Sustainability Newsletter – January 2024

In ‘World Economic Situation and Prospects 2024’, the United Nations’ Department of Economic and Social Affairs presents a subdued outlook for the global economy in the year ahead. Notably, climate change and its related risks pervade as one of the main challenges to global growth in 2024.

While GDP