Sustainability Newsletter #42

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#Figure of the month - 10 per second

In a warming world, 10 air conditioners are sold every second

A warming world is making the need to stay cool more pressing. Hot countries are getting hotter, tipping normal summer temperatures into dangerous territory more frequently. Temperate countries are experiencing heat waves that were once unthinkable. Globally, an estimated 1.2 billion rural and urban people are at risk because they currently lack access to cooling, including refrigeration and air conditioning, according to a 2022 report by the research group Sustainable Energy for All.

Meanwhile, 2.4 billion middle-class people are “on the brink” of buying the most affordable cooling appliance available to them, the report found, regardless of its efficiency. While millions of people buying cheap ACs is a quick fix for a hotter climate, it also stands to complicate the energy transition. Indeed, cooling will be “one of the top drivers of global electricity demand over the next three decades,” the International Energy Agency said in a 2018 special report. The organization estimates that approximately 10 new air conditioners will be sold every second between now and 2050. However, consumers often prioritise affordability over energy efficiency when purchasing new air conditioners, leading to a far greater energy demand than necessary. To tackle these cheap but inefficient energy guzzlers, the IEA points out that introducing policies to encourage the purchase of more efficient air conditioners could reduce energy demand by 45%, while cutting the cost of operating the electricity grid by $3,000 billion.

Sources:  Bloomberg, The Financial Express


Trends and Initiatives

An American oil hub is pivoting to offshore wind

Every morning, more than 600 workers clock in at the Louisiana shipyard where the Eco Edison, the first US-built vessel to service offshore wind farms, is under construction. This is just one slice of the energy transition reshaping the Gulf of Mexico region, which is increasingly dotted with offshore wind projects. In February, the Biden administration announced the first-ever sale of offshore wind leases in the Gulf, off the coasts of Texas and Louisiana. This project comes at a time when the region is suffering from unemployment in the oil and gas industry. In the state of Louisiana, jobs in the sector have been divided by 2 between 2015 and 2021. The project has been well received by the local population, who hope to attract new investors, create new employment opportunities and boost the local economy. Companies from the Gulf and the South have already won 23% of all contracts for offshore requirements, using their expertise in oil and gas operations to support the wind farms. 

Dominion Energy Inc. has already invested more than $500 million in the construction of a wind farm off the coast of Texas. Meanwhile, energy giant Shell Plc invested $10 million in Gulf Wind last March to advance research into turbines that can generate electricity cost-effectively and survive hurricanes. According to the US Department of Energy, a single offshore wind farm built in the Gulf could create around 4,500 jobs and provide a $445 million boost to the economy.

Sources: Bloomberg, EnergyConnects


Cities are becoming more like sponges

While good water management has always been essential for cities, climate change combined with urban growth into more vulnerable areas, has made it an even bigger priority. The Chinese province of Hainan is rethinking our urban models, thanks to its pioneering network of green and natural infrastructures capable of absorbing storm flooding and heavy monsoon rains. Yu Kongjian was the first to propose the holistic concept of the sponge city. "To survive, you have to be spongy", explains Kongjian, Dean of Peking University, and points out that protecting cities with concrete infrastructure is doomed to failure.

“One of the problems all cities are facing is that as they are growing, they are simply cementing over all the land,” says Asit K. Biswas, an expert in water management at the University of Glasgow. “So the water that used to percolate to the ground doesn’t anymore. Flooding becomes an issue, and important groundwater isn’t replenished. That is why we need sponge cities.” The idea is not to install enormous artificial foam structures across urban areas, but rather to create cities filled with natural spaces which are capable of absorbing, storing and cleaning rain and floods. Kongjian’s “sponge city” idea is inspired by the ancient Chinese agricultural approaches. “It is a cultural heritage that is built on 5,000 years of water management experience” states the researcher. Kongjian adds that many other civilizations around the world also have monsoon- and flood-adapted ways of life. By 2030, China's sponge cities aim to process 70 percent of rainwater across 80 percent of their land.

Sources: Reasons To Be Cheerful, Interesting Engineering


Sustainable Finance

ESG attacks prompt urgent talks as insurers quit coalition

The world’s biggest climate coalition for insurers is set to hold emergency talks after a wave of defections revealed the extent to which anti-ESG rhetoric in the US is unsettling members. Signatories of the Net Zero Insurance Alliance (NZIA) are due to discuss next steps after some of the group’s biggest members including Munich Re walked out.

