ESG In Pills - October 2022
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?Climate and the UN General Assembly
The?77th Session of the United Nations General Assembly opened on Tuesday, the 13th of September 2022 and ran until the end of the month. Much of the focus was on Russia's war on Ukraine. However, some speeches focused on the climate crisis – what UN Secretary-General António Gutierrez has argued to be “the defining issue of our time”.?Two addresses are interesting to highlight, alongside one groundbreaking commitment.
Guterres hit the finance industry hard in his opening speech. He accused energy giants of “feasting on hundreds of billions of dollars in subsidies and windfall profits while household budgets shrink and our planet burns.” Fossil fuels are the source of 86% of CO2 emissions that cause climate change.?In the second quarter this year, oil and gas giant?Shell?earned record profits of $11.5 billion, breaking its?previous record?posted just three months earlier.?ExxonMobil?also broke its record in the same period, with $17.9 billion,?nearly double what it made in its very profitable first quarter.?BP's?profits hit a 14-year high of $8.45 billion. Because of this, Guterres urged developed economies to tax the windfall profits of fossil fuel companies. Those funds should be redirected in two ways: to countries suffering loss and damage caused by the climate crisis and to people struggling with rising food and energy prices.
Such hard speech comes after more than 1,500 people died in Pakistan over three months of extreme monsoonal rain that?scientists have linked to climate change.?The flooded area is three times the size of Portugal. And this is just one example. The world is battered by extreme weather events supercharged by the human-induced climate crisis.?Guterres warned that a “winter of global discontent is on the horizon,” with inequality “exploding” and the cost-of-living crisis “raging” while the planet burns.
Some members have already introduced measures to try and redirect these funds to those who need them most. The European Commission proposes that member states take a 33% share of oil, gas and coal companies, as Russia's war in Ukraine and an energy crunch send prices soaring.
?Guterres?has already been a vocal advocate against fossil fuel companies. However, during this speech, what is different is the involvement of “their enablers”, as he defined them. He referred to “banks, private equity, asset managers and other financial institutions that continue to invest and underwrite carbon pollution.” Guterres denounced public relations and advertising firms for enabling the fossil fuel pollution currently destroying the planet. Just as they did for the tobacco industry decades before, “lobbyists and spin doctors have spewed harmful misinformation,” Guterres added. “Fossil fuel interests need to spend less time averting a PR disaster—and more time averting a planetary one.”
?Guterres’ speech follows the publication of the latest?"F-List" report?by Fossil Free Media's Clean Creatives campaign. The report details the relationships between nearly 240 public relations and advertising companies and their fossil fuel industry clients. While emissions must be halved by 2030 to limit temperature rise, “every major oil and gas company is currently planning to continue their expansion of fossil fuel production”.
Another important speech came from Vanuatu. Vanuatu, an already carbon-negative country that absorbs more emissions than it produces, is rated the country most at risk of natural disasters by the United Nations. His Excellency Vurobaravu made the historic call on the floor of the UN General Assembly on a Fossil Fuel Non-Proliferation Treaty.[1] The initiative is spurring international cooperation to end new development of fossil fuels, phase out existing production within the agreed climate limit of 1.5°C and develop plans to support workers, communities and countries dependent on fossil fuels to create secure and healthy livelihoods.
The call for a Fossil Fuel Treaty has already been endorsed by more than 65 cities and subnational governments around the globe, including London, Lima, Los Angeles, Kolkata, Paris and the Hawai’i State Legislature. For the past two years, thousands of civil society organisations, major cities, hundreds of Parliamentarians, Nobel Laureates, Indigenous peoples, trade unions, faith leaders, youth activists and health professionals have advocated for it. Now the proposal has been made within the international policy arena. Vanuatu’s call for a Fossil Fuel Non-Proliferation Treaty is a pivotal step toward building formal diplomatic support.
Also, it makes Vanuatu the first nation-state to call for an international mechanism to stop the expansion of all new fossil fuel projects and manage a global just transition away from coal, oil and gas. Vurobaravu said, “Fundamental human rights are being violated, and we are measuring climate change not in degrees of Celsius or tons of carbon, but in human lives. This emergency is of our own making.”
