Weekly News | 1st to 15th September 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. 

Japan | Ministry of Environment’s solution to climate crisis: “Lifestyle change” 

• Japan’s new Environment Minister Shintaro Ito emphasizes the need for consumer behavior changes and lifestyle adjustments to address climate change, intending to strongly promote such changes. 
• Ito acknowledges the profound impact of climate change and global warming on human life and aims to accelerate the Green Transformation (GX) while encouraging carbon neutrality within 50 years through campaigns like “Deco-Katsu.” 
• He calls for collaboration between the Ministry of Economy, Trade and Industry (METI) and the Ministry of the Environment (MOE) to implement GX policies, advocating the elimination of inefficient coal-fired power generation and the adoption of thermal power generation using hydrogen and ammonia. 
• Read more about this story: Nikkei

Codo’s comment: MOE’s upfront acknowledgement of the need to address climate change impacts on lifestyle through campaigns like “Deco-Katsu” is highly commendable. But acknowledgment and lifestyle change alone is insufficient. Even if every consumer changes their lifestyle to be the most environmentally friendly possible (an extraordinarily unlikely feat), that would only result in a 20% reduction in global emissions. It is important to have a system wide shift, where the majority of the burden needs to fall upon corporations to redesign their product and service offerings. Governments play a critical role in enabling this through ensuring a sufficiently rapid shift away from fossil fuel dependent electricity sources. The international community from COP27 to the G7 summit has long been demanding concrete action plans outlining this transition. 

World | ‘A critical moment’: UN warns world will miss climate targets unless fossil fuels phased out 

• A recent UN report highlights governments’ failure to reduce greenhouse gas emissions at the necessary pace to meet Paris Agreement goals and prevent climate disaster. 
• The report calls for the “phasing out of all unabated fossil fuels,” marking a significant shift in UN climate language and emphasizing the urgent need to curb emissions by 2025. 
• While not specifying countries falling behind, the report emphasizes transformative changes in various sectors, setting the stage for critical discussions at Cop28 in Dubai, with a focus on phasing out fossil fuels as a central point of contention. 
• Read more about this story: The Guardian, United Nations  

Codo’s comment: At this point, this is not news. We know the world is moving even faster than projections towards a point where our societal structures will be at critical risk. We know how to mitigate and slow this progression. We know we have a very short timeline. 2025 is 15 months away. We know that large scale infrastructure projects required to abate fossil fuel emissions need to be not only started, but expedited to actually be online in time. Strong words from the UN and COP28 would have been more useful 10 years ago. It is now time for action. 

World | Money, oil and fights over emissions: What to watch at COP28 

• Governments worldwide face increasing pressure to combat global warming due to rising temperatures, wildfires, and heatwaves.  
• The upcoming COP28 climate talks are crucial, but deep divisions exist between developing and developed nations regarding greenhouse gas emissions reductions and financing the transition to green energy. 
• Key issues at COP28 include a review of progress on Paris Agreement goals, debates over fossil fuel emissions, climate finance commitments, regulation of carbon markets, and the influence of oil giants in climate negotiations, with the UAE hosting the event amid concerns of potential greenwashing. Climate activists also worry about the treatment of protesters at the conference. 
• Read more about this story: Bloomberg Green, The New York Times, Reuters

Codo’s comment: Codo will be watching the COP28 discussions closely. We look forward to countries crossing political boundaries to accelerate actions towards mitigating and adapting to our global climate emergency. As mentioned above, this is the time for action. 

Asia | U.N. chief calls for ASEAN to help globe out of climate gridlock

• U.N. Secretary-General Antonio Guterres emphasizes the need for an “effective debt workout mechanism” to address global climate financing challenges, citing stalled energy transition initiatives in Indonesia and Vietnam. These initiatives, part of the Just Energy Transition Partnerships (JETP), aim to shift from coal to clean energy but face hurdles in fund disbursement and project qualification. 
• Guterres commends ASEAN members Indonesia and Vietnam for their JETP agreements but underscores the urgency for financial support to combat climate change.  
• The U.N. chief calls for reforming the global financial architecture to address inequalities and climate actions and advocates for a Climate Solidarity Pact among G20 nations. He urges greater international cooperation and an “acceleration agenda” to intensify climate change mitigation efforts, given the record-high global temperatures recorded between June and August. 
• Read more about this story: Nikkei Asia, The Guardian

Codo’s comment: The technology necessary to move away from coal is readily available. Wind, solar, hydro, and a variety of other distributed generation technologies are mature and reliable. But sufficiently widespread implementation remains a challenge due to funding constraints. Resolving these funding challenges was the initial intent of carbon credits. Already, many southeast Asian green technology companies utilize business models that allow them to charge no upfront cost to their clients by instead gaining ownership of and selling off all carbon credits generated from the systems they install. Rather than developing a new global financial architecture, the UN and global economies should work to accelerate the deployment of a properly regulated international carbon market, with incentives given to favor avoidance-based credits (ex replacing coal power plant with solar) over risk-prone and scandal-ridden sequestration-based credits (ex planting a forest). 

