Why ESG Efforts Will Continue

Whats In This Week's Newsletter

After 40 years in sustainability, I’ve seen the ebb and flow of government action through many election cycles. Yet, as scientific understanding and public awareness of environmental and social impacts have advanced over the years, the pace of progress has steadily accelerated.  

This momentum continues regardless of the US political landscape. Companies committed to sustainability will stay the course because it makes business sense. Investors will seek value by avoiding risks and betting on new, efficient green tech. Climate advocates will redouble their work, and the public will increasingly expect action from their elected representatives as climate risks mount. While US leadership of climate and sustainability action will undoubtedly reverse, the future of the global sustainability movement will continue.  

Ajay Banga, the president of the World Bank, said, “It was never an America-only game.”

 Christiana Figueres, who led the U.N. climate change body, said, “The direction is unstoppable. What we’re all focused on is scale and speed, but not direction.”

Companies Will Still Do ESG

Public US companies that report their Scope 1 and 2 emissions based on size. Source HIP Investors

The ESG backlash in the US has been running for multiple years now, yet there seems to be no slowdown in companies reporting on environmental and social issues. Two recent reports found that the number of companies reporting on sustainability continues to climb

Data from DiversIQ found that S&P 500 companies sharing workforce diversity data rose from 5.3% in 2019 to 82.6% in 2023. Research from HIP investors revealed that the Scope 1 and 2 emissions reporting for large-cap US companies was up to 85%, from 54%, in the same time period. 

Regulations, like the EU’s Corporate Sustainability Reporting Directive (CSRD), and ambitious corporate goals are driving the trend - neither will be affected by Tuesday's election. Shiva Rajgopal of Columbia Business School said, "Most ESG problems are business problems. I'm an accounting professor. I can tell you that if you pick any company's 10K and look at the risk factors, they are full of E and S problems." 

California Climate Disclosure Makes Legal Progress 

California Governor Gavin Newsom

California’s Climate Law, which will require most large US companies to report their Scope 1, 2, and 3 emissions and climate risks, survived the first phase of its court case when a California judge refused a challenge on constitutional grounds.

The US Chamber of Commerce and other business groups filed a lawsuit against the climate disclosure law, arguing that it violated the First Amendment by compelling speech. The judge disagreed, saying they did not have sufficient information to determine “which of the laws’ applications violate the First Amendment.” The case is far from over, but this ruling cleared a major hurdle for the policy. 

COP16 Biodiversity Funding Out of Reach

Gabriel Aponte/Getty Images

After a marathon negotiation session at the end of the biodiversity COP16 in Columbia, delegates could not reach their funding goals. 

One deal was struck for companies to voluntarily pay 1% of their profits or 0.1% of revenue for new products using genetic information found in nature. It also encourages governments to make these rules mandatory. This could bring in around $1 billion a year, but that is a small fraction of the $200 billion needed by 2030.

Clouds Gather Over COP29

The Climate Summit (COP29) starts next week and most are expecting an underwhelming event overshadowed by geopolitics. Only two G20 leaders will attend the meeting, there is a carbon trade war looming over border taxes, and a dispute over the amount China should be contributing to the global climate fund

Canada Limits Fossil Fuel Emissions

Alberta tar sands, Image from: Climatestate.com

However, this policy, and Canadian Prime Minister Justin Trudeau’s climate policies in general, have been under scrutiny from all sides. In oil-rich states like Alberta, climate policies have not gone down well. Alberta premier Danielle Smith said, “This is a vendetta: he [Trudeau] has a deranged vendetta against Alberta,” adding the state plans to fight the cap in the courts. 

On the other end of the spectrum, climate activists think Canada’s investments in new pipelines and carbon capture and storage tell another story. Julia Levin of the Environmental Defence NGO said, “Canada isn’t taking the climate crisis seriously. There’s a lot of hypocrisy.”

 A New Standard Is Born

The International Public Sector Accounting Standards Board (IPSAB) released a draft for the world’s first standard for public sector climate reporting. The rules come from the same standard-setting body making sustainability assurance standards under the International Standard on Sustainability Assurance (ISSA) 5000.

The proposed climate reporting standard, SRS ED 1, is aligned with the International Sustainability Standard Board’s (ISSB) S2 climate-related disclosure standard. Ian Carruthers, IPSASB Chair, said the new standard will allow regional and national governments to make “climate-related disclosures that will help governments provide consistent, comparable, and verifiable information.” The comment period for the exposure draft is open until February 28, 2025.

Spain’s Floods Show A Lack of Climate Preparedness

The views expressed on this website/weblog are mine alone and do not necessarily reflect the views of my employer. 

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