Sustainability Newsletter Edition 37

The United Nations Framework on Climate Change (UNFCC) will convene its annual Conference of the Parties (COP28) from November 30 to December 12, 2023, in Expo City, Dubai. This year’s UAE Presidency released details of a thematic program centered on the theme of unity.

The conference will feature the first global stocktake (GST) of the Paris Agreement – billed as a comprehensive assessment of progress on global climate action and the measures needed to bridge the gaps. Climate finance will once again be a key focus; however, the program will also highlight new topics like health, trade and relief, recovery, and peace.

Ambitious outcomes are expected at COP28, including a sector-by-sector response to the GST to close the gaps to 2030, and opportunities that build on existing coalitions and metrics, and the potential for new configurations of partners to accelerate implementation.

The International Energy Agency (IEA) released two important reports in July, tracking the progress of global clean energy transition. Overall, it finds that more policy support and investment is still needed to keep net zero emissions by 2050 within reach. The findings will inform upcoming global conferences, including the first global stocktake of the Paris Agreement at COP28.

In Tracking Clean Energy Progress 2023, the IEA finds there is an overall slow pace of deployment for clean energy technologies globally, including carbon capture utilization and storage (CCUS). It identified 40 commercial facilities with a total annual capture capacity of more than 45Mt CO2e, as well as over 500 projects-in-development across the CCUS value chain. Despite this, CCUS deployment sits at around a third of the 1.2 Gt CO2 required per year to meet the Net Zero Emissions by 2050 Scenario (NZE). The evaluation is at a global level and can differ for specific countries or regions.

Of the 50 energy system components deemed critical to meet the NZE, only three were assessed as being “fully on track” – solar PV, electric vehicles and lighting – meaning if their trend continues in 2030, they will be in line with the NZE. The IEA will publish further updates in the run-up to COP28.

The second report, an inaugural edition of Critical Minerals Market Review 2023, tracks and assesses the progress of critical minerals supplies against various factors, including three supply-side challenges:

1. Meeting future demand growth: Some progress made as investment in critical minerals development increased 30% in 2022, from 20% in 2021. This is helping to address some of the gap between anticipated future supply and demand in the Announced Pledges Scenario (APS). However, further projects are needed to meet the NZE.
2. Diversification: Less progress made in diversifying critical minerals supply sources. Compared with three years ago, the share of the top three producers in 2022 either remains unchanged or has increased further, especially for nickel and cobalt. The situation is especially acute for refining operations.
3. Clean and responsible sources: Mixed progress made toward improving industry-wide sustainable and responsible production practices, including around GHG emissions, water use and waste. A large gap remains in shifting more critical minerals volume away from countries with lower environmental, social and governance scores.

Along with the market review, the IEA launched a new Critical Minerals Data Explorer tracking demand projections for critical minerals under various scenarios, and announced that it will host its first international summit on critical minerals on September 28, 2023.

Carbon Direct and Microsoft released an updated Criteria for High-Quality Carbon Dioxide Removal (CDR), which aims to advance a set of science-based benchmarks for developing high quality CDR solutions within the voluntary carbon markets.

The 2023 edition provides guidance on established and emerging CDR solutions, including direct air capture, improved forest management, and biomass. Additional guidance on emerging CDR pathways, including macroalgae cultivation, peatland and freshwater wetland restoration, and ocean alkalinity enhancement, will be developed in future iterations.

According to Carbon Direct, only 3% of over 1 billion carbon credits registered in the voluntary carbon markets to date are from pure carbon removal projects – and only a fraction meet the criteria for high quality. The Criteria is expected to enhance the long-term viability of the voluntary carbon markets by offering a much-needed framework for project developers (to give a reference point to ensure the high quality of their projects), and for corporate buyers (to serve as a basis for the evaluation of their carbon credits portfolio).

175 member countries of the International Maritime Organization (IMO) adopted new targets to reduce GHG emissions for the shipping industry, which currently account for 3% of global GHG emissions.

The strategy calls for reducing emissions by at least 20% by 2030 and by at least 70% by 2040 – compared to 2008 levels – and reaching net zero ‘close to 2050’ considering different national circumstances. The strategy also requires 5% to 10% of shipping’s energy use to come from zero or near-zero emissions fuels and technologies by 2030.

The new targets are an increase over the IMO’s 2018 targets, which called for reducing annual shipping emissions by at least 50% by 2050, putting more pressure on cargo-shipping companies to decarbonize more quickly. One estimate puts the cost of decarbonizing tens of thousands of merchant ships at roughly USD 1 trillion dollars over the next two decades – requiring more renewable energy projects to produce low or zero-carbon fuels and vessels.

A report by the Food and Agriculture Organization of the United Nations (FAO) reveals between 691 million to 783 million people faced hunger in 2022 – an increase of 122 million people since 2019. The number was exacerbated by the global pandemic, repeated weather shocks and conflicts. The FAO warns that if trends remain, the Sustainable Development Goal of ending hunger by 2030 will not be reached.

Among the report’s findings, increased urbanization is cited as a ‘megatrend’ impacting agri-food systems. With projections of 7 in 10 people living in cities by 2050, the report calls on policymakers and the private sector to better understand and account for these impacts on food security and nutrition.

