The Ups and Downs of ESG

Starting off this week’s edition with an optimistic tone, I am refreshed and rejuvenated from guest lecturing at three college courses - (two at University of Michigan, Prof. Andy Hoffman’s strategy course at the School of Environment and Sustainability , and one at the Harvard Extension graduate program on ESG disclosure - led by Kevin Hagen and Kevin Wilhelm ).? After decades in the sustainability arena, I am inspired by the talented young people attracted to this field - it fills me with hope for the future.??

US Leadership on Climate

Staying optimistic, if you read one thing this week…read this analysis of the new US climate law (the Inflation Reduction Act - IRA) by Robinson Meyer in the Atlantic.?

The article covers a Credit Suisse research note detailing the effects of the IRA over the next decade. In our continuing efforts to decode TLDR sustainability information - here is a quick synopsis:

• Because many of the tax credits are “uncapped” - the spending on climate tech will be $800 billion - more than double the official estimates.?
• The added private investment could send total climate spending across the economy to roughly $1.7 trillion over the next 10 years.
• U.S. solar and wind could be the cheapest in the world at less than $5 per megawatt-hour by 2029.
• The law ”changes the narrative from risk mitigation to opportunity capture.” companies should worry less about climate regulation and worry more about missing out on the economic growth from the energy transition.
• The IRA’s incentives will keep flowing even if the US slips into recession, making clean energy one of the most certain economic trends of the next few years.

Backing these points, an article in Fortune outlined the business opportunities for companies that pursue ESG strategies, using examples from Lummus Technology , Magic Leap , Thermo Fisher Scientific , and food giant Sysco .

ABC News

Counting Ian’s Toll?

Hurricane Ian pummeled communities in the Caribbean, Florida, and Carolinas from Tuesday through Friday. While still tabulating the full damage, Ian has resulted in almost 90 deaths, some 2.6 million homes and businesses losing power, two bridges collapsing and $63B of insured loss.

The Guardian reported “Many of the storms of the past five years – Harvey, Maria, Florence, Michael, Ida and Ian - aren’t natural disasters so much as human-made disasters, whose amplified ferocity is fueled by the continued burning of fossil fuels and the increase in heat-trapping carbon pollution.”?

CNN

Solidarity From Tragedy??

In a rare moment of bipartisan collaboration, President Biden and Florida Governor Ron DeSantis stood side-by-side in support of the recovery from hurricane Ian . Biden commented “We have very different political philosophies, in dealing with this crisis, we’ve been in complete lock step.”

The moment of solidarity was quickly followed by a moment of apparent hypocrisy when nearly every Florida Republican in the U.S. Congress voted against a stopgap bill to keep the government funded through December that contained more than $18 billion in disaster relief funding. While most Republicans voted against this bill, it passed into law, avoided a government shutdown, and will provide relief for the cleanup.

Tampa Bay Times

Anti-Woke Battles Heat Up

Former deputy Treasury secretary Sarah Bloom Raskin said the new laws in Texas and other US states that punish financial firms for “boycotting” oil and gas endanger global financial stability by encouraging risky loans to energy firms . Raskin (who withdrew her nomination for vice chair of the Federal Reserve due to opposition from conservatives) forecasted that large banks will make risky loans to fossil fuel companies to keep their business with Texas and states with similar laws. She said: “The cocktail of loose underwriting, coupled with inappropriate pricing, insufficient insurance and collateralisation, isn’t a particularly tasty one when you have the missing ingredient of internal risk management processes.”

Despite these warnings, Louisiana announced it will liquidate its investments with BlackRock , totaling $794 million, in order to “protect” the state’s Treasury funds “from ESG.”

Louisiana cited reports that “BlackRock has urged companies to embrace “net zero” ESG (Environmental, Social and Governance) investment strategies,” which would harm the state’s fossil fuel industry. Louisiana is a top-10 crude oil producing state, and the third largest U.S. producer of natural gas.?

Louisiana joined Florida and Texas in barring ESG considerations to be used by their pension fund managers. Texas published a list of fund managers – including BlackRock, Credit Suisse, UBS and several others – slated for potential divestment from its pension funds, due to their strong ESG credentials and support for net zero investing and advocacy.

