Republican Rage

A lawsuit was filed by 25 states to block a US Department of Labor rule that allows 401(k) managers to consider climate change and other environmental, social and governance (ESG) factors when selecting investments. The suit alleges that considering climate change would risk trillions of dollars of retirement savings by putting political ideology ahead of returns.

The rule reverses a Trump-era policy by clarifying that retirement fund managers can consider climate change and ESG factors for investment decisions and proxy voting.

Every Republican Senator and Democrat Joe Manchin introduced a resolution against the rule in the US Senate and a companion measure was introduced in the House.?

Florida governor Ron DeSantis announced he will block diversity, equity and inclusion (DEI) programs at state colleges. DeSantis pledged that critical race theory and DEI will get “no funding, and will wither on the vine.”

DeSantis - a likely Republican Presidential candidate - previously blocked a course on African American studies from high schools, championed a law prohibiting lessons about sexual orientation or gender identity in primary schools, and signed the “Stop WOKE Act,” that restricts certain race-based conversations in schools and businesses.?

Pesky Facts: ESG Ratings Track Stock Returns?

The argument at the core of the anti-ESG movement is that it's a political agenda that ignores financial returns. Not so, concludes a new paper from MIT researchers - the study demonstrated that stock prices of companies with ESG ratings upgrades rose a maximum of 2.6% over two years, while those with downgrades fell a maximum of 3.8% over roughly the same period.

ESG Advances in Europe?

Counter to the ESG backlash in the US, EU regulatory agencies supported the European Sustainability Reporting Standards. As a refresh, the new Corporate Sustainability Reporting Directive (CSRD) in Europe will require 50,000 companies to report on ESG issues and the new reporting standards lay out what must be reported.??

The regulators broadly supported the standards, while asking for more clarity on how to identify material impacts and greater alignment with the new standards from the International Sustainability Standards Board (ISSB).? Verena Ross, Chair of European Securities and Markets Authority, said the EU standards are “a major achievement [that] will increase the consistency and quality of information flowing through the sustainable investment value chain.”?

International Standards Insights

In an Economist interview, ISSB Chair Emmanuel Faber outlined his views on the climate standards his board is developing. He doubled down on “scope 3” (emissions from the value chain) saying the new standard will “not opt-out [of]…Scope 3 emissions when they are material. A unanimous decision of the board…recognized that this was absolutely necessary to understand where the major climate transition and physical risks are.”??

Addressing concerns about complexities of scope 3 accounting, he said: “There is no true number in accounting; a large percentage of accounting entries are estimates. You draw a line, and due to…variability it might be 2-3% off - but that error margin is negligible compared to not including Scope 3, which most often is the majority of total emissions in the value chain.”?

On market adoption: “18,700 companies that disclose to CDP will have to incorporate climate data which will be formatted against our climate standard for their 2024 reporting. So already, half of the world's market cap is going to use materials extracted from our standards.”

On harmonizing with other ESG standards: “[The] European standards need to incorporate as much as possible the ISSB global baseline. The US SEC just commented [about] our role in their work, and how they considered it a bit of a challenge because we're still a moving target. We have a jurisdictional working group that we started in May, with the US SEC, the UK, Europe, China, Japan, and IOSCO. Not having the interoperability will incur huge costs for everyone.”?

Is Climate Tech Recession Proof?

Despite worries of a recession, enthusiasm about climate startups continues to grow.?

Last year, climate startups in the United States raised nearly $20 billion, topping 2021’s high of $18 billion and nearly tripling 2020’s $7 billion. Chris Sacca, of Lower Carbon Capital said “There is no line of business that will not be impacted by climate. That’s also the opportunity.”

Investors claim this boom is different from the cleantech bubble of the mid-2000s because broader economic trends are fueling the market: The cost of renewable energy has fallen over the last decade, the SEC proposed a rule will require companies to report their emissions, the Inflation Reduction Act will dedicate $370 billion to climate-related spending - and that is just in the US... Europe and other regions are moving even faster on similar policies.

California Climate Bill

If California were a country, it would be the world's fourth-largest economy. This week State Senator Scott Wiener reintroduced his climate disclosure bill requiring major U.S. companies doing business in California (about 5,400) to report their climate emissions. More stringent than the SEC climate proposal, the bill was defeated in the last session but it stands a good chance this time.??

Senator Wiener commented on the comparison with the SEC rule: "I don't agree that there are legal issues with the SEC rulemaking, but we know that the Republican attorneys general who are determined to end all corporate ESG will file a lawsuit. I think it's important for California to step forward."

How Much IS the Environment Worth?

The Biden administration unveiled an effort to assess the worth of healthy ecosystems. The aim is to guide decisions on which industries to support, which natural resources to preserve and which regulations to pass. Special envoy for climate - John Kerry - announced the plan at the World Economic Forum saying “With this plan, the US will put nature on the national balance sheet.”

Responsible Investor Reporting?

The Principles for Responsible Investment (PRI) - the world’s leading proponent of responsible investment with more than 4,900 members representing $121.3 trillion - released its new Reporting Framework. The new framework improves clarity, consistency and alignment with sustainability reporting frameworks including the ISSB.?

CEO David Atkin said: “The updated framework provides a valuable way for our signatories to monitor and report progress against their ESG investing goals.”

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Notable News?

• SEC asked to investigate Shell for misstating renewable spend
• Banks get started with climate stress tests
• Antitrust Risks of ESG Initiatives: Rhetoric vs. Reality
• JPMorgan Invests $500 Million in Timberland, for Carbon Market
• Federal Reserve Board provides additional details its pilot climate scenario analysis exercise
• Minnesota Is Poised to Pass a 100 % Clean Energy Bill
• Sustainability can’t happen if leaders don’t approach it this way
• Very cool post with graphic showing how Germany cut off Russian gas imports?
• BCG Launches Supply Chain Net Zero Academy to Upskill Suppliers and Procurement Teams
• $11 Trillion Investor Group Says Carbon Removals no Longer Count Towards Net Zero Goals
• Carbon disclosure becomes mandatory
• CalPERS And CalSTRS Caught In Climate Crossfire
• “Green-bleaching” = don’t claim ESG features of financial products to avoid regulation/risk
• Sustainability Trends 2023: Goodbye Greenwashing, Hello Business Results