ESG Weekly News Update: September 16, 2022
General ESG News
Forbes: The Importance of Short-Term Goals in Your Company’s Climate Change Strategy
An average CEO’s tenure at S&P 500 companies is less than eight years, making it difficult for them to consider the “long-term” benefits of addressing climate change. Given the tenure timeline, most CEOs see the long-term as about a decade, while the necessary consideration to address long-term climate issues is 50+ years.
Other shareholders share a similarly limited view of future impacts. Stock market portfolios, startup funding, and capital expenditure investments are not as eager to support a plan with a 50-year return on investment.
There are opportunities for significant short-term benefits and environmental impact, especially in decarbonization. Decarbonization investments today show immediate value, including electricity sourcing and energy efficiency.
GreenBiz: The compelling case for being ‘climate positive by design’
With climate change becoming a higher priority for board members, low-carbon living and working space design has become just as necessary as renewable energy or energy efficiency.
Currently, these low carbon measures aren't considered in integrative assessment model climate scenarios, yet these measures could provide tangible data when considering environmental justice. Currently, it is only considered a holistic approach without data to back up practices or findings.
These measures can potentially include multifamily housing, towns and cities designed for walking, and modifying or increasing public transportation.
Forbes: Europe To Tackle Extreme Weather And Climate Change With Next Generation Satellites
Europe’s new METEOSAT Third Generation Imager-1 (MTG-I1) satellite is scheduled for launch in late November of this year.
The satellite will monitor and forecast the weather and take planet images using wavelengths that include the long-wave infrared.
The satellite will be able to scan the interior of cumulus clouds and determine wind direction.
Its ability to zoom into selected areas will be important when issuing warnings in terms of air traffic safety.
The satellite is also anticipated to provide more accurate climate predictions. It will also be able to track particulates in the data it collects.
The Washington Post: Costs of climate change far surpass government estimates, study says
A new analysis found that each additional ton of CO2e will cost society significantly more than current federal government findings. This is known as the societal cost of carbon.
This could put pressure on President Biden to reexamine the government's current estimates.
Some of the biggest climate costs include temperature-related mortality and crop failure.
There is uncertainty in some estimates which has led to years of debate on whether the social cost of carbon is properly quantifying the social cost.
The social cost of carbon is important because it's frequently considered during policymaking. Because of its use, it's critical to get an accurate number. If the value is too low, there is an increased climate risk and if the number is too high, it could impose unnecessary mitigation costs on the economy.
Europe is a very diverse region as each country, city, and community uniquely addresses issues such as climate change, supply chain disruptions, and the energy crisis. Innovation is a key to resolving these types of issues, so the European Commission’s Joint Research Centre (JRC) and the Committee of Regions (CoR) are collaborating as the Partnerships for Regional Innovation.
The Partnerships for Regional Innovation hosts “Lighthouse” meetings to help the 74 territories participating in the pilot project identify the needs and possible solutions toward a more resilient and sustainable future for Europeans.
Forbes: Disruptions In Energy Security And Climate Security Part 1: Recent Events.
Recent global events have been alarming and posing challenges regarding energy security and climate security. Oil and gas companies contribute 50% of global carbon emissions, yet they are needed to support global energy security.
Russia realized that, unlike oil, cutting natural gas does not affect their export revenue as it affects the EU economies a lot more. The massive disruption in gas supply and price affects Europe more than the United States. Before 2016, the U.S. was not allowed to export natural gas. Since then, the U.S. has reached the top of LNG exporting countries, ahead of Australia and Qatar, with 68% of the LNG exports going to Europe to relieve its gas disruption.
Sustainable Brands: Marketing on Purpose: Building a Movement
Marketing strategies are changing from traditional advertising of products or services to creating a social purpose brand ecosystem. Consumers have higher expectations toward the roles companies play in society, and social purpose is trending in business.
Key points from marketing leaders on how to transform marketing practices by leading with purpose and engaging stakeholders:
Gain insights into the role and importance of marketing in a purpose-led company.
Hear from thought leaders who are modeling and upholding purpose at the core of their business.
