ESG Monthly News Update: October 2023
General ESG News
Forbes: Cancelled Vs Celebrated. Will We See A Geographical Shift In ESG Leaders?
Hollywood and the U.S. have historically promoted a fascination with American life and exert significant influence in popular culture worldwide.
The U.S. boasts more billionaires than any other country, giving it immense financial influence globally.
In the U.S., there is an ongoing anti-ESG sentiment, with investment firms closing ESG funds, but there's a shift in the private wealth sector. The next generation in the U.S. is more interested in sustainability and impact investing, which is likely to shape the future of ESG in the country.
This generational shift may move the center of sustainable and impact investing from the EU to the U.S., and it presents an opportunity for younger wealth advisors who understand the tech-savvy, ESG-sensitive generation.
Forward-thinking wealth management companies are already adapting to this shift, integrating sustainability metrics into their core products, expanding into the U.S., and aligning investments with clients' values.
The shift in the family office industry emphasizes the role of advisors in understanding clients' financial goals and the future they want to create.
This shift may contribute to making sustainability and impact investing inherent in significant private wealth portfolios across the U.S.
ESG News: World Shift to Clean Energy is Unstoppable, IEU report says
The International Energy Agency's (IEA) World Energy Outlook 2023 predicts significant shifts in the global energy system by 2030. Clean energy technologies like solar, wind, electric cars, and heat pumps will play a much larger role.
Anticipated changes include a tenfold increase in electric cars, solar PV generating more electricity than the entire U.S. power system, renewables approaching 50% of the global electricity mix, and more investment in offshore wind than coal- and gas-fired power.
Despite this progress, stronger policies are needed to achieve the 1.5°C global warming target.
Fossil fuel demand is expected to peak this decade, with carbon emissions peaking by 2025.
ESG News: 131 Companies, Worth $1 Trillion, Urging COP28 Agreement to Ditch Fossil Fuels
131 major companies, accounting for nearly $1 trillion in annual revenues, are urging COP28 leaders to establish a timeline for phasing out fossil fuels.
They call for a commitment to achieving 100% decarbonized power systems in richer economies by 2035 and providing financial support to help developing countries transition away from fossil fuels by 2040.
Companies such as Nestle, Unilever, Mahindra Group, and Volvo Cars emphasize the economic impacts of climate change and the urgent need for clean energy adoption.
They acknowledge that government action is crucial for meaningful progress despite setting their emission reduction goals.
COP28 begins on November 30 with concerns that global climate goals set in the 2015 Paris Agreement may not be met, making the phase-out of fossil fuels a contentious issue.
Bloomberg: US Faced Record Number of Natural Disasters This Year With Losses Topping $1 Billion
A record 24 natural disasters causing damages over $1 billion each have occurred already in 2023. 372 climate and weather disasters have occurred in the U.S. since 1980, totaling $2.63 trillion in damages.
Between 2018-2022, the historical average of extreme weather events more than doubled to 18 annually, from the previous historical average of eight since 1980.
Forbes: Innovation And Sustainability: Allies Rather Than Rivals
Sustainability challenges, like the water consumption used in the clothing industry and the associated emissions produced, need innovative solutions.
Leaders who tackle unsustainable practices often experience resistance.
Examples of innovation and sustainability working in tandem exist in various start-ups, including “bioconcrete” technology and the use of biotechnology to create “self-healing concrete,” aiming to decrease the need for reinforced steel.
Large corporations need to embrace sustainable transformations as they have the crucial resources and infrastructure to support innovation. Securing successful solutions will create both a brighter future and business growth through leadership.
GreenBiz: Businesses must respond to consumers’ water worries
The 2023 Ecolab Watermark Study found that almost 75% of consumers consider clean and safe water access to be an environmental issue.
These consumers feel that industry and government are responsible for water conservation and do not have guidance or plans to address increasing water scarcity.
The study found that over 50% of consumers surveyed in the US, Europe, Latin America, and Asia Pacific do not think business leaders are concerned with water conservation.
Through improved water use and resilience plans with the help of current technology, businesses can reduce the water stress of their operations and proactively avoid production disruptions, risks, and curb global warming.
GreenBiz: Survey: Majority of CEOs committed to improving ESG performance, despite economic headwinds
To assess business risks and opportunities over the next three years, KMPG conducted a global survey of 1,300 firms with annual revenues exceeding $500 million. Below are the survey's findings:
The greatest risk to growth was geopolitics and political uncertainty.
77% of CEOs surveyed believe the threat of a global recession has increased because of higher interest rates, stringent monetary policies and pressure associated with the cost of living.
Almost 70% of CEOs had fully integrated ESG strategies into their business and most are committed to doing so.
35% of CEOS have changed the way they refer to ESG internally and externally.
