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Centrica: People & Planet Update 2023

Centrica's latest Annual Report contains a people & planet section, covering:

• Foundations - Customers, colleagues, communities and ethics
• Non-financial and sustainability information 
• Material risks and opportunities 
• Performance metrics

HSBC: Climate Investment Update - EU Green Deal: Deforestation regulation is under fire

• Some EU member states are attempting to delay or possibly scale back the EUDR; trading partners are also critical
• The EU has already delayed the country risk classification system and most industries and countries are underprepared
• We think there are indications that the full implementation of the EUDR will be delayed; cattle and cocoa industry will gain

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

The latest regulatory developments related to ESG and stewardship worldwide.

This monthly bulletin produced by ISS STOXX’s Regulatory Affairs & Public Policy group provides a review of regulatory developments that may be relevant to investors and companies. 

IOSCO

International Organization of Securities Commissions (IOSCO) Chair Gives Keynote Address at IFRS Sustainability Symposium

On February 22, IOSCO Board Chair Jean-Paul Servais gave a keynote address at the IFRS Sustainability Symposium, discussing IOSCO’s endorsement of ISSB’s first sustainability disclosure standards and praising international adoption of the standards. Jean-Paul Servais also affirmed that “IOSCO is committed to collaborating with the ISSB and other global stakeholders to deliver a sound capacity building program to support the wider roll-out of sustainability disclosures.”

SBTi

SBTi Releases Reports on Design and Implementation of Beyond Value Chain Mitigation

On February 28, the Science Based Targets initiative (SBTi) released two new reports to aid the design and implementation of beyond value chain mitigation (BVCM) strategies. BVCM strategies do not affect companies’ Scopes 1, 2, or 3 emissions; they are another method to allow companies to “help accelerate the global net-zero transformation by enabling other economic and social actors to avoid, reduce or remove GHG emissions.” The first report – the “Above and Beyond” report – explores the creation, functionality, and implementation of BVCM strategies; meanwhile, the second report – the “Raising the Bar” report – explores barriers and incentives to the adoption of BVCM strategies.

Japan

Japanese Ministry of Environment and World Business Council Announce Collaboration on Global Circularity Protocol

The Japanese Ministry of Environment and the World Business Council for Sustainable Development announced their collaboration in developing the Global Circularity Protocol during the 6th UN Environment Assembly by signing a Memorandum of Cooperation. The announcement affirmed the continued cooperation on the Protocol that aims to promote circular business models globally through providing companies with a standard Corporate Performance Accountability System (CPAS) for Circularity; harmonizing circularity methodologies; adding accounting metrics for corporate-level circularity performance; and developing Science-Based Targets for Circularity. Simultaneously, the Protocol also aims to guide governments on regulation frameworks that would promote circularity. 

Singapore

Deputy Prime Minister of Singapore Affirms Commitment to Combatting Climate Change at NUS Sustainable and Green Finance Institute’s Sustainability Summit

In his remarks on March 21 at the National Union of Singapore Sustainable and Green Finance Institute’s (SGFIN’s) Sustainability Summit, Mr. Heng Swee Keat, the Deputy Prime Minister of Singapore and the Coordinating Minister for Economic Policies, reaffirmed Singapore’s commitment to a Net-Zero-by-2050 target. The Deputy Prime Minister emphasized Singapore’s Green Plan 2030 – a sustainable development roadmap – as well as efforts by the Singapore Exchange to progressively introduce “mandatory requirements for climate-related disclosures as part of sustainability reporting by Singapore-listed companies.” The Deputy Minister also stated that the government is considering policy innovations, including carbon pricing, to promote sustainability. 

South Korea

Korean FSC Holds Meeting with Investors to Discuss the Korean Value-up Program

On March 14, the Korean Financial Services Commission (FSC) held a meeting with 10 large institutional investors to reveal and promote efforts to improve investor participation in the Korean Value-up Program. The Value-up Program aims to increase corporate value and address the ‘Korean discount’ — a phenomenon where South Korean companies tend to have lower valuations than global counterparts due to geopolitical and governance reasons — through three main principles. The third principle focuses on “promoting shareholder values in corporate management”; the Program recommends achieving this goal through promoting shareholder-friendly corporate practices. Concurrently, the Korean Stewardship Code for Institutional Investors has been updated to encourage investors to engage with companies and promote voluntary measures in line with the Program; one such amendment to the Code requires investors to actively monitor how companies are attempting to implement the Program. Lastly, the FSC revealed in its meeting with investors details about the new Value-up Index being developed by the KRX in alignment with the Program.  

Korean FSC Holds Meeting with Heads of Major Commercial Banks to Discuss Policies Intended to Boost Climate Finance

The Chairman of the FSC, as well as other government officials, met with the heads of major commercial banks to promote policies intended to boost climate finance. The FSC told banks that, amidst the challenges presented by climate change, the role of banks in the transition to a low-carbon economy will be enhanced. The FSC’s new initiatives aim to funnel investment from major financial institutions and venture capital firms to renewable and clean energy industries and climate technology. During the meeting, the Korean Ministry of Environment announced new low-carbon measures, including upgrading the Korean Green Taxonomy (K-Taxonomy); increasing green investment to as much as KRW30 trillion by 2027; and making improvements to South Korea’s emissions trading scheme. 

Malaysia

Securities Commission Malaysia Releases Draft Governance Code for MSMEs

The Securities Commission Malaysia (SC) is seeking feedback on their draft Governance Code for Micro-, Small, and Medium-sized Enterprises (MSMES). The Small and Medium-Sized Enterprises (SMEs) Governance Working Group developed the Code to promote good governance practices among MSMES, in alignment with the 12th Malaysia Plan and the National Entrepreneurship Policy 2030. Complementing MSME guidance in the Simplified ESG Disclosure Guide and the ESG Quick Guide, the voluntary Code gives size-proportionate recommendations on good governance practices, and proper accountability mechanisms for the management of sustainability risks and opportunities; the recommendations of the Code are aligned with the principles of the Malaysian Code on Corporate Governance.

Bursa Malaysia to Serve as Chair on Stock Exchange Collaboration to Develop ASEAN-Interconnected Sustainability Ecosystem

On February 15, Bursa Malaysia, the Indonesia Stock Exchange (IDX), the Stock Exchange of Thailand (SET), and the Singapore Exchange (SGX Group) announced their collaboration on the development of the ASEAN-Interconnected Sustainability Ecosystem (ASEAN-ISE), with Bursa Malaysia serving as Chair. The exchanges aim “to advance ASEAN’s sustainable development through the implementation of common ESG metrics in their respective data infrastructures.” Each of the participating exchanges has committed to adopting and implementing the “ASEAN Exchanges Common ESG Metrics” when they are fully developed. The primary goals of the exchanges’ collaboration are creating an integrated ESG ecosystem; enabling exchanges to achieve economies of scale with fit-for-purpose efficiency solutions; and empowering exchanges to maximize the business value of ESG-compliant companies, including through requiring quality disclosures, connecting supply chains to ESG-oriented investment capital, and strengthening the infrastructure needed for cross-border trade flows. 

Australia

ASIC Publishes Article for Small Businesses on Impact of Mandatory Climate Disclosure

The Australian Securities & Investments Commission (ASIC) published an article informing small businesses of upcoming climate disclosure regulation in Australia and how it may impact them. The Australian government has proposed introducing regulation that would mandate climate disclosure for financial institutions, large businesses, and businesses that meet two of the following criteria: has a consolidated revenue of A$50 million or more; has consolidated gross assets of A$25 million or more; and has 100 or more employees. Small businesses will be subject to certain reporting requirements through the Scope 3 reporting requirements of large businesses, provided that these requirements do not impose undue costs. ASIC also provided small businesses with guidance on how to avoid greenwashing charges based on false or misleading reporting or marketing claims.   