Learn from industry-leading experts about their purpose-focused marketing journey, including both pitfalls and successes.
Better understand how to measure purpose-led marketing successes.
Bloomberg: Eiffel Tower Lights Turn Off Earlier to Lower Power Use
The Paris town hall will be announcing that the Eiffel Tower lights will be turned off more than an hour earlier to save energy, at 11:45 pm instead of 1 am. Keeping the structure lit up uses up 4% of the annual power consumption of the structure.
The president of the site operator, Jean François Martins, highlighted that the early shut-off is a symbolic gesture to promote energy conservation and raise awareness of actions needed to address the climate crisis.
Reuters: Analysis: UK Energy Plan Puts Investors, Banks in Tough Net-Zero Spot
Britain has moved to approve dozens of new gas and oil fields, putting the country in a difficult spot to ensure energy security while sticking to its climate commitments.
Initiating new oil and gas projects is an action against the global shift away from fossil fuels to combat the climate crisis. As Russia continues to use energy as a weapon as winter is approaching, the UK has committed to launching more than 100 licenses for oil and gas to address the energy crisis.
Germany has similarly had to reassess its energy strategy given inflation and Russia’s war, forcing Germany to revert to dirtier thermal coal to fuel power plants. New investments in fossil fuels present an additional challenge for energy companies, investors, bankers, and insurers as many of them have made their own pledges to reduce emissions and reach net zero by 2050.
Forbes: The Importance of Sustainable Leadership
Organizations are prioritizing sustainable leadership. More businesses are experiencing the immediate effects of climate risk both physically and financially. Roughly 90% of industries are “significantly affected in some way by climate risk”. Particularly, in the agricultural sector, the rising temperatures and climate disasters have led to drought and food insecurity in many areas including Italy and Latin America.
Leaders on multiple divisions and boards of directors need to build their competencies surrounding sustainability. Investors want to know if all market players understand the impact of climate change are also risk management and financial issues.
ESG is a framework for many boards around the world. Ultimately, it starts at the top. If companies want to stand out as leaders today and in the future, they must build their own knowledge and understanding of the business impact of sustainability.
Sustainable Brands: Study Finds Social Cost of Carbon More Than Triple the Current Federal Estimate
Researchers from Resources for the Future (RFF) and the University of California Berkeley (UC Berkeley) released an updated estimate for the social cost of carbon that reflects new methodologies and key scientific advancements.
Some of the findings suggest that we are largely underestimating the harm of each additional ton of carbon dioxide that we release into the atmosphere.
Since 2017, RFF has been working towards updating the scientific basis that underlies the social cost of carbon (SCC). This updated estimate implies that the benefits of climate policies are much larger than what the US Government historically has concluded.
Bloomberg: Who’s Winning on Consumer Climate Incentives: the US or Europe?
The Inflation Reduction Act signed into law includes rebates and tax credits for electric vehicles, home-electrification upgrades, heat pumps, and solar panels. Today, EVs’ current market share in the US is less than 5% among new car purchases.
A comparison with the European market shows that in less than a decade, Norway has radically changed the composition of its vehicle stock. Just in 2021, more than 85% of new-car purchases in the country were plug-ins. Norway reached that target by increasing the cost of gasoline-burning cars and reducing it for electric models. The tax difference between an EV and a comparable gasoline car can be as much as $15,000.
Public transportation is seen as a backbone of how people move through cities. Even with the Inflation Reduction Act, many public transit agencies still suffer from the effects of the pandemic. On the other hand, European cities tend to be denser when compared to American cities. In these cities, public transportation is more efficient and effective offering more discount tickets throughout the year.
Diversity, Equity, and Inclusion
Bloomberg: Emerge to Launch 10 Sustainable ETFs That Are All Run by Women
Last week, the investment management firm Emerge launched five different ESG ETFs on the Cboe BZX Exchange in the U.S. and the NEO Exchange in Canada, and these funds are all overseen by women. The firm, itself, is also Canada’s first and only women-owned investment fund firm.
