ESG In Pills - July 2024
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Energy 2023 Outlook
Global energy consumption hit new heights in 2023, growing by 2% and reaching an all-time high of 620 exajoules (EJ). The Global South, led by China, India, and other major Asia Pacific economies, fuelled this surge, consuming 56% of the world’s total energy. China alone drove nearly a third of global demand, with its consumption growing at three times the global average rate.
Despite efforts to transition to cleaner energy sources, fossil fuels continue to dominate the global energy mix, accounting for 81.5% of consumption in 2023. This slight drop from 81.9% in 2022 is overshadowed by the increase in oil and coal usage, which has kept carbon emissions on an upward trajectory. North America's fossil fuel consumption saw a notable shift, with coal use halving over the last decade, while Europe achieved a milestone by reducing fossil fuel use below 70% of its energy mix.
The increase in fossil fuel consumption has led to a new record in carbon emissions, surpassing 40 gigatonnes of CO2 for the first time. While emissions in the US and EU declined by 2.7% and 6.6% respectively, these reductions were outweighed by significant increases in Asia, particularly in China and India. The overall global rise in emissions was driven by the higher carbon intensity of the fossil fuels being consumed.
Renewable energy sources have seen impressive growth, now making up 15% of the global energy mix. Solar and wind power, in particular, have quintupled their share over the past decade, now accounting for 8% of the total energy mix. This growth, however, has not been sufficient to offset the rising demand for energy, which continues to be met predominantly by fossil fuels. Despite this, regions like Southern & Central America lead the way in renewable energy, with renewables comprising 72% of their energy generation.
The disparity in energy consumption and emissions between regions remains stark. In 2023, the average energy consumption per person in Africa, South Asia, and Southern & Central America was 0.3 petajoules (PJ), compared to 1.8 PJ in North America, the CIS, and the Middle East. Similarly, average greenhouse gas emissions per person were significantly lower in these regions, highlighting the unequal distribution of energy resources and emissions globally.
Energy security remains a critical concern, with regions like North America transforming into a net exporter of energy, thanks to unconventional oil and gas growth. In contrast, Europe and Asia Pacific continue to rely heavily on energy imports. The Asia Pacific region, despite its massive demand, has achieved a coal surplus, while struggling to meet its oil consumption needs.
Solar energy has made remarkable strides, with prices dropping by a factor of 500 over the past few decades. The break-even point for solar projects has plummeted by a factor of 1000, and photovoltaic shipments have skyrocketed by a factor of a million. However, the rapid growth in solar energy has primarily enabled increased overall energy consumption rather than displacing fossil fuels significantly.
Key Takeaways
As the world grapples with these energy challenges, the need for a genuine energy transition is more urgent than ever. The path forward must balance increased energy demand for development, with sustainable and equitable solutions.
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Chart of the Month
Environment
UBS Signals Move into Biodiversity Finance
UBS Group AG recently hosted its inaugural biodiversity-focused ESG conference, marking a strategic push into an area previously championed by Credit Suisse, before the latter was taken over by its larger Swiss rival last year. The event in London saw an overwhelming turnout of 250 institutional investors and other key stakeholders, highlighting the growing interest in biodiversity finance. UBS is developing financial products like debt-for-nature swaps – a product that was pioneered by Credit Suisse. Such swaps bring in institutional investors to help countries refinance existing debt, and then put any savings toward environmental conservation programs. The finance sector's investment in biodiversity has surged, with private finance for nature reaching $102 billion, an eleven-fold increase in four years, according to UNEP FI. Besides UBS, Standard Chartered Plc has built a dedicated nature innovation hub, which coordinates with bankers across trading, advisory, financing and risk management functions. And JPMorgan Chase & Co., Lloyds Banking Group Plc and NatWest Group Plc are among the banks that have created dedicated senior roles to focus on the business area. This surge is driven by new financial instruments and regulatory pressures emphasizing the protection of biodiversity alongside the energy transition. Nonetheless, data from CDP reveals that while many companies are beginning to consider biodiversity in their strategies, only 20% have assessed the impact of their operations, and a mere 16% have evaluated their supply chains. This gap in impact assessment indicates a significant challenge that needs to be addressed to ensure meaningful progress in biodiversity preservation. Jessica Smith of UNEP FI noted that biodiversity is becoming a mainstream theme in finance, presenting opportunities for companies that lead in sustainability practices and the critical need for better impact assessment frameworks in the finance sector.
