sustainable investment
Sustainability watch: loss and damage fund, offshore wind, and cleantech
Our selection of sustainability news from December includes the launch of a new loss and damage fund for developing nations, the world’s largest offshore wind farm, and the deployment of cleantech projects.
Five countries and the EU pledged more than USD 420 m to seed a historic new “loss and damage” fund to help developing nations deal with climate change at COP28. Ørsted announced it would press ahead with developing the world’s largest offshore wind farm in the North Sea. Meanwhile, the European Commission announced that it will invest EUR 4 bn for the deployment of innovative decarbonisation technologies, with an increased focus on cleantech manufacturing projects.
Company names are provided for information purposes only – these businesses are not necessarily held in our portfolio or among investment recommendations1.
The Biden administration announced a proposal which would require water systems across the US to replace lead pipes within the next ten years. The proposal, announced by the US Environmental Protection Agency (EPA), includes a series of additional regulatory actions such as lowering the lead action level and improving sampling protocols utilised by water systems, the agency said in a statement. The White House has made removing every lead pipe within 10 years in the United States a centrepiece of its plan to address racial disparities and environmental issues in the wake of water contamination crises in recent years from Newark, New Jersey to Flint, Michigan. The administration announced USD 15 bn in funding to remove such pipes as part of the USD 1 tn bipartisan infrastructure package introduced in November 2021.
The European Commission announced that it will invest EUR 4 bn for the deployment of innovative decarbonisation technologies, with an increased focus on cleantech manufacturing projects, utilising funds raised through its EU Emissions Trading System (EU ETS). The announcement marks the Commission’s fourth large-scale call for decarbonisation-focused projects under the EU Innovation Fund, one of the world’s largest funding programs for the demonstration of innovative low-carbon technologies. At EUR 4 bn the current call is substantially larger than prior rounds, due to increased revenue from the auctioning of allowances under the EU ETS. Established in 2005, the European Emission Trading System puts a price on carbon emissions for key GHG intensive sectors, including electricity and heat generation, oil refineries, steel, cement, paper, chemicals, and commercial aviation, among others. Earlier this year, EU lawmakers agreed to increase the EU ETS’ scope, raising the direct emissions reductions required by covered sectors, and expanding the system to new sectors. The EU ETS is now expected to generate revenues of approximately EUR 40 bn from 2020-2030.
Asset managers in the UK will be banned from using vague references to “sustainability” to market their funds, under new anti-greenwashing rules that could lead to a significant shake-up of the USD 250 bn sector. The Financial Conduct Authority said its regime laid out on Tuesday 28 November, two days before the start of the global COP28 climate summit in Dubai, was intended to make sure products marketed as helping either people or the planet were “clear, fair and not misleading”. From December next year, asset managers who market their funds as sustainable will have to choose one of four specific fund labels and demonstrate that they apply to at least 70% of their assets. Funds that use these labels or that make any sustainability-related claims in marketing will have to publish a two-page summary for retail clients of their evidence-based stewardship strategy and “theory of change”, based on an independently assessed standard such as a greenhouse gas target or alignment with the EU’s taxonomy, or dictionary, of green activities. This approach could in future be extended to portfolio managers, overseas funds, pension products and financial advisers, the FCA said.
Five countries and the EU pledged more than USD 420 m to seed a historic new “loss and damage” fund to help developing nations deal with climate change at COP28. An agreement to set up the fund was struck at COP27 in Egypt as a key outcome of an otherwise fraught summit, but for the past year there have been clashes over the details of the fund, including the basic issues of where it should be hosted, who should pay in and who should benefit. The United Arab Emirates and Germany pledged USD 100 m each to the fund, the UK committed USD 50 m, with US and Japan bringing up the rear with just USD 17.5 m and USD 10 m respectively. An EU representative said it would give USD 145mn on top of Germany’s contribution on behalf of the 27-member bloc. Negotiators hope there will be further pledges from other individual European countries before the summit ends.
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Thematic link: The transition to a low-carbon and climate-resilient economy will require innovation, commitment and significant investment. Click here to find out more. |
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US regulators will propose the first federal guidelines for voluntary carbon credit derivatives, as Washington tries to bring order to a market for the offset of emissions described as the “wild west”. The Commodity Futures Trading Commission will announce standards that call on exchanges to verify the quality of voluntary carbon credit derivatives, which base their prices on those of financial instruments bought by companies to offset emissions. The value of the carbon trading market worldwide could expand to USD 100 bn by 2030, up from USD 2 bn in 2022, according to Morgan Stanley. The fledgling voluntary carbon derivatives sector, meanwhile, includes just three contracts with meaningful trading volume, while 15 more are listed but have limited trading, according to the CFTC. The guidelines seek to clamp down on manipulation and to foster accurate pricing by pushing exchanges to ensure that the terms of listed contracts are in accordance with US federal laws and CFTC regulations.
Lufthansa Group announced an agreement with aerospace giant Airbus for the pre-purchase of 40,000 tons of carbon removal credits, to be delivered through the removal of CO2 from the atmosphere using Direct Air Capture (DAC) technology, as part of the Airbus Carbon Capture Offer (ACCO). The certificates, to be delivered over four years, will be available from 2026. DAC technology, listed by the IEA as a key carbon removal option in the transition to a net-zero energy system, extracts CO2 directly from the atmosphere for use as a raw material or permanently removed when combined with storage.
Carbon removal solutions provider Carbonfuture announced a new offtake agreement with Microsoft for biochar carbon removal (BCR) credits, in collaboration with the Bolivia-based Exomad Green Concepción project. Set to deliver more than 32,000 tonnes of carbon dioxide removal credits to Microsoft by June 2024, the deal marks one of the largest-to date BCR purchase agreements.
