Sustainability Newsletter – June 2023

Bullish sentiment on global carbon pricing remains as markets evolve

The World Bank Group recently hosted its annual global conference, Innovate4Climate (I4C), on climate finance, carbon markets and investment. The event was marked by the launch of World Bank Group’s tenth “State and Trends of Carbon Pricing” report. The 2023 report provides an up-to-date overview of existing and emerging carbon pricing instruments and initiatives from around the world. Key takeaways include:

  • Governments are prioritizing direct carbon pricing policies to reduce emissions, with continuing momentum for climate action, despite current economic uncertainty and geopolitical instability. In addition, government revenues from carbon taxes and emissions trading systems (ETSs) approached $100BN in 2022;
  • The share of global emissions covered by carbon taxes and ETSs has grown in the past 10 years from 7% to ~23%, while carbon pricing increased in half of schemes;
  • Carbon credit markets continue to diversify and become more sophisticated. New investors, financial products, technological platforms, and service providers are laying the foundation for a decade of significant growth

Additionally, the International Emissions Trading Association (IETA) released the results of its 2023 GHG Market Sentiment Survey. This year’s poll received responses from 187 members, the majority of which are based in North America and Europe.

  • Nearly three-quarters (71%) of respondents believe the voluntary carbon market is well-placed to meet rapidly rising demand from companies seeking to drive emissions down.
  • Nearly half (46%) of respondents anticipate that the European Commission will propose a 75% or greater emissions reduction target, while more than two-thirds of respondents expect lawmakers in California to extend the state’s cap-and-trade program beyond 2030.

The carbon markets are expected to continue to evolve as various stakeholders execute on their stated climate ambitions. Watch this space.

Carbon markets expand in North America; expect growth in 2023

According to Torys’ Quarterly Spring 2023, the voluntary and compliance carbon markets are expected to grow this year, in part, due to an expansion of the types of available carbon products.

In the last 12 months, more such market products entered the North American ecosystem, including: new compliance credit market under the Canadian Federal Clean Fuels Regulation (CFR); Alberta’s Technology Innovation and Emissions Reduction (TIER) regulation amended to allow certain stackable credits; Ontario launched its Clean Energy Credit registry; the US Department of State unveiled a global voluntary carbon trading scheme; Oregon state implemented a Climate Protection Program with tradeable instruments; Washington state launched its first cap-and-trade system auction; and Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is currently under pilot phase.

Given these trends, Torys propose that credit developers, compliance entities and market participants should consider how the use of carbon credits will be prioritized among other emissions reduction strategies.

Biodiversity Day marked by release of new guidance for private sector

To mark this year’s International Day for Biological Diversity, a couple new resources were released to support the private sector.

The UN Environment Programme Finance Initiative (UNEP FI) released a briefing for banks on the relevance and implications of the Kunming-Montreal Global Biodiversity Framework (GBF). The ‘Banking on nature’ report calls on banks to act on nature as they have on climate.

Similarly, the Science Based Targets Network (SBTN) announced the release of the world’s first science based targets for nature. This is a significant milestone that will outline how companies can act on various nature-related risks across freshwater, land, ocean, biodiversity, and climate.

Climate ambitions cannot be achieved without preventing, and reversing, nature loss. Therefore, we expect to see an increased focus on nature similar to what we have observed with climate.

On the road to COP28 – will oil and gas meet NZE Scenario?

The International Energy Agency (IEA) released Emissions from Oil and Gas Operations in Net-Zero Transitions on the changes and measures needed to reduce the emissions intensity of oil and gas operations in the Net-Zero Emissions by 2050 (NZE) Scenario, to inform discussions in the run-up to COP28.

In the NZE Scenario, which limits global temperature rise to 1.5C, global average emissions intensity of oil and gas supply must fall by more than 50% between 2022 and 2030. Five key levers are needed: tackling methane emissions, eliminating all non-emergency flaring, electrifying upstream facilities with low-emissions electricity, equipping oil and gas processes with carbon capture, utilization, and storage (CCUS), and expanding the use of low-emissions electrolysis hydrogen in refineries.

Many companies have targets to reduce their scope 1 and 2 emissions, but variation in scope and timelines for implementation exists. Only a fraction of these commitments matches the pace of decline needed in the NZE Scenario, and most plan to use carbon offsets to achieve their targets.

Source: IEA (2023)

‘Ground-breaking’ circularity guide for building and construction sector

The World Green Building Council, through its Circularity Accelerator program, launched the Circular Built Environment Playbook. Billed as a ‘ground-breaking’ guide for the building and construction sector, it advances regenerative strategies to limit raw materials extraction and waste production.

Among the 20 different strategies to use when implementing circular design approaches across all building stages, are: drive alternative material use; localize the supply chain; design for building reuse, disassembly, and deconstruction; design out waste; protect water resources; and evolve certification and labelling schemes.

The playbook advocates that every actor in the building and construction supply chain can take action towards a circular transition. All stakeholders, including investors, clients, developers, and design teams, can take a longer-term view on past, present, and future use of a building’s products and parts, and mobilize private finance and investment in support of circularity.

