ESG Weekly News Update: October 14, 2022
General ESG News
Forbes: ESG Spending: Friend Or Foe In The Modern Age?
Many recent surveys are finding a mix of perspectives and intentions towards ESG spending and investing.
91% of American CEOs predict a recession within the next year, but 59% are considering pushing off ESG efforts and spending to offset inflation and recession impacts. Only 25% of North American business leaders think ESG strategies will be an “extremely important” priority by 2032, compared to 58% in Europe and 71% in the Asia-Pacific.
High percentages of surveyed corporate executives acknowledge that ESG spending boosts financial performance and is key to their company’s long-term success.
Morningstar found that 85% of investment firms identify ESG factors as “very” or “fairly” material to the investment process.
ESG Today: PwC Survey: More Than Half of Boards Lack a Strong Understanding of ESG Strategy or Risks
PwC’s most recent Corporate Directors Survey found that most corporate boards lack a strong understanding of their companies’ ESG strategies or risks.
Although ESG is becoming a part of companies’ risk management, board discussions rarely include human rights and climate change as topics. The most discussed topics include data security, executive compensation plans, and talent management.
Investors may also lose focus on ESG because of market turmoil and economic downturn.
Forbes: Bob From Accounting Saves The Day – The Finance Office And ESG
The role of investors in averting the climate crisis is well-documented and talked about, but for this to work, organizations, corporations, governments, and other entities must be able to account for and report on how their operations impact the environment and society. This is where finance and accounting teams come in.
These teams must identify and quantify risks and determine mitigation and hedging strategies, and the reports they produce are scrutinized by investors and analysts. The challenge is expanding this role to account for non-monetary impacts and results.
A few of the main objectives needed for finance and accounting teams to succeed include reaching a consensus on how to measure and report on ESG factors and developing the necessary technology to do so.
Bloomberg: Dire Climate Impacts Distract From Even More Dire Warnings
Extreme weather is bombarding the U.S. and other countries, with Britain seeing its hottest summer ever in 2022 and New Zealand experiencing its third-warmest winter in a row. Pakistan has faced unprecedented flooding, and rivers on several continents have dried out.
Nearly half of Americans now report that they’ve seen global warming affect others, and 30% say they’ve experienced it personally. The bigger picture of this bleak story is that there is a large amount of work that needs to be done to avoid the worst climate disaster projections.
The longstanding adage of “climate change will cost rich countries money and poor countries lives” no longer rings true for many – all countries will pay with human lives and wellbeing.
The passage of the U.S. Inflation Reduction Act appears to be a small silver lining and is expected to boost the rapidly growing clean economy.
Sustainable Brands: Influencing the Influencers: How to Unlock Mass Adoption of Sustainable Products
According to Bloomberg, in early 2022, we reached the tipping point for mass adoption of electric vehicles (the “5% threshold”). While part of this is driven by consumers becoming more aware of their personal contributions to climate change, part has also been driven by auto manufacturers embracing EV technology and creating both functional and affordable options.
A key element in the mass adoption of sustainable products is helping consumers understand that they don’t have to compromise value or quality when purchasing environmentally friendly products. One way to do this is to "influence the influencers" in these industries, which is how many modern corporations reach their end consumers.
Other actions companies can take include labeling products with validated sustainability claims, offering products with multiple price point options, and using inclusive language and individuals.
GreenBiz: Indigenous leaders call for climate finance disruption
Global Indigenous leaders have been calling for a system of climate finance that values their knowledge and work and offers a fair price – paid directly to them – for the nature-based solutions they provide.
According to Nature, “Indigenous communities make up less than 5% of the human population but manage or hold tenure over 25% of the planet’s land surface and support about 80% of global biodiversity.” Despite this, very little funding reaches these communities due to intermediary organizations with complicated application processes and burdensome reporting requirements.
Indigenous leaders are calling for a climate financing model that better fits what is happening within their territories, both from public and private funding. This model would also need to include higher prices for things like voluntary carbon markets and other nature-based solutions, which are currently too low to have a real impact.
ESG Today: Guest Post: Why Biodiversity Risk is a Business Risk
Sonya Bengali, Marketing Director at Sustainable Business Consulting, stresses that biodiversity loss is a primary driver of climate change. Degradation of land for agriculture and other uses accounts for 23% of total greenhouse gas emissions. It is essential that emissions reductions must go hand in hand with biodiversity goals.
