ESG Weekly News Update: October 21, 2022
General ESG News
Forbes: ESG: Will G Save Us From E and S Challenges?
Countries across the world are increasing regulations to govern responsible social and environmental behavior. However, regulations have shortcomings as they set minimal efforts when “[w]e need proactive innovative solutions to today’s environmental and societal challenges.” Regulations also preserve present value but fail to enhance future value. Lastly, they are typically reactive to correct wrongdoing.
The ESG framework is deemed to be ineffective and inadequate because it relies on measurement, reporting, and incentives. The focus is more on form than substance, which contributes to the issue of greenwashing.
The Governance pillar mainly concerns compliance with rules and policies, driven by regulations. According to the article author, ESG may be better off as ESL where Governance is replaced with Leadership, specifically Steward Leadership. Boards and senior leadership should “build an organizational culture based on values like interdependence, long-term view, ownership mentality, and creative resilience.” Leadership should prioritize doing well by doing good and leading beyond regulatory compliance, measurement, and reporting.
Capital Monitor: Link Between ESG And Profitability Exists: New Research
Over the past three years, according to a new report from Moore Global, companies that prioritize ESG factors have seen profits increase by 9.1% and revenues grow by 9.7%.
Of the companies surveyed, more than 80% said their ability to raise capital has become either slightly or significantly easier, and they attribute this to their focus on ESG. In the U.S., nearly half of respondents said ESG had significantly improved their ability to attract external investment.
The IT and financial sectors are leaders in saying ESG has improved their ability to raise capital (with nearly 93% of IT companies surveyed saying so). More energy-intensive industries have a more difficult shift toward ESG principles, but the primary laggard is the public sector, where nearly a third of companies surveyed said ESG made no difference in their fund-raising process at all.
Sustainable Brands: Why Employees Are 12x More Likely to Recommend Purpose-Driven Brands
72% of people claim they want to work for a company aligned with their personal values, and they are 12 times more likely to recommend their company if it leads with purpose.
Three important steps to finding a purpose to create the right brand are:
Understanding the material risks or opportunities for your business by identifying sector challenges and interviewing stakeholders.
Creating an intentional statement with a simple and easily repeatable purpose; and
Activating the purpose so that internal beliefs and behaviors align with external actions and communications to offer consistent transparency and build a solid reputation.
GreenBiz: Your next corporate job: Protecting biodiversity
Companies are now focusing on mitigating risks, leading to an increase in jobs that are focused on preserving and regenerating nature and natural resources.
Companies are introducing nature-based positions in every job field including real estate, tech, bankers, and insurers. Mcdonald's and H&M are two companies that have introduced nature-based positions into their company.
In the 2022 Global Risk Report, published by the World Economic Forum, biodiversity and nature loss are part of the top three risks.
Performance standards and reporting mandates are now prioritizing biodiversity. SBTi and TCFD have included guidelines and frameworks that now include nature-based solutions and nature restoration.
The definition of nature positive is not concrete, which leaves room for companies to misrepresent their goals or success.
Sustainable Brands: Recession or Not, Brands Must Go Long on ESG
Brands are questioning the value of ESG initiatives, yet a study done by Forrester/Dun & Bradstreet found that ESG initiatives can drive profit. Companies need to acknowledge that ESG affects the entire business, it's not just part of the marketing department.
ESG strategies are most effective as long-term strategies and can't be used as a quick fix. This is important to understand to make decisions during a recession that benefit the company most, both in the short term and long term.
Nike’s Move to Zero initiative is a great example of ESG commitments during recessions that have long-term success.
If companies aren't willing to continue with ESG initiatives during recessions, they will end up spending more following the recession in an effort to pick up where they left off in their ESG commitments.
Forbes: Carbon Credits Have Struggled To Win Market Approval – Until Now
Sovereign carbon credits, issued by rainforest nations, will serve as financial assets that will help minimize deforestation. Financing rainforest nations will reduce the financial need to use land for timber or farming. Sovereign credits can also help reduce costs for countries that previously couldn’t afford to implement ESG practices.
In order to further minimize deforestation, carbon credit sales proceeds will be used to cut emissions and build infrastructure that protects rainforest nations against risks such as flooding.
Forests are critical in reducing carbon globally. Forests can absorb 7.6 billion metric tons of carbon annually.
Gabon and Papua New Guinea are working to issue sovereign national carbon credits. Gabon is 88% rainforest and currently has one of the lowest deforestation rates. Papua New Guinea is similar in being made of 80% rainforest that has remained untouched.
