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Ending deforestation is essential to achieving net zero targets and mitigating the worst impacts of climate change. Yet agricultural commodity production continues to drive forest loss at an alarming rate. Investors are looking for companies to mitigate these and other risks, including new global regulations, by incorporating comprehensive, time-bound no-deforestation policies in their transition plans. 

To assess the efforts of some of the world’s largest companies to eliminate deforestation from their supply chain at a foundational level, Ceres developed the Deforestation Scorecard, simply asking: Does the company have a robust no-deforestation policy? 

Key findings of 53 companies:  

1. Most companies assessed have a no-deforestation policy, but only 18 companies have a company-wide, no-deforestation policy that covers all the commodities subject to new European Union regulation.  
2. Only four have policies that cover their full supply chains and all their sourcing regions, exposing them to reputational and market risks.  
3. Most companies have specified a target date by when they intend to fully implement their no-deforestation policies. But only eight of these company policies are ambitious enough to meet the recommended 2025 no-deforestation target date.  
4. Only five include a cutoff date that prohibits commodities from being produced on land that was deforested after 2020. A 2020 cutoff date is necessary for compliance with the new EU regulations and removes the incentive for continued deforestation. 

Now in its 19th edition, this report uses publicly reported data to compare the emissions performance of the 100 largest power producers in the United States. These producers own more than 3,800 power plants and account for approximately 80% of the sector’s electric generation and reported air emissions. 

The global transition to a low-carbon economy will provide banks with an enormous commercial opportunity, as borrowers seek new financing for sustainability and climate solutions.  

In 2022, for the first time ever, companies raised more money in the debt markets for climate-friendly projects than fossil fuel projects, with banks earning estimated $3.3 billion in fees on $580 billion of green financings, exceeding the $2.5 billion of fees generated from raising debt for fossil fuel companies.

And that was before the Inflation Reduction Act, with its combination of tax credits designed to spur consumer demand and corporate investment in clean technologies, had begun to have an impact. Around $350 billion in new capital investments in clean energy have been announced since the law passed in August 2022--and some estimates suggest the law will unleash as much as $11 trillion of investments by 2050. 

The goal of this guide is to help U.S. banks, credit unions, and minority depository institutions position themselves to take full advantage of this unprecedented commercial opportunity.  

Using the framework of an opportunity ladder, this report lays out specific examples of innovative financial products and services, as well as a description of the infrastructure and internal resources financial institutions will need to unlock them.  

Regardless of where banks are on the opportunity ladder, this guide is designed to help them engage existing borrowers, onboard new clients, and drive revenue growth. 

From using food additives like seaweed that reduce how much methane cattle produce to breeding perennial rice that isn’t grown in water and grows back each year, food companies are developing and deploying innovative approaches to slashing agriculture’s greenhouse gas emissions. This innovation is critical for the food sector’s climate transition as raising animals and growing crops is responsible for up to 35% of human-produced emissions.   

In a new report, Cultivating Innovation: Practical Solutions for Companies to Reduce Agricultural Emissions, Ceres lays out both the emerging and the ready-to-deploy technologies and approaches that are the future of a low-carbon, sustainable food system.  

The report helps investors and companies understand the emerging solutions to reduce the main sources of agricultural emissions. By spurring innovation of new solutions while also incentivizing the adoption of existing practices, food companies have a key role to play in the sector-wide transition to a decarbonized economy. 

Carbon allowances are emerging as a fascinating new asset class. As Europe’s carbon market matures, it is starting to display distinct equity market correlations.

Should it be free for companies to pollute as much as they want? Ask any economist and the answer will be a resounding no. Corporate decision making should face a carbon price that fully includes the social cost of their behavior. In Europe, at least, that has meant putting in place ambitious policies to reach emission reduction targets. Such proposals to tackle climate change remain controversial among U.S. policymakers, though California and several other US states operate their own carbon markets.[1] Still, Europe offers a fascinating test case on how carbon taxes and carbon markets use market forces to lead to reallocate resources in society so as to lessen pollution.

There are now 73 carbon tax and carbon market policies around the world, creating a price that encourages companies to cut emissions. Such policies cover ~23% of global emissions, a significant increase from ten years ago when only 7% of emissions faced a price on carbon. However, for most of these policies, the carbon price is far too low to reach emission reduction targets.[2] Expanding the coverage and strength of carbon price policies is an objective supported by many companies and investors.

The growth of the ETS market has caught the eye of investors, turning carbon into a new asset class. Our Chart of the Week shows that correlations of EU carbon allowances with European equities (as measured by the MSCI European Union index) have grown tighter over time.

The oil and gas sector has been strongly outperforming the alternative energy sector. There are many reasons for that. Higher interest expenditure is one of them.

Can there actually be a more attractive sector? Insatiable demand, intense desire socially and from political leaders, tax and other incentives, and, last but not least, high barriers to entry given the high level of innovation required and the benefit of big economies of scale? We are talking about alternative energies. But the attractiveness of the sector is certainly not evident at present in its results. On both sides of the Atlantic, companies connected to alternative energies have regularly been among the most negative outliers. The profit warnings have not stopped for some time. Supply chain problems, cost inflation and higher interest costs are the main reasons given for the sometimes glaring earnings misses.

Aren't all sectors facing these problems? As our Chart of the Week shows, alternative energies have been hit particularly hard. Relative to the overall market, they have been performing disappointingly since early 2021. And since the beginning of this year, their woes have worsened. Is the problem the sector's high level of capital intensity? One argument against this is the very strong performance of the oil sector, which the chart also shows. So let's start from the beginning.