While prioritizing topics related to E, S, and G are no longer optional, it is challenging for companies to find affordable sustainability actions, invest in innovation, and adhere to appropriate regulations.
Sustainable Brands: ‘The Climate Crisis Is, in Part, a Communication Crisis:’ Brands Must Walk Their Talk to Galvanize Consumers
MAGNA, the investment and intelligence arm of IPG Mediabrands, in partnership with Project Drawdown and Teads, conducted a study to understand consumer perspectives on sustainability and the barriers to more sustainable lifestyles.
The study found that despite barriers like expense and lack of access, 99% of people are motivated to take sustainable action, indicating the potential for brands to support sustainability goals and brand growth.
Key findings suggest that 77% of respondents want brands to take a stance on sustainability, and 75% believe meaningful action by brands can have a tremendous environmental impact, motivating 35% to act.
Advertising is the preferred channel for receiving sustainability messaging (66%), followed by social media (62%), newsletters (57%), influencers, and brand representatives (52%). Brands are encouraged to focus on authenticity, credibility, and targeting a broader demographic for their sustainability messaging.
WWF has published a report, "The High Cost of Cheap Water," which reveals that the annual economic value of water and freshwater ecosystems is estimated to be $58 trillion, equivalent to 60% of global GDP.
However, the world’s freshwater ecosystems are in decline, with over one-third of remaining wetlands lost since 1970, and freshwater wildlife populations decreasing by an average of 83%.
This trend has led to increased water shortages, food insecurity, economic pressure, and undermining of global efforts to combat nature loss and climate change impacts.
WWF calls for increased investment in sustainable water infrastructure to address the global water crisis.
Investment Trends
Reuters: EU gives nod to “world’s first” green bond standards
EU lawmakers have approved new standards for issuing "green" bonds to enhance transparency and prevent greenwashing. The European Parliament voted in favor of a voluntary standard for the "European Green Bond" label, aimed at helping investors identify sustainable bonds and encouraging companies to adhere to sustainable practices.
Europe is a major issuer of green bonds, but they represent only 3-3.5% of the overall bond market.
Companies seeking the "green" label will need to disclose how bond proceeds will be used, allocate at least 85% of funds to EU-defined sustainable activities, and demonstrate their contribution to a net-zero carbon emissions economy.
The new standards also establish a registration system and supervisory framework for external reviewers of European green bonds.
ESG Today: EU Parliament Adopts European Green Bond Standard
The adoption of the new European Green Bond (EuGB) label was approved in early October by lawmakers in the European Parliament.
The EuGB label strives to boost investor confidence in the authenticity of sustainable business activities.
The EuGB requires companies to follow transparency criteria and disclose details of "green transition plans" including the way investments impact this transition.
The EuGB standard is voluntary and includes a "voluntary framework for sustainability-linked green bonds not issued by EuGB,” and guidance for external reviewers of green bonds.
Financial Times: ESG’s...OK
Asset managers have removed the word "sustainable" from the names of 44 funds during the first half of 2023, compared to 99 funds adding "sustainable" in 2022, in response to regulatory and reputational concerns, according to consultancy Broadridge data.
Many money managers in the US are abandoning sustainable funds amid political backlash and investor scrutiny. Barclays analyzed demand for ESG funds and found a more positive picture of the state of ESG demand than recent media reports suggested, with signs that the pace of growth might be slowing, potentially due to a natural maturing of ESG investing.
The analysis found that while the number of ESG fund closures has increased, the assets under management of the closing funds have remained limited. Flows into ESG have remained positive despite the high number of closures.
ESG fund launches have declined compared to previous years, but this may be due to a broader trend of fewer overall fund launches. Barclays also noted that more equity and fixed-income funds added ESG-related terms to their fund names than removed them in the past 18 months.
Reuters: Renewables funds see record outflows as rising rates, costs hit shares
Higher interest rates and increased costs of materials are causing a windfall of investors riding $1.4 billion worth of renewable energy funds from July through September.
Amidst the recent decline, the clean energy sector’s total assets are $65.4 billion.
There has also been an exit of traditional energy funds.
Wind and solar energy companies have experienced a decrease in share prices due to permitting timelines, project delays, and changing sentiment of “climate solutions” as companies look beyond renewable energy for decarbonization opportunities.
ESG Ratings, Standards, and Reporting
Financial Times: ESG ratings: whose interests do they serve?
The Deepwater Horizon oil rig disaster in 2010 drew attention to ESG risks and transformed the ESG ratings sector. ESG ratings now influence investment decisions, but regulators in Europe, Asia, and the U.S. are seeking greater transparency in how these ratings are derived.
European lawmakers are proposing regulations to force ESG rating agencies to disclose methodologies and register with authorities, while India's securities regulator has demanded agencies publish their methodologies.
Some concerns in the sector include potential conflicts of interest, pressure on rating agencies from companies and investors, and a gap between the perceived purpose of ESG ratings and what they actually assess.
