May 20, 2022 - ESG and Climate News

Tech Companies are Bankrolling the Climate Crisis

A new report reveals that many of the world’s largest companies may be inadvertently financing the climate crisis with their investments. The Carbon Bankroll, a report published by NGOs including the Climate Safe Lending Network, shows how investments and cash held in banks are often the largest source of emissions for companies like Apple, Google, Meta, and Microsoft.?

How does this work? Tech companies are famously flush with cash (Apple alone reported sitting on $202.5 billion in cash and investments. That's 7.4% of all the S&P 500's cash), and banks lend this cash to fossil fuel companies to the tune of at least $4.6 trillion since 2015, as reported by Quartz. The new report uses publicly available data from companies’ financial statements to demonstrate how the financial industry undermines the net-zero efforts of their clients. This is a bit ironic, because many of these companies are leaders on decarbonization with ambitious goals for reaching net-zero emissions.

The Mounting Costs of Climate Change?

Last week we mourned the death of 1.5C. This week we saw records for sea-level rise, ocean temperatures, and daily CO? in the atmosphere. UN Secretary-General Antonio Guterres called these cascading milestones "a dismal litany of humanity's failure to tackle climate disruption," and identified the cash flowing to oil and gas - particularly in government subsidies to the tune of $11 million a minute - as the primary culprit.?

The side effects of our over-reliance on fossil fuels go beyond warming temperatures and higher sea levels. According to a recent Lancet report, of the 9 million deaths where pollution was a factor (1 out of every 6 deaths) in 2019 75% of them were the result of air pollution associated with fossil fuel production. This impact on health is higher than malaria, tuberculosis, HIV, drugs or alcohol (notably, the study was done in pre-pandemic times).

The Natural Resources Defense Council (NRDC), issued a study claiming the health costs from climate change and fossil fuel pollution topped $820 billion per year in the US alone. The expenses of extreme weather are piling up too. The viral video of beach homes bobbing in the ocean off North Carolina brought sticker shock for their unlucky owners. A new analysis shows that 40% of $10 Billion in damages caused by a 2019 typhoon that struck Japan were attributed to human-caused climate change. The primary researcher Sihan Li said, “Not acting against climate change will be much more expensive than reducing emissions and adapting to a warmer world.’’

"HOW much do we have to pay to report carbon?"

The proposed climate disclosure rule from the US Securities and Exchange Commission (SEC) and similar requirements from other capital market regulators have companies worried about the additional costs. Critics of the SEC’s proposal cite the costs of compliance as a reason to halt or scale back the rule.?

This week, the consulting firm ERM released a new study on the costs of climate-related disclosures, commissioned by Ceres and Persefoni. The study, based on a survey of 39 companies and 35 investors, verified the SEC’s original cost estimates - about $533,000 a year for an average company. The average cost for institutional investors came in at $1.3 million. It’s important to note that these costs are based on current practices, not the requirements of the proposed rule. Historically, many components of compliance costs drop in the wake of new rules due to standardization and automation.?

The new data inspired Robert Eccles (who moderated a webinar on the topic and is an advisor to Persefoni) to publish a thoughtful analysis in Forbes. He makes the point that assurance will increase costs, but that many companies already disclose carbon impacts voluntarily and, frankly, should be assuring this data anyway. He quotes Tom Reichert, CEO of ERM, on the benefits of carbon reporting: “Climate-related measurement and reporting provides business leaders with key data to inform planning and decision-making, helps companies demonstrate progress towards their sustainability goals, and meets the information needs of external stakeholders.” On the investor side, the article quoted Mindy Lubber, CEO and President of Ceres, that “The transition to a net zero emissions economy will require trillions of dollars in clean energy investments every year. But investors need more standardized corporate information on climate risks and opportunities. The SEC’s new proposed rule on mandatory climate disclosure will provide the information investors need to make better decisions and reduce inefficiencies.”

My colleague Kristina Wyatt points out in the latest edition of her Full Disclosure newsletter, that the “SEC’s proposed climate disclosure rules offer to level the playing field and give all investors, and the markets broadly, access to the same critical climate-related information at the same time.”

On the flip side, the Wall Street Journal reported that many companies are concerned that the cost to comply will be too high. The companies that already report this data will have lower costs than those starting from scratch, but all will benefit from new software that will further reduce these costs. Kentaro Kawamori, CEO of Persefoni, echoed this sentiment in saying, “A new software category is being created which will help companies decrease the cost and improve the quality of carbon accounting and reporting.”

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Notable news of the week:

• In the spirit of harmonization, the International Sustainability Standards Board (ISSB) has outlined next steps required to establish a global baseline of sustainability disclosures. To accomplish this much needed approach, ISSB notes their need for proactive engagement with jurisdictions and other stakeholders for global implementation.
• A UN report calling out climate records being broken in 2021 also highlighted a “lifeline” plan for energy transition that UN Secretary-General Antonio Guterres called the “peace project of the 21st century.” Chief among the proposed climate actions are treating renewable energy as an essential public good to ease intellectual property constraints, diversifying renewables supply chains, and shifting subsidies away from fossil fuels to renewables.
• Tesla was removed from the the S&P 500's ESG Index this week; with the S&P citing the mounting concerns of Tesla's handling of crash investigations, carbon strategy, working conditions and claims of racial discrimination as the reason for its removal.
• Climate advocates say Duke Energy’s carbon transition plan to reach net-zero by midcentury is too reliant on fossil fuels. The plan includes building more natural gas plants in the short term while simultaneously investing in wind, solar, battery storage, and nuclear power to facilitate the net-zero transition.
• Generation Investment Management, the $36 billion investment fund co-founded by Al Gore, announced a new $1.7 billion Sustainable Solutions Fund to invest in companies that will help lower emissions.
• The Tesla effect: off the back of Tesla’s success with electric vehicles, many modes of transport are now going electric. Taiga, an electric snowmobile start-up out of Canada, is just one of the many start-ups electrifying boating, lawn mowing, and every mode of transportation in-between.
• Here is a link to my video interview at the Sustainable Investment Forum Europe.?

Notable podcasts:

• This week’s TED Climate podcast, social entrepreneur Ndidi Okonkwo Nwuneli, explains how we can fix our food systems so that more people across the world can have access to healthy food while making sure that food is not going to waste.
• In the season finale of ClimateTech with Kentaro, Citi’s Bridget Fawcett discusses the businesses’ transition to the low carbon economy, the value of partnerships, and what Citi is working on to promote resilient, sustainable business models.?

Notable events:

• This year’s Climate Leadership Conference is taking place in Washington, D.C. on May 24-26. The conference convenes leaders from business, government, academia, and the non-profit community to connect on energy and climate opportunities – you can register here.
• I will deliver the keynote address for the Institute for Supply Management (ISM) on May 23, 2022 – you can register here. Here is a preview of the session with ISM’s CEO Tom Derry on LinkedIn Live.
• I will participate in a few panels and events at the World Economic Forum annual meeting to be held in Davos, Switzerland from May 22-26 - send a DM to coordinate on Davos events.??
• Next month, I will be speaking at Fast Company’s Annual Impact Council Meeting on June 7 where this year’s theme is “Sustainable Impact,” highlighting the ways businesses and organizations can engage in long-term thinking about issues ranging from workplace diversity, climate change, income inequality, and more.