What's Happening in Sustainability? (Week Recap 18.07 - 24.07) 🌎

This week’s read time: 6 minutes

Welcome to this edition of Green Digest, where you will get updated about everything happening in the sustainability & ESG space in less than 10 minutes 🌎We go through tons of articles and data from the most reliable sources, filter & simplify them and serve them to you in bite-sized chunks every week. 🍀

⭐️ The week’s top news:

💭 Insight: The growing importance of international climate politics and diplomacy is now relevant to a much bigger audience beyond policy wonks, including businesses. Companies will need to navigate geopolitics as they consider the best way to decarbonize their supply chains and how to comply with new cross-border regulations coming from the EU and elsewhere. To illustrate the point, the recent visit of US climate envoy John Kerry to China has drawn unprecedented interest not only from climate policy experts but also from policymakers and professionals in various fields. Many were curious about how the visit might affect businesses reliant on Chinese exports of climate-related technology. The global economy's shift toward low-carbon energy and industry has made climate more relevant to the geopolitical center stage. Governments around the world are now implementing cross-border regulations to encourage the decarbonization of economies, incentivizing domestic production of clean energy technology, and shoring up relationships that will allow them to buy and sell climate technologies. However, this rise in climate geopolitics comes with risks, and companies should be aware of the potential geopolitical friction that might halt exports of goods related to decarbonization.

⛔️ MSCI has found that the vast majority of European funds marketed as sustainable are not aligned with the EU's list of climate-friendly investments or taxonomy, largely due to insufficient data. Nearly nine in 10 Article 8 funds and 63% of Article 9 funds said they did not have taxonomy-aligned investments, limiting the pool of funds for ESG-minded investors to buy. MSCI also found that only 2% of European-domiciled equity funds, and zero fixed-income funds, had at least 20% of their revenue taxonomy aligned.

💡 The Energy Transitions Commission (ETC) warns that the energy transition could lead to a shortage of metals like lithium, nickel, graphite, cobalt, neodymium, and copper within the next decade unless investment is increased. The ETC estimates that $70 billion per year is needed to expand supply, but annual capital investment in energy transition metals has only averaged $45 billion over the last two decades. To reduce the risk of shortage, the ETC suggests increasing recycling, improving material efficiency, investing in new mining, and regulating environmental and social standards.

🌎 Ahead of the COP28 UN summit on climate finance, countries are preparing to discuss money that large economies provide to help poorer states cope with climate change. The list of countries obliged to contribute dates back to UN climate talks in 1992 and includes 23 countries, with the European Economic Community also included. Analysts estimate that only seven countries (Denmark, France, Germany, Japan, the Netherlands, Norway, and Sweden) paid their "fair share" in 2020, with the US lagging behind every other developed nation. Finance is set to be a major topic at the upcoming summit, with nearly 200 countries discussing a fund to support vulnerable countries suffering climate-caused damage and a new climate finance pledge for after 2025.

🇺🇸 U.S. banking regulators have stated that they do not expect big banks to stop serving any clients or sectors as they take on climate-related risks. The Office of Comptroller of the Currency, Federal Deposit Insurance Corp., and Federal Reserve Board of Governors testified that regulatory oversight roles won't be used to push banks away from businesses or sectors. The agencies are pressing banks to look into exposures to climate-related risks, but they haven't called for blanket bans on working with the oil-and-gas sector, despite pressure from climate activists and some politicians.

🇮🇳 New rules released by the Securities and Exchange Board of India require ESG funds to have at least 80% of their assets invested in securities aligned with their specific strategies, and asset managers to provide monthly ESG scores for holdings. The rules also introduce a new ESG investment sub-category for funds, allowing mutual funds to offer several ESG schemes to investors. Asset managers will be able to offer multiple ESG funds under a series of defined strategies, and new disclosure requirements include the name of the fund to clearly include the ESG strategy and for BRSR scores to be included in monthly portfolio statements.

