Climate Transition Catalysts
The recent trend of countries stepping up to make level carbon-neutrality pledges shows no sign of slowing.
Most recently, Japan's Prime Minister Yoshihide Suga has announced that the country will become carbon neutral by 2050.
With public opposition to increasing nuclear energy and the continuing legacy from Fukushima, renewable energy must play a much greater role in the power mix in coming years to achieve this goal. This is already evident through leading Japanese utility provider - Shikoku Electric Power's recent announcement, that it will aim to triple its renewable power capacity by March 2021. This will include offshore wind power, solar and biomass.
South Korea, similarly, has announced its aim to become carbon neutral by 2050, with a planned investment of $7.1 billion. The announcement comes on the back of Prime Minister Moon Jae-in also aiming for renewable energy to represent 20% of the country's energy mix by 2030.
The IEA has further indicated that renewables are forecast to overtake coal-fired power generation by 2025, with falling costs and increased focus on emissions-reduction. IEA's annual report has also revealed that solar photovoltaics are now cheaper than coal and natural-gas powered plants in many countries. This is expected to culminate in renewables obtaining an 80% market share for new power generation by 2030, with coal's share of the global supply dropping to 28%.
Corporate commitments on emissions reduction also continues to gather pace, with General Electric Co. the latest to announce its plans to achieve carbon-neutrality across its 1000+ factories and other facilities worldwide by 2030. Achieving this goal would yield significant results; mainly eliminating approximately 2.30 million metric tons of CO2, emitted by the company in 2019.
Similarly, in keeping with increased emissions disclosure across industries, large energy companies across the world including Royal Dutch Shell Plc, Trafigura Group ltd. and Cargill Inc have pledged to disclose emissions from shipping.
This initiative, known as Sea Cargo Charter, will involve companies calculating their emissions and assess their alignments on decarbonization goals on an annual basis. With shipping accounting for approximately 3% of human-induced CO2 emissions and projected to further rise, the initiative would help improve sustainability and transparency in shipping.
Climate-tech is emerging as a promising area for investors, with investment into the sector growing almost five times the rate of the overall global VC market between 2013 and 2019, according to PwC.
In addition, leading European investors have begun incorporating sustainability clauses in their deal terms with tech start-ups during funding negotiations. Some of the measures include consistent measurement of carbon footprints, implementing carbon offset schemes and improving environmental responsibility amongst customers and along supply chains.
Climate risk disclosure is becoming an integral part of corporate action towards sustainability. TCFD's annual report has noted that support for its transparency practises on measuring climate-related financial risks has jumped by 85% over the last year, with some of the world's largest public companies backing the recommendations. It will be important to observe how the support translates to consistent disclosures across sectors.
Finally, with electric vehicles continuing to draw investment and gain market share, a deeper look at the supply chain and complex production process produces vital insights. While EVs will play a significant role in reducing emissions, the mining of nickels for batteries pose considerable environmental risks along with concerns around ethical labour. To ensure electric vehicles can truly drive us to a sustainable future, it is critical to address all points in the
Last month’s worrying wildfires on the West Coast of the USA have continued to blaze, raising fears of an impending financial crisis, driven by depreciating home values, declining state tourism and stressed local government budgets. The crisis, which has also devastated Australia, has led its government and California’s administration to look towards indigenous land management practices which can reduce flammability and vulnerability.
Amidst increased focus on environmental protection regulation, a Goldman Sachs report has indicated that big oil companies could engage in a transformative shift towards sustainability. 'Big Oil' has the capability and capacity to integrate vertically in low carbon power and leverage their brands and trading capabilities to increase customer acquisition. Their growing presence in business segments such as low-carbon electricity, biofuels, clean hydrogen and carbon sequestration can support this transformation.
In a boost for renewable energy, Bloomberg NEF reports that for the first time in history, solar and wind power accounted for the majority of the world's new power generation in 2019, with China and India the leading markets. China has also pledged that it will become ‘carbon neutral’ before 2060, with GHG emissions peaking in 2030.
Global corporations also continued to build momentum towards sustainable practices. Unilever recently announced it will invest € 1 billion to eliminate fossil fuels from its range of cleaning products by 2030, which currently make up 46% of carbon emissions of their Home Care division. Mercedes Benz is the latest big-name signatory of Amazon and Global Optimism’s Climate Pledge, a commitment to meet the Paris Agreement 10 years early.