In the face of increasing climate and environmental concerns, many companies in the energy sector are investing in renewable energy to improve their carbon footprint and provide more clean energy to their customers. Wind and solar energy have become increasingly competitive with traditional energy sources, such as coal and natural gas, in recent years.This had made them an attractive investment for companies looking to reduce their dependence on fossil fuels. But unfortunately, that doesn't mean everything is encouraging for investors...

This report:

• Describes the Company’s responsible investment approach, which incorporates its Environmental, Social & Governance (ESG) Charter;
• Presents key responsible investment objectives and performance, describes our targets for the future, and tracks progress towards these; and
• To the extent possible, the description of progress against the ESG commitments of the Company on page 7, together with the ESG performance data throughout, are presented as at, or for the year to, 31 December 2022

Kroger have released their 2023 ESG Report covering key areas including:

• People - advancing Food Access, Health & Safety, and creating a more Just & inclusive Economy
• Planet - addressing climate impacts and supporting resource conservation by eliminating food and operational waste, increasing efficiency across our company and boosting the sustainability and resilience of our supply chain.

Yum! Brands: Global Citizenship & Sustainability Report 2022

Yum! Brands Inc have released their 2022 Global Citizenship & Sustainability Report, they cover key areas including:

• People - employees, franchisees, suppliers; social impact, community impact
• Food - food safety, balanced choices, animal welfare, limiting antibiotic use
• Planet - less carbon, deforestation, better packaging, water security

In the third edition of its Social and Environmental Responsibility Report, LVMH details the strategy deployed in 2022 and the Group’s many corporate responsibility initiatives. Beyond its financial performance, LVMH also reports on its commitments to society, the environment and culture.

Portfolio diversification is a basic building block of modern portfolio theory and practice for investors in traditional asset classes and real assets alike. Combining uncorrelated assets in a portfolio increases expected returns without additional risk, thereby improving portfolio efficiency—making higher returns achievable at every risk level.

In this paper, we explore the primary sources of diversification in natural capital investments, focusing on geography, market, and crop/species. We highlight risks with potential for mitigation through diversification and examine individual strategies for achieving meaningful diversification. Finally, at the portfolio level, we provide quantitative examples of how diversification can reduce risk and improve the expected performance of natural capital portfolios.

• Scope 3 disclosure rate: Construction > Transport OEMs > Capital Goods; Scope 3 emissions larger than Scope 1 and 2
• A combination of more regulations and changing consumer demand is creating opportunities for first movers in Scope 3
• We present six Scope 3 case studies: Caterpillar, CSCI, Hyundai Motor, Keppel, Longi Green and Weichai

Clients of HSBC Global Research can access the full report via the HSBC Global Research website or by contacting Wai-Shin Chan

Diala Hawila, Knowledge Policy and Finance Centre programme officer at International Renewable Energy Agency, speaks with Katerina Atkins, programme coordinator at OMFIF, about the energy transition investment required under the 1.5°C scenarios, geographical aspects and key financing tools.

They both discuss the importance of innovative instruments for under-invested countries, the need to expand the definition of risk in energy asset investments and the urgency of international collaboration for a more equitable and global distribution of clean energy funding. Diala shares her expectations for the upcoming COP28, highlighting exciting opportunities arising from transition to a more sustainable future.

It’s the first formal stocktake of how seriously the world is taking measures to combat climate change. So, will the upcoming COP28 summit in Dubai yield any concrete results?

Summary

• COP28 provides stocktake of progress in meeting the Paris Agreement
• Climate fund and transition finance on agenda for summit in UAE
• Phasing out of fossil fuels and impact of nature also take center stage

Transition finance is a particularly challenging concept to move from idea to reality. In contrast to sustainability, which has been defined in taxonomies, there are far more pieces in the puzzle when creating transition finance. It is made up of more discrete thresholds when evaluating and assessing credible transition thresholds. The Climate Bonds Initiative has compared a range of transition guidance methodologies and created a mapping of the issues covered or omitted from each guidance, some related to transition finance and others focused on corporate transition planning.

As an example, evaluating the Paris alignment of emissions targets is a critical part of most transition guidance, especially the inclusion of short- and medium-term targets and alignment of emissions metrics against credible science-based pathways. However, there is substantial variation around the inclusion of interim emissions targets, the inclusion of scope 3 emissions, identification of primary metrics among those available, and timeframes for aligning with science-based pathways.

The consequence of the misalignment between different guidance on transition finance is important because it creates a barrier for companies and financial institutions to contribute to an important, difficult aspect of the decarbonization process. There are much more clearly defined definitions about what activities are most sustainable (‘dark green’ in classification terminology) in that they provide a climate solution that is needed to achieve the Paris Agreement targets. There are also clear, although not always unambiguous, definitions around economic activities that are incompatible with the global transition.

The gap between these two ends of the spectrum is not entirely included in the ‘transition’ category. Companies that are not working on transition or those that are not doing so in a systematic and credible way may not be incompatible with the climate transition, but they would not be included in the transition category. Clear guidance on transition plans and transition finance provides a way to separate out companies involved in the transition from those that are not ‘dark green’ but describe in general terms their interest in sustainability while not being able to meet transition criteria.

For a financial institution, especially one operating in emerging & developing economies where ‘dark green’ assets are relatively scarce, there is a tension in its sustainability efforts related to climate change. On the one hand, investors may be looking at the share of activities a bank finances that align with a regional or national taxonomy, or its progress in bringing down reported financed emissions.

Transition finance may not contribute to either of these objectives because most corporate transition occurs far from the thresholds for ‘green’ activities. In many cases, expanding finance to a corporate customer beginning a transition process may counterintuitively increase financed emissions if it includes high-emitting assets in a bank’s portfolio rather than a not ‘dark green’ but more modest emitter without transition plans.