ASIC and APRA Release Final Rules and Guidance for Implementation of Financial Accountability Regime

ASIC and the Australian Prudential Regulation Authority (APRA) released the final rules and guidance to aid the implementation of their Financial Accountability Regime (FAR). FAR aims to “improve the risk and governance cultures” in key financial industries by imposing a stronger accountability framework for regulated entities in banking, insurance, and superannuation, as well as relating to directors and executives within those industries. The latest guidance follows a public consultation and aims to clarify key regulatory and transitionary provisions.

Read the full report at: https://insights.issgovernance.com/posts/the-latest-in-esg-and-stewardship-regulation-april-2024/

Regulators globally are requiring companies to disclose their greenhouse gas (GHG) emissions. For companies in some industries, Scope 1 and 2 emissions – covering, respectively, emissions from direct fuel use and from acquired energy – will cover most relevant emissions caused by their activities, and these are relatively simple to calculate and disclose.

For most companies in the financial sector, though, the bulk of relevant emissions are categorised as Scope 3 indirect emissions, specifically, financed emissions. These are much more problematic to calculate or estimate. Regulators, however, are likely to demand that companies disclose these emissions; otherwise, reporting will be limited to emissions that are marginal to the real impact these companies have.

Attention to Scope 3 emissions is likely to grow, as the financial sector has a key role to play in financing a transition to a low-carbon economy. The financial companies can play this role both by reducing their financing of carbon-intensive industries and providing the capital required by sustainable alternatives.

ISS ESG assesses the readiness of financial companies to disclose and mitigate their carbon impact. This post uses data from the ISS ESG Corporate Rating and from ISS Economic Value Added (EVA) to assess the readiness of financial companies, across different markets and regulatory jurisdictions, to meet this challenge. 

Various areas show marked differences in how prepared their financial companies are to meet increased disclosure requirements. Some jurisdictions—e.g., the Netherlands, France, Taiwan—exhibit high preparedness, while others—e.g., the United States and India—exhibit low readiness in anticipation of new regulatory requirements and expectations.

Companies that better disclose financed emissions tend to perform better in demonstrating strategies to mitigate their GHG impact and increasing financing of low-carbon alternatives. These companies also demonstrate stronger financial performance, which suggests a positive correlation between climate responsibility and strong profitability.

Read the full report at: https://insights.issgovernance.com/posts/ready-set-regulation/

Grid bottlenecks have become one of the most significant challenges to the global clean energy transition. In 2023, some news reports indicated that countries with ambitious decarbonization and energy transition plans are facing serious hurdles to connect solar and wind power to consumers, largely because of insufficient grid infrastructure and capacity.

These challenges are present in China. Despite leading in renewable energy development, China has experienced grid bottlenecks and serious renewable power curtailment as early as the mid-2010s.

One option for addressing bottlenecks is developing ultra-high voltage power lines, grid-scale storage, and smart grids. Investors  looking to promote the clean energy transition may be interested in pursuing opportunities in these key industries, and several ISS solutions such as ESG Corporate Rating, SDG Impact Rating, or SDG Solutions Assessment can help them in this area.

Expanding Renewable Energy Capacity but Limited Consumption

A World Leader in Renewables

China has been a leader in renewable energy development, topping the list of the world’s total renewable energy capacity generators as early as 2006. That year China had 135.5 GW capacity, with the United States in second place at 124.7 GW.

The capacity gap between the world’s first- and second-largest developers of renewable energy has grown even more prominent over the last two decades. In 2022, China’s total renewable energy capacity reached 1160.8 GW, nearly 3.3 times the United States’ capacity of 351.7GW. In solar and wind power expansion specifically, China has had the world’s largest solar power electricity generation capacity since 2015 and the largest wind power generation capacity since 2016.

Many wind and solar power projects were developed in northern China, which has the most abundant wind and solar energy resources, with the support of local governments intending to stimulate economic growth, generate tax revenues, and create job opportunities. Local government support for wind and solar power developers, combined with the rollout of favorable policies and generous subsidies from China’s central government, resulted in a surge in renewable power capacity.

Read the full report at: https://insights.issgovernance.com/posts/grid-bottlenecks-and-the-clean-energy-transition-lessons-learned-from-china/

Korea Investment Corporation latest annual Sustainable Investment report covers key areas of their activities, including:

• ESG Integration - ESG Integration, ESG Review and ESG Program
• Climate Change - Carbon Footprint, Climate Scenario Analysis and Risks 
• Stewardship Activities - Proxy Voting, Shareholder Engagement, and Voting Cases 
• Partnership 

"The PRI Awards 2024 are now open entries until 14 June 2024. The details below should provide all the information you require to plan a submission and submit your entry.

We will welcome all types of entries covering different activities and issues. If you have further questions, please contact This email address is being protected from spambots. You need JavaScript enabled to view it.."

SABIC's latest Integrated Report covers key areas of their ESG activities, including:

• Environmental, Health, Safety & Security
• Climate change & resource efficiency
• Sourcing
• People & societal impact

Stora Enso's latest Annual Report covers Sustainability on pages 35-82, key areas covered include:

• Sustainability targets
• Climate change: emissions
• Sustainable forestry and biodiversity
• Circularity & Product stewardship 
• Materials, residuals, and waste 
• Energy & Water
• Employees, Safety, Human rights & Community
• Sustainable sourcing 

Planet Tracker: The Global Plastic Pollution Treaty negotiations  – what financial institutions should watch out for…

Curbing plastic pollution will be on the agenda next week when Ottawa hosts the fourth round of negotiations (INC-4) to develop an international legally binding instrument on plastic pollution, including in the marine environment, from 23^rd to 29^th April 2024.

This is the next stage in the negotiations to develop a global plastics treaty before the end of 2024.

Countries are expected to discuss the provisions of the revised Zero Draft – i.e. an initial attempt to gather high-level thoughts on an issue – as well as agree the rules of procedure.

The latter has been by a small handful of countries to insist on a consensus-based approach for voting, therefore allowing a single country veto rather than permitting a majority-based system.

This is not only making decision-making difficult as contentious issues are sidelined, but it also consumes valuable negotiating time.

Currently, the Zero Draft contains several options that delegates are expected to use as a basis for negotiations, including the scope of the treaty, its implications and the means of implementation.

Read our latest blog for the five main areas that financial institutions should keep in mind.

Terra Alpha's fourth Impact Report details its progress towards sustainability across:

• Portfolio - investment process and portfolio construction
• Corporate Engagement - engagement directly with portfolio companies including proxy voting, thematic campaigns across companies, and company specific interaction
• Thought Leadership - thought leadership and advocating with collaborative efforts on the policy front

The rise of AI & climate risks amplify existing water risks faced by thirsty data centres

CWR releases a new report, “China ICT running dry? The rise of AI & climate risks amplify existing water risks faced by thirsty data centres”. The report reveals 4.3mn data centre racks in China consume around 1.3bn m3 today but can rise to >3bn m3 by 2030. This will put pressure on already stressed water resources, especially as the rise of AI & chatbots could see water use surge by a shocking 20x.

For perspective, ~1.3bn m3 is 1.9x the water use for households & services in Tianjin, a city of 13.7mn people… but with data centre growth plus AI, this could explode to more than 500mn people!

Clearly, this doesn’t bode well for China ICT as it is already highly exposed to various water risks. Of the 4.3mn national data centre racks:

• 46% are located in regions as dry as the Middle East;
• At least 41% are located in regions that are highly prone to drought while at least 28% are in areas highly prone to floods + at least 1/5 are very prone to both;
• 56% are located in coastal regions vulnerable to storm surge & sea level rise; and
• >75% lie in 3 river basins – Yellow, Yangtze & Pearl = vulnerable to basin & regulatory risks.

The EV company keeps pushing its “next phase of growth” message, but it’s getting harder to look past a slump in vehicle sales and its unexciting lineup.

In case you didn’t know that Tesla Inc. is on the cusp of a new wave of growth, it is now slashing its workforce by more than one-in-ten. It’s all there in the memo.

