February 11, 2022 - ESG and Climate News

Quoting Spiderman: “With great power comes great responsibility.”?

This week's ESG and Climate news highlights the responsibility that powerful companies have towards their stakeholders - all of us! We also cover how governments are struggling to hold the powerful accountable for behaviors beyond their own financial self-interest.?

With great power comes great responsibility

A new report analyzed 25 companies accounting for 5% of global carbon emissions. Sadly, if predictably, the study found that most of the 25 companies are falling short of their own targets. Although all 25 claim some form of ‘net zero’ target, only 3 – Maersk, Vodafone, and Deutsche Telekom – are on track to decarbonize 90% or more of their emissions.?

The study underscores long-standing worries about monitoring the slew of new ambitious corporate climate commitments. The report criticizes the Science-Based Targets initiative (SBTi) for approving 18 of the 25 companies' targets. In a hopeful sign, the SBTi welcomed the assessment and plans to address the concerns with its new Net-Zero Standard framework.

Another promising sign came when BlackRock sent a letter to clients offering to help them with their transition to net zero. In addition to being the world’s largest asset manager with $10T under management, BlackRock aims to be “the world’s leading advisor and expert on investing in the net zero transition” committed to providing the “most sophisticated [and] up-to-date analytics of how the transition will unfold.

Who will hold the powerful accountable?

The mission of the US Securities and Exchange Commission (SEC) - and all stock market regulators - is to protect the investor. For years now, investors of all types have been asking for better ESG data - especially climate related disclosures. Investors need this information because it provides insights into hidden risks and can unlock new opportunities that materially affect their investments. Investor demands were backed up by the non-partisan Financial Stability Oversight Council (FSOC) last October, when they identified climate change as a threat to financial stability.

Sadly, even with mountains of evidence supporting the need, the SEC seems to have hit a snag in developing their much anticipated climate disclosure rule. It’s certain that the new rule will be litigated - almost a year ago the attorney general of the coal-state of West Virginia vowed to litigate even before the new rule is proposed. Chastened by the threat, the Commissioners are trying to design a regulation that will stand up to the inevitable litigation.?

Reportedly, SEC Chair Gensler will delay until the most legally defensible climate proposal can be created. The issue causing all the hand-ringing is the extent of “scope 3” emissions that should be disclosed. These are the carbon emissions that are outside of a companies direct control and thus can be difficult to report and manage. However, for most companies, scope 3 emissions are the majority of their carbon footprint.?

While Europe is ahead in regulation, they are struggling with implementation. Last week’s news that the European Commission classified gas and nuclear power as green energy fractured key stakeholder groups.? This week, MorningStar reported that investors can change their classification under the EU’s Sustainable Finance Disclosure Regulation (SFDR) without changing their investment strategy.? In essence, MorningStar found that SFDR is green-lighting greenwashing by allowing firms to consider their investments as green without any material change.

Condoning crimes against the climate

The powerful right-wing lobby group ALEC (The American Legislative Exchange Council) is behind a wave of new state legislation aimed at blocking boycotts of the oil industry. Since the beginning of the year, Republican controlled states have been introducing a version of a law drafted by ALEC called the Energy Discrimination Elimination Act—to shield big oil from share selloffs and other measures intended to protest the fossil fuel industry’s role in the climate crisis.

Here comes the cavalry

The US Army is joining the fight against climate change, releasing its first climate strategy this week. It includes a 50% emissions reduction target for 2030 and a 2050 net-zero commitment. They aim to reduce their emissions through energy savings, buying an electrified vehicle fleet, and purchasing energy from low carbon sources. The scale of this commitment is hard to overstate, in 2017 alone, the US Army’s emissions totaled 59 million tons, a level greater than several industrialized nations.

A breakthrough for clean energy

Developing means for carbon-neutral energy is essential in the race to net zero. A major breakthrough in nuclear fusion this week begs the question: will nuclear fusion energy be a part of the transition? The breakthrough only produced 11 megawatts of energy (enough to power about 60 tea kettles), yet is proof of concept for larger-scale projects. Ideally, nuclear fusion could provide unlimited supplies of low-carbon and low-radiation energy; but it will likely take until 2050 before it could be rolled out at scale.?

Upcoming events:

• Persefoni and ESG Investor are hosting a free webinar titled ‘Actioning COP26’. I will be on a panel joined by my fellow Persefoni Sustainability Advisory Board Member Paul Dickson, as well as Bridget Fawcett (Citi), Chandra Gopinathan (Railpen), Torsten Lichtenau (Bain & Company), and ESG Investor's Chris Hall. The panel will discuss how to drive capital toward investments that can generate value, all the while minimizing adverse climate and other ESG risks and impacts. Register here to join us on Thursday 17th February 2022 - 3pm GMT/ 10am ET/9am CT.
• Greenbiz22, the premier event for sustainable business leaders, is next week. Join me at the 'ESG Standards: The State of Play' session moderated by Joel Makower on February 16 at 4:15 pm (local Arizona time). Register here.

Other news you might have missed:?

• ESG index funds continued to produce strong returns in 2021. The 13 ESG index funds available to U.S. investors had an average return of 29.2% in 2021. For reference, the S&P 500 returned 28.7% in the same year.
• Ashley Alder (chair of the IOSCO), explains how a company’s environmental impact is “highly relevant to sustainability reporting through the lens of enterprise value” and that this “is the lens through which the ISSB sustainability standards are being constructed”. The ISSB climate standard should be finalized by the end of this year.?
• The US postal service (USPS) is facing mounting fury over its plan to spend billions on a new fleet of gasoline-powered delivery trucks. The Biden administration, environmental groups including the EPA, and democratic lawmakers have all voiced their clear disapproval.?
• The BBC reports that industry regulators have ordered the UK’s only two shale gas wells to be sealed and abandoned.?

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