This month in ESG: Transition to renewables, extreme heat and supply chain in focus

Terence Jeyaretnam reports on all the key indicators in ESG for November.

November had regulatory and COP movements that made it a significant month globally, in the US, in Australia and the EU. Several key reports further heightened the risk of climate and environmental factors continuing to accelerate and pose significant warning signs.

Again, if I happen to miss some key markers in a particular month. Just drop me some comments, and I will pick them up next month!

*‘ESG Markers’ – like biomarkers that tell us how healthy our body may be, ESG Markers showing us the big movements in the field of ESG in Oceania and globally.

So, here are my Top 10 for November 2022, again in no particular order.

Transition to renewables could save the world trillions

New research published in the journal of Joule suggests that switching from fossil fuels to renewables could save the world as much as US$12 trillion by 2050.  The findings are based on fossil fuel pricing data going back about 100 years which shows that once inflation is accounted for as well as market volatility, the price has not changed much whereas renewables have fallen by an average of 10 per cent a year.

By 2050, 94 per cent of all children will face more extreme heat

The United Nations Children’s Fund (UNICEF) has recently released a report highlighting climate crisis as a childrens’ crisis.  The report found that inn 2020, around 740 million children, that is approximately 1 in 3 globally lived in countries where temperatures exceed 35 degrees for 80 days in the year. Just under 600 million youth were likewise exposed to high heatwave frequency, which is a term used to refer to an average of 4.5 or more heatwaves per year.  This figure is set to skyrocket to 3 in 4 children by 2050 according to the report, even if the world is to limit global warming to 1.7 degrees.  Africa will be home to the highest rate of youth enduring high heatwave frequency by 2050.

Jail terms in Belgium for ecocide crimes

Belgium’s government has struck a new deal on the modernisation of the Belgian penal code.  The new penal code contains several new crimes including ecocide. This is the act of inflicting serious and large-scale damage on the environment.  A conviction for ecocide may mean a jail term of between 10 and 20 years.

The state of cryosphere report warns of terminal Arctic summer ice loss

A report released as a precursor to the COP 27 has outlined a terminal diagnosis for Arctic summer ice.  The Arctic is heating up around four times as quickly as the global average, which, combined with record heatwaves in Antarctica, risks a summer ice loss not seen at any time in the past 130,000 years.  Disappearance of sea ice will open up the dark Arctic Ocean, which will absorb heat (rather than reflect), causing global heating to escalate further.  The report also suggests shell damage to crustaceans in the Arctic Ocean, a sign that the seawater is acidifying due to greenhouse gas emissions.  The current emissions pathway projecting a temperature increase of over 2.5 degrees by the end of the century may mean extensive loss of ice resulting in sea level rise by up to 20 metres over hundreds of years, an existential threat that is not irreversible for thousands of years.

US federal government supply chains focus on minimising climate risk

The US government is proposing the Federal Supplier Climate Risks and Resilience Rule, which would require major Federal contractors to publicly disclose their greenhouse gas emissions and climate-related financial risks and set science-based emissions reduction targets.  As the world’s single largest buyer of goods and services—purchasing over $630 billion in the last fiscal year alone—the federal government faces significant financial risks from climate change. Supply chain disruptions over the past year have impacted every sector, including the federal government and its critical contractors and subcontractors.  This is also in line with the US 2050 net zero target.  Under the proposed rule, the largest suppliers including Federal contractors receiving more than $50 million in annual contracts would be required to publicly disclose Scope 1, Scope 2, and relevant categories of Scope 3 emissions, disclose climate-related financial risks, and set science-based emissions reduction targets. Federal contractors with more than $7.5 million but less than $50 million in annual contracts would be required to report Scope 1 and Scope 2 emissions. All Federal contractors with less than $7.5 million in annual contracts would be exempt from the rule. Small businesses with over $7.5 million in annual contracts would only be required to report Scope 1 and Scope 2 emissions under the proposed rule.  Today, more than half of major Federal contractors are already disclosing climate related information.

Financial Reporting Council in Australia appoints sustainability specialists to its accounting and assurance standards boards

The Financial Reporting Council, the government body responsible for overseeing Australia’s financial reporting framework, has appointed Emma Herd (Partner, EY) its board as well as five other members of the big four accounting firms to its Australian Accounting Standards (AASB) and Auditing and Assurance Standards (AUASB) boards.  The former will have Liza Maimone (PwC), Adrian King (KPMG) and Mathew Nelson (EY) join for three-year terms from the beginning of next year. Chi Mun Woo (Deloitte) and myself (EY) will meanwhile join the AUASB for the same term.  This is a move aimed at assisting with the adoption of soon-to-be-released sustainability standards by the International Sustainability Standards Board of IFRS Foundation.

