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A vote next week in California is the latest sign that corporate climate disclosure is inevitable.͏‌  ͏‌  ͏‌  ͏‌  ͏‌  ͏‌ 
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September 8, 2023

Net Zero

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Tim McDonnell
Tim McDonnell

Hi everyone, welcome back to Net Zero.

Next week the Business Roundtable group of more than 200 top CEOs will meet in Washington. One likely topic of conversation: Whether and how to publish data about their carbon footprints and exposure to physical climate risks. Many companies in the group have been willing to measure and report climate-related data. But being forced to do so by regulators — and in financial documents held to a high legal standard of accountability — is another story. As we see today, they may not have much of a choice for long.

Also today: What climate activists want out of Biden’s visit to Vietnam, the G20’s coal problem, and a way to fix one broken piece of global climate finance.

If you’re planning to attend Climate Week NYC, let us know! We’ll be there. And if you like what you’re reading here, spread the word.

  1. ‘Not on track’
  2. G20 coal culprits
  3. 🟡 The inevitability of disclosure
  4. Another silent auction
  5. 🟡 Jailed climate champions
  6. Mining money
  7. The only good plan
  8. A grid eclipsed
  9. 🟡 More cash for carbon
  10. 🟡 Fixing green bonds

‘Not on track’

The world is “not on track” to meet the goals of the Paris Agreement and the window to do so is “rapidly narrowing,” according to the U.N.’s first comprehensive assessment of progress on the agreement since it was completed in 2015. The “Global Stocktake,” published Friday, draws together all the climate commitments countries have made, and the latest research on current emissions levels. To have a chance of meeting the Agreement’s goals, the report says, global emissions have to peak before 2025. At the moment, emissions in 2030 are on track to be about 24 billion tons higher than they need to be, about as much as the U.S. emits in four years.


G20 energy ambitions

The G20 has a coal problem. At the group’s summit in New Delhi this weekend, Indian Prime Minister Narendra Modi will try to convince his peers to commit to triple renewable energy capacity by 2030. But even more urgent is the slow pace of phasing out coal, the dirtiest fossil fuel, in many member states. Coal emissions in South Korea and Australia, the top per-capita polluters, are triple the global average, according to an analysis this week by think tank Ember.


Emissions disclosure is coming — no matter what


By Tim McDonnell


Companies — big and small — won’t be able to put off disclosing their full carbon footprints much longer.

The European Union recently finalized standards for corporate climate disclosures which will take effect in January and eventually apply to about 50,000 companies, including an estimated 10,000 based in the United States. The U.S. Securities and Exchange Commission is expected to finalize its own rules next month. And California might beat them both to the punch: State legislators are expected next week to approve a pair of climate disclosure bills that go even further than the SEC on key points.

“The train has left the station,” said Mike Wallace, chief decarbonization officer of the carbon accounting firm Persefoni.


Although a growing number of corporations are measuring their carbon footprints for the first time, many have strongly resisted being forced to publish the results in their financial statements, pressuring the SEC and EU regulators to water down their draft disclosure rules.

There are two main sticking points: Scope 3 emissions, and the cost of future climate impacts.

Emma Roshan

Companies are concerned that being forced to disclose their Scope 3 emissions — which include upstream emissions from suppliers and downstream emissions from customers’ use of a company’s products — is an imprecise, tedious, and expensive process. Many climate economists, on the other hand, insist that measuring Scope 3 is getting easier all the time, and that especially for energy companies and other big emitters it’s essential. The EU regulations let companies off the hook for Scope 3 if they can prove they’re not “material” to investors — a vague and potentially subjective definition that Tsvetelina Kuzmanova, senior policy advisor at the think tank E3G, said will muddy the waters and pass the buck to a cottage industry of carbon-auditing firms.

“With the justification of reducing the regulatory burden on the companies, they’re actually just creating more uncertainty,” Kuzmanova said. “We’re looking at a mess here.”