The funds will take an exclusionary approach to ESG investing, excluding categories like gambling, adult entertainment, and chemical weapons. According to Lisa Langley, the firm’s Founder and CEO, Emerge is “taking a practical and real-world approach to sustainability.”
GreenBiz: The Body Shop is bringing youth perspective to the boardroom. Should you?
The Body Shop’s new Youth Collective engages individuals under the age of 30 to advise decisions about climate action, human rights, and more. This initiative stems from the B Lab U.K.’s Boardroom 2030 program that “challenges businesses to imagine what corporate boards might look like in a more inclusive future at the end of this decade and to experiment with inviting different participants into strategy discussions.”
The Body Shop’s first meeting in Glasgow, Scotland, discussed product packaging, carbon footprint details on product labels, and younger generations’ expectations from a "purpose-led" company. The Body Shop executives pledged to create a more formal structure for continued discussions.
The Youth Collective initiative supports the cultivation of future leaders while broadening the perspectives of senior leadership and business actions.
ESG Disclosures, Standards, Rankings, and Reporting
Moody’s will be transferring its sustainable debt Second Party Opinions (SPO) business from its Moody’s ESG Solution to its rating agency under Moody’s Investor Service (MIS). Additionally, it is proposing changes to its SPO framework, which includes a scoring system based on sustainability contributions and principle alignment.
According to Moody’s, the transfer will help the SPO business to “meet growing global market demand for independent views on the credentials of labeled green, social, sustainability and sustainability-linked debt issuance,” which has surged in recent years.
ESG Today: Singapore’s MAS and SGX Launch ESG Disclosure Platform
The Monetary Authority of Singapore (MAS) is the central bank and financial regulatory of Singapore. In November 2021, MAS’s Project Greenprint initiative planned to develop sustainability data-focused platforms with the hope to build trust, transparency, and efficiency around ESG.
MAS collaborated with Singapore Exchange (SGX) and announced its launch of ESGenome, a new ESG disclosure platform to simplify the ESG reporting process for companies and provide investors with consistent and comparable corporate sustainability data.
World Wide Generation, a UK-based ESG solution provider will operate ESGenome, as a Software-as-a-Service (SaaS) solution. SGX-listed companies will be able to report on sustainability based on a set of 27 SGX core ESG metrics and additional disclosures aligned with globally-recognized ESG reporting standards and frameworks.
Investment Trends
The New York Times: BlackRock Seeks to Defend Its Reputation Over E.S.G. Fight
The world’s largest money manager fired off a letter to attorneys general in 19 states rebutting claims about its position on climate-minded investing. The organization is looking to correct “misconceptions” and “inaccurate statements” about its climate position.
BlackRock is following a broad trend of policymakers and research when it comes to climate issues. Its shareholder votes and investment decisions reflect that, generally, its professionals believe that climate change poses real risks and opportunities for investors.
Fund managers in many red states appear to be backing ESG measures anyway. The Employees Retirement System of Texas, the state’s second-largest public pension fund, voted for shareholder proposals that urged big banks to cut off lending to fossil fuel companies.
Forbes: Are Defense Stocks Now ESG?
A recent study from Pelts International highlighted fund managers’ progress on ESG issues. The theme represents about one-third of all assets managed by professionals today. The research suggested one of the main reasons for hedge funds to lag behind in ESG adoption is the shorter holding periods in their investments.
There have been several developments that presented new obstacles for ESG, including the growing backlash against it, the bursting of the tech bubble, and Russia’s invasion of Ukraine. The researchers noted that the ESG market is maturing, which has brought increased scrutiny.
Observers have seen how ESG has become a prominent issue for institutional investors as they do their due diligence on potential investments. Therefore, it will be challenging for managers to claim they don’t consider ESG factors at all unless avoiding them is specifically part of their strategy.
The Wall Street Journal: Anti-ESG Activist Investor Urges Chevron to Increase Oil Production
Vivek Ramaswamy, formerly a pharmaceutical executive and currently a self-proclaimed ESG investing critic, bashes Wall Street’s efforts to implement ESG practices and is publicly urging Chevron to continue with fossil fuel production.