Ecosystems provide crucial economic services, from supplying food, fuel, and medicine, to storing carbon and filtering the air. Over half of the global GDP depends on nature according to the World Economic Forum. Biodiversity provides more than $150 trillion in annual economic value.
The Finance for Biodiversity Pledge now convenes nearly 100 signatories managing $14 trillion in assets committed to protecting biodiversity through their investments. The World Bank also published Nature Action 100, a proposal for investor engagement on biodiversity.
Here are some ways how your company can get started on incorporating biodiversity into your climate action plan.
Uncover your impact
Formalize a commitment
Brainstorm mitigation strategies
Other resources to be aware of:
Science Based Target Network
CDSB biodiversity disclosure guidelines
CDP briefing on biodiversity disclosure
IUCN standards for nature-based solutions (NBS).
Diversity, Equity, and Inclusion
Forbes: Making Employee Resource Groups And ESG Work Better Delivers Business Value
WeSpire is a company that offers a platform with digital tools for companies developing diversity, equity, inclusion, sustainability, and community investment programs. The platform helps companies measure and set ESG goals, particularly social impact.
A hybrid workplace balances creating a sense of community and providing employees flexibility. Employee Resource Groups (ERGs) increase inclusion and belonging as psychological safety for individual employees and the organization altogether. Robust ERG programs improve the attraction, retention, and development of top talent. WeSpire’s platform support companies to analyze and manage ERGs.
Reuters: Companies Lack Targets For Employee Mental Health, Study Shows
Only three companies out of 20 have published objectives for employee mental health management, according to a study from British charity investment manager CCLA.
CCLA’s investor benchmark assessed 100 of the world's largest listed firms and discovered a disconnect between “their recognition of workers' mental health as an important business issue and formalized public commitments and disclosure.”
David Atkin, head of the UN-supported Principles for Responsible Investment, stated the results of the benchmark show that mental health is “still a relatively immature business issue.”
Bloomberg: Banks Run by Women Lend Less to Big Polluters, ECB Study Finds
The European Central Bank has found that gender-diverse banks tend to lend less to environmentally harmful companies. Specifically, the ECB found that there was about 10% less lending to environmentally harmful companies, from banks with above 37% female directors.
The study confirmed the benefits of having more diverse decision-making groups in the global economy.
ESG Disclosures, Standards, Rankings, and Reporting
The Wall Street Journal: Fund Managers, Regulators Wrestle Over Plans to Tighten ESG Rules
Data providers and financial firms are becoming increasingly skeptical as the U.S. and EU try to establish more stringent rules on ESG investment products.
In 2021, ESG funds exceeded $350 billion in net assets.
Investors could potentially pull cash from funds that aren't taking establish SEC benchmarks and standards seriously.
Investors, including BlackRock, are urging the SEC to require investment advisors to disclose how ESG factors impact investment decisions.
Currently, the lack of consistency between ESG definitions has allowed fund managers to stretch selection considerations.
MSCI believes that standardization would lower the quality of ESG ratings.
Forbes: How ESG Funds Will Be Impacted By The SEC’s Expansion Of The 80 Percent Names Rule
The SEC is considering expanding the 80% rule for fund names (which states that managers cannot use misleading names for funds and any given fund must be at least 80% invested in the types of investments included in the name) to include strategies. Mutual funds may be particularly affected.
One of the key problems with the proposed rule amendment is regarding the word “growth,” which will be up for interpretation because definitions for growth stocks can vary widely across fund managers and firms.
ESG-related fund names may also be affected, and some experts are wary of the SEC deciding that a word in a fund name indicates an investment focus when that was not the original intent when the name was created. Many in the industry are requesting more clarity before the rule is adopted.
It is expected that most ESG-related funds will choose to comply with the 80% rule rather than change their names, as they do not want to risk losing out on the increasing interest in ESG investing.
The new rule will likely lead to the creation of three categories of ESG funds: focus, impact, and integration, with different requirements and limitations for each.
Another concern is the one-year transition period, which does not allow much time for fund managers to move and reposition their portfolios to achieve compliance, especially in the current volatile market conditions.
The main concern is that the new rule will prevent fund managers from using the proprietary strategies on which they have built their reputations.
Investment Trends
Reuters: ESG Watch: Banks’ net-zero pledges in spotlight over fossil fuel investment plans
This year's Climate Week NYC focused on the urgency of climate action and the complex relationships between politics, economics, and human nature.
