Top 10 ESG Markers - November 2021

Well, this month was all about COP26!?Most features are on climate, and biodiversity.

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 November 2021, again not in any particular order.

Key Outcomes from COP26

The UN climate summit boiled down to cash, coal, compensation and the willingness to speed up the drawdown of fossil fuels. After 13 days of gruelling negotiations, shock announcements and late-night meetings, COP26 has drawn to a close. The final agreement from the summit, known as the Glasgow Climate Pact , was signed off by 197 parties. As expected, the essence of the document is to keep alive the “Paris prophecy” of 1.5°C.?Where we started at 3.4 deg post Paris, 2.7 degrees pre-COP26 has resulted in 2.4 degrees being agreed to with the potential for 1.8 degrees if all 2030 targets are maintained, and 1.5 degrees still within sight. As Alok Sharma, the President of COP26 described, 1.5 degrees is alive, but with a weak pulse, and by Ed Miliband as ‘in intensive care’.

Slash methane by 2030

More than 100 countries have signed a global partnership to cut emissions of methane by 2030. The Global Methane Pledge aims to limit methane emissions by 30% compared with 2020 levels. However, the world’s biggest methane emitters - China, Russia, and India, which together contribute 35% of methane emissions – have not signed the pledge. Secondly, the agreement is not binding and doesn’t include national targets.

Halt and reverse deforestation by 2030

Many world leaders have promised to end and reverse deforestation by 2030, in the COP26's first major deal. The 137signatory countries count in Canada, Russia, Brazil and jointly cover around 90% of the world's forests. The pledge includes almost USD 19.2 billion of public and private funds.

Quit coal by 2030

Forty-six countries have committed to ending all investment in new coal power generation - the single biggest contributor to climate change - domestically and internationally. They have also agreed to phase out coal power in the 2030s for major economies, and the 2040s for poorer nations.?India, China, and the US have not signed up. The wording was also watered the final document of COP26 to a pledge to “phase down” rather than “phase out” coal power.

Financial Commitment to increase

Developed countries have pledged to at least double the amount they provide to helping poorer countries adapt to climate impacts by 2025. This will mean that the USD 100 bn will be doubled to USD 200 bn per year.?The Glasgow Financial Alliance (GFANZ) also committed to mobilising the financial sector at scale with over 450 firms over 45 countries representing over $130 trillion of financial assets (or ~ 40% of the financial system) committed to accelerating the decarbonisation of the economy and to work towards delivering the $100 trillion needed over the next 3 decades. This combines the efforts of the Net-Zero Banking Alliance (NZBA), the Net Zero Asset Managers initiative (NZAM), the Net-Zero Asset Owner Alliance (NZOA), the Paris Aligned Investment Initiative (PAII), the Net-Zero Insurance Alliance (NZIA), the Net Zero Financial Service Providers Alliance (NZFSPA), and the Net Zero Investment Consultants Initiative (NZICI).?Further, 100 central banks have signed the NGFS Glasgow Declaration, including a continued commitment to advance supervisory practices.??

Rules for carbon markets

After six years, a deal has been struck on the rules governing carbon markets. COP21 already paved the way for the use of such markets, but detailed technical provisions were needed to start operating the new mechanism. The deal creates unified and internationally controlled standards and resolves the issue of double counting - a situation where the same emissions reduction is claimed by multiple companies or countries.

Increasing emission reduction targets

Given the delta between 1.8 degrees and 1.5 degrees, signatory countries have been asked to ratchet up the ambition levels when returning for COP27 in Egypt next year.

IFRS Foundation announces the new International Sustainability Standards Board (ISSB)

IFRS Foundation seeks to develop globally consistent climate and sustainability disclosure standards for financial markets, with G7 support to make climate disclosures mandatory and build on the work of the TCFD, Value Reporting Foundation and the Carbon Disclosure Standards Board, and if positive, recommend adoption by the 130 regulators it represents (including ASIC in Australia and the FMA in New Zealand).?The exposure draft of the standards focusing on climate and general requirements for sustainability disclosures is expected to be released for comments in the first quarter of 2022.

U.S. & China Announce Climate Cooperation Pledge at COP26

In one of the most significant, and surprising, national-level developments at the COP26 climate conference, the U.S. and China released a joint declaration pledging to cooperate on a series of actions and initiatives focused on combatting and addressing climate change over the next decade.