This historic call doubles down on Vanuatu’s commitment to climate action following its submission of one of the world's most comprehensive climate targets under the UN earlier this month. Vanuatu is also leading a campaign to have the International Court of Justice issue an opinion on climate justice and human rights which some believe it paves the way for a new era of international climate policy focused on equity and justice.
?Finally, Denmark announced during UNGA that it will pay other countries for ‘loss and damage’ related to climate change. Developing countries were unsatisfied by the meagre attention paid to loss and damage at Cop26, where the focus was on rich-country pledges to reduce greenhouse gas emissions. This was a remarkable demonstration of solidarity and climate leadership. It was also historic as Denmark was the first UN Member State to take such a step. There are still question marks over how Danish finance would work. Some campaigners and experts are concerned that some of it appear earmarked for insurance schemes rather than representing direct aid. However, many say it sends the proper political signal and could incentivise other countries to follow. It is a step in the right direction and further adds to the momentum of loss and damage.
Chart of the month
CDP temperature ratings - 2022 analysis
Environment
?How Multinationals Can Pressure Suppliers
Jaguar Land Rover (JRL), the British automotive giant,?set its own approved science-based targets last year. JLR's commitments are to reduce operational emissions by 46%, value chain emissions by 54% and vehicle use emissions by 60% by the 2030 financial year. Since then, JLR has also committed to aligning with the SBTi's corporate net-zero standard. At the latest, this will require at least a 90% reduction in emissions across all scopes by 2050. JLR intends to achieve net-zero carbon emissions from operations, products and the supply chain by 2039. The company has not stated that it will “only achieve” these aims by “working closely with suppliers who share the same vision for change”. It has contacted all suppliers asking them to align with its 2030 goals. This is essential, as according to CDP, on average, Scope 3 emissions are?11.4 times higher?than operational emissions?for large multinational corporations. Tier 1 suppliers, including the company's products, services and logistics suppliers, are the priority group for this engagement from JLR. The firm will ask these companies to set their own science-based decarbonisation targets and report on progress. Reports should be public. These suppliers, JLR has stated, should collaborate with each other to develop and implement credible emissions reduction plans, which may involve changing processes, technologies and materials. JLR's executive director of industrial operations, Barbara Bergmeier, said: “We can only meet these ambitious targets together, which is why we're inviting suppliers to join us on this challenging but exciting journey, strengthening existing relationships to enable all parties to achieve significant, quantifiable goals.” JLR has not, at this stage, stated that it will stop working with existing suppliers who fail to align with its climate commitments.
EasyJet Goes From Net-Zero to Zero
"ESG In Pills" of last month saw Salesforce Inc. launching a marketplace for carbon credits. This month, EasyJet said it would scrap its carbon offsetting scheme. It will target a 78% drop in emissions by 2050 via investments in efficient aircraft, sustainable aviation fuel and operating improvements instead. The new measures follow its fleet upgrade programme using fuel-efficient Airbus A320neo family aircraft and a partnership with engine maker Rolls-Royce to test hydrogen in turbofan engines. Chief Executive Johan Lundgren said the carbon-offsetting programme launched in 2019 was an interim measure until new technology to reduce the airline’s emissions started to come on stream. EasyJet has been offsetting carbon emissions from the fuel used by its flights since November 2019 with projects that prevent deforestation, plant trees, or encourage the take up of renewable energy. Lundgren declined to say how much had been invested in the scheme, which has offset nearly 8.7 million tonnes of carbon to date. Still, he said the total would be exceeded by the measures announced to reduce the carrier’s direct emissions.
GFANZ Urges Investors To Halt Funding Deforestation
As “the world is unlikely to reach net zero by 2050 unless we halt and reverse deforestation within a decade”, Glasgow Financial Alliance for Net Zero co-chairs Michael Bloomberg and Mark Carney argue deforestation policies should be built into financial firm transition plans. The topic is also addressed in GFANZ expectations for credible transition plans published on the 22nd of September. Deforestation could strip global food and ag companies of up to 26% of their value by 2030, “equivalent to the 2008 financial crash”. GFANZ called on investors to eliminate commodity-driven deforestation from their portfolios by 2025. Warnings follow pending European Union regulation requiring firms to verify that goods sold in the EU have not been produced on deforested land. The European Parliament voted to extend to financial institutions on the 13th of September. Forest, Land and Agriculture (FLAG) guidance was also published this month by the Science Based Targets initiative (SBTi) to help companies set net zero goals. It is the world’s first standard method to cover land-related emissions and removals. It tackles a 22% gap of global emissions that have not been addressed before. The framework has a whole sector approach covering everything from deforestation to diet shift and 11 mitigation pathways for major commodities with high carbon footprints including beef, palm oil, dairy, poultry, timber and wood fiber. 80% of the mitigation potential from land use change?is from stopping deforestation. Companies setting FLAG targets are required to publicly commit to zero deforestation no later than 2025.
