Improved biodiversity data, standards needed as investment ops grow

Read the full story at Environment + Energy Leader.

Biodiversity is increasingly becoming a priority for investors as they study the impacts of a company’s nature-related impacts, even as standards on such information are lacking, according to a report from Moody’s.

Webinar: Strategies for Implementing a Green Revolving Fund

Jun 23, 2022, 2 pm CDT
Register here.

Competing priorities in primary and secondary school systems mean there is rarely enough money to fund capital building projects which improve efficiency, health and the bottom line. There are ways to overcome this funding barrier. One is a proven model of internal capital financing referred to as a Green Revolving Fund (GRF).

During this webinar, presenters will explore the virtuous cycle of the revolving fund and showcase stories from K-12 schools that are using the GRF model to support sustainability programs on their campuses, including successes and pitfalls. Attendees will see first-hand the various tools designed specifically to help institutions implement and manage a fund, from simple spreadsheets to the GRITS software.

We welcome all school leaders and community advocates interested in financing sustainability programs with a revolving fund to join us for this free webinar.

Presenters

  • Cameren Cousins, Director of Sustainability & Faculty, Fenn School
  • Dan Schnitzer, Director of Construction & Sustainability, Durham Public Schools
  • Mark Orlowski, Executive Director and Founder, Sustainable Endowments Institute

Who really owns the oil industry’s future stranded assets? If you own investment funds or expect a pension, it might be you

More countries are discouraging fossil fuel use, but the industry is still pumping. Leonard Ortiz/MediaNews Group/Orange County Register via Getty Images

by Gregor Semieniuk, UMass Amherst and Philip Holden, The Open University

When an oil company invests in an expensive new drilling project today, it’s taking a gamble. Even if the new well is a success, future government policies designed to slow climate change could make the project unprofitable or force it to shut down years earlier than planned.

When that happens, the well and the oil become what’s known as stranded assets. That might sound like the oil company’s problem, but the company isn’t the only one taking that risk.

In a study published May 26, 2022, in the journal Nature Climate Change, we traced the ownership of over 43,000 oil and gas assets to reveal who ultimately loses from misguided investments that become stranded.

It turns out, private individuals own over half the assets at risk, and ordinary people with pensions and savings that are invested in managed funds shoulder a surprisingly large part, which could exceed a quarter of all losses.

More climate regulations are coming

In 2015, almost every country worldwide signed the Paris climate agreement, committing to try to hold global warming to well under 2 degrees Celsius (3.6 F) compared to pre-industrial averages. Rising global temperatures were already contributing to deadly heat waves and worsening wildfires. Studies showed the hazards would increase as greenhouse gas emissions, primarily from fossil fuel use, continue to rise.

It’s clear that meeting the Paris goals will require a global energy transition away from fossil fuels. And many countries are developing climate policies designed to encourage that shift to cleaner energy.

But the oil industry is still launching new fossil fuel projects, which suggests that it doesn’t think it will be on the hook for future stranded assets. U.N. Secretary-General António Guterres called a recent wave of new oil and gas projectsmoral and economic madness.”

Teenagers play in the water of the Caspian sea - one young man is flipping another, with several Soviet oil rigs behind them.
Much of the stranded asset risk falls on individuals. Kirill Kudryavtsev/AFP via Getty

How risk flows from oil field to small investor

When an asset becomes stranded, the owner’s anticipated payoff won’t materialize.

For example, say an oil company buys drilling rights, does the exploration work and builds an offshore oil platform. Then it discovers that demand for its product has declined so much because of climate change policies that it would cost more to extract the oil than the oil could be sold for.

The oil company is owned by shareholders. Some of those shareholders are individuals. Others are companies that are in turn owned by their own shareholders. The lost profits are ultimately felt by those remote owners.

In the study, we modeled how demand for fossil fuels could decline if governments make good on their recent emissions reduction pledges and what that would mean for stranded assets. We found that $1.4 trillion in oil and gas assets globally would be at risk of becoming stranded.

Stranded assets mean a wealth loss for the owners of the assets. We traced the losses from the oil and gas fields, through the extraction companies, on to those companies’ immediate shareholders and fundholders, and again their shareholders and fundholders if the immediate shareholders are companies, and all the way to people and governments that own stock in the companies in this chain of ownership.

It’s a complex network.

On their way to ultimate owners, much of the loss passes through financial firms, including pension funds. Globally, pension funds that invest their members’ savings directly into other companies own a sizable amount of those future stranded assets. In addition, many defined contribution pensions have investments through fund managers, such as BlackRock or Vanguard, that invest on their behalf.

We estimate that total global losses hitting the financial sector – including through cross-ownership of one financial firm by another – from stranded assets in oil and gas production could be as high as $681 billion. Of this, about $371 billion would be held by fund managers, $146 billion by other financial firms and $164 billion could even affect bondholders, often pension funds, whose collateral would be diminished.

U.S. owners have by far the largest exposure. Ultimately, we found that losses of up to $362 billion could be distributed through the financial system to U.S. investors.

