ESG Monthly News Update: October 2024
General ESG News
Sustainable Brands: Businesses Weren’t Ready for the 2024 hurricane Season
Climate-related disasters, such as hurricanes, are causing significant damage to businesses, with over 20 extreme weather events in the U.S. in 2023 alone, resulting in losses exceeding $1 billion each.
Companies must adapt to increasing climate risks, including rising insurance costs, operational disruptions, and supply chain vulnerabilities, while new regulations like the EU's CSRD and California’s climate laws are being introduced to enforce climate risk management.
To survive, businesses must integrate climate risk strategies into their operations, such as reducing emissions, relocating assets, and increasing board-level expertise in climate risk management.
Sustainable Brands: Companies Must Go Beyond ‘Carbon Tunnel Vision’ Ahead of COP16
While companies have focused on reducing carbon emissions, many now recognize the need to broaden their strategies to address other environmental issues like biodiversity, water scarcity, and ecosystem protection.
Nature-based solutions, such as restoring ecosystems like forests and wetlands, are critical for addressing climate change and could provide up to 37% of the carbon reductions needed to limit global temperature rise.
Businesses are increasingly integrating nature-based strategies, such as Purina’s ocean restoration efforts and retailers like Kroger protecting pollinators, to enhance both environmental and operational resilience.
Companies are adopting frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD) and science-based targets to measure and report on their biodiversity impacts, driven by growing demand for corporate accountability and transparency.
COP16 is expected to further the global biodiversity agenda, emphasizing the integration of biodiversity protection into corporate and governmental climate strategies.
NYT: How Global Warming Made Hurricane Milton More Intense and Destructive
Climate change amplified Hurricane Milton's intensity. According to scientists, the storm produced 20% more rain and 10% stronger winds than a storm in a hypothetical cooler world.
Researchers estimate that Milton’s amplified strength doubled its potential property damage due to increased rainfall, wind, and energy from warmer waters.
Analysis from Imperial College London suggests similar storms in a non-warmed world would cause less destruction and economic loss, even with the same development and hurricane preparedness levels.
Each increase in hurricane category exponentially raises the storm’s destructive potential. Higher wind speeds in storms like Milton significantly increase the risk of damage due to projectiles.
ESG Ratings, Standards, and Reporting
Forbes: Unique Journeys, Unified Goals: Sustainability Reporting Across Industries
The EU’s Corporate Sustainability Reporting Directive (CSRD) is driving many companies, including non-EU ones, to prioritize sustainability reporting, with 99% of organizations preparing for increased sustainability requirements and 77% creating new roles and responsibilities.
Different industries face varying pressures: Life Sciences, Healthcare, and Financial Services feel pressure from ESG rating agencies, while Technology, Media, and Telecommunications companies encounter demands from customers and NGOs for greenhouse gas emissions reporting.
Data quality remains a major challenge, cited by 57% of companies, though some sectors, like Life Sciences, show progress in managing vendor data. Additionally, 99% of respondents are working toward obtaining assurance over sustainability data.
Companies are tailoring governance structures for sustainability reporting, with roles like CSO and CFO overseeing ESG disclosures, and board or committee-level oversight becoming common.
Many companies now view sustainability as a driver of innovation and value creation, signaling a shift beyond compliance toward more strategic and competitive use of sustainability efforts.
ESG Today: Greenwashing Cases Gall for First Time in Six Years as Regulatory Scrutiny Builds: RepRisk
A report by RepRisk has revealed a 12% decrease in companies linked to greenwashing in the year ending June 2024, marking the first decline in six years, driven by regulatory and stakeholder pressure.
Despite this, high-severity greenwashing cases increased by 30%, with incidents becoming more intentional and impactful, signaling uneven progress across regions.
The EU saw a 20% drop in greenwashing cases due to new regulations targeting misleading environmental claims, while the U.S. experienced a slight increase in cases amid rising ESG politicization.
The Oil and Gas sector accounted for the most greenwashing cases, but the Banking and Financial Services sector saw the largest decline, with cases down by 27%.
Trellis: CSRD: How AstraZeneca, Netflix and Pandora are preparing for Europe’s new ESG disclosure rules
The European Corporate Sustainability Reporting Directive (CSRD) mandates comprehensive ESG disclosures for large companies operating in the EU, requiring collaboration between sustainability and finance teams to ensure data accuracy and regulatory compliance.
Netflix, Pandora, Philips, and AstraZeneca are adapting by investing in dedicated teams, data validation, and automation tools, with Netflix and Philips leveraging existing processes while Pandora and AstraZeneca introduce new data structures.
CSRD demands auditable, continuous data, shifting away from estimates and assumptions, as companies like Philips manage up to 1,000 data points to meet transparency and accountability standards.
AstraZeneca is planning a "dry run" CSRD-aligned report for 2025, consolidating its reporting teams and using external assurance services to prepare for its official 2026 report.