Chief Executive Elon Musk informed the ranks this weekend that more than 14,000 of them — based on year-end 2023 figures — would be leaving the electric vehicle manufacturer forthwith. The announcement is one part regret, three parts optimism. The phrase “next phase of growth” appears up top and in the kicker, with a derivative of it somewhere in the middle, too. This is all quite normal corporate stuff: Companies doing big layoffs must emphasize the leaner, fitter organism that will emerge. But this is Tesla at an interesting moment in its development, so the context matters.

Addressing climate change requires reducing greenhouse gas (GHG) emissions, especially carbon dioxide (CO2) emissions, which are the primary cause of global warming. The goal of reducing GHG emissions makes moving away from fossil fuels to renewable energy sources essential. 

Hydrogen-based technologies offer the possibility of a clean energy source for transportation, electricity generation, and industry. Governments are developing regulations for hydrogen technologies and have adopted policies to encourage renewable hydrogen development.  

Many businesses, especially in the energy sector, are similarly investing in green hydrogen technologies. ISS ESG services, such as the ISS ESG Corporate Rating, can assist investors in tracking corporate performance on green hydrogen and other hydrogen-based technologies.  

Green Hydrogen in the Transition to a Sustainable Energy Future 

Unlike fossil fuels, which are finite and contribute to pollution and climate change, renewable energy sources such as solar, wind, tidal, and geothermal heat are sustainable and have minimal environmental impact. As renewable energy generation is not consistent, addressing sudden spikes in energy demand is challenging. Energy storage and hydrogen technologies may offer solutions to this problem.  

A region with a highly renewable grid requires short-term bursts of power, such as those generated by hydropower or batteries. Hydrogen can address storage requirements to cover periods, ranging from a few hours to a few days, when wind and solar are not accessible, and hydropower and batteries are depleted. 

Hydrogen, which is colorless and odorless in a pure gaseous state, is the most common chemical element in the universe. Despite its abundance, it is difficult to access and purify it, partly because natural hydrogen frequently occurs in subaerial and undersea environments such as mid-ocean ridges. Though the potential of natural hydrogen cannot be dismissed, significant research is needed to capitalize on this source. 

As the purity of the hydrogen is an important factor in its end-use applications, hydrogen is often produced rather than extracted. Hydrogen can be produced through different methods. The most common types of hydrogen, and their methods of production, are as follows:

• Grey Hydrogen: Generated by steam reforming of natural gas or methane, a process that brings together natural gas and heated water as steam. This process produces CO2 as a by-product. 
• Blue Hydrogen: Generated by the same steam reforming process as grey hydrogen, but with the addition of carbon capture, utilization, and storage (CCUS) to trap the CO2. 
• Green Hydrogen: Produced by water electrolysis using renewable energy sources. 

Other types of hydrogen include turquoise hydrogen, made by methane pyrolysis; pink hydrogen, produced by electrolysis using nuclear power; and brown/black hydrogen, produced through coal gasification.  

Among these types, green hydrogen is the cleanest, although it is also water intensive: according to the International Energy Agency, production of a kilogram of green hydrogen requires nine liters of water. Blue hydrogen is also considered low-carbon hydrogen due to the inclusion of CCUS. The IEA reports that grey hydrogen is currently still the predominant type. Reaching the Net Zero Emissions by 2050 (NZE) scenario will likely require scaling up green hydrogen, though.  

Threats to food security are rising globally as governments grapple with the fallout from fluctuating commodity prices amid a cost of living crisis and increased economic, geopolitical and environmental volatility, according to our latest research.

Our Food Security Index (FSI), which evaluates the availability, access and stability of food supplies in 186 countries, shows that 135 countries have seen an increase in risk since 2022-Q4, compared to 48 where the risk decreased. Only 13 countries fall within the low risk category of the latest edition of the FSI, the lowest number since the dataset launched in 2017.

Risks continue to run highest in parts of the developing world, with countries in Africa, Asia and the Americas most at risk. But the data – which also considers nutritional outcomes for each country’s population - highlights rising food insecurity even among rich nations, with Europe witnessing the largest increase in risk of any region. The likes of Australia, New Zealand and Canada have also seen an uptick.

The way investors assess firms has seen a radical change in the last several years. Environmental, Social, and Governance (ESG) aspects have become important indications of a company’s long-term health and resilience, surpassing traditional financial measurements. Corporate governance procedures, social responsibility, and environmental stewardship are just a few of the many topics covered by ESG.  

ESG disclosure scores are becoming more and more important in influencing investor perception and promoting financial success as investors grow to understand the value of sustainability and moral behaviour. In this blog, we will look into the ways in which businesses can use ESG activities to gain a competitive edge and sustain growth as we delve deeply into the complex interplay between investor perception, financial performance, and ESG disclosure scores. 

The European Union (EU)’s Corporate Sustainability Reporting Directive (CSRD) aims to make corporate sustainability reporting more transparent, consistent, and standardized to help drive capital towards sustainable investment as part of the new Green Deal.

Companies subject to the CSRD will have to prepare a “sustainability statement” according to the new European Sustainability Reporting Standards (ESRS), with the first set of sector-agnostic standards having been adopted by the European Commission in July 2023. Sector-specific standards as well as standards for small- and medium-sized businesses and non-EU parent companies are still under development.

Additionally, specific implementation elements, such as filing deadlines and consequences of non-compliance, are still being finalized, as EU member states are in the process of transposing the directive’s requirements to national law by July 1, 2024.  by July 1, 2024.  

ISS ESG: Land Use and Management’s Impact on Key Environmental Risks

The two major environmental concerns dominating investor discussions today are climate change and biodiversity. The Stockholm Resilience Centre’s 9 Planetary Boundaries, the ‘natural’ limits within which humanity can survive and thrive, act as a reminder of the intricacies of both climate change and biodiversity, how they represent ‘interrelated processes within the complex biophysical Earth system’ and thus how each intrinsically impacts the other.

‘Climate Change’ is one of these planetary boundaries, and its global impacts on biodiversity, especially climate-related hazards, have increased both in terms of frequency and intensity. As of early October 2023, approximately one-third of 2023 had been 1.5°C higher than pre-industrial levels. Moreover, according to the international disasters database EM-DAT, the number of occurrences of floods, droughts, and wildfires in 2022 was greater than the average experienced over the previous 20 years (Figure 1). As a result, continued warming may well lead to a negative and potentially irreversible impact on biodiversity.

Figure 1: Climate Hazard Frequency, 2002-2021 vs 2022

Source: EM-DAT

Another planetary boundary that critically impacts both climate and biodiversity is ‘Land-System Change.’ However, there are different ways to actively limit these land-system changes, which currently contribute to higher GHG emissions. Limiting deforestation-related activities to reduce biodiversity loss, for instance, is also a key tool at humans’ disposal to decrease carbon emissions from the atmosphere. Implementing more sustainable agriculture practices, whether in relation to crops, livestock, or land management, is another one.

But how can investors monitor and measure the impact of Land Use when looking to mitigate these key environmental risks?

Read more at: https://insights.issgovernance.com/posts/land-use-and-management-measurement-and-impact/

ISS ESG: AI and the Labor Economy: It Still Takes Two (Labor & Capital) to Tango

The launch of ChatGPT ignited a race to measure the potential impact of artificial intelligence (AI) on the global labor market. Researchers pored over job classification systems to estimate the proportion of tasks that could be eliminated by AI agents, whose marginal costs approach zero. Several studies have concluded that a sizeable chunk of today’s work could eventually be done by machines.

History suggests the macroeconomic impact on employment and wage levels is highly uncertain. However, as companies drive AI adoption in the workplace, the biggest winners might be those that optimize the complementary nature of labor and capital.

Investors might want to search for opportunities not only among companies enabling AI-driven innovation but among those making strategic investments in human capital alongside those in technology. The metrics collected under the ISS ESG Corporate Rating suggest that systematic employee training and career development remain underappreciated among many companies.

