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Week 26: Living in the age of climate disaster
In this issue: ▸ Paralyzed and numb ▸ Coping with the climate apocalypse ▸ G7 indexes are not aligned with Paris ▸ Company check-in: Russian and Saudi Arabia ▸ And much more...
Last week we touched upon the world of politics and business behind the scenes. It’s a hot topic. Perhaps as hot as the weather in some parts of the world right now where new heat records are being set again and again (see this, for example).
Paralyzed and numb
The climate emergency has it’s cold fingers around our necks now. It’s slowly squeezing the air out of the body of this world, making us spectators of our own melodrama.
We’re paralyzed and numb. And thus, we’re still alive just enough to witness our own stupidity, but unable to do anything that could ease that chilling grip.
We lost it, oh yes, we did. And now we are pledging, and now we are remorseful, and now our leaders issue emergency actions and act as if there is no tomorrow.
Well, part of this is true… as for the leaders and the pledges. As for “there is no tomorrow” that’s another story and quite frankly more like a fairytale. This dramaturgical sequencing of how humanity fights for and against itself is ancient.
The big question is if our economic model (and the people running it) and its consequences (intended or unintended) on this planet is a criminal offence? Is it an action which is punishable under the law, and in that case who’s law?
It’s more of an ethical question than a legal one, some will claim. But is it so simple?
Is planet Earth a legal entity, does it have rights, who does it belong to, who has the responsibility (to their best knowledge) to protect it? Who is accountable? The 3 billion people that live on the poverty level or the 1% of wealthiest and within that 1% , the 001% that really holds the keys or the reins?
Many people in the rich countries tend to structure their lives as if it was a spreadsheet. They plan their careers at 17 and their pensions at 25. A couple having a baby is projecting its genes 90 years into the future.
How big is the risk of a near-term societal collapse?
Our generation of westerners, raised in the most peaceful era in history, has come to imagine our personal futures as foreseeable. But the climate crisis upends all predictability. Climate change equals human change, and it requires reimagining our lives. So, how should we all live with the growing risk of disaster? That’s the question posed by the Deep Adaptation movement.
Its guru, the British academic Jem Bendell, gets criticized for overstating the risk of “near-term societal collapse”. But the truth is most of us probably underestimate it. Bendell’s premise is that talk of climate action by governments, corporations and individuals is just talk. Leaders cheerily pledge to hit zero-carbon by 2050, when they will be dead.
In truth, though, everybody’s incentive is to keep the party going by emitting more carbon dioxide. Anyone predicting apocalypse faces two standard objections. The first is that the prediction demotivates people from taking action. That might be true, but then people aren’t taking significant action anyway and the objection doesn’t invalidate the prediction.
The second objection is that all past predictions of global apocalypse were wrong. However, past apocalypticism was a lower-probability bet because we only acquired the capacity to annihilate ourselves once atomic bombs arrived in the 1940s. Progress has doubled our average lifespans and simultaneously enabled us to end the global story.
How to cope with the climate apocalypse
Most of us cope with this not by denying it but by not thinking about it. People in the burgeoning “sustainability” industry prefer to hype small fixes (this new plane will consume 10 percent less fuel!) than contemplate the chances of everything going pop.
So how to live? The younger you are, the more urgent the question. On the most basic level, if you’re buying a house, you’re typically making a 50-year bet: the period of the average mortgage, plus the mortgage of the person who will buy it from you. I wouldn’t buy in Miami today.
The rule of thumb is that the safest regions in the future will be the ones that currently have relatively mild or cold climates. Perversely, this means that the best places to escape climate disaster are precisely those that emitted most carbon in the past: northern Europe and the northern US.
More existentially, adopt the outlook that almost all humans had until about the 1950s: don’t make any presumptions about your future. Don’t structure your life around distant pay-offs. Which entity will be able to pay your pension in 2050?
