Pico Analytics Fortnightly Newsletter : The Climate Crisis, The Activists and The Emitters
Cop26 has been a catalyst for reform across all industries and nations. It has also provoked a change in people's understanding of and views on the climate crisis and the steps we all need to take to mitigate its impacts. For some that has meant reducing meat consumption, purchasing shampoo bars and seeking out organic produce, whilst for others it has led to participating in protests, writing letters to local councils and in extreme cases gluing one's face to a road!
As extreme as some actions taken by climate activists may appear, the social media attention they garner has brought the climate crisis to the attention of people from around the world. With communication made easier than ever before and information so easily accessible there is nowhere to hide for high emitters. Consumers are no longer ignorant of their carbon footprint and expect more from both businesses and governments.
Today's news is filled with reports on climate change, which convey mixed messages of hope, disappointment, successes and failures. This newsletter provides a short summary of some of the most notable, informative and quirky climate stories of the past two weeks. You will find hyperlinks to all the referenced articles within each summary.
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Top Stories
Pico Analytics Founders attend Cop26 as members of the Commonwealth Human Ecology Council
by CHEC on 17th December 2021
Emily Robinson and Subbu Loganathan, our founders, were lucky enough to attend Cop26 as members of the Commonwealth Human Ecology Council. Over the course of two weeks Emily and Subbu as well as the other hard working members of CHEC have produced a report covering various presentations and discussions from the event.
If your interests relate to financing and climate change then please refer to pg.12-14 of the report in which Subbu outlines "Adaptation Finance and Sustainability Disclosures". The opening to the chapter discusses the common current of financing found in Cop26 and its links to the $8.7 trillion of assets committed to eliminate investment in deforestation linked activities. Subbu also highlighted the commitments made by 450 companies to meet net-zero emissions, which appear promising until one realises that these promises are not related to overall emissions reductions so much as they are to offsetting through carbon markets and trading. This has disturbed indigenous communities who believe the financialisation of nature will have devastating consequences. The most significant development was the launch of the International Sustainability Standards Board which establishes a comprehensive sustainability reporting and standard disclosure.
If you are interested in reading more climate related reports from Cop26 please do follow our (above) link to discover more about the views of CHEC and to ascertain what the organisation has planned post Cop26.
Botched ESG Scores and Social Greenwashing
by Financial Times 17th December 2021
A recent article by the Financial Times has brought to light the discrepancies between companies' ESG (Environmental, Social & Governmental) scores and the realities of their impacts on the natural world. So-called environmentally conscious firms are having their scores called into question as the methodologies, weightings, measurement, and aggregation used to score the environmental, social and governmental risks induced by their investments lack clarity and accuracy between the various organisation's that provide these services. The metrics utilised to provide the ESG ratings, which in and of themselves are rarely used, are in clear need of reform.
The ESG market is not insignificant as the UNPRI (UN Principles for Responsible Investment) boasts 4,000 plus signatories who represent $100tn in ESG funds and assets. Yet, in an analysis of six ESG ratings providers' scores of 400 companies the correlation between ratings given by three separate companies was below 50%. This obvious variations between scoring methods has produced numerous issues for companies, fund managers and the planet as the inconsistent methods create difficulties when attempting to pinpoint exactly where things are going awry.
The prevailing guidance to companies and organisations involved in the ESG market is for fund managers to apply their own weighting according to the companies interests. The addition of a consistent scale of measurement for areas such as carbon emissions would allow for an added level of accountability as clients, governments and the general public can observe the movements of companies to ensure ethical behaviour is present, whilst the users will have to adhere to their own rulings, which will hopefully be easier to understand and apply. However, it could also provide a loophole for companies to avoid stringent regulations whilst enjoying the ESG-friendly halo without anyone carefully examining their investments.
A Nun, Eight Teenagers, and an Environment Minister walk into a Courtroom...
by Kayleen Devlin 16th December 2021
This title may sound like the start of a bad joke but in reality it is the opening to a landmark case that took place in an Australian courtroom earlier this year in which a nun turned litigation guardian accompanied eight teenagers in taking Australia's climate minister, Susan Ley to court - and won!