A handful of dominant players, including MSCI, the London Stock Exchange Group, ISS, Morningstar, S&P Global, and Moody's, hold significant influence over ESG data and ratings, which has prompted concerns about their power to define "green" investments.
Financial Times: Rating the ESG raters
The EU is seeking Hungary's support to aid Ukraine, as the U.S. Congress removed an aid package, highlighting the country's growing importance in the situation. The hope is that increased transparency and green finance can help achieve global emissions goals.
Environmental, social, and governance (ESG) ratings face increased scrutiny, with concerns about transparency, methodologies, and conflicts of interest leading to regulatory proposals in Europe and India to ensure legitimacy in green finance.
The European Commission is proposing regulations to increase transparency and regulation of ESG rating companies. India has also taken forceful regulatory steps in this direction.
This signals a growing focus on green finance and its role in addressing climate goals, with regulators now demanding transparency and legitimacy in ESG ratings.
The head of the International Monetary Fund, Kristalina Georgieva, supports longer-term reforms to give China more influence, despite the U.S.'s current opposition, emphasizing the need for the IMF to secure more resources to prevent economic and social consequences.
Forbes: Getting Ahead: A Guide To Complying With New ESG Regulations
ESG planning has become widespread in various industries, impacting brand reputation, revenue, investor sentiment, and employee retention.
Despite the growth of ESG investments reaching $2.5 trillion in 2022, nearly 46% of professionals are unsure if their financial teams can properly report ESG metrics.
Increasing regulations and standards are pushing companies to report on environmental and climate risks, with expectations for greenhouse gas emissions and climate risk disclosure by public companies by 2024.
Dedicated technology and centralized data management can help companies navigate ESG reporting, reduce risks, and maintain compliance with evolving regulations.
Reuters: Banks behind 70% jump in greenwashing incidents in 2023 - report
Greenwashing involves misleading sustainability claims to boost reputation and profit, and regulators are working to combat it to enhance consumer and investor confidence in sustainable investments, although there is no legal definition of greenwashing yet.
Instances of greenwashing by banks and financial services companies globally increased by 70% in the past year, according to a report by ESG data firm RepRisk.
Most of the greenwashing cases involved European financial institutions, with a total of 148 cases recorded in the 12 months to September 2023, up from 86 in the previous year.
The banking and financial services industry is second only to oil and gas for the number of greenwashing incidents, RepRisk said.
GreenBiz: ESG reports will soon require third-party assurance. Here’s how to get ready
ESG reporting regulations are increasingly requiring companies to have their ESG reports assured by third parties, similar to financial reporting, aiming to elevate the accuracy and legitimacy of ESG disclosures.
Many companies lack the policies, skills, and systems to meet ESG assurance requirements, and with deadlines approaching as early as 2025, they need to prepare systems for collecting and managing ESG data for the 2024 fiscal year.
Assurance in ESG reporting can be costly, with the SEC estimating costs ranging from $75,000 to $235,000 for large public companies.
Companies can prepare for ESG assurance by consulting existing financial assurance practices, filling in gaps with new roles, tools, and professional services, creating roles like ESG controllers, and using ESG software platforms to ensure audit-ready data and compliance.
Companies and Industries
GreenBiz: The DOE has $3.8 billion in renewable energy funding: 3 grant options
$25 billion of the $97 billion available for clean energy projects is allocated in the Office of Clean Energy Demonstrations (OCED).
The OCED aims to collaborate with the private sector to support projects enabling a transition to a decarbonized energy system.
This office also manages hydrogen hubs and long-term energy storage projects.
$3.8 billion of this funding is available in three grant opportunities, described below:
Battery Materials Processing Grant (up to $3 billion): Aims to bolster the U.S. battery manufacturing supply chain by retrofitting or creating commercial battery facilities.
Distributed Energy Systems Demonstration, DES (up to $50 million): Virtual power plant projects from “applicants that demonstrate reliable grid operations with higher contributions from distributed energy resources.”
MAKE-IT Prize (multiple funding amounts): Two grant tracks; facilities and strategies, provided by the Manufacture of Advanced Key Energy Infrastructure Technologies (MAKE-IT). Various amounts to be awarded for applicants that aim to accelerate clean energy technology manufacturing plants, interest, engagement, and employment opportunities.
Bloomberg: How China Left the World Far Behind in the Battery Race
In 2018, Chinese battery company Contemporary Amperex Technology Limited (CATL) signed an agreement with Germany to build Germany's first large electric car battery factory, marking a significant shift in the global automotive industry.
Germany, known for its automotive industry, had lagged in developing lithium-ion battery technology, crucial for the electric vehicle market. China emerged as a global leader in battery production.
CATL's strategic initiatives, research, and partnership with BMW paved the way for its dominance in the electric car battery industry, beating traditional German car manufacturers to establish battery factories in Germany and other countries.
