Discover more from ESG on a Sunday
Week 26: Are we in a better place than 50 years ago?
In this issue: ▸ The 2022 energy crisis ▸ Supreme Court decides planet should burn ▸ The workings of Charles Koch ▸ Food crisis leaves Africa in hunger ▸ ESG growth – and crackdown ▸ And much more
Improvised chaos. Game over. Summarising the first 6 months of 2022. Global pandemic. War in Europe. Energy security breakdown. Climate security breakdown. Inflation. Food shortages. Heat peaks. Flooding. Millions of people fleeing, hundreds killed every day. Detachments. Repressions. Political numbness. Fear. Deception. Hijacked ESG. Empty promises. Hypocrisy.
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Are we in a better place than 50 years ago?
It pretty much looks worse than last 5 years. But let us have a long view on this. The world is, as many would claim, a better place than it was 50 years ago. But it all depends on what is meant by better place and for who.
One percent of the world population controls more than 50% of the net-wealth on this planet. 100 companies emit 70% of all industrial CO2 emissions. 300 people have so much money that they could, by their own means, use just 20% of their capital and finance global transition to sustainable future.
Yet, yes, and yet the struggle continues. You have to poses a significant pool of positive energy to see the light. Significant pool of self-deception to keep going on. And that is what we are so good at. Going on. The perpetual cycle of losing and finding, destroying and restoring. This will end, this circle will end, a new one is emerging and we will have to go on. If you look at it from a historical perspective these are the conditions that historically caused big wars, big revolutions and destructions. But then again, we are not where we were 100 years ago, or are we?
The 2022 energy crisis
Energy is light, food, working infrastructure, hospitals, traveling, growth, war as well as peace. This year’s energy shock is the most serious since the Middle Eastern oil crises of 1973 and 1979. It inflict short-term pain and in the longer term it will completely transform the energy industry. The pain is all but guaranteed: owing to high fuel and power prices, most countries are facing soggy growth, inflation, squeezed living standards and a savage political backlash.
But the long-run consequences are far from preordained. If governments respond ineptly, they could trigger a relapse towards fossil fuels that makes it even harder to stabilise the climate, something that is happening right now. We are doing all the wrong things in the book. Everywhere you look there are shortages and fragility. Energy shocks can become political catastrophes. Winter 2022 could be much colder for millions of people in Europe. Literally. Perhaps a third of the rich world’s inflation of 8% is explained by soaring fuel and power costs. Households struggling to pay bills are angry, leading to policies aimed at insulating them and boosting fossil-fuel production, however dirty.
Mr Biden, who came to power promising a green revolution, plans to suspend petrol taxes and visit Saudi Arabia to ask it to pump more oil. Europe has emergency windfall levies, subsidies, price caps and more. In Germany, as air-conditioners whine, coal-fired power plants are being taken out of mothballs. Chinese and Indian state-run mining firms that the many of us hoped were on a fast track to extinction are digging up record amounts of coal.
This improvised chaos is understandable, but potentially disastrous, because it could stall an already fragile clean-energy transition. Public handouts and tax-breaks for fossil fuels will be hard to withdraw. Dirty new power plants and oil- and gas fields with 30- to 40-year lifespans would give their owners more reason to resist fossil-fuel phase-outs.
The basic logic of post-Ukraine energy security, which applies far beyond Germany, is to rely as little as possible on flows of hydrocarbons from geopolitically dodgy sources. At one level it is a goal well served by adding renewable capacity to the grid as fast as possible. A kilowatt-hour from a solar panel or a wind turbine is one that does not need to be bought in the form of gas. Increasing renewable generating capacity yet faster is already a priority and should be top priority in Europe especially. However quickly they are crowded onto the grid, renewables cannot entirely eliminate Europe’s need for gas; as well as providing back-up when renewables are not producing electricity, gas is vital to Europe’s industrial heartland, not to mention heating many of its homes.
Even before Russia’s invasion of Ukraine, the world was far off track from achieving its shared energy and climate goals. Global CO2 emissions reached an all-time high in 2021, and fuel markets were already showing signs of strain. At the same time, investment in clean energy technologies has remained far below the levels that are needed to bring emissions down to net zero by mid-century – a critical but formidable challenge that the world needs to overcome if it is to have any chance of limiting global warming to 1.5 °C.
A key question is what today’s energy crisis means for fossil fuel investments if we are still to achieve our collective climate goals. Are today’s sky-high fossil fuel prices a signal to invest in additional supply or a further reason to invest in alternatives? In the IEA’s landmark Roadmap to Net Zero Emission by 2050 published in May 2021, the analysis indicated that a massive surge in investment in renewables, energy efficiency and other clean energy technologies could drive declines in global demand for fossil fuels on a scale that would as a result require no investment in new oil and gas fields. The need for this clean energy investment surge is greater than ever today. Today, today, today.
Read IEA’s report here.
Supreme Court decides that the planet should burn
Today it is, but recent developments in the land of largest per capita global CO2 emissions indicates that we are on a self-extinction track.
The Supreme Court ruled on Thursday that the Environmental Protection Agency cannot regulate how much climate pollution power plants emit under the Clean Air Act. The court ruled 6-3, along ideological lines, with Chief Justice John Roberts writing the majority opinion.
“Capping carbon dioxide emissions at a level that will force a nationwide transition away from the use of coal to generate electricity may be a sensible ‘solution to the crisis of the day,” Roberts wrote. “But it is not plausible that Congress gave the EPA the authority to adopt on its own such a regulatory scheme … A decision of such magnitude and consequence rests with Congress itself, or an agency acting pursuant to a clear delegation from that representative body.”
