ESG Monthly News Update: July 2024
General ESG News
GreenBiz: How governments can strengthen carbon markets and spur long-term success
A key challenge for carbon markets is ensuring the sustainability of projects that rely solely on carbon finance, as they may shut down once they stop issuing carbon credits without alternative revenue streams.
Governments are urged to rethink their role in carbon markets, as the landscape has shifted from the Kyoto Protocol's top-down approach to the Paris Agreement's bottom-up framework, demanding global action and ambitious targets.
Carbon finance can help reduce costs and build local capacity by funding new climate technologies and practices, making future government action on GHG regulations more feasible and economically viable.
Governments could provide commitments to ensure the longevity of carbon projects, enhancing project financing by addressing concerns around permanence and integrating these projects into broader development strategies.
These commitments could drive economic transitions, attract investments, and foster a favorable environment for green technologies, potentially creating a "race to the top" among nations in addressing climate change.
GreenBiz: Science Based Targets initiative CEO resigns, citing personal reasons
Luiz Amaral, CEO of the Science Based Targets initiative (SBTi), has resigned for personal reasons after a little over two years, with his resignation effective July 31, 2024.
Susan Jenny Ehr, SBTi’s chief legal officer, will serve as interim CEO while the organization searches for Amaral’s replacement.
SBTi, founded in 2014, helps companies set greenhouse gas emissions targets aligned with the Paris Agreement, but has faced controversy, especially after considering allowing carbon credits to offset emissions.
The New York Times: ‘More Heat, More Often’: Temperature Records Keep Breaking
June marked the 13th consecutive month of record-breaking global heat, surpassing last year's June record, according to the Copernicus Climate Change Service.
The intensifying heat waves, fueled by climate change and fossil fuel burning, are becoming the new norm, with over half the U.S. population experiencing extreme heat, especially in areas like Houston impacted by compounded disasters.
Heat waves are now stronger and more frequent, contributing to increased mortality and hospitalizations, even though they often receive less attention than more visually destructive events like hurricanes or floods.
Urban areas, particularly historically redlined neighborhoods, face disproportionate heat impacts due to the urban heat island effect, exacerbating socio-economic inequalities and making cities significantly hotter than rural areas.
Forbes: U.S. Companies Could Face $10 Million In Fines For Green Marketing in Canada
Canada’s new regulations targeting misleading environmental claims in marketing could fine companies up to 10 million CAD or 3% of annual revenues, effective under the amended Competition Act.
The law requires substantiation of environmental claims with internationally recognized methodologies and applies to both Canadian and foreign companies operating in Canada, with enforcement by the Competition Bureau.
Global climate activists are increasingly pursuing legal action against greenwashing, pushing for real changes in corporate practices, with Canada’s new rules expected to enhance their success in challenging false claim s.
Penalties for greenwashing include public corrections, future conduct bans, and significant fines, potentially amounting to hundreds of millions or billions of dollars for severe violations.
Companies with Canadian operations must quickly adapt their marketing strategies, seek legal advice, and ensure compliance to avoid severe penalties and reputational damage.
Sustainable Brands: ‘Greenhushing’ Diminishing Returns for 58% of US’s 100 Biggest Companies
New research shows 58% of the 100 largest U.S. companies are "greenhushing," or under-promoting their ESG progress, due to fears of greenwashing accusations and resulting scrutiny.
Global ESG assets surpassed $30 trillion in 2022, and 85% of investors believe ESG assets yield better returns, highlighting missed investment opportunities for companies not promoting their sustainability efforts.
The Transparency Index 2024, analyzing more than 600,000 communications from 200 companies, found only 2% "over-promoted" their ESG progress, with emissions disclosures having the largest transparency gap.
Companies that provide a balanced picture of their ESG initiatives are viewed as more trustworthy, yet only 40% of companies maintain minimal transparency gaps, impacting their credibility and investment potential.
Tools and resources, such as AI platforms and guides, are emerging to help companies improve transparency and effectively communicate their sustainability achievements without greenwashing.
ESG Ratings, Standards, and Reporting
Reuters: New European human rights rules leave companies with ‘big gap to close’
The Corporate Sustainability Due Diligence Directive (CSDDD) passed by the European Parliament mandates EU and significant non-EU companies to ensure responsible global supply chains, focusing on human rights and environmental protection, starting in 2027.
This directive impacts around 5,500 EU-based companies and 1,000 non-EU companies, requiring them to map their supply chains, identify risks, and implement measures to prevent human rights abuses and environmental damage.