When financial institutions are confronted with the choice to pursue ‘paper decarbonization’ of their financing portfolio by dropping high-emitting customers, or transition finance that brings financing of more high-emitting companies onto their balance sheet, they have to walk a tightrope. They will face pressure from business, government or labor groups to support a Just Transition by continuing to provide finance to high-emitting businesses.

They will face investors who have quantitative targets for emissions that may have binary ‘invest/divest’ screens based on reported financed emissions per $1 million of balance sheet assets. They will also face regulators concerned about the quality of banks’ evaluation of climate and environmental risks who may view slip-ups, in the words of Frank Elderson at the ECB, as calling into question “the fitness and propriety of those in charge of establishing and steering banks’ practices”.

There is no easy way out of this situation, whether that is to only finance green activities or to ignore climate-related risks. The only realistic way is to finance assets that start by smoothing the path for offering ‘green’ finance for those that qualify. With other financing provided, every bank should be able to evaluate how much the direct and indirect emissions risks of different activities have salience for likelihood of on-time repayment, and transparently set priorities between mitigating climate risk to the bank from an individual counterparty and contributing to an economy-wide decarbonization that meets stakeholder expectations for a Just Transition.

There are trade-offs between these outcomes. More finance for green projects may mean more constrained lending to higher-emitting companies. More transparency about financing provided to companies with transition plans may mean more stringent disclosures required of customers. A focus on credible, transparent transition plans may make it harder for companies with fewer resources to develop a transition plan to access finance.

Each individual bank doesn’t have to carry the weight of these issues all on its own, because there are substantial efforts to improve definitions of what ‘credibility’ in a transition plan looks like. Regulators are also increasing the minimum expected in terms of climate-related risk evaluation. And investors will also likely improve their ability to ‘look beyond’ customer Scope 1 and Scope 2 financed emissions metrics as a sole source of truth on a bank’s climate-related risk.

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Banks play a critical role in mobilising green finance, but efforts to redirect financing away from polluting activities remain insufficient. Meanwhile, regulatory pressure is intensifying as claims of greenwashing mount. Banks’ green finance targets and disclosures have not benefited from the same level of scrutiny as carbon-related ones, and guidance remains limited in this area. This makes the direction of travel difficult to gauge. Emerging research suggests that most banks are not allocating enough financing to green activities relative to their financing of fossil fuels. Various greenwashing cases have put banks’ sustainability claims under the spotlight, and regulatory pressure is intensifying through the roll-out of taxonomies and reporting requirements. Banks must adjust swiftly to this environment and ensure their green finance targets and disclosures are sufficiently robust and transparent.

ShareAction assessed how the 20 largest listed European banks – including those headquartered in the EU, the UK, Norway, and Switzerland – set green finance targets and report on green financing. Our analysis focuses on banking activities and excludes asset management (see Methodology). We show that banks’ green finance targets and disclosures are not fit for purpose and could lead to misleading claims. 

Climate change is likely to be the defining topic of this century. In this report, we assess the potential effects of climate change on the global economy, as new evidence suggests that GDP impacts could be much larger than thought. We examine what can be done by looking at the response in terms of the scale, type and distribution of investment needed to reduce emissions and transform the global economy, and the impact this could have on the world. We consider this within each of HSBC's nine themes and how they interact with climate change; together, they will all make an important contribution to the low-carbon economic change and transformation that is already underway across the world.

The impact of rising global temperatures is already becoming abundantly clear after living through record-breaking global heat in 2023, and the increased frequency and severity of extreme weather events, such as heat waves, flooding and wildfires, can have huge social and macroeconomic implications.

But all is not lost. There are many reasons to be optimistic that the world can act in ways that reduce the immense risks from higher global temperatures, in particular, temperature rises over 1.5°C, a level climate scientists say increases the risks of very disruptive and possibly irreversible climate changes. There are many things that can be done now to substantially reduce emissions and the risks of extreme and irreversible climate impacts hitting societies and economies.

Clients of HSBC Global Research can access the full report via the HSBC Global Research website or by contacting Wai-Shin Chan

Klement on Investing: I didn’t know that did you?

Despite global consensus on the need to decisively tackle deforestation, conversion and associated human rights abuses - including to achieve vital climate and nature targets - these continue unchecked. Progress in some places is eclipsed by ongoing global impacts. We are operating on borrowed time.

Following our baseline assessment of more than 550 financial institutions last year, Global Canopy has this year undertaken a full and detailed stocktake of action on deforestation by more than 700 financial institutions that have strong net-zero commitments as part of GFANZ or related groups.

Assessing against best practice, our Deforestation Action Tracker finds that the sector is largely failing to act. 75% (536) of the financial institutions assessed still do not have a public deforestation policy, and just 10% (69) have a deforestation policy in place for all highest risk commodities. This shows a slight improvement on the baseline conducted in 2022, but far slower than the pace of action needed.

Financial institutions are therefore exposed to the growing regulatory, reporting and compliance risks around deforestation. Most are also misaligned with the urgent priority given to deforestation by the GFANZ leadership, which is also embedded in GFANZ transition guidance.

A new psychological contract is transforming the modern workplace, highlighted by an increase in collective actions and changing employee expectations.

A central feature of the employment relationship is the set of expectations that employers and workers have of one another. Sometimes less visible are the expectations that workers have of their employers. It’s all part of a psychological contract between employers and their workers. We are currently undergoing a fundamental change in the core foundation of the existing psychological contract—one that is likely to have material implications for investors. 

Irrespective of industry, workers and their employers operate within the context of a general psychological contract—informal, implicit, trust-based agreements about reciprocal commitments and expectations. Although they’re stable in the short run, these unwritten contracts evolve and shift over decades. 