New dataset tool enhances corporate transparency for nature-related risks

S&P Global Sustainable1 launched Nature & Biodiversity Risk, a new dataset for assessing nature-related risks at an asset, company and portfolio level. The new tool aims to address companies and investors’ growing demand for clear metrics that quantify nature-related dependencies and impacts over real assets.

The dataset comprises a Dependency Score that measures the level of reliance that a business has on 21 ecosystem services; as well as an Ecosystem Footprint metric that measures a business’ direct operational impact on nature and biodiversity, including land area, ecosystem degradation and significance.

Across the S&P 1200, the dataset revealed 85% of the world’s largest companies have a significant dependency on nature across their business; and 46% have at least one asset located in a Key Biodiversity Area (KBA) that could expose them to future reputational and regulatory risks. The new dataset aims to enhance transparency and alignment with upcoming disclosures requirements, such as the Taskforce on Nature-related Financial Disclosures.

US EPA on a roll – Reducing carbon pollution for public health

The US Environmental Protection Agency (EPA) made recent announcements towards tackling the climate crisis, improving air quality, and protecting public health.

The EPA proposed new carbon pollution standards for coal and natural-fired power plants. Relying on available carbon capture technologies, they intend ambitious carbon emissions reduction targets that could strengthen current standards for newly built fossil fuel-fired stationary combustion turbines to reduce harmful air pollutants. Overall, the proposal could avoid up to 617 million metric tons of total CO2, with projected net climate and health benefits of $85 billion through 2042.

The EPA also announced the development of a Clean Ports Program and Clean Heavy-Duty Vehicles Program, that will invest $3 billion and $1 billion, respectively, to reduce harmful air pollutants. The initiatives will transform port infrastructure, boosting investments for zero-emission port equipment and technology, and provide funding to offset the costs of replacing heavy-duty commercial vehicles with zero-emission vehicles, and deploy infrastructure needed to charge, fuel, and maintain these zero-emission vehicles.

Both programs would further stimulate investment and demand for clean technologies underpinned by the US Inflation Reduction Act.

EU Green Claims Directive on the horizon – Quick recap

In March 2023, the European Commission adopted a proposed Green Claims Directive, to complement a previously proposed directive on empowering consumers for the green transition. Both proposals aim to tackle unfair commercial practices that inhibit consumers from making sustainable consumption choices.

On May 11, 2023, the directive on empowering consumers was adopted by the EU Parliament. It proposes to ban design features that deliberately limit a product’s life (known as early obsolescence); ban misleading or false environmental claims – products with unsubstantiated labels like “environmentally friendly”, “biodegradable”, “climate neutral” or “eco”; and ban environmental claims that are based solely on carbon offsetting schemes. This proposal will move to Member States for ratification.

The European Commission has since opened a consultation on the proposed Green Claims Directive (available until July 8, 2023) before moving to the European Parliament and EU Council for legislative debate. This would set rules for companies to substantiate environmental claims, use only approved environmental labels or obtain a certification from a national verifier, among other things.

Source: European Commision (2023)

Methane emissions reduction domino effect

The European Parliament adopted the bloc’s first methane emissions reduction legislation targeting the energy sector, including from oil, fossil gas, coal and biomethane.

The new regulation includes tighter rules for monitoring emissions, and Leak Detection and Repair (LDAR) requirements. Companies operating fossil fuel infrastructure, such as pipelines, would be required to check for leaks more frequently and conduct repairs immediately. The regulation also seeks to impose requirements on imported fossil fuel energy from 2026.

Methane, which comes from a wide range of sectors like agriculture, energy and waste, is 80 times more potent than carbon dioxide over a 20 year period. Under the Global Methane Pledge, many countries aim to cut methane emissions by 30% by 2030. The EU is exploring cuts to agricultural methane in a revised Industrial Emissions Directive. In the US, oil and gas companies will pay for excessive methane emissions from next year; while Canada is expanding on its methane strategy by proposing a regulatory framework for reducing landfill methane emissions.

Offsetting domestic shipping at Canada Post

On April 27, 2023, Canada Post Corporation announced that all domestic ground parcel services will be shipped as carbon-neutral.

To offset the related carbon emissions, the company will purchase high-quality, accredited carbon offsets for every tonne of greenhouse gas emissions generated by its domestic ground delivery services. The carbon credits are sourced from the Great Bear Forest Carbon Project, an Indigenous-owned, nature-based offset project in British Columbia. The carbon credits are recognized by the BC Carbon Registry under the BC Forest Carbon Offset Protocol.

Canada Post has set science-based targets to cut operational emissions by 50% by 2030, and achieve net-zero emissions across their value chain by 2050. Canada Post’s carbon offsets for carbon-neutral shipping do not count towards meeting their emission reduction targets. As the Corporation greens its operations on the path to net-zero, the need for offsets for carbon-neutral shipping will diminish over time.

New advisory council advises on electricity sector investments

Natural Resources Canada announced the formation of a pan-Canadian Electricity Advisory Council who, in conjunction with other bodies such as the Net-Zero Advisory Body, will advise the federal government on actions for net-zero electricity supply by 2035.

