Top 10 ESG Markers - July 2024

The month of July covers Australia’s climate crisis and heat-trapping emissions, persistent global warming, rapid expansion of renewables in China sets global example, allegations of greenwashing in AustralianSuper's ethical investment option, world temperature reaches record high amidst climate crisis, ESMA outlines recommendations to bolster sustainable finance, not measuring scope 3 emissions poses significant financial risks, tech giants launch coalition to support large-scale carbon removal projects, UN launches program to align regional climate action with the Paris Agreement, climate is most important factor in where mammals choose to live and Puerto Rico sues oil giants over climate change damage.

Again, if I happen to miss some key markers in a particular month. Just drop me some comments, and I will pick them up next month!?

*‘ESG Markers’ – like biomarkers that tell us how healthy our body may be, ESG Markers showing us the big movements in the field of ESG in Oceania and globally.?

So, here are my Top 10 for July 2024, again in no particular order.

Australia’s climate crisis and heat-trapping emissions

Recent government data shows that Australia's national greenhouse gas emissions have decreased steadily over the past two decades, now standing at 29% less than in 2005. However, alternative calculations, based on the same data, suggest emissions have only reduced by 2.5% during this period. Some analysts argue this latter figure better represents Australia’s heat-trapping pollution, indicating minimal progress in cutting CO2.

Australia’s 2030 emissions target aims for a 43% reduction compared with 2005 levels. Projections from late 2023 suggest the country is slightly behind schedule to meet this target. Yet, a critical question remains: is a 43% reduction sufficient? The carbon budget countdown shows that Australia is likely to exceed its "fair share" of emissions by 2030 if aiming for a 1.5°C limit, and between 2030 and 2040 for a 2°C limit. Scientists warn of significant differences in damage between 1.5°C and 2°C of global warming.

National emissions have decreased by 0.5% in the year leading up to December 2023. The government's long-term decrease of 29% since 2005 includes emissions from land use, land-use change, and forestry (LuluCF), a contentious point as these emissions are affected by natural factors and work on a different cycle compared to industrial pollution. Excluding LuluCF, Australia’s emissions have only dropped by 2.5% since 2005, mainly driven by reductions in land-clearing and native forest logging due to changes in state laws rather than climate policy.

Revisions to Australia’s historic emissions data have made it easier for the country to meet its reduction targets. Emissions from electricity generation have fallen due to solar and wind energy displacing coal and gas. However, transport emissions have risen, driven by increased post-Covid-19 travel.

Australia's emissions reduction target for 2030, despite recent increases, lags behind other developed countries. The global context shows varying annual emissions changes, with many countries experiencing decreases while Australia has mostly seen increases or steady emissions until the Covid-19 pandemic.

Persistent global warming: a concerning trend & world temperature reaches record high amidst climate crisis

Global average temperatures have exceeded the Paris Agreement target of 1.5°C above pre-industrial levels for 12 consecutive months, with June 2024 marking Earth's hottest June on record. This data, from the Copernicus Climate Change Service, indicates a sustained shift in our climate. Although this 12-month streak does not mean the Paris Agreement's long-term temperature goal has been permanently breached, it underscores the continuing and accelerating warming trend.

June 2024 saw deadly heatwaves across the northern hemisphere, with temperatures exceeding 50°C in some areas. Notable incidents include over 1,300 heat-related deaths during the Hajj pilgrimage in Saudi Arabia and extreme heat events in the US and Mediterranean regions.

Analysis by Climate Central indicated that over 60 per cent of the global population experienced extreme heat made at least three times more likely by climate change in June 2024.

Further alarmingly, on the 21st of July, the global average surface air temperature reached an unprecedented 17.09°C, according to preliminary data from the Copernicus Climate Change Service. This temperature surpasses the previous record of 17.08°C set on 6 July last year. The marginal difference, though not statistically significant, underscores a troubling trend in climate change data, with the past 13 months displaying starkly higher temperatures compared to historical records.

The recent record coincides with widespread extreme heat events, fuelling wildfires, causing significant damage, and contributing to increased mortality rates. This persistent warming trend, driven by carbon emissions from fossil fuels and livestock farming, indicates a continuing rise in global temperatures. Copernicus also reported that the world experienced 12 consecutive months of temperatures 1.5°C above pre-industrial averages earlier this year.