Currently, Chevron has been looking to slow fossil fuel production as they invest in its energy-transition plan.
Ramaswamy believes Chevron’s best approach to success would be by addressing current supply shortages.
In comparison to companies like BP PLC, Chevron has had a slower approach to renewable energy transitions, which could make them more susceptible to abandoning its transition plan.
ESG Today: JPMorgan Builds Out Suite of Sustainable Thematic Active ETFs
JP Morgan announced new ETFs that are comprised of JPMorgan Sustainable Consumption ETF, JPMorgan Sustainable Infrastructure ETF, and JPMorgan Social Advancement ETF.
These ETFs are in wake of JP Morgan’s first sustainable ETF strategy, recently announced in December of 2021.
Each ETF will target companies with different targeted issues.
Specifically, the Sustainable Consumption ETF will target companies looking to preserve resources, such as water, and reduce waste. The Social Advancement ETF is focused on equity in terms of education, housing, healthcare, and attainable financing. The Sustainable Infrastructure ETF is focused on renewable energy innovation.
Greenbiz: Green is Good: The ESG Talent War in Private Equity
Over the past few years, a wave of ESG talent has entered the private equity space, such as Sustainability Accounting Board founder, Jean Rodgers, and Microsoft’s chief environmental officer, Lucan Joppa.
Private equity has been seen as a place where assets can avoid scrutiny with the current trends and emphasis on climate-focused investing in the public market. However, ESG roles are opening at private equity firms at an increasing rate.
Some of the largest private equity firms have gone public in the past few years altering the approach many take to managing a public company's reputation and brand must be considered as well as business and profits.
Companies and Industries
ESG News: S&P DJI Launches Climate-Focused Market ‘S&P Net Zero 2050 Carbon Budget Indices’
S&P Net Zero 2050 Carbon Budget Indices is the latest launch from S&P Global, combining the world’s leading index provider and the single source for ESG intelligence. The new database utilizes the IPCC’s report as the basis of index construction.
More than half of global assets under management are now committed to net zero by 2050 through the Net Zero Asset Managers initiative, which is part of the Glasgow Financial Alliance for Net Zero.
The equity securities in the S&P Net Zero 2050 Carbon Indices are selected from an underlying universe of broad-market parent indices including the S&P 500, S&P Global BMI, S&P Europe BMI, S&P Development BMI, and S&P Emerging BMI.
These indices reflect the time urgency of the net zero challenge. For future index launches, the –10% annual decarbonization required will increase with time as the carbon budget gradually shrinks.
Reuters: Ethereum blockchain to undergo major upgrade to cut energy use
The upgrade, known as the “Merge”, will mark a radical change to how transactions on the Ethereum blockchain occur and ether tokens are created.
The market expects that the changes will lead Ethereum from “proof of work” - where energy-hungry computers validate transactions by solving mathematical problems, to a “proof of stake” protocol – where individuals and companies act as validators using ether as collateral.
The high energy of crypto and blockchain tech has drawn criticism from investors and environmentalists. A single transaction on Ethereum requires the same amount of energy used in a week by a household in the U.S.
Ether has so far seen limited mainstream adoption as a means of payment, with trading by far the most popular use.
Forbes: How Fashion Week Should Really Embrace Sustainability
This year’s New York Fashion Week came with an expressed focus on sustainability, but there is still a gap between how the industry talks about sustainability and what companies actually do about it. This gap is demonstrated in three main areas:
Greenwashing, such as when companies assert that their reliance on inexpensive polyester -- a major source of ocean plastic waste – is environmentally sound.
Weak and inconsistent data, as well as a lack of uniform standards for data collection, validation, and disclosure.
Supply chains; despite existing metrics for assessing labor rights, companies generally fail to address working conditions in their global supply chains.
The New York Times: Billionaire No More: Patagonia Founder Gives Away the Company
Patagonia founder Yvon Chouinard has decided that rather than selling his company or making it public, he has transferred ownership of Patagonia – which is valued at $3 billion – to a specially designed trust and a nonprofit organization. These organizations will ensure that all profits are used to combat climate change and protect undeveloped land.
