Sustainability & ESG Insights January '23: ESG Trends, Risks and Circularity in 2023

??Via this monthly newsletter, we'll share more knowledge and content about what's arguably the most important domain of our generation: Sustainability and ESG. The goal is to inspire and share insights so each and everyone of us can make a difference in the Environmental, Social and Governance domain we call Sustainability.

Valuable ESG and Sustainability news of January '23

??In this months’ newsletter:?

• 5 things to know about Davos 2023;
• Driving a Circular Economy: The Circularity GAP report of 2023;
• ESG Metrics including DEI integrated with Executive compensation plans;
• Global Risks Report 2023;
• Top MSCI’s ESG and Climate Trends to Watch in 2023;
• Fed Launches Climate Risk Exercise for Big Banks;
• Net-Zero Insurance Alliance Launches Target-Setting Protocol;
• And more…

5 things to know about Davos 2023

That's it for the 53rd Annual Meeting in Davos. World Economic Forum covered a huge range of topics and themes at a difficult time for the global community as it faces a series of interlinked crises - as this year's Global Risks Report explained, a polycrisis.

It's against this backdrop that leaders met under the theme 'Cooperation in a Fragmented World'. And this call for cooperation echoed across speakers, sessions and topics.

As World Economic Forum President B?rge Brende told us in his closing remarks, "In an uncertain and challenging time, one thing is clear. We can shape a more resilient, sustainable and equitable future, but the only way to do so is together."

• Trade, tech and tackling the climate crisis were just some of the topics under discussion in Davos.
• We've also heard from global leaders on Ukraine, the economy and health.
• Here's a snapshot of what you might have missed this week at Davos 2023.

Driving a Circular Economy: The Circularity GAP report of 2023

The Circularity Gap report of 2023 was published in collaboration with Deloitte. This report being the 6th annual report of its kind, is looking at how close we are to a true circular economy on a global scale compared to years past. A circular economy could not help to fulfill people’s needs, but could do so with just 70% of the materials we currently use, making human impact more sustainable and safer for our planet.?

This report highlights that while a circular economy is ideal, we are currently nowhere near that goal. In fact, this report outlines that we are down to only 7.2% circular compared to the 9.1% circular that was seen in the first ever report of 2018. ?Here are the Executive Summary pointers:

? The global economy is now only 7.2% circular; and it’s getting worse year on year—driven by rising material extraction and use.

? With a circular economy, we can fulfil people’s needs with just 70% of the materials we currently use—within the safe limits of the planet.

?Use less, use longer, use again and make clean. These four key circular economy principles underpin the solutions presented in this report, highlighting how there is much more to a circular economy than just recycling.

?Circular solutions for only four global systems will address the lion’s share of environmental pressures.

?Each country has a different starting point and will progress at a different pace towards the shared global goal of reversing environmental overshoot, while fulfilling people’s needs.

?To reverse the overshoot and achieve wellbeing within safe limits, purpose-driven collaboration between the public and private sectors is essential—only then can we scale the transition to a circular economy.

?A circular economy offers solutions on how to reduce, regenerate and redistribute vital materials use, for both the planet and all its living beings.

Companies Double Use of Environmental, DEI Metrics in Exec Incentive Comp in 2022: WTW Survey

As shared by ESGToday.com, large public companies significantly ramped the integration of ESG metrics in executive incentive compensation plans over the past year, according to a new report released by global advisory, broking and solutions company WTW , with more than three quarters of companies utilizing at least one ESG metric in 2022, and use of environmental and DEI metrics roughly doubling over the prior year.

For the report, WTW examined the disclosures of 885 of the largest public companies in the US, Europe, UK and Canada, across multiple sectors, and with median annual revenue of $10 billion.

Richard Belfield , Executive Compensation & Board Advisory Practice Leader, Europe at WTW, said:

“Pressure from institutional investors, proxy advisors, employees and other market stakeholders is reshaping the envelope. Companies are beginning to focus on a stronger link between their executive compensation plans and ESG priorities, particularly with respect to climate change and environmental measures, inclusion and diversity matters, and overall human capital governance.”

