ESG Monthly News Update: September 2024
General ESG News
Forbes: Why Big Corporations Are Quietly Abandoning Their Climate Commitments?
Major corporations like Google, Microsoft, and Shell are reconsidering their climate commitments due to the high energy demands of AI, revealing a growing conflict between sustainability goals and technological advancements.
While more than 500 companies pledged net-zero emissions by 2040, only 4% are on track to meet their goals, with AI’s energy-hungry nature making it harder to maintain these commitments, particularly in the U.S., where data centers are expanding rapidly.
AI operations are driving significant energy consumption, with data center power demand projected to grow by 160% by 2030, threatening global clean energy transitions and prompting calls for carbon taxes to mitigate AI's environmental impact.
Companies like Google and Microsoft have seen rising emissions from expanding AI data centers, leading them to abandon or modify their carbon neutrality goals, while others like Shell and Gucci have also adjusted their sustainability strategies.
Decentralized AI solutions, such as blockchain-based platforms, offer a potential alternative by leveraging local computing power, reducing energy demands, and addressing privacy concerns, providing a more sustainable approach to AI growth.
The Wall Street Journal: Sustainability Is Falling on the CEO To-Do List. Customers Still See It as a Priority.
CEOs are deprioritizing sustainability efforts in favor of issues like AI, growth, inflation, and geopolitical uncertainty, despite rising consumer concerns about climate change driven by extreme weather events.
Many companies are becoming more realistic about their climate goals, acknowledging the challenges and costs of decarbonization, while some rebrand their sustainability efforts, such as BlackRock’s transition to clean energy investing.
Business-to-business customers are increasingly demanding sustainability from suppliers, and while many companies are missing their emission targets, investors remain supportive as long as companies make genuine efforts to decarbonize.
Also covered in: ESG Today: CEOs Are Deprioritizing Sustainability as it Becomes More Important to Consumers, Corporate Buyers: Bain Survey
Reuters: Companies setting climate transition plans up 44% in 2023, research shows
The number of companies claiming to have a climate transition plan aligned with the 1.5 degrees Celsius global warming limit has increased by nearly 50%, but many do not provide sufficient data to verify these claims.
Out of the 5,906 companies reporting to the CDP platform, 39% disclosed information on at least two-thirds of the 21 key indicators, but only 2% of companies provided data on all the recommended metrics.
Climate transition plans are becoming increasingly important for investor confidence, as highlighted by CDP, which expects an additional 8,000 businesses to adopt such plans by 2025.
While regulatory reporting requirements are becoming mandatory in some regions, many companies still voluntarily disclose climate-related information, often surpassing the speed of policymaker action.
The New York Times: Youth Group Asks Supreme Court to Revive a Landmark Climate Lawsuit
A group of young plaintiffs is currently asking the Supreme Court to revive Juliana v. U.S., a climate lawsuit first filed in 2015 that accuses the federal government of violating constitutional rights by supporting fossil fuel policies.
The lawsuit was previously dismissed by appellate courts, with the U.S. government arguing that climate policy issues should be handled by political branches, not the courts.
The plaintiffs, represented by the nonprofit Our Children’s Trust, argue that government maneuvers have blocked their path to a fair trial and are seeking a writ of mandamus to send the case back to district court.
Similar legal actions by the group have seen success, including settlements in Hawaii and Montana, where courts have ruled that state governments must address climate impacts.
ESG Ratings, Standards, and Reporting
Forbes: Workiva Amplify ESG Panel Addresses Lack of Clarity In Reporting Goals
The Workiva Amplify 2024 conference in Denver focused on sustainability regulations, particularly U.S. and EU environmental reporting standards, highlighting challenges faced by the financial industry in navigating these changes.
A major topic of discussion was the growing requirement for companies to report GHG emissions, with regulators worldwide working to standardize reporting, though the SEC’s climate-related disclosure rule is currently delayed due to litigation.
The EU has already moved forward with its Corporate Sustainability Reporting Directive, forcing many companies to comply with its ESG standards while also dealing with anti-ESG regulations in the U.S., creating a complex regulatory landscape.
Panelists noted jurisdictional differences between the U.S. and EU in terms of fiduciary duty, where the U.S. focuses on shareholder interests, while the EU allows boards to consider broader stakeholder impacts, complicating sustainability reporting.
There was concern that companies are overly focused on reporting rather than taking concrete climate action, with panelists emphasizing the need to shift the focus from compliance to meaningful sustainability initiatives.
ESG Today: EPA Releases New Standards and Labels Recommendations to Identify Sustainable Products
The U.S. EPA has proposed an update to its Recommendations of Specifications, Standards and Ecolabels for Federal Purchasing to assist government and other buyers in identifying environmentally sustainable products across 35 categories.
The update aims to expand the Recommendations to include new sectors such as healthcare, laboratories, and clothing, introducing 14 new standards and ecolabels while also enhancing existing food service ware criteria to focus on reusable, certified compostable, and recyclable products.