Exposure to AI is Significant Across the Broader Labor Economy

Sensational claims are commonplace when AI and jobs are mentioned together: ‘AI Could Steal Over 80 Million Jobs in the Next 5 Years,’ or ‘300 Million Jobs Could Be Affected by Latest Wave of AI.’ Without additional context, these statements connote mass unemployment. Studies on the topic create a much more nuanced picture, while acknowledging the high degree of uncertainty in their estimates.

The OECD estimates that 27% of global jobs are at high risk of automation from AI and other technologies. Briggs and Kodani (2023) estimate that nearly 18% of work globally (and one-quarter of work in the United States and Europe) could be automated by generative AI alone. This is consistent with a recent study (2023) from the Pew Research Center and another by Sytsma and Sousa (2023) suggesting that 19% and 15% of Americans, respectively, are in jobs with high exposure to AI.

Further, according to Daugherty et al. (2023), an estimated 40% of U.S. working hours may be impacted by large language models (LLMs) more broadly. Routinized tasks may be automated away (e.g., credit authorization), while others may be augmented with AI-powered tools (e.g., biomedical engineering).

The impact of AI will vary by job function and industry and may have uneven effects at the country level. Data entry and clerical work are highly vulnerable. Banking and insurance appear to have high potential for both automation and augmentation via generative AI. The impact of automation on the retail and wholesale sector may be particularly disruptive to developed economies such as the U.K., where the sector accounts for 12% of employment.

Read the full report at: https://insights.issgovernance.com/posts/ai-and-the-labor-economy-it-still-takes-two-labor-capital-to-tango/

Analysis from Sustainable Fitch indicates that US corporates lag most international peers on corporate environmental disclosures, as reflected in broadly lower ratings achieved by US-based entities than mainly European peers. With the advent of the newly adopted Securities Exchange and Commission (SEC) climate rules, disclosure requirements for larger US-based companies increase.

Although the rules are already being broadly challenged, we view these findings as an important indicator of the overall preparedness, or in cases lack thereof, of US entities in complying with more robust disclosure requirements. These include similar requirements coming from the state of California’s recent climate disclosure bills, as well as from the EU’s reporting requirements for non-EU entities operating in the region.

Ninety One's latest report covers key areas including:

• Climate solutions and transition sleeves
• Optimising existing allocations for returns and impact
• Equities and credit, and sovereign allocations 
• Private markets

If you read this, another geopolitical event has triggered fears in financial markets. In this note, I provide a simple checklist to help investors make sense of the events from a fundamental perspective. Based on the evidence from dozens of empirical studies I provide a list of questions to answer and how to position portfolios in reaction to these answers.

A guide to help investors separate the signal from the noise

We live in a world where wars, civil strife, and geopolitical tensions have an increasing influence on markets. There are plenty of geopolitics consultants ready to help investors with advice and even more strategists who pretend to know how to play markets in a time of geopolitical tensions.

This survival guide is not specific to any particular crisis at hand but based on an analysis of the extensive empirical literature on the impact of wars, civil wars, terror acts, and similar events. 

We all know that if someone divests from a company, all they do is sell the shares to another investor who may care less about the environmental or social record of a company. But David Whyte from the Queen Mary University in London tracked what happened to the shares in BP and Shell that were sold by large investors divesting from these companies. And the results are sobering.

Whyte tracked the changes in shareholding of the 20 largest institutional investors in the two UK oil majors after the Paris Climate Accords in late 2015 until 2022. On average, he found that the largest institutions increased their shareholdings while smaller shareholders tended to divest. Most notably, the largest two to three shareholders, which tend to be Blackrock and Vanguard together with Norges Bank all increased their shareholdings in BP and Shell.

RFI Foundation: The transition teething process often means two steps forward and one step backwards

Many OIC markets in Asia face a range of challenges when increasing the installation of additional renewable energy capacity, often driven by challenges in financing. In some markets, the electricity infrastructure is the limiting factor; in others it is lack of appetite from banks for long-term finance in the absence of developed capital markets. Some markets’ regulatory policies are not transparent and lack enough certainty for investors, while in others credit ratings at the sovereign level, high levels of indebtedness, or low credit ratings of power-purchasing entities can play a driving role.

Some countries like Malaysia have received plaudits for their policies, while in others multilateral efforts are underway to provide targeted support, including a $2 billion World Bank program for Europe and Central Asia that aims to mobilize $6 billion of private investment. The initiatives are particularly important in creating the electricity infrastructure to support other efforts to promote electric vehicle adoption in developing countries, to ‘leapfrog’ further growth of internal combustion vehicles.

The pace of change has sped up dramatically, with a slew of new regulations and sustainable finance frameworks in the GCC and elsewhere. The ASEAN Transition Board (ATB) has expanded its third version of the Taxonomy for Sustainable Finance across the region to add in technical screening criteria for the transportation & storage and construction & real estate sectors. The ATB’s taxonomy offers a way to link together national taxonomies that have been issued with substantive differences across ASEAN member countries.

Indonesia has received criticism after adapting the sustainable finance taxonomy to give an amber label for new captive coal power plants that reduce GHG emissions and are scheduled to shut by mid-century. This contradicts analysis from the International Energy Agency on Net Zero 2050 that said new coal and unabated coal power after 2040 is incompatible with global Net Zero by 2050. At the same time, coal phase-out financing was provided a green label to address the apparent contradiction between many financial institutions’ pledges to stop financing coal and the need — especially in Asia — to accelerate the retirement of many recently commissioned coal power plants.

The development of frameworks and supporting policies to guide more finance towards the green transition (both into green projects and to enable energy transition in line with global Net Zero 2050) is a positive, but there remains uncertainty about which policies will be effective and which will be counterproductive. In addition to the policy uncertainty, there is also substantial doubt about whether the financial system as a whole — comprised of regulators, management and staff at financial institutions, investors, capital markets (domestic and international) and ratings agencies — is able to row in the same direction at the same time.

One recent example of the pitfalls that lie close to the surface under the structures being built to transform the financial and non-financial corporate sectors was when the Science Based Targets Initiative (SBTi) outlined a proposed change to its net zero targets that would allow companies to use carbon credits to abate Scope 3 emissions, which quickly sparked a significant backlash.

At issue is where to draw the line about responsibility for emissions within a value chain. One argument in favor of allowing offsets for Scope 3 emissions is that they are generally outside of a company’s control, and the requirement for offsets retains a financial incentive to do more than disclose Scope 3 emissions. The mechanism of carbon credits provides a way to direct finance towards projects that could reduce global emissions.

The challenge — which ties into the process of experimentation in the way financial systems are being adapted — is that although companies don’t usually have operational control of their Scope 3 emissions, it could still influence their behavior in sub-optimal ways.

One example would be an industrial company that relies on purchased inputs that are high emissions, such as nickel that is smelted in a factory powered by a captive coal power plant. A company that relies on this source of nickel as an input could choose to source it from smelters that are powered by hydropower rather than coal, but this would have a quite narrow cost differential where the lower emissions source makes short-term financial sense. In either case, this company would be in a more advantageous position than a more integrated industrial company that owns more of its value chain including intermediate manufacturing and the ore smelting.

In this example, the integrated company would not only face the choice of location of smelters to use (which would be substantially more costly to change than if it purchased inputs from another company). It would also face questions from short-term minded investors about whether instead of investing in decarbonizing its upstream operations to reduce its Scope 1 and 2 emissions, it should just divest that supplier and switch to purchasing offsets to meet its emissions targets.

Through this process, rather than investing in decarbonization, it may be easier to arbitrage between the requirements it faces from stakeholder pressure for net zero targets in its home market, which may be more muted in markets where the supplier is located. In addition to affecting the industrial company, this type of activity would impact the company’s investors and the investment bankers advising on the divestment transaction.

