Sustt: Blocking progress, capturing fossil fuels, La Nina is here to stay, song of the reef, back to school
Why anti-ESG policies are bad for investors
Florida's $186bn pension fund has been prohibited from considering ESG factors when making investment decisions. Why are such anti-ESG policies bad for investors?
What’s happening??Florida’s $186bn pension fund has been barred from considering environmental, social or governance (ESG) factors when making investment decisions. The rule was approved by the state board of administration’s three Republican trustees on 23 August and will become codified in law. Governor Ron DeSantis said ESG policies were “dead on arrival” in the state and that the fund was to invest with the goal of “maximising financial return over and above other considerations”. The fund has lost $20bn this year. (S&P Global)
Why does this matter??Considering ESG information related to an investment is important, as most asset managers realise. And not just from a societal perspective – it helps managers meet their fiduciary duties to their clients by avoiding key longer-term (and some shorter-term) risks. However, as certain US states introduce anti-ESG policies it becomes difficult for investors to do this.
Impact on pensions – Florida and other states are essentially demanding investors ignore climate risks. But, as we’ve discussed previously, climate risk?is?a financial risk – and it’s critical it is considered in the investment process. If not, people’s pensions are likely to suffer from significant climate-related transition and physical risks in the future.
The anti-ESG policies will also likely mean state pension funds will continue to invest in fossil fuel assets that pose a significant stranded asset risk. A study has?estimated?that nearly 50% of the world’s fossil fuel assets could be worthless by 2036 as the world moves towards net-zero emissions.
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Capturing?fossil fuels
We emit around 36 billion tonnes of CO2 every year by burning fossil fuels. Carbon capture and storage (CCS) technology could play a role to stop this from reaching the atmosphere, however there is a long way to go. Currently, as a new IEEFA study highlights, only about a thousandth of the annual total – 39 million tonnes – is captured by CCS.
What's more, most of the captured CO2 is actually used to pump more oil out of the ground in a process called enhanced oil recovery. Of the 300 million tonnes of CO2 captured to date, 240 million tonnes have been used to produce more oil, rather than being injected into the ground for safe geological storage. This is not a climate solution. On top of this IEEFA highlights that the majority of CCS facilities have significantly underperformed.
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Bite-sized insights
What else we're seeing this week ??
?? La Nina is here to stay – The current La Nina weather pattern is expected to continue for a third winter in a row. Two consecutive La Nina winters are relatively common, but a “triple-dip” event is rare. La Nina – the cooling of ocean surface temperatures across the tropical Pacific which affects rainfall, pressure and wind regimes – will continue to disrupt regional weather patterns and result in greater climate volatility.
A prolonged La Nina cycle has been linked to increasing the risk of climate-driven events, such as monsoonal rainfall across South Asia. The phenomenon has also been tied to the historic flooding which caused one-third of Pakistan to be underwater following exceptionally heavy rain. Over 33 million people were affected by the flooding event.
?? Learning the “song of the reef” – Scientists have developed a machine-learning algorithm that can identify whether a coral reef is healthy or degraded. The AI programme listens to the soundscape of the ocean – including pops, grunts and scrapes from marine life – to make its assessment. Researchers had previously examined marine acoustic data manually, but this is time and labour-intensive, while visual surveys can overlook camouflaged and nocturnal species. The new tool will help track reef restoration efforts.
In more positive reef news, a recent survey found coral cover across the northern and central parts of the Great Barrier Reef has recovered to record levels. It’s worth noting however the new coral is highly vulnerable and sensitive to existing threats such as warming ocean temperatures and invasive species such as the crown-of-thorns starfish. Over 90% of the reefs surveyed along the Great Barrier Reef have been affected by bleaching events this year.
?? Back to (a less air-polluted) school – The summer holidays are over and children are embarking on their new school year, but with many schools situated close to busy roads, there is concern about exposure to air pollution. There are, however, some simple measures?schools can take, according to experts from the University of Surrey's Global Centre for Clean Air Research. Working with several London-based schools, the team found air purifiers in classrooms cut indoor air pollution concentrations by up to 57% and green screens on school boundaries reduced outdoor particle levels from traffic by up to 44%. Additionally, the?School Streets Initiative?– which prohibits vehicles from passing schools during drop-off and pick-up hours – lowered particle concentrations by up to 36%.
In a related development, a Lancaster University-led?study?has found that western red cedar tredges – trees maintained as high-head hedges – planted between school playgrounds and busy roads could capture 49% of black carbon, 46% of PM2.5 and 26% of PM1 traffic emissions. The tredges also reduced the frequency and magnitude of acute air pollution spikes reaching playgrounds.
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