Some of the assets and companies in an ownership chain are also overseas, which can make the exposure to risk for a fund owner even more difficult to track.

Someone will get stuck with those assets

Our estimates are based on a snapshot of recent global share ownership. At the moment, with oil and gas prices near record highs due to supply chain problems and the Russian war in Ukraine, oil and gas companies are paying splendid dividends. And in principle, every shareholder could sell off their holdings in the near future.

But that does not mean the risk disappears: Someone else buys that stock.

Ultimately, it’s like a game of musical chairs. When the music stops, someone will be left with the stranded asset. And since the most affluent investors have sophisticated investment teams, they may be best placed to get out in time, leaving less sophisticated investors and defined contribution pension plans to join the oil and gas field workers as losers, while the managers of the oil companies unfold their golden parachutes.

Alternatively, powerful investors could successfully lobby for compensation, as has happened repeatedly in the U.S. and Germany. One argument would be that they couldn’t have anticipated the stricter climate laws when they invested or they could point to governments asking companies to produce more in the short-term, as happened recently in the U.S. to substitute for Russian supplies.

However, divesting right away or hoping for compensation aren’t the only options. Investors – the owners of the company – can also pressure companies to shift from fossil fuels to renewable energy generation or another choice with growth potential for the future.

Investors not only may have the financial risk, but also the related financial responsibility, and ethical choices may help preserve both the value of their investments and the climate.

Gregor Semieniuk, Assistant Research Professor of Economics, UMass Amherst and Philip Holden, Senior Lecturer in Earth System Science, The Open University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Webinar: Complying with SEC-Mandated Carbon Emissions Reporting

Jun 14, 2022, noon CDT
Register here

The recent SEC proposed rule that would require public companies to include certain climate-related information is being seen as a game-changer in ESG reporting. It also stands to accelerate boards of directors and the C-suite to hone their products, processes and business models to meet this new era of transparency and disclosure.

In this conversation,  Workiva and Persefoni, both of which have combined expertise in ESG and carbon emissions accounting, will provide the insider perspective on how global regulations are shaping the ESG disclosure field, as well as how companies are streamlining their reporting processes to include carbon emissions per SEC mandate. 

Among the things you’ll learn:

  • What outcomes might we expect from the SEC’s recent proposed rule?
  • How does this proposal rule compare and contrast with other emerging ESG requirements across the globe?
  • What are the leading examples of effective, efficient, reliable, timely and assurable ESG disclosure?
  • How should companies prepare? What should they do now?

Moderator:

  • Joel Makower, Co-Founder & Chairman, GreenBiz Group

Speakers:

  • Kristina Wyatt, SVP Global Regulatory Climate Disclosure, Persefoni
  • Steve Soter, Senior Director, Accounting Industry Principal, Workiva

If you can’t tune in live, please register and we will email you a link to access the webcast recording and resources, available to you on-demand after the live webcast.

Is it time to rethink what ESG investing means?

Read the full story in Fast Company.

With Tesla off of one ESG index but still on others—and Exxon listed on an index that excludes companies that extract oil sands—what does ESG investing overall actually prioritize?

How a sustainability index can keep Exxon but drop Tesla – and 3 ways to fix ESG ratings to meet investors’ expectations

Tesla CEO Elon Musk, shown at an electric vehicle factory, called ESG ratings ‘a scam’ after an index dropped Tesla. Maja Hitij/Getty Images

by Tom Lyon, University of Michigan

A major stock index that tracks sustainable investments dropped electric vehicle-maker Tesla from its list in May 2022 – but it kept oil giant ExxonMobil. That move by the S&P 500 ESG Index has set off a roiling debate over the value of ESG ratings.

ESG stands for environmental, social and governance, and ESG ratings are meant to gauge companies’ performance in those areas. About one-third of all investments under management use ESG criteria, yet many environmental problems continue to worsen. Tesla CEO Elon Musk called the ratings “a scam,” and the U.S. Securities and Exchange Commission is discussing whether to propose new ESG disclosure rules.

The Conversation asked Tom Lyon, a business economics professor at the University of Michigan who studies sustainable investing, to explain what happened and how ESG ratings could be improved to better reflect investors’ expectations.

How does a company like Tesla, which makes electric vehicles, get dropped from the S&P 500 ESG index while Exxon is still there?

ESG ratings agencies typically rate companies against others within their industry, so oil and gas companies are rated separately from automotive companies or technology companies. Exxon stacks up fairly well relative to others in the oil and gas category on many measures. But if you compared Exxon to, say, Apple, Exxon would look terrible on its total greenhouse gas emissions.

Tesla may rate well on many environmental factors, but social and governance factors have been dragging the company down. S&P listed allegations of racial discrimination, poor working conditions at a Tesla factory and the company’s response to a federal safety investigation as reasons for dropping the company.