Chouinard stated his hopes that his actions will “influence a new form of capitalism that doesn’t end up with a few rich people and a bunch of poor people...We are going to give away the maximum amount of money to people who are actively working on saving this planet.”
The Patagonia Purpose Trust, overseen by members of the Chouinard family and their closes advisers, will ensure that the company follows through on its commitment to operate a socially responsible business. Additionally, because the family donated their shares to a trust, they will be heavily taxed on the donation.
The common shares of the company were donated to the Holdfast Collective, the nonprofit organization that will be responsible for allocating the company’s profits toward fighting climate change, and it is also able to make political contributions.
ESG News: BMW Group to Use Green power to Reduce CO2 Production in EV Batteries
BMW will be launching models of its NEUE KLASSE beginning in 2025, with newly developed round lithium-ion battery cells that will increase energy density and improve charging speeds and range. The new technology will also significantly reduce CO2 emissions from battery cell production.
BMW will also be building battery cell factories with its partners in China, Europe, and the U.S. Based on current market assumptions, integrating the new battery technology and production processes can potentially reduce costs by up to 50%. The company has a goal of bringing manufacturing costs for EVs down to the same level as vehicles with traditional combustion engines.
The battery cells will also use cobalt, lithium, and nickel that include a percentage of secondary material (i.e., raw material that is not newly mined) to help reduce the overall footprint of the battery production.
Reuters: Toyota, Honda, Nissan get Greenpeace thumbs-down for decarbonization efforts
Greenpeace ranked Toyota last during a new study of the top ten automakers' decarbonization plans and efforts. Honda and Nissan were also ranked among the lowest.
Some activists believe Toyota should have adopted electric vehicles sooner in order to reduce the amount of criticism the company is now getting.
Recently, amid Greenpeace’s rankings, Toyota has increased its target from two million to 3.5 million battery electric vehicles by 2030.
Honda is currently still working towards its goal of carbon neutrality by 2050.
Forbes: At Holland America Line, Sustainable Seafood is a Must
Holland America Line announced it is the first cruise line to receive the Responsible Fisheries Management (RFM) certification, which includes only serving RFM sustainable Alaskan seafood, protecting the marine environment, and supporting local fishermen.
In Alaska, the RFM certification is voluntary and is administered by an internationally accredited assessment that evaluates if a fishery meets the standards for responsible fisheries management.
The cruise line had to undergo an audit by a third-party accredited certification body to verify Holland America Line’s compliance with the RFM standards, including tracking, segregating, and tracking seafood through processing.
Alaska’s six cruise lines purchase and serve more than 5,000 pounds of locally sourced seafood per cruise.
CarbonCapture, a California-based climate technology company, announced a new Direct Air Capture (DAC) project in the hopes of removing and storing five million tons of CO2 per year in a collaborative effort with Frontier Carbon Solutions, a carbon storage developer.
The Inflation Reduction Act (IRA) has allowed the launch of the product as the ingredients needed to expand the scale of DAC to the necessary level as the IRA provides carbon removal credits and low-cost technology.
Since the passage of the IRA, several companies have announced large-scale plans for climate-focused investments, including First Solar’s investment of $1.2 billion to scale its Photovoltaic solar module manufacturing.
CarbonCapture plans to implement the new DAC project in Wyoming by late 2023 and expects to reach five million tons of CO2 removal annually by 2030.
Sustainable Brands: Personal Impact Measurement Tool Helps Users Improve Their Shopping 'Karma,' Drive Individual Climate Action
Fintech is gaining ground as a driver of environmental change, as many European banking apps can track an individual consumer's impact on the environment.
Tools like ImpactKarma’s Karma Wallet allow users to use a free spending-habit platform to empower them to identify responsible brands and understand the carbon footprint of their consumption habits.
Karma Wallet works to combine fintech, behavioral change, and system change by allowing consumers to make more informed purchasing decisions. The tool uses data from 30 independent sources and maps it against the 16 UN Sustainable Development Goals to inform the social and environmental impacts of the business.