The development follows an escalation of Republican Party attacks on businesses and investors perceived to be embracing environmental, social and good governance (ESG) goals. In a May 15 letter, attorneys general representing 23 US states said they were “concerned with the legality” of the NZIA, as they blamed the group for rising insurance and gas prices. The letter is the latest example of the Republican Party turning to antitrust rules as a lever through which to vilify ESG.

Global companies are facing a dilemma. While Europe has embraced ESG and established regulatory and legal requirements to support it, the situation in the US is shaped by a divided political landscape. NZIA, which hasn’t had any US members since being convened, has seen five major insurers walk out since the end of March. Munich Re’s defection was followed by Zurich Insurance Group AG and Hannover Re. In May, Swiss Re and Lloyd’s joined the exodus. All five have said they remain committed to climate goals, but preferred to pursue these in isolation rather than as part of the NZIA.

Sources: Le Figaro, ESG Today


Top ESG funds in Asia boost returns in once unloved market

Asia’s top ESG funds are reaping the rewards of investing in Japan, a market largely ignored even by local money managers focused on sustainability. Four of the five best performers in the region this year are focused on Japan, boasting total returns of more than 17% (Bloomberg) of ESG funds with at least $250 million in assets. That tops the average gain of 1.1% for Asian ESG funds overall, and the 16% return for Japan’s Topix stock gauge. Money managers with sustainable mandates in Japan have generally avoided their domestic market, citing relatively low returns and subpar ESG practices. Those that have stuck close to home are benefiting from improved corporate governance, a dose of inflation and an endorsement from billionaire investor Warren Buffett. That’s compounding optimism about Japanese stocks, which have been among the best performers in the world this year.

Among the winners, the ESG funds Alma Eikoh Japan and Goldman Sachs Japan Equity Partners reported returns of more than 20% each. The Alma Eikoh fund has seen gains from industrial companies including Japan Airlines Co and Mitsubishi Heavy Industries Ltd. The former is raising billions of yen for transition financing while the latter is seeking to use hydrogen and carbon-capture technologies to reduce carbon emissions. For Japan, the big risk from an ESG perspective will be environmental as emissions regulations kick in, he said. The world’s fifth-biggest emitter has already started pricing carbon, which could potentially influence the investment strategies of the world's largest fund managers.

Source: Bloomberg


Society and Planet

UN says concerned about lack of women in China's top government

An absence of women among China's top leadership is concerning, the United Nations said in a report, as it recommended China adopt statutory quotas and a gender parity system to quicken equal representation of women in government. Although the representation of women in China's political and public life has increased in recent years, the committee expressed concern that women make up only 26% of the deputies to the National People's Congress. The committee also mentions cases of intimidation and harassment of women human rights defenders. China’s foreign ministry said the government attaches "great importance" to international exchanges and "will carefully study the useful comments made by the committee". The ministry has also indicated its willingness to engage itself with the international community to promote the cause of women worldwide.

Sources: Reuters, SwissInfo


A biodiversity hotspot flourishes as Costa Rica puts nature on the payroll

The Osa Peninsula on Costa Rica’s west coast occupies just 0.001% of the planet’s surface area, yet is home to an estimated 2.5% of all the biodiversity in the world. The forests combat biodiversity loss and play a key role in capturing carbon and fighting climate change. Thanks to the government's new Payments for Environmental Services (PES) programme, the Osa Peninsula region is a new example of how financial incentives can lead to forests protection, while also supporting employment and rural economies. Stopping to generate income from agriculture is an economic sacrifice, that are not recognized by the market although generating benefits for the rest of the world. By paying landowners, the government is encouraging them to preserve the environment and counteracting the market forces that are driving people to convert tropical forests into farmland. The PES program’s annual budget is between $20 million and $25 million, of which 92% is funded from a sales tax on fossil fuels. Since its inception, the initiative has protected 1.3 million hectares of forest and formalized more than 19,000 contracts with landowners. The program is also credited with turning Costa Rica’s deforestation rate from one of the highest in the world to a net reforestation. Globally, the economic returns of restoring land, greenhouse gas emissions and biodiversity loss could be as high as $140 trillion every year, according to the UNCCD’s 2022 Global Land Outlook report. 