On paper, the emissions impact is neutral or slightly positive (moving emissions from Scope 1 and 2 to Scope 3 and purchasing carbon credits). However, in effect, the transaction would reduce the likelihood and speed of decarbonization of the activity. It would also muddy the interpretation of the financed and advised emissions claimed by various financial institutions, resulting in more questions than answers.

This is just a hypothetical impact of a proposed change to the wider corporate and financial ecosystem around making the transition towards global Net Zero by 2050. However, it is indicative of how the challenges buried in the details expand every time there is a new framework with a different wrinkle in how different scenarios are managed. The transition will be challenging, and there will be many differences in how it happens in practice in different parts of the world.

From the perspective of changing the way that the financial sector engages in the process, there will need to be significant capacity built to be able to manage the nuances from different requirements in a way that remains true to the overarching objectives of global Net Zero by 2050 and not diverted by the practice that sometime takes over of cleverly arbitraging differences in regulations, guidance or market norms for short-term benefit at the expense of the long-term goal.

Get the latest insights about responsible finance in OIC markets & Islamic finance from the RFI Foundation, C.I.C. Subscribe to RFI’s free email newsletter today!

Planet Tracker: US EPA targets producers of nine toxic chemicals

The US Environmental Protection Agency (EPA) has issued its Final Rule for Synthetic Organic Chemical Manufacturing Plants & Polymers & Resins. The aim of this rule is to reduce cancer and serious health effects from toxic air pollutants and smog-forming compounds. 

This is relevant to financial markets which are seeing externalities being converted into internal costs for corporates. Financial models may need reassessing. 

The EPA estimates this will impact over 200 US chemical plants and provide health protections to 9.3 million people who live within 10km of these facilities. 

Almost 53,000 tonnes of the nine main chemicals impacted by the regulation have been released to air between 2012 and 2021 by over 600 companies and 1,900 facilities across the US. 

The Final Rule tightens regulation for emission reductions, human health impacts, facility impact and pollutant monitoring.

Planet Tracker’s ‘Toxic Footprints USA’, released in July 2022 can help investors identify their exposure to toxic releases by facility. Planet Tracker’s accompanying data dashboard shows the locations of all the facilities emitting these chemicals, as well as over 200 other chemicals made by 76 petrochemical companies. 

For investors wishing to examine corporate and facility emission exposure in Europe, see Planet Tracker’s ‘Toxic Footprints Europe’ and the associated dashboard.

This is ShareAction's third benchmark of the insurance sector. It assess the policies and practices of 65 of the world's largest insurance companies across a range of environmental and social issues.

In this report we assess three different types of insurers:

> Life & Health (L&H) insurers

> Insurers with a relevant property and casualty business (P&C)

> Lloyd's of London's managing agents (MA)

Three ranking tables outlining the performance of insurance companies can be found on the link below.

With over 7,000 companies – of which 100 are valued at over $1 billion – climate tech has emerged as a pillar of ESG and sustainability investing. As the energy transition unfolds, these technologies are only poised to capture more market share.

The novelty of many climate tech solutions makes it difficult for investors to assess their progress, market penetration, and impact on existing players – especially since most operate in private markets.

Jefferies’ Sustainability & Transition team set out to examine the landscape of climate tech investing; analyzing its current state, trajectory over the next year; key developments and innovations; and more.

Read summary article

This article explores ten of the most widely discussed assumptions, fact-checking them and providing interpretation to help companies understand how the CSDDD applies to them and start their journey to basic compliance and beyond.

WHEB: The “iPhone moment” for obesity treatment

In early March, Novo Nordisk held its Capital Markets Day which we attended virtually.1 Quite unusually, the day kicked off with the CEO interviewing a former obesity trial participant, Isabella Davies.2 Mrs Davies used to be severely obese, almost unable to move without being completely out of breath and suffered from heart failure. In the trial, she lost 30kg of body weight which gave her back her mobility and essentially saved her life. One might be tempted to dismiss this as one of those “sob stories” companies tell to make themselves look good. Maybe. But on second thoughts, obesity does kill and Novo’s new “wonder drug” Wegovy will save lives.

Obesity is an epidemic – and it matters

We have written about Wegovy before so here’s just a brief recap of the implications of obesity.3 In 1997, the World Health Organization (WHO) declared obesity an epidemic with very limited effect - the numbers have only got worse since and are still accelerating.

• According to the WHO, in 1990 25% of adults (> 18 years) were overweight and ~8% obese globally (BMI>30kg/m2).[4] By 2022 these numbers increased to 43% overweight and ~16% obese. The deterioration in this data for children is even worse which is an indication of what lies ahead.
• The US is even more extreme. In 1999/2000, 30.5% of its adult population was obese and 4.7% severely obese (BMI > 40kg/m2). Just nine years later, this rose to 42.4% and 9.2% respectively.5

While historically, obesity has been looked upon as a “lifestyle choice”, many health organisations are now acknowledging that obesity itself should be considered an illness. The WHO is now stating in its factsheet that “In most cases obesity is a multifactorial disease due to obesogenic environments, psycho-social factors and genetic variants.” The American National Institute for Health (NIH) did so already in 1998. The American Obesity Society followed in 2008.

Obesity is a threat to health because it affects the whole body and increases the incidence of a wide range of medical complications including: stroke, idiopathic intracranial hypertension, cataracts, obstructive sleep apnoea, hypoventilation syndrome, coronary artery disease, pancreatitis, diabetes, dyslipidaemia, hypertension, non-alcoholic fatty liver disease, gallbladder disease, polycystic ovarian syndrome, infertility, abnormal menses, cancer (breast, uterus, cervix, prostate, kidney, colon, oesophagus, pancreas, liver), osteoarthritis, gout, venous stasis.

In fact, there are more than 200 comorbidities associated with obesity!6

Research shows that a high BMI is associated with a decreased life expectancy of up to 10 years. For every 5 kg/ m2 BMI increment above the range of 22.5–25.0 kg/ m2, there is a 30% increase in overall mortality.7

Apart from the devastating impact on health and life expectancy, there is also a huge economic impact on the wider health system. In a much-quoted study from 20228, it was estimated that in 2019 the negative impact on global GDP amounted to 2.2%. Unsurprisingly, the highest cost was in the high-income countries costing as much as US$1110 per capita per annum. This cost is likely to rise further.

Obesity medication existed for decades – but this is its “iPhone moment”

There exists a long and chequered history of weight-reducing drugs going back as far as the 1940s. And more often than not, the side effects were substantially worse than the rather limited reduction in weight loss achieved, which was in the high single digits percent of body weight at best.9

What we are observing now is nothing short of a revolutionary moment comparable in impact to the 2007 launch of the iPhone. This time though it is Novo Nordisk, not Apple, that is the disruptor and the product is the first-ever obesity drug (Wegovy) launched in 2021. Wegovy achieves a weight loss of 15% on average with 32% of STEP-1 trialist’s achieving over 20% of their bodyweight.10 This is a level that is approaching the benefits of rather invasive bariatric surgery results.

Wegovy is a drug based on a specific GLP-1 (Glucagon-like peptide) called semaglutide. It is a gut-derived peptide hormone that stimulates the secretion of insulin while sending satiety signals to the brain. Many other GLP-1s exist and have been tried but semaglutide is by far the most effective and according to one expert we spoke to it is unlikely that a better one will be found. Its stunning results have created a frenzy which sometimes borders on the outlandish; for example, we have received broker research exploring the impacts on sectors as disparate as the food packaging sector (people eating less food) to the airline industry (fewer obese passengers).