Overall, 72% of companies were found to be using at least one social metric such as DEI or employee health and safety, while 45% use at least one governance metric, and 40% use environmental metrics.

Global Risks Report 2023

The world faces a set of risks that feel both wholly new and eerily familiar. The Global Risks Report 2023 explores some of the most severe risks we may face over the next decade. As we stand on the edge of a low-growth and low-cooperation era, tougher trade-offs risk eroding climate action, human development and future resilience.

Below are the key findings of the report:

• Cost of living dominates global risks in the next two years while climate action failure dominates the next decade.
• As an economic era ends, the next will bring more risks of stagnation, divergence and distress.
• Geopolitical fragmentation will drive geoeconomic warfare and heighten the risk of multi-domain conflicts.
• Technology will exacerbate inequalities while risks from cybersecurity will remain a constant concern.
• Climate mitigation and climate adaptation efforts are set up for a risky trade-off, while nature collapses.
• Food, fuel and cost crises exacerbate societal vulnerabilities while declining investments in human development erode future resilience.
• As volatility in multiple domains grows in parallel, the risk of polycrises accelerates.

For more information and to access the complete report, see link below.

Top MSCI’s ESG and Climate Trends to Watch in 2023

As we move into 2023, we do so with a war in Europe, high inflation, energy markets in turmoil, political uncertainty, an ever growing list of climate-induced disasters, and a rapidly growing pressure on ESG and Sustainability. Based on the report, MSCI’s ESG and Climate Trends to Watch for 2023 Sustaira summarized what experts in the field are watching out for in 2023 and what Sustaira hopes to provide around these topics.?

With a whopping 32 trends identified in the 70 page document, there are four overarching key themes that we feel are important to watch closely this year. Those include:?

1. Supply Chain innovation
2. Changing Governance
3. Responses to Regulations
4. Measurement and Transparency

These four themes include a focus on climate, governance, workforce, investments, regulation, biodiversity and supply chain, all of which are extremely important in the scope of ESG and Sustainability moving into 2023.

Fed Launches Climate Risk Exercise for Big Banks

The U.S. Federal Reserve Board released details and instructions for its inaugural climate scenario analysis exercise for the six largest U.S. banks, designed to assess the banks’ climate-related risk management practices and their resilience to a range of climate outcomes. Results from the exercise are to be submitted by the banks by the end of July.

The banks participating in the climate scenario exercise include Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.

The exercise will be composed of two separate modules, each exploring the key climate risk areas of physical risk and transition risk. The physical risk module will examine the impact of potential future shocks arising from harm to people and property from acute climate-related events such as hurricanes, wildfires, floods, and chronic events such as higher temperatures and rising sea levels on the banks’ real estate portfolios. The transition risk module will assess the impact on corporate loans and commercial real estate portfolios from the transition to a lower carbon economy, including shifts in policy, consumer and business sentiment, or technologies.

The Fed’s exercise comes as central bankers globally, including in the UK and EU, are increasing the use of stress tests to assess the resilience of banking and financial systems to climate-related risks, although the Fed stated that its exercise is “distinct and separate from bank stress tests,” and will not have capital consequences.

The Sustaira Sustainability & ESG Software Platform sets a strong foundation for rapid growth in 2023

As most followers and newsletter subscribers already know, I'm determined to have a positive impact in the Sustainability and ESG domain with innovative software. Late 2021 this ambition led to the foundation of Sustaira in close collaboration with partners 西门子 and Mendix . For those interested to learn more about our flying-start, please find below our 2022 review and 2023 ambitions. As always, feel free to connect with me directly to collaborate, initiate and succeed together!