By 2025, China’s battery production capacity will be three times as much as the rest of the world combined, according to BloombergNEF estimates.
A survey, conducted by PwC, of U.S. board members found that their focus on ESG issues has seen a modest reduction, with 52% reporting that ESG issues are regularly part of their boards' agendas, down slightly from 55% the previous year.
Female directors were more likely to view ESG issues as tied to company strategy and believe that ESG issues have a financial impact on company performance compared to male directors.
The survey revealed that a large majority of directors admit to lacking a strong understanding of key sustainability-related matters, with only 31% reporting that their boards understand ESG risks "very well."
Directors expressed strong support for tying executive compensation to non-financial metrics, with 44% saying that compensation should be linked to diversity, equity, and inclusion metrics, and 31% to environmental goals.
ESG News: UN Global Compact Launches New Business Guidance on Sustainable Infrastructure
The Belt and Road Initiative (BRI) outlines the crucial role of businesses to creatively innovate and enable infrastructure to meet today's needs as well as address long-term sustainability.
A report on the BRI and UN Global Compact outlines company tools and insights into development projects' alignment with the SDGs in various industries.
Infrastructure development impacts economic and social development and is an opportunity to use the tools and knowledge that are accessible today to improve tomorrow’s future.
Government Policy
GreenBiz: Gov. Newsom ratifies emissions law that impacts 5,300 California companies
California Governor Gavin Newsom signed California Senate Bill 253 (SB 253) into law, requiring strict greenhouse gas reporting practices for corporations in the state.
SB 253 goes beyond the upcoming climate disclosure rules from the Securities and Exchange Commission (SEC) as it includes Scope 3 emissions.
The law mandates California businesses with over $1 billion in revenue to disclose Scope 1 and 2 emissions starting in 2026, followed by Scope 3 emissions in 2027. Compliance with SB 253 is mandatory for corporations operating in California, regardless of their headquarters' location.
While some companies, like Adobe and Microsoft, publicly supported the bill, it faced opposition from groups like the California Chamber of Commerce, the oil industry, and bankers who were concerned about the impact on their members.
ESG Today: California Governor Signs Climate Disclosure Bills, but Pushes Back on Timeline and Cost
California Governor Gavin Newsom signed two new climate-related disclosure bills into law, SB 253 and SB 261.
B 253, the "Climate Corporate Data Accountability Act," mandates companies with over $1 billion in revenue doing business in California to report emissions from all scopes: direct emissions (Scope 1), emissions from electricity (Scope 2), and indirect emissions like supply chains and employee commuting (Scope 3).
Implementation timelines for SB 253 have been deemed likely infeasible, and concerns about the reporting protocol's potential for inconsistent reporting were raised. The California Air Resources Board (CARB) will work with the bill's authors to address these issues.
SB 261 requires U.S. companies doing business in California with revenues over $500 million to report climate-related financial risk in line with the TCFD framework. The bill's first disclosure date has been moved to 2026 from 2024, and reporting is required every two years.
Similar to SB 253, concerns about the bill's cost impact and implementation deadlines were raised, prompting CARB to monitor costs and make recommendations for streamlining the program.
Bloomberg: Supreme Court Rejects GOP-Led States on Biden Climate Estimates
The U.S. Supreme Court has rejected an appeal from 12 Republican-led states challenging the Biden administration's use of greenhouse gas emission cost estimates when issuing regulations.
The high court upheld a federal appeals court ruling that the states did not demonstrate concrete injury, thus lacking legal standing to sue.
The Biden administration's GHG cost estimates are designed to guide agencies in assessing the climate impacts of projects and regulatory cost-benefit analyses, affecting various sectors such as oil and gas, agriculture, power plants, construction, and fuel efficiency standards.
The administration is currently using interim estimates due to delays in finalizing the numbers, replacing a less stringent cost-estimation approach from the Trump era. This decision is part of ongoing legal battles related to climate policy in the United States.
ESG Today: EU Lawmakers Agree on Rules Eliminating 500 Million Tonnes of GHG Emissions
European Parliament and Council lawmakers have reached a provisional agreement on new legislation aimed at reducing greenhouse gas emissions from fluorinated gases (F-gases) and ozone-depleting substances (ODS).
The proposed legislation is expected to prevent nearly 500 million tons of GHG emissions by 2050 and align with European climate goals of achieving a 55% emissions reduction by 2030 and climate neutrality by 2050.
F-gases and ODSs are potent greenhouse gases used in various industrial applications and appliances, such as refrigeration and air conditioning.
The new rules include phasing out consumption of hydrofluorocarbons (HFCs), which account for about 90% of F-gas emissions, by 2050 and reducing them by 95% by 2030, as well as bans on certain products containing HFCs and incentives for climate-friendly alternatives.