ESG In Pills - May 2024
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Shifting Winds: The Rise of Climate Transition Investments
BlackRock Inc. - world's largest asset manager - has solidified its position as a leading force in the burgeoning “climate transition” investment sector. Transition strategies entail investing in companies that are seen as instrumental in shifting toward a low-carbon economy. According to global financial services firm Morningstar Inc., the market for transition funds, which focus on companies pivotal to the shift towards a low-carbon economy, expanded by 25% last year, reaching nearly $210 billion. BlackRock notably outpaced other asset managers in attracting investments to these funds.
Hortense Bioy, the global director of sustainability research at Morningstar, highlighted BlackRock’s dominance in both the ESG and climate investing realms, largely driven by its comprehensive range of passive funds. Despite facing criticism from some political groups, BlackRock has adeptly navigated the shifting landscape by moving away from the ESG label, which CEO Larry Fink described as overly "weaponized." Instead, the company now uses terms like climate, green, and transition to describe its funds, which still fall under the ESG umbrella.
Europe remains the epicentre of climate strategy investments, holding 84% of these assets in 2022. However, interest in the United States is growing as investors recognize that climate-focused investing extends beyond just renewable energy. This broader approach includes a variety of strategies aimed at decarbonizing portfolios and supporting companies likely to thrive in a low-carbon future.
The shift in investor interest is reflected in the substantial growth of U.S. transition fund assets, which surged by 133% to $8.8 billion, outperforming the broader U.S. climate fund market. This trend is supported by a greater emphasis on scrutinizing companies' climate transition plans and managing climate risks more effectively. Climate transition plans are time-bound actions that clearly outline how existing assets, operations, and entire business model of an organisation will pivot towards a trajectory that aligns with the latest and most ambitious climate science recommendations. These entail halving greenhouse gas (GHG) emissions by 2030 and reaching net-zero by 2050 at the latest, thereby limiting global warming to 1.5°C.[1]
While actively managed transition funds saw minimal new investments, passive funds aligned with European climate transition and Paris benchmarks witnessed a significant increase, totalling $155 billion in assets—a 50% rise from the previous year. This growth helped counterbalance the overall decline in other climate-related strategies, contributing to a total inflow of $40 billion into climate funds globally in 2023, which represents over half of the $75 billion infused into the total fund universe.
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Environment?
Climate Right Ruling
In a ground breaking decision, the European Court of Human Rights has ruled that Switzerland failed to protect its citizens from the impacts of climate change, thus infringing on their right to private and family life. This ruling, stemming from a case brought by a group of Swiss senior citizens and a senior citizens' association, highlights significant shortcomings in Switzerland's climate policy, particularly its lack of a comprehensive regulatory framework to limit national greenhouse gas emissions. The verdict underscores the intersection of climate change and human rights, establishing that ineffective climate action can constitute a violation of human rights. This decision is poised to have extensive repercussions across Europe, reinforcing the legal obligation of governments to align their climate policies with scientific evidence and human rights protections. The ruling is especially impactful as it sets a precedent for the 46 member states of the Council of Europe, potentially influencing a wide array of future climate litigation and governmental climate strategies. The Council of Europe’s members “now have a clear legal duty to ensure their climate action is sufficient to protect human rights, and judges across Europe will have to apply these new principles to the growing number of climate cases before them,” said Vesselina Newman, a human rights lawyer with the NGO ClientEarth.
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Ocean Cleanup’s 2024 Endeavour
The Ocean Cleanup is a global non-profit project with the mission to rid the oceans of plastic since 2019. The leading non-profit has launched its upgraded System 03 into the vast expanse of the Great Pacific Garbage Patch (GPGP), with ambitious plans for 2024. Positioned between Hawaii and California, the GPGP is approximately double the size of Texas and contains an estimated 100 million kilograms of plastic. This year, the project aims to demonstrate the effectiveness of System 03, setting the stage to deploy a fleet that could cleanse the GPGP with just ten systems. Since its inception, The Ocean Cleanup has escalated its efforts. Starting with the prototype System 001, it now operates the 2.5 kilometers long System 03, capable of cleaning an area equivalent to a football field every five seconds. In 2023, the system reached a peak efficiency of 75 kilograms of plastic per hour, marking a significant improvement in its operational capability. For 2024, the goal is to achieve a consistent cleaning rate of 100 kilograms per hour and to enhance the system's uptime—measuring the proportion of time the system actively cleans. These advancements are crucial as the organization prepares for a potential ten-year timeline to clean the GPGP, pending successful scale-up. With over 345,000 kilograms of plastic already removed, The Ocean Cleanup is leveraging continuous technological enhancements and strategic improvements.
