The information you need to make your sustainability ambitions a reality
In this edition
- Introducing the third pillar of macro policy: fiscal, monetary and…climate policy
- Climate Bonds Initiative releases updated Global State of the Market Report
- Achieving net-zero: Five grand challenges to tackle
- Podcast – The circular economy from the investor lens
Delayed action on climate change can cost Canada up to $5.5 trillion in physical costs
A recent paper from the Institute for Sustainable Finance (ISF) examines the total capital loss for Canada from physical damage caused by climate change – such as biodiversity loss, rising sea levels, and infrastructure damage caused by wildfires and floods – under different warming scenarios by 2100. The study finds that costs are estimated to range from a whopping $2.7 trillion under a 2°C warming scenario to nearly double that amount, at $5.5 trillion, under a 5°C scenario (considered their “Business As Usual” scenario).
The study reveals that the costs of physical damage are larger than the investments required to transition to a low-carbon economy. In present value (PV) terms, the difference ranges from $10 to $45 billion larger than the PV of the required investment, without considering the potential economic benefits of the transition. According to ISF’s prior research, it will require an investment of $128 billion over 10 years to achieve a 30% reduction in emissions by 2030 – a swift acceleration is especially necessary as Canada is warming twice as fast as the global average.
Source:
Institute for Sustainable Finance
Achieving net-zero: Five grand challenges to tackle
Bill Gates’ book – How to Avoid a Climate Disaster – inspired a new climate documentary and 10-part learning series, Solving for Zero, that premiered on Wondrium – an educational streaming platform.
The documentary highlights five grand challenges, through in-depth interviews with companies, that are changing the way we make things, plug in, grow things, get around, and live. The main sources of today’s global GHG emissions are from manufacturing (31%); electricity (27%); agriculture (19%); transportation (16%); and buildings (7%).
To get to net-zero, we must address all five grand challenges and do so quickly. As a society, we have to speed up the cycle of innovation and attract patient, risk-tolerant capital. This can be achieved by investing in research and development, creating market demand for clean technologies, and designing public policy across all five grand challenges.
Biodiversity and Financial Stability: NGFS and INSPIRE release final report
A study group established in April 2021 by the Network for Greening the Financial System (NGFS) and the International Network for Sustainable Financial Policy Insights, Research, and Exchange (INSPIRE) to develop a research-based approach to how central banks and supervisory bodies can fulfil their mandates in the context of biodiversity loss, has published a paper on Biodiversity and Financial Stability. The recently published paper makes five key recommendations to accomplish these mandates:
- Recognize the loss of biodiversity as a potential source of economic and financial risk, and commit to developing a strategy to maintain financial and price stability;
- Build the skills and capacity among central banks, supervisory and market participants to address biodiversity-related financial risks;
- Assess the exposure of financial systems to biodiversity loss, by, for instance, developing biodiversity-related scenario analysis and stress-tests, similar to the recent climate analysis carried out by the Bank of Canada;
- Explore options for supervisory actions on minimizing negative impacts on ecosystems and managing biodiversity-related risks; and
- Help build the necessary financial architecture for mobilizing investment for a biodiversity-positive economy.
This paper which was published in March 2022 is the third from the study group, following the publications of a Vision Paper in June 2021, and an Interim Report in October 2021.
Analysis of industry impacts on freshwater resources around the world
Ceres – a sustainability non-profit advocacy organization – and scientists at the Global Institute for Water Security (GIWS) at the University of Saskatchewan reveal how industry practices are driving five critical threats to global freshwater systems – groundwater depletion, metal contamination, plastic pollution, water diversion and transfer, and eutrophication. Through this comprehensive analysis of the scientific literature, the report indicates that the key industries – food products, textiles, and high tech and electronics – are the biggest contributors to these problems.
