The ESG Advocate 006 - Climate emergency! (and policy)
Another whirlwind week saw intense heat waves across the Pacific Northwest, flash flooding in Kentucky and St. Louis, and the unceremonious burial of 1,000 cattle who died from a heatwave in June. Even the once ubiquitous Monarch Butterfly has been added to the endangered species list!
There can be no denying that climate change is here, and the havoc it's causing is creating material impacts across businesses and economies. But, there's hope with recent US policy activity.
This issue is a little US-heavy, so I apologize, but in Issue 004, I wrote A LOT about Sri Lanka 😉
Let's get to it!
🚨Climate Emergency🚨
On July 28, we hit Earth Overshoot Day. If you aren't familiar, the date is calculated by "the number of days of that year that Earth's biocapacity suffices to provide for humanity's Ecological Footprint." So everything past this date, including the date you're reading this, we're taking more than the Earth can support.
As if he could predict this would happen this week, Joe Biden declared that he would use executive orders to address the climate emergency. Interestingly, he made this declaration at a shuttered coal plant pivoting to new manufacturing jobs to support wind turbine manufacturing.
Red states should take note. We're now up to Florida, Texas, and West Virginia declaring that they will not work with banks embracing ESG/making divestment calls from fossil fuels. Let's unpack the statement from West Virginia's State Treasurer, Riley Moore.
He's right. Energy, specifically coal, represents West Virginia's biggest exports. Moore correctly addresses a material state risk, like any good ESG practitioner. However, he's missing the big picture, which an ESG practitioner would catch. Instead of working with the big banks to transition to clean energy manufacturing or some other industry, he's effectively taking his marbles and going home.
The big banks aren't the only ones who could help, which brings us back to Biden. A lot of policy-related news came out of the US this week. Remember that the Bipartisan Infrastructure Law (Nov 2021) already covers a lot of environmental work.
First, The Department of Energy announced over 140 programs to address the responsible spending of the BIL. The programs can be found online, ranging from workforce development programs to carbon capture to resilient supply chains.
Second, with a lengthy heat wave affecting various parts of the US and Lake Mead drying up, there is a new National Integrated Heat Health Information System (heat.gov). This is a good example if you were curious about how climate (E) intersects with social issues (S). The tools and datasets appear to be part education for the public but also represent critical decision-making tools for politicians at all levels of government.
If I were a West Virginia politician, I might look at this tool to understand the severity of climate change on my population, for example. How might 35+ days of extreme heat affect coal mining operations by 2050? If I zoom out and take the whole picture in, might other states burning coal want to lower emissions to cool the planet, and what does that mean for coal?
Certainly, there's more to the environment, including people's health and wellness. Just this week, the Institute and Faculty of Actuaries (UK) pulled together their assessment of the extreme weather, calling out that this is caused by climate change. They've pulled together 8 areas to consider when talking about this topic. Data and visualizations like those at heat.gov will also inform aspects of our financial lives, from property insurance to healthcare premiums and pensions.
Spotlight on the Manchin summer surprise🔦
While Joe Biden was talking about how Republicans couldn't get on board with his climate agenda, perpetual Democratic holdout Joe Manchin was meeting with Chuck Schumer behind the scenes all week. The goal? To announce, within hours of The CHIPs Act being passed, that Manchin was on board with the rebranded Inflation Reduction Act.
If passed in its current state, it would be the largest climate-related bill ever, and it's pretty ingenious. The reactions were terrific, with Politico declaring "Holy S--t" in a headline.
$369B would go towards 'Energy Security and Climate Change,' lowering emissions by 40% by 2030. Keep in mind that the US has steadily reduced emissions over the past few years.
The below chart from The Rhodium Group shows the progress and has projections from the current policies to the new ones with the IRA.
The bill would be paid for through new IRS Tax Enforcement efforts, getting corporations to pay their fair share of taxes, and closing the carried interest loophole. I've worked with Private Equity firms for the past few years, and the last thing is a big deal. It effectively taxes incentives paid out to fund managers for performance.
There's an excellent bill summary online, but I'll call out a few highlights here. My short comments are in italics.
Imagine the power of SDG17 here: Invests in decarbonizing all sectors of the economy through targeted federal support of innovative climate solutions.
Agricultural consortiums dissented the SEC's climate draft proposal due to the cost of implementation: Supports resilient rural communities by investing in farmers and forestland owners to be part of growing climate solutions, and by ensuring rural and communities are able to better adapt to a rapidly changing climate.
Individual agency for all: 9 billion in consumer home energy rebate programs, focused on low-income consumers, to electrify home appliances and for energy efficient retrofits.
Put the U.S. to work: Production tax credits to accelerate U.S. manufacturing of solar panels, wind turbines, batteries, and critical minerals processing, estimated to invest $30 billion.
Ooooh, and energy storage, which can be a talking point against solar: Tax credits for clean sources of electricity and energy storage and roughly $30 billion in targeted grant and loan programs for states and electric utilities to accelerate the transition to clean electricity.
Shanu Mathew breaks it down even further on this multi-day thread.
A clean environment is a universal human right
On July 28th, several countries in the UN (which did NOT include the US) introduced a resolution to declare access to a clean and healthy environment a universal human right. 161 nations approved, 8 abstained, and none were against.
I think this frames National Defined Contributions and company commitments in a new light. Countries and companies need to take this chance to renew their focus on their promises. The incentive comes in the form of this statement, cited at the link above:
According to the UN Special Rapporteur on Human Rights and the Environment, Mr. David Boyd, the Assembly’s decision will change the very nature of international human rights law.
Besides climate policy, litigation is coming. There's an interesting case filed in German courts against RWE from a small area in Peru. The claim states that climate change might cause the lake to flood. If the claimant wins, it will open the floodgates (sorry!) for more climate litigation. Germany, after all, signed on to the UN resolution.
There is one last thing before getting to the TOTW, though. A tweet from TRF Climate made the rounds this week.
In his book, "How to Avoid a Climate Disaster," Bill Gates says this:
What's fair to say is that we need to better understand the potential impact of geoengineering at a local level. That's a legitimate concern that deserves much more study before we even consider testing geoengineering at scale in the real world.
In other words, what would dimming the sky do to renewables like solar? What would the agricultural impact be, and how could you minimize it? What would it do to airplane engines? Are we walking into another microplastics disaster in our food chain?
I can't get on board with this idea.
Tweet of the Week
The one thing you need to see this week is a green glass beer bottle at the bottom of the ocean.
I wish I could trace this beer bottle's story from brewery to consumer to garbage to here.
I can think of nothing more appropriate to sum up the mess we've created on our planet and why these policies and actions are critical.