In a wake-up call for global food security, the World Bank and G7 Presidency co-convened the Global Alliance for Food Security in May, to coordinate policy and financial response to the food crisis.

In our latest podcast episode, we discuss climate change’s influence on food supply strategies and how greater resiliency can be created across the food value chain.

Chart: The pathways through which urbanization affects agri-food systems and access to affordable healthy diets

The Financial Stability Board (FSB) announced that the work of the Taskforce on Climate-related Financial Disclosures (TCFD) will culminate with a transfer of monitoring responsibilities to the International Financial Reporting Standards Foundation (IFRS). The transfer will take place following the delivery of the TCFD’s 2023 annual status report in September.

The move demonstrates ongoing consolidation of sustainability standards. The recent release of the IFRS’ International Sustainability Standards Board (ISSB) Sustainability Disclosure Standards – which are based on the recommendations of the TCFD – provides for interoperability with other standards. Companies will begin to apply the ISSB standards from 2024, at which point the IFRS will begin monitoring responsibilities. The move will also benefit companies and investors with a more streamlined approach to sustainability disclosures.

A new Nature Restoration Law was adopted by the European Parliament, that will enforce a number of long-term nature recovery targets aiming to cover at least 20% of the EU’s land and sea areas by 2030, and all ecosystems by 2050. In passing the law, the bloc is demonstrating that climate action is not just about reducing GHG emissions but also protecting nature.

Europe’s nature is in decline as more than 80% of ecosystem habitats are in poor condition. Restoring wetlands, rivers, forests, grasslands, marine ecosystems, and the species they host requires fundamental changes, such as to food production and consumption, land use and more.

The focus on nature restoration, which underpins the EU Biodiversity Strategy for 2030, is supported by a strong economic case that estimates investment in nature restoration adds between 8 and 38 euro-worth of benefits for every euro spent. Businesses and investor networks, including 1,400 companies supporting Business for Nature, have been calling on governments to adopt policies to reverse nature loss.

The EU’s 2023 Strategic Foresight Report highlights key challenges and proposes actions to enable the bloc’s sustainability transition. The report is published annually to provide guidance towards achieving President von der Leyen’s six policy priorities, which includes the European Green Deal.

Key challenges include evolving geopolitical shifts that are shaping public opinion and how governments across the globe act, the need for a new economic model focused on the wellbeing of people and nature, and the need for unprecedented investments.

Among the proposed areas for actions: deepen the Single Market to champion a resilient net zero economy, strengthen cooperation with partners to boost the EU’s offer on the global stage, support shifts in production and consumption towards sustainability, and catalyze financial flows for the transition through public action.

The report underscores the importance of the links between environmental, social, and economic aspects of sustainability. It proposes to adjust Gross Domestic Product (GDP) to take account of different factors such as health and the environment.

Chart: Addressing social and economic challenges

Six main challenges the EU will need to address while pursuing sustainability transition.

Over USD $2 billion in commitments were announced at the Climate Finance Mobilization Forum in July. The event, a joint UK-US initiative led by the UK Energy Security and Net Zero Secretary Grant Shapps, and US Special Presidential Envoy for Climate John Kerry, convened financiers, investors, and philanthropists to catalyze climate finance for emerging and developing countries.

A joint UK-US statement affirmed the need for trillions in private investment to scale the energy transition – described as ‘one of the biggest investment opportunities in history’.

Among the new investment platforms and initiatives announced at the event by private sector financial institutions and philanthropists, USD $1 billion for nature-based solutions projects across critical supply chains in agriculture, natural resources development, and energy, and USD $100 million for blue carbon ecosystem conservation, oceans carbon dioxide removal, and shipping decarbonization. A new USD $100 million Terra Carta Accelerator Fund, by the Sustainable Market Initiative (SMI), will bring natural capital projects, with climate co-benefits, to investability and scale.

An article by the Rocky Mountain Institute (RMI) discusses the untapped potential for leveraging embedded real estate investment trusts (REITs) assets – such as commercial buildings’ rooftops, parking lots and garages – to increase solar power generation.

In the U.S. alone, according to Morgan Stanley, commercial buildings have an estimated 38.5 billion square feet of ‘solar-appropriate surface areas’ that could generate over 25% of commercial buildings’ electricity needs. Installing on-site solar, like on rooftops and parking lots, means less regulatory barriers and permitting challenges for land use that is already developed, and it creates value out of unproductive assets. However, challenges exist, including limitations in how REITs can access US federal tax credits for solar projects, and the financial complexity of solar installation on industrial buildings.

To harness and monetize REIT assets, RMI recommends identifying potential developers and running competitive procurement processes to find the best economics and partners to work with – ultimately accelerating energy transition and bolstering incremental value for the REIT industry.

Chart: Top 25 Corporate Users by Total Installed On-Site Solar Capacity

There is still an incredible amount of opportunity to install more solar. The larger players are already taking advantage of the opportunity.

