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Silver Linings: The Art of the Possible

Updated: Jul 4, 2023

Wildfires spread quickly ... so can hope.



Recent headlines of wildfires and the resulting poor air quality make it easy to get caught up in a cloud of worry and despair. Add to this anti-ESG sentiments and lawsuits against pension funds, large firms voting against climate-related proposals and resolutions, and further questioning of voluntary carbon markets, it can be confusing and frustrating.

We believe that every cloud does have a silver lining. As quickly as wildfires can spread, so too can hope. The art of the possible is all around us. Let's find those silver linings!


 

Anti-ESG?


Silver Lining: Go Beyond ESG


Yes, ESG can be tricky. Combining environment, social and governance factors into one bubble is very broad and it is difficult to have one unifying score on ESG.

For example, last year Tesla was removed from the S&P 500’s ESG index because they performed decently on some environmental factors, but not so well on other social and governance factors. Does this mean that ESG is broken? Not necessarily. Companies focus on one element, say climate, but ignore governance and equity principles that are important and integral for overall ESG performance.

If we can separate each factor and consider how to address each material issue, and then think at a systems level about how all factors integrate, we can achieve all 17 Sustainable Development Goals (SDGs).



Systems-level Sustainability.


Sustainability encompasses a wider range of practices and principles that extend beyond ESG factors such as a company's commitment to meeting the needs of the present without compromising the ability of future generations to meet their own needs. It focuses on integrating environmental, social, and economic considerations into business strategies and decision-making to achieve long-term viability.


Sustainability covers an organization’s entire value chain, including its products, services, supply chain, operations, and stakeholder relationships, whereas ESG primarily focuses on specific metrics within the environmental, social, and governance dimensions.

Leaders can build businesses that they feel proud to lead and work for, not ones that tick checkboxes.

If companies take a holistic view of their entire value chain, they can balance economic growth with environmental protection and social well-being.

IN ACTION: Family Enterprise Example

Our team was recently engaged by a family foundation to provide strategic support in the development of a climate and sustainability grant-making and investment portfolio. This project later grew to expand their view across their value chain to provide strategic sustainability guidance for a new partnership of industry leaders and financiers to help transform their sector and design a sector-wide decarbonization pathway.

 

Lawsuits against US pension funds for divesting from fossil fuels?


Silver lining: Large Canadian pension funds are embracing sustainability



There is concern that incorporating environmental factors will limit financial performance, and leave pensioners short in their Golden Years. However, consider that the economics of several net-zero and sustainable strategies model better returns than their conventional investment product counterparts. We are entering a period where fiduciary responsibility and sustainability performance can be mutually reinforcing.


Sustainability is being baked in.


While some large US pension funds are going through legal action, large Canadian pensions are making progress on sustainable investments and in integrating ESG factors, according to the Corporate Knights' second annual Canadian Pensions Dashboard for Responsible Investing (March 2023). In just one year, the number of large Canadian funds with a commitment to achieving net-zero emissions by 2050 rose from two funds to 9 (representing $1.8 trillion or 81% of total pension fund assets evaluated), with five of those funds having disclosed interim targets for emissions and sustainable investment allocations.

Yes, there is still room for funds to progress in reporting on their portfolio carbon intensities; however, it is encouraging that sustainability is being baked into the governance function. A total of ten large funds (up from four last year) now tie executive compensation to the achievement of sustainability targets.

IN ACTION: Net Zero Strategies

​We see the economics of several net zero strategies modeling better returns than their conventional counterparts, such as Net Zero Residential Real Estate in the US.

 

Large firms voting against climate-related proposals and resolutions?


Silver Lining: Amp up your climate-related ambition with strength in numbers!


While some large firms vote against climate-related proposals and resolutions, groups like Climate Action 100+, CDP, Corporate Knights, MSCI Net-Zero Tracker and Real Leaders, are shining a spotlight on companies driving the sustainability transition to a low-carbon, circular economy.

Even if we take a look at oil and gas firms, all is not lost. TotalEnergies is considered a leading example within the industry for its commitment to sustainable practices and its focus on ESG considerations. Key initiatives include:

Environmental Stewardship

Climate Change Mitigation

Social Responsibility

Good Governance and Transparency

  • Committed to investing in renewable energy sources (i.e., solar and wind power)

  • Aims to become a leading player in renewable energies with a target of reaching 35 gigawatts of gross renewable generation capacity by 2025

  • Actively working to reduce their carbon footprint across Scope 1, 2 and 3 GHG emissions

  • Have set a goal to become carbon neutral by 2050 with interim targets to achieve a 60% reduction in the average carbon intensity of its energy products by 2050

  • Consider the well-being and safety of its employees and local communities

  • Promotes diversity, inclusion, and equal opportunities within its workforce

  • Supports various social initiatives and community development projects in the regions where it operates

  • Has a well-defined corporate governance framework

  • Adheres to international standards

  • Provides comprehensive information on its ESG performance, including annual reports and sustainability disclosures

If an oil and gas firm can amp up their climate-related ambitions, so can others. Ultimately, for these companies, it’s about trust, risk management, and long-term value creation. Sustainability reporting goes beyond mere compliance and serves as a strategic tool for organizations to drive positive change, enhance reputation, manage risks, engage stakeholders, and create long-term value.

IN ACTION: Corporate Landscape Assessment

​Our team was engaged to help a client find like-minded partners who can help them advance their climate goals. We have developed scoring criteria to assess hundreds of well-intentioned companies to determine which companies are most aligned to flow capital to solutions that reduce GHG emissions.

 

The validity of carbon markets?


Silver Lining: It's all in the execution, transparency, and equity



The validity and integrity of carbon markets have recently been brought into question. Carbon credits can be treated as a commodity which is useful to scale their application. At the same time, it can incentivize shortcuts in the primary and secondary markets. More support is needed in developing and evaluating high-quality carbon projects. Experience with collaboration, integrity, equity, and conservation management are all critical.


Voluntary carbon markets have a role to play in a climate and nature-positive future. High-quality carbon projects exist when created in collaboration, with integrity, equity, and conservation management at the heart.

Many new entrants to carbon project development lack the legal, technical, jurisdictional, policy, project, community, and transactional expertise to develop high-quality projects. In addition, there are different types of capital available to support project development costs and various interests on the buy side for both the credits themselves and the associated co-benefits that arise from the thoughtful execution of nature-based projects. With an understanding of context, carbon project developers can bring the right sources of capital, interests, demand and sound execution of projects together to create better, more streamlined and transparent systems, and scale high-integrity, equitable and enduring carbon projects.

IN ACTION: Sound, on-the-ground Project Oversight

EcoAdvisors has a long history of working with partners as a strategic advisor, liaison and trusted partner in all aspects of the development, implementation and oversight of projects, including e.g., BHP Foundation’s Environmental Resilience Global Signature Program, the development of the Walton Family Foundation's conservation trust funds to support the long-term financing of marine protected areas in Ecuador, Colombia, Panama, and Costa Rica within the Eastern Tropical Pacific Seascape (ETPS) and with Conservation International and their partners to help secure management, and structure and leverage funds.

 

Need help finding your silver lining?

Contact our EcoAdvisors team to schedule a call at info@ecoadvisors.org

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