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Thematic link: Carbon pricing is a key enabler of the transition to a CLIC® economy. We believe an active carbon strategy can help investors capture attractive return opportunities while hedging transition risks in their portfolios. Click here for more information. |
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Japan's top power generator, JERA, aims to start demonstration of co-firing 20% of ammonia with coal at a large commercial power plant in central Japan at around March. The company has said it will begin demonstration at its 1 gigawatt No.4 unit in Hekinan thermal power station in the financial year ending March 31 2024. The project, which started in 2021 with small volumes of ammonia at another unit at Hekinan, is aimed at cutting carbon dioxide (CO2) emissions by using cleaner fuels. It will be the world's first trial in which a large amount of ammonia will be used with coal at a large commercial plant. Ammonia is mainly made from hydrogen produced from natural gas and nitrogen from the air. It does not emit CO2 when burned, but its production releases emissions if it is made with fossil fuels.
The European Commission unveiled an action plan to accelerate the roll-out of electricity grids and remove bottlenecks hampering the deployment of renewable energies at the local level. The Action Plan aims to ensure electricity grids are deployed faster and digitalised to accelerate the transition to renewables. Probably the biggest challenge relates to Europe’s ageing local distribution grids, which are coming under increased pressure due to growing numbers of households connecting electric vehicles, heat pumps, and solar panels to the grid. In total, the Commission estimates that EUR 584 bn in investments will be necessary for electricity grids by 2030, with the majority going into local distribution networks to make them “digital, monitored in real-time, remotely controllable and cybersecure”.
Sweden's parliament approved a bill allowing more nuclear reactors to be built than previously planned, scrapping the previous cap of 10, as the Nordic country seeks to boost power generation and energy security. The new law will also allow construction of nuclear reactors at sites other than the current plants - Ringhals, Forsmark and Oskarshamn - where Sweden's fleet of six reactors is located.
EU governments have agreed that nuclear and sustainable fuels should be added to a list of strategic "net-zero" technologies that the European Union should promote so its industry can compete with Chinese and US competitors. The bloc plans to set a target of producing by 2030 at least 40% of the products it needs to reduce greenhouse gas emissions - such as solar and wind power equipment, heat pumps and fuel cells. Ministers for the 27 EU members agreed at a meeting in Brussels to include nuclear power and "sustainable alternative fuels" as strategic technologies. Both are controversial, given opposition of some EU members to nuclear power, while alternative fuels could include e-fuels for which Germany secured an exemption from an EU law to end sales of CO2-emitting cars from 2035. The Net-Zero Industry Act (NZIA), debated by EU ministers, is a centrepiece of the European Union's push to ensure it is not only a leader in reducing greenhouse gas emissions, but is also a manufacturing base for clean tech.
Ørsted is to press ahead with developing the world’s largest offshore wind farm in the North Sea after the UK increased financial support for the sector in a big boost for the Danish group after a string of setbacks. The Copenhagen-listed company made the announcement about the 2.9GW Hornsea 3 project off the Yorkshire coast, which will be able to supply power for about 3.3mn homes.
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Thematic link: Click here to find out more about the sectors that are well-placed for the renewables transition, as well as the growing investment opportunities arising from climate adaptation. |
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Global food and beverage company Nestlé announced a series of agreements enabling the company to shift the equivalent of half of its global shipping needs to alternative, lower-emission fuels, effective immediately. Through agreements signed with logistics giants Hapag-Lloyd, Maersk and CMA CGM, Nestlé said that it will use green fuels, such as those made from waste, for its cargo shipping, reducing greenhouse gas emissions by approximately 200,000 tonnes annually, and avoiding the use of around 500 000 barrels of crude oil. Nestlé announced a commitment in 2019 to achieve net zero greenhouse gas (GHG) emissions by 2050, and in 2020 the company published its “time bound plan” to reach its climate goals, which also include targets to achieve a 20% emissions reduction by 2025 and 50% by 2030.
Nissan Motor Co. will significantly ramp up electric-vehicle production in the UK with a GBP 2 bn (USD 2.5 bn) investment at its Sunderland site in a boon to the country’s car industry. The Japanese carmaker will set up another battery factory and produce electric versions of the popular Qashqai and Juke models at Britain’s largest carmaking hub, it said. Nissan will provide GBP 1.1 bn directly, with the remainder expected to come from partners for the cell and power grid update. UK Prime Minister Rishi Sunak, whose government is providing aid, said the plans represent a “massive vote of confidence in the UK’s automotive industry.” The move is good news for the UK after post-Brexit uncertainty clouded its prospects as a major automaking location. It follows recent announcements by Jaguar Land Rover owner Tata Motors Ltd. to build a GBP 4 bn battery factory in Somerset and BMW AG’s decision to manufacture electric Mini models at its Oxford plant.
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Thematic link: To find out more about the challenges and opportunities presented by the transport revolution, click here. |
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Chipotle Mexican Grill announced two new investments in sustainable agriculture-focused startups, including regenerative farming AI and robotics solution company Greenfield Robotics, and low emissions fertilizer producer Nitricity. The investments were made through Chipotle’s USD 50 m venture fund, CULTIVATE NEXT. Launched in 2022, the fund makes early-stage investments in companies aligned with Chipotle’s mission to “Cultivate a Better World,” and to help accelerate growth.
California regulators cleared the way for widespread use of advanced filtration and treatment facilities designed to convert sewage waste into pure drinking water that can be pumped directly into systems feeding millions of household taps. Proven technologies capable of recycling wastewater for human consumption, a concept once derided by critics as "toilet to tap," have gained greater credence in recent years as water-conscious California faces worsening drought cycles from climate change.
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Thematic link: We believe that companies supporting the circular economy and leveraging the regenerative power of nature will be the future winners. To find out more about the circular economy as an investment opportunity, click here. |
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