The gap between what is needed and what businesses believe to be possible continues to widen.
Net-Zero Banking Alliance (NZBA) is being called to set strict standards and rules for financing fossil fuels projects.
Net-zero commitments can't be credible without committing to phase out the financing of new fossil fuels and the NZBA needs to make it clear that the combination of net-zero goals and the financing of fossil fuels will not be considered credible.
In response, the NZBA did the opposite and weakened the current language which in turn raised many legal liability concerns.
The head of research at Planet Tracker voices concern about ‘greencrowding,' which is when a company hides behind other members of Race to Zero and moves the slowest in comparison to other members.
Data is becoming more important as it creates transparency in situations such as the recent methane leak in Mexico.
GreenBiz: $9.6 trillion in corporate risk over nature loss? What investors should know
Moody’s Investors Service released a report that spotlights nature as a topic for investors to watch. The report outlines some of the most at-risk industries and what the business community should know about nature-related risks.
Moody's lists extractive industries as the most at-risk industries. This includes mining companies, agriculture or ranching companies, and forestry, fishing, and tourism companies. These all rely heavily on nature and are projected to either be the first to protect nature and natural resources or the first to fail.
The firm predicts that regulatory frameworks will be complicated as measuring nature is not easy because each location is unique and can't always be compared in terms of the success or failure of an ecosystem or habitat.
Moody’s also urges for a shift in mindset, away from short-term business and economic outcomes. Businesses and investors need to work to solve problems and find long-term solutions.
Forbes: Should The SEC Ban ESG Funds?
The SEC recently announced disclosure requirements that would provide transparency around ESG strategies claimed by funds that market themselves using ESG.
Investors want to use their investments to make a statement which is why performance alone doesn’t portray the value of any ESG fund.
The lack of consistent ESG definitions allows for fossil fuel companies to be included in ESG funds. This ESG ambiguity can quickly lead to greenwashing.
There is a tradeoff cost to mixing personal preferences with investments. ESG investments aren't picked based on financial analysis, they're based on personal preferences.
Instead of banning ESG funds, the SEC hopes to establish clear frameworks.
The Wall Street Journal: Louisiana To Pull Out Of BlackRock, Citing Its ESG Investing
John Schroder, the Louisiana treasurer, states that he will pull $794 million of state money out of BlackRock Inc due to the company's support for ESG investing, as he believes that ESG investing doesn't align with Louisiana’s economic interests.
In August, 19 state attorneys signed a letter stating that BlackRock is actively phasing out fossil fuel companies and harming the economy.
In response, BlackRock cited $100 billion worth of investments in Texas energy and was overall disturbed by the trend of political initiatives blocking access to high-quality investments.
The Wall Street Journal: MassMutual Doubles Down on Backing Firms Led by Diverse Founders
Massachusetts Mutual Life Insurance Co. established the First Fund Initiative to provide capital and support firms led by Black, Latino or indigenous founders that generate positive social impact and financial returns. MassMutual previously made a $50 million commitment and recently added another $100 million commitment.
Since 2021, MassMutual backed seven funds sized at $100 million or less. For example, Impact America Fund is an early-stage venture firm in Oakland, CA that targets technology-enabled businesses focused on marginalized communities. MassMutual also invested in the 22 Fund in Los Angeles, which invests in technology-based, export-oriented manufacturing businesses led by entrepreneurs that are female, Black, indigenous, or people of color.
Bloomberg: New Venture Fund Will Only Back Tech Combating Wildfires
Convective Capital is a new California-based investment firm focused on wildfires. Its fund recently raised $35 million for tech startups that are detecting, preventing, or managing the spread of wildfires.
Bill Clerico, founder and managing partner of Convective Capital, previously worked in mobile payments but also became a volunteer firefighter and sought out techs involved with wildfire activity. George Whitesides is another Convective Capital partner. He is a former NASA official and believes aircraft and space technologies can help fire management.
Clerico identifies public agencies, utilities, insurance companies, and landowners as target customers for his portfolio.
Forbes: Snakes in The Garden Of ESG: 5 Strategies To Make ESG VC More Successful
The most successful VCs invest in high-growth industries but there is a question being posed: Can ESG-VCs succeed without subsidies if they invest in environmentally friendly industries? Also, can low-income community members obtain top VC funds?