ESG Today: Canada to Introduce Mandatory Climate Disclosure Requirements for Large Companies
Canada plans to mandate climate-related financial disclosures for large federally incorporated companies, expanding beyond the current requirements for financial institutions.
The new requirements, based on the Task Force on Climate-related Financial Disclosures (TCFD) framework, will be incorporated into the Canada Business Corporations Act.
A sustainable investment taxonomy will be introduced to categorize green and transitional economic activities, aiming to guide investors and stimulate sustainable economic growth.
Small- and medium-sized businesses are exempt but encouraged to voluntarily disclose climate data, aligning with Canada’s goal of net-zero emissions by 2050.
Companies and Industries
Forbes: ESG In Commercial Real Estate: Trends And Opportunities
The real estate sector, responsible for 40% of global greenhouse gas emissions, is at a crucial moment where adopting ESG practices can drive sustainable growth, resilience, and value creation.
Current trends show a growing focus on ESG, with capital for impact funds reaching $34 billion in 2022 and over 80% of major REITs reporting ownership of certified green buildings. Tenant demand for net-zero carbon spaces and government legislation, like the Inflation Reduction Act, are driving sustainability efforts.
Implementing ESG strategies offers financial benefits such as cheaper financing through programs like Fannie Mae Green Financing, tax credits from the Inflation Reduction Act, and operating expense reductions from energy-efficient retrofits and lower insurance costs.
Green certifications, such as WELL and Energy Star, enhance building value and tenant satisfaction while also providing access to financial incentives, making ESG a profitable and attractive strategy for real estate investors.
Success in ESG real estate investment requires a deep understanding of assets, thorough risk assessment, knowledge of available incentives, and the development of asset-specific business strategies, often with the support of external advisors with ESG expertise.
The New York Times: In a First, a Gas Utility Is Sued Over Global Warming Deception
Oregon has expanded its $50 billion lawsuit against fossil fuel companies by adding NW Natural, a gas utility, accusing it of misleading customers about natural gas’s contribution to climate change.
The lawsuit, originally filed by Multnomah County, claims Exxon, Shell, and others covered up the dangers of fossil fuels, citing the deadly 2021 heatwave as an example of climate change impacts.
This is the first case to target a gas utility for climate-related deception, part of a growing wave of lawsuits from state and local governments accusing oil companies of climate misinformation.
NW Natural and other defendants, including Exxon Mobil, dispute the claims, with Exxon investing in lower-emission initiatives and calling the lawsuits politically motivated.
Legal experts compare these cases to successful lawsuits against tobacco and opioid companies, while fossil fuel companies argue they belong in federal courts; the first trial could occur in Massachusetts as early as next year.
ESG Today: Google Signs First Nuclear Energy Deal to Address Growing AI Carbon Footprint
Google has partnered with Kairos Power to deploy a fleet of small modular reactors (SMRs) to supply up to 500 MW of carbon-free energy, supporting Google's clean energy and climate goals.
This is Google's first advanced nuclear energy agreement, aimed at addressing rising emissions from its growing data center electricity consumption, which has outpaced its ability to implement carbon-free energy solutions.
The partnership will help Google achieve its goal of operating on 24/7 carbon-free energy by 2030, complementing its use of renewables like solar and wind.
Kairos Power's reactors, using molten-salt cooling and a simpler design, will start supplying energy to Google data centers by 2030, with additional deployments planned through 2035.
Trellis: Inside Unilever’s R&D efforts to reduce plastics use
Unilever has quadrupled its investment in materials science, employing 650 packaging experts and 60 materials scientists to reduce its virgin plastic use, despite lowering its initial plastic reduction targets.
The company prioritizes eliminating non-essential plastic and developing paper-based barrier materials as alternatives, despite challenges in paper durability and sealing capabilities.
Revised goals include reducing virgin plastic by 40% by 2028 and ensuring 100% recyclability or compostability of rigid plastic by 2030. Currently, 72% of its packaging is designed for recycling.
Unilever is actively piloting reusable containers, developing digital tools for design, and collaborating with academia and suppliers, while also co-chairing a coalition for a binding UN treaty on plastic regulation.
Reuters: Comment: Nature loss is a strategic risk for companies. Here’s what to do about it
Businesses are increasingly recognizing that the decline of natural ecosystems represents a significant risk to their operations, akin to cybersecurity threats, since resources like clean water and healthy soil are crucial for many sectors.
There’s a growing expectation for companies to evaluate and report on their impacts and dependencies related to nature, with large firms facing mounting pressure from investors and regulators to provide clear and detailed disclosures.
The Taskforce on Nature-related Financial Disclosures (TNFD) has developed tools and guidelines to help companies navigate these challenges, while the CDP’s disclosure platform is adapting to incorporate TNFD standards for tracking nature-related information.
