Weekly News | 15th to 31st August 2023

Codo Advisory keeps an eye for you on the latest events and trends in climate finance and corporate sustainability, in the world and in Japan. Here’s what caught our attention last week. 

Asia | Fukushima discharge met with bans in China 

• Beijing’s criticism of Japan’s release of treated radioactive water into the Pacific prompts Chinese consumers to avoid seafood and rush to buy salt, as they fear contamination. 
• China enforces a blanket ban on aquatic products from Japan following the release, impacting seafood markets and sales. 
• The scare also triggers a surge in salt demand, with supermarket shelves empty and online platforms sold out, driven by beliefs in salt’s protection against radiation poisoning and concerns about contamination of sea salt. 
• Read more about this story: Reuters, The Japan News 

Codo’s comment: This is the wrong oceanic crisis to be talking about. The Japanese government has been very consistent, transparent, and vocal about testing the water before and after release to ensure no dramatic shifts in ocean quality. This level of vocality and testing should instead be applied to the issues of ocean temperature rise, low oxidation levels due to co2 concentrations, plastic pollution, etc. The fear mongering over the water discharge is diverting from the true issues we need to be addressing now. 

World | Bond investors warned of impending concerns regarding climate risk 

• The Institute for Energy Economics and Financial Analysis (IEEFA) emphasizes the urgency of regulations due to inadequate climate risk assessment in credit ratings, potentially leading to severe consequences. 
• The discrepancy between actual climate risks and credit ratings could result in significant downgrades and bond selloffs, particularly affecting carbon-intensive sectors like airlines, automotive, metals, mining, oil and gas, and power generation. 
• IEEFA recommends regulators compel ratings agencies to update their methodologies, incorporating forward-looking climate risk perspectives and including climate specialists in credit rating committees. 
• Read more about this story: Bloomberg, IEEFA 

Codo’s comment: The IEEFA has identified a critical mismatch in between the real economy and the financial investment economy. As climate risk increasingly results in climate disaster (such as in Hawaii, France, India, and many other parts of the world), regulatory bodies that permit the mismatch to continue will come under increasing scrutiny. Investors, and corporations that rely upon them, who preempt the regulatory shifts and ensure they are taking sufficient climate risk mitigation actions will have significant advantages. 

World | Fossil fuel subsidies hit $1.3 trillion amidst government pledges to end them 

• Despite promises to decrease fossil fuel subsidies, a new report by the IMF reveals that these subsidies reached a record $1.3 trillion in 2022. 
• Explicit subsidies, including direct financial support and regulated prices for fossil fuels, doubled since the previous assessment. 

• Implicit subsidies, covering undercharged environmental costs and tax exemptions, brought the total to $7 trillion in 2022. The reports highlight a significant gap between nations’ commitments to cut fossil fuel support and their actual actions, hindering efforts to combat climate change. 
• Read more about this story: Bloomberg, The Guardian 

Codo’s comment: The failure to end subsidies is extremely disappointing, but sadly unsurprising. There must be vocal demand for countries to adhere to their pledges. Currently, almost 80% of sustainable technologies are already economically more attractive than their alternatives, but struggle in the open market due to the skew from subsidies.  As local renewable energy subsidies expire, it is critical to even the playing field by also retiring the subsidies supporting fossil fuels. As long as fossil fuel costs are kept unrealistically low through these direct and indirect subsidies, it will be difficult to accelerate the critical transition to proven, more reliable alternatives.  

World | ‘Risk blindness’ aggravates the severity of the climate crisis 

• Recent catastrophic wildfire in Hawaiian town of Lahaina sparks discussions on risk blindness regarding climate crisis. 
• The disaster, along with wildfires globally, highlights how governments, insurers, and industries often fail to adequately plan or react to known climate risks, termed as “risk blindness.” 
• Risk blindness involves relying on past patterns to predict the future while failing to address the changing dynamics of climate-related disasters caused by human behavior, such as burning fossil fuels. 
• Read more about this story: Bloomberg, Reuters 

Codo’s comment: Climate and environment induced risk is rapidly increasing regardless of our acknowledgement of it. When disaster risk is ignored, however, it leads to catastrophic human toll, as seen in Hawaii. Individual recognition of the risk is important, but global corporate recognition is crucial. Insurers and Re-insurers have begun to acknowledge the extreme risk these disasters pose to their investments. As such, they are incentivized to increase the insurance premiums for the corporations that persist in ‘risk blindness’. 

World | Study reveals how inadequate offsets fuel rise of greenwashing 

• Recent study reveals that only 6% (5.4 million) out of a potential 89 million carbon credits were associated with actual additional carbon reductions through preserved forests, indicating significant shortcomings in offset programs. 
• Companies like Eni, British Airways, Nestle, and TotalEnergies are linked to credits from poorly performing carbon offset projects. 
• The study highlights risks of greenwashing and stranded assets, raising questions about companies’ claims of carbon-neutrality relying on such credits. 
• Read more about this story: Bloomberg, The Guardian 

Codo’s comment: Companies basing their marketing and asset prices on claims of net-zero, carbon-neutrality, and similar “green” claims founded on purchasing carbon credits are at great risk of facing regulatory challenges when their carbon credits and offset projects are deemed not-credible. Rather than rely on carbon credits and offset projects, corporations must focus on fundamental business model change to reduce their overall emissions. 

United States | Oil companies sue U.S. over Gulf auction changes  

• Louisiana, Chevron, and an oil industry trade group sue the Biden administration over its decision to withdraw Gulf of Mexico acreage from an upcoming oil and gas lease sale to protect an endangered whale. 
• The lawsuit is part of ongoing disputes between the oil and gas sector and the Biden administration regarding federal land and water leasing for energy development. 
• The suit challenges the newly introduced restrictions on lease sale development, following an agreement between federal agencies and environmental groups aiming to protect the endangered Rice’s whale. 
• Read more about this story: Reuters, The Washington Post