Source: Reasons To Be Cheerful


Company news

Shell demands profit from green energy, not just CO2 cuts

-          Company : SHELL PLC

-          Sector : ENERGY

-          Clover rating : 3/10

In May, Shell Plc's management publicly stated the need to improve the profitability of its renewable energy business. In particular, the company plans to withdraw from the least successful elements of its clean energy strategy. The move is part of a strategy overhauled by new chief executive Wael Sawan, which seeks to improve Shell's performance and eliminate businesses that are not delivering sufficient returns. "Activities that have not been successful must be reduced or stopped," Hill told the meeting. Shell has already provided some evidence of this strategy in recent months. It has announced a strategic review of its loss-making European retail energy business and put it up for sale. It has also sold Australian solar developer Esco Pacific, in which it held a minority stake, and is currently looking to sell a French floating turbine unit as part of a wider exit from the offshore wind market in France.

Sources: ZoneBourse, Bloomberg 


Water tech firm Gradiant hits 'unicorn' status after $225 million raise

-          Company : GRADIANT

-          Sector : WATER MANAGEMENT

-          Clover rating : Not Rated

Water technology company Gradiant raised $225 million in its latest funding round, boosting its valuation to $1 billion which makes it a sector “unicorn” (Unicorn is a term for an unlisted firm valued at $1 billion or more). Boston-based Gradiant's technology is used across a range of sectors including pharmaceuticals and semiconductors to help companies reduce water usage and clean up wastewater for reuse. Founded at the Massachusetts Institute of Technology, Gradiant now employs more than 900 people and counts companies including Taiwan Semiconductor Manufacturing Co Ltd, GSK and Rio Tinto among its clients. The company said the capital raised in the Series D round, backed by BoltRock Holdings and Centaurus Capital, would be used to continue its expansion, including into new markets such as the Middle East, as well as research and development.

Source: Reuters


PepsiCo opens a new factory that integrates sustainabilty issues

-          Company : PEPSICO INC

-          Sector : FOOD, BEVERAGE & TOBACCO

-          Clover rating : 8/10

Food and beverage giant PepsiCo announced in may the opening of a $320 million plant in Poland, described by the company as its greenest factory in Europe, incorporating renewable energy for operations and a series of circular economy measures to reduce water waste and help address global food system challenges. PepsiCo outlined several sustainability-focused measures in place at the plant, including low utility consumption, the generation of its own energy using rooftop solar panels, and plans to add an onsite solar farm in the future. The plant will also collect and recover rainwater and heat process water for use in building utilities. The company also highlighted the plant’s circular solution for leftover potato peelings from the manufacturing process, which will be used to help power the facility using anaerobic digestor technology, and converted into low carbon fertilizer to be used by farmers for their next crop.

Sources : ESG Today, FoodBev 



ESG : a key to making money?

“This is about making money,” said Bjarne Graven Larsen, a former chief investment officer of Ontario Teachers’ Pension Plan who founded Qblue Balanced A/S in 2018. This asset manager, whose top-ranked ESG funds are among just a handful to have survived a mass wave of ratings downgrades, says money is the motive behind his environmental, social and governance (ESG) strategy. Graven Larsen is among asset managers struggling to make sense of the furore surrounding ESG, as the investing form gets entangled in US politics. Republican lawmakers are stepping up their attacks on ESG, and have put forward dozens of bills across state legislatures to stop businesses and investors from taking ESG risks into consideration. The tone of the debate has made it hard to talk about ESG, according to Graven Larsen.

“We have not tried to optimize ratings,” Graven Larsen said in an interview. “We’ve tried to come up with a way of investing in companies that in our view create societal value” and that "we think will profit from that.”  ESG is a tool through which to find assets that “will be profitable — very profitable — in the future,” he said. It’s an approach that’s too often either overlooked or misunderstood as the debate surrounding ESG grows increasingly “emotional,” Graven Larsen said. 

Qblue’s Navigera Global Sustainable Leaders Fund has beaten 91% of its peers over the past year, according to data compiled by Bloomberg. The fund is classified as Article 9 under the European Union’s Sustainable Finance Disclosure Regulation, which is the framework’s highest ESG designation. 

Source: Bloomberg 


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