The way ESG criteria are measured also carries some biases. For example, the ratings consider a company’s direct greenhouse gas emissions but not its Scope 3 emissions – emissions from the use of its products. So Tesla doesn’t get as much credit as it might, and Exxon doesn’t get penalized as much as it might.

What can be done to make ESG investments better reflect investors’ expectations?

One strategy is for investment firms to invest in a small number of carefully vetted companies and then use their influence within those companies to monitor behavior and drive change.

Another is for raters to stop trying to aggregate all of the different measures into a single rating.

Investors concerned about ESG often value different objectives – one investor may really care about human rights in South America while another is focused on climate change. When ESG ratings try to force all of those objectives into a single number, they obscure the fact that there are trade-offs.

ESG could be broken up so ratings instead focused on each piece individually.

Environmental issues tend to have a lot of available data, which make E the easiest category to rate in a consistent way. For example, scientific data is available on the increased health risks a person faces when exposed to benzene. The EPA’s Toxic Release Inventory shows how much benzene various manufacturing facilities release. It’s then possible to create a toxicity-weighted exposure measure for benzene and other toxic chemicals. A similar measure can be created for air pollution.

Social issues and governance issues are much harder to aggregate up into single ratings. Within the G category, for example, how do you aggregate diversity in the board room with whether the CEO personally appointed all the board members? They are capturing fundamentally different things.

The SEC is considering a third strategy: enhancing disclosure requirements so investors have access to better information about what is in their ESG portfolios. It plans to take up the issue at its meeting on May 25, 2022.

What else do ESG ratings overlook?

ESG ratings often omit important behaviors and choices. One that’s particularly important is corporate political activity.

A lot of companies like to talk a green game, but investors rarely know what these companies are doing behind the scenes politically. Anecdotally, there is evidence that many are actually playing a fairly dirty game politically. For example, a company might say it supports a carbon tax while donating to members of Congress and lobbying groups that oppose climate policies.

To me, that’s the most egregious failure in the ESG domain. But we don’t have the data to track this behavior adequately, since Congress has not required disclosure of all types of political spending, especially so-called “dark money” from super PACs.

A few organizations are gathering more detailed information on specific issues. InfluenceMap, for example, invests an enormous amount of time looking at companies’ annual reports, tax filings, press releases, advertisements and any information about lobbying and campaign spending to rate them. It gave ExxonMobil a grade of D- for its political action on climate.

What can investors looking for positive impact do if ESG ratings aren’t the answer?

Investors can always take a more targeted approach and invest in specific categories that they believe will provide essential solutions for the future. For example, if climate change is their leading concern, that may mean investing in wind and solar power or electric vehicles.

ESG funds often claim that they outperform the market because companies with strong management in environment, social and governance areas tend to be better managed overall. And on average, firms with higher social performance do have a somewhat higher financial performance. However, some insiders, like former Blackrock sustainable investment head Tariq Fancy, argue that ESG portfolios today aren’t very different from non-ESG portfolios, and often hold almost all the same stocks.

There’s also a larger question in the background of all of this: Is investment pressure really what’s going to drive us toward a more sustainable future?

If you want to make a difference, consider spending time working with activist groups or groups that support democracy, because without public pressure and democracy, countries aren’t likely to make good environmental decisions.

Tom Lyon, Professor of Sustainable Science, Technology and Commerce and Business Economics, University of Michigan

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Assessing environmental impact of measures in the OECD Green Recovery Database

Download the document.

This Policy Brief provides the key findings and policy insights from the April 2022 update of OECD Green Recovery Database, which tracks recovery measures with a clear environmental impact adopted by OECD member countries, the European Union and selected large economies. Since the previous update in September 2021, the budget allocated to environmentally positive measures increased from USD 677 billion to USD 1 090 billion, while recovery spending with ‘mixed’ impacts increased from USD 163 billion to USD 290 billion. The Brief also explores how well-designed green recovery plans can generate the double dividend of enhanced energy security and better environmental outcomes, in the face of energy security concerns triggered by the war in Ukraine.

Want your company to offer a green 401(k) option? This startup can help

Read the full story at Fast Company.

Only 4.7% of 401(k) plans offer the choice of an environmental, social, and governance fund, according to the Plan Sponsor Council of America.

Green Finance Measures Database

The Green Finance Measures Database includes policy and regulatory measures issued by public authorities, including governments, central banks, financial regulators, and public financial institutions.

UNEP launching new sustainable land use finance impact directory

Read the full story from UNEP.

Financial institutions around the world can now measure the positive impact of their investments into biodiversity conservation, adaptation, mitigation, forest protection and sustainable livelihoods with the help of a new indicator directory and resources platform, launched today.

The Land Use Finance Impact Hub and its Positive Impact Indicators Directory – launched today by UN Environment Programme (UNEP) Climate Finance Unit and the UNEP World Conservation Monitoring Centre (UNEP-WCMC) – has been developed with and for impact funds and sustainably focused financial institutions, and aims to support the rollout of effective industry frameworks to track the environmental and social impacts of land-use investments.