Weekly News | 23th to 30th May 2022

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.

World | Tesla’s removal from a sustainability benchmark sparks debate on ESG

• Tesla’s removal from the S&P 500 ESG Index over safety and labour issues sparks debate over the meaning of ESG for investors. Although Tesla is the most progressive EV company that contributes to the “E” element of ESG, the company’s “S” and “G” metrics stayed low, according to S&P.
• Tesla “has fallen behind its peers when examined through a wider ESG lens”, commented Margaret Dorn, head of ESG indexed for S&P.
• Nevertheless, investors disagreed with the position of the index creators, which sparked a heated online discussion on the variety of different ESG ratings and the methodology used to determine corporate sustainability.
• The ESG-labelled funds that attracted over $410 billion, according to Bloomberg Intelligence, are at the centre of the debate on sustainability that still lacks a concrete definition of common, globally approved metrics.
• Read more about this story: Bloomberg

Comment from Codo: Acronyms such as ESG, CSR, SDGs are sometimes seen as covering only environmental issues, while their scope is much wider. Depending on what they want to evaluate, investors have access to a range of specialized methodologies. For example, CDP scoring covers climate change, water security and forests; TCFD defines financial risks caused by climate change; ACT assesses the maturity of low-carbon transition strategy.

Europe | Shell annual meeting disrupted by climate activists

• A Dutch activist shareholders group organised a protest over Shell’s climate strategy during the company’s annual meeting. About 50 activists, who hold shares of the oil giant, delaying the meeting for almost 3 hours.
• After police arrived to remove the activists, some of whom have glued themselves to chairs, the meeting proceeded with 80% of shareholders voting in support of the company’s transition strategy. However, last year 89% of shareholders backed the plan.
• The activist shareholders suggested a rival resolution that says that Shell’s plan is not aligned with the Paris Agreement and hence not sufficient. The resolution, which the activists group send off to other oil companies, also argues that big oil companies must commit to CO2 reduction in their scope 3 emissions. Last year 30% of shareholders supported it, in comparison with this year’s 20%.
• Read more about this story: The Financial Times

Comment from Codo: As climate urgency becomes more and more visible, and the time to change the course of things disappears, the anger from activists will grow, leading to more dramatic actions. This will also lead to a growing number of litigations, with concerned citizens, consumers and NGOs asking judges to force companies to change their plans, or to pay for the consequences of climate change.

US | The ExxonMobil drama continues: investors vote transition audit

• Only a year after Engine No.1 won three seats on the board of the most valuable oil company in the US, climate campaigners won again, forcing Exxon to report on how the International Energy Agency’s modelling for a net zero economy would impact the company’s financial statements.
• Although the oil giant’s management urged the board to vote against, the movement led by NY State Common Retirement Fund, T Rowe Price and California Public Employees’ Retirement System won the campaign.
• Exxon will have to disclose how the IEA’s 2050 model will impact “assumptions, costs, estimates, and valuations underlying its financial statements”.
• Read more about this story: The Financial Times

Comment from Codo: The ACT methodology developed by CDP and ADEME is using the IEA’s sectoral pathways as references to allow companies to benchmark their own plans against this international reference. As scrutiny over the quality of transition plans increase, companies will have to do better than just claiming that their plan is good: they will have to compare it to peers and to recognized international models.

US | SEC prepares standards to avoid greenwashing

• After releasing its proposed guidelines on the corporate climate disclosure in March, the US Securities and Exchange Commission seeks more standardization in sustainable fund assets.
• The SEC’s rules would specify what disclosures must be made by the investment funds that use labels such as “ESG”, “sustainable”, and “low carbon” writes Financial Times.
• Read more about this story: The Financial Times

Japan | Japan faces pressure from G7 on coal

• While all other G7 countries are preparing the transition plan to reach coal-free grids by the 2030s, Japan is backs up on giving up coal, which spurs pressure on the country. According to Japan’s energy plan, the country’s mix will include 19% of coal by 2030, leaving Japan behind in the G7 renewable transition trend.
• Germany reached out to G7 members before the ministerial meeting on environment, climate and energy, with a proposal to set 2030 as a target year for quitting coal. The ministers’ draft joint statement was supported by all G7 members but Japan.
• As Nikkei Asia comments, this might be because “the country has fallen behind on adopting carbon-free energy sources”, which undermines Japan energy security in the face of both Russian war in Ukraine and ongoing energy transition efforts of the G7 countries.
• Read more about this story: Nikkei Asia

Japan | Japan to issue $157 in ‘green transition’ bonds

• Over 200 trillion yen transition bonds to help the country transition to the carbon-neutral economy will be issued in Japan. As the war in Ukraine highlighted the risks associated with Japan’s dependency on imported resources, PM Kishida hopes the energy transition to help Japan’s energy security.
• “A 10-year road map to promote green investment that would include financial aid and infrastructure building” will be created by the government, writes Reuters.
• Read more about this story: Reuters

Comment from Codo: The taxonomy used by the Japanese government to define what projects and activities can be funded by these bonds will be key in making this initiative a truly green effort, or a greenwashing attempt. Earlier this year, Tokyo Gas issued a transition bond but fossil fuels infrastructures were included in the perimeter.