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Climate Change Doubles Risk of Devastating Brazil Floods
Analysis by World Weather Attribution (WWA) has revealed that human-induced greenhouse gases have doubled the likelihood of the recent catastrophic flooding in Brazil between April 26 and May 5 in the state of Rio Grande do Sul. The interplay between climate change and El Ni?o, a periodic warming of the eastern equatorial Pacific, significantly increased both the probability and intensity of the rainfall. Inadequate flood-control infrastructure and deforestation further exacerbated the disaster's severity. The Intergovernmental Panel on Climate Change (IPCC) notes that for each 1C rise in temperature, the air's capacity to hold water increases by about 7%, leading to more extreme rainfall events globally. WWA's study showed that fossil fuel combustion has not only doubled the likelihood of such extreme rainfall but also increased its intensity by 6% to 9%. If global temperatures exceed a 2C increase, the frequency will double from current projected rates, at 1.2C. By the end of May, the flooding in Rio Grande do Sul had displaced nearly 600,000 people and killed 172. Highlighting the investment risks, Maja Vahlberg, a climate risk consultant at Red Cross Red Crescent Climate Centre, stressed the need for governments to implement policies to reduce vulnerability, enhance flood protection, and restore natural ecosystems to mitigate the impact of heavy rains. For businesses and investors, the rising frequency of such extreme weather events underscores the importance of integrating environmental risk into strategic planning and supply chain management.
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Iceland's Carbon Capture Giant
Mammoth is a groundbreaking carbon removal facility amid Iceland’s Hellisheioi station. As the world’s largest direct air capture (DAC) plant, Mammoth is poised to extract up to 36,000 tons of CO2 annually, a significant leap from Climeworks’ previous project, Orca, which captures nine times less CO2. Powered by Iceland’s abundant geothermal energy, Mammoth partners with Carbfix to convert captured CO2 into a stable, crystalline form within basalt rock formations. Climeworks aims to capture 1 million tons of CO2 by 2030 and 1 billion tons by 2050, expanding globally with projects in Norway, Kenya, Canada, and the US. Despite this, Mammoth's capacity still equates to less than a minute of global emissions, highlighting the challenge ahead. The facility’s annual CO2 capture matches the emissions of just 8,000 average US cars, underlining the nascent stage of DAC technology. Furthermore, costs remain a hurdle, with current removal expenses at $1,000 per ton. The company's success could attract substantial investments from major asset managers, driving scalability and profitability in the carbon capture sector. The Intergovernmental Panel on Climate Change (IPCC) underscores the necessity of carbon capture but stresses it is not a standalone solution.[i] First and foremost, we must prioritise reducing energy consumption, where possible, and transitioning to renewable energy sources.
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Social
134 Years to Gender Parity
According to the World Economic Forum’s Global Gender Gap Report 2024, achieving gender parity globally will take 134 years. While European countries dominate the top 10 for gender equality, Iceland leads for the 15th consecutive time with 93.5% of its gap closed. Nordic countries like Finland and Norway follow closely behind. New Zealand is the highest performing country outside of Europe, ranking fourth. Overall, progress across the four dimensions—Health and Survival, Educational Attainment, Economic Participation and Opportunity, and Political Empowerment—remains slow. Health and Survival gender gap is the most closed at 96%, followed by the Educational Attainment gap (94.9%), the Economic Participation and Opportunity gap (60.5%). Political Empowerment remains the largest gap, only 22.5% closed, but has shown significant improvement over 18 years. In fact, the share of women in parliamentary positions shows an almost uninterrupted positive trajectory since 2006. Achieving gender parity by 2030 requires an annual investment of $360 billion, emphasizing the need for comprehensive policy, business inclusion strategies, and targeted educational initiatives, especially in tech and AI fields where women are underrepresented.
