Top 10 ESG Markers - March 2021

A few interesting trends this month. As always, ESG markers are moving at a rapid rate and this year is continuing to shift the dial faster than ever.

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 March 2021, again not in any particular order.

Polystyrene to be phased out next year under Australia's plastic waste plan

Polystyrene foam commonly used to package consumer goods will be phased out in Australia by mid-2022 as part of a national plan to combat mounting plastic waste. This largely voluntary effort has been brought forward from 2025 to 2022. The government has previously announced targets for 2025 including that all packaging be “reusable, recyclable and compostable”, 70% of plastic packaging be recycled or composted and packaging materials have an average of 50% recycled content.

By July 2022, Australia will have phased out plastic packaging products that do not meet compostable standards, as well as polystyrene used in loose and moulded forms for a wide range of consumer goods. By December 2022, polystyrene would also have gone from food and beverage containers, and PVC packaging labels will also have been phased out, as part of the plan.

The 38-point plan has had mixed reactions from conservation groups.

UN Adopts Landmark Framework to Integrate Natural Capital in Economic Reporting to go beyond GDP

In a move that may reshape decision and policy-making towards sustainable development, the United Nations adopted a new framework today that includes the contributions of nature when measuring economic prosperity and human well-being. 

The new framework — the System of Environmental-Economic Accounting—Ecosystem Accounting (SEEA EA) — was adopted by the UN Statistical Commission and marks a major step forward that goes beyond the commonly used statistic of gross domestic product (GDP) that has dominated economic reporting since the end of World War II. This measure would ensure that natural capital—forests, wetlands and other ecosystems—are recognized in economic reporting.

The move is to move beyond statistic such as GDP which while doing a good job of showing the value of goods and services exchanged in markets, it does not reflect the dependency of the economy on nature, nor its impacts on nature, such as the deterioration of water quality or the loss of a forest.

Australian exporters could face millions of dollars in European tariffs as EU seeks to punish polluters

My blog from last month noted the possibility of the EU Parliament’s environment committee endorsing a Carbon Border Adjustment Mechanism (CBAM). Well, the European Parliament has voted to introduce a carbon levy on imports into the EU from countries with weaker emission rules, and Australia is square in their sights, amidst negotiation of a multi-billion free trade deal between the EU and Australia. The path to enforcement will likely begin with an expectation for Australia to make formal commitments towards becoming net zero as a pre-requirement to the ratification of the trade deal. And while the details of the scheme will be made clearer by the EU in June ’21, Australia’s exports of over $20 billion is likely to attract a carbon levy of over $77 million by 2023.

Warmest March on record for Australia

According to the Bureau of Meteorology, Australia has not only had the hottest January on record and the hottest March, but February was also in the top five warmest on record. That is nearly a one degree hotter than the prior warmest first quarter of a year, which is a significant increase. It is also 2.2 degrees warmer than the long-term average for the first quarter of the year.

Five of Australia’s Sixteen remaining Coal Plants may be unviable by 2025, report finds; and Gas Pipeline’s lifespan slashed

An analysis by two groups – the consultants Green Energy Markets and the Institute for Energy Economics and Financial Analysis (Ieefa) – found Up to five of Australia’s remaining 16 coal power plants could be financially unviable by 2025 due to a tsunami of cheap solar and wind energy entering the electricity grid. The report found that previous estimates had understated the amount of renewable energy likely to enter the national electricity market in the next five years, likely to be about 77,000 gigawatt hours – about a third of what is consumed from the national grid each year. This would take renewables from the grid to 40 to 50 percent of electricity by 2025! One of the reports noted that this would also push down retail electricity prices in 2025 to what there were in 2015, which is good news for consumers. 

The hardest hit generators were likely to be the Eraring, Mount Piper and Vales Point coal plants in New South Wales, Gladstone in Queensland and Yallourn in Victoria. The five plants are currently scheduled to shut between 2029 and 2043.

Separately, the Australian Gas Infrastructure Group that owns the Dampier-to-Bunbury gas pipeline wants to bring its effective end-of-life of the pipeline forward from 2090 to 2063, suggesting that the growth in renewable energy could make it unviable decades ahead of schedule.

The verdict is in – Fossil fuel cars produce much more waste than electric cars over their lifetime!

Fossil fuel cars waste hundreds of times more raw material than their battery electric equivalents, according to a study that adds to evidence that the move away from petrol and diesel cars will bring large net environmental benefits. The analysis undertaken by Transport & Environment found that the overall energy efficiency of vehicles, battery electric cars will use 58% less energy than a petrol car over its lifetime and emit 64% less carbon dioxide. Emissions associated with electric cars are mainly produced in the energy-intensive manufacturing of batteries, while the majority of emissions associated with internal combustion engine cars come from its use. The report found that only about thirty kilograms of material will be lost over the lifetime of a lithium ion battery, including recycling, compared to 17,000 litres of oil in a combustion engine. This results in about 300 times the wastage over the lifetime in a fossil fuel car compared to its electric counterpart relative to their weight.

Insurance Giant Planning a Coal Exit by 2040

Swiss Re has announced it is to phase out thermal coal from its treaty reinsurance by 2040, in a move that has been hailed as a breakthrough for the global reinsurance industry. With an update of its thermal coal policy, Swiss Re is accelerating its move to net-zero in insurance underwriting. In 2023 Swiss Re will tighten its coal policy by introducing new thermal coal exposure thresholds for treaty re/insurance across its property, engineering, casualty, credit & surety and marine cargo lines of business. The thresholds will be lowered gradually and will lead to a complete phase out of thermal coal exposure in OECD countries by 2030 and in the rest of the world by 2040. While also introducing a triple digit real internal carbon price for its operations, Swiss Re has also announced an ambitious carbon reduction target for its investment portfolio by 35% by 2025.