Joining the fray, Facebook has committed to net zero carbon emissions by 2030. It has also launched a Climate Science Information Centre, which will collect resources from a comprehensive and reputable range of climate experts, to increase climate change awareness. Companies have also begun to expand the scope of their sustainability goals by not just committing to offset their current or future carbon footprint, but their historical carbon footprint as well and achieve ‘lifetime carbon neutrality’.
Significantly, for the financial industry, ECB and the European Commission have introduced plans to expand the market for environmentally friendly and sustainable bonds. The EU's development of standards for the sustainable-debt market will also set rules and definitions, which will improve transparency, disclosure and help tackle greenwashing.
Some things, however, haven’t changed. The Credibility of ESG standards continues to be an important issue for investors and funds, as ratings can be based on self-reporting by companies and can vary between different data providers.
This is posing gaps and inconsistencies in determining ESG performance and has led investors to incorporate an investigative element to their analysis. In a positive development for investors and businesses, IIRC is combining forces with CDP, CDSB, GRI and SASB to provide a shared framework for a comprehensive, global, corporate reporting system which will connect financial accounting and sustainability disclosure. With multiple regulatory organizations potentially creating new, differing reporting standards, a joint system will streamline reporting for companies.
While ESG funds were metaphorically on fire in July, many parts of the world literally burst into flames in August.
As Califonia suffered from the largest wildfires in the state’s history, governor Gavin Newsom called on both Canada and Australia for help to combat the devastating blazes. Similarly, the Brazilian Amazon rainforest faced its worst wildfires in a decade as fires raged on during a crippling dry season. Deforestation and climate change have increased environmental risk across the globe; August’s fires reached even as far north as the Siberian arctic, while record breaking heat waves stretched from Europe and the UK to the Americas.
Around the same time as the catastrophic nitrogen-explosion in Beirut, both Mauritius and Venezuela experienced large-scale oil spills from coastal bunker fuel vessels, putting both local communities and national ocean and wild-life reserves at extreme risk. Greenpeace issued multiple stern letters against such operations while calling for thorough investigations into such dangerous shipping practices, while other international actors called for strict adherence to the latest international legal requirements in the field.
Large corporations continued to denounce collaboration with fossil-fuel producers and heavy emitters while promoting ESG metrics in August. An investor group managing more than $16 trillion launched the world’s first step-by-step plan to help pension funds and others align their portfolios with the Paris Agreement on climate change by setting concrete targets at the portfolio and asset class level, address asset allocation, and engage and lobby corporates. Further, HSBC will team up with Pollination, ESG Specialist, to launch a series of investment products that will focus on biodiversity and water shortages.
As one of the largest lenders to energy companies, CitiGroup urged the financial industry to have open conversations with clients to actively reduce emissions. However, rather than completely divesting from the fossil-fuel industry, Michael Corbat, CitiGroup CEO, aimed to please both sides by acknowledging the need to work with large emitters, rather than against them. Clearly, this goes to show that the financial world needs more concrete action, rather than conversation, to make a dent in the global climate crisis a reality.
In June COVID-19 sponsored concerns amongst investors holding onto stranded assets.
Only one month later in July, there was a counter-reaction as ESG funding took off like never before.
Large investment management companies responded to increased stakeholder pressure following the post COVID-19 ESG focus whilst leading asset management firms like BlackRock pushed for more concrete climate-related commitments from companies in carbon-intensive sectors and called for clearer ESG data disclosure and reporting in line with TCFD guidelines.
Elsewhere, tech companies responded to pressure from stakeholders and consumers following the COVID-19 pandemic. After Amazon CEO Jeff Bezos pledged over $10 Billion USD to address climate change, other large tech companies quickly followed suit; Apple promised to overhaul its supply chain to carbon neutral by 2030 and Microsoft went a step further by showcasing their commitment to remove all the carbon that had been emitted since the company’s founding.
Other developments of note include London’s high profile Canary Wharf Group - the first commercial district to commit to science-based targets - which committed to actionable ESG pledges.
Following the EU’s commitment to decarbonisation the EU by 2050, European investors, developers, and energy companies are all exploring renewable energy sources.
Meanwhile, coal’s stock continued its descent. As investing in coal becomes increasingly hard to justify, purchasing and retiring coal assets in conjunction with solar adoption - otherwise known as ‘solar for coal swaps’ - could help refinance stranded assets such as coal plants that are projected to underperform in the near term.