Bloomberg: Wild Animal Populations Have Declined 69% in 50 Years, Says WWF
According to the WWF’s new Living Planet Report, the world’s populations of wild mammals, birds, reptiles, amphibians, and fish have all declined by more than two-thirds on average since 1970. These declines are considered to be early warning indicators of overall ecosystem health.
The report further revealed that the destruction of animal life is disproportionately in tropical forests, which contain a majority of the world’s biodiversity.
Some of the most dramatic declines have been in oceans and waterways, especially freshwater species.
According to Rebecca Shaw, WWF’s chief scientist, “The science really, really supports us dealing with biodiversity loss and climate change as a single crisis.” And climate change is likely to become the main cause of biodiversity loss in the coming decades.
Reuters: Column: How do you accelerate energy transition when current crisis slams the brakes
The current crisis of energy security is hindering the overall transition toward and rollout of renewable energy alternatives. To ease the pressure in the interim, energy storage can help smooth out the variability in wind and solar energy and provide security for renewables.
There are several other obstacles to the deployment of renewables, including inflation, which increases the costs of building and operating mines for the raw materials needed to create things like solar panels, and these costs reduce potential returns for investors. Increasing ESG and compliance requirements can also make the development of new mines more expensive.
The culmination of these and other factors is not helping to quicken the energy transition.
Now, some miners and developers are working to find new ways to access funding and sell production. With lithium expecting to remain in a supply deficit for several more years, there must be a collaborative effort between governments, miners, users, and investors to accelerate development while meeting ESG goals.
Forbes: Tipping Points & Wildcards – How To Change The Climate Game
Tipping points are moments in a system where a small change can trigger rapid, nonlinear changes that then become self-reinforcing. Social tipping points relate to how we live our lives and how we interact with one another in the world.
In a recent report, the Intergovernmental Panel on Climate Change Noted that everyday behavior changes like walking instead of driving, among other things, could add up to as much as a 5% cut to demand-side carbon emissions.
Here are some examples of social tipping points that could help change the trajectory of the climate crisis:
Supporting clean energy and removing fossil fuels
Divesting finance from fossil fuels
Increased climate education
Shifting social norms to more low-carbon behaviors.
Bloomberg: Greenland Ice Sheet May Be More Vulnerable To Climate Change, Study Finds
Rising air temperatures are amplifying the effect of melting caused by ocean warming, leading to great loss in ice sheets.
Researchers from the universities of Edinburgh and California San Diego revealed how rising air and ocean temperatures truly intensify one another.
Researchers evaluated submarine melting of the Greenland ice sheet by using observational data and computer modeling to analyze the effects each had on submarine melting. They found that air temperature has had an almost equal effect on melting as ocean temperature does.
Diversity, Equity, and Inclusion
GreenBiz: Unleashing the power of gender-smart climate investing in developed markets
Beyond emerging markets, the dual investing lens of climate and gender can be a source of opportunity in developed markets, as well. This can mean investing in female innovators and entrepreneurs, working with companies to ensure teams and products reflect the communities they serve, and even leveraging gender as a way to broaden environmental impacts.
There is a longstanding resistance to directly addressing gender equality in developed markets, but investors (even minority investors) can have a positive influence on companies’ commitments.
For the investors and companies already engaging in this intersectional investment practice, it is crucial that they are not only looking at women in ownership and leadership, but also in talent, value chains, policies, and product development, all with an eye toward climate action.
Reuters: Comment: Why Investors Must Come Together To Tackle Health Inequity In Britain
Health inequities in the UK and around the world are growing. Almost 80% of people’s health is shaped by their environment. Investors have the opportunity to improve this situation by investing in people's health and companies related to health.
Guy’s and St Thomas’ Foundation has partnered with ShareAction, the Health Foundation, and a group of responsible investors on the Long-term Investors in People’s Health global alliance to educate investors on building healthier economies.
ESG Disclosures, Standards, Rankings, and Reporting
Sustainable Brands: Fair Targets for ESG Performance; An Introduction
ESG targets must reflect non-market stakeholder needs at all levels in order for ESG reporting to become a forward-looking financial assessment of business risk and strategy rather than a ‘feel-good marketing exercise.’
Currently, ESG reporting generally lacks context for targets set, it lacks a comprehensive discussion of impact, and it lacks the standardization needed to compare across companies and industries.
What is needed are ‘fair’ targets – those that consider the operational realities of facilities the financial health of the company, the local ecosystem, and human conditions, the technological capabilities per facility, and the needs of markets local to facilities. Fair targets help curtail resource-inefficient growth and ensure the burden is shared in an equitable way.
This article is the first in a series that discusses how to set fair targets for different ESG metrics across various industries.
