SLBs, China's Transition, US National Security, Energy Investment Ratios, and Rare Earths
Here are 5 ESG insights you might have missed this week:
1. Empty ESG Pledges Ensure Bonds Benefit Companies, Not the Planet-
Sustainability-linked bonds let companies borrow cheaply if they meet ESG targets. A Bloomberg News analysis found those goals are weak.
Bloomberg News analyzed more than 100 SLBs worth almost €70 billion that were sold by global companies to investors in Europe—the most mature market for sustainable finance products—and found that the majority are tied to climate targets that are weak, irrelevant, or even already achieved. The result, researchers say, is that companies are getting something for nothing: Cheaper financing and an enhanced green reputation come without any real effort to deliver on climate goals and no chance of financial penalty.
The SLB market “is broken,” says Krista Tukiainen, head of market intelligence at the Climate Bonds Initiative, a nonprofit that promotes better use of debt for sustainable purposes. “Let’s not kid ourselves that this is moving the needle on climate. It can, but it’s really not right now.”
2. Biden's National Security Strategy Focuses on Climate Change-
The long-awaited Biden administration national security strategy puts climate change at the center of policymaking toward China, the Arctic, and many other parts of the globe.
For example, climate change can worsen extreme weather and climate events, from hurricanes to droughts, leading to politically destabilizing mass migrations that can entangle the U.S. military in humanitarian relief missions.
The new strategy designates climate change as being among the greatest of the world’s shared challenges, which lies “[a]t the very core of national and international security,” along with food insecurity, terrorism and inflation.
3. ESG as Process Versus ESG as Product-
Understanding the difference can help clear up confusion around ESG investing.
ESG is literally information, in the form of data and ratings, about ESG challenges that may affect an investment decision. It is an input to the investment process. ESG analysis is the interpretation of that information as part of the investment decision-making process. Similarly for companies, ESG analysis informs the capital-allocation process.
First, to clarify your understanding of ESG, it’s helpful to distinguish between ESG as process and ESG as product. Second, virtually all asset managers use ESG as process to help them fulfill their fiduciary responsibilities. And finally, although ESG products, or sustainable funds, are not all alike in terms of their sustainability or financial approaches, they share the common objectives of competitive returns while considering the broader impact on people and planet.
4. Investment Requirements of a Low-Carbon World: Energy Supply Investment Ratios-
The 2011-2015 low-carbon to fossil energy supply investment ratio was 0.5 low-carbon vs. 1 fossil. For 2016-2020, it was 0.7:1 and in 2022 0.9:1.
To better understand potential capital flows up to 2050, BloombergNEF (BNEF) has analyzed International Energy Agency (IEA), Intergovernmental Panel on Climate Change (IPCC), and Network for Greening the Financial System (NGFS) long-term scenarios.
BNEF compared investment required under each for low-carbon technologies and compared that to potential investment for fossil fuels to produce decadal “energy supply investment ratios”. Scenarios assessed included the IEA Net Zero Emissions scenario (NZE), four* IPCC scenarios aligned with a 1.5°C rise and two NGFS Phase 3 net-zero scenarios.
5. China Country Climate and Development Report-
China is the world's largest greenhouse gas producer, and the report provides a roadmap for integrating climate and development goals.
$14 trillion, the investment level needed to decarbonize China's power and transport sectors in line with its goal to be carbon neutral by 2060, per a new World Bank analysis.
This report offers policy options to achieve these dual objectives by easing inevitable trade-offs and maximizing potential synergies between China’s development and climate objectives.
One more thing: A 5-episode podcast series from the BBC on the global competition to control production of the rare earth metals.
Find the series here: https://www.bbc.co.uk/sounds/series/m001cdr7
Do share your comments or the content you think our community should not miss!