kindly makes plant-based intimate apparel products.
The Simple Folk: The Simple Folk produces minimalist, all-natural, non-toxic, ethical, comfortable children's wear and women's wear.
Helpsy: Helpsy is the only vertically integrated secondhand clothing merchant in the US and is a certified B Corp. They work with companies to manage clothing collection containers, excessive inventory, returned clothing, home pickups, textile drivers, and more.
Amour Vert: Amour Vert was one of the first brands to pioneer the use of environmentally conscious fabrics like modal, plant seed fiber, and ethical wool in 2010.
Dara Hamarneh: Dara Hamarneh curates handbags that last forever. the leather used is gold standard certified by the Leather Working Group, which demands the highest standards for water conservation, energy usage, traceability, and chemical management.
Dagne Dover: Dagne Dover makes bags, backpacks, and wallets out of mostly vegan products, avoiding toxic chemicals and waste.
Forbes: IBM Announced Clean Energy As Second Cohort Of Its Sustainability Accelerator
In February 2022, IBM launched its Sustainability Accelerator program that uses hybrid cloud and artificial intelligence to support non-profit and government organizations for two years to “accelerate and scale their efforts focused on populations vulnerable to environmental threats, including climate change, extreme weather, and pollution.”
Before its launch, IBM conducted a successful pilot focused on sustainable agriculture and addressing vulnerabilities of farmers’ livelihoods and communities’ environmental sustainability. The current cohort is focused on clean energy with five partners that are non-profits, a UN agency, and a municipality.
Government Policy
The Wall Street Journal: Negative Externalities, ESG and Democracy
Government regulators should set the laws and rules for at least the “E” in ESG, and CEOs and investment managers should not be empowered to set the priorities (or the trade-offs) for issues of global importance. According to the article author, this is the best way to handle externalities, or the cost imposed on others from business operations.
The Wall Street Journal: Biden Announces Restrictions on Methane Emissions at COP27
At COP27, President Biden announced that the U.S. plans to reduce methane emissions and put “our money where our mouth is to strengthen accountability in climate risk and resilience” by boosting climate funding to developing countries. As the U.S. and China are the world’s greatest emitters, Beijing also announced a plan to cut methane emissions although it has not submitted new measures to the U.N.
The Environmental Protection Agency mentioned future requirements for oil-and-gas companies to monitor existing production facilities for methane leaks and repair them. Biden noted these requirements would reduce U.S. methane emissions by 87% from covered sources by 2030 from 2005 levels.
The U.S. owes $2 billion to the UN Green Climate Fund which finances projects for renewable energy and climate adaptation in the developing world. Biden also pledged $150 million to a U.S. fund for climate adaptation and resilience across Africa and $13.6 million to the World Meteorological Organization. Meanwhile, poorer nations have been demanding “loss and damage” money for damage as a result of climate-related weather events.