Forbes: Avoiding Pitfalls In ESG And DEI Measurement Software
Greenwashing and political gaslighting are still major issues when it comes to ESG strategies because it's so easy for companies to take advantage of the loose metrics. Companies have historically produced reports from any internal source that somewhat fits the criteria.
Specific ESG and DEI measurement software can help create a better process through data collection and auditing. Yet companies do need to be aware of some software that can't be used for quantitative and qualitative data.
Transparent and audited data is the most trustworthy data currently available. The disclosed methodology is also key in determining the validity of data.
DEI data is less reliable as there can be major gaps between a company's intentions and conclusions drawn from ESG data.
Investment Trends
Reuters: Canada energy IPOs tough sell even as institutions return to sector
As institutional investors are returning to the Canadian oil and gas sector, any relevant, new initial public offerings (IPOs) would depend on the oil price’s volatility based on Russia’s invasion of Ukraine.
According to Refinitiv, energy and power companies had the greatest share of issuance in the first three quarters of 2022 despite the caution around IPOs. Energy stocks have become security for investors facing a sell-off in high-growth sectors.
ESG Today: Major Emitters Progressing on Climate Goals, But Lagging on Decarbonization Strategies: CA100+
Climate Action 100+ (CA100+) is an investor initiative that consists of 700 investors and represents over $68 trillion in assets. The initiative targets the world’s largest corporate greenhouse gas emitters to promote taking necessary action on climate change.
CA100+ announced the results of its most recent Net Zero Company Benchmark assessments. The assessment found that major emitters continue to progress on setting net zero commitments, but many have not moved along in setting transition strategies aligned with their decarbonization goals. Many companies are continuing to improve their disclosures as 91% align with TCFD recommendations.
ESG Today: Impact Investing Passes $1 Trillion for First Time: Report
2022: Sizing the Impact Investing Market, a new report done by the Global Impact Investing Network (GIIN), announces that impact investing has reached $1.164 trillion worldwide.
The report also notes that the green bond market has experienced rapid growth, although not all green bonds qualify as impact investments.
Stakeholders have been pushing to use cash reserves from the pandemic in an impactful way, specifically investing in companies addressing both climate change and social inequality.
Reuters: Sovereign debt greens yet net-zero pledges darken
Governments are increasingly issuing green bonds, but this does not seem to be helping the world combat climate change. While corporate issuance still makes up a major proportion of green bonds, government issuers increased from 4.2% of the total in 2019 to 7.5%.
As interest rates rise around the world, ‘green’ debt becomes more appealing to investors. However, this increase in bond issuance does not appear to be accompanied by progress toward ambitious climate targets.
The disconnect lies in the fact that simply setting aside funds for green investments does not incentivize an issuer to decarbonize more quickly. Issuers and bankers may need to do more to ensure that financial innovation is helping to fight climate change.
ESG Today: Mercedes-Benz Secures 11 Billion Sustainability-Linked Loan Tied to Climate Goals
Mercedes-Benz announced last week that it converted an 11-billion-pound revolving credit facility into a sustainability-linked loan, with terms tied to their Ambition 2039.
Sustainability-linked debt is one of the fasting growing areas of sustainable finance. Mercedes-Benz's new loan is tied to the company’s performance on a series of climate protection and carbon reduction targets through the loan’s commitment fee.
Yahoo Finance: Analysis Shows That Investors Strongly Support The SEC’s Proposed Climate Disclosure Rule
Investors have shown strong favor for the disclosure rule posed by the US Securities and Exchange Commission to require companies to disclose climate risk information.
Ceres analyzed the comment letters of over 320 institutional investors who collectively own more than $50 trillion in assets. The analysis included direct letters that were sent to the SEC as well.
Companies and Industries
Forbes: The Arctic Climate Double Standard Which Lets Russia And China Exploit Oil & Natural Gas
The world’s largest oil and gas deposits are in the Arctic. Although the deposits are currently blocked by ice and glaciers, melting may make the Arctic Ocean navigable in 10-20 years. The United States recently released its Arctic Strategy, which is built on the four pillars of security, climate, sustainability, and cooperation. Meanwhile, Russia and China have plans to “cooperate” to extract liquified natural gas from the Arctic.
Former NATO Ambassador and Texas Senator Kay Bailey Hutchinson calls out the double standard and notes that U.S. companies are best positioned to develop the resources in the most innovative and environmental-friendly ways yet are restricted.
Bloomberg: Carbon Capture Projects Hit Record, But Would Mitigate Less Than 1% of Emissions
CCS technology captures carbon dioxide and stores it underground, typically in depleted oil or gas reservoirs. Natural gas processing is the most common application in existing CCS projects.