You have to hold your breath on this one. The court ruling marks another victory for a conservative effort to thwart climate action on a federal level. Using the Clean Air Act to regulate greenhouse gas emissions was at best a backup plan, as Democrats had initially hoped to curb climate emissions via comprehensive climate legislation. Now it is gone.
Read more here.
The workings of Charles Koch
As if that wasn’t bad enough, US president Joe Biden is likely to sell new oil leases in offshore waters despite his election campaign pledge to shut down drilling for fuels on federally owned territory, according to a proposal released late on Friday.
Publication of the US government’s offshore leasing programme, required by law, immediately drew fire from the oil industry, which wanted a more expansive plan… Do we live on the same planet?
How could this happen? Well, a number of energy magnates and fossil fuel trade groups pushed for the case that could kneecap the agency and boost their profits. But perhaps no one did more to bring West Virginia v. Environmental Protection Agency to the Supreme Court – or ensure that ultraconservative justices would be on the bench to decide in the companies’ favour – than Charles Koch.
The billionaire energy executive who reigns over Koch Industries is known for playing the long game. He bought up pipelines in advance of the fracking boom – and waited calmly until they delivered billions in profits. He invested in obscure, failing companies even though he knew that it would take years before they could add to his bottom line. And he has been cautious as he’s ventured into new markets – his empire now includes glass, pulp and paper, chemicals, agricultural products, and commodities trading – making small acquisitions to see if they’d be profitable before gradually taking over.
Koch Industries, which makes more than half of its money from fossil fuels and owns refineries, petrochemical plants, and thousands of miles of oil and gas pipelines, is now the second-biggest privately held company in the country. Koch has funnelled some of his vast fortune into an extraordinary network of political front groups, lobbying efforts, think tanks, and activist networks that aim to stifle climate action. For decades, the Kochtopus, as some call his many-tentacled political influence machine, has sought to undermine not just the environmental regulation in Koch Industries’ path but also the science and philosophy of government on which it is based.
Koch’s lobbyists and political operatives helped kill a 2009 bill aimed at tackling climate change through a cap-and-trade system that could have cut into his companies’ profits. While the mounting findings of climate scientists led other titans of industry to begin adjusting their business plans to lower carbon emissions, Koch-funded groups were among the first climate denialists, flatly lying about the well-documented planetary trend of global warming and then schooling lawmakers on the alternate reality they had crafted.
Koch also pioneered the attack on Republicans from the right, pushing the party into its current extremism. Supreme Court decision marks perhaps the biggest payoff yet for Koch’s decades of plotting against environmental regulations – and the most devastating loss for everyone else. Three of the extremist judges who joined the decision – Gorsuch, Barrett, and Kavanaugh – wound up on the Supreme Court in large part because of Koch’s activism and contributions.
Read more in this piece from The Intercept.
And for all ESG investors out there, it’s a good idea to have a good look at which companies are controlled by the Koch brothers – here’s the list.
Food crisis leaves Africa in hunger
Only really hungry people start revolutions. The middle classes of the Western world will never commence anything even close to it. There is too much at stake, compromises could be found, and after all, as long as it works, it works. Why change something that works, even if it slowly kills you.
People in Africa are hungry. Literally. Physically. Hungry. Steep rises in international food and fuel prices since the Russian invasion of Ukraine have left millions more Africans facing hunger and food insecurity this year, the UN, local politicians and charities have warned. The price rises have compounded economic problems caused by the coronavirus pandemic, sparking concerns of unrest in the hardest-hit countries.
Swaths of Africa face an “unprecedented food emergency” this year, in part because of the war in Ukraine, the World Food Programme has said. In an area stretching from northern Kenya to Somalia and large parts of Ethiopia, up to 20mn people could go hungry in 2022, the UN’s Food & Agriculture Organization has said, due to the worst drought in four decades, exacerbated by the fallout from the war in Ukraine.
More than 40mn people in the Sahel and west Africa this year face acute food insecurity, according to the FAO, up from 10.8mn people three years ago.
Before the war, Russia and Ukraine accounted for a double-digit share of wheat imports in more than 20 sub-Saharan African countries, including Madagascar, Cameroon, Uganda and Nigeria, according to the FAO.
The IMF forecasts that consumer price rises in sub-Saharan Africa will rise by 12.2 per cent this year – the highest rate in almost two decades. In Ethiopia, food prices rose 42.9 per cent in April on the same month a year earlier.
ESG growth – and the crackdown
European-domiciled ESG assets are poised to reach a value of between €7.4 trillion and €9 trillion by 2025, according to research by PwC Luxembourg. The research has been acquired via the accounting firm’s interactive ESG dashboard ‘The ESG Opportunity in Europe’. This is a rise at a compounded annual growth rate of between 33.3% and 43%.
Now imagine if all of this money and all of these investments were truly making a difference on the ground. Imagine. The meteoric global rise of ESG investing is increasingly being met with an equally ambitious regulatory disclosure regime, and, targeting greenwashing, policymakers are beginning to bare their teeth. In the latest salvo, on 25 May the US Securities and Exchange Commission (SEC) voted 3:1 to approve two proposals enhancing scrutiny of ESG funds and advisers’ ESG practices.
One proposal seeks to expand the rule governing fund naming conventions and the other proposes additional disclosure requirements by funds and investment advisers about ESG investment practices. This is a great and comprehensive overview of regulatory frameworks around the world.
What is the future of ESG in UK? Despite the strong inflows and performance of ESG-related mandates over the past three years, the latest data from the Investment Association indicates ESG mandates account for less than 6 percent of the total assets under management of the UK open-ended funds universe. However, the direction of travel seems to be clear, as that 6 per cent represents a tripling of market share in around five years. 6% in UK. The centre of financial industry in Europe. Well.
Have a great improvised week, better than the last one!
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