Traditionally, psychological contracts have been internally focused. Employers were willing to offer their employees job security, competitive pay and mobility within the firm in exchange for effort, commitment and company loyalty. 

Owing to competitive pressures, psychological contracts in the developed world began to change in the late 1990s. In an effort to adapt to changing employer needs, the terms of the psychological contract were revised to include providing transferable job skills and real-world experience in exchange for effort and employee engagement. 

In the coming years, AB believe investors will need to reconsider how companies address employment and labor relations. Traditionally, firms have managed their workforces with an eye toward company-specific concerns. But as employees become more vocal in their expectations, investors should expect the line between external public relations and internal labor relations to become hazier. 

Across the global economy, there is an urgent need to tackle unsustainable patterns of consumption. The planet’s capacity to support human consumption is finite, and a recent assessment reveals serious imminent threats to multiple physical and biological systems that are key to human well-being. Consumption practices must change for this pressure to ease.

There is broad global agreement on the need for action. ‘Ensuring sustainable consumption choices’ is Target 16 of the Global Biodiversity Framework (GBF) agreed under the United Nations Convention on Biological Diversity (CBD), a treaty to which 196 states are party...

...The holistic measure provided by GEIC data – accessible online through the Commodity Footprints dashboard – offers a starting point for governments in assessing their trade-related consumption footprints. As a hotspotting tool, it highlights agricultural commodities and producing countries of particular interest, and reveals trends in their significance over time.

Used in combination with other data sources, such as industry disclosure, this can guide and support investment in more detailed assessments , deeper engagement by policymakers with key sectors, and the design of consumer-focused campaigns and interventions.

The Powering Progress: Batteries for Discoms report explores the market opportunity for front-of-meter BESS within India, with an emphasis on the power distribution sector and distribution companies (Discoms). Distribution-located storage (DLS) can contribute to the duties of Discoms by providing benefits in terms of distribution system capacity deferral at the substation level, particularly in dense urban areas experiencing peak load increases where there is limited space to expand the physical footprint of the distribution system. DLS can also meet Discoms’ portfolio needs by providing resource adequacy value and minimizing Deviation Settlement Mechanism penalties and voltage support. BESS can meet grid balancing needs by participating in wholesale markets such as energy arbitrage and ancillary services.

At present, many of these value streams are not fully monetizable. While the long-term value propositions could be favorable to a Discom investing in DLS (as compared with other alternatives that may increase overall system costs), the inability to accurately assess future revenue streams is inhibiting project approval...

...To ensure rapid deployment of battery storage to meet system needs as costs decline, it is essential that stakeholders, including Discoms and regulators, are informed of BESS value and have strategies to effectively procure and utilize storage technologies.

The magic word these days for investors seems to be ‘transition’. How we travel, rather than arrive, has become the principle definition for the success of all overarching sustainability topics. ESG momentum depends on it – so are we actually getting there?

Summary

• Positive change is expected when investing in negative impact companies
• There is an overlap between sustainable and transition investments
• Transition at portfolio level does not always equal transition at company level

What does it take for a business to tell its sustainability story effectively? Who does it well? The Investis Digital (IDX) Sustainability 100 has all the answers.

Our report ranks the Top 100 global leaders who use digital most effectively to build their sustainability reputations. We’ve used our proprietary Connect.IQ methodology to evaluate hundreds of leading global corporate websites against 50 different sustainability-focused criteria. Ranking them based on the transparency, leadership, and connectivity that they demonstrate with digital content, we developed The Sustainability 100.

Highlights

44.3% Women in senior leadership, FY22: 42.4%

17,673 Hays’ employee volunteering hours, FY22: 9,433 hours

16,778 CO2e tonnes (Our scope 1, 2 and Business travel scope 3 GHG emissions)

Robeco: 2024 Outlook: Exit stage right for Goldilocks

Robeco’s new one-year outlook warns that the ‘Goldilocks’ scenario of a soft landing for the global economy faces increasing headwinds. 

For the second year, the outlook has been split into two parts: the first looking at the likely economic conditions facing investors, and the second reviewing the sustainable investing landscape. The macro part says that the Goldilocks concept is indeed a fairy tale, with four major macro factors to contend with in the new year, led by the ‘swansong for immaculate disinflation’.

Sustainable investing also faces continued headwinds next year, though five key regulations including US and EU climate directives will boost the style in 2024, the outlook says. And in the longer term, structural trends led by client and societal demand are set to make sustainable investing simply unstoppable.

Water is a critical natural resource, a global public good, and an essential service. Water security is central for countries to achieve long-term development objectives in the current context of climate change, including protecting infrastructure assets, safeguarding agricultural production, producing sustainable energy, and protecting vulnerable populations.

However, water resources are under severe stress and water services delivery is deficient due to underinvestment in the sector. Current levels of global investment in water are inadequate to meet the water sustainable development goals (SDGs) and address climate impacts. Large, coordinated flows of public, concessional, and private capital are needed to compensate for decades of underinvestment in the water sector, and to meet present and future challenges.

Governments have a leading role to play in establishing the enabling conditions and necessary reforms to facilitate a greater flow of public and private finance for required water sector investments. International financial institutions and multilateral development banks need to support these efforts, together with other stakeholders, at the country level. The private sector, in addition to being a key user of water resources and a beneficiary of water services, has an important role to play in providing financing, innovative approaches, and expertise, as well as absorbing risk, with aligned incentives for achieving targets and efficiency levels.

The World Bank Group recognizes the water-climate-food-energy nexus and the importance of a water secure world for all. The World Bank Group’s scaling up finance for water strategic framework outlines actions and priorities for national governments, the World Bank Group, and other development partners to improve the planning and mobilization of funding and financing for water sector investments, and to promote efficiency in spending. It aims to do so by optimizing the contributions of the public and private sectors and facilitating greater engagement of the private sector in the provision of capital, innovation, and expertise.