There are now 153 carbon capture and storage (CCS) projects in the planning phase, a record level that is 61 more than last year, but the projects would only mitigate less than 1% of annual emissions. 30 projects are currently operating, and 11 are under construction. The United States is in the lead with 34 new proposed CCS projects. Investments were stimulated by higher carbon prices, tax credits, and direct grants.
Bloomberg: Breakthroughs Are Helping Even Cement and Steel Go Electric
The industrial sector, mainly gas and steel, is responsible for over 20% of annual greenhouse gas emissions. Cutting emissions from the industrial sector is difficult and will likely involve expensive carbon capture and storage technologies.
Some recent innovations create cement and steel at lower temperatures with clean electricity, eliminating greenhouse gas emissions while lowering energy use and waste production.
Bloomberg: BP to Acquire US Biogas Producer Archaea for $4.1 Billion
Following BP’s pledge to reach net zero emissions by 2050, they have agreed to acquire Archaea, a company that captures waste gas from farms and landfills.
BP believes this new deal will help customers reach long-term climate goals because it will increase the role of natural gas.
Biogas’s environmental benefits come from preventing emissions of methane. Archaea captures biogas and then processes it into natural gas.
Treatwell enables users to book beauty appointments online and has a presence in 13 European countries with more than 45,000 partner salons. The company has announced a new three-step sustainability commitment.
Treatwell is partnering with South Pole to start its carbon offset program with high-quality carbon credits issues on behalf of users.
Through this endeavor, Treatwell is acknowledging the significant amount of carbon emitted through the production of beauty products, as well as the fact that it is nearly impossible to create carbon-neutral beauty products. The solution is to remove carbon to minimize the overall footprint.
Treatwell is also aiming to engage its business partners with educational content on climate change and corporate responsibility, and it will conduct an exercise to measure and report its full emissions inventory.
Bloomberg: As Electric Car Production Falls Short, Flippers Step Up
New EV production is a slow process and results in years-long waitlists for buyers. Because of this, resellers are taking advantage of the demand and reselling their new EVs for thousands over the asking price.
With demand at an all-time high for both higher-end and mass-market models, and amid supply chain constraints factories are struggling to keep up.
For the most part, those reserving new versions of EVs intend to drive them, and Americans are keeping their cars for longer than ever, but many cannot pass up the opportunity to make quick and lucrative sales.
Many automakers frown on ‘flippers,’ and some have begun introducing policies to discourage the practice, such as voiding warranties for vehicles resold within a specified time frame. Others choose to prohibit ‘flippers’ from making future orders.
ESG Today: Microsoft Launches Solutions Enabling Scope 3 Emissions Tracking & Analysis
Microsoft has launched a series of sustainability-focused digital solutions to build out its Microsoft Cloud for Sustainability offering, specifically with enhancements to its Scope 3 emissions tracking and data management.
The solution now allows users to incorporate waste data, including waste partners and disposal methods and materials. It also allows companies to track fuel- or power-related emissions in their operations from leased assets and facilities, as well as to calculate emissions by activity and set and track goals.
The company will also be expanding its Cloud for Sustainability data model to track water and carbon emissions data.
Forbes: 79% Of Beauty Shoppers Have Doubts About Sustainability Claims - How Can Brands Rebuild Trust?
London Research and Provenance surveyed 1,500 beauty shoppers across Europe and America to see what people were looking for in the brands they consume. Some of the main findings include:
Shoppers are looking beyond price and performance; they also believe ethics and sustainability considerations are important when buying products.
It's imperative to understand what sustainability means to beauty shoppers. Many consumers look for claims related to nature such as vegan, organic, or coral reef safe.
There is a lot of confusion and skepticism among beauty shoppers. Many brands tend to use too many buzzwords and use claims that confuse consumers.
Independent verification is another way to rebuild trust.
Bloomberg: The Coal Is Gone, But The Mess Remains
Miles Hatfield, a retired coal miner in West Virginia, had to abandon his home after runoff from a nearby coal mine destroyed the foundation of his house. Love branch hadn't produced coal in more than a decade, and federal law does require companies to restore land when they are finished mining, but the smaller company that took on the cleanup obligations in 2018 failed.
Many coal mines across the United States are bound by law to clean up their sites when they are done, but many fail to do so. Coal companies transferring their mines and reclamation obligations to save money, but this creates a bigger problem.