Climate scientists, including those from the Berkeley Earth data project, warn that 2024 is likely to surpass 2023 as the hottest year on record. While a potential shift to a La Ni?a weather pattern might temporarily slow this warming, the long-term trend remains concerning. Current global heating stands at 1.3°C, with projections indicating a rise to 2.5°C under existing policies.

Rapid expansion of renewables in China sets global example

China is rapidly advancing its renewable energy capacity, installing the equivalent of five large nuclear power stations worth of wind and solar power each week. According to Climate Energy Finance (CEF), China is set to meet its end-of-2030 renewable energy target by the end of this month, installing at least 10 gigawatts of wind and solar capacity every fortnight. This pace of development starkly contrasts with Australia's slower renewable energy rollout.

China’s strategy includes developing massive solar and wind farms in regions like the Gobi Desert, connected to the eastern cities via the world's longest high-voltage transmission lines. This infrastructure approach is similar to Australia's renewable energy zones but on a much larger scale. Despite this, renewables in China account for only about one-fifth of actual energy output, highlighting the challenges of integrating intermittent power sources.

To stabilise the power supply, China is investing in pumped hydro and battery storage, adding 1 gigawatt of pumped hydro storage per month. Interestingly, China is also constructing coal-fired power plants to meet rising electricity demand and ensure grid stability, though the overall share of coal in electricity generation is decreasing.

China's rapid renewable deployment offers valuable lessons for other countries, demonstrating the potential for large-scale, coordinated efforts in transitioning to clean energy. Despite impressive progress, experts argue that China's current installation rate needs to increase to meet its 2060 carbon neutrality target.

Allegations of greenwashing in AustralianSuper's ethical investment option

Australia's largest super fund, AustralianSuper, has come under scrutiny for allegedly greenwashing by investing funds from its 'Socially Aware' option in coal, oil, and gas industries. Despite claiming to exclude investments in companies with fossil fuel reserves, the fund has been found to lend members' savings to these industries through loopholes in its policy. This includes private loans to companies like Indonesian coal miner Adaro and Canadian oil company Baytex.

AustralianSuper's Socially Aware option excludes shares and corporate bonds of fossil fuel companies but does not restrict other asset types such as property, infrastructure, and direct loans. As a result, the fund can invest in fossil fuel companies without breaching its policies, raising concerns about transparency and genuine commitment to sustainability.

The Australian Securities and Investments Commission (ASIC) investigated the fund's practices and raised concerns about the policy wording but did not find sufficient evidence to prove misleading conduct. Following the investigation, AustralianSuper plans to revise its investment policies and has already ended its investment in Adaro. However, it continues to lend to other fossil fuel companies.

These revelations have prompted calls for broader exclusions on fossil fuel investments and greater clarity in super fund policies to ensure genuine ethical investment options for members.

ESMA outlines recommendations to bolster sustainable finance

The European Securities and Markets Authority (ESMA) has released its "Opinion on the Sustainable Finance Regulatory Framework," proposing key measures to enhance investor access to sustainable investments and support the transition to a sustainable economy. The recommendations include implementing basic sustainability disclosures for all financial products, regulating ESG data products, and establishing categories for sustainable and transition investment products.

These recommendations follow the European Commission's comprehensive review of the Sustainable Finance Disclosure Regulation (SFDR) and its request in 2022 for input from European Supervisory Authorities (ESAs) on greenwashing and related risks. ESMA acknowledges significant progress in the EU Sustainable Finance regulatory framework but emphasises the need for further evolution.

A primary recommendation is the implementation of minimum sustainability disclosure requirements for all financial products, even those without stated sustainability goals. These disclosures would improve transparency and comparability among financial products, featuring key performance indicators (KPIs) on basic environmental and social metrics like greenhouse gas emissions, biodiversity impact, human rights, and labour rights.

ESMA also highlights the importance of regulating ESG data products to ensure the reliability and comparability of data. With investors relying on ESG data providers, especially for companies not covered by the Corporate Sustainability Reporting Directive (CSRD), ESMA recommends bringing ESG data products into the regulatory framework, establishing duties and responsibilities for providers, and setting disclosure, conflict of interest, and quality requirements.