The framework focuses on these priorities: 

• Creating the enabling conditions for scaling up finance through reforms and regulations, sector restructuring, capacity building, and incentives. 
• Mobilizing private sector participation through concessions, BOTs (Build-Operate-Transfer), performance based contracts, and other instruments to improve operational efficiency and financial viability.
• Diversifying and expanding the range of financial solutions available to each country depending on its context, covering commercial debt, bonds, microfinance, public-private partnerships, and equity instruments. 
• Advancing climate action through water projects that help build resilience and adapt to and mitigate the effects of climate change. 

See here for more information

Since the publication of their 2022 report on greenwashing, RepRisk have experienced a surge of interest from clients, partners, and researchers in the identification and measurement of greenwashing risk. With another year’s worth of ESG risk incident data, RepRisk return to the analysis to see how the landscape has evolved.

The scope has been extended to include social washing – a practice not currently as prominent as greenwashing, yet equally present. Most notably, in the data, social issues are, more often than not, inextricable from environmental ones – making a case for evaluating ESG as a holistic, interconnected topic.

The resulting analysis indicates that a growing number of both public and private companies have been linked to Misleading communication around environmental issues. Greenwashing risk has accelerated in Europe and the Americas, with the Banking and Financial Services sectors particularly exposed.

• In the past year (September 2022 – September 2023), one in every four climate-related ESG risk incidents was tied to greenwashing, an increase from one in five in the last report.
• The Banks and Financial Services sectors saw a 70% increase in the number of climate-related greenwashing incidents in the past year, compared to the year prior.
• For many, the practices go hand-in-hand, with nearly one in three public companies linked to greenwashing also associated with social washing.

The pervasiveness of greenwashing and social washing across regions and sectors presents risks for companies, employees, and communities. Misleading communication around environmental and social topics not only impedes progress towards collective goals, but also damages trust with consumers and investors. To identify and prevent Misleading communication around sustainability in compliance with emerging regulations, high-quality outside-in data that goes beyond company self-reporting is essential.

See here for more information and to access the report

Chapter 1 assesses that risks to global growth are skewed to the downside, similar to the assessment in the April 2023 Global Financial Stability Report. Cracks in the financial system may turn into worrisome fault lines should a soft landing of the global economy hoped for by market participants does not materialize.

Chapter 2 homes in on the global banking system, providing a fresh assessment of vulnerabilities in a higher-for-longer environment, using an enhanced global stress test and a set of newly developed market-based indicators. In response to the vulnerabilities that are uncovered, enhancements to supervisory practices and tightening of regulatory standards are proposed.

Chapter 3 notes that a broad mix of policies is required to unlock the private capital necessary to cover climate mitigation investment needs in emerging market and developing economies.

See here to download the full report, executive summary, foreword and watch the Press conference

The 2023 Interconnected Disaster Risks report analyses six key risks with approaching tipping points: the accelerating extinctions of species, the depletion of groundwater resources, the retreat of mountain glaciers, the growing number of places facing uninhabitable temperatures, the rise in uninsurability and the growing amount of space debris. These tipping points are representative of globally relevant trends pushing our socioecological systems to the brink. They represent a diverse selection across thematic categories worldwide to better explore the consequences of their global interconnectivity for both the changing risk landscape and the possible solutions.

The six risk tipping points are introduced in Chapter 2 in individual fact sheets that show the overarching risk to certain systems these tipping points represent, outlining the points when the systems tip and what impacts we might see now and in the future. The six fact sheets also show the interconnectivity between these tipping points, highlighting how risks across systems are intertwined. The concept of “risk tipping points” is further outlined in Chapter 3, explaining their similarities and differences with other types of tipping points, along with definitions and the methodology for tipping point selection. Chapter 4 discusses the interconnectivity of these tipping points, from their root causes and drivers to their similar trajectories in the future if we do not start to make better choices. Chapter 5 outlines different paths for either adapting to or avoiding risk tipping point impacts, by moving away from our current thinking around solutions for isolated problems and towards transformative change and a more resilient future.

The World Energy Outlook 2023 provides in-depth analysis and strategic insights into every aspect of the global energy system. Against a backdrop of geopolitical tensions and fragile energy markets, this year’s report explores how structural shifts in economies and in energy use are shifting the way that the world meets rising demand for energy.

This Outlook assesses the evolving nature of energy security fifty years after the foundation of the IEA. It also examines what needs to happen at the COP28 climate conference in Dubai to keep the door open for the 1.5 °C goal. And, as it does every year, the Outlook examines the implications of today's energy trends in key areas including investment, trade flows, electrification and energy access.

This flagship publication of the International Energy Agency is the energy world’s most authoritative source of analysis and projections. Published each year since 1998, its objective data and dispassionate analysis provide critical insights into global energy supply and demand in different scenarios and the implications for energy security, climate change goals and economic development.

In June 2017, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (Task Force or TCFD) released its final recommendations (2017 report), which provide a framework for companies and other organizations to develop more effective climate-related financial disclosures through their existing reporting processes. In its 2017 report, the Task Force emphasized the importance of transparency in pricing risk — including risk related to climate change — to support informed, efficient capital-allocation decisions.

With the release of the Task Force’s recommendations and supporting implementation guidance in 2017 and each year thereafter, the FSB asked the Task Force to continue its work — promoting adoption of the TCFD framework; providing further guidance; supporting educational efforts; monitoring climate-related financial disclosure practices in terms of their alignment with the TCFD recommendations; and preparing annual status reports. During this time, the Task Force has issued five status reports — with this being its sixth and final report. In the months between this status report and the 2022 status report, the Task Force has continued to see significant momentum around adoption of and support for its recommendations, including the International Sustainability Standards Board’s (ISSB’s) release of its climate-related and general sustainability-related disclosure standards — which are based on the TCFD recommendations.