With the U.S. government being the largest buyer globally, the proposed changes will help streamline the purchasing process by removing outdated standards, ensuring that only relevant and effective ecolabels remain, thereby promoting more sustainable procurement practices.
Trellis: Texas lawsuit targets anti-ESG laws
A lawsuit filed by the American Sustainable Business Council challenges Texas' Senate Bill 13 (SB-13), which penalizes companies for reducing reliance on fossil fuels, alleging violations of the First and 14th Amendments.
SB-13 has led major financial institutions like JPMorgan Chase and Goldman Sachs to exit the Texas market, raising costs for smaller financial institutions and leading to increased bond interest rates, according to a Wharton study.
The outcome of the lawsuit could set a precedent for anti-ESG legislation, which has been enacted in 20 states.
The Texas Association of Business Chambers of Commerce estimates SB-13 could result in $668.7 million in lost economic activity, 3,034 fewer full-time jobs, and significant tax revenue losses for the state.
Companies and Industries
Trellis: How PG&E us using microgrids to further its sustainability and safety goals
PG&E is prioritizing wildfire protection and extreme weather resilience by burying 10,000 miles of power lines and aiming for a net-zero energy system by 2040, with microgrids playing a key role in enhancing grid safety and decarbonization.
Microgrids, which combine renewable energy generation and storage, are seen as tools for modernizing the grid. PG&E is leading this shift, especially in fire-threat areas, with more than nine remote grids in operation and more under development.
PG&E has launched two microgrid programs: one supporting resilience-focused projects and another offering $79.2 million in grants for disadvantaged communities, including Native tribes.
The Redwood Coast Airport Microgrid, which powers critical facilities during outages, is a successful example of a multi-customer microgrid, demonstrating the potential for rural areas to enhance energy resilience and reduce costs.
Public funding and careful coordination with multiple stakeholders were crucial to the success of the Redwood Coast project, which kept the airport operational during a grid outage following an earthquake.
Trellis: Why standardized packaging is key to reducing plastic waste
A new report from Biffa identifies standardizing packaging materials as a key solution to reducing plastic waste in the UK, potentially diverting 0.8 million metric tons from landfills by 2029.
Simplified packaging, like eliminating complex multi-material designs, would improve recycling rates and ease consumer participation.
Certain industries, such as milk and cereal, already use standardized packaging, showing how broader adoption could enhance recyclability.
Standardized packaging supports the circular economy by enabling companies to collaborate on reusable systems, despite concerns about brand differentiation.
Trellis: Clean energy projects: What to know about the permitting logjam
Permitting reform is crucial for U.S. grid stability and clean energy development because it streamlines the federal approval process for large infrastructure projects, including renewable energy installations.
The Biden administration's Inflation Reduction Act has led to announcements of 340+ clea energy projects, but many are stalled due to a backlog of over 1,081 federal permit applications. These permits can take several years to process.
The creation of the Coordinated Interagency Transmission Authorization and Permits (CITAP) office aims to centralize the permitting process for transmission lines, which are essential for transporting energy from clean sources to the grid.
As of now, the bipartisan Energy Permitting Reform Act (EPRA) has advanced through the Senate committee, with potential for success in addressing clean energy needs and streamlining fossil fuel approvals, likely gaining traction in a post-election lame duck session.
Forbes: ESG Is Here For Good: What That Means For PR And Communications
S&P Global Market Intelligence reports that 80% of major companies are exposed to climate change-related risks, with potential supply chain costs reaching $120 billion by 2026.
It is also reported that ESG reporting grew from 20% of S&P 500 companies in 2011 to 98% in 2022, making it a key focus in PR and communications.
Since businesses face issues like greenwashing and detractors, transparency, expert advice, and collaboration are essential for successful ESG strategies.
Forbes: Impact Mindset, A Change Of Attitude To Achieve Concrete Results
Traditional business success metrics focus on financial indicators like profits and ROI, neglecting social and environmental impact.
True Impact, according to Ronald Cohen, integrates philanthropy and sustainability into investment projects that benefit society while delivering measurable results and economic returns.
Long-term social impact projects, such as providing clean water or reducing educational poverty, can challenge short-term business objectives.
A mindset shift is necessary, especially to engage younger generations, by adopting an "impact" approach that aligns social goals with business growth, requiring training and awareness for leaders.
ESG Today: SEC Fines Keurig $1.5 Million over Coffee Pod Recyclability Claims
The SEC fined Keurig $1.5 million for misleading recyclability claims about its coffee pods, which were not accepted by major U.S. recycling companies.
Keurig’s fiscal reports in 2019 and 2020 claimed its K-Cup pods were recyclable, despite feedback from large recyclers that they wouldn’t accept the pods.
The misleading claims were made after internal research showed that environmental concerns influenced consumers' decisions to buy Keurig products.
Investment Trends
Reuters: MSCI shares will show the future of ESG
MSCI's ESG and Climate segment, which provides ratings and research for sustainable investments, has seen its growth slow from 50% in early 2022 to 12% in the second quarter of 2024, due to challenges in sustainable finance and political pushback.