A draft version of the SEC rules took a similar approach to Scope 3; the difficulty of how to handle those emissions with a minimum risk of lawsuits — either from irate environmentalists or irate corporate lawyers — has been one of the main issues holding up the final version of the rules. The California regulations, which are expected to pass a vote in the state Assembly by next week with the backing of prominent companies including Adobe and Microsoft, would require universal Scope 3 disclosure.

Climate impact risk — which the EU, SEC, and California regulations also require to varying degrees — is potentially even more complicated. Imagine a multinational firm with warehouses scattered around the world. Putting a specific dollar figure on climate-related damage to those warehouses in a given year is hard enough. Projecting those to the future requires companies to practice a kind of hyperlocal climate modeling that is challenging even for climate scientists.

Notwithstanding these obstacles, a growing number of companies are voluntarily disclosing climate data, especially on emissions. A survey by Persefoni in August of 90 large U.S. companies found that 73% report Scope 1 and 2 emissions, and 26% report Scope 3. The reason, Wallace said, is that everyone is already demanding it: Shareholders, government procurement contracts, customers, financiers, other businesses in a company’s supply chain, etc.

“It doesn’t matter what happens with these regulations,” he said. “You’re going to get questions about your carbon footprint.”

The problem, as expressed by influential lobbying groups like the Business Roundtable — which is meeting next week in Washington, and which made a splashy commitment to sustainability in 2019 — is making those disclosures mandatory. The Persefoni survey shows most companies that do disclose are putting the data in places where it’s unlikely to draw much scrutiny or make them liable to fraud or greenwashing charges. Only 14% reported the data in their 10-K financial statements.

Legal risk isn’t the only concern businesses have: Firm-level emissions data is also a key ingredient for future carbon taxes and emissions allowances.

“Make no mistake,” said David Smith, an environmental attorney at the California firm Manatt, Phelps & Phillips. “This will be the baseline from which further reductions are mandated.”


Another silent wind auction

An auction for offshore wind leases in the U.K. this week failed to garner a single bid. Under the U.K. bidding system, wind project developers compete for contracts to provide electricity, but can’t bid above a maximum price set by the government. This year, that price was too low, project developers said, meaning a “winning” bid would essentially be a guarantee for investors to lose money. The wind industry as a whole is struggling with rising costs, turning many once-promising projects into writedowns and driving companies away from new leases. An offshore wind auction last week in the U.S. Gulf Coast was also a big disappointment.


One Good Text

Phil Robertson, deputy Asia director at Human Rights Watch. U.S. President Joe Biden will visit Vietnam this weekend, where one topic up for discussion will be a $15.5 billion foreign aid package — the Just Energy Transition Partnership (JETP) — to reduce Vietnam’s reliance on coal. One obstacle in the deal has been Vietnam’s jailing of several high-profile climate activists.


Mining money

African countries are losing their edge in the global race for critical minerals, the International Energy Agency warned. Total investment in mineral production on the continent fell from $1.5 billion in 2012 to just $470 million in 2022. Meanwhile, other regions are ramping up investment quickly to seize a position in lucrative electric-vehicle supply chains — so Africa’s share of the global total has fallen to 8%. To clear the way for more investment, the IEA advises, African governments need to carry out more detailed geological surveys of their resources, and strengthen oversight of environmental and human rights abuses at mines to avoid deterring ESG-conscious investors.


The only good plan

Companies out of the 25 largest oil and gas producers with a climate target that is aligned with the Paris Agreement. In a report this week, the think tank Carbon Tracker concluded that Italy’s Eni has the strongest climate plan of its peers, which covers the full global emissions of its products, aims for net zero by 2050, and sets absolute emissions reduction targets in the interim. The weakest target is Saudi Aramco’s. But even for Eni, it’s not clear that the company’s strategy is sufficient to reach its stated objectives.


