The article features top five ESG updates from around the world.
1. Inflation Reduction Act – the most significant investment turned into law in the US
2. Climate-related shock is a severe financial risk
3. Allocation of the largest – ever corporate sustainability bond
4. New renewable energy goals for the city of Chicago
5. The world’s first 100% hydrogen-powered passenger train
1. Inflation Reduction Act – the most significant investment turned into law in the US
The Inflation Reduction Act – is a law signed on August 16th, representing the single-largest investment in climate action in U.S history; it contains $369 billion in funding that puts the United States on track to meet the Paris Agreement Commitment and reclaim the global climate leadership. The law is domestically focused on several provisions, including the one for the oil and gas industry, that help in emission reduction commitments, increases economic and manufacturing competitiveness, and strengthens the partnership with the European Union.
The transportation sector is the most significant contributor to U.S greenhouse gas emissions emitting toxic pollution to the environment, and the bill is set to invest in zero-emissions transportation, climate solution in communities, forests, and agriculture, including:
$3 billion for the U.S Postal Service to electrify more than 217,000 vehicles
$1 billion for clean schools, transit buses and heavy-duty vehicles
$3 billion to install zero-emissions equipment and technology to clean up air pollution at ports
$9 billion in home energy rebate programs
As stated, this is the most prominent climate investment signed by a government, and the law has tried to extend as much to turn the economy into a cleaner one. Modellers believe that the regulatory action will achieve the goal of a five per cent emission reduction by the end of this decade with the help of sustainability software and ESG Analytics to get the law into action.
$315.5 million for air monitoring near the polluting industry.
$3 billion for community-led projects to work on the impacts of pollution and climate change.
More than $20 billion to help farmers shift to sustainable practices and research into the climate impact of agriculture practices, with $3.6 billion to advance the protection of forests and recovery plans of endangered species. It also provides 30% tax credits for installing residential solar panels.
A few independent analysis estimates that the Inflation Reduction Act will bring down greenhouse emissions by about 31 to 44 per cent to 37 to 41 per cent below 2005 levels by 2030. And so will the development of technologies lower the cost of clean energy, facilitating and incentivizing more rapid energy transitions and reducing the dependence on a fossil fuel economy.
2. Climate-related shock is a severe financial risk
European Central Bank (ECB) and the European Systemic Risk Board (ESRB) presented a report titled “The macroprudential challenge of climate change”,
which explores how climate shocks can affect the European financial system, particularly the systemic nature of climate risks that can spread through the financial system rapidly.
The report documents the progress in measuring and modelling climate risks to EU financial stability and provides the conceptual foundations of a macroprudential policy response. Monitoring climate related risks to financial stability requires quantifying climate-related factors and understanding their impact on economic activities and the financial system.
The report has identified four climate-related exposure metrics:
Non-financial borrowers are exposed to climate-related factors such as greenhouse gas emissions or physical hazards, and financial institutions are introduced mainly through credit instruments and insurance liabilities.
ESG analytical gaps are also an issue from a systemic risk standpoint, with the recent growth in ESG related financing products having further strengthened the transition in financing options; however, the instruments for hedging and diversifying climate-related risks in Europe remain limited.
The report calls for global initiatives/frameworks to help close the data gaps in climate reporting. Climate-related disclosures are expected to increase further in
the coming years, with international commitments such as the EU’s proposed Corporate Sustainability Reporting Directive (CSRD) and the International Sustainability Standards Board (ISSB) established by the IFRS Foundation to enhance disclosure requirements.
There is increasing evidence of a link between climate-related disclosures and financial stability through credit challenges; banks/financial sector must treat climate risk as a financial risk, not just a reputational one. Hence integrating ESG management or ESG analysis into financial risk management (Strategic planning, credit portfolio structure, climate risk identification) is a must.
The first exposure metric is the emissions allowance gap, which captures the difference between firm-level GHG emissions and free allowances in the European Emissions Trading Systems (ETS).
The second exposure metric is loan-weighted emission intensity, which measures the carbon intensity of bank lending to economic sectors. The third exposure metric is loan-carbon intensity, which captures the overall emission intensity of bank lending. The fourth exposure metric takes a different approach, leveraging transition needs across economic sectors into an EU taxonomy-based metric.
3. Allocation of the largest – ever corporate sustainability bond
Green bonds are more attractive to investors for due diligence and seamless transactions as it equals to lower cost of money. Several companies are issuing green bonds, but they seem only towards environmental initiatives. However, the most significant sustainability or the green bond issued by Alphabet supports investments in environmental and social uses and is considered an emerging asset class.
Under Google’s five-year sustainability strategy, Alphabet issued $5.75 billion in sustainability bonds composed of three proportions. After deducting underwriting discounts and offering expenses, it has been fully allocated this year to expenditures, contractual commitments, and capital commitments in green and social eligible projects.
