From tech companies to food manufacturers and fashion brands, environment, social and governance (ESG) commitments across the financial sector and from publicly traded companies are more important now than ever before.
Etsy has offset its carbon emissions from shipping and has committed to net zero emissions by 2030. Apple has committed to a 100 percent carbon neutral supply chain and products by the same year.
The CEO of Nestle, the largest food and beverage company in the world, even told CNBC that “sustainability concerns among its younger customers were ‘off the charts’ and a major influence on purchasing decisions.” The company has committed to cut greenhouse gas emissions by 50 percent by 2030 and zero by 2050.
These commitments show no signs of slowing down as the Wall Street Journal reports that the next generation of companies going public this fall have the same devotion to ESG and sustainability. Chobani has committed to “transforming our food system for the betterment of our planet, our people, and our communities.” Rent the Runway is putting a heavy emphasis on how renting clothes is more environmentally-friendly than buying.
Allbirds is planning the first sustainable IPO to “create standards for companies going public that claim to be committed to ESG issues.” In its initial IPO paperwork, Allbirds said, “while many businesses see tension between profit and purpose, we see opportunity. The more sustainable we are, the better we believe our products and business will be.”
ESG commitments clearly continue at a strong pace, but are they enough? The commitments sound good, but real, urgent action is needed to address the climate crisis now. This was confirmed when the United Nations released a recent report highlighting the need to address climate change that was called a “code-red for humanity.” Will these reduced carbon commitments have a real impact, or are they for show to attract investors?
To answer these questions, NEI’s Monica Trauzzi sat down with ClearView Energy Partners’ Kevin Book to discuss the business community’s shifting approach to ESG and whether this is THE moment for the public and private sectors to produce a climate solution.
“I’d love to think that this is the moment,” Book said. “But we’re sort of in the middle of an energy transition. We’re in 83 percent fossil fueled world today and the gap is enormous and policy is the thing that closes that gap. Maybe when we look back at this we won’t say this was the moment. There are many more moments to come.”
While this may not be the moment that will solve the climate crisis, even cryptocurrencies are moving towards increasing sustainability. “One thing is really clear: there is an emissions signature because it is highly processing intensive to support these blockchain networks,” Book said.
To address this high emissions signature, cryptocurrencies like bitcoin are increasingly turning to clean energy solutions like nuclear energy, which can provide 100% carbon-free energy to constantly power mining and transactions 24/7/365. It is apt for cryptocurrencies to follow the ESG commitments made throughout the rest of the financial sector and business community, because, as Kevin Book notes, “if we’re going to have global trade regulate climate, then at some point global finance will probably have to regulate the climate implications of crypto finance.”
The momentum and commitments are here, so what does Book think will need to happen so socially-conscious investors know they are making a difference worthy of investment?
“When you start setting up these screens, are they going to be absolute? Are they going to be binding? The Securities and Exchange Commission is pursuing two routes,” said Book. “They’re looking not just at disclosures, but also at defining what this is going to mean so the investor can have a reasonable expectation of what they’re getting. I think it’s going to matter how you define it. In both cases, it could be done in a way that supports desirable outcomes and efficiency or it can be done in a way that prescriptively produces an outcome that may not be efficient and may not be desirable.”
Watch the full episode with Book, and see other episodes of Off the Menu with Monica Trauzzi.
Transcript
Monica Trauzzi
From performative to impactful, the business community is shifting its approach to ESG compliance. I’m talking to ClearView Energy Partners’ Kevin Book at Xiquet about whether this is the moment for a climate solution. I’m Monica Trauzzi. This is Off the Menu.
Kevin, how are you? It’s so good to see you.
Kevin Book
So good to see you, too. It’s been forever.
Monica Trauzzi
I know, it’s been way too long. We’ve been having conversations since 2006, 2007. We’ve both been in the climate and energy space for a long time and to me, at least, it does feel like we are in a bit of a new era right now and I’m interested if you feel the same. We’re seeing the business community make commitments, we’re seeing the government, federal, state and local, taking steps or signaling that they are willing to act. But, I’m curious if it’s actually the moment. The moment that we’re going to see actual change. The moment when the public and private sectors will come together and create that solution to climate change.
Kevin Book
I’d love to think that this is the moment, but we’re sort of in the middle of an energy transition. We’re in 83 percent fossil fueled world today and the gap is enormous and policy is the thing that closes that gap. Maybe when we look back at this we won’t say this was the moment. There are many more moments to come, and a lot of them not from government, probably from other parties.
Monica Trauzzi
One of the things I’ve really been looking at a lot is cryptocurrency and all of this attention that we’re seeing around the use of fossil fuels with cryptocurrency. Do you think we will continue to see an evolution in that discussion and this push towards more carbon-free technology being used in cryptomining?
Kevin Book
You know, I wish I could know how the crypto story is going to turn out. One thing is really clear: there is an emissions signature because it is highly processing intensive to support these blockchain networks. If you look at what that means, there are a lot of people who have been trying to sell power in a flat U.S. market for years. They look optimistically at electric vehicles, but it’s a long way off and they said well, the load will come. But cryptocurrency, now we’re talking about hundreds of terawatt hours a year going to something, but where and which electric mix? If we’re going to have global trade regulate climate, then at some point global finance will probably have to regulate the climate implications of crypto finance.
Monica Trauzzi
One of the things I’m working on is trying to make sure that all carbon-free technologies like nuclear energy are included in the mix as we look at ESG screens, but do you think that we will get to that place? Where it’s less about the performance and more about the actual substance and having an impact on climate change?
Kevin Book
In terms of the ESG and how you define it, well if there’s an “E,” it can’t be the only thing you focus on. The “S” and the “G” are going to matter too. And we have some relatively recent examples of low-emitting technologies that have an “S” problem. So, the solar panels from the Uygur Autonomous Region in China and our recent trade response to the perceived, or existing, forced labor risks, those are challenges on the “S” side that can very seriously get in the way of the “E” and so “E” is hard enough on its own. When you start setting up these screens, are they going to be absolute? Are they going to be binding? The Securities and Exchange Commission is pursuing two routes. They’re looking not just at disclosures, but also at defining what this is going to mean so the investor can have a reasonable expectation of what they’re getting. I think it’s going to matter how you define it. In both cases, it could be done in a way that supports desirable outcomes and efficiency or it can be done in a way that prescriptively produces an outcome that may not be efficient and may not be desirable. Particularly when it comes to raising money and ESG. There’s a huge amount of investment interest, but in what? What is ESG? There’s a big distinction between the idea of disclosure, like for an investor the idea of disclosure at its best is a transparency issue. Are you holding onto something that faces physical or financial or climate risk? If so, what are those risks? You should know. You can address that. So, disclosure is something an investor can say I can factor that in, I’ll risk adjust the revenue stream or I’ll use a higher discount rate, some way to handle it. But, ESG that says in or out is actually an exclusion of investment. It’s either a crowding in or a crowding out. And now you’re talking about dollars that would have gone to an investment that either can’t or won’t or otherwise will when they’re not making enough change relative to these ambitious targets. For most people, this isn’t something where they say, wow I’m really getting my money’s worth on the climate spend. Even if the funds did get ahead of target, the perception may not reflect that and that could be a different challenge entirely.
Monica Trauzzi
Thank you for joining me for lunch today. This was a fun conversation.
Kevin Book
Thanks for having me. It’s so great to see you. And in person, too.