In conclusion, July saw the now well established ‘ESG turn’ consolidating and gaining greater momentum as investors and stakeholders lined up to accelerate the transition from fossil fuels to renewable energy sources, giving grounds for cautious optimism with regard to the prospect of a post-pandemic green recovery.
In June, Covid-19 continued to cast its ever-lengthening shadow over “business as usual” around the world.
Oil and gas companies, whose prices took a drastic downturn in June, may never recover and Apple is now worth more than all the major oil companies combined. Moreover, investors managing trillions in assets are pressuring oil majors to reflect climate risks in their accounting.
While economies around the world are bracing for a second great depression, the combination of a looming worldwide health crisis and rising social inequalities have exposed legacy oversights in government policy with regards to the provision of social safety nets.
The pandemic has also highlighted the long-standing historical inequality suffered by the BAME community, prompting corporations to swiftly respond to the #blacklivesmatter movement, placing social issues at the top of corporate agendas alongside climate change and environmental protection.
However, it’s not just global corporations that are acknowledging and responding to these tectonic social, political and ecological shifts. Leading investment banking, securities and investment management firms such as Goldman Sachs have also been keen to establish that they too recognise the ‘S’ in ESG to be front of mind for many investors whilst at the same time calling for better, granular, transparent data in this area, so as to better guide socially informed investment decisions.
While the urgent need to ‘flatten the Covid curve’ has inspired what would have been, in less extraordinary times, a global spate of unthinkably bold social and economic policy reversals, the precedent set has also sponsored leading commentators to call for a flattening of the climate curve too.
It’s evident that the values we stand by as a company, collaboration, transparency and science alignment, are more than ever needed if we are to surmount the multiple concurrent crises that we now face as a species.
In May, Covid-19 continued to generate global uncertainty, volatility, and subject the global economy to increasing stress.
One consequence of raised awareness surrounding the risks of future pandemics is that the investment community is now focusing on the need for financial institutions to bring the E, S and G of ‘ESG’ into alignment. There have also been calls to build sustainable resiliency into long-term investment decisions, along with the requirement for clear, science-based climate targets in a post Covid-19 world.
Another new development this month is the spotlight on the ‘S’ of ‘ESG.’ As social isolation bites deeper into the performance, mental health and wellbeing of their employees, corporations large and small are recognising the need to respond with creative ways of managing the unprecedented physical and mental health risks associated with the shift to the virtualised workplace.
While April saw a sharp drop in oil, coal, and gas prices, this month there’s been an anxious response from investors, asset managers, and oil and gas companies leading to the onshoring of stranded assets out at sea. With a record amount of crude oil floating in the ocean contributing to a dramatic fall in commodity prices, traders are desperately searching for alternative land-based storage facilities while others are trying to rescue their investments from turbulent and rough seas.
Last month, we asked if the pandemic might lead to an attitudinal shift in the direction of more responsible environmental stewardship. By way of an answer, the EC’s Green Recovery Plan and the sustained uptake of SASB and TCFD at least show incremental progress by turning the daunting challenges of this unique moment in time into a creative opportunity to embrace sustainability.
With the Covid-19 pandemic comes the closing and shutting down of many coal plants resulting not only in a sharp drop in pollutants, but a sharp drop in the price of coal.
The same goes for oil. The industry experienced negative prices as demand dried up during the April crisis. The market discovered that no one wants it nor has the capacity to take it due to the lack of available storage facilities.
On the upside, Covid-19 has resulted in the largest ever fall in CO2 emissions on record and investment in ESG funds shows no sign of slowing down. Companies now face ever greater scrutiny for each ESG component. More than ever, evaluating and measuring these metrics will be a crucial part of understanding and evaluating the success of investments.
A new development for emissions reporting are ‘Avoided,’ or “Scope 4’ emissions. This metric tracks what companies have done to reduce emissions through innovations and technological advancements. Rather than measuring the active reduction of polluting activities, the Avoided or Scope 4 metric seeks to measure what companies have done to save fuel and emissions.
Meanwhile, physical distancing and social isolation have given the wider public a lot more time to engage in unusual extracurricular activities in support of the environment. A case in point was reported by the BBC when 12,000 citizen scientists volunteered in just four days to help with back-filling UK rainfall data as far back as the 1930s.
Could the rise of ESG combined with collective action on behalf of the environment represent a permanent attitudinal shift toward more responsible environmental stewardship? Only time will tell.
This month the Coronavirus threat spread from Asia Pacific towards European and Global markets.
In its wake came speculation about the long-term systemic impact of the pandemic, not only on health and wellbeing, but also on our societies, economies and politics.
