Gustavo Bernal Torres
Climate Scenario Analysis, Coal Underwriting, ESOPs, Australia, and Super Bowl Ads
Here are 5 ESG insights you might have missed this week:
1. Assessing Financial Risks from Physical Climate Shocks: A Framework for Scenario Generation-
The World Bank has published a framework to generate climate scenarios to be used in stress tests.
Most advances in climate stress test focused on transition risk, using mitigation scenarios elaborated by process-based IAM and recently by the NGFS.
The paper identifies five areas, or risk drivers, that make a material contribution to physical climate risks to the financial sector and that are not consistently included in current climate scenarios and tools: (1) extreme weather events; (2) uncertainties in climate models; (3) compound scenarios; (4) indirect economic impacts of shocks; and (5) feedback between the real economy and the financial sector.
Link to Source: https://www.financialprotectionforum.org/publication/assessing-financial-risks-from-physical-climate-shocks-a-framework-for-scenario
2. Banks Haven’t Quit Coal. Study Says Commercial Lenders Have Channeled $1.5 Trillion To The Industry-
A report from Urgewald and Reclaim Finance says banks have channeled more than $1.5 trillion across the coal supply chain since the start of 2019.
Financial institutions from just six countries — the U.S., China, Japan, India, Canada and the U.K. — were found to be responsible for over 80% of coal financing and investment between January 2019 and November last year.
Most agree it’s necessary to fight rising temperatures, yet few major global banks are willing to shun profitable fossil-fuel clients. The biggest coal lenders included Mizuho Financial Group Inc., Barclays Plc, Citigroup Inc. and JPMorgan Chase & Co., the study showed. Chinese banks dominated underwriting of capital raised by the coal industry.
Link to Source: https://www.cnbc.com/2022/02/15/climate-research-shows-how-banks-investors-finance-the-coal-industry.html
3. Australia’s Largest Coal-Fired Power Station, Eraring, To Close In 2025, Seven Years Early-
Origin Energy says the 2,880MW black-coal generator in NSW is not well-suited to rapidly changing conditions in the national electricity market.
Eraring Power Station, in New South Wales, was slated to run for another seven years. However Origin Energy, which manages the plant, explained that an influx of wind and solar power mean that it is no longer economically viable. In 2020 coal generated more than half of Australia’s power.
“Everyone could see this coming. The climate crisis and falling costs are driving a renewables revolution and it’s not going to stop,” he said. “Instead of lying to coal workers and their communities about a future for coal, Liberal and Labor need to get real and join the Greens with a plan that secures workers’ futures.”
Link to Source: https://www.theguardian.com/australia-news/2022/feb/17/australias-largest-coal-fired-power-station-eraring-to-close-in-2025-seven-years-early
4. Africa’s Fossil-Fuel Trap-
A Response to “The Divestment Delusion”.
In August 2021, Nigerian Vice President Yemi Osinbajo bemoaned fossil fuel divestments, concluding that “the transition must not come at the expense of affordable and reliable energy for people, cities, and industry.”
But far from generating prosperity and stability in sub-Saharan Africa, investments in fossil fuels cause real harm. Decades of fossil fuel development have failed to deliver energy to much of the continent and have built economic models dependent on extraction that have deepened inequality, caused environmental damage, stoked corruption, and encouraged political repression.
Link to Source: https://www.foreignaffairs.com/articles/africa/2022-02-17/africas-fossil-fuel-trap
5. The Case for Investing in Employee Ownership-
Transitioning businesses to employee ownership has the potential to significantly reduce the overall wealth gap as well as the racial equity gap. But it will take capital investment to scale.
An inspiring example of what’s possible is Taylor Guitars, a manufacturer with $120 million in revenue, which recently transitioned to 100-percent employee ownership. The firm’s 1,200 workers in Southern California and Mexico will now benefit from the value of ownership shares via an Employee Stock Ownership Plan (ESOP).
The financing partner for this transition was the $100 billion Healthcare of Ontario Pension Plan (HOOPP). The pension fund was brought into the deal by Social Capital Partners.
Link to Source: https://ssir.org/articles/entry/the_case_for_investing_in_employee_ownership
One more thing: Just like last year, Electric car ads dominated the Super Bowl’s commercial breaks. Have a look at the spots from BMW, GM, Kia, Nissan, and others.
Find the ads here: https://www.caranddriver.com/news/g38990951/super-bowl-ads-2022/
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