Almost everyone with a job in a developed country is complicit
Then there’s the moral question: do you want to be part of a climate-destroying system? It’s tempting to shove all the blame on the fossil-fuels industry, but almost everyone with a job in a developed country is complicit – shop assistants, hotel staff and journalists whose newspapers are funded by readers from carbon-intensive industries.
Anyone with gas heating, a car and the occasional plane ticket lives off climate destruction. Almost everything we call “progress” or “growth” makes things worse. Our children probably won’t admire our careers. Read more in this great piece from FT.
I have touched upon the concept of “we” in previous newsletters. There is really no “we” in this case. There are different interests and different agendas and different power struggles, geo-political, money related, power related, vanity related, greed related, fear related and all of them very, very human.
Revealed: ExxonMobil fights against US climate legislation
Now let’s move towards one of the alleys of pain, even though it would have been much nicer to be more positive and more optimistic right now.
A senior ExxonMobil lobbyist has been captured on camera revealing how the oil giant is using its power and influence to water down US climate legislation. The explosive footage was obtained by Unearthed, Greenpeace UK’s investigative platform, who posed as head-hunters to obtain the information from one of ExxonMobil’s most senior Washington lobbyists.
The recordings appear to reveal the secretive behind-the-scenes activities of a lobbyist for a company that claims in public to support action on climate change, while fighting against legislative attempts to tackle it. You can find it here:
Did we expect anything else? Really?
If we stop normalizing this and start viewing it as a criminal thing maybe things will eventually change.
A carrot, yes, and then a big stick too!
“Climate crimes” – a new series!
Is climate crime a new genre of literature or a new legal offence committed by countries, companies and individuals with power? Maybe both.
Anyway, The Guardian has launched a new series named Climate crimes. In it, it will examine these crimes to hold the industry accountable and investigate the tactics used by the companies to elide their own role in global heating.
It will also interrogate the central question that emerges from these lawsuits: is the climate crisis in fact a crime scene?
There is a good reason to think we will know more soon. The legal process for the roughly two dozen climate change lawsuits currently pending in the US is likely to reveal more damning information that could further detail the extent of the oil industry’s deceptions.
Investigative reporting has already revealed that the companies undertook their own climate change research decades ago – in 1979, for instance, an Exxon study said that burning fossil fuels “will cause dramatic environmental effects” in the coming decades, and concluded that “the potential problem is great and urgent.”
By copying the playbook utilized by big tobacco, the firms were able to sow doubt about the existence of the problem that persists to this day.
Read it, follow it and share it. It will mean a lot going forward.
Picture the scene. Darren Woods, Chief Executive of oil company ExxonMobil, in The Hague crime tribunal, where he is told that drilling for more fossil fuels when he knew it would accelerate the environmental devastation was a crime. A crime of ecocide.
Impossible? Well, in this article you can find more about how this could become reality.
No major G7 stock index aligned with Paris climate goals
So if we disregard the crimes, how are we doing? Are we not somewhat on track? I mean, with all the pledges and net-zero targets and all.
One way of assessing – objectively – where we are on the corporate side is to look at the data. Are the businesses of this world aligned with the Paris climate goals? What temperature paths are they on, individually and collectively (as indexes)?
And now, new research from the Science Based Targets initiative (SBTi), a body enabling businesses to set ambitious emissions reduction targets, reveals that NONE of the G7’s leading stock indexes are currently aligned with a 1.5°C or 2°C pathway – and calls on the largest listed G7 companies to urgently increase climate action.
The report also finds that four of the seven indexes are on dangerous temperature pathways of 3°C or above.
We really do live in a an ESG theatre. It’s all talk, all pledges, no action. And yes, it’s bad.
You can read more about the SBTi report here:
Can burning trees ever be green?
We move on to Good Old Coal. Is it gone? Not really, and in this report from Carbon Tracker you can find out why.