Social
?An EU Law Against Forced Labour: Better Late than Never
The European Commission presented a legislative measure this month with which it intends to ban goods produced by forced labour in Europe or elsewhere. The initiative covers all products, both for domestic consumption and for export, and in all sectors. The proposal will withdraw incriminated products from the market and block their access to the single market at the border. The EU executive estimates that almost 30 million people are subject to forced labour worldwide. Most of them work in the private sector, but in some cases, it is the states that give them work. Just think of the case of the Uighurs in China. The proposed legislation obliges national authorities to withdraw from the market or block products manufactured with forced labour at the border. Any decision will be based on a thorough investigation in which other member states may participate. A database of products at risk will be created to facilitate coordination between governments. SMEs will be helped to avoid forced labour through specific guidelines. If a company is found to be manufacturing products through forced labour, the company will be called upon to withdraw its goods from the market and destroy them. If the company does not comply with the decisions of a member state, it can be condemned according to national legislation. To assess whether a product is manufactured by forced labour, the European Commission intends to use the standards developed by the International Labour Organisation. The new initiative of the EU executive is to be seen in connection with the proposal for a directive published last February, which aims to reduce the use of forced labour. The newly presented measure must now be approved by the Council and Parliament. The application of the text is expected 24 months after it enters into force.
The Scandal of Food Waste
What would you think of a household that wastes more food than it buys? According to the report “No Time to Waste” by the association Feedback EU, in 2021, the EU imported almost 138 million tonnes of agricultural products with a value of 150 billion euros, and at the same time threw away 153.5 million tonnes of food. For example, the amount of wheat wasted in the EU is equivalent to about half of Ukraine's wheat exports. “At a time of high food prices and rising living costs, it is a scandal that the EU is potentially throwing away more food than it is importing,” commented Frank Mechielsen, Executive Director of Feedback EU. The actual scale of food loss and waste in Europe is said to be significantly underestimated, as official EU data still exclude most food waste on farms. We must also start reading this waste in climate terms: how much CO2 do we emit to produce this mountain of food that ends up in landfills? The report estimates that about 20% of the food produced in Europe is not consumed. Producing this surplus destined for the dustbin accounts for 6% of the EU’s total climate-changing emissions. These impressive figures on food waste convinced 43 organisations from 20 EU countries - including anti-waste platform Too Good to Go - to appeal to the European institutions. By the end of the year, the Commission is expected to present a proposal with legally binding food waste targets for member states. The 43 associations call for “a 50% reduction in EU food waste from farm to fork by 2030," in line with UN targets.
According to Waste Watcher surveys, fruit is the most wasted food on the planet. The United States is the country that throws away most food, with 39.3 grams of fruit per head. Germany and the United Kingdom follow. This compares to South Africa (11.6 grams) and France (25.8 grams), which perform better. Most wasted foods include milk and yoghurt or cold meats and sausages. Rice and cereals perform unfortunately high in Brazil, where citizens throw away 27.2 grams per week per head, or ready-to-eat foods, which the Japanese waste 11.5 grams per week on average.
?Switching to Renewables Saves Trillions
An Oxford University report?proved how it is wrong and pessimistic to claim that moving quickly towards cleaner energy sources was expensive. Researchers say that going green now makes economic sense because of the falling cost of renewables. “Even if you're a climate denier, you should be on board with what we're advocating,” Prof Doyne Farmer from the Institute for New Economic Thinking at the Oxford Martin School told BBC News. The report’s findings are based on historical price data for renewables and fossil fuels and then modelling how they will likely change. The data for fossil fuels goes from 2020 back more than 100 years and shows that after accounting for inflation, and market volatility, the price hasn't changed much. Renewables have only been around for a few decades, so there are less data. But in that time, continual improvements in technology have meant the cost of solar and wind power have fallen rapidly, at a rate approaching 10% a year. The report's expectation that the price will continue to fall is based on “probabilistic” modelling, using data on how investment and economies of scale have made similar technologies cheaper. Wind and solar are already the most affordable option for new power projects. Still, questions remain over how to best store power and balance the grid when the weather changes lead to a fall in renewable output.