• ESG is the top long-term investment priority for CFOs, according to a survey by EY, but paradoxically is also the most likely area to experience near-term budget cuts as companies focus on boosting short-term results. The survey included 1,000 CFOs and senior finance leaders across 21 countries and 13 industry segments from companies with revenues greater than $1 billion. "Sustainability" was also reported as a top three priority for the transformation of organizations' finance function over the next three years, with "technology transformation" and "advanced data analytics" in the top two spots. 🟢

• The UK High Court has rejected ClientEarth's climate-focused legal action against the board of directors of Shell, stating that the organization has not "made out a prima facie case that the Directors are in breach of their duties." ClientEarth launched its lawsuit in February, arguing that Shell's energy transition strategy was flawed and putting shareholder value at risk. The suit was dismissed in May, but ClientEarth plans to appeal the dismissal. ⛔️

• Foreign companies, particularly from South Korea, Japan, and China, are the biggest beneficiaries of the 2022 climate law in the US, accounting for over 60% of the nearly $110 billion in clean-energy projects spurred by the Inflation Reduction Act. These overseas companies will also be able to claim billions of dollars in tax credits, with Japan's Panasonic estimated to earn over $2 billion a year in tax credits based on the capacity of battery plants it is operating or building in the US. While the climate law is designed to build up domestic supply chains for green-energy industries, the technology for building batteries and renewable-energy equipment resides overseas, leading to foreign companies investing in the US, often alongside domestic businesses. 🇺🇸

• Over 80% of business leaders globally report being confident that their companies’ reporting processes will meet emerging disclosure requirements, according to a survey by Honeywell. The report also found that 93% of respondents said their organizations have formal plans in place for reporting on their progress toward meeting sustainability goals, and 86% plan to increase investment in environmental sustainability initiatives over the next 12 months. However, respondents appeared slightly less confident in achieving their sustainability goals, with 74% reporting optimism about achieving their 2030 sustainability goals, down 3 percentage points from the prior survey. ✅

🧐 What are companies doing?

• The European Commission has approved €2.85 billion ($3.2 billion) in aid to support steelmakers Thyssenkrupp and ArcelorMittal in their efforts to reduce carbon emissions. The funding will help the companies decarbonize production and remain competitive with global rivals while also preventing the industry from leaving to other subsidy-rich regions. The approval marks a major milestone for Thyssenkrupp, which depends on public funding to decarbonize steelmaking, while ArcelorMittal is planning to use the French government grant to decarbonize its production at Dunkirk, France. 🟢

• Amazon will require suppliers to report their carbon emissions data and set emissions reduction goals as part of its initiatives to achieve net zero carbon emissions by 2040. Scope 3 emissions account for over three-quarters of Amazon's emissions footprint and the new requirements will be included in the company's updated Supply Chain Standards in 2024. Amazon also reported progress in its energy transition, with a goal to power its operations with 100% renewable energy by 2025 and a growing fleet of electric delivery vehicles. ✅

• Virgin Atlantic, along with a consortium including Rolls Royce, Boeing, and others, plans to conduct the first-ever transatlantic flight using 100% sustainable aviation fuel (SAF) on November 28, 2023, pending regulatory approvals and testing. The flight will be conducted on a Boeing 787 Dreamliner from London Heathrow to New York JFK and will demonstrate the potential of SAF as a 100% drop-in replacement for fossil-based jet fuels. SAF currently represents less than 0.1% of jet fuel volumes, and fuel standards currently allow for only a 50% SAF blend in commercial jet engines. 🛩️

• ING and the European Investment Bank have launched a sustainable finance program aimed at providing €600 million in new loans to small and medium-sized enterprises in Belgium, the Netherlands, and Luxembourg to enable investments with a positive climate and environmental impact. The fund will provide low-interest loans and leases to businesses in the Benelux region looking to make climate-focused investments, such as electric vehicles, sustainable production, and green buildings. Half of the funding will benefit ING’s corporate clients in the Netherlands, while the other half will support clients in Belgium and Luxembourg. 📈

That’s it for this week, thanks for making it to the end! If you enjoyed reading this newsletter, don’t forget to subscribe and share it 🍀