Failure to comply could lead to fines up to 5% of global turnover, civil claims, and reputational damage, pushing companies to enhance transparency, accountability, and sustainability practices in their operations and value chains.
The CSDDD complements other EU sustainability directives and pushes companies to create and execute climate transition plans, improve risk management, and foster collaboration with suppliers, ultimately aiming for continuous improvement in sustainability efforts.
Forbes: A New Era Of Transparency: How Mandatory ESG Reporting Will Reshape Business
The Corporate Sustainability Reporting Directive (CSRD) impacts all companies operating in the EU, including non-EU companies with EU subsidiaries or listings, emphasizing the need for responsible practices and clear communication.
CSRD broadens the scope of reporting to include financial sustainability, employee safety, and diversity, equity, and inclusion (DEI).
Companies will have to invest in data collection. The requirements will necessitate comprehensive data collection from various sources like HR systems and supply chain information.
To ensure compliance, companies should assess current ESG performance, set specific and measurable goals, and use technology and data to continuously measure and improve sustainability practices.
The Global Reporting Initiative (GRI) launched the GRI-ESRS Linkage Service to help companies align their sustainability reporting under GRI standards with the European Sustainability Reporting Standards (ESRS), part of the EU’s new CSRD.
The CSRD, effective starting in 2024, expands the number of companies required to provide detailed sustainability disclosures from 12,000 to over 50,000, focusing on environmental, human rights, social standards, and sustainability-related risks.
The new service offers feedback on the alignment between GRI and ESRS disclosures, suggestions on structuring ESRS sustainability statements, and identifies ESRS data points not covered by GRI standards, reducing the need for double reporting.
Companies and Industries
Forbes: Future-Proofing Data Centers: Climate Resilience And Sustainability
The catastrophic floods in Porto Alegre, Brazil, highlighted the immediate risks climate change poses to critical digital infrastructure, including data centers, which were severely disrupted.
To mitigate climate risks, the data center industry must prioritize renewable energy integration, water stewardship, and climate-resilient designs, ensuring sustainable and resilient operations amid escalating climate impacts.
Embracing innovative solutions like AI for efficiency, creative cooling methods, and cross-sector collaboration is essential for fortifying data centers against future climate threats and ensuring business continuity.
The New York Times: Amazon Says It Reached a Climate Goal Seven Years Early
Amazon announced it achieved 100% clean energy use seven years ahead of schedule by investing in more than 500 solar and wind projects, providing energy equivalent to its operations in 27 countries, though experts criticize the method as lenient.
Critics argue that using renewable energy certificates (RECs) to match energy consumption with clean energy production can be misleading, as it doesn't necessarily equate to direct usage of renewable energy by Amazon's facilities.
Despite Amazon's substantial investments, environmentalists worry about the increasing energy demands of AI and data centers, potentially leading to greater reliance on fossil fuels if clean energy infrastructure cannot keep pace.
Amazon received a “B” grade from the CDP for transparency in environmental impact, compared to “A” grades for Google and Microsoft, with some critics calling for more detailed and transparent reporting on how clean energy use is calculated.
Amazon Employees for Climate Justice criticized the company for using accounting and marketing tactics to appear more environmentally friendly than they believe it is, urging more genuine investment in renewable energy projects and transparency in reporting.
Bloomberg: Microsoft’s AI Push Imperils Climate Goal as Carbon Emissions Jump 30%
Microsoft’s goal to be carbon negative by 2030 is at risk due to increased emissions driven by its push for AI, with emissions rising by about 30% since 2020.
Meeting its carbon goals will require significant progress in accessing green materials and reducing the carbon footprint of its AI operations, which involve building new data centers with carbon-intensive materials.
Despite pledging to use 100% renewable energy, Microsoft's heavy reliance on RECs masks its actual emissions, though the company aims to phase out RECs in favor of power purchase agreements (PPAs).
Some employees have protested Microsoft's AI-related work with the oil industry, arguing it contradicts the company's climate goals, while the company insists on empowering the energy transition.
Competitors like Google, Meta, and Amazon also face similar challenges in balancing AI development with climate commitments, highlighting a broader industry issue.
ESG Today: ClimeCo Launches New Tool to Match Companies with Nature-Based Solutions Projects
ClimeCo has recently introduced NatureLink, a tool to match organizations with high-quality nature-based solutions (NBS) projects that fit their specific goals and budgets.
Nature-based solutions focus on ecosystem protection and restoration to help meet decarbonization targets but face challenges such as low awareness, funding issues, and complex cost-benefit analysis.
NatureLink simplifies project selection through an online questionnaire, providing tailored recommendations from a validated global portfolio to streamline the procurement process.