More seriously, the demand surge for Wegovy has caught everybody by surprise, including Novo Nordisk which quickly ran short of supply. One factor was the unheard-of ‘out-of-pocket’ interest. This represents the patients who are not able to claim for the cost of the medicine on their insurance policies and makes up nearly 80% of the total demand for the drug in Denmark and other European countries where it had been launched.11 A key additional benefit of semaglutide is a lowering of inflammation which increases its potency in tackling many of the obesity-related comorbidities more efficiently than just by lowering the bodyweight. It has already shown a 20% reduction in major adverse cardiovascular events (MACE) in the SELECT trial and numerous other indications are currently in trials tackling other cardiovascular diseases (CVD), metabolic dysfunction-associated steatohepatitis (MASH), rare endocrine disorders (RED), Alzheimer's diseases, and others.

Novo Nordisk is at the centre of this new megatrend

Similar to the first generation of the iPhone, this is just the beginning of the obesity treatment revolution. Novo Nordisk competitor Eli Lilly has just launched a compound drug Zepbound (a different GLP-1 combined with a GIP (Gastric inhibitory polypeptide)) which has shown to produce even higher weight loss in the SURMOUNT trials.12 Novo Nordisk has its own follow-up drug, Cagrisema, in clinical phase 3 which so far produced results ahead of Wegovy and Zepbound. And so does Eli Lilly with retatrutide, also still in clinical trials. A few other companies like Zealand Pharma and Boehringer Ingelheim are trying to jump on the bandwagon but they appear late to the party. Company and consensus expectations are that the obesity drug market is going to grow in the high double-digit percent annually for the foreseeable future reaching a total market size north of $100bn by 2030 with most of that shared between Novo Nordisk and Eli Lilly.

Just to show what potential competition is up against: Novo Nordisk is currently expanding its Wegovy active pharmaceutical ingredient (API) facility in Danish Kalunborg for $6bn by 170,000m2 to reach a total size of 1.6million m2 – this corresponds to half the size of “the City” of London. And there is more to come. At its Capital Markets Day in March 2024, Novo Nordisk made clear that it expects to treat a substantially larger number of patients by 2030 than its current ~40m. Its parent, the Novo Foundation, recently announced the acquisition of Catalent, a contract manufacturing organisation (CMO) in order to speed up production. And in fact, there is a whole supply chain experiencing accelerating growth to support production including with other CMOs and the drug packaging industry.

So, is this the beginning of the end of the obesity epidemic? It’s still way too early to shout “Victory!” There are potential side effects of the medication (like nausea, diarrhoea and vomiting) to keep in mind. And cost. But for the first time in the history of obesity treatment, doctors and patients are actively seeking a drug that can kick-start and turbo-charge the journey towards weight loss. It’s hard work without this boost, as the author of this article can confirm after losing 9kg over three months via calorie-counting and an intensive sports regime. But obesity can only be truly beaten if the patient also shifts to a healthy diet and lifestyle at the same time. For many the drug provides the critical boost. Just ask Isabella Davies.

By Ben Kluftinger

 1 https://www.novonordisk.com/investors/capital-markets-day-2024.html
2 https://www.acc.org/Latest-in-Cardiology/Clinical-Trials/2023/08/23/19/18/step-hfpef
3 https://www.whebgroup.com/our-thoughts/ozempic-is-novo-nordisks-diabetes-and-weight-loss-drug-a-miracle-or-a-menace
4 https://www.who.int/news-room/fact-sheets/detail/obesity-and-overweight
5 https://www.niddk.nih.gov/health-information/health-statistics/overweight-obesity
6 https://www.ama-assn.org/topics/obesity
7 Prospective Studies C, Whitlock G, Lewington S, Sherliker P, Clarke R, Emberson J, et al. Body-mass index and cause-specific mortality in 900 000 adults: collaborative analyses of 57 prospective studies. Lancet. 2009;373(9669):1083-96.
8 Okunogbe et al., “Economic Impacts of Overweight and Obesity.” 2nd Edition with Estimates for 161 Countries. World Obesity Federation, 2022.
9 Mueller et al., “Anti-obesity drug discovery: advances and challenges”, Nat Rev Drug Discov. 2022 Mar;21(3):201-223
10 https://diabetes.medicinematters.com/en-GB/semaglutide/obesity/quick-guide-step-trials/18854832
11 https://fortune.com/europe/2024/02/05/novo-nordisk-ceo-lars-fruergaard-jorgensen-surprised-weight-loss-wegovy-ozempic-europe-out-of-pocket/
12 https://investor.lilly.com/news-releases/news-release-details/lillys-tirzepatide-shows-additional-211-weight-loss-after-12

Every month, SRI-Connect reviews the sustainability issues and related research and analytical op-ed that have been of most interest to sustainable investors over the previous 90 days.

(We do this to help companies, investors and research providers understand current trends and thinking and to shape their future communications and research focus.  See ‘stay updated actions’ below.)

The sector generating most interest in Jan, Feb & March was the Energy sector - with the top pieces listed below.  (Next sectors were: [2] Food products [3] Chemicals [4] Pharma & [5] Metals & Mining)

Editor’s comment

Ed: What we found interesting in this ‘most hit’ selection is the number of different asset classes that feature as affected by sustainability & energy transition in the sector: equity, listed debt, commodities & private equity.

Sustainable Fitch: Transition Assessments Flag Hurdles for Energy Companies

The twelve energy companies Sustainable Fitch has evaluated using their Transition Assessment (TA) methodology have, to date, made limited progress towards net zero and 42% of them received the second-lowest grade (brown).

Targets are also patchy, in some cases only applying to certain parts of the company.

For most of the companies [we] assessed, long-terms pledges to transition to net zero have yet to translate into concrete steps to shift energy companies’ business mixes away from fossil fuels.

ISS ESG: 2024 Global Outlook Report: Key ESG Risks and Opportunities for Investors

In 2024, the ESG investment landscape will continue to develop, influenced by factors such as climate change, technology, and evolving regulations, among others.

ISS discusses the energy transition and the likely impacts of this, including the increased demand for critical materials essential for clean energy technology.

Along with the growing use of clean technologies, mining companies’ focus on decarbonizing their own operations is contributing to global emissions reduction. Major challenges and trends include divesting from high-carbon-emitting assets (e,g., coal), energy efficiency, and using renewable energy sources

ISS identifies the key global trends identified by ISS ESG that sustainable investors will likely be focusing on through 2024.

SRI-C: Energy & Mining companies: Dates for sustainable investor update presentations

With reporting season approaching, SRI-Connect surveyed the investor relations pages of Energy & Mining companies to see which had announced dates for presentations to sustainable investors.

We list four upcoming events and would encourage all companies to let us know about their ESG / sustainability investor communications so we can support (for free) its reach and efficiency.

Wood McKenzie: Energy transition outlook

Wood Mackenzie’s energy transition outlook report maps three different routes through the energy transition with increasing levels of ambition – but also difficulty and investment.

It is their independent assessment of what it would take to deliver on countries’ announced net zero pledges and potential outcomes for the planet.

BarCap: Can global energy evolve to achieve net zero by 2050?

There is some good news in the race to net zero: Lower-carbon fuels are gaining traction and the capacity of renewables is growing rapidly.  But overall, progress towards targets is still slow, particularly when it comes to gains in energy intensity.

BarCap’s Research analysts outline five areas where policy-makers, companies, investors and consumers can start to step up the pace: [1] Reduce consumption, eliminate waste [2] Clean up electricity generation [3] Substitute with hydrogen [4] Biofuels without compromise [5] Locking up carbon.

IEA: Global Methane Tracker 2024

Methane is responsible for around 30% of the rise in global temperatures since the Industrial Revolution, and rapid and sustained reductions in methane emissions are key to limiting near-term global warming and improving air quality.

The energy sector – including oil, natural gas, coal and bioenergy – accounts for over a third of methane emissions from human activity.

The IEA’s Global Methane Tracker is an indispensable tool in the fight to bring down emissions from across the energy sector.