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When Concerts and Climate Change Collide
Ana Clara Benevides, a 23-year-old Taylor Swift fan, passed away from heat exhaustion during a concert in Rio de Janeiro's Nilton Santos Stadium. The stadium was packed with 60,000 people on November 17, 2023, amidst a heatwave with temperatures feeling like 138°F (59°C). Benevides’s death occurred during a record-breaking hot spring attributed to climate change, marking a tragic incident that made international headlines. Similar events have raised concerns about the preparedness of venues for extreme weather. Last July 17 people were hospitalized for heat-related issues at an Ed Sheeran concert in Pittsburgh, and a month prior, 100 were injured by hail at a Louis Tomlinson show in Colorado. These incidents, though seemingly isolated, highlight a growing pattern: climate change is increasing the frequency and severity of extreme weather, posing significant risks to outdoor events. Many venues and organizers are not adequately prepared for these conditions, and while the Event Safety Alliance (ESA) has developed weather safety guidelines, these standards are not universally applied, and decisions to cancel events often fall to a single individual, leading to potentially unsafe conditions. As climate change continues to escalate, it is becoming increasingly clear that it affects all aspects of life, from the environment to our most cherished activities. The need for stringent safety regulations and proactive planning is critical to protect people in all settings, emphasizing that climate change is a pervasive issue demanding comprehensive action.
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Community Forced to Relocate Amid Rising Sea Levels
The Guna community of Gardi Sugdub will be the first of 63 coastal villages in Panama to move, driven by the impacts of climate change and rising sea levels. This island, 400 yards long and 150 yards wide, faces annual flooding and stronger storms, prompting residents to reinforce its edges with rocks and coral in vain. “We’re a little sad, because we’re going to leave behind the homes we’ve known all our lives,” said Nadín Morales, 24. The island's tide levels have risen noticeably, and the unbearable heat underscores the urgency to move. The government has invested $12 million in a new mainland site with concrete houses and paved streets, just over a mile from the port. The Smithsonian Institution’s Steven Paton highlights this move as a direct consequence of climate change, with the islands sitting only half a meter above sea level. Predictions suggest all Guna islands will need to be abandoned by the end of the century. Panama faces a projected loss of 2.01% of its coastal territory by 2050, costing about $1.2 billion to relocate affected populations. The transition to the mainland forest represents a significant lifestyle shift for the Guna, traditionally sea-based, and poses challenges for their future cultural and economic activities.
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Governance
Over Half of Global GDP Aligns with ISSB Sustainability Standards
The IFRS Foundation is an international organization that develops globally accepted accounting and sustainability standards. It revealed that over 20 jurisdictions, accounting for more than 50% of global GDP and GHG emissions, intend to align their sustainability disclosure standards with those of the International Sustainability Standards Board (ISSB) - a part of IFRS focused specifically on sustainability disclosure standards. This announcement followed China's Ministry of Finance releasing an ISSB-aligned draft framework on May 27. To aid these jurisdictions, the ISSB published an Inaugural Jurisdictional Guide, offering a roadmap for adopting ISSB standards and outlining plans for "jurisdictional profiles" detailing each region's disclosure requirements. Additionally, on May 24, the ISSB announced a collaboration with the independent organisation Global Reporting Initiative (GRI) to enhance compatibility, starting with GRI’s 101 Biodiversity Standard and ISSB’s project on Biodiversity. This shift towards alignment and collaboration marks a significant change in the landscape of sustainability reporting. Recognizing the urgency for interoperability, standard setters are now increasingly working together. Additional strides are shown in the ISSB integration of the market-led initiative Task Force on Climate-related Financial Disclosures (TCFD), and collaboration with the sister Taskforce on Nature-related Financial Disclosures (TNFD). This cooperative approach aims to streamline standards, reduce reporting burdens, and provide clearer, more comprehensive sustainability information, ultimately benefiting global sustainability efforts.