A grid eclipsed

The Texas electric grid, which has held up admirably through months of record-breaking summer heat, came as close to sweeping blackouts this week as it has since the disastrous winter storm of February 2021. Grid operators declared a temporary emergency Wednesday night and urged residents to stop charging electric vehicles, Bloomberg reported. The state’s grid has been kept afloat this summer in part by the proliferation of rooftop solar – a source that will be tested in a few weeks when the state is expected to experience a midday solar eclipse. Another strategy that has helped so far, to the ire of some environmentalists: Paying bitcoin miners to shut down at times of peak demand. This week mining company Riot Platforms said it earned $31.7 million in shutdown bonus fees from the Texas grid in August — triple what it earned from bitcoin.


More cash for carbon

Several companies, including Microsoft, H&M, Stripe, and Shopify struck carbon removal deals worth millions of dollars with more than a dozen new startups. The deals, which rely on a variety of technologies to suck carbon out of the air, are part of the companies’ goals of becoming carbon neutral or even negative. Microsoft’s deal with Heirloom, a California-based startup, is the biggest: It aims to capture 315,000 metric tons of CO2 — equivalent roughly to the average yearly emissions of 70,000 U.S. cars — over the next decade.

The environmental benefit of carbon removal technologies has been called into question by some scientists. Although a recent United Nations study said the technology is a useful, if expensive, tool in keeping global temperatures within safe bounds, scientists and policymakers remain divided, with some claiming the technology remains untested and creates a moral hazard.

More than 200 scientists backed a different form of carbon removal this week. Although largely untested, the group of scientists called for greater research into the field of ocean-based CO2 removal. The idea consists of filtering CO2 out of the world’s oceans in order to allow them to absorb even more of the gas from the world’s atmosphere.

— Jeronimo Gonzalez


Green Shoots

UK DFID/Flickr

One of the fastest-growing forms of climate finance needs to be retooled to be useful for the countries that need it most, a new paper argues. Green bonds are a way for companies or governments to raise money for renewable energy projects, climate adaptation infrastructure, or other environmental needs. The bonds get bought by investors looking for a predictable, reliable return on an investment with climate benefits. In the last decade, the green bond market has exploded, from $100 billion in total issuance globally in 2015 to at least $2.5 trillion today.

But nearly all of that money has financed projects in rich countries. Developing countries (excluding China) have captured only about 6% of the green bond market, said Guatam Jain, a senior finance researcher at Columbia University’s Center on Global Energy Policy. They’re being left out of what could be a plum fundraising opportunity for a few reasons, Jain argued in a paper this week. These countries often struggle to find enough bankable projects to put out a bond that’s large enough to attract overseas investors. They frequently lack the kind of oversight investors demand to ensure that the bond’s green credentials are bonafide. And there’s the issue of currency: Most Western ESG investors — the typical buyers of green bonds — prefer to deal in dollars or euros. But issuing a bond in those currencies leaves the developing country government on the hook for unfavorable changes in the exchange rate.

The solution, Jain argues, is that an intermediary — most likely a multinational development bank — should essentially act as a broker between green bond issuers in developing countries and buyers in the U.S. and Europe. They could pool projects across countries to get bond offerings up to scale, and take on the currency exchange risk themselves, so that both sides can deal in a currency they’re comfortable with. That type of risk, Jain argues, is the exact kind of thing climate activists and leaders like Barbados Prime Minister Mia Mottley have been urging development banks to take.

“The structure of the global economy, with global interest rates largely at the beck and call of U.S. Fed domestic policy, makes hard currency debt issuance a big risk – and sovereign issuers [in developing countries] are wearing that problem around the world right now,” said Sean Kidney, CEO of the Climate Bonds Initiative, a think tank. “We need creative solutions, from rich country credit support for green bonds — but in domestic currencies — to risk-spreading solutions, as proposed in this paper.”

If you’re interested in diving deeper into the green bond market, register to attend the Climate Bonds Initiative conference in New York on Sept. 20.