Australian government pledges to recycle all plastics by 2040

The same month that witnessed the collapse of a major soft plastics recycling scheme saw the federal government set a target to recycle or reuse 100 per cent of plastic waste by 2040. The previous government set a target of recycling 70 per cent of plastics by 2025. Currently, Australia only recycles and reuses about 16 per cent of the more than 1 million tonnes of plastic in circulation.  This move by Australia signals joining the High Ambition Coalition to End Plastic Pollution, which includes Canada, the United Kingdom and a number of Pacific nations.  Last month, the Commonwealth, along with the states, also promised to reform packaging regulation by 2025 and aim to create a better circular economy by 2030.

World reaches 8 billion people

The world’s population reached 8 billion this month, growing by 1 billion in just 11 years and reflecting the rapid population spike of the past few decades.  India is projected to become the world’s most populous country by next year, surpassing China.

As the world is expected to grow even more to over 10 billion during the next 60 years as the U.N.’s population division of the Department of Economic and Social Affairs (DESA) reported, population growth is slowing relative to the past, and the U.N. warns that the challenges of feeding, housing and keeping that level of people from polluting the climate will be significant. The report also says that global migration will be the sole driver of population growth in high-income countries.

The report estimates that there will be 8.5 billion people in 2030 and 9.7 billion in 2050 and then peak at 10.4 billion people during the 2080s and remain at that level until 2100. Half of the increase in population up to 2050 will take place in the following eight countries, the UN says: Congo, Egypt, Ethiopia, India, Nigeria, Pakistan, the Philippines and Tanzania.

EU Parliament adopts corporate responsibility reporting directive

The European Parliament has adopted the Corporate Sustainability Reporting Directive (CSRD). The Council of the EU is expected to adopt the CSRD proposal shortly, following which it will be published in the Official Journal, and will enter into force 20 days after publication.  The EU member states will have 18 months to transpose the directive into national law.

The CSRD will replace the current regime under the EU Non-Financial Reporting Directive (NFRD) and will apply to all large EU companies (regardless of whether or where they are listed). Non-EU companies with substantial activity in the EU will also have to comply. Listed SMEs will also be in-scope, but they will have more time to adapt to the new rules.  The CSRD introduces more detailed reporting requirements on a broad range of ESG issues in accordance with mandatory European sustainability reporting standards (“ESRS”), which the Commission is due to adopt the first set by 30 June 2023.

Sustainability information will be required to be reported in a dedicated section of the directors’ report as part of the annual financial statements, digitally ‘tagged’ in electronic reporting format and subject to an independent audit (initially on a limited assurance basis). The reporting obligations under the CSRD will apply on a phased basis as follows:

• from 1 January 2024 (reporting year 2025) for large public-interest companies (with over 500 employees) already subject to the NFRD
• from 1 January 2025 (reporting year 2026) for large companies not currently subject to the NFRD
• from 1 January 2026 (reporting year 2027) for listed SMEs and other undertakings. SMEs can opt-out until 2028.

COP 27 Outcomes & first metaverse nation announced due to climate change impact

Finally, the budget is also providing $102.2 million for the Community Solar Banks program to help up to 25,000 households access cheap solar-powered energy.  The budget is also addressing growing skills demands in the clean energy sector by committing over $100 million to the New Energy Apprenticeships and New Energy Skills programs. The programs is intended to help apprentices acquire necessary skills by developing a new mentoring program and providing up to $10,000 for each apprentice in a clean energy role.

It’s been a big month on the climate front with COP 27 in Egypt.  The key takeout has been that there’s been progress on adaptation, climate finance and loss and damage but less progress on emissions mitigation.  To that end, we saw Simon Kofe, the minister for justice, communication and foreign affairs of Tuvalu announce that Tuvalu, a low-lying Pacific nation currently experiencing the effects of a global sea level rise caused by climate change, will be the first nation state to exist in the metaverse.  The government of Tuvalu intends to build digital replicas of all of Tuvalu’s islands; an accurate, visually immersive virtual model of a real-world environment. Historical documents, records of cultural practices, family albums and traditional songs are just some of the things that will be making their way to the metaverse, according to Kofe.

Tuvalu is also looking at how to digitise its government administrative system, shifting its operations online so that it can continue to fully function as a sovereign state. It is also considering legal avenues to ensure the permanency of statehood and maritime boundaries even as sea levels rise.

COP27 will be remembered for its progress on loss and damage, culminating in a deal for new financial arrangements, including the creation of a new fund. COP27 seemed to also retract on the $100B pledge in climate finance, a promise already broken two years in a row. There was no mention of delivering on the promise in 2023 despite prior assurances.  The outcome of the COP is slightly better on adaptation financing, planning a progress report next year on the target to double this type of financing by 2025.

‘Loss and damage’ refers to the most severe impacts of extreme weather on the physical and social infrastructure of poor countries, and the financial assistance needed to rescue and rebuild them.  It was the most contentious issue at the conference, and has been a long-running demand by developing countries since 1992. EU and the US in the last day of the meeting agreed to a fund on condition that big economies and big emitters still classed as developing countries under the UNFCCC rules, which date back to 1992, should be included as potential donors, and excluded as recipients.