Sustainable Finance

https://www.wsj.com/us-news/climate-environment/cold-weather-businesses-suffer-in-the-winter-that-wasnt-a59ac42b?mod=djemclimate

MINNEAPOLIS—On a 60-degree day here in early March, Derek Hughes and his son, Dylan, tried out their cross-country skis on artificial snow that had melted into a slushy mess.

“It feels like the cross-country equivalent of water skiing,” said Hughes, 42 years old, as his 8-year-old son—skiing for only the third time all winter—looked up with a smile. 

This is the winter that wasn’t in Minnesota and other states across America’s normally frozen northern tier. Record warm temperatures and low snowfall have forced the cancellation of everything from ice fishing tournaments to dog sled races to winter carnivals. Business has dried up for ski resorts, snowmobile makers and any other venture that relies on cold weather and white powder to make a living.

The Loppet Foundation, the nonprofit that oversees winter recreation in the park where the Derek Hughes and his son were trying to ski, has seen a 60% drop in revenue compared with last winter, said executive director Claire Wilson. 

“Winter is our bread and butter,” she said. “We can’t have another year like this.”

https://www.wsj.com/business/energy-oil/hes-a-renewable-power-billionaire-not-an-environmentalist-f7f4cbef?mod=djemclimate

Michael Polsky is getting into fights all over the country.

The Chicago billionaire, a Ukrainian immigrant who made his fortune through wind, solar and other renewable-energy projects, wants to build a lot more. And he also wants to build natural-gas-fired power plants.

At every turn, he says, he faces opposition from either the left or the right—illustrating his view that the country’s approach to energy has gone completely off the rails.

“It’s crazy,” said Polsky, who founded his company, Invenergy, in 2001. “Why if you build renewables you’ve got to be on the left, and if you build coal or gas you’ve got to be on the right? To me, you build what makes sense to build.”

https://www.ft.com/content/8a436da0-0531-4561-b6f8-35fcd79b6d79?accessToken=zwAGExJ_ic-IkdOKQ22gBTFFYdO2-DX815tteQ.MEQCIFZ4zjEF38gZJ4o5CTyLK2UoNKmmpge8KD2hjXAG60rmAiBHiKt-jtdxflBtGHNFubG2cXiEEBj_Ruu7psfbKaHZtw&sharetype=gift&token=4262673e-b55d-4dd6-afd9-34749d7f62c7

Global average temperature rise in February reaches 1.77C above pre-industrial levels

The warmest northern hemisphere winter on record was accompanied by unsurpassed sea surface temperatures and unusual drought and rain patterns across the world, the European Earth Observation Agency said.  The global average temperature in February was 1.77C above the pre-industrial average and marked the ninth month in a row of record heat, the Copernicus Climate Change Service said.

https://www.wsj.com/finance/regulation/sec-climate-disclosure-greenhouse-gases-d57de27c

WASHINGTON—The Securities and Exchange Commission approved new requirements that public companies disclose their greenhouse-gas emissions, but dropped a key provision that was fiercely opposed by business groups.

The 3-2 vote in favor of the rule comes after a two-year process involving intense lobbying from some of the world’s biggest industries and influential climate groups. It has faced relentless criticism from corporations and Republican lawmakers who say the agency is reaching beyond its authority.  

“These rules will enhance the disclosures that investors have been relying on to make their investment decisions,” SEC Chair Gary Gensler said Wednesday. He said they would give investors consistent and reliable disclosures about climate risks.

SANTIAGO, Chile—Forest fires roared across a heavily populated swath of central Chile, killing about 100 people and destroying some 3,000 homes, according to government officials. The destruction is disrupting Latin America’s most market-friendly economy.

Some 370 people were missing, Mayor Macarena Ripamonti of Viña del Mar said early Sunday. Her city, along with hillside communities around the port city of Valparaiso, have borne the brunt of the damage from the fires that began Friday.

In a televised address late Saturday, President Gabriel Boric warned that “given the conditions of the tragedy, the number of victims will surely go up.” 

On Sunday, as he toured the hard-hit town of Quilpue, Boric said the disaster was the worst since the 8.8-magnitude earthquake and tsunami in 2010 that killed more than 500 people. The number of victims from the fires “will increase significantly,” said the president, who declared two days of mourning.

https://www.wsj.com/world/americas/fires-kill-dozens-in-chile-with-many-more-feared-dead-4a5068d0?st=cslragsz4hu2zhc&reflink=article_email_share

In this quarterly ESG newsletter we review recent updates and trends pertaining to sustainability policy and the implications for business, finance, and investors. We will also provide highlights from the COP28 UN Climate Conference (COP – Conference of the Parties), which was recently held in Dubai, United Arab Emirates.

While the first COP in Berlin in 1995 was a quiet affair with a modest 4,000 people attending, this year’s event attracted a record 84,000.[1] This tremendous growth and interest is seen by some as a sign of success and by others as a dangerous distraction from the business of combating climate change as nearly three decades of global oil demand, carbon emissions and temperatures have marched steadily upward. In this year’s gleaming host city of Dubai, billboards advertised the benefits of wind energy, climate ambition, and Exxon Mobil’s carbon capture projects

The COP28 carbon footprint calculator This event, of course, generates its own carbon footprint as participants travel from around the world to debate and discuss climate policy, with many traveling by private jet. According to the University College London (UCL), it is estimated that 60% of the greenhouse gas emissions from COP26 were attributed to international travel. Researchers from UCL have helpfully created anonline tool to calculate the carbon footprint of travel to this year’s COP in Dubai to shine a spotlight on the impact of travel and provide suggestions to mitigate and even offset this part of its footprint. Their first recommendation: attend virtually.  What has been the track record of the COPs? Based on the below chart in answer to this question, at the risk of committing a pun, not so hot.[2]As of COP1, the global measure of carbon dioxide (CO2) in the atmosphere stood at 360 ppm (parts per million).[3] Today that level is around 420 and is increasing at roughly a rate of 3 ppm per year.