The report highlights that five Asian countries (China, India, Vietnam, Indonesia and Japan) are responsible for 80% of the world’s planned new coal plants and 75% of existing coal capacity. In these five countries, 92% of planned coal units will be uneconomic, even under business as usual, and up to $150 billion could be wasted.
What about biomass? I’ve said it before and am happy to repeat myself… Biomass is not going to save us.
Here’s the EU’s biomass dilemma: Can burning trees ever be green?
As I wrote in some previous newsletters, the biomass issue is explosive. Ministers from countries including Finland, Estonia and Sweden asked for “all forms” of bioenergy currently labelled as renewable to also qualify as sustainable investments, “keeping in mind” the EU’s decarbonization commitments.
Biomass fuels include pellets, organic waste and crops grown for energy. They produce around half of the world’s renewable energy, and 60 per cent of the EU’s, and are treated as carbon neutral if certain sustainability conditions are met.
Across Europe and Asia, the two main markets for pellets, governments hand out billions in subsidies to the industry each year. But pellets can actually emit more carbon per unit of energy than fossil fuels when burnt, since wood is less dense.
The industry argues that those emissions are offset by the carbon absorbed by trees as they regrow. If the wood is being sourced from sustainably managed forests – where the volume of carbon stored in the trees is “stable or increasing” – the biomass is carbon neutral, the industry says.
Read more here.
Company check-in: Russian and Saudi Arabia
Meeting human needs at sustainable levels of energy use is fundamental for avoiding catastrophic climate change and securing the well-being of all people. In the current political-economic regime, no country does so. Read that again. No country does so.
In this report academics assess which socio-economic conditions might enable societies to satisfy human needs at low energy use, to reconcile human well-being with climate mitigation.
In some of previous letters we went through ESG developments in most parts of the world, parts that are usually not covered and are not what we mean by “we”. The utterly prudent and morally righteous ESG community regard these areas as “not up to standards”.
Earlier this week, I did some research on the latest developments in companies in Russia and Saudi Arabia. And from this week onwards I will try to cover more of the developments in the non-western hemisphere with regards to ESG!
So here we go. This is what it looks like in Russia and Saudi Arabia (PS: when you read this, try to think of a comparable company in the West):
Gazprom has set 2030 targets for GHG emissions, APG flaring and energy efficiency and is in the process of shaping scenarios of low-carbon development through 2050. To expand into alternative technologies, Gazprom is developing methane-hydrogen mix and zero-carbon-footprint methane-to-hydrogen production.
Novatek remains strategically focused on gas/LNG. The company considers its LNG projects (along with Qatar) among the most competitive globally both on cost (low upstream and operating cost base) as well as on carbon footprint (Yamal LNG, according to the company, demonstrates best in-class GHG performance). In 2020, the company set 2030 environmental targets, which include lowering methane and GHG emissions of its core operations, improving APG utilization and reducing waste.
Lukoil considers its upstream business as cost competitive (including carbon footprint) vs global peers and does not plan to scale down any of its domestic or foreign projects. Saying that in 2021, Lukoil committed to lowering its CO2 footprint by 20% by 2030 vs 2017 baseline (c10mt, Scope 1, 2) via controlled undertakings, including energy savings, renewable energy for own use, use of recyclable materials, waste management, APG utilisation, CCS solutions, heat exchangers. The company also does not rule out the divestment of thermal power generation assets.
Rosneft presented its new carbon management plan earlier this year, aiming for zero routine flaring, preventing 20mt of CO2 emissions, lower upstream GHG intensity (Scope 1, 2) by 30% and methane emissions to <0.25% by 2035. Its key undertakings are focused on energy savings solutions, growth of the gas business, better APG utilisation, CCUS technologies, renewable energy purchases, developing blue/ green hydrogen technologies, adding solar panels, EV-charging and CNG infrastructure. Rosneft sees a potential to more than double its CO2 target via reforestation.