Planned areas of cooperation include the development of regulatory frameworks and environmental standards related to reducing emissions, policies to encourage decarbonization and electrification, methane emissions measurement and mitigation efforts, and deployment of carbon removal technologies.

UK Launches Sustainability Disclosure Requirements for Businesses and Investors

UK announced the publication of a new report, Greening Finance: A Roadmap to Sustainable Investing, outlining the country’s strategy for implementation of new Sustainability Disclosure Requirements (SDR) for businesses and asset managers.?The SDR forms a major part of the UK’s Green Finance Strategy, initially launched in 2019, aimed at establishing the UK as a center for international green finance, and aligning the financial sector and capital flows with the delivery of global and domestic climate and environmental objectives. The roadmap aims to streamline the country’s existing climate reporting requirements under a single integrated regime, and extend the requirements further. Key requirements under the SDR include TCFD-aligned reporting for companies, and directing financial market participants to set out the environmental impact of the activities financed by investment products. The roadmap also introduces requirements, on a comply-or-explain basis, by some companies to disclose their net zero transition plans, with the expectation for an eventual wider rollout for these disclosures.?Additionally, the roadmap provides more details on the establishment of a UK Green Taxonomy, outlining clear criteria for economic activities to be considered environmentally sustainable. Companies and financial products will need to report their taxonomy alignment in terms of their environmental impact against these criteria.

Australia ranked last of 60 countries for policy response to climate crisis

The Australian government’s policy response to the climate crisis at COP26 was ranked last in an assessment of 60 countries released at the global climate summit in Glasgow. The?Climate Change Performance Index, which also includes the EU, covers 92% of global emissions of greenhouse gases and assesses countries across four categories – policy, emissions, renewables and energy use. The top five performing countries overall are Denmark, then Sweden, Norway, the UK and Morocco. The bottom five are Kazakhstan, followed by Saudi Arabia, Iran, Canada and Taiwan. Overall, Australia slipped four places on the index from the previous year when it was 50th and it was the only country allocated a score of zero in the climate policy category, faring only slightly better in three other areas.?The index is produced by thinktanks Germanwatch, NewClimate Institute and Climate Action Network International, a coalition of climate campaign groups.?The world’s second-highest emitter, the US, climbed six places from last year’s position but its response was rated “very low” overall and ranked 51st among individual countries. China, the world’s biggest emitter, was 33rd.

On the sidelines of the COP26 talks, Australia refused to sign a pledge to cut emissions of potent greenhouse gas methane, dismissed calls to phase out coal, refused to improve its 2030 targets, but?was seen to promote gas, carbon capture and storage and hydrogen?as solutions.

Climate experts have also criticised the Australian government's modelling underpinning its plan to achieve net zero emissions by 2050.?The?modelling outlines Australia’s emissions will decrease by 85 per cent, with the remaining 15 per cent expected to drop with “future technology breakthroughs”.

The modelling anticipates Australia's major export markets to increase in value by 2050 and foreshadows the creation of more than 100,000 jobs, including up to 62,000 in mining and heavy industries.?But it has also forecast a global temperature warming of 2C, as opposed to the 1.5C that Australia had committed to under the Paris Agreement.

Youth activists petition UN to declare ‘systemwide climate emergency’

Greta Thunberg and youth climate activists from around the world are filing a legal petition to the UN secretary-general urging him to declare a “system-wide climate emergency”, calling on António Guterres to use emergency powers to match the level of response adopted for the coronavirus pandemic by pronouncing the climate crisis a global level 3 emergency – the UN’s highest category.

They hope that an emergency declaration would result in resources and technical expertise being rushed to countries most at risk from global heating, particularly small island states and developing countries, to support climate change adaptation, analysis of climate science and public health responses.