The analysis demonstrates that current industry practices are leading to systemic water risks that will jeopardize businesses, investment portfolios and society at large. However, this can be avoided as the private sector and investors are well-positioned to halt this risk which in turn can reduce financial risks and bottom-line losses in the future. According to the report, the seven core actions companies should focus on are: 1) water quantity; 2) water quality; 3) ecosystem protection; 4) access to water and sanitation 5) business integration; 6) public policy engagement and water governance; and 7) multi-stakeholder collaboration.
Carbon removal credits are essential
According to the most recent report by IPCC, it would be impossible to limit global temperature rise to 1.5°C without carbon dioxide removals (CDR). Many companies and investors have emerged to advance the CDR market with the likes of Climeworks raising US$650M – the largest venture round ever for CDRs. Stripe, Alphabet, Meta, Shopify, and McKinsey have come together to launch Frontier, an advance market commitment to buy an initial $925M of permanent CDRs by 2030, and Lowercarbon Capital, founded by Shark Tank Investor and venture capitalist, Chris Sacca, recently closed a US$350M CDR-exclusive venture fund.
Nan Ransohoff, Head of Climate at Stripe, discusses Stripe Climate via Climate Tech VC, how Frontier was conceived and how it works, and general information about the CDR market. An interesting read for those wanting to learn more about the carbon removal market.
Source: Frontier
From compliance to competitive advantage: Shifting the ESG mindset
In April 2022, Boston Consulting Group (BCG) released From Compliance to Courage in ESG, highlighting that companies that view ESG initiatives with a mindset of compliance or corporate responsibility, rather than a competitive advantage, are missing out on significant value. According to the report, top ESG performers are more than twice as likely to rank in the top 50% of ten-year total shareholder return performance, have valuation multiples that are 3% to 19% higher and are able to attract and retain talent better than those of median performers.
According to BCG, there are four principles needed to succeed in this way:
- It starts at the top – ESG must be a part of the CEO’s strategy and supported by the C-suite and Board which will trickle down to the whole organization.
- Move away from the idea that ESG targets are altruistic – when ESG efforts become a profit center, the scalability, talent and innovation benefits compound.
- Be comfortable with being uncomfortable – ESG strategies require rethinking the value drivers of a business and finding an ESG approach that provides a win-win solution with both economic and ESG benefits.
- Cooperation and not just competition – ESG strategies should strive to move the industry ecosystem forward by convening as well as competing.
For companies ready to shift their mindsets, the report further outlines four steps for an authentic ESG strategy: 1) start with purpose; 2) take a stand; 3) embody the change and; 4) tell your story.
Climate Bonds Initiative releases updated Global State of the Market Report
The Climate Bonds Initiative (CBI) released the 11th iteration of their Climate Bonds’ flagship Global State of the Market Report along with a complementary webinar which details the size and substance of green, social and sustainability (GSS) markets, as well as sustainability-linked bonds (SLBs), and transition bonds (GSS+).
In 2021, Climate Bonds recorded more than 16,000 GSS+ debt issuances with a cumulative volume of USD2.8 trillion including USD1.1 trillion of new GSS+ volumes – a 46% than the USD730.5 billion in 2020. The green theme is the largest source of debt, making up 49% of the total – USD523 billion – and SLBs have become the fastest growing ESG debt instrument, expanding by 10x year-on-year (YOY).
Furthermore, the report highlights five themes that will drive the GSS+ market in 2022: 1) adaptation and resilience (A&R); 2) sovereign GSS+ bond club; 3) taxonomies; 4) low-carbon energy; and 5) net-zero transition.
Source: Climate Bonds Initiative
Introducing the third pillar of macro policy: Fiscal, monetary and…climate policy
Brookfield’s Vice Chair and Head of Transition Investing, Mark Carney, published a memo adapted from his Paul Volcker Lecture at the National Association for Business Economics (NABE) conference in Washington, DC, on March 22, 2022.
The memo provides insights on why climate policies can heavily influence the pace of job and wealth creation, ultimately affecting everyone’s lives. Climate change is macro critical – as climate policy has become the third pillar of macro policy; and through credible policy coordination, we can generate significant private investment that is able to accelerate growth, smooth inflation, create new jobs and promote energy security.