To support the transition to a sustainable economy, ESMA suggests that companies disclose revenue and capital expenditure linked to harmful activities undergoing transition or decommissioning. The recommendations include defining transition investments, creating EU labels for transition bonds, and developing a product categorisation system with science-based eligibility criteria and transparency obligations.

Furthermore, ESMA advocates for the EU Taxonomy to be the sole reference for assessing sustainability performance. This involves completing the Taxonomy to cover all relevant economic activities, extending it to transition activities, and developing a social taxonomy to align with the SFDR's flexible definition of sustainable investments.

Not measuring scope 3 emissions poses significant financial risks

A report by Boston Consulting Group (BCG) and CDP highlights that most companies and investors are neglecting the measurement and reduction of Scope 3 emissions, leading to substantial unreported financial risks in supply chains. The report, "Scope 3 Upstream: Big Challenges, Simple Remedies," analysed responses to CDP's 2023 data request, which saw disclosures from over 23,000 companies representing $67 trillion in market capitalisation.

Scope 3 emissions, often the majority of a company's emissions footprint, are 26 times higher on average than Scope 1 and 2 emissions combined. However, these value chain emissions are the hardest to measure and manage. The report found companies are twice as likely to measure Scope 1 and 2 emissions and 2.4 times more likely to set reduction targets for them compared to Scope 3.

This oversight leads to significant unreported risks. For instance, upstream emissions in 2023 from the manufacturing, retail, and materials sectors imply a carbon liability of over $335 billion, based on the IMF's proposed 2030 $75 floor carbon price. Despite this, only half of CDP-reporting companies assess the financial risks from upstream emissions, with a third acknowledging profit risks from Scope 3 emissions. Similarly, only a third of investors have climate-related investment policies, and just 10% require Scope 3 emissions disclosure.

The report identified three critical factors for effective Scope 3 target setting: having a climate-responsible board, engaging with suppliers, and adopting internal carbon pricing. Companies with climate oversight on their boards are 4.8 times more likely to have a 1.5°C-aligned transition plan, those engaging suppliers are nearly 7 times more likely, and those with internal carbon pricing are 4 times more likely to have such plans.

Currently, 34% of companies have a climate-responsible board, 41% engage with suppliers, and 14% use internal carbon pricing. The report underscores the need for boards and investors to demand transparency and incorporate Scope 3 emissions into risk management to mitigate regulatory, reputational, and operational risks. Addressing Scope 3 emissions is a shared responsibility crucial for long-term financial and environmental sustainability.

Tech giants launch coalition to support large-scale carbon removal projects

Google, Meta, Microsoft, and Salesforce have established the Symbiosis Coalition, committing to purchase up to 20 million tons of nature-based carbon removal credits by 2030. This initiative aims to enhance their decarbonisation efforts by investing in carbon projects focused on nature restoration. The coalition will prioritise projects that integrate data and research for better climate impact measurement and engage Indigenous and local communities equitably.

The coalition's primary goal is to address the challenges associated with nature-based projects, including high costs, low investor interest, and public trust issues. By signing long-term offtake agreements, the coalition intends to support projects that use conservative climate impact assumptions, are built on robust science, and involve local communities.

The founding members of the Symbiosis Coalition recognise the critical role of a high-integrity carbon market and nature-based projects in mitigating climate risk, alongside their efforts to reduce their carbon footprints. According to McKinsey & Company, achieving net-zero emissions by 2050 will require $6 trillion to $16 trillion in cumulative investment, with a $400 billion to $1.6 trillion gap needed by 2030. The coalition aims to bridge this gap by committing to pay the real costs necessary to develop and scale high-quality nature-based projects.

Symbiosis will also prioritise projects demonstrating financial transparency and biodiversity benefits, and seek partnerships with investors, nonprofits, project developers, and standard setters. This initiative builds on the decarbonisation commitments of the coalition's members, all of whom have pledged to achieve net-zero emissions.