Making Money Matter

On the other side of this debate is a group in the UK called Make My Money Matter . Their point is that pension funds at large UK companies are linked to a third of the country's carbon emissions. They claim that greening your pension fund is 21 times more effective at cutting carbon than stopping flying, going veggie and switching energy suppliers combined. And their tagline is priceless: “There’s about ￡3 trillion invested in UK pensions. Lots of it funds harmful industries like fossil fuels, tobacco, and arms. We’re here to make sure it does better. After all, what’s the point in retiring in a world on fire?”

Following suit, the Princeton University Investment Company announced they would divest from their holdings in Exxon Mobil Corp ., NRG Energy Inc., and 88 other corporations in the fossil fuel industry. The move was part of the Board’s “commitment to achieving a net-zero endowment portfolio over time.”

Asset owners and asset managers have been caught between these opposing forces for some time and the battles appear to be escalating with no end in sight.??

Vivek Ramaswamy vs. ESG

A champion of anti-ESG backlash is the founder of a new investment firm called Strive Asset Management - Vivek Ramaswamy. An article in the Financial Times (may require subscription), delves into his more nuanced position against ESG.?

In summary, Mr. Ramaswamy associates ESG with the “Davos elites” and aligns his views more with Bernie Sanders and democratic socialism. Said another way, he believes governments, not the private sector, should deal with the externalities of business, and ESG is a distraction from the corporate mission to return profits.??

This is not a new argument. Twelve years ago, I penned an op ed taking on the same argument being made at that time by Professor Aneel Karnani. After all the rhetoric, it comes down to whether we want our corporate leaders to act responsibly or not - this should not be a hard question to answer…?

Greenbiz

Joel vs Greenwashing

As “sustainability” and “ESG” have suddenly become popular across the economy, so too has been the practice of greenwashing - over-selling or misrepresenting sustainability claims. This year we have reported on the enforcement actions against DWS and BNY Mellon and the new rules to address greenwashing.?

In a satirical piece , friend and colleague Joel Makower lays out 12 tips to greenwash more effectively. His article hits home as I believe we are entering an “accountability crisis” with the plethora of over-ambitious sustainability claims threatening to undermine the whole movement.???

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NOTABLE NEWS

• The Supreme Court started their new term that is expected to continue to upend long-standing precedent. The New York Times offered an excellent outline of the Supreme Court business docket and its likely impacts. ?
• The Financial Stability Oversight Council established a new climate-related financial risk advisory committee . This is a welcome step and I am glad to see friends Ilmi Granoff and Janine Guillot appointed to the committee.??
• Water is the next carbon. While some parts of the world are underwater, many others are experiencing record droughts. This op ed from Ceres outlines the issues.
• The Senate ratified its first international climate treaty in three decades approving an agreement worked out in 2016 that will phase down refrigerant chemicals that are among the most potent climate pollutants.
• The clock is ticking for the start of COP27.? Of the 193 countries that attended the conference in Glasgow last year, only one — Australia — has put forward a climate plan that will lead to actual greenhouse-gas emissions cuts .
• One beneficiary of sustainable investing that seems to be overlooked is the American worker . According to a recent survey by JUST Capital , the majority of Americans say paying workers a fair, living wage should be the top focus of the biggest US companies.
• This article outlines some key information accountants need to know to meet the challenges of sustainability reporting.?
• Climate Tech investing post hurricane Ian was covered by the Climate Tech VC newsletter.??
• Former employer AMD published another terrific sustainability report which was picked up by Forbes on their unique approach to diversity and inclusion .?

NOTABLE PODCASTS

• Guy Raz hosts How I Built This . In this episode from a couple of months back, he talks with Jan Wurzbacher , co-founder and CEO of Climateworks. They discuss how Jan and his team built the world’s largest direct air capture facility, which filters carbon dioxide from the air and stores it permanently underground. Plus, Jan’s optimistic vision of how humans can achieve the goal of reversing climate change.