“We’re on a mission to accelerate Sustainability initiatives with innovative web and mobile apps to make organizations more Sustainable. Quickly. I’m very thankful for our amazing team, customers, partners and for all of our accomplishments of 2022, which was only our first year. It is with tremendous gratitude and excitement that the Sustaira team looks forward to 2023. With a new year comes new adventures, projects, partnerships, and customers. We’re at the ready!”? ~ Vincent de la Mar

Sustainability and ESG software provider, Sustaira announces their 2022 year end review, aiming to continue rapid growth in 2023. With 2022 being the first official full calendar year, the innovative software company accomplished significant milestones including: Launching the Beta version of the Sustaira platform, delivering over a dozen customizable ESG application templates, onboarding new customers, expanding presence via a global partner network, and the launch of its Canadian subsidiary to complement its entities in the Netherlands and the USA. 2022 has been a year of rapid growth and positive impact for Sustaira and 2023 is looking to continue this trend given the market forecast and the company’s unique positioning globally.??

New York Unveils Cap-and-invest Program Charging Emitters $1 Billion per Year to Reinvest in Emissions Reduction.

Governor of New York, Kathy Hochul, recently announced a cap-and-invest program to fund a sustainable and affordable future for all New Yorkers as part of the 2023 State of the State. This new cap-and-invest program will charge large greenhouse gas emitters and fuel distributors in New York more than $1 Billion per year. The proceeds from this will then be reinvested in emissions reduction initiatives as well as supporting vulnerable communities facing rising energy prices.

"As we work to drive down polluting emissions across the board, we must make sure that those who have already suffered from environmental injustice no longer bear an unfair share of the burden. Our ambitious Cap-and-Invest Program sets a cap on greenhouse gas emissions and shares the revenues with New Yorkers from disadvantaged communities to help cover utility bills, transportation costs and decarbonization efforts. Through our innovative efforts, we will create a cleaner, greener future while helping New Yorkers with the costs of the transition."? - Governor Kathy Hochul

Starting immediately, DEC and NYSERDA will design a program that sets an annual cap on the amount of pollution that is permitted in New York. Every year, this cap amount will be reduced in order to be at 40% reduction by 2023 and 80% reduction by 2050. Kath Hochul outlined that the program will prioritize five core principles.

WWF has launched a new tool, the Biodiversity Risk Filter (BRF)

As shared by David Carlin , WWF has launched a new tool, the Biodiversity Risk Filter (BRF) to help firms explore biodiversity-related risks.?

The tool is available on the WWF Risk Filter Suite platform along with the Water Risk Filter tool - to help companies and financial institutions identify and take action on biodiversity-related risks across their operations, value chains, and investments.

For more information, see https://riskfilter.org/biodiversity/explore/map?

Net-Zero Insurance Alliance Launches Target-Setting Protocol

The Net-Zero Insurance Alliance (NZIA) launched this week the first ever target-setting protocol for insurers at the World Economic Forum’s annual meeting in Davos, Switzerland. This protocol is expected to accelerate the transition to a global net-zero economy by enabling NZIA members to set science based intermediate targets to transition insurance underwriting portfolios to net-zero. Version 1.0 requires that existing NZIA members will set and disclose their target(s) by July 31st 2023, which is just around the corner.

“The NZIA’s first Target-Setting Protocol is a landmark breakthrough. For the first time ever, insurance and reinsurance companies among the largest globally have built a framework and measurement tools to assess the impact of their activities on climate change. The NZIA’s Target-Setting Protocol will serve as a catalyst to set unprecedented and ambitious targets towards net zero,”? - Renaud Guidée , NZIA Chair and Group Chief Risk Officer at AXA.

For those not familiar, the NZIA is a group of about 29 leading insurers representing about 15% of world premium volume, to address the net-zero challenge in the context of insurance underwriting portfolios. The NZIA is a UN-convened and member-led alliance that is dedicated to decarbonizing their underwriting portfolios, which is what leads them today to version 1.0 of the NZIA Target-Setting Protocol.

??Of course there are many more insightful articles, so please share your thoughts and recommendations in the comments below.

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