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UK Elections and Energy Policy
As the UK heads into the July 4 general election, the contrasting economic narratives on energy transition presented by the main political parties carry significant implications for the private sector. According to the latest BBC poll tracker, the opposition Labour Party holds a 21-point lead over the ruling Conservatives, with 43% of the vote compared to 22%.
While in power for 14 years and overall enshrining the UK 2050 net zero target into law, the Conservatives’ current approach to energy policy is marked by caution. According to Rob Gross, director of the UK Energy Research Centre and professor of energy policy at Imperial College London,?"The political position they are taking at the moment is less enthusiastic than even a year ago about the positives of clean energy." The pary emphasizes cost-saving measures for taxpayers amongst a poor commitment to green targets, including plans for new oil and gas licenses in the North Sea. Conversely, Labour leader Keir Starmer views the energy transition as a substantial opportunity to lower consumer bills and enhance energy security through renewables. Labour’s policy includes a windfall tax on fossil fuel companies and a goal to expand offshore wind capacity to 55 GW by 2030. For corporate boards and investors, these divergent energy policies necessitate strategic planning. The election outcome could reshape investment landscapes, particularly in renewable energy sectors. Labour’s proposed publicly-owned Great British Energy company aims to catalyse private investment, whereas the Conservatives’ focus on fiscal prudence might seem to appeal to investors wary of rapid policy shifts, while risking stranded assets as well as UK lagging behind global regulatory shifts towards net zero. This election is a pivotal moment for UK, with potential rippling effects in other jurisdictions. Indeed, energy policy will significantly influence business environment and investment strategies.
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Corporate Opportunities in Bipartisan Legislation: The Americas Act
The Americas Act, formally known as the Americas Trade and Investment Act, aims to enhance trade and investment between the U.S., Latin America, and the Caribbean as a move against China’s economic influence. A key component of the bill is a substantial $14 billion initiative to establish a domestic circular economy for textiles and manufacturing. The proposed legislation targets reshoring manufacturing supply chains from China by implementing higher tariffs on imported goods and offering tax incentives to manufacturers relocating their supply chains to the U.S. Additionally, U.S.-based businesses involved in textile collection, reuse, repair, recycling, renting, or processing would benefit from a 15% tax reduction. The funding allocation includes $10 billion for preferential loans, $3 billion in grants for manufacturing support, $1 billion for R&D in textile recycling, and $100 million for public education. Rachel Kibbe, CEO of Circular Services Group and American Circular Textiles Group, highlighted the bill's potential to drive job creation and attract private investment within the U.S. Despite facing legislative hurdles, especially in an election year, the Act arrives at a crucial time, coinciding with the recent acquisition of Renewcell, a major circular textile company, by Altor, which renamed it Circulose. This is first of several potential business opportunities and corporate governance advancements that the Americas Act could facilitate, in transitioning to a sustainable economy where reuse, repair and recycling are facilitated for consumers.
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Events
ICGN
July 15-17
London
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European Corporate Governance Institute
September 10
Berlin
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Top 1000 Funds
Sept 17-19
Stanford, California
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The Climate Group
September 22-29
New York
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Reuters Events
Sept. 30-Oct. 1
London, UK
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July 2024, issue 30. Previous editions can be found on LinkedIn or the Oxford Business Review website. All information in this article is personal and does not represent the viewpoint of any organisation.
[i] The IPCC is?the scientific group assembled by the United Nations to monitor and assess all global science related to climate change. It was created?to provide policymakers with regular scientific assessments on climate change, its implications and potential future risks, as well as to put forward adaptation and mitigation options. Read more here.