The deceleration in ESG-related revenue growth has reduced investor enthusiasm for MSCI shares, with analysts noting rising cost pressures on companies and underperformance in ESG investments.
Despite the slowdown, MSCI remains committed to ESG, highlighting the need for common frameworks and data to navigate sustainable investing, citing partnerships like the one with Moody’s to integrate ESG data into banking and corporate products.
MSCI is a major player in the ESG data market, with a 25% share, but faces skepticism about its ability to reignite growth in the ESG space, though its leadership remains optimistic about long-term opportunities in sustainable finance.
Sustainable Brands: Report Gives Investors Practical Steps to Strengthen Nature Conservation Portfolios
A new report from ShareAction and UNEP-WCMC provides guidance on how investors can help halt biodiversity loss by strengthening their policies on capital allocation and portfolio stewardship, particularly in biodiversity-rich areas.
Since COP15, there has been significant growth in strategies, tools, and initiatives like the Nature Positive Initiative and biodiversity credit markets to support biodiversity goals, but asset managers and insurers show room for improvement in addressing risks in protected areas.
The report urges investors to assess biodiversity impacts, set ambitious targets, ensure investee companies follow consent processes with Indigenous communities, and adopt robust escalation strategies.
By integrating these approaches, investors can reduce risks, protect vital ecosystems, and avoid potential financial losses tied to expanding global biodiversity protections.
According to Deloitte’s 2024 CxO Sustainability Report, a vast majority of large companies have increased their sustainability-related investments over the past year, with 85% of executives reporting an increase of more than 5% in their sustainability investments.
Climate change has become a top priority for executives, ranking third among pressing issues, with 70% of respondents anticipating a high impact on their company's strategy and operations over the next three years.
Executives are increasingly focusing on the direct business benefits of sustainability, with material advantages such as supply chain efficiency and new climate-friendly products emerging as key outcomes from their sustainability efforts.
There is a growing optimism among executives regarding the ability to grow while reducing greenhouse gas emissions, with 92% believing that sufficient global actions will be taken to mitigate climate change's worst impacts.
Reuters: Comment: The battle for net-zero emissions will be won or lost in emerging markets
Emerging markets, such as India, Brazil, and South Africa, are facing the dual challenge of reducing fossil fuel reliance while increasing energy capacity to support economic growth.
Despite renewable energy being more cost-competitive, a McKinsey report warns of a potential decarbonization gap of 14 to 17 gigatons of CO2 by 2030 if there is not significant investment shifts in these regions.
Global clean energy investments are projected to surpass $2 trillion in 2024, but only 15% will go to emerging markets outside China, emphasizing the need for increased investment from multilateral banks and investors.
Countries like Brazil and Turkey are currently leading by example, attracting significant investments in renewable energy through government policies, climate funds, and green bonds, offering a model for other emerging markets.
Government Policy
Trellis: EU Nature Restoration Law goes into effect, and 3 other major policy updates
The EU's Nature Restoration Law, effective from August 18, sets binding targets to restore 20% of the EU’s land and sea by 2030, with the goal of halting ecosystem degradation and improving biodiversity.
A UN report reveals that 90 countries are facing severe freshwater ecosystem degradation, with the world projected to miss sustainable water management goals by 19 years, worsening water scarcity risks for businesses.
China and other nations are pushing back against the EU's Deforestation Regulation, which mandates traceability for commodities linked to deforestation, raising concerns over trade and security impacts.
Brazil’s Pact for Ecological Transformation outlines 26 measures focused on climate justice, deforestation, and sustainable development, positioning Brazil as a leader in global biodiversity and climate initiatives ahead of COP30.
Bloomberg: California Wildfire Rules Will Reshape Urban Neighborhoods
The Berkeley, CA Fire Department is inspecting homes in high-risk wildfire zones, advising residents to remove flammable vegetation within five feet of their homes to enhance wildfire safety.
California is drafting new regulations called Zone Zero, which would prohibit combustible materials near homes in very high fire hazard severity zones, aiming to create safer environments as wildfires become more frequent.
Homeowners face challenges adapting to these regulations due to the aesthetic and financial implications of removing vegetation and altering their landscapes, as many fear losing insurance coverage amid rising wildfire risks.
Some residents are proactively re-landscaping their properties with fire-resistant plants and materials, highlighting a community effort to create ember-resistant zones and enhance overall wildfire resilience.
ESG Today: Australia Passes Law to Begin Mandatory Climate Reporting in 2025
Australia passed a law requiring large and medium companies to disclose climate-related risks, opportunities, and greenhouse gas emissions, starting in 2025.
The law includes phased-in Scope 3 emissions reporting and provides a three-year protection from litigation over Scope 3 disclosures.
A new Net Zero Economy Authority was also established to guide Australia's transition to net zero, focusing on reskilling workers and supporting industries.
Reporting requirements will apply to companies with over 500 employees or $500 million in revenue, with smaller companies following by 2027.