The information you need to make your sustainability ambitions a reality
In this edition
- Brookfield Asset Management: Why renewables are still not properly priced in public markets
- UK becomes the first major economy to report quarterly GHG emissions
- MIT Study: The need for investment in energy storage
- International Capital Markets Association releases 300 key performance indicators
- Deal Announcements
Spotlight on Carbon Engineering – Accelerating direct air capture technology
CIBC’s Sustainability Agenda podcast recorded an upcoming episode with Carbon Engineering, discussing their carbon removal technologies and high-quality carbon credits. In the podcast, Anna Stukas, Vice President of Business Development, highlights three developments regarding carbon credits:
- Mission Possible Partnership – Aviation Transition Strategy
Mission Possible Partnership – an alliance of climate leaders focused on decarbonizing the world’s highest emitting industries, developed a sector-specific transition strategy for aviation. The strategy states that between 2022-2025, annual investments of US$175 billion are required to bring the industry to net zero. These investments present future opportunities in hydrogen and battery-electric aircrafts, sustainable aviation fuel plants, and notably, direct air capture and storage. Listen to the Sustainability Agenda podcast on decarbonizing the aviation industry for more efforts in this regard. - Airlines issue Letters of Intent
Airlines including, Air Canada, Air France-KLM, easyJet and Lufthansa Group, signed Letters of Intent to explore the use of carbon removal credits sourced from direct air capture technology in their net zero strategies. As part of the agreement, the airlines have committed to engage in negotiations on the pre-purchase of 400,000 tonnes of durable carbon removal credits from Airbus’ partner, 1PointFive – the global deployment partner of Carbon Engineering. This pre-purchase signals demand, which is helpful in developing future projects by demonstrating demand and commitment to purchase. - Oxford Principles for Net Zero-Aligned Offsetting
The Oxford Principles for Net Zero-Aligned Carbon Offsetting outlines best offsetting approaches relevant to corporations when achieving net zero. This includes using high quality offsets such as carbon removal and long-lived storage, regularly revising offsetting strategies, and lastly, supporting the development of net zero-aligned offsetting by using long-term agreements and sector-specific alliances (such as the one initiated by the airlines, mentioned previously).
UK becomes the first major economy to report quarterly GHG emissions
The UK’s National Statistical Institute released a potential framework that proposes a new greenhouse gas (GHG) emissions indicator alongside the traditional economic indicator, GDP.
Currently, the UK releases its GHG emission estimates annually. Under this potential framework, the UK government will report its resident-specific GHG emissions quarterly, becoming the first major G-7 economy to do so, and only the third country after New Zealand and Sweden. This new emissions indicator will help policymakers and the general public track progress towards the UK government’s net zero goal by 2050.
The UK government is currently welcoming feedback on this potential framework as they seek to integrate industry-level GHG estimates in the emissions indicator.
BlackRock’s midyear report: The end of the ‘Great Moderation’
BlackRock’s Midyear Global Outlook Report expresses the firm’s view that the ‘Great Moderation’ – a term referring to the period of low volatility in inflation levels we’ve seen this century – has ended. In the report, they highlight the potential investment opportunities created by a net zero transition as technology and policy developments accelerate. Further, the report claims that the market has not fully priced in the effects of a net zero transition. Specifically, they believe that the market has not fully considered transition risk and readiness. Their approach is to invest in high carbon emitting companies with credible decarbonization plans, as they believe this strategy will help mitigate volatility. The continuing net zero transition is creating investment opportunities for asset managers.
Australia outlines how asset managers can avoid greenwashing
The Australian Securities and Investments Commission has released an info sheet outlining how asset managers can avoid greenwashing while offering sustainability-related investment products. It provides background on the topic, explains the current regulatory setting, and discusses key considerations asset managers should make when offering sustainability-related investment products.
Brookfield Asset Management on why renewables are still not properly priced in public markets
Brookfield Asset Management believes there is currently a strong investment case for listed renewables and sustainable infrastructure. In a recent article, they detail their view that renewable equities are not pricing in the growth they anticipate seeing in the space given the global shift towards decarbonization due to climate change, and the increasing importance of energy independence given today’s political atmosphere. The new REPowerEU describes the build-out of the EU’s sustainable energy infrastructure, helping push forward the energy transition and limit the regions dependance on Russian oil.
Key takeaways from the Climeworks Direct Air Capture Summit
On June 30th, Climeworks hosted its 2022 Direct Air Capture (DAC) Summit, which brought together business, technology, and policy experts across Microsoft, GE Renewables, the EU Commission and more, to discuss how to grow high quality carbon removal solutions.
The Summit centered around the key messaging – that drastic emissions reduction is a priority but is not yet sufficient. As such, acceleration in carbon removal technologies such as DAC and geological storage must be enabled at a gigaton scale. This requires collaboration between corporate actors, investors, policy shapers and regulators to build demand, infrastructure and certification methodology for DAC technology.