With the increase in intense weather patterns like flooding, these problems just get worse. Unreclaimed or active coal mines worsen the flooding damage during these storms, with much of the water flowing through areas with surface mines compared to unmined areas, according to the EPA.
Bloomberg: GM Takes On Tesla With Its Own Solar Power And Energy Storage System
General Motors plans to compete with Tesla’s solar business, offering its own sun-generated power and storage system starting in late 2023.
GM established a new business unit called GM Energy and is also working with SunPower Corp. to provide solar panels and home energy storage for residential and commercial users.
SunPower is expected “a large number of GM customers who buy electric vehicles over time to want to put solar and solar batteries on their house.”
GreenBiz: Hot Property: Why The Financial Sector Must Lead Real Estate Decarbonization
The real estate and financial industry must rethink how it evaluates, funds, and invests in properties. The Inflation Reduction Act directs $50 billion in tax credits, rebates, and grant programs toward reducing the carbon emissions generated by buildings.
Each of the different building types requires a different approach to reducing carbon emissions. There is an intense reliance on gas for heating and cooling homes which would need to be addressed on a larger scale.
RMI’s Center for Climate-Aligned Finance has formed relationships with many large players in the real estate finance business to help aid in the progress of regulations and standards for the future. They look at real estate market segments, how to reconcile and standardize metrics and target structures, and what decarbonization pathways exist for each different property sector.
Sustainable Brands: The Sum of Small Efforts: Engaging Suppliers to Ensure Brand Plastic Reduction
Plastic Free July brought together millions of people to be a part of the solution to plastic pollution. The plastics pollution problem requires collaboration from brands, consumers, retailers, and other stakeholders.
The UK government introduced a tax on plastic packaging in April of this year. The government intends the tax to provide an economic incentive for businesses to increase the amount of recycled plastics in their packaging.
It is imperative for suppliers to be held accountable for their packaging initiatives and procedures. They must continue to provide packaging composition data so as to help continuously improve the market and packaging options for businesses.
Government Policy
GreenBiz: Investing in next-gen farmers will create resilient food systems
On June 1st, the United States Department of Agriculture (USDA) announced the Food System Transformation plan, which is a framework that will invest over $2 billion to strengthen local and regional food supply chains. There was another announcement of $550 million made available to improve access to land, capital, and markets to build a pipeline of agricultural professionals. These investments will support current and future generations to build the long-term resilience of our farmland, food systems, and workers.
Out of the $550 million, $300 million is for projects and funding community-based organizations leading innovative projects that increase access to land, capital, and markets. As support for young farmers, the other $250 million is for universities to boost the farm-to-food pipeline and hire USDA employers that represent America’s diverse farmers and stakeholders. The Biden-Harris administration also announced a plan to cancel some student loans for young farmers.
Bloomberg: Australia’s New Climate Politics Will Reshape its Entire Economy
Australia recently passed into law its commitment to reduce emissions by 43% from 2005 levels by 2030 and net zero emissions by 2050.
Australia has long been criticized for its lack of climate action and although they have made major commitments, they are still being criticized as they are one of the largest coal exporters.
Adam Bandt, leader of the Australia Greens, states that if Australia wants to do its fair share, it will have to reduce emissions by 74% from its 2005 levels by 2030, a significantly higher amount than its current commitment.
If Australia wants to make true progress, it will need to transform its economy by reducing the use of coal.
GreenBiz: Beyond Biden’s climate plan, a new industrial revolution is needed
The American economy will require significant change to reach decarbonization goals. New industries and tech will be key in driving emissions to zero.
An example that would drive economic change includes tax credits for switching to solar or wind energy. Tax credits make these energy sources more affordable which in turn encourages more companies to transition to renewable energy. Policies that are designed to help companies make significant changes are another driver of economic change.
The $369 billion climate bill can help fund experimental projects and practices that companies wouldn’t have previously felt they could try. This can include transitioning to renewable energy. Each industry has its own challenges and will require innovative practices. For example, cement industries will need to challenge the current chemistry and develop new production methods.
Innovation to reach net zero emissions needs to go beyond environmental aspects and create systemic change in communities that have long been affected by climate change.
Reuters: More African countries implementing ESG finance policies – study
Seventeen African countries have introduced sustainability-focused policies as pressure increases globally to invest more sustainably.
Countries have begun to introduce new plans and regulations. Examples include Uganda launching a five-year plan and sustainable financial system, and the Namibia Stock Exchange requiring specific companies to have social, ethics, and sustainability committees.
Uganda, Ethiopia, and Rwanda are working to further improve their adoption of international financial standards, and South Africa, Mauritius, Kenya, and Egypt require banks to include climate change in risk reporting and management.