This report describes companies’ progress in making climate-related financial disclosures and highlights some of the challenges they face in making such disclosures, including challenges with incorporating climate-related risks into their financial statements. The report also provides an update on significant actions by governments, regulators, and standard setters to use the TCFD recommendations in developing climate-related disclosure requirements and concludes with the Task Force’s view of insights gained over the past eight years and areas that warrant continued focus or further work by others.

Inadequate investment and planning on climate adaptation leaves world exposed

In 2023, temperature records toppled, while storms, floods, droughts and heatwaves caused devastation. UNEP’s Adaptation Gap Report 2023: Underfinanced. Underprepared – Inadequate investment and planning on climate adaptation leaves world exposed finds that progress on climate adaptation is slowing when it should be accelerating to catch up with these rising climate change.

The report – which looks at progress in planning, financing and implementing adaptation actions – finds that the adaptation finance needs of developing countries are 10-18 times as big as international public finance flows. This is over 50 per cent higher than the previous range estimate.

The modelled costs of adaptation in developing countries are estimated at US$215 billion per year this decade. The adaptation finance needed to implement domestic adaptation priorities is estimated at US$387 billion per year. 

Despite these needs, public multilateral and bilateral adaptation finance flows to developing countries declined by 15 per cent to US$21 billion in 2021. As a result of the growing adaptation finance needs and faltering flows, the current adaptation finance gap is now estimated at US$194-366 billion per year. At the same time, adaptation planning and implementation appear to be plateauing. This failure to adapt has massive implications for losses and damages, particularly for the most vulnerable.

This report identifies seven ways to increase financing, including through domestic expenditure and international and private sector finance. Additional avenues include remittances, increasing and tailoring finance to Small and Medium Enterprises and a reform of the global financial architecture. The new Loss and Damage fund will also need to move towards more innovative financing mechanisms to reach the necessary scale of investment.

See here for breakdown of the report, including Executive Summary, Key Messages, Case Studies and Statement by UN Secretary-General.

E3G, UNEP, Others: Production Gap Report 2023: Phasing down or phasing up?

Top fossil fuel producers plan even more extraction despite climate promises

Stockholm Environment Institute, Climate Analytics, E3G, IISD, UNEP

This is the fourth edition of the Production Gap Report, first issued in 2019. The report tracks the misalignment between governments’ planned fossil fuel production and global production levels consistent with limiting global warming to 1.5°C or 2°C. The report represents a collaboration of several research and academic institutions, including inputs and reviews from more than 80 experts from 30 countries spanning the Global North and Global South. The report is externally peer-reviewed, with additional guidance and support from the United Nations Environment Programme, and review by the United Nations Framework Convention on Climate Change’s government focal points.

This year’s report features two major updates to the production gap analysis, drawing on the new mitigation scenarios database compiled for the Intergovernmental Panel on Climate Change’s Sixth Assessment Report and changes in government plans and projections since August 2021. The report also provides individual country profiles for 20 major fossil-fuel-producing countries, evaluating governments’ latest climate ambitions and their plans, policies, and strategies that support fossil fuel production or the transition away from it.

The production gap analysis is based on recent and publicly accessible plans and projections for fossil fuel production published by governments and affiliated institutions. Other information presented throughout the report, such as details on fossil fuel investments and policies is supported by a mix of government, intergovernmental, peer-review, and other research sources listed in the references.

Ocean & Climate Platform: Policy Recommendations For Coastal Cities To Adapt To Sea Level Rise

4 priorities for cities and territories, 1 call for international action

The Ocean & Climate Platform (OCP) is an international network bringing together more than 100 organisations from civil society (non-governmental organisations, research institutes, foundations, local authorities, international organisations and private sector entities). Created in the run-up to COP21 in Paris, the OCP aims to promote scientific expertise on the major role played by the ocean and its ecosystems in the climate system, and to advocate for better consideration of these interactions by national and international decision-makers. Building on the wide-ranging expertise of its members, the OCP brings light to concrete solutions to protect the ocean, its biodiversity and the climate.

For coastal cities and territories to adapt to sea level rise, the Ocean & Climate Platform presents a set of policy recommendations to local, national and regional decision-makers, structured around the following 4 priorities:

• Solutions: Planning long-term adaptation responses tailored to the local context
• Social justice: Prioritising social imperatives in adaptation policies
• Knowledge: Developing new ways to generate and share operational adaptation knowledge
• Finance: Building a sustainable finance approach for coastal cities

The State of the Cryosphere 2023 – Two Degrees is Too High report by the International Cryosphere Climate Initiative shows that all of the Earth’s frozen parts will experience irreversible damage at 2°C of global warming, with disastrous consequences for millions of people, societies, and nature. Confirming that just 2°C of global warming will trigger irreversible loss to Earth’s ice sheets, mountain glaciers and snow, sea ice, permafrost, and polar oceans, it updates the latest science and highlights the global impacts from cryosphere loss.

Reviewed and supported by over 60 leading cryosphere scientists, this is the latest report in the State of the Cryosphere series, which takes the pulse of the cryosphere on an annual basis. The cryosphere is the name given to Earth’s snow and ice regions and ranges from ice sheets, glaciers, snow and permafrost to sea ice and the polar oceans – which are acidifying far more rapidly than warmer waters. The report describes how a combination of melting polar ice sheets, vanishing glaciers, and thawing permafrost will have rapid, irreversible, and disastrous impacts worldwide.