On DAC investments, CIBC’s Dominique Barker spoke on a panel, discussing the financing of the new climate technology solution – Carbonplace.
The chart below elaborates on these key takeaways:
Key Insights |
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Drastic emissions reduction is a priority, yet not sufficient. A CDR industry with multi-gigaton capacity is required to hold the 1.5°C line – the IPCC made it clear. |
More clarity is needed to differentiate between conventional carbon offset credits and high-quality CDR solutions such as DAC+S. Education is important to strengthen clarity and consistency. |
The massive scale-up needed can be done. Renewable energies have a proven track record: strong annual capacity growth, modular design yielding fast learnings and a drastic cost decrease over a few decades |
On top of a great traction from the voluntary market, policy support is essential to incentivize demand, enable investments, and build infrastructures towards high-quality CDR solutions. |
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High standards and independent certifications are needed to ensure the focus is on high-quality solutions. Factors such as permanence and additionality are key. |
Corporate action is essential and timecritical. Businesses with net-zero commitments need to integrate highquality CDR offtake agreements in their portfolio to send strong market signals. |
While DAC represents an attractive opportunity for investors, significant investments are still to be made. To accelerate this, projects need to be bankable; decreasing the technology risk over time is a key factor. |
CDR providers must be enabled to rapidly pilot their solutions commercially to learn, improve, and show their ability to supply highquality CDR volumes at scale. |
Integrity Council on Voluntary Carbon Markets opens public consultation of Core Carbon Principles
The Integrity Council released their draft Core Carbon Principles, which define the classification and assessment processes used to identify ‘high quality’ carbon credit projects. The 10 draft principles include: additionality, mitigation activity information, no double counting, permanence, program governance, registration, robust independent third party validation and verification, robust quantification of emissions reduction and removals, sustainable development impacts and safeguards, and a transition towards net zero emissions.
A public consultation will take place over the 60 days ending September 27, 2022, with the final version being released Q4 2022, and assessment to begin Q1 2023. These principles will allow corporations to be more transparent in their use of carbon credits when making net zero claims, and ultimately provide the trust required to scale the voluntary carbon markets.
BBVA joins Carbonplace as a founding member
Carbonplace, the global carbon credit settlement platform founded by a consortium of global banks including CIBC, has taken on its newest founding member. BBVA announced this month that they will join the platform, bringing the total number of member banks to nine.
Luiza Gómez Bravo, Global Head of Corporate and Investment Banking at BBVA expressed her support for the project, “Carbon markets play a key role in achieving the 2030 Paris Agreement targets and carbon neutrality by 2050. At BBVA, we also see these markets as a fundamental line in the sustainability strategy and a huge business opportunity. By joining Carbonplace, we will be able to help our clients manage and mitigate their climate risk.”
MIT studies the need for investment in energy storage
Massachusetts Institute of Technology (MIT)’s Energy Initiative released the results of their three-year Future of Energy Storage study, which identified the importance of energy storage in the fight against climate change. Due to the variability in energy output from renewable power generation methods like wind and solar, increased energy storage capacity will be important for having clean energy grids. The study highlights the importance of understanding the tradeoffs between zero and net zero emissions, the role emerging economies will have, and the investment and policy support required to achieve energy storage objectives.
EBRD achieves €1 billion in green bond investment – Paves way for other development banks
The European Bank for Reconstruction and Development (EBRD) announced that it surpassed €1 billion in green bond investments. This achievement resulted from a €65 million green-covered bond from PKO Bank Hipoteczny in June 2022, certified by Climate Bonds Standards. Proceeds of this bond will finance low-carbon residential buildings in Poland.
Currently, the EBRD is present in 38 countries and operates in sectors including financial services, agribusiness, infrastructure, manufacturing and transport. In 2021, it invested €524 million in 17 green bonds. The Bank’s approach to its green investments is guided by its Green Economy Transition approach. Following the approach, the EBRD will increase green financing to more than 50% of its annual business volume by 2025. This is significant as it paves the way for other development banks to grow their investments in the sustainable finance market.
ICMA releases 300 key performance indicators at Annual Meeting
On June 28, the International Capital Markets Association (ICMA) hosted its 8th Annual Conference on the Green, Social, Sustainability and Sustainability-Linked Bond Principles. The conference focused on discussing ICMA’s new and updated publications. CIBC’s Siddharth Samarth attended the session.
Publications of interest include the revised Green Bond Principles and Social Bond Principles, which include asset-backed commercial papers, securitizations, covered bonds and other secured structures. These updates to the Principles will address uncertainty regarding structure for the market.
Also released, ICMA’s registry of ~300 key performance indicators (KPIs) across topics such as biodiversity and community inclusion for sustainability-linked bonds (SLBs), the fastest growing segment of the sustainable bond market. Why does this matter? The development of a KPI registry and guidance on structuring SLBs will help develop a more robust SLB market and increase issuers’ confidence.