Tatneft assumes that, going forward, its production plans in the upstream segment are likely to be impacted by the evolution of the global decarbonisation debate given high carbon intensity of HVO operations. Tatneft is committed to decarbonise by 2050 and is in the process of finalising its Sustainable Development Policy. However, at this stage Tatneft is not actively exploring investments in renewables given limited opportunities domestically while valuations abroad for possible inorganic growth targets appear too high.
Sberbank, a state-owned Russian bank, stands out in terms of its ESG initiatives. Sberbank has set up an ESG committee along with ESG supervisors on its supervisory board. The bank has also approved a ESG risk management system to incorporate ESG risks in its credit process. However, Russian banks have not yet disclosed quantifiable environmental targets. In terms of total loan exposure to “transition sectors”, Sberbank have ~25% exposure to oil and gas, construction, chemicals among others.
Several other Russian banks plan to increase exposure to renewable energy projects, waste reduction projects, and clean transport amongst others. Sberbank was part of the RUB100bn green bond raised by Russian railways. In 2020, Sberbank agreed with one of the large Russian conglomerates, Sistema, a credit facility where they plan to tie interest rates of each loan to trends in the ESG indicators. Sberbank has also introduced initiatives like lower financing rates for car loans for electric vehicles. By 2023, Sberbank plans to extend ESG scoring to its entire portfolio.
Let’s move south to Saudi Arabia.
Now this is either a fun fact or a rather telling truth: Saudi banks have little direct exposure to oil and gas. ‘Mining and quarrying’, which includes upstream oil and gas, accounts for only 1% of the sector loan book.
Saudi Aramco does use bank loans within its financing mix, but we assume many of these loans are from international banks. Aramco raises debt finance in the local and international bond markets, but it is not possible to quantify the exposure of Saudi banks’ investment books to Aramco or other GCC national oil companies from the available disclosures. It is not possible to quantify the exposure of the sector loan book to other environmentally sensitive sectors (e.g., cement, chemicals) due to lack of sufficiently granular disclosure.
The major environment-related growth opportunity for the Saudi banks lies in renewable energy financing. The Kingdom’s government has a very ambitious target of adding 59 GW of renewable energy capacity by 2030, mostly using solar PV. It’s estimated that this will require capex of around USD 70bn over the coming 10 years.
At the individual bank level, Saudi Arabia’s leading banks are at the start of a process of engaging with investors on ESG, at varying speeds. All the banks report having implemented projects to reduce consumption of energy and water in their own facilities, but quantified disclosure in the area of environmental metrics is still very limited. None of the larger banks have put in place a formal policy or targets around decarbonization of the loan book (as far as we know, none has yet mentioned the topic).
At present, the loan books with the most benign environmental footprint are simply likely to be those that are most skewed towards retail borrowers, with Al Rajhi the most advantaged in that respect.
The dirty diamonds
Let’s end this week with diamonds! 💎
It’s not only viruses that are grown in labs. Diamonds too are lab-grown, and the question is if that’s good news for the climate emergency?
With the increase in availability and popularity of lab-grown diamonds in recent years, debate has picked up on whether lab-grown or mined diamonds have a smaller environmental footprint.
A report by Trucost concluded that carbon emissions from a mined diamond are around 160 kg per polished carat (in 2016). This compares to over 500 kg for a lab-grown diamond.
Part of the difference can be explained like this: the vast majority of energy required to produce a diamond is in the initial formation of the stone which requires immensely high pressure and temperature. In the case of a mined stone, this has already been done by nature. For a lab-grown stone, these conditions need to be recreated under lab conditions.
In addition, China is the largest producer of lab-grown stones. In China, the main source of electricity is from coal fired power stations.
In contrast, ALROSA (the world's largest diamond producer by volume) for example has 92% of its electricity usage from green sources including hydro power.
One additional factor to bear in mind with diamond mining vs base and precious metals for example, is that the extraction of the stones is a physical process, with no chemical reagents required.
That’s all for this week. I wish you a great week!
Best regards, Sasja