ImpactKarma aims to expand the tool's abilities by allowing customers to see alternative brands with more responsible practices when shopping. Additional incentives like cash back and discounts will be built out to further encourage consumer behavior change.
Government Policy
GreenBiz: Where was Big Tech on historic climate legislation? (The answer might surprise you)
For employees at Big Tech firms, climate change is a real threat, and there appears to be a disconnect between constant vocalization about internal sustainability efforts and ongoing silence on bold public policy.
When the Build Back Better Act made its way through Congress last year, all five Big Tech companies – Amazon, Apple, Google, Meta, and Microsoft – supported it weakly, and the bill eventually died.
When the Inflation Reduction Act was introduced this year, only Microsoft supported it publicly (albeit weakly) before it passed, and Google endorsed the bill after its signing.
There are likely a few reasons why Big Tech often holds back on endorsing bold climate legislation. For the Inflation Reduction Act, there was likely concern about the provision on taxing stock buybacks. However, the role of trade associations has likely been more influential. The U.S. Chamber of Commerce, the National Association of Manufacturers, and the Business Roundtable all quickly voiced their opposition to the Inflation Reduction Act.
The Inflation Reduction Act represents the beginning of a new era where climate policy at all levels will shape the transition to a clean energy future, and the world will be watching to see if Big Tech companies move past their fears and get on board.
The Wall Street Journal: Democrats’ Effort to Speed Up Energy-Project Permitting Faces More Opposition
Both Democratic and Republican lawmakers are hesitant in supporting the permitting bill.
Recently, according to House Natural Resources Committee Chairman Raul Grijalva, an increase from 40 to more than 70 Democrats have written in opposition to the inclusion of the permitting measure in legislation funding the government.
However, it was not specified that this means they would reject the continuing resolution if permitting were included.
It was believed that because the permitting bill was favorable to the fossil fuel industry, Republicans would vote in favor, but it is not clear if the House Republicans would provide enough support.
The Wall Street Journal: Next Wave of Nuclear Power Plants Sees New Life in Climate Bill
The recently passed climate, healthcare, and tax bill provides support for small-scale nuclear power proposals, and now developers must work to prove that these advanced reactors are actually cheaper and faster to build than traditional reactors, since this is how they have been advertised but the claims are mostly unproven.
The new bill also provides the same tax credits to these nuclear power projects that are available to wind and solar power. However, the new reactors will likely face the same challenges that other new energy infrastructure projects face, including slow permitting processes.
Beyond longstanding concerns about safety and the environmental impacts of spent fuel, the nuclear industry also has a history of delays and cost overruns. For advanced nuclear reactors to be a viable clean energy solution, they must overcome the industry’s disappointing record on project execution.
The Wall Street Journal: U.S. Looks to Tap 1950s Law to Boost Clean Technology
The Defense Production Act of the 1950s empowers federal agencies to increase the domestic supply of needed materials for war and national emergencies. The recently signed Inflation Reduction Act allocates $500 million “to carry out the Defense Production Act” although it does not note specific programs.
The Energy Department is taking lead responsibility and planning how to spend such funds. Possibilities are the battery storage industry or to address the current shortage of new power transformers that can be used to get power for newly built energy sources such as wind power to the grid.
The money could also support Biden’s initiative to increase domestic production of five energy-related components identified as critical to U.S. national security: building insulation, electricity grid transformers, solar panel parts, electric heat pumps, and ingredients for hydrogen fuel-cell technology. Conservatives criticize this initiative as a misuse of the funds.
Bloomberg: California's Green Dreams Mean Adding More EVs to a Rickety Grid
California aims to end net greenhouse gas emissions by 2045, which would require the switch from fossil fuels to electricity for vehicles, factories, buildings, and many others, yet the state’s grid struggles to power through heat waves.
California’s climate policies will increase electricity demand. Currently, there are new solar and wind farms and large-scale batteries are being connected to the grid as fast as supply chains will allow. Meeting the electricity demand is possible, but Californians will need to learn how to balance when air conditioning, electric cars, lights, and other electricity usage operate to avoid risks.