The following are a few suggestions for ESG-VCs seeking a top place in the Top 4% of VCs:
Blend Unicorn entrepreneurship (UE) and VC for more unicorns everywhere.
Expand view availability from pedigree to skills.
Design better exits.
Use smarter financial instruments.
Make highly profitable ESG-VCs less reliant on home runs.
Companies and Industries
ESG Today: American Airlines Invests in Aviation-Focused Green Hydrogen Startup Universal Hydrogen
American Airlines is now focused on green hydrogen in response to the current scrutiny the aviation industry is under due to the greenhouse gas emissions the industry is responsible for. The industry accounts for about 2-3% of global GHG emissions.
Hydrogen is more efficient in comparison to jet fuel, and it can be produced through carbon-free methods; this makes hydrogen a viable long-term solution.
American Airlines hopes to continue working towards its goals of reducing carbon intensity per passenger and payload by 45% by 2035 and achieving net zero by 2050.
Sustainable Brands: E-Waste No More: Fairphone and Framework Show a Better Way Forward for Personal Electronics
Consumers have the habit of purchasing new technology, even if the new technology includes little improvement. Consumers are also not considering the amount of electronic waste that comes from the need to constantly upgrade.
Globally, there are about 53.6 million tonnes of e-waste generated each year.
E-waste also contains high amounts of mercury, lead, beryllium, brominated flame retardants, and cadmium, all extremely toxic chemicals.
Fairphone believes that smartphones can be made more sustainably and has begun to set the bar for how smartphones and other electronics should be produced.
The Fairphone 4 was released in 2021 and comes with a five-year warranty. The design makes it easy for anyone to repair, which allows consumers to use the product for longer.
Bloomberg: Delta, MIT Partner to Erase Planet-Warming Contrails from Skies
Contrails, the white clouds that trail behind airplanes, are formed when water vapor from engine exhaust mixes with cold air. They are also known to trap heat from the earth's surface in the atmosphere.
Delta Airlines Inc and The Massachusetts Institute of Technology Department of Aeronautics and Astronautics announced a partnership to discover new ways to eliminate these contrails. Already completed trials have shown that 70 to 90% of all contrails could be avoided through flight and altitude adjustments.
The aviation industry contributed to 2% of the world's total carbon emissions last year. the International Energy Agency says sustainable aviation fuels and technological advances are critical for the sector to reach net zero emissions by 2050.
Sustainable Brands: Innovation and Data Driving Sustainability in US Cotton Industry
Brands, retailers, policymakers, and industry leaders need help and reassurance from global supply chains by using verified data and technology to improve the environmental footprint of the fashion industry.
Cotton grown in the United States is one of the world’s most technologically advanced industries because innovation continues to drive its sustainability. U.S. cotton growers have improved soil health and carbon levels while reducing water and energy usage. They reduced greenhouse gas emissions by 49% with an estimated 42% increased yield.
Many U.S. cotton growers use GPS-enabled swatch control and auto-steering functions. Precision agriculture and technology provide farm-specific parameters, which help improve sustainability and efficiency.
The U.S. Cotton Trust Protocol is a catalyst to continue the progress on sustainability. Through data collection and third-party verification, growers can make informed decisions and measure their progress in six key sustainability metrics: land use, soil carbon, water management, soil loss, greenhouse gas emissions, and energy efficiency.
The Wall Street Journal: Blackrock Walks A Political Tightrope On Climate Issues
The world's largest investor is under scrutiny from government officials on both sides of the climate debate.
Louisiana’s treasurer stated they “would pull nearly $800 million from BlackRock funds but at the end of the year, citing the asset manager's support for environmental social and governance investing.” Last August, attorney generals from 19 states accused BlackRock of actively pressuring companies to phase out fossil fuels.
Last week, BlackRock launched a website that attempts to “set the record straight about our focus on energy investing, our responsibilities to clients, and how we consider climate risk.”
Bloomberg: Tesla’s Vegan Leather Supplier Bets Material Will Be Used Everywhere
Ultrafabrics Holdings Co. supplies seating material to Tesla Inc. and United Airlines Holding Inc. The company is forecasting operating profits of ¥2.7 billion on sales of ¥18.6 billion for the fiscal year through March.
The global synthetic leather market is on track to reach $67.2 billion by 2030, according to Straits Research.
The company stresses that “there is still a sense that sustainability is a premium option, but it will probably become a must-have in the not-too-distant future.”