ESG Today: Amazon to Require Key Suppliers to Provide Decarbonization Plans
Amazon has set climate-related expectations for key suppliers to provide decarbonization plans and prioritize working with those committed to reaching net zero as part of its goal to achieve net zero carbon emissions by 2040.
In its 2023 Sustainability Report, Amazon disclosed that Scope 3 emissions account for about 75% of its carbon footprint. The company reduced its overall carbon emissions by 3% in 2023, with notable reductions in Scope 2 and Scope 3 emissions.
Amazon has identified its highest emitting suppliers, who collectively account for over 50% of its Scope 3 emissions, and expects them to demonstrate progress in decarbonizing their operations, prioritizing business with those who provide net zero plans.
GreenBiz: Circular Fashion Index awards failing grades to apparel brands
Kearney’s 2024 Circular Fashion Index shows that only 25 out of 235 apparel brands scored at least five out of ten on circularity practices, with Levi’s, Patagonia, and The North Face scoring above seven.
The index rated companies on seven best practices such as circular design and garment care, revealing that only a few companies fully implement these practices, while most have limited or nonexistent efforts.
Regulatory pressures from the EU and U.S. are pushing brands to improve transparency and accountability, with significant legislation like the EU Corporate Sustainability Reporting Directive and the U.S. SEC Climate Disclosure rule driving changes.
Recommendations for improvement include using mono-materials, adopting modular manufacturing, and integrating care, repair, and recovery into product designs, exemplified by programs like Patagonia’s Worn Wear and Coach’s Coachtopia.
Investment Trends
Reuters: U.S. court grapples with scope of Biden ESG investing rule
A U.S. appeals court is considering whether to block a Biden administration rule allowing employee retirement plans to consider ESG factors as a tiebreaker between financially equal investment options.
The rule, which replaced a Trump administration rule that prohibited considering non-financial factors, is being challenged by 25 Republican-led states and oil company Liberty Energy, who claim it allows for political agendas in investment decisions.
The judges of the 5th U.S. Circuit Court of Appeals in New Orleans expressed uncertainty about the rule’s impact and when investments are considered truly equal under the rule.
The case follows a U.S. District Judge's ruling upholding the rule based on Chevron deference, a doctrine that has since been eliminated by the U.S. Supreme Court, prompting questions about whether the case should be reconsidered.
Arguments were made about the rule's intended scope, with the Biden administration defending its limited application, while challengers argue it has broader implications (noting President Biden's 2021 executive order on climate change).
Sustainable Brands: Companies Mitigating Climate Change Reduce Their Cost of Capital
A new study by Kyushu University reveals that companies actively reducing carbon emissions and sharing environmental data enjoy lower capital costs.
Analyzing data from 2,100 Japanese companies, the study found that following TCFD guidelines reduces borrowing costs, though simply pledging climate action without concrete steps doesn't significantly impact financial costs.
The Task Force on Climate-Related Financial Disclosures (TCFD) helps companies navigate climate risks, with Japan mandating TCFD compliance for prime market-listed companies since 2022.
The research underscores the importance of transparency in climate-related data for investors and plans to expand globally to assess the impact of different regulations and cultures on climate performance and capital costs.
ESG Today: BlackRock Launches Decarbonization Voting and Engagement Policy for Climate-Focused Funds
BlackRock has introduced its “Climate and Decarbonization Stewardship Guidelines,” which outline engagement and voting policies for investors focusing on low-carbon transitions.
The new policy aims to balance the growing demand for climate-related risk management with maintaining a fiduciary focus on financial returns amid significant anti-ESG criticism.
BlackRock’s guidelines will apply to funds directed by clients toward decarbonization, prioritizing sectors crucial to the low-carbon transition, while other funds will follow a benchmark policy considering financial and climate risks.
The policy emphasizes companies disclosing 1.5°C-aligned strategies and setting science-based emissions targets, with BlackRock potentially supporting climate-related shareholder proposals aligned with these goals.
Government Policy
GreenBiz: Regulations are fueling the sustainability agenda, experts say
The GlobeScan/ERM Sustainability Leaders 2024 Survey identifies legislative action on sustainability as the most significant positive development in the past year, according to one-third of surveyed experts.
New sustainability disclosure standards, along with climate, nature, renewables, and low-carbon initiatives, are highlighted as crucial advancements.
Increased green financing and public awareness are recognized by experts as key breakthroughs in promoting sustainability.
The survey, which included nearly 500 experts from 65 countries, emphasizes that true sustainability leadership involves integrating sustainability into core business strategies and demonstrating tangible impacts.