ESG Update April 2021 | The Association of Corporate Treasurers

ESG Update April 2021

Go back 14 April 2021 Naresh Aggarwal

This blog is part of a regular series of blogs on the wide topic of ESG and items that have caught my attention.

Official announcements

  1. President Biden will be convening a live streamed virtual summit of 40 world leaders on April 22nd and 23rd. By the time of this summit, the United States will be expected to have announced ambitious 2030 emissions target as its new Nationally Determined Contribution under the Paris Agreement.  Key themes of the Summit will include:
    • Galvanizing efforts by the world’s major economies to reduce emissions during this critical decade to keep a limit to warming of 1.5 degree Celsius within reach.
    • Mobilizing public and private sector finance to drive the net-zero transition and to help vulnerable countries cope with climate impacts.
    • The economic benefits of climate action, with a strong emphasis on job creation, and the importance of ensuring all communities and workers benefit from the transition to a new clean energy economy.
    • Spurring transformational technologies that can help reduce emissions and adapt to climate change, while also creating enormous new economic opportunities and building the industries of the future.
    • Showcasing subnational and non-state actors that are committed to green recovery and an equitable vision for limiting warming to 1.5 degree Celsius and are working closely with national governments to advance ambition and resilience.
    • Discussing opportunities to strengthen capacity to protect lives and livelihoods from the impacts of climate change, address the global security challenges posed by climate change and the impact on readiness, and address the role of nature-based solutions in achieving net zero by 2050 goals.
  2. The US SEC announced it was establishing an Enforcement Task Force Focused on Climate and ESG Issues. The initial focus will be to:
    • Identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules.
    • Analyse disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.
    • Work closely with other SEC Divisions and Offices, including the Divisions of Corporation Finance, Investment Management, and Examinations.
  3. The US SEC has launched a consultation and public feedback can be read here.
  4. Lexology has provided a useful update on the UK’s approach to ESG legislation post Brexit.
  5. The Sustainable Finance Disclosure Regulation (SFDR) came into effect on March 10 covering asset managers across the EU. It calls on asset managers to classify their funds according to three primary categories – article 6, which makes no claims of sustainability, or articles 8 and 9, which both ESG credentials and require firms to provide data to support the claims. SFDR sets common EU rules on:
    • how financial product manufacturers and financial advisers should inform end-investors about sustainability risks,
    • how the impact of investments on the environment and society should be disclosed, and
    • how financial products that are marketed as sustainability-related actually meet that ambition.
  6. Germanwatch has produced a useful calendar of events covering the EU Non-Financial Reporting Directive during 2021

Resources, Reports and Announcements

  1. Watershed has produced software to allow organisations to calculate their carbon footprint. One of the outcomes is the ability to calculate the benefit or cost of remote working from a GHG perspective.
  2. The ONS produced an analysis of the natural capital value of the marine and coastal areas of the UK. With an estimated value of £211bn, it is claimed this exceeds the value of the remaining oil and gas reserves. The report includes the following table

  1. Netflix has calculated the GHG cost of its streaming service using a tool called DIMPACT, (developed by researchers at the University of Bristol) and claimed that one hour of streaming on its platform in 2020 used less than 100g CO2e (a hundred grams of carbon dioxide equivalent) – that’s less than driving an average car a quarter of a mile. It has also announced that by the end of 2021, for emissions it cannot avoid internally, including Scope 3 emissions, it will fully neutralize them by investing in projects that prevent carbon from entering the atmosphere.
  2. The issue with carbon offsets has again been brought up with Nature Conservancy being accused of enabling big corporations to include contributions to carbon offset programmes that were happening already within their own calculations. Trove Research issued a recent report assessing the likely future demand for carbon offsets to 2050 and why companies looking to offset their emissions risk being undermined by a surplus of older credits still in the system.
  3. One of the key objectives of COP 26 has been a reform of carbon pricing. There are a number of reports on the topic, and I have highlighted a couple. In its report from earlier in 2021, Refinitiv noted the following:
    1. The total value of global carbon markets grew nearly 20 percent in 2020, reaching €229 billion based on its assessment of traded volume and carbon prices - marking the fourth consecutive year of record growth and more than five times the value in 2017. The major carbon markets saw prices rising on expected tightening of emission caps.
    2. The European Emissions Trading System (EU ETS) represents nearly 90 percent of global value and accounts for most of the record high global traded volume of 10.3 Gt. Over 8 billion emission allowances changed hands in the European carbon market in 2020, nearly 20 percent more than in 2019.
    3. European carbon prices fell rapidly in March when the economic repercussions of the Covid-19 pandemic hit the region, but later recovered to hit record highs when EU leaders solidified more ambitious greenhouse gas emission reduction targets for 2030 that will require a tighter ETS cap. The benchmark EUA contract ended 2020 at a record high of €33.44/t.

The graph below shows how the price of 1 EUA has changed over the last 13 years (one EUA gives the holder the right to emit one tonne of carbon dioxide). Forecasts from S&P Global suggest a price of between €56/ mt and €89/ mt by 2030.

In its report from 2019, the World Bank included the following infographic which shows the cost of different carbon pricing initiatives across the world:

  1. The UN’s Sustainable Development Goal #6 includes objectives to ensure access to water and sanitation for all, achieve access to adequate and equitable sanitation and hygiene for all and implement integrated water resources management at all levels. There are now a number of indices to help evaluate water risk. These include:
    1. The Water Risk Index launched by Thomas Schumann Capital to evaluate the water risk in financial portfolios to help asset managers mitigate water risk.
    2. An online water data platform named Aqueduct for risk assessment developed by The World Resources Institute; and

A Water Risk Filter developed by The World Wildlife Fund that helps companies assess and respond to water risk with scenarios

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