New efforts, such as the proposed Nature Data Public Facility (NDPF) and improvements in CDP reporting, are set to enhance the availability and consistency of nature-related data, enabling businesses and investors to make more informed decisions regarding sustainability.
Investment Trends
Bloomberg: Investors Are Gambling on Climate-Linked Catastrophes
Hurricane Milton, a category 3 storm, caused widespread destruction in Florida, including tearing off the roof of Tropicana Field and leaving millions without power. Damage estimates are up to $75 billion.
Catastrophe bond (cat bond) investors closely monitored Milton, as these high-risk financial instruments are designed to pay out after natural disasters. The cat bond market is valued at $46 billion and was the most profitable hedge fund strategy in 2023.
While cat bonds offer high rewards, they don’t always benefit those affected by disasters. For example, Jamaica’s World Bank-backed cat bond failed to pay out after Hurricane Beryl, despite severe damage.
Experts like Gautam Naik explain that cat bonds involve significant luck, making them a niche market, and their effectiveness may be questioned as climate disasters become more frequent and intense.
Reuters: The securities trends of 2024 so far
In 2024, significant securities litigation developments included the SEC's voluntary delay of climate disclosure rules, highlighting the ongoing regulatory scrutiny of ESG issues in corporate practices.
The Supreme Court ruled in key cases, such as limiting liability for omissions under Rule 10b-5 and overturning "Chevron deference," which may influence how agencies enforce ESG-related regulations.
Securities class action filings increased by 8.7% in the first half of 2024, with a notable rise in AI-related lawsuits, as investors accused companies of misrepresenting the effectiveness and capabilities of new AI technologies.
The SEC continued its crackdown on electronic recordkeeping violations, imposing over $525 million in fines on 74 financial institutions for failing to maintain proper communication records, emphasizing the importance of accountability in ESG disclosures.
The concept of insider trading liability expanded in 2024 with the "shadow trading" case, where the SEC argued that non-public information from one company could affect stock trades of another economically connected company, potentially increasing scrutiny around corporate governance practices in relation to ESG compliance.
Forbes: Social Values-Adjusted Investment Returns: Balancing Profit & Purpose
Social values-adjusted investment returns combine financial performance with alignment to personal values, using ESG criteria to evaluate impact.
We are seeing investors increasingly prioritize values-based investments, such as excluding fossil fuels, with tools like ESG ratings guiding these choices.
Key benefits to this type of prioritization include aligning investments with values, promoting positive societal change, supporting long-term sustainability, and managing risks associated with companies that lack strong ESG practices.
Ultimately, as more investors embrace this approach, the influence of capital on driving positive social and environmental change will continue to grow.
Bloomberg: Bankers Are at a Loss When It Comes to Biodiversity
Bankers are struggling to understand and quantify the impact of biodiversity on their operations and lack a clear path to profit from it, unlike climate-related investments.
While climate change offers commercial opportunities, such as renewables, biodiversity is perceived as complex, lacking standardized metrics and clear investment incentives, making it feel more philanthropic.
Initiatives like the Taskforce on Nature-Related Financial Disclosures and global "nature-positive" goals are pushing finance towards biodiversity, with Deloitte and BCG citing a $1.2 trillion opportunity in sectors like chemicals, utilities, and healthcare.
Despite the challenges, major banks are beginning to engage, as biodiversity gains prominence in corporate and government agendas, with upcoming discussions at the COP16 biodiversity summit highlighting its growing importance.
Government Policy
The New York Times: California Tries ‘Trump-Proofing’ Its Climate Policies
California is preparing a strategy to protect its climate policies from potential rollbacks if Donald Trump returns to the White House, focusing on legal settlements with industries and new state-level laws that can't be overridden by federal action.
California’s environmental regulations, including plans to ban new gas-powered cars by 2035, influence both the U.S. and global markets, as many states and countries adopt similar standards.
Trump has vowed to revoke California's special waiver under the Clean Air Act, but the state is planning defensive measures, such as legal agreements with industries to reduce emissions, to secure its policies.
California's efforts include leveraging its market power, collaborating internationally (e.g., with China and the EU), and using procurement rules to push for sustainability, showing a broader approach to maintaining climate leadership.
The state’s approach to climate diplomacy and industry agreements could have a long-term impact, with strategies reminiscent of large-scale settlements like the 1998 tobacco deal.
ESG Today: EU Commission Proposes One Year Delay to Law Banning Deforestation-Linked Products
The European Commission has proposed delaying the EU Deforestation Regulation (EUDR) by one year, citing feedback from global partners regarding their readiness.
EUDR aims to prevent deforestation-linked products, such as palm oil, beef, and soy, from entering EU markets by requiring strict due diligence and traceability back to non-deforested land.
Initially set for large companies to comply by December 2024, the proposal would move compliance to December 2025, and to June 2026 for smaller enterprises.
The extension aims to allow more time for preparation globally and within the EU while maintaining the law’s goals to combat deforestation.