Sustainability Spotlight
The Sustainability Spotlight is an extension of the Global Translations newsletter. Each week we track major issues facing the globe. Sign up here: https://www.politico.com/newsletters/global-translations
If there’s a takeaway from Davos that holds true after a week of scrutiny, it’s that climate change now poses more risk to private companies than to politicians. There’s the $18 trillion in assets at financial risk, according to S&P Global Platts — some 60 percent of the S&P 500 Global Index — with real estate investment trusts hit particularly hard. Trucost CEO Richard Mattison beleves the cost of inaction would be “totally non-linear, very disruptive and hard to predict precisely.” This isn’t a vague long-term risk anymore: Decision-makers are realizing many of the risks are short- and medium-term and some come with legal responsibilities attached. “If you can show there is risk in a 10-year framing, then investors have a fiduciary duty to do something about it,” said Dickon Pinner, Head of McKinsey’s Sustainability Practice.
Veronica Scotti, chairwoman of public sector solutions at Swiss Re Management, told me the “climate debate is changing the basis of how financial decisions are taken,” using language that is virtually identical to that of Achim Steiner, who leads the United Nations Development Programme. Steiner told Global Translations in Davos: “Climate change is going to reprice everything.”
With markets demanding more dynamic information to let them deal with climate risk on a daily basis, a 10-year conversation behind the scenes with the world’s biggest financial firms is suddenly accelerating. Steiner, who is Brazilian-German, grumbled that the shift has been “remarkably slow,” but after running the United Nations Environment Programme until 2016, says he’s glad his old and new work are merging.
No wonder sustainability politics has burst out of the electoral realm. Teenagers lead grassroots movements and a growing band of royals pushes from the top down, with a tsunami of corporate commitments from energy to plastics to water swirling around us. While some politicians still believe they can be reelected by ignoring the issue (and Australian Prime Minister Scott Morrison was in 2019), companies face brand risk, backlash from employees, and threats to their business models. Carl Hess, CEO of Investment Risk and Reinsurance at Willis Towers Watson, said: “The shouting at the gates is having an effect. It will spur action.”
That action will be on the streets, in supermarkets and in fledgling regulatory regimes. Translating and navigating this new global landscape is our mission in the Sustainability Spotlight.
GREENING CHINA’S BELT AND ROAD PROJECT: Westerners are great at navel-gazing, but that’s a classic sustainability mistake. Few people anywhere, even in the government of China, have a full grip on the overall impact of the rival economic system China is building via the Belt and Road, the largest and most geopolitical infrastructure program in world history. It covers land and sea and nearly all of the globe’s important trading routes. Its scale alone, in addition to transparency issues, poses big sustainability challenges.
Projects are being financed at a rate of more than 7,000 a year and may absorb more than $8 trillion in funds by 2050. In 2018, over 40 percent of Belt and Road energy loans were in coal projects. A private initiative known as the Green Investment Principles (GIP), part of the Green Finance Leadership Program, and signed by 29 banks, including the biggest in China, offers hope. It was developed jointly by China’s Green Finance Committee and the City of London’s Green Finance Initiative. WWF has developed a comprehensive Belt and Road report with recommendations here, while Lauren Johnston for the Mercator Institute for China Studies offers suggestions for greening Belt and Road in Africa.
BIG TECH = BIG RENEWABLES: Google, Facebook, Amazon and Microsoft are the biggest buyers of renewable energy, according to a BloombergNEF report. Given their energy needs and the fact that they’re among the 10 biggest companies in the world, that’s interesting—yet par for the course.
THE TREE PLANTING ARMS RACE: In the past, the government of Australia was proud to plant 1 billion trees in the 1990s and the United Nations managed 12 billion by 2011. When Justin Trudeau promised in 2019 that Canada would plant 2 billion trees, he gave the country 10 years to achieve the goal. The announcement during WEF of 1t.org, a platform to serve the "trillion trees community" started by WWF, Birdlife International and the Wildlife Conservation Society that aim to plant 1 trillion trees explodes decades of tree-planting efforts out the water. But is that a good thing? The organizers say the planet has lost 3 trillion trees already in modern times, but there’s no real way to know, is there? Then there’s the question around how any network could manage to sustainably plant so many trees, and whether it’s even advisable to try in countries that face a water crisis. We’ll follow with interest.
GLOBAL LETTERBOX
It’s quaint in this Twitter age how so many power plays still take place via letters. Here’s your global sustainability mail this week:
From Brian Moynihan and WEF: The Bank of America CEO also chairs WEF’s International Business Council and requested that all member companies set a target for net-zero greenhouse gas emissions by 2050 or sooner. Of note: Bank of America, itself, says it has achieved carbon neutrality.