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Zara and H&M Ties to Deforestation
A recent investigation by the UK-based NGO Earthsight has linked popular fashion brands H&M and Zara to illegal deforestation and human rights violations in Brazil. The report traces 800,000 tonnes of cotton used by these brands to Brazilian estates where corruption, land grabbing, and violence are prevalent. This cotton is exported to Asian manufacturers that produce nearly 250 million items annually for these global retailers. Despite claims of sustainability and ethical sourcing, Earthsight's findings reveal a stark contrast, pointing out that all the implicated cotton was certified as sustainable by Better Cotton, the world's leading cotton certification scheme. The investigation specifically highlights the environmental and social impacts in the Cerrado region of Brazil, a biodiverse savannah that has seen a 43% increase in deforestation, largely for cotton production that feeds into international markets. Both H&M and Inditex (Zara's parent company) have responded by affirming their commitment to sustainable practices and stating that they are in close contact with Better Cotton to ensure a thorough investigation into these allegations. However, Earthsight criticizes the effectiveness of current regulatory measures and calls for stronger laws and enforcement to address these issues at the source. The report suggests that the ongoing EU Corporate Sustainability Due Diligence Directive (CSDDD) and the new EU Deforestation Regulation are steps in the right direction. Due to watering down in the latest negotiations, they remain insufficient to cover all aspects of the cotton supply chain.
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Social
American Climate Corp Launches for Job Creation
The Biden administration has launched the American Climate Corps, a new initiative aimed at combating climate change through various environmental projects across the United States. The program has opened its first batch of 2,000 job positions in 36 states and territories. The positions offer tasks like monitoring forest health in Nevada and maintaining trails in New Hampshire, with wages around $18 to $19 per hour. Inspired by the Civilian Conservation Corps of the New Deal era, the American Climate Corps is part of President Biden's commitment to create jobs while addressing climate change, a promise made shortly after his inauguration in 2021. Although the program starts with fewer participants than some lawmakers had hoped, it represents a significant step toward involving young people in clean energy trades and federal service, providing them with essential skills for a career in the growing climate resilience economy. This initiative has seen support from various federal agencies and has been met with enthusiasm from environmental groups like the Sunrise Movement, although it faces criticism from some Republican lawmakers. The program's success could pave the way for expanded efforts, fulfilling its goal of equipping the youth with the tools needed to tackle the urgent challenges posed by climate change.
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Celebs Challenge Shell
A group of prominent Hollywood celebrities and environmental advocates, including Benedict Cumberbatch and Emma Thompson, have publicly condemned oil giant Shell’s $2.1 million lawsuit against Greenpeace. Labelling the legal action as a severe threat to freedom of protest, the signatories argue that Shell’s move could paradoxically boost support for the environmental NGO. The controversy stems from an incident last November when Greenpeace activists boarded a Shell oil rig, prompting the company to seek court injunctions to prevent further disruptions, citing safety concerns. Shell asserts that the lawsuit is purely about safety yet offered to lower the claim to $1.4 million if Greenpeace ceased its protests at oil and gas sites. Adding to the urgency, the celebrities highlighted Shell CEO Wael Sawan's recent decision to scale back on emission reduction targets and intensify oil and gas production, despite global calls for decarbonization. This pivot back to fossil fuels, according to the letter, will not only exacerbate climate change but also increase living costs, disproportionately affecting the most vulnerable populations. The signatories warn that Shell’s legal and strategic decisions are endangering future generations, urging a revaluation of the company’s approach to environmental responsibility.
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The Looming Heat Crisis
A recent Global Witness report unveils a stark warning: emissions from leading oil giants like Shell, BP, and ExxonMobil could spell millions of heat-related fatalities by 2100, urging a rapid shift away from fossil fuels. Leveraging Columbia University's mortality model, the study forecasts 11.5 million deaths from the projected 51 billion tonnes of CO2 these corporations will emit by 2050, under a high emissions scenario. This dire prediction underscores the deadly stakes of continued oil exploration and the critical need for global efforts towards net-zero emissions to halve the potential death toll. ?In Europe,?searing heat killed more than 60,000 people in 2022?and heat-related deaths rose by 95% in the US between 2010 and 2022. The big oil corporations continue to invest billions in new oil and gas reserves and?BP?and?Shell?have recently weakened their climate pledges. Amidst escalating global heatwaves and their disproportionate impact on vulnerable populations, the call for protective labour policies and a balanced energy transition becomes ever more urgent, challenging oil majors and governments alike to reconcile energy demands with the imperative to mitigate climate catastrophe.