Net Zero Commitments Growing Rapidly, But Quality, Clarity of Pledges Lacking

A new study from climate pledge tracking initiative Net Zero Tracker released today indicated a sharp increase in corporate net zero commitments over the past year, while revealing that the quality of pledges across countries, regions and companies may be insufficient to achieve global climate goals.?Net Zero Tracker (NZT), a collaboration led by Oxford University’s Net Zero Initiative found that at the country level the study found that net zero pledges have expanded to now cover 90% of GDP and 88% of global emissions. Only 10% of these are written into law and 43% are in a policy, however, while 20% constitute declarations or pledges and 14% are at the proposal or discussion stage. The level of ambition varies as well, with more than half of the pledges by percentage of global emissions targeting net zero after 2050.?

Corporate net zero commitments have grown to cover nearly $20 trillion in revenues. One of the key areas in which the pledges lack clarity is the utilization of offsets in order to achieve net zero.?According to the NZT analysis, more than 90% of country targets, and nearly half of company commitments fail to specify how offsets will be used to reach their goals, and only 10% of companies have committed to avoiding the use of offsets.

Many net zero plans also fall short in their treatment of Scope 3 emissions. While these emissions typically account for the most of a company’s footprint, less than a third of corporate net zero targets cover the entirety of Scope 3 emissions.

New German Government accelerates Coal Exit, Plans Major Expansion in Renewables

The new coalition government in Germany aims to boost the country’s efforts to address climate change, with the agreement including an acceleration of the country’s phase out of coal by several years, and plans for an economy powered largely by renewable energy in order to hit a 2045 climate neutrality target.

The coalition has set a new 2030 target for the country’s phase out of coal, pulling forward the prior goal by eight years. The agreement envisions renewables growing to meet 80% of electricity demand, up from a prior 65% target, with major expansions planned for wind and solar power.

IKEA Commits to Eliminate Plastic from Packaging by 2028

IKEA has announced a new commitment to eliminate plastic from consumer packaging solutions, starting with all new products by 2025, and expanding to the existing product range by 2028.?

To combat plastic waste and pollution, the company stated that it has already decreased the amount of plastic used in its packaging solutions, with less than 10% of the total volume of packaging materials used annually consisting of plastics.?The company spends over €1 billion on approximately 920,000 tonnes of packaging material annually.

ACSI estimates large economies to lose 10% of GDP due to Biodiversity loss, EY report finds

The report by the Australian Council of Superannuation Investors with $1 trillion under management, Biodiversity: Unlocking Natural Capital Value for Australian Investors,?is the first of its kind in Australia and complements analysis?earlier this year from Swiss Re,?the reinsurance group, that estimated large economies would lose about 10 per cent of gross domestic product in the coming three decades due to biodiversity collapse.

Similar to climate change-related investments, the report recommends ACSI investors develop a clear plan to manage biodiversity-related financial risks and opportunities, then undertake a portfolio-level assessment across asset classes. Once investors have developed frameworks, the report suggests targeted engagement with companies to monitor company performance, and track and disclose performance against targets.

The EY research assessed 11 ASX-listed mining, energy, financial, real estate, agriculture and logistics sectors companies representative of the broader Australian economy and found they “have not yet assessed the full magnitude of their biodiversity risks and opportunities, despite their prevalence throughout the economy….Many of the disclosures assessed were limited in scope and depth, primarily disclosing only direct, immediate impacts, and not indirect (value chain) impacts or dependencies,” the report found.

Australia unveils new Electric Vehicles policy

The Australian Government unveiled a new $250 million strategy on electric vehicles?focusing on investment in charging stations in an effort to encourage more people to make the transition from petrol and diesel cars.??The government's policy in contrast does not include any official target for electric vehicle sales, but projects that 30 per cent of all new cars sold by 2030 will be either electric or hybrid.

Australia’s electric vehicles sales have lagged behind the world, particularly many European countries.?New car sales data shows less than 2 per cent of the total sold in the light vehicle market, according to the Electric Vehicle Council.?In Norway - the world’s leading electric vehicle adopter - around 74.8 per cent of all light vehicles sold in 2020 were electric, while Australia also trails the UK (10.7 per cent), China (6.2 per cent) and the United States (2.3 per cent).?

Victoria has also set a sales target of 50 per cent of new vehicles to be zero emissions by 2030 while NSW announced an EV strategy to increase sales to 53 per cent by 2030-31.?Both states have also introduced financial rebates for new EV purchases while some other jurisdictions have offered to waive stamp duty and registration fees.

Sources: ESG Today, SBS, AFR