On Wednesday, a group of U.S. investors representing $113 billion wrote to 58 energy, timber and mining companies with a clear message: Steer clear of Trump administration environmental deregulation offers if you want to keep our money.
Presidential candidate Sen. Elizabeth Warren is waiting for banks, including JPMorgan Chase, Citigroup, Bank of America, Goldman Sachs, Wells Fargo, Bank of New York Mellon, Morgan Stanley and State Street, to comply with a request to turn over their climate plans by Feb. 7. Warren’s letters cited climate risks detailed by the Federal Reserve Bank of San Francisco as her reason for wanting to see the plans.
VIEW FROM THE CORNER OFFICE
SANJEEV GUPTA, CEO, GFG ALLIANCE
RECYCLED CARS, ANYONE? “We never need to make steel again,” Gupta, head of the eighth-largest steel producer outside China (branded Liberty Steel), told me. He was referring to Britain only, but it’s still a startling claim. “There’s a billion tons of steel in our system. It's mind-boggling, because we (in U.K.) only need 10 million tons a year.” GFG wants by 2030 to be the first carbon-neutral steel company. Gupta’s goal is to “recycle everything” and convert shuttered and loss-making steel plants into steel recycling plants. The big breakthrough may come when the recycling process advances enough to allow the “skins” of cars to be made from recycled steel. He sees an upside in avoiding the “volatility in the boom and bust” of commodity markets. To realize this vision, the company has engineered many surprising transactions, from taking over a failed British steel mill and investing $1 billion in Australian renewable projects include the country’s largest solar farm.
But what about China’s steel needs, which are greater than whatever scrap is lying around Europe? Gupta concedes that the recycling model may only work in developed countries and that, in Asia, new steel will need to be made with hydrogen if it’s to become a green product.
Reality check — Global Circularity Gap: The global economy was only 8.6 percent circular in 2017, according to Platform for Accelerating the Circular Economy (PACE). That means 93 percent of more than 100 billion tons of total consumption of raw materials is not being recycled.
SHAME AND FAME
List of Britain’s top taxpayers: You’ve seen so many “rich lists” and “power lists” your eyes probably glaze over now. Britain’s Sunday Times is flipping the framing, and celebrating the successful who actually pay their taxes where they make their money.
100 most sustainable corporations: This list by Canadian magazine Corporate Knights is a source of bragging rights for the companies on the list, by the looks of all the freshly minted advertisements list membership has prompted.
CORPORATE ROUNDUP
Conde Nast is all in on sustainability: Fast fashion in the cross-hairs for a company that, through Vogue, is in many ways the face of fashion. With its titles reaching 1 billion readers and touching on other unifying themes such as food, housing and travel, the media house has the chance to nudge a lot of different behavior.
Petro Canada’s cross-continent electric vehicle highway open: 40 fast-charging stations from West to East and vice versa
Cross-border circular economy: The Great Lakes region is gunning for $5 billion in economic benefits.
Kentucky Fried … Chicken? After McDonald's, KFC was the next American fast-food chain to go global, now with 19,000 restaurants. Starting Monday, fake meat is on the menu.
SUSTAINABLE GOVERNING
Islamic Development Bank latest to add green plan: The bank has committed to put 35 percent of total lending by 2025 into green projects and subject future loans to scrutiny by a science and technology committee. That comes on the heels of the European Investment Bank putting a block on future coal loans, and Christine Lagarde at the European Central Bank putting climate questions at the center of her yearlong strategic review of the bank’s impact. Departing Bank of England governor Mark Carney starts his next role as a U.N. climate finance envoy in coming weeks.
Germany to exit coal by 2038: From the “Book of Commitments That Come Due After I Retire,” the German federal cabinet this week backed a bill that would phase out coal use in the country by 2038 at the latest. Ministers hope to get out by 2035, according to the government.
U.S. Democrats to major on climate infrastructure: Senior House Democrats are on the cusp of unveiling a five-year, $760 billion infrastructure package that "places a major emphasis on climate change," Politico reported. The global context: U.S. Democrats are essentially aligning to EU positions, which involve intermediate 2030 emissions targets with an end goal of carbon neutrality by 2050, and government investment to accelerate that transition.
EU energy efficiency goals undermined by flawed rules and tests: POLITICO’s Eline Schaart reports that the EU’s energy efficiency efforts are being undermined by regulatory delays, outdated labeling requirements, flawed tests and noncompliance by manufacturers, according to a report from the European Court of Auditors. Fridge efficiency testing, for example, takes place without opening the door and with no food inside. Facepalm!
STAT OF THE WEEK
The United Nations says a $2.5 trillion annual financing gap will need to be filled to achieve its Sustainable Development Goals by 2030. Check back for more in next week’s Global Translations.
Send your stats, tips, and tirades for next week to rheath@politico.com