This piece from Andrew Norton at IEED considers the impact of the pandemic on climate change and climate actions, in terms of emissions, global and national politics, and social change. (Reports have already shown that measures to contain it have caused output across key industrial sectors in China to drop by as much as 40%, which is likely to have wiped out a quarter or more of its carbon emissions since February).
Only a few weeks ago, many of us were concerned that the pandemic might eclipse coverage of longer-term threat of climate change and the urgent need to decarbonise the global economy; but in fact the opposite has occurred.
The pandemic has confounded these fears by raising awareness of the climate emergency and putting biodiversity on the map as an issue which demands the attention of the public and policymakers.
Here’s an example of how much things have changed in just a few weeks:
Only last month, at the Sustainable Finance Breakfast in London, Ben Caldecott, of Oxford University’s Sustainable Finance Programme, informed the audience that the Biodiversity lobby were aggrieved that their issues weren’t receiving the attention they deserve because of the media’s preoccupation with climate change. The Coronavirus pandemic however, has now changed all that as evidenced by this letter to the Times from Carlos Manuel Rodriguez, Cost Rica’s Minister of Environment, calling on global leaders to harness our fears, build hope and drive action to build resilient societies on the longer term by putting climate change and biodiversity at the top of the political agenda."
This month nearly all countries participating in the Paris Agreement are set to miss the February 9th deadline to strengthen plans to fight climate change despite the United Nations warning that action is vital in 2020 to avert runaway global warming.
In 2015, the Paris Agreement stated that one of the fundamental components was raising global ambition towards reducing greenhouse gas emissions every five years, however, so far only three countries have upgraded their climate plans nine months before the Cop26 summit in Glasgow.
The UN decision to implement the Paris Agreement states that climate action plans such as Nationally Determined Contributions (NDC’s) must be submitted to the UN at least nine months before the start of the summit.
These NDC’s are crucial in defining national policies for the next 5-10 years yet many countries have yet to upgrade their climate plans.
While the Marshall Islands, Suriname, and Norway have submitted their NDC’s before the February deadline, it is disappointing nonetheless that no other country was able to have upgraded climate plans in a timely manner. Now, approximately 107 countries have stated that they will greatly enhance their NDC’s by the end of 2020 and these countries will account for 15.1% of global greenhouse emissions.
Although these actions are a step in the right direction, much more action will be necessary in order to be on track for the Paris Agreement.
UK Prime Minister Boris Johnson’s firing of Claire O’Neill, who was set to speak at the start of the summit in Glasgow, has contributed to uncertainties already in place.
Source: Climate Change News / Carbon Brief
A jarring start to the new year. For the first time in history, environmental concerns dominated the top five long term global risks for business leaders, investors, and policy makers. The biggest risks to the global economy are extreme weather, climate action failure, natural disasters, biodiversity loss, and human made environmental disasters, all consequences of climate change.
To give an example, short-term heatwaves and the destruction of natural ecosystems were both ranked third and fourth respectively as risks most likely to rise in 2020, ahead of risks such as data fraud, cyberattacks, water crisis, global governance failure, and asset bubbles.
The main focus of the World Economic Forum in Davos is to begin to seek ways to build political and societal cohesion in order to help drive a collective global response to climate change.
Donald Trump, Angela Merkel, Ursula von der Leyen, and Greta Thunberg will attend the event later this month. It remains to be seen whether substantive progress will be made in Davos.
Source: Climate Change News / Carbon Brief
After one of the longest climate conferences in history, Cop25, there is concern about the gap between the goals of countries in terms of their climate proposals, and the goals scientists say is actually needed. While the Chilean president of the Madrid talk made reference to the terms “ambition” in relation to action, the text drafted in the meeting lacked a clear time frame for stepping up proposals and policies.
The policy document “urges those parties whose intended nationally determined contribution pursuant to [make a] decision that contains a time frame up to 2025 to communicate by 2020 a new nationally determined contribution” (Decision CP.21).
Additionally, it requests that “those parties whose intended nationally determined contribution pursuant to [make a] decision contains a time frame up to 2030 to communicate or update by 2020 a new nationally determined contribution.” (Decision CP.21).
This clearly is an elastic time frame that gives neither direction nor periodic deadlines to measure progress for countries on their NDC’s.
If, in the wake of COP 25, country targets aren’t raised until 2025, then the future looks ominous.
Source: Climate Change News / Carbon Brief