Regenerative materials can advance a circular economy in the agriculture, fashion and pharmaceuticals industry
The Ellen MacArthur Foundation hosted its Circular Economy Summit: Regenerative by Design in July 2022, bringing together representatives from the United Nations Environmental Programme, Gucci, WWF, L’Oreal and others, to discuss how regenerative materials can be used to advance a circular economy. This is relevant as regenerative design in cement, aluminum, steel, plastics and food products can eliminate 9.3 million tonnes of CO2e from their production by 2050 – a small dent – but relevant nonetheless.
Notably, Gucci and Timberland highlighted that using regenerative materials reduces environmental impacts, such as land use and water pollution across their value chain.
Lego Group report shows that 50% of children think about the environment daily
The Lego Group released its Circular Economy and Youth report, which interviewed 6000+ children aged 8-18 years across seven countries to gain insight into their attitudes and behaviours regarding sustainability. The report found that nearly 50% of children surveyed were thinking about the environment daily or at least once a week. Across all topics, children universally ranked global warming as their top concern, followed by animal extinction, litter and pollution. These results varied depending on their country of residence (below).
Source: The Lego Group
37% of children surveyed had an optimistic view of current environmental progress; however, as children aged, they were more likely to pessimistically regard environmental action. This result demonstrates that, “we have a responsibility to educate, build hope and encourage the youth in advancing sustainability action.”
Climate Education – Project Drawdown’s Climate Solutions 101
Project Drawdown, a non-profit organization and leading resource of information into climate solutions that will help the world reach a steady decline in atmospheric greenhouse gases, published a series of free educational resources which we recommend for climate education.
Their course, Climate Solutions 101, is the world’s first major educational effort focused solely on solutions rather than re-hashing well-known climate challenges. The six course modules focus on identifying/reducing emission sources, supporting nature’s sinks for storing carbon, and centering equality in global action. These free, science-based educational resources are significant as they elevate public awareness and demonstrate how real-world climate action is attainable.
Bill & Melinda Gates Foundation to increase investment in climate adaptation efforts
The Bill & Melinda Gates Foundation announced a US$20 billion gift from co-chair Bill Gates alongside its plans to increase its annual payout by 50% over pre-pandemic levels to US$9 billion by 2026. This brings the Foundation’s endowment to approximately US$70 billion. Bill Gates expanded on this announcement, stating that it was made in light of several global crises such as the pandemic, rising inflation and climate change adaptation needs.
Regarding climate change adaptation, the Foundation will increase its investments in existing strategies such as agricultural research & development, digital technologies, clean water and wiser policies. Notable initiatives within these strategies include digital sensors that enable farmers to adapt to unpredictable weather, pests and diseases, in addition to decentralized wastewater systems that can operate without water supply, thus drastically reducing disease.
Why it matters? This is another proof point of why we believe climate change adaptation is of great interest, and our team is paying close attention.
UK Taskforce to support pension scheme engagement with social factors
A new UK taskforce led by the Minister for Pensions will support pension schemes in addressing the risks and opportunities associated with embedding social factors within investment decisions. Social factors include workforce conditions, supply chains, community engagement, consumer protection and modern slavery.
This minister-led taskforce was formed in response to the government’s consultation paper: Consideration of social risks and opportunities by occupational pension schemes, which highlighted the need for a proactive approach to address the social element in investment decisions. In practice, this taskforce will identify reliable data sources and valuable resources to assess financially material, social risks and opportunities. Ultimately, the work conducted by the taskforce will contribute to developing wider principles, standards and metrics that will support the broader pensions industry.
The future of boards and sustainability
The Cambridge Institute for Sustainability Leadership (CISL) noted that boards face increased pressure from investors and regulators regarding new disclosure requirements and the management of climate and nature-related risks and opportunities. However, CISL identified this scrutiny as an opportunity for the reappraisal of the role, structure, composition and behaviour of boards.
As such, CISL launched its Future of Boards Study to understand how shifts in governance and leadership may enable organizations to align business success with sustainability. Findings will be formulated into practical, evidence-based recommendations designed to support boards in driving transformations that will ensure that the businesses they lead thrive in the long-term.
If you are an executive, non-executive Board member or advisor to a board, CISL encourages your participation in their short survey.
Sustainability across CIBC
At CIBC, we are focused on our goal to make 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.
Deal announcements
In line with our commitment to make sustainability a reality for our clients and the communities we serve, CIBC Capital Markets led significant client deals and provided sustainability advisory as part of a focused objective to help our clients become global leaders in environmental stewardship and sustainability.
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.
Chart of the day
The UN Convention of Biological Diversity released an infographic which illustrates biophysical carbon sinks and their sequestration potential.
Source: UN Convention on Biological Diversity
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