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Governance
Scotland’s Climate Commitment Wavers
Scotland has withdrawn its ambitious goal to cut greenhouse gas emissions by 75% by 2030, a target previously set under the Emissions Reduction Targets Act of 2019. This decision casts doubt on the efficacy of legally established national and subnational carbon reduction targets. Legal mandates for carbon reductions have been championed as crucial for enforcing net zero commitments globally, with 75% of all global net zero targets supported by legislation or formal policy. However, the enforcement of these targets presents significant challenges. In Scotland, and more broadly in the UK, the absence of strict legal penalties for failing to meet targets means that compliance often hinges on political will, public pressure, and the looming threat of judicial review. Notably, the UK government was recently compelled by the High Court to fortify its net zero strategy following a lawsuit filed by ClientEarth. The effectiveness of legal frameworks in ensuring climate action remains debatable, especially when governments can sidestep their own laws without immediate repercussions. For companies, consistent and transparent climate policies provide a predictable environment for long-term planning and investment. When governments commit to clear, legally binding carbon reduction goals, businesses can invest in green technologies and infrastructure with greater confidence, knowing the regulatory landscape is stable. ?Investors, similarly, rely on consistent policies to mitigate risks associated with climate change. Predictable frameworks reduce the volatility of investing in green enterprises and technologies, facilitating more strategic, forward-looking investment portfolios that align with global carbon reduction trajectories. Scotland nonetheless remains bound by the United Kingdom's overarching 2030 carbon targets, established by UK Parliament in 2016.
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领英推荐
ISSB Targets Biodiversity
The International Sustainability Standards Board (ISSB) is shifting its focus to biodiversity, adding to its climate-related disclosure standards established last year. This expansion into biodiversity and nature-related disclosures aligns with initiatives like the Task Force on Nature-related Financial Disclosures (TNFD) and builds on existing SASB standards. The ISSB aims to ensure these new standards interoperate with other major reporting frameworks, facilitating the adoption of a unified approach to environmental reporting. The push for these standards comes as the complexity of environmental impact stretches beyond climate to encompass broader ecological considerations. Data from the global environmental disclosure platform CDP highlights that in 2022, nearly 70% of firms did not assess their value chain's impact on biodiversity, underscoring the challenge organizations face in managing nature-related risks. While the ISSB itself cannot mandate these standards, several countries are already incorporating the climate standards into their national regulatory frameworks, signalling a move towards mandatory compliance. This development indicates that firms should start preparing now, leveraging existing frameworks as TNFD. By doing so, they could enhance their data collection capabilities and invest in the necessary expertise to manage and report on biodiversity impacts, dependencies, risks and opportunities effectively.
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G7 Commits to Coal Phase-Out
Energy and climate ministers from the Group of Seven (G7), representing some of the world’s major economies, have agreed to phase out the use of coal in power generation by 2035, particularly focusing on unabated coal emissions.[2] This decision, which aligns with commitments made at last year’s UN climate summit in Dubai (COP28), marks a significant step toward reducing reliance on the most carbon-intensive fossil fuel. The agreement includes provisions for countries heavily dependent on coal, such as Japan, allowing them some flexibility to align the phase-out with their specific national circumstances and goals of limiting global warming to 1.5°C above pre-industrial levels. This flexibility is aimed at ensuring that all member countries can meet their net zero pathways without drastic economic repercussions. UK Minister for Nuclear and Renewables, Andrew Bowie, hailed the agreement as "historic" during an interview with CNBC, emphasizing the global shift towards cleaner energy sources. The deal is expected to encourage greater investment in clean technology across G7 nations and beyond, especially in Asia’s heavy coal-using economies like India. Environmentalists have expressed concerns that the G7’s timeline is not aggressive enough to tackle the urgent challenges posed by global warming. Critics, including those from the Berlin-based think tank Climate Analytics, argue for more stringent measures to ensure that global temperature rise remains within the 1.5°C threshold stipulated in the 2015 Paris Agreement. Despite these criticisms, the G7’s commitment is seen as a critical move to influence global coal markets and reduce overall greenhouse gas emissions.
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Events
UKSIF
May 15
Edinburgh
PEI Group
May 22-23
Tokyo, Japan
S&P Global
June 6
Tokyo, Japan
Reuters Events
June 11-12
London, UK
GreenBiz
June 17-19
NYC, USA
May 2024, issue 28. 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 company.
[1] CDP - not-for-profit charity that runs the global environmental disclosure system - has created a?technical note?to provide guidance on how organizations can demonstrate that they have a credible climate transition plan in place.
[2] The?Group of Seven?(G7) is an?intergovernmental?political and economic forum consisting of?Canada,?France,?Germany,?Italy,?Japan, the?United Kingdom?and the?United States; additionally, the?European Union?(EU) is a "non-enumerated member".?