• At COP28, India will urge developed countries to move their net zero targets forward to 2040 and go net negative
• Likely to back ambitious renewable goals while retaining language on "phasing-down" of "unabated" coal power
• India to champion adaptation, and loss and damage, and push for stronger concessional finance commitments

Clients of HSBC Global Research can access the full report via the HSBC Global Research website or by contacting Wai-Shin Chan

UN EP: Broken Record: Temperatures hit new highs, yet world  fails to cut emissions (again)

Emissions Gap Report 2023

As greenhouse gas emissions hit new highs, temperature records tumble and climate impacts intensify, the Emissions Gap Report 2023: Broken Record – Temperatures hit new highs, yet world fails to cut emissions (again) finds that the world is heading for a temperature rise far above the Paris Agreement goals unless countries deliver more than they have promised. The report is the 14th edition in a series that brings together many of the world’s top climate scientists to look at future trends in greenhouse gas emissions and provide potential solutions to the challenge of global warming.

The report finds that there has been progress since the Paris Agreement was signed in 2015. Greenhouse gas emissions in 2030, based on policies in place, were projected to increase by 16 per cent at the time of the agreement’s adoption. Today, the projected increase is 3 per cent. However, predicted 2030 greenhouse gas emissions still must fall by 28 per cent for the Paris Agreement 2°C pathway and 42 per cent for the 1.5°C pathway.

As things stand, fully implementing unconditional Nationally Determined Contributions (NDCs) made under the Paris Agreement would put the world on track for limiting temperature rise to 2.9°C above pre-industrial levels this century. Fully implementing conditional NDCs would lower this to 2.5°C.

The report calls for all nations to accelerate economy-wide, low-carbon development transformations. Countries with greater capacity and responsibility for emissions will need to take more ambitious action and support developing nations as they pursue low-emissions development growth.

The report looks at how stronger implementation can increase the chances of the next round of NDCs, due in 2025, bringing down greenhouse gas emissions in 2035 to levels consistent with 2°C and 1.5°C pathways. It also looks at the potential and risks of Carbon Dioxide Removal methods – such as nature-based solutions and direct air carbon capture and storage.

HSBC: Global Technology - ESG Integrated 3.0: Scope 3 disclosures improving

• Scope 3 emission disclosures are improving, but it's patchy, and there's room to improve their accuracy and consistency
• Most Scope 3 emissions sit within the "purchased goods" and "use of sold goods" categories, which are hard to manage
• We provide eight case studies that show the Scope 3 journey

Clients of HSBC Global Research can access the full report via the HSBC Global Research website or by contacting Wai-Shin Chan

• Recently, some of the larger names, such as Samsung Electronics and Global Foundries, have started providing Scope 3 disclosures, but this is evolving slowly, and most have only detailed a few categories so far.
• Across Asia, we find that Taiwan had the best Scope 3 disclosure rate of 60% in FY22e followed by Korea at 54% and ASEAN tech at 17%.
• Mainland China's Scope 3 disclosure rate was only 9%.

We see problems related to accuracy and consistency, with companies taking different approaches to Scope 3 reporting. We expect Scope 3 disclosures to improve as companies continue to align these to overall industry standards, while focusing on their own emission reduction initiatives.

2° Investing Initiative: A practitioner guide for asset managers & asset owners to assess clients’ and beneficiaries’ sustainability preferences

In the European Union (EU), households own 35 trillion EUR in financial assets of which around one third is invested in equity and investment funds and another one third is invested in insurance, pensions, and standardised guarantees.

Most of this investment is not aligned with the sustainability motivations and preferences of EU investors. Currently, 60-70% of them repeatedly state that they actually want to sustainably invest their money. This gap between the current investment and the appetite of EU investors represents an untapped multi-trillion EUR opportunity for the European financial market. Hence, those investment managers who truly understand the sustainability motivations and preferences of their investors and manage to integrate them into their product offerings will have a significant competitive advantage compared to their peers. However, to close the unsatisfied market demand, new expertise and tools are needed to successfully integrate investors’ preferences into the development and management of new product offerings.

For this reason, 2DII and Maastricht University developed a practitioner guide for asset managers & asset owners to assess clients’ and beneficiaries’ sustainability preferences. We discuss five real cases in which the research team (including Paul Smeets (Universiteit van Amsterdam), Katrin Gödker (Bocconi), Marco Ceccarelli (Vrije Universiteit Amsterdam) around Prof. Rob Bauer (Chair Institutional Investors at Maastricht University) developed and applied surveys and experiments in different institutional contexts. For each case, we provide a table with a summary of the key background information and context, as well as a link to the surveys and elicitation methods. These methods are a function of the product, the legal context, and the financial institution’s context. The primary goal of the surveys and experiments were to improve the quality of the method to elicit the sustainability preferences from the beneficiaries of various contexts of pension plan arrangements and clients of mutual funds. 

From seeking to minimize risk and maximize returns for clients through the integration of material ESG issues, to advancing social impact and corporate sustainability programs, read how Barings Asset Management continue to advance ESG and sustainability work in the firm's second Sustainability report.

In this paper CPP shares details on its Decarbonization Investment Approach that enables emissions reduction and business transformation in high-emitting sectors. In addition to this approach, which utilizes its Abatement Capacity Assessment Framework, other tools that help capture and support value-creating opportunities include, but are not limited to: active ownership, developing nature-based and other technology solutions and scaling financing (such as, through green bonds).

See here for more information

Key findings

• Corporate decarbonization targets without capital commitments may lack credibility. As of Sept. 30, 2023, corporate issuers of labeled bonds led other bond issuers on our climate-target assessment, suggesting a more credible transition path.
• Issuers of sustainability-linked bonds (SLBs) performed better on these criteria than use-of-proceeds bond issuers. This could help alleviate some concerns about SLBs, although the devil is in the details of each transaction.
• While they led other issuers, many labeled-bond issuers still performed poorly on our climate-target assessment, which may have implications for investors in their security selection and potential issuer engagement.