GreenBiz: Nescafe Unveils $1 Billion Regenerative Coffee Farming Plan
Nescafe announced plans to invest over $1 billion in scaling up regenerative agricultural methods and environmentally sustainable coffee farming worldwide, all part of Nestle's drive to half its greenhouse gas emissions by 2030.
They will aim to source 20% of coffee from regenerative agricultural methods by 2025. The company is also aiming to ensure that 100% of its coffee is responsibly sourced worldwide by 2025.
Nescafe will work with coffee farmers to test, learn, and assess the effectiveness of multiple regenerative agricultural practices and will also pilot potential cash incentives to farmers.
Sustainable Brands: Tomorrow's Leaders Demand Action On Climate Change
Young people, especially women and people of color, are expecting brands to become part of the climate change solution.
A survey conducted by WE Communications and YouGov Revealed young people are hungry for actionable information about their own impact and the impact of the brands they shop with. The new research identifies the most effective ways for brands to enhance their communications.
Fill the information void. Communicate widely and deeply with potential consumers.
Feed the hunger for knowledge. Provide consumers with information on climate change as well as the ways in which the company is creating change.
Go from STEM to STEMS. Science, Technology, Engineering, Math, AND Sustainability.
ESG Today: BlackRock Launches Website to Address Energy Boycott Claims
BlackRock’s new website, “Energy investing: Setting the record straight,” is a response to claims accusing the firm of “boycotting” oil and gas companies to achieve its ESG agenda. It is also in response to a growing anti-ESG push from Republican politicians, including a resolution passed in Florida to no longer allow ESG considerations to be used by fund managers in pension funds and warnings in Texas and Louisiana about potential divestment from ESG funds.
BlackRock, a leading voice in the investment community and ESG investing, is at the center of many of these efforts, and its new explanations are meant to address misconceptions and clarify the firm’s motivations for participating in ESG initiatives.
Government Policy
Reuters: Austria seeks allies for legal challenge to EU green investment rules
Vienna legally challenged the European Union’s inclusion of energy sources on a list of climate-friendly investments. Austria is seeking European Union countries to back its legal action against Brussels because it labeled investment in gas and nuclear power as “green.” Luxembourg confirmed to join Austria’s action. Germany will not join but expressed that "it is good that the objections to the taxonomy regulation will now be reviewed by the courts."
During the rule drafting period last November, Austria, Germany, Luxembourg, Portugal, and Denmark jointly claimed nuclear should be excluded from the rules. Ireland and Spain also previously warned Brussels against labeling gas investments as "green.”
Bloomberg: London Secret Fix For Air Pollution Making Drivers Pay Up
Since they were put in place three years ago, restrictions on car pollution have cost drivers of diesel and gasoline cars as much as £2750 a day to enter the center of London. fully electric vehicles have increased more than four times in these last three years.
More than 260 charging points are added each month on average in London, according to the co-founder of Zap-Map, a popular app for finding charging points.
The controlled district in London, now called the Ultra-Low Emission Zone (ULEZ) , was expanded last October to cover an area 18 times the size of the central London congestion charge area.
Bloomberg: US Seeks Input on How to Use Cold-War Law to Boost Clean Tech
The U.S. Department of Energy is seeking public input on how to use the 1950 Defense Production Act to speed up the production of grid reliability technology for clean-energy deployment.
The agency has stressed the urgency of decreasing dependence on foreign fuel sources, and it now plans to use the Cold War-era law to strengthen U.S. supply chains through purchases, purchase commitments, and financial assistance.
GreenBiz: What happens when climate policy collides with real-world constraints?
Over the last few months, the United States federal government has passed a few climate legislation to incentivize clean technologies, including the Inflation Reduction Act, CHIPS and Science Act, and Kigali Amendment. States and local governments have also been establishing climate policies, such as clean electricity targets and natural gas hook-up restrictions in buildings.
Despite new mandates and incentives, there are some pinch points in the clean energy sector:
New energy projects that need to connect to the U.S. grid may experience interconnection delays and congested transmission lines in the process, which affects the speed and scale of the new projects’ deployment.
The demand for energy storage is rising because storage builds energy resilience and reliability for grids powered by wind and solar. However, the energy storage industry is challenged by mining and supply chain issues.
Clean energy supply chains are currently frustrated by legislation, costs, and geopolitical concerns, which can delay deploying clean energy projects.