Gustavo Bernal Torres
Stranded Assets, SMEs, Carbon 'Time Bomb', and Sponge Cities
Here are 5 ESG insights you might have missed this week:
1. Trillions in Assets May Be Left Stranded as Companies Address Climate Change-
Write-downs of power plants, auto factories and fossil-fuel reserves could cause big losses in transition to renewable energy.
At the end of 2019, GM announced a $1bn investment to produce a new generation of pickup trucks. A year later, GM said it would go all-electric by 2035. Analysts are worried that some of the new machinery could end up on the scrap heap, adding to a multi-trillion pile of assets that will lose value as the country shifts away from fossil fuels.
The losses would be caused by so-called stranded assets. These range from coal-fired power shutting down before the end of their useful lives to buildings hit with repeated floods to farmland suffering from prolonged drought. Any asset that is producing less than expected because of climate change or rules set up to limit climate change could be a candidate for a write-down.
Link to Source: https://www.wsj.com/articles/trillions-in-assets-may-be-left-stranded-as-companies-address-climate-change-11637416980
2. How Investors’ Global Focus on Carbon is Set to Alter the Game-
A survey from State Street of over 300 institutional investors about how they’re implementing decarbonization strategies and the challenges they face.
State Street's latest research uncovers the views of more than 300 institutional investors, revealing an industry poised for a surge in decarbonization target-setting over the next three years. Currently 20% of the most sophisticated have already set formal targets and momentum is clearly building for those yet to do so.
Investors view engagement and more robust criteria for asset managers as the most important strategy to address climate issues over the next three years.
Link to Source: https://www.ssga.com/us/en/institutional/ic/insights/the-world-targets-change
3. Wall Street’s $22 Trillion Carbon Time Bomb-
It’s not just the moral imperative of dumping fossil-fuel producers anymore. Now it’s a matter of financial health.
According to Moody’s, financial institutions in the Group of 20 leading industrial and developing nations have $22tn of exposure to carbon-intensive industries. That’s equal to about 20% of their total loans and investments. So unless these firms make a swift shift to climate-friendly financing, they risk reporting losses, Moody’s said.
For banks, having a high credit rating is paramount because they rely on low funding costs to make loans at higher interest rates and profit from the net interest spread. Additionally, almost no one will want to have their money deposited at a risky financial institution.
Link to Source: https://www.bloomberg.com/news/articles/2021-11-24/wall-street-faces-a-22-trillion-carbon-time-bomb-green-insight
4. To Prevent Floods, China Is Building “Sponge Cities”-
After decades of ill-planned growth, urban areas are being retrofitted to prevent disasters.
The flooding in Zhengzhou shocked the country. It left many Chinese wondering whether sponge cities were all they were cracked up to be. After all, a lot of money has been flowing into spongification. Experts reckon that implementing the government’s sponge-city guidelines will cost at least $1trn nationwide.
Officials insisted that the downpour was a “once in a millennium” event that even the best-built sponge city could not have coped with perfectly.
Link to Source: https://www.economist.com/china/2021/11/18/to-prevent-floods-china-is-building-sponge-cities
5. SMEs Equipped To Join Race To Net-Zero With Dedicated Climate Disclosure Framework-
CDP launches a new climate disclosure framework, in collaboration with the SME Climate Hub.
Supply chain emissions are 11.4 times higher than operational emissions – many large companies are cascading climate action down the supply chain to their suppliers, often SMEs.
SMEs make up the majority of the global economy – they must take climate action and demonstrate leadership in the race to net-zero.
New CDP framework enables them to do this through environmental disclosure and science-based target setting.
Link to Source: https://www.cdp.net/en/articles/companies/smes-equipped-to-join-race-to-net-zero-with-dedicated-climate-disclosure-framework
One more thing: From Bridgespan Social Impact, list of 160 funds creating opportunities for disadvantaged communities. An answer to the excuse that there’s a shortage of investable opportunities.
Find the list here: https://bridgespan-social-impact.com/wp-content/uploads/2021/11/BSI-Getting_Money_Off_the_Sidelines.pdf
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