In this episode of Sustainability with Substance, Ninety One’s Stephanie Niven and Jake Thomson examine some of the front-line challenges and impact potential of African conservation. They are joined by the pioneering leader and founder of the non-profit Tusk Trust, Charlie Mayhew. Hear Charlie talk about some hard-won ‘war stories’ showing what’s at stake as they discuss the evolving financial model required to protect Africa’s natural environment.

'Representatives from more than 200 governments will gather in the shadow of the Burj Khalifa from the 30th November for the 28th round of global climate change negotiations. COP28 has been buffeted by controversy since the UAE was announced as host, with concerns that the country’s fossil fuel interests would jeopardise the meagre progress made since the Paris Agreement. Negotiations will also take place against a backdrop of fraying global consensus, with the continued fallout from Israel-Palestine, Russia-Ukraine and high inflation likely to stymie progress. 

While expectations for the talks are low, the need for progress to mitigate the most severe impacts of climate change is more apparent than ever. Over the last year we have witnessed exacerbating climate impacts globally, including extreme heat across China, India, and Europe, wildfires in Greece, Hawaii and Canada, droughts in the Mediterranean, as well as extreme rainfall and floods in the US, Libya, and India. It is virtually certain that 2023 will be the warmest year on record, with NASA already declaring summer 2023 as the hottest recorded. 

Here we explore some of the main questions ahead of the negotiations, and outline where we think progress may be made.'

The economic and societal impacts of the climate crisis have triggered a wave of climate-focused regulations and reporting requirements for asset managers, financial institutions, and companies. In addition to the physical risks posed by more frequent and intense weather events, market participants also face transition risks due to changing regulations, consumer preferences and technology.   

If your organization is planning on or has committed to aligning portfolios to a net-zero pathway and must report on decarbonization efforts, our latest ebook provides insights into the investment and portfolio risks related to physical climate hazards and the transition to a low carbon economy.  

Readers will learn about: 

• The low carbon transition and physical climate risks investment portfolios are exposed to.
• The steps investors can take to develop an effective response to climate risks in their portfolio.
• How to address key challenges in assessing and reporting on portfolio climate risks. 

S&P GMI: The Big Picture: 2024 Energy Transition Outlook (Blog and Report)

Policy developments in 2022 and 2023 related to the transition to renewable energy sources and associated critical minerals have yielded considerable near- and medium-term opportunities for the energy and mining sectors. But market participants will face significant headwinds in 2024 as interest rates remain elevated and economic growth slows.

Amid the complex business environment and an uncertain economic outlook, identify the key factors affecting renewable energy transition and battery supply chain in 2024.

Summary blog here

While many banks are disclosing financed emissions and setting targets for reducing them, there is a big source of emissions that is overlooked: methane from the oil and gas sector. There's a key opportunity for banks to lead change by encouraging oil and gas clients to measure and mitigate these potent scope 1 emissions. There are steps banks can take now to act on this, and a new report from EDF’s sustainable finance experts unpacks this step-by-step.

'The timeframes to make fundamental changes and avoid the worst climate damage and nature collapse are compressed—the international scientific consensus is that we need to reach net zero GHG emissions by 2050 globally. While 2050 may seem a distant point in time, it’s actually an ambitious target that requires concerted and constant efforts, starting now. Many countries, cities, companies, and other institutions have joined forces to reduce global GHG emissions, but we believe investors also have a crucial role to play in achieving that goal. As such, we expand on three key elements that can help long-term investors align their investments with reaching net zero by 2050:

• Having a plan to reduce all emissions
• Identifying climate leaders
• Creating value for companies and shareholders through engagement'

Today’s population consumes 1.7 times more resources than the Earth can sustain, yet the global population is growing fast. By 2050 it is set to exceed nine billion.

Despite plans to reduce them, greenhouse gases are also being produced at a rate which is rapidly destabilising the climate.

Our economic model is outdated and must change. A “circular” economic model offers ways to cut waste in both energy and materials, and reduce environmental harm.

But what is the circular economy, how will we get there, and how can investors engage?

JobPost: S&P Global - Senior Analyst | S&P Global Sustainable1 Research & Methodology Team (London | CloseDate: Unknown)

JobPost: M&G - Senior Business Analyst - ESG (Edinburgh | CloseDate: Unknown)

JobPost: M&G - ESG Manager (London | CloseDate: Unknown)

JobPost: Fitch Group - Regional CSR Lead, Fitch Community, APAC (Central HK | CloseDate: Unknown)

JobPost: La Banque Postale - SRI Analyst - Energy Transition & Institutional Studies Specialist (M/F) (CloseDate: Unknown)

JobPost: S&P Global - Sustainability Research Associate (Madrid | CloseDate: Unknown)

JobPost: S&P Global - ESG Solutions Associate (Japan | CloseDate: Unknown)

JobPost: ISS ESG - Research Analyst (Temporary) - Environmental & Social (Rockville | CloseDate: Unknown)

Friends Fiduciary Corporation (Fiduciary) seeks a seasoned and values-oriented leader as Executive Director. Fiduciary is a Quaker nonprofit organization providing cost-effective, professional, socially responsible investment management services to Quaker meetings, churches, schools, and organizations.

JobPost: JP Morgan Chase & Co - Climate Risk Data – Associate (London | CloseDate: Unknown)

JobPost: U.S. International Development Finance Corporation (DFC) - Investment Insurance & Project Finance Officer (Innovative Climate Solutions) (US | CloseDate: 27th November)