World | UN plan promises massive emission cuts in the construction sector – the most polluting and toughest to decarbonize 

• Rapid urbanization adds buildings equivalent to the size of Paris to the world every five days, contributing to the construction sector’s 37% of global emissions. 
• A recent UN report offers a three-pronged solution to decarbonize the building sector: avoid waste through repurposing, shift to renewable bio-based materials, and improve decarbonization of conventional materials. 
• Achieving net-zero emissions in buildings by 2050 is possible with the right policies, regulations, and incentives, focusing on both operational and embodied carbon, requiring global cooperation, certification, and investment in research and development. 
• Read more about this story: United Nations Environment Programme, Le Figaro 

Codo’s comment: Decarbonizing the construction sector is critical to redesigning our society for an environmentally sustainable world. The UN’s solutions to the systematic environmental issues caused by construction are not new, though most would also include localization of building design as a key component. Many of the technological developments necessary to implement these solutions have been in the development pipeline for a decade or more. The difficulty has been in implementing these changes on a wide scale. The construction industry is one of the most resistant-to-change industries in the world. As the service they provide (housing) is always in demand, stakeholder action has proven difficult to organize and limited in effect. In addition to direct policies, regulations, and incentives – all of which may prove difficult to generate sufficient socio-political will for, we should exert further pressure on real estate financing to prioritize funding for projects with demonstratable contributions to sustainable restructuring of the system. It will take a tremendous amount of collective government, corporate, investor, and consumer will to enable such widespread systematic change as is needed.  .

United States | California gets ahead of SEC in forcing firms’ carbon disclosure 

• California’s state Senate has passed a bill requiring large companies earning over $1 billion annually to report their entire carbon footprint, including scope 1 and 2 by 2026 and scope 3 by 2027. Governor Gavin Newsom will decide by October 14 whether to sign the bill, aiming to set corporate climate rules ahead of the federal government. 
• The legislation received support from major companies like Apple, Ikea, and Microsoft but faced opposition from the Chamber of Commerce, which deemed it “onerous.” 
• The bill addresses Scope 3 emissions, which are related to supply chains and end-users. It may face legal challenges, but if enacted, it would drive greater analysis and disclosure of greenhouse gas emissions in advance of the SEC’s federal rule. 
• Read more about this story: Bloomberg Green, Reuters 

Codo’s comment: California is the world’s 5^th largest economy. Its regulatory actions make global waves, and can help push federal change when the US as a whole lags behind. The companies listed who support these measures are ones who have already declared scope 3 and supply chain decarbonization goals. Spurred by European reporting regulations and upcoming carbon tariffs, industry leaders are already preparing complete carbon emission reports. For these companies, these regulations merely reinforce the strategic direction they are already taking. For companies who are resisting these California regulations, they will find themselves poorly positioned both domestically and internationally if they do not take immediate action to prepare carbon reports. 

Europe | Rulemakers upbeat on climate reporting, some companies not sure 

• Some companies express concerns that new climate disclosure rules, such as the EU’s Corporate Sustainability Reporting Directive (CSRD) and the International Sustainability Standards Board (ISSB) disclosures, are overly burdensome. They fear these regulations will require extensive reporting on carbon emissions and may be too challenging to meet. 
• Regulators aim to reassure companies that they will not immediately impose strict enforcement but encourage readiness. They emphasize that sustainability reporting need not be perfect and urge companies to disclose their current sustainability status and the reliability of their information. 
• The EU’s new requirements replace voluntary sector norms to combat greenwashing. While some companies find compliance challenging, efforts are being made to avoid duplication in reporting, and phase-in periods aim to reduce the initial cost burden of compliance.  
• Read more about this story: Reuters

Codo’s comment: The EU stepping up their regulations from voluntary to mandatory is an important action in accelerating corporate action, or at least accountability, towards mitigating climate impact. This affects not only domestic European companies, but also those in the global industry. Europe’s lead on top-down regulations and requirements is pushing other regions and international corporations to acknowledge and address their climate impact through their own carbon emissions reporting, as seen in California. Though the regulations are another compliance requirement for corporations, both CSRD and emission disclosures are not mandatory for another year at least.