UN launches program to align regional climate action with the Paris Agreement

The United Nations has introduced the "NDCs 3.0 Regional Fora" program to accelerate climate action and align national climate pledges with the Paris Agreement's goal of limiting global temperature rise to 1.5°C. This initiative involves a series of regional meetings aimed at helping countries revise and update their Nationally Determined Contributions (NDCs) by 2025.

Organised by the United Nations Environment Programme, the United Nations Development Programme, the NDC Partnership, and the UN Framework Convention on Climate Change secretariat, the forums will take place in locations including Apia, Samoa; Bogota, Colombia; Istanbul, Turkey; Tunis, Tunisia; Bangkok, Thailand; and Kigali, Rwanda.

A recent UNEP report indicates that current NDCs project a temperature rise of 2.5-2.9°C, far exceeding the Paris Agreement's target. Emissions need to be reduced by 42% by 2030 to maintain the 1.5°C goal. The UNDP's Administrator, Achim Steiner, emphasised the importance of 2024 and 2025 in ensuring global temperature rise is limited to 1.5°C.

The regional forums will leverage insights from COP28 and the Global Stocktake to propose mitigation and adaptation strategies. The inaugural Global Stocktake highlighted the need to remove 22 gigatons of greenhouse gases within seven years to meet the Paris Agreement targets.

The forums will be closed-door events targeting government officials responsible for NDC revisions. These meetings will facilitate discussions on financing models, policy pathways, and implementation strategies, enabling peer learning and collaboration among countries to enhance their climate action plans. This initiative follows COP29 president-designate Mukhtar Babayev's recent announcement on climate action themes for the upcoming summit.

Climate is most important factor in where mammals choose to live, study finds

A study by North Carolina State University researchers has found that climate, rather than human activity, is the primary factor influencing where mammals choose to live. This discovery was made using data from 6,645 camera traps across the United States, covering populations of 25 mammal species. The study highlights how climate change is likely to impact wildlife populations.

Lead author Roland Kays explained that the study aimed to compare the influence of climate and human factors on mammal distribution. Despite significant human impact on landscapes, climate variables such as temperature and rainfall were found to be the most important determinants for most species. The data was largely sourced from Snapshot USA, a national mammal camera trap survey.

While human activity, including urban areas and agriculture, still significantly influenced mammal habitats, climate remained the dominant factor. Certain species, like the Eastern gray squirrel, thrived around humans, while others, like the Eastern fox squirrel and snowshoe hare, were more adversely affected by human presence and agriculture.

The study also allowed researchers to create maps predicting mammal distribution across the contiguous U.S. These maps facilitated the identification of ecoregions based on mammal populations, which paralleled plant ecoregions. For example, regions with more rainfall and abundant plant life also had higher mammal populations due to increased food availability.

The findings, published in the open-access paper "Climate, food and humans predict communities of mammals in the United States" in Diversity and Distributions, present a new tool for predicting the impacts of climate change on mammal populations. Understanding how rising global temperatures and changing precipitation patterns will affect mammal habitats is crucial for making sustainable management decisions in the future.

Puerto Rico sues oil giants over climate change damage

Puerto Rico has initiated a $1 billion lawsuit against major oil and gas companies, including Exxon Mobil, BP, Chevron, and Shell, accusing them of causing climate-related damage and misleading the public about the harmful effects of their products. Filed by Secretary of Justice Domingo Emanuelli Hernández, the lawsuit asserts that these corporations were aware of the environmental risks their products posed but engaged in disinformation campaigns to discredit scientific research linking fossil fuels to pollution.

The lawsuit details how these companies' actions have led to significant financial burdens for Puerto Rico, which has spent billions addressing climate-induced disasters such as hurricanes and rising sea levels. The aim is to hold these corporations accountable for the damages and compel them to cover the associated costs.

The action by Puerto Rico follows a broader trend, with 37 Puerto Rican municipalities, including the City of San Juan, also filing separate lawsuits. Additionally, nearly a dozen U.S. states, including California, Connecticut, and Minnesota, have taken similar legal steps against fossil fuel companies, underscoring a growing movement to address the deceptive practices and environmental impacts of the oil and gas industry.

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The views expressed in this article are the views of the author, not Ernst & Young (EY). This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.