Back in 2019, Philip Hammond, then Chancellor of the Exchequer, wrote to the prime minister to say that the cost of reaching net zero greenhouse gas emissions by 2050 in the UK would be more than ￡1tn. This report shows the likely costs have been overestimated and have deterred investment. The transition to renewables was, it says, likely to turn out to be a “net economic benefit”.
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Governance
?‘Nature’ Appointed to the Board of Directors
Faith in Nature is an eco-beauty company that sells soap and haircare products and household cleaners and shampoo for dogs. It announced it is the first company in the world to give nature a formal vote on corporate decisions that might affect it. The company updated its corporate documents to include doing its best “to have a positive impact on nature as a whole” and “to minimise the prospect of any harmful impact of its business operations on nature”. A new non-executive director will join the company's next board meeting later this month to speak on behalf of the natural world. The first person to hold the position is Brontie Ansell, senior lecturer in law at Essex Law School and director of Lawyers for Nature. She told the Guardian her role would be similar to a guardian acting on behalf of a child in a court of law. The nature guardian’s pay is ringfenced from the main board so they can remain independent. The company has committed to be transparent about its board decisions – even those that go against the representations made by the nature guardian – and to publish its reasons for making them. “We're really happy to share details of how and why we did this”, Simeon Rose, Faith In Nature’s creative director, said. The company hopes other businesses taking responsibility for the natural world seriously would follow suit.
?Lawsuit Against TotalEnergies Gains Traction
The cities of Paris and New York have joined a coalition of associations and local authorities suing oil major TotalEnergies for failing to adequately fight climate change. The legal action that started in January 2020 uses a 2017 French law requiring major French companies to draft vigilance plans to prevent environmental damage. The coalition wants TotalEnergies to “take the necessary measures to drastically reduce its greenhouse gas emissions and align itself with the objectives of the Paris Agreement”. It is similar to previous court rulings against major Oil and Gas companies. As an earlier “ESG In Pills” article had covered, Royal Dutch Shell, Chevron and Exxon Mobil had been the protagonists of the so-called ‘Big Oil Takedown’. On the 26th?of May 2021, the three giants faced major losses in court. It was certain implications of this extended far more than just seeing this as a warning for companies to step up their net-zero commitments.?Regarding TotalEnergies, a judge could rule on the case “at best in March 2023”, Jeremie Suissa, the head of NGO Notre Affaire a Tous said.
Norway Oil Fund Urges to Focus on ESG
The head of the world's largest sovereign wealth fund urged investors to stay focused on ESG issues, warning of a “real danger” if international backslash drives down the agenda. Growing resistance from Republican states in the US, alongside wars and inflation, has already cast doubt on ESG investing. Norway’s oil fund, which manages the government’s petroleum revenues, has repeatedly stated that addressing ESG issues is one of its biggest levers in attempting to generate above-average returns. The fund is one of the largest shareholders in the world, owning the equivalent of about 1.5 per cent of every listed company in the world. “What is very clear is that if you're a large investor with a diversified portfolio, there is no way that you can run away from these problems,” said Tangen. “If you have one part of the portfolio that is polluting and destroying the environment, you're going to be hit in another part of the portfolio.” Norway's oil fund will unveil its new climate action plan based on a long-term goal of pushing companies towards net zero emissions. The oil fund has started voting against the entire board in companies that fail to manage climate risk properly. Carine Smith Ihenacho, chief governance and compliance officer, said they want to convey how important it is for investors “to really think long term” and “continue to push companies in the right direction.”
Events
S&P Dow Jones Indices
Oct. 12
Online?
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Environmental Finance
Oct. 17
London
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European Union
Oct. 28
Online
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United Nations
Nov. 7-18
Sharm El-Sheikh, Egypt
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Reuters
Nov. 22-23
London
October 2022, issue XX. Previous editions can be found on the OBR website.
[1] For more information on the Fossil Fuel Non-Proliferation Treaty, watch the?introduction video and?access the media centre.