Greetings from New York where the weekend news has been dominated by Hurricane Ian, which has caused dozens of deaths and inflicted tens of billions of dollars of damage to Florida and the Carolinas. It is a striking new sign of climate change — and should prompt anyone handling mortgages, municipal bonds and insurance to ask themselves whether their models truly account for the likely future of weather shocks.
Then there is another, more immediate political issue: will the US government now discourage people from building in these vulnerable regions? (Speaking as someone who grew up in some historic settlements in the west of England, which were built centuries ago to shelter from the elements, I have always found it very odd that America has subsidised homeowning with public insurance in such climate-exposed regions.)
Moral Money will be watching this closely in the coming months. Meanwhile, see below for a discussion this week about Russia and ESG — and the latest impact that Europe’s tightening environmental reporting rules have had on Toyota and other big automakers. (Gillian Tett)
Western companies helping Russia’s army?
Like many people, I have been transfixed by the latest news from Ukraine — made more graphic by a multitude of social media posts illuminating everything from the fighting around Lyman, to the mobilisation of troops, to Russian president Vladimir Putin’s chilling annexation speech and the attack on the Nord Steam pipeline.
These events should be gripping the sustainability world too. One reason is that the pipeline attack has caused the largest methane leak that scientists have recorded, which is deeply alarming. Let us hope this concentrates more debate around the dangers posed by methane as a result of natural gas leakages; this has hitherto received far too little attention, given methane’s ferocious potency as a greenhouse gas.
The other issue is that the military draft creates human rights issues for any foreign companies still involved in Russia. Putin has called on all businesses to back mobilisation — and according to a pro-Ukrainian business coalition called B4Ukraine, this order applies to non-Russian companies too.
“So far, most of the multinationals operating in Russia have been indirectly involved in the war by paying taxes to the Russian state, contributing to the war economy,” says Nataliia Popovych, founder of One Philosophy and WeAreUkraine.info. “Now the Kremlin’s mobilisation makes companies directly involved in conscripting the soldiers among their employees.”
It is unclear how those multinationals will respond. Back in the spring, when Russia first invaded Ukraine (and prompted many entities to pull out of the country), the multinationals which did remain in place usually tried to justify this to investors by arguing that it was immoral to abandon their Russian staff and take away their source of income. Maybe so. But it is one thing to claim that you want to support the livelihood of Russian workers; it is quite another to become directly implicated in sending soldiers to Ukraine.
“Normally, we shouldn’t see such a clear binary in a conflict situation: Leaders should not require businesses to participate in war crimes, but that’s what Putin is doing now,” said Tara Van Ho, co-director of the Essex Business and Human Rights Project at the University of Essex. “This should also send a clear signal to businesses that they need a better plan of action for how they disengage from situations of conflict and authoritarianism.”
So how many companies and employees are potentially exposed to this issue? The B4Ukraine group does not name the corporate offenders. But it cites data from the Kyiv School of Economics that suggest about 700,000 Russian staff are employed by multinational groups. The largest collection (251,294) work for American groups, followed by French (123,642) and then German (91,280). Chinese companies, interestingly enough, only have 14,000 employees.
If you want a clue about specific corporate names that are exposed, however, look at this website created by the Yale School of Management, which has tracked some 2,000 global entities and graded them on their level of involvement in Russia. This database suggests that more than 1,000 companies have left Russia since the invasion of Ukraine. However, the companies which have retained “business as usual” operations in Russia, according to Yale researchers, include American groups such as Cloudflare, Huntsman, International Paper, Lear, Sbarro Pizza, TGI Fridays, Tenneco, Titan International and Tom Ford. There are French entities such as Veolia, Vinci, Valeo, Société Bic, Provalliance, Lacoste and Lactalis. German companies on the list include Kion, Hoffmann, Heidenhain and Fresenius.
So what will the corporate boards of these groups do in the face of Russian draft requests? How will western investors and financiers respond? Watch this space — not least because it is an interesting example of how digital transparency is now changing human rights campaigns in the corporate sphere. (Gillian Tett)
EU’s scope 3 rules will hit the auto sector hard, report warns
The auto industry risks a wave of markdowns on their valuations — and even possible sell-offs — when the EU’s mandatory disclosure requirement on scope 3 emissions for financial institutions takes effect next year, a new report has claimed.
New research released by the European NGO Transport & Environment said that major carmakers’ global emissions were 50 per cent higher, on average, than suggested by their public disclosures.
No less than 98 per cent of the automotive sector’s emissions come under scope 3, which refers to emissions in their supply chain and those stemming from the use of their products. That means the investors with exposure to carbon intensive carmakers face a “ticking carbon bomb” under the new EU requirement, Luca Bonaccorsi, director of sustainable finance at T&E, told Moral Money.
One of the main metrics for calculating a carmaker’s scope 3 emissions is lifetime mileage. Traditionally, car companies have wanted to brag to customers about the longevity of their vehicles. But when it comes to scope 3 reporting, there is an opposing incentive. The higher the distance that a petrol-powered car is expected to travel in its lifetime, the higher the associated carbon emissions.
Take Toyota, the world’s biggest carmaker by sales, as an example. In various Toyota sustainability reports, it has put a typical lifetime mileage for its cars at 100,000km per vehicle. That is a low figure compared with its peers, and especially striking given its vehicles’ reputation for longevity.
According to T&E, this reflects a practice seen right across the big global automakers — using the “flexibility” offered by carbon reporting frameworks to come out with smaller numbers. Toyota denied this claim. It said the 100,000km estimate was specific to the Japanese market, and that the lifetime mileage for its vehicle varies by country and region.
This is not the first time that automakers stand accused of being less than straightforward with emissions data. In 2015, Volkswagen faced a major scandal — known as “Dieselgate” — after revelations that the German carmaker had cheated on diesel emission tests for years. Recently, Japanese truckmaker Hino Motors, a unit of Toyota, admitted that it had been falsifying data related to engine emissions and fuel performance for nearly 20 years.
But the mandatory scope 3 disclosure imposed by the EU will put a new kind of pressure on the auto industry to release accurate information on emissions. Financial regulators have been closing loopholes on misrepresentation of data as part of a wider crackdown on greenwashing. When it comes to emissions, Bonaccorsi believes “scope 3 will be the common language that we speak on carbon footprints globally”.
The accuracy of emission reports, especially the scope 3 category, looks like another hot issue to watch for ESG-minded investors in the auto sector. Norway’s Storebrand Asset Management, for instance, has already engaged Toyota over issues such as its lobbying on climate issues and delayed transition from internal combustion engines and hybrids to electric vehicles, according to its sustainable investment head Kamil Zabielski.
“The findings of the new T&E study [on the reported undercounting emission] are certainly of interest,” Zabielski told me. (Tamami Shimizuishi, Nikkei)
Former US deputy treasury secretary Sarah Bloom Raskin has warned that new anti-ESG laws in states such as Texas could endanger global financial stability. In an interview with the FT, she said that banks now had an incentive to undertake unduly risky lending to the fossil fuel sector, as they sought to avoid being blacklisted by Republican state governments.
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