The Council’s mandate includes identifying regulatory and policy opportunities, promoting infrastructure investments, grid modernization and innovation, and advising on cost-saving electricity grid decarbonization strategies.

At the conclusion of its one-year term, the Council will prepare and deliver a report outlining its analysis and recommendations, expected to shape electricity sector investments announced in Budget 2023, such as the 15% tax credit for non-emitting electricity generation, $20 billion in low-cost financing from the Canada Infrastructure Bank, and other funding, like the Smart Renewables and Electrification Pathways program. It may also further inform Canada’s ongoing development of Clean Electricity Regulations.

Another tool in the toolbox: Net-zero benchmarking for Canadian investors

Climate Engagement Canada (CEC), an investor-led engagement initiative, launched a Net-Zero Benchmark, which provides a framework and standards for investors to evaluate corporate issuers’ progress towards Paris Agreement goals.

Through the framework, CEC benchmarks a focus list of companies’ commitments and performance, serving as a tool that allows participant investors to frame and measure their engagements with Canada’s top emitters, and identify areas for additional improvement in the net-zero transitions.

The Benchmark is closely aligned with the current global standard developed by Climate Action 100+, but is tailored to Canada’s unique economy. When combined with other Canadian-focused tools, like the recently announced Taxonomy Roadmap Report by the Sustainable Finance Action Council, investors will have a standardized approach to measure companies’ performance against climate objectives.

Have your say on national biodiversity strategy

Environment and Climate Change Canada launched engagement on the development of Canada’s 2030 Biodiversity Strategy, which aims to reflect domestic priorities for halting and reversing biodiversity loss. Canada is one of the first countries to develop and potentially implement a domestic biodiversity strategy ahead of the COP16 Convention on Biological Diversity in 2024.

The announcement builds on Canada’s commitment to protect 30% of land and water by 2030 (‘30×30 Target’) pledged under the landmark Kunming-Montreal Global Biodiversity Framework last year. It will cover related aspects of nature conservation, sustainable use and access and benefit-sharing of genetic resources – such as plants and animals important to many industries including food, pharmaceuticals, and cosmetics.

A consultation (available until July 14, 2023) will inform the Strategy which will be developed and implemented in collaboration with provinces, territories, Indigenous representatives and other partners and stakeholders.

Kunming-Montreal Global Biodiversity Framework Themes and Targets

Reducing threats to biodiversity
  1. Reducing land- and sea-use change
  2. Restoration of degraded ecosystems
  3. Protect and conserve areas
  4. Halting species extinctions and reducing extinction risk
  5. Harvesting and trade of wild species
  6. Managing invasive alien species
  7. Reducing negative impact of pollution on biodiversity
  8. Minimize impacts of climate change
Meeting people’s needs through sustainable use and benefit-sharing
  1. Management of wild species
  2. Agriculture, aquaculture, fisheries, and forests and sustainably managed
  3. Restore, maintain, and enhance nature’s contributions to people, including ecosystem functions and services
  4. Urban blue and green spaces
  5. Fair and equitable sharing of genetic resources and DSI
Tools and solutions for implementation and mainstreaming
  1. Integrate biodiversity and its multiple values into policies, regulations, planning and development processes
  2. Integrate legal, administrative or policy measures within business and financial institutions
  3. Encourage and enable sustainable consumption choices
  4. Establish, strengthen capacity for, and implement biosafety measures as set out in Article 8(g)
  5. Identify, and eliminate, phase out or reform incentives, including subsidies
  6. Substantially and progressively increase the level of financial resources
  7. Strengthen capacity-building and technical and scientific cooperation
  8. Ensure data, information, and knowledge, are accessible to decision makers, practitioners, and the public
  9. Respecting rights and cultures of Indigenous peoples and local communities
  10. Ensure gender equality

Source: Government of Canada (2022)

E-waste underscores new frontier in ‘urban mining’

Research from the University of Waterloo reveals that electronic waste (e-waste) in Canada has more than tripled in the last two decades – from 8.3 kg generated per person in 2000, to 25.3 kg in 2020 – the equivalent of filling the iconic Toronto CN tower 110 times! Consumer habits and a growing population will continue to exacerbate the rising trend into the near future.

Large household appliances, such as refrigerators and washing machines, dominate the e-waste stream by mass; while less bulky items (like household lighting, toys, sport equipment and smart devices) dominate in quantity.

The research advocates circular economy approaches for material recovery, repair and refurbishment that could generate new revenue opportunities. For instance, ‘urban mining’ could help electronic manufacturers to recover valuable resources and critical materials from e-waste, creating a secondary supply chain that could reduce the risk of future supply disruptions.

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.

Explore our Sustainability Hub

Chart of the Day

Direct carbon pricing policies now cover 23% of global greenhouse gas emissions; a significant increase from just 7% a decade ago.

Share of global greenhouse gas emissions covered by Emissions Trading Systems (ETS) and carbon taxes

Source: World Bank’s annual ‘State and Trends of Carbon Pricing Report 2023’

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