The last time the Earth’s atmosphere held this much CO2 was approximately 2.5 million years ago at the beginning of the Pleistocene (commonly referred to as the Ice Age). As a point of comparison, sea levels were approximately 20 feet higher than they are today. The lag effects of warming and the effect the oceans have had on absorbing excessive radiative forcing, meaning that the Earth receives more energy from sunlight than it radiates to space, largely explains the reason why sea levels remain lower.[4]  This is important for policymakers and investors to be aware of, especially vis-à-vis the dense urban coastal populations and trillions of dollars in oceanfront real estate that may be at risk of rising sea levels in the coming decades driven by warmer temperatures.

Big Oil chairs COP28 and decides to phase itself out Representatives from nearly 200 countries agreed at the COP28 climate summit to begin reducing global consumption of fossil fuels to avert the worst of climate change, signaling the eventual end of the oil age.  The deal struck after two weeks of negotiations was meant to send a message to investors and policymakers that the world is united in its desire to break with fossil fuels, something scientists say is the last best hope to stave off climate catastrophe. COP28 President Sultan al-Jaber, president of state-owned oil company, Adnoc (Abu Dhabi National Oil Company) called the deal “historic” but added that its true success would be in its implementation.  The deal calls for “transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner … so as to achieve net zero by 2050 in keeping with the science.”[5]  The deal calls on governments to accelerate that reduction – specifically by a tripling of renewable energy capacity globally by 2030, speeding up efforts to reduce coal use, and accelerating technologies such as carbon capture and storage that can clean up hard-to-decarbonize industries.  While the pledge generated a lot of excitement, it has no specific requirements or targets for the phase out. Oil, gas, and coal account for about 80% of the world’s energy, and projections vary widely about when global demand will finally hit its peak. This past summer, Private Asset Management Portfolio Manager, Chris Merker, and a team at Marquette University, analyzed potential greenhouse gas reduction measures based on what the team viewed as a baseline scenario for alternative energy development between 2023 and 2050. Given the continued need to meet growing energy demand, especially from emerging market countries, and the slow-moving regulatory approval process for energy projects among other factors, they found that a reduction from 80% to 40% in fossil fuel use by mid-century was more a realistic scenario than achieving net zero.[6]

Our take on the conference COP28 was notable because the nearly 200 countries in COP21, which was held in Paris, agreed to a key target, the “Paris Agreement,” to limit absolute long-term global temperature rises to 1.5C by this meeting. Experts have commented on the likely failure to achieve this target in the coming years.[7] It was necessary to extend the negotiations during the conference based due to a poorly written initial draft agreement. According to Al Gore, the conference was on the “the verge of complete failure” because they could not agree on the wording.[8]  In its final form, a “just, orderly and equitable manner” came with no specific definitions, key performance indicators or requirements. In addition, China and India managed to safeguard their production and use of coal from the phase-out targets. Their only concession was to “accelerate efforts” rather than a rapid phase-down. In the final analysis, the agreement came with loopholes and lacked specific objectives, and appeared mostly to be a pledge of “we will try.”If anything was accomplished, it was only agreeing on the need to transition away from fossil fuels, but there was no agreement regarding how this will be accomplished.

Investment opportunities exist, just don’t rely on governments to get us there We see the investment opportunities around climate policy through private equity investments in areas including renewables, food, agriculture, and water and resource efficiency. We do not believe the best approach would be reliance on the huge, but potentially unpredictable or short-lived, government subsidies. We believe areas of opportunity would be in projects with good inherent fundamentals that can deliver a standalone financial return without requiring government subsidies (but can benefit from such subsidies), while also providing measurable environmental benefits.

[1] https://carnegieendowment.org/2023/12/14/cop28-s-inclusion-efforts-were-positive-step-for-climate-pub-91252#:~:text=As%20the%20host%20of%20the,the%20previous%20record%2Dholder). 2 Source: Matt Orsagh 3 There are actually ten primary Greenhouse Gases (GHGs) – not just CO2; of these, water vapor (H₂O), carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O) are naturally occurring. Perfluorocarbons (CF6, C2F6), hydrofluorocarbons (CHF3, CF3CH2F, CH3CHF2), and sulfur hexafluoride (SF6) are only present in the atmosphere due to industrial processes. 4 The climate science history on this point is particularly fascinating and illustrated well in a recent Netflix special, Life on our Planet. 5 https://www.reuters.com/business/environment/countries-push-cop28-deal-fossil-fuels-talks-spill-into-overtime-2023-12-12/ 6 https://www.marquette.edu/business/sustainability-lab/annual-report-download.php  7 https://www.sciencemediacentre.org/expert-reaction-to-pledges-emerging-from-cop28/ 8 https://www.motherjones.com/politics/2023/12/al-gore-un-climate-summit-failure-final-resolution-fossil-fuels/