Eligible projects were identified and evaluated by a committee of representatives from Alphabet’s Sustainability, Treasury, and Finance teams and the final allocation was reviewed and approved by Google’s Chief Sustainability Officer.
Eligible Project Categories and criteria are:
Energy efficiency: Expenditures related to design, construction, operation, and maintenance of energy-efficient facilities and infrastructure.
Clean energy: Expenditures related to the construction, development, acquisition, maintenance, and operation of renewable energy projects.
Green Buildings: Expenditures related to design, construction, and improvements of office spaces and surrounding communities.
Clean transportation: Expenditures on the procurement, maintenance, and operation of electric vehicles, bicycles, and associated infrastructure.
Circular economy and design: Expenditures related to projects designed to increase waste diversion from landfills and design out waste.
And other projects are affordable housing, commitment to racial equity and support for small businesses and COVID-19 crisis response.
Projects are selected based on the consistency with eligibility criteria, alignment with the sustainability strategy, magnitude of environmental or social impacts and ability to track and audit project expenditures, contractual commitments, and capital commitments. To align with the framework and ensure transparency, the company has committed to reporting the sustainability impact of the projects directed through their bonds annually.
4. New renewable energy goals for the city of Chicago
Cities occupy just 3 per cent of the Earth’s land but account for 60-80 per cent of energy consumption and 75 per cent of carbon emissions. The goal to make cities and human settlements inclusive, safe, resilient, and sustainable is the 11th goal in the 17 SDGs listed by United Nations. Many cities are more vulnerable to climate change and cause natural disasters due to the high concentration of people; for a city to be truly sustainable, all parts, including public transportation, buildings, and housing, must be fossil free.
The City of Chicago is known for its innovative environmental initiatives, and sustainability has been the key focus of its investments. With the new policies, the city has announced a five-year agreement with constellation energy to purchase 100% renewable energy for all city-owned facilities and operations by 2025.
The city has a multi-stakeholder task force to produce ESG data analytics as a Chicago Climate Action Plan (CCAP); the analysis determines the challenges with climate changes, describes the sources of the city’s greenhouse gas emissions and sets goals to reduce the emissions and adapt to changes that affect the city.
The CCAP further identifies 35 ways of ESG management to ensure a more vibrant and sustainable city with eight detailed actions for energy efficient buildings, five for clean & renewable energy sources, ten for improved transportation options, three for reduced waste and industrial activities pollution, and nine for climate change adaptation.
The report also lists the co-benefits of these goals. The city had pledged three years ago to go 100% renewable energy by 2035; with the new commitment, Chicago wants to begin sourcing energy from a new 593 MW solar installation by 2025 that will be developed in central Illinois. Initially, it will partially power high energy consumption facilities, such as airports, the main library, and a water purification plant and move to public buildings like Chicago public schools, the Chicago Transit Authority, and the Chicago Housing Authority at 100%.
Chicago is one of the largest cities across the country to commit to 100% clean energy. As community-focused, goals encourage taxpayers to switch from expensive fossil fuel consumption to clean energy and create opportunities for green jobs. The result is just the beginning of consumer benefits in mitigating the consequences of climate change.
5. The world’s first 100% hydrogen-powered passenger train
Germany is leading the charge of environmentally friendly travel with the first ever rail line to entirely run-on hydrogen-powered trains. Coradia ilint, the train operated by Germany’s Elbe-Weser railways, is replacing the existing diesel-powered trains. With the 93-million-euro ($92.3million) deal, the five running trains on the route in Bremervorde, Lower Saxony, will gradually replace the 15 diesel trains that currently run similarly. Hydrogen is one of the bridging gaps in transitioning to clean energy, and it is said that just 1 kilo of hydrogen fuel equals 4.5 kilos of diesel, reducing the burden on the environment.
The trains are emission-free and noise-friendly, with only steam and condensed water released from the exhaust. The first to run on hydrogen fuel cells generate electrical energy for propulsion, and the system features clean energy conversion, flexible battery storage, and intelligent management of motive power and available energy.
Coradia iLint has a range of 1,000 kilometres (621 miles), meaning it can run for an entire day on a single hydrogen tank. A hydrogen filling station has already been established on the route and has 64 high-pressure storage tanks, six hydrogen compressors and two fuel pumps. The trains can go at a maximum of 140 kilometres per hour or 89mph, though regular speeds on the line are much less, between 80-120kph.
The reality of diesel alternatives has been a deal for over a decade, and the same train version has been tested in Austria, Poland, Sweden, and the Netherlands.
Hydrogen is non-toxic and renewable energy which is more efficient than other sources. It is considered environmentally friendly as it does not produce the same waste as fossil fuels during production. The Coradia iLint trains represent a considerable opportunity to reduce CO2 emissions and even decarbonise rail transport in many countries.
(Source: The Updapt Newsletter, September 2022)