In a case which aimed at stopping the planned expansion of the Vickery coal mine (New South Wales), which if allowed to go ahead would produce an extra 170 million tons of fossil fuel emissions, the prosecutors managed to gain a ruling from the presiding judge (Mordy Bromberg) who stated "that the government had a duty to protect young people against future harm related to climate change". Recognition such as this is the first of its kind and is already being contested by the Australian government.
The judge, unfortunately, did not grant the injunction to prevent the mine's expansion as initially there was insufficient evidence to suggest that Ms. Ley would approve the expansion. Yet, within a matter of months the Vickery mine and three others extensions were approved by Ms. Ley. Meanwhile the government also works to overturn the case utilising the drug dealers' defence of, "if I don't deal drugs then somebody else will" i.e. if they don't produce carbon somebody else will do so.
One must hope that this landmark case is not overturned and will provide a precedent for future cases fought by (young) climate activists everywhere.
Makhtar Diops' Plans for Funding Sustainable Investment in Africa
by David Pilling 17th December 2021
Africa is rapidly turning into the land of opportunity as exciting options for investment continue to increase. Makhtar Diop, recently appointed head of the International Finance Corporation (IFC), the private-sector arm of the World Bank is determined to support gender equality and accelerate sustainable investments by the IFC, with an emphasis on supporting projects based in fragile states and low income nations, many of which are in Africa, by de-risking private-sector investment and driving growth for SMEs.
In an interview with the Financial Times Mr. Diop answered some burning questions regarding how he intends to achieve his aims. When asked how he will be able to mobilise more money he referred to the platform currently being developed for solar energy, where by connecting every aspect of solar power provision related projects and bypassing the usual complexities associated with mobilising resources/projects in emerging economies, investors, developers and governments will experience maximum benefit from creating a simple, efficient system in which to place both their trust and not inconsiderable finances.
One of the most significant current questions put to Mr. Diop focused on strategies the IFC may utilize to steer investors towards environmentally sustainable projects. His well-constructed and thought provoking reply recognized the difficulties in greening companies in developing countries across Africa, yet he turned the Western perspective on its head by seeing the opportunities open to African economies and the possibility of their becoming leaders in clean investment. By moving away from investing in fossil fuels and staying consistent with the Paris Agreement, Africa will hopefully become eco-friendly whilst growing new, beneficial sectors of the economy.
"Trying to create economic opportunity without simultaneously addressing climate change is like trying to paddle a boat without an oar. It’s possible. But I don’t think that you go very far".
Carbon Markets Post-Cop26
by Kate Martin 15th December 2021
Reforming carbon markets was near the top of the Cop26 wish list. World leaders, policy makers and businesses came together in an attempt to make using carbon markets more straightforward and to finally reach a consensus on the previous Paris Agreement. Cop26 was a success for Carbon Markets, however, they are still plagued by naysayers who believe the markets are contributing to the climate crisis and producing a new form of carbon colonialism.
This paper discusses the history of the markets and breaks down the inner workings of the voluntary and compliance markets. This sets the scene for the agreements made at Cop26 which included limiting carryover CDM credits, giving host countries of emissions reductions projects the autonomy to either contribute the credits to their own targets or sell them on for other purposes. The UN will authorize the transference of credits and ensure they aren't double counted by both the giving and receiving nations. These regulations ensure some degree of stability for the markets and are a good jumping off point to increase the price of carbon credits/permits and set out fines for exceeding the quotas.
One of the key areas of the paper focuses on how carbon markets benefit businesses and governments. In just 3 years the voluntary markets have grown by $500 million. The profitability of claiming to hit the coveted aim of net zero carbon emissions has become a major selling point for businesses and their products. The company-wide transparency required to impress the modern consumer has been linked to the easy accessibility of information thanks to social media and various search engines. For governments the carbon markets are further complicated by lobbying from fossil fuel industries and the need to accurately offset emissions by ensuring that the projects they choose to invest in are capable of balancing emissions and respecting/consulting the local communities so as to truly respect the message of sustainability the carbon markets are supposed to convey.