Built in Obsolescence No Longer Acceptable

New rules mean certain electrical goods sold in Europe need to be repairable for at least 10 years. EU has taken a step forward towards introducing a universal right to repair on consumer electronic goods, introducing at the start of this month a requirement that all new washing machines, refrigerators, televisions etc sold in EU countries must be repairable for up to ten years.  The next step in this legislation will be expanding the scheme to cover smart phones, laptops and other consumer electronics. France is a step ahead of the EU in this regard with the country making it a legal requirement that manufacturers include "repairability scores" for electronic goods that indicate how easily a device can be repaired. This model is likely to be adopted by the EU. The EU is hopeful that their lead on this may mean that products sold globally may benefit with less built in obsolescence and more product stewardship by manufacturers, globally.

S&P’s Warning to Oil & Gas

Rating agency S&P has warned 13 oil and gas companies, including the some of the world’s biggest in January this year, that it may downgrade them within weeks because of increasing competition from renewable energy. On notice of a possible downgrade were Australia’s Woodside Petroleum as well as multinationals Chevron, Exxon Mobil, Imperial Oil, Royal Dutch Shell, Shell Energy North America, Canadian Natural Resources, ConocoPhillips and French group Total. In China, they include China Petrochemical Corp, China Petroleum & Chemical Corp, China National Offshore Oil Corp and CNOOC. This has since followed US oil majors ExxonMobil, Chevron and ConocoPhillips having their credit ratings lowered and revised the industry’s risk profile due to climate change and weak earnings. S&P cut Exxon’s long-term rating to AA- from AA with a negative outlook. Chevron was lowered to AA- from AA with a stable outlook. Conoco was reduced to A- from A with a stable outlook. 

SEC Launches Climate and ESG Enforcement Task Force & IFRS Foundation Announces Taskforce to set up Sustainability Standards Board. Requirements also grow in the UK and India.

The U.S. Securities and Exchange Commission (SEC) has announced the creation of a new Climate and ESG Task Force in the Division of Enforcement. The new task force will develop initiatives to proactively identify ESG-related misconduct, with an initial focus on identifying material gaps or misstatements in issuers’ disclosure of climate risks. The task force will also analyse disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies. The task force will also evaluate and pursue tips, referrals, and whistle-blower complaints on ESG-related issues, and provide expertise and insight to teams working on ESG-related matters across the Division. 

This follows the November 2020 publication by the IFRS Foundation of educational material  on the IFRS and climate-related disclosures. That same month, the UK’s Financial Reporting Council published its “Climate Thematic” report which makes recommendations for how boards, companies, auditors, and professional bodies and regulators can better address the issue of climate change.

The educational document notes some key areas for consideration: such as:

·      IAS 1: Presentation of Financial Statements (sources of estimation uncertainty and significant judgements and ability of the company to operate as a going concern, where climate change is obviously related to both)

·      IAS 2: Inventories (Climate-related matters may decrease the value of inventories or even make them obsolete)

·      IAS 16: Property, Plant, and Equipment (e.g., additional investments to mitigate the effects of climate change)

·      IAS 36: Impairment of Assets (e.g., emission-reduction legislation might increase manufacturing costs, thereby decreasing the cash flows from this asset)

·      IAS 37: Provisions, Contingent Liabilities and Contingent Assets (e.g., restructuring costs necessary for redesigning products and services to achieve climate-related targets)

·      IFRS 13: Fair Value Measurement (e.g., potential climate-related legislation could affect the fair value of an asset of liability), and IFRS 17: Insurance Contracts (e.g., the extent to which the company’s climate risk is covered by current insurance contracts).

In the meantime, IFRS Foundation Trustees has announced the formation of a working group to accelerate convergence in global sustainability reporting standards focused on enterprise value. The working group will provide a forum for structured engagement with initiatives focused on enterprise value reporting, as described by the Trustees’ 8 March statement. Specifically, the working group will provide technical recommendations, including further development of the prototype built on the TCFD recommendations, as a potential basis for the new board to build on existing initiatives and develop standards for climate-related reporting and other sustainability topics. The working group will be chaired by the IFRS Foundation and include participation by the IASB, given the need for connectivity with financial reporting. IOSCO will participate in the group as an observer, given the essential role it would play in evaluating and endorsing standards issued by a new board. During this preparatory phase, the working group has welcomed engagement with jurisdictions that are working on sustainability reporting such as the TCFD, Value Reporting Foundation (SASB/IIRC), CDSB and WEF. Throughout this process, the working group will also engage closely with the Global Reporting Initiative (GRI) and CDP.

At the same time, in the UK, the government has set out proposals to make TCFD disclosures mandatory for large publicly quoted companies, large private companies, and LLPs. Around 1,600 large listed and private UK companies could be legally required to measure and publicly disclose the risks posed to their business by climate change and the net zero transition from next year.

And, across in India, from 2022, the largest 1,000 Indian public companies will be required to disclose a suite of granular sustainability performance metrics relating to strategy, human capital, ESG risks, business conduct, supply chain due diligence and community relations as part of their annual corporate reporting.