Source: Brookfield
Why senior management should integrate nature-related risks into financial decisions
Since 2019, the Cambridge Institute for Sustainability Leadership’s (CISL) Centre for Sustainable Finance has collaborated with the Banking Environment Initiative and Investment Leaders Group to develop a program to understand, identify and assess nature-related financial risks.
The latest of the four papers developed by the collaborators concludes that the outcome of this program is providing senior management with a business case for integrating nature-related risks into financial decisions by detailing: 1) why action is needed; 2) how action can be taken; 3) use cases assessing nature-related financial risks; and 4) what is now needed to accelerate the integration of nature into finance?
The use cases by Robeco, HSBC, Deutsche Bank, UBP, NatWest, and Aon show that:
- Banks and investors already have the capabilities to measure nature-related financial risks with existing tools and data.
- Nature loss creates material financial risks, potentially leading to valuation declines approaching 50% and multiple-notch credit rating downgrades.
- Risks quantified are only the beginning; there are wider risks to tax revenues, supply chains, social cohesion and financial markets that will intensify the negative consequences of nature loss.
Read more
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Employee Ownership Trust – An opportunity for workers to generate additional wealth
According to the recently released Canadian Federal Budget, the government will introduce a new Employee Ownership Trust (EOT) into the Income Tax Act. EOT aims to encourage employee ownership of business by allowing owners to sell their companies into these trusts, which are then owned on behalf of the employees.
According to a response and discussion paper by Social Capital Paper (SCP), employee-owned businesses are proven to grow faster, pay better, are less prone to lay-offs or bankruptcies in economic downturns, are more likely to keep jobs in local communities and allow for hundreds of millions of dollars in new wealth for workers.
The Government of Canada consulted with stakeholders in 2021 and will continue to engage with stakeholders to finalize the development of the rules, and to assess remaining barriers to the creation of Employee Ownership Trusts.
Sit back and relax – Could you lead us to net-zero?
If you could control all the future decisions for our planet, would we be able to reach net-zero by 2050 and avoid climate catastrophe?
Now you can find out during your next coffee break by playing Financial Times’ new, Climate Game, and see how you stack up against other players. Although difficult, it’s definitely possible – will you be able to reach net-zero?
Sustainability across CIBC
We are committed to making sustainability a reality for our clients and the communities we serve. Whether through greening their balance sheet or providing sustainability advisory services, our objective is to help our clients become global leaders in environmental stewardship and sustainability.
Summary of CIBC’s inaugural Circular Economy Roundtable
CIBC hosted its inaugural Circular Economy Roundtable on Wednesday, April 13, 2022. The Roundtable provided an avenue for some of North America’s top corporations, global investors and research institutes, including the Ellen MacArthur Foundation to discuss circularity in Canada, transitioning to a circular plastics economy and designing out waste.
Some key takeaways from the Roundtable were:
- The resolution adopted by the UN Environment Assembly to end plastic pollution by 2024 has helped raise awareness and demand for recycled plastics and increased investment in infrastructure.
- Data is key to increasing transparency and traceability across supply chains, and throughout the materials lifecycle. This would in turn improve the process and increase circularity.
- All of businesses, governments and financial institutions have a role to play in the circular economy. Redesigning the process, enhancing value chain collaboration and starting more public-private sector conversations can help scale up circularity transition.
Catch the event replay
here and listen to the Sustainability Agenda mini-podcast series on Circular Economy, featuring Closed Loop Partners, TC Transcontinental and Conference Board of Canada.
Podcasts
CIBC Capital Markets’ podcast series focusing on the evolving complexities of the sustainability landscape – with a view to addressing current issues in a concise format to help you navigate and take action.
CIBC Capital Markets’ podcast series focusing on current hot topics.
Chart of the Day
Source: Frontier
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