By discussing how we categorise carbon markets we can build up a clearer picture of how green the markets truly are. For many it represents just another method of greenwashing that allows polluters to continue destroying the planet without intrinsically changing their behaviour. Whilst for others it is considered to be a driver of sustainability in the developing world which brings much needed climate mitigation investment to nations that cannot afford to fund such projects. Read more here to find out our views and to draw your own conclusions on the future of carbon markets in our post Cop26 world.
Indonesian Biofuel linked to Deforestation
by Esme Stallard & Wanyuan Song 8th December 2021
The word biofuel conjures up images of McDonald's advertisements showing waste oil being used to fuel their delivery lorries, or sugar, soybean and corn plantations in Brazil being farmed for the biodiesel cars of Rio de Janeiro. However, bio does not always mean eco-friendly as was identified when a recent BBC Reality Check article put Indonesia's plans for its transport industry under the greenwashing microscope.
At Cop26 Indonesia made pledges to end deforestation by 2030, which will coincide with its predicted peak in greenhouse gas emissions; however, this commitment to be pie in the sky whilst the transport sector accounts for 13.6% of the nation's emissions and makes up 45% of energy consumption. In an attempt to tackle the emissions produced by the transport sector, biofuel is becoming part of government policy as all diesel fuel must contain 30% biofuel, a number expected to rise to 50% by 2025. This all sounds promising until one realises that biofuel is made from palm oil, which will see a 50% increase in demand over the next three years translating into 1.2 million added hectares of deforestation to meet the demand for palm oil.
Though palm oil requires less land than other plants used for biofuel such as sunflower or soybean, replacing forests with biofuel crops will destroy one of our most effective systems of absorbing CO2. Indonesian president Joko Widodo has attempted to defend the country's deforestation record by reminding us of its numerous rehabilitated hectares of forest. Unfortunately, rehabilitation is no match for simply avoiding deforestation altogether.
Global Forest Watch, the Carbon Disclosure Project and other climate focused organisations have offered up solutions to the biofuel dilemma, suggesting the use of more environmentally friendly crops such as coconut and candlenut, which can be used for fuel. Indonesia will need to seriously consider utilizing these more eco-friendly options in the future. There will also need to be reforms in biofuel certification and subsidies which currently encourage producers to continue deforestation instead of seeking out greener, more sustainable alternatives.
Nest Divests from Fossil Fuel Companies
by Chris Flood 20th December 2021
For 10m UK workers whose pension schemes are tied to Nest (worth £20bn) there has been some good news for those concerned about where their retirement savings are being invested. Many will be pleased to know that their money has been divested from five fossil fuel companies including ExxonMobil, Imperial Oil, Korea Electric Power Corp (Kepco), Hong Kong based electric utility company and Marathon Oil and Power Assets. This comes as part of a wider trend of pension schemes providers distancing themselves from fossil fuel companies over frustrations with their responses to the climate crisis.
According to one of Nests' investment managers Katharina Lindmeier, the five companies failed to convince Nest shareholders of their dedication to a low-carbon economy meaning they will not rejoin their portfolio until they are able to evidence their commitments to a more climate friendly future. It appears that these companies had every opportunity to change their behavior as they spent three years in a UBS climate aware fund worth £9bn. During that time UBS conveyed shareholders concerns and held discussions with 49 companies who were lagging behind on the climate front. The decision to sell came as a final resort when relevant changes were not made; this marks the first time that shares have been sold by an asset management firm due to concerns over climate change risks. Although large institutional investors generally oppose divestment, some of the largest pension funds across the world are taking a hardline stance on companies that rely on fossil fuels to make profits. Now we must ask ourselves whether our pension funds should now pivot by convention towards sustainable investments?
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