The Institute for Sustainable Finance (ISF) released its third edition of Canadian Corporate Performance on GHG Emissions, Disclosures and Target-Setting. The 2023 update is based on analysis of the 2022 sustainability reports of S&P/TSX Composite Index firms, augmented by data from CDP.

Among the findings, 167 (of the 236 firms in the Index) reported absolute GHG emissions reduction targets in 2021, representing an 11% increase over the previous year. However, only 36 companies with targets are loosely aligned with the SBTi – indicating a lack of ambition for firms with targets. Notably, 30 firms have set a Scope 3 target which was not tracked in previous years.

The ISF notes that differences in how firms disclose climate and sustainability information have created a complex reporting environment making comparability difficult. As the sustainable finance industry matures, and regulations are implemented, it expects to see higher quality and more standardized GHG emissions reporting and climate-related disclosures.

Chart: S&P/TSX Composite Index GHG Reduction Target Breakdown

The number of companies with absolute targets increased from 129 in 2020 to 167 in 2021.

On July 1, 2023, compliance obligations for the Canada Clean Fuels Regulation (CFR) took effect. CFR requires liquid fossil fuel (gasoline and diesel) suppliers to gradually reduce their carbon intensity, leading to a decrease of approximately 15% (below 2016 levels) in the carbon intensity of gasoline and diesel used in Canada by 2030.

The CFR establishes a credit market for regulated parties (producers and importers of gasoline and diesel) to create or buy credits to comply with the reduction requirements. The credits can be created through 3 categories of actions: 1) from projects that reduce greenhouse gas emissions from the production of gasoline and diesel, like carbon capture and storage; 2) from supplying low-carbon intensity fuel, such as biofuel; and 3) from supplying fuel or energy to advanced vehicle technologies, such as electric vehicles or hydrogen fuel cell vehicles.

The Public Policy Forum (PPF) published Project of the Century – a blueprint for growing Canada’s clean electricity supply – calling it the ‘no.1 national project of the century’.

Electricity demand is set to double by 2050, requiring supply capacity of 2.2 to 3.4 times today’s volume. Adding new capacity while simultaneously subtracting electricity-generating stock from non-clean sources are the twin policy challenges facing Canada.

Among the report’s key messages are: Canada’s electricity abundance is a strategic competitive advantage, yet Canadian consumers are not prepared for the shock of moving from abundance to scarcity; Canada is behind on progress to achieve a net zero grid by 2035, requiring faster policy-making, regulatory streamlining, and an industrial strategy that will prioritize electrification initiatives with energy efficiency and transportation first, followed by industry and home heating; and Canada needs to urgently address the impact of labour shortages and critical minerals supply disruptions on its energy transition ambitions.

The Ontario government published Powering Ontario’s Growth – a new integrated strategy that will guide policies and investments to meet the province’s growing energy demands through 2050.

According to data by the Independent Electricity System Operator (IESO), cited in the plan, electricity generating capacity will need to double from 42,000 megawatts (MW) today to 88,000 MW in 2050 to maintain and build Ontario’s clean electricity advantage – such as EV and battery manufacturing and clean steel production. Among the key actions supported are: pre-development work for a new nuclear station at Bruce, advancing three small modular reactors (SMRs) at Darlington, developing new transmissions lines to open up new regions for clean energy and developing long-duration storage, like pumped hydroelectric.

In a response to the Ontario plan, the Canadian Climate Institute welcomes the guidance to support utilities, regulators, and system operators. However, it points out the plan is silent on whether the province intends to construct new gas-fired generation facilities.

Global Annual Temperature Anomaly (°C) [1901 – 2000 baseline]

The term temperature anomaly means a departure from a reference value or long-term average. A positive anomaly indicates that the observed temperature was warmer than the reference value, while a negative anomaly indicates that the observed temperature was cooler than the reference value. 

Source: ClimateAnalyzer.org and NOAA NCEI (2023)

Save the Date – Carbon Summit, October 26, 2023

We are pleased to announce that Tom Heintzman joined the bank as Managing Director and Vice-Chair, Energy Transition & Sustainability, on August 1, 2023. Tom’s expertise will be instrumental as we continue to enhance our Energy Transition leadership and develop our franchise in Canadian Climate Technology, an area of significant industry growth, capital investment and opportunity for our clients.

A well-recognized sustainability leader in Canada, including being named Ontario Energy Association Leader of the Year and recognized as an inaugural member of the Canadian Clean16 and Clean50, Tom has led all facets of corporate sustainability, including operating and investing in cleantech businesses, advising traditional businesses on their path to sustainability, and mergers and acquisitions where sustainability has been a transaction driver.

Tom will work closely with the Energy, Infrastructure and Transition team as we continue to be a leading advisor and financier to clients pursuing their energy transition ambitions.

CIBC Perspectives – Stephen Poloz on Canada’s Competitiveness in the Energy Transition

Exploring energy transition in Canada. CIBC Capital Markets’ Roman Dubczak hosts a discussion with Stephen Poloz, Special Advisor, Osler, Hoskin & Harcourt, and Former Governor of the Bank of Canada, on the opportunities the energy transition has to transform Canada’s economy, and the country’s competitiveness on the world stage.

Running time: 19 minutes 2 seconds

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