Man GLG: Extracting the Best from Natural Resources

Investors often must navigate a combination of cyclical and secular forces, ranging from geopolitical unrest to volatile inflation. Natural resource investments, referring to assets which derive from nature such as agriculture, oil and gas, and metals, are often overlooked by investors.  Man GLG believes that they should form a core part of any well-diversified portfolio. In this paper, they outline some of the key attributes of the asset class which lead us to this conclusion

Carbon Tracker: Private Eyes Wide Shut: Private Equity Investments in Oil and Gas at Risk from Energy Transition

Projections for oil and gas demand present a bleak picture for the industry: the International Energy Agency (IEA) now foresees global demand for oil, gas, and coal all peaking by the end of this decade. This seismic shift in energy consumption will have significant consequences for energy investors, across all asset classes.

This report is primarily written for private equity investors – both General Partners (GPs) and Limited Partners (LPs) – and highlights the unique risks which they face from continued investment in Upstream, alongside those facing listed equity investors.

Also widely receiving hits from Carbon Tracker over the last 90 days:

• Carbon Tracker: 2024: Misreading and mistiming the energy transition – Carbon moves from valuable commodity to stranded element (Blogpost)
• Carbon Tracker: Key Climate and Energy questions for 2024 (Blogpost)

Shell: Sustainability Report 2023

Shell's latest report covers details of their sustainability activities including:

• Achieving net-zero emissions 
• Respecting nature 
• Powering lives 
• Sustainability in oil and gas activities 
• Performance data

(Ed: Posting sustainability reports to SRI-Connect is a free and super-efficient way via here for companies to notify sustainable investors and analysts about the publication of their reports … and – as this post shows – they get lots of attention).

ClearBridge: Let's Make a Deal: Energy Edition (Podcast)

ClearBridge’s energy analyst discusses the latest in the energy sector, including his takeaways from recent large mergers in oil and gas, the prospects of upstream producers versus oilfield services, and what oil and gas companies are doing to lower their emissions and play a role in the energy transition.

EDF: Financing Methane Abatement: Introduction to sustainable debt instruments

An emerging role for finance in the energy transition is through the use of "sustainable finance instruments" - where capital is explicitly intended to fund an organization's sustainability projects and goals (think green bonds, sustainability-linked bonds, blended finance, etc.).

We break down the wonky world of sustainable debt in our latest primer, where we analyze its features, trends, and 17 case studies (featuring Eni, Enbridge, Shell, BapCo, the blue bond, the rhino bond, and more!).

Stay updated actions

• For all: To receive an ongoing, comprehensive and free flow of research and analytical op-ed that is relevant to professionals within the sustainable investment industry, please join the SRI-Connect network via here.  (Access is limited to those with current professional exposure to the sustainable investment / ESG value chain)
• For investors: Review the research pieces below and connect with the analysts that wrote them
• For research providers: Review the pieces below and – through your own research – extend and challenge them by engaging yourself in the sustainable investment debate
• For listed companies (in this sector): … who are preparing their sustainable investor presentations for the months ahead … be sure to cover the issues raised and your response to them in your forthcoming communications
• (For listed companies – in other sectors), contact me directly for a FREE report on what’s occupying the minds of investors in your sector.

Sompo Holdings: Sustainability Report 2023

The main purpose of the Sompo Holdings Sustainability Report 2023 is to report on the efforts of the Sompo Group to achieve “Materiality,” which are priority environmental (E), social (S), and governance (G) issues, for realizing the Group’s Purpose.

Published in March 2024, the report covers the period April 2022 - March 2023, and was compiled based on international guidelines such as the United Nations Global Compact and the GRI Standards.

Nordea Asset Managements latest report covers key topics including: 

• ESG highlights, covering active in the global RI community and new investor initiatives 2023
• Nordea's responsible investment approach, detailing responsible investment framework, strategies and ESG governance and teams 
• Active ownership, engagements and voting

This quarter, investors grappled with the long-awaited, but ultimately underwhelming, climate disclosure rule adopted by the Securities and Exchange Commission (SEC). The watered-down rule comes to the relief of corporate management and their trade associations, who lobbied to weaken it. The rule is not the last word  on climate disclosure, as standards evolve, but the impacts of delayed action also bear a social and environmental cost.

ESG Global Advisors: The Ins and Outs of Double Materiality: How Can Companies Prepare for CSRD Reporting? 

By Alison Joutsi, Principal, ESG Global Advisors

Overview
Keeping up with all of the ever-evolving frameworks, best practices, and related concepts is one of biggest challenges for ESG and sustainability professionals. Double materiality assessments are among the newer practices that companies need to understand.

This article explains the concept of double materiality and why it matters in the context of regulatory developments. It concludes with five actions corporate issuers can take to position themselves for success as double materiality gains traction in the sustainability reporting landscape.  

As is often the case, the fourth quarter was a busy one, with high levels of engagement activity with companies in our portfolio. These included a major working trip to Japan, where we conducted in person meetings with several of our portfolio companies. Some of the highlights and insights from the trip are shared an article in this report. On the collaborative front, Storebrand participated in several major knowledge-sharing events, including the UN Principles for Responsible Investment (PRI) In Person conference in Tokyo, as well as the 12th United Nations Forum on Business and Human Rights in Geneva. Storebrand engaged within collaborated initiatives on a broad set of issues, such as the net zero transition, chemical pollution, biodiversity, deforestation, living wages and human rights in the tech industry, as described in several entries in the section of this report on active ownership.

The quarter was also marked by a significant amount of planned and unplanned engagement activity related to conflict in the Israeli-occupied Palestinian territories (OPT): Gaza where a major war broke out in October, as well as the West Bank which simultaneously experienced a surge in armed conflict.

As of the time of publishing this report, reports from the United Nations indicated that the conflict had led to the deaths of tens of thousands of Palestinians and more than a thousand Israelis. The vast majority of the dead have been ordinary citizens, including a staggering number of children. The UN describes a dire humanitarian situation for Gaza’s 2.2 million residents, with basic aid deprived and mass starvation “inevitable” amid Israel’s blockade of the territory. Overall, this is one of the deadliest chapters in a long-running conflict in the OPT, spanning several decades with no clear resolution in sight.

Managing the risk of involvement in violations of human rights in conflict and high-risk areas is an issue that Storebrand has worked on for many years now, regularly screening our portfolios and evaluating companies that could be contributing to conflict. As the most recent outbreak of armed conflict in the OPT flamed up, Storebrand was in the middle of our annual screening, engagement and exclusion process for this region. This process, which is detailed in this report, has resulted in an exclusion so far and remains ongoing.

InterAxS Global is pleased to be organising a roadshow for ABB (Asea Brown Boveri) to update investors on its sustainability strategy and practices.

'As a technology leader in electrification and automation, ABB is at the core of accelerating the energy transition.  The company aims to enable a low-carbon society, preserve resources, and promote social progress for a net-zero future.  Their ‘Setting New Standards in Sustainability’ report was recently released, alongside a new Sustainability disclosure dashboard.

• Date & time: Wednesday 15 May
• Format: Virtual meetings (1-on-1s and small group meetings) between 09:00 and 16:15 (BST)
• Company participants: Anke Hampel - Global Head of Sustainability & Ann-Sofie Nordh - Head of Investor Relations'

Institutional investors who would like to meet with the company should contact This email address is being protected from spambots. You need JavaScript enabled to view it.

Other

A briefing webinar for ESG ratings agency analysts will also be held on 15 May - Details here

X-Change: The Race to the Top is the fourth report of the X-Change series. The series analyzes the exponential growth of renewable energy technologies, demonstrating why and how major areas of the global energy system are achieving faster change than many realize. The series is produced by RMI in partnership with the Bezos Earth Fund and as a contribution to Systems Change Lab.

In X-Change: The Race to the Top, RMI looks at the contest between China, Europe, and the United States to make and deploy the energy technologies of the future. China is in the lead in many of the key cleantech races. However, as the report details, the game is still in its early stages and Europe and the United States have a lot to play for. Furthermore, the competition between these regions will speed up change in the Global South.

The report focuses on four races:

• Clean technology supply chains
• Solar and wind deployment
• Electric vehicle (EV) sales, and
• Electrification.

The 2023 GRESB Public Results are now available.

You can find a summary of Global and Regional Events (watch on demand) or read about the benchmark.

• 2023 Real Estate Results
• 2023 Infrastructure Results

Klement on Investing: The geopolitics of the energy transition: Are fossil fuels more secure?

I have written earlier in the year about the challenge the energy transition faces in terms of geopolitical dependency. Many of the metals we need to build windmills, energy storage facilities, EVs, etc. are coming from a handful of countries. And let’s face it, these countries are typically not very stable or particularly friendly to European and North American importers. But have we thought about comparing these geopolitical dependencies to our dependencies in fossil fuels?

The IMF recently published an analysis of the geopolitical risks in fossil fuel consumption. To start, they looked at the political and country risks in the countries that produce coal, natural gas, and crude oil. The figure below shows how these risks have changed over time. The left-hand chart shows country risks measured by the democracy index, with higher values indicating less democratic and more autocratic regimes. The right-hand chart shows country risks measured by the International Country Risk Guide (ICRG) which takes into account political stability, socioeconomic conditions and internal and external conflicts. Again, higher values indicate higher risks.

MorningStar DBRS: Powering the Change: Assessing the Impact of Climate Change on Utility & Independent Power Producer Credit Ratings

Summary

This commentary looks at the potential effects of climate change on the utility and independent power producer (IPP) industries, and the related credit ratings implications.

Key highlights include the following:
-- We do not expect physical risk to be material over the near to medium term for most utilities and IPPs as they have been proactive in protecting their assets.
-- Transitional risk in the industry will be based on a company's generation mix and the pace of electrification.
-- Overall, we do not expect credit profiles to be materially affected by the effects of climate risk as long as utility regulators continue to allow the recovery of prudent costs for energy transition, and IPPs focus on lower-emitting power sources.

“We expect IPPs in our rated universe to mitigate transitional risk by investing in lower-emitting generation, and for regulation to remain stable for utilities to continue passing through their capital costs for decarbonizing the economy,” said Tom Li, Senior Vice President, Energy & Natural Resources. “However, uncertainty remains which we believe will largely depend on the pace of electrification as that will dictate the magnitude of the capital needs for the industry over the next decade.”

Real-world thinking about society’s path to net zero is calling attention to the pivotal role transition finance can play in decarbonizing high carbon-emitting sectors. Some investors and practitioners are considering directing capital toward transition projects and new technologies. The economic, regulatory, environmental, and technological landscape is complex, however, and financing options are nascent.

In “Navigating Transition Finance: An Action List,” CFA Institute Research and Policy Center explores actions investors, asset managers, corporations, and policymakers may consider to improve the disclosure of transition plans, provide clarity on transition activities, and mitigate risks associated with transition finance.

Scandi Standard: Sustainability Report 2023 

Scandi Standard's latest Annual Report contains a Sustainability Report, covering key areas of their activities, including:

• Environmental information 
• Social information 
• Governance information 

Scandi Standard have also published their presentation from their November 2023 Capital Markets Day, which covers key topics including:

• Affordable because it's sustainable 
• Responsible, safe and nutritious 

The first wave energy converter was patented by French inventor Pierre-Simon Girard in 1799. Conceptually, the device was simple. A raft floating out at sea, attached to cables and pulleys on shore; as the waves moved the raft, the raft pulled the cables, producing kinetic energy that could be deployed as needed.

Waves have the highest energy density of any renewable power source. It is estimated that ‘wave farms’ can achieve triple the energy yield per square kilometre of floating offshore wind. Waves are also relatively predictable and easily forecastable6 compared with the sun and wind. Wave energy is available 90% of the time, compared with 20-30% of the time for wind and solar.

For CalWave, CorPower and their growing number of peers, the potential prize to be had from wave energy is vast. Research suggests that we could generate almost 30,000 terrawatt hours of electricity per year from waves, which is around 20% more than the world’s total electricity consumption.

Investment in alternative energy sources often rises during times of geopolitical conflict, when oil or gas output are threatened and prices rise. Today, as conflicts continue in Ukraine and the Middle East and geopolitical tensions grow, wave energy converters offer an option for governments seeking both zero-carbon electricity and domestic energy security.

ABB: Sustainability Report 2023 

ABB's latest sustainability report covers key areas of their activities, including:

• Sustainability at ABB 
• Low-carbon society 
• Preserving resources 
• Social progress 
• Integrity and transparency 

• Real estate issuers of labelled debt perform well in our ESG Entity Ratings (ERs), with nearly 50% of issuers in our pool of rated entities achieving a ‘2/Good’ rating.
• Real estate entities perform particularly well in the environmental profile component of our ratings, as evidenced by their adoption of relevant sustainability-related policies and targets (emissions-related targets are the most common, followed by energy and water). This indicates that issuers in the sector have relatively well-established sustainability strategies.
• Real estate’s material impacts cut across a range of environmental issues: As a sector, it contributes around 40% of global energy related GHG emissions. It also has material environmental impacts on water resources, waste, pollution, land use and biodiversity.
• Green and sustainable building certifications such as LEED and BREEAM are key references in our rating process. Entities with top-graded assets in their portfolios generally see stronger ERs, while those receiving the very highest ratings also tend to meet the relevant technical screening criteria under the EU taxonomy.
• New, more stringent requirements for energy-efficient buildings – such as the EU’s revised Energy Performance in Buildings Directive (EPBD), adopted by the European Parliament in on March 13 – are likely to spur fresh labelled debt issuance as real estate entities seek financing for green building projects and retrofits to mitigate their environmental impacts. 

Mondi's latest Sustainable Development report covers key areas of their activities including:

• Taking action on climate change 
• Created by empowered people 
• Built on responsible business practice 
• Circular driven solutions 

Lloyds 2023 report provides an update on their progress towards their sustainability ambitions, along with the activities they are undertaking to understand their related risk and the opportunities to grow their business and generate sustainable shareholder returns. Throughout this report, they detail the activities they are undertaking to help our customers and stakeholders. 

Key sections of the report are:

• Group sustainability strategy 
• Inclusive future 
• Sustainable future 

Cardinal Health's latest report covers their activities including:

• Empowering our people 
• Creating value for our customers and communities 
• Operating sustainably and responsibility 
• Governance, ethics and compliance 
• Reporting indices

Diageo's latest ESG Reporting Index covers key areas including:

• ESG Reporting approach, ESG materiality 
• GRI Index - Foundation, General disclosures and material topics 
• Economic 
• Environmental 
• Social 
• Reporting boundaries and methodologies

Canbury is #hiring ...

We are on the lookout for a highly motivated individual with exceptional comprehension and writing skills, ready to contribute to our fast-growing and dynamic team.

This is an analyst role, and would suit a recent graduate, someone new to responsible investment, or with 1 – 2 years experience.

Interested candidates are invited to submit the following documents, combined into a single PDF:

- A one-page CV detailing your professional experience and qualifications.
- A one-page cover letter expressing your interest in the role and how you meet the requirements.
- A one-page article discussing the role of responsible investment and either 1) water or 2) anti-microbial resistance.

Please send your application to This email address is being protected from spambots. You need JavaScript enabled to view it. by Friday 26 April.

We are committed to fostering a diverse and inclusive workplace. We encourage applicants from all backgrounds to apply and join us in our mission to deliver insightful analysis and research.

Canbury is a specialist sustainability consultancy providing a range of high-quality sustainability and ESG services for our global client base, with a vision to make sustainability practical, transparent, and meaningful.

We bring together four fundamental skillsets:
i) Sustainability expertise
ii) AI and machine-learning
iii) Policy and regulation
iv) Investment

We offer end-to-end sustainability services including TCFD/ISSB reporting, net zero target setting, stewardship reporting, nature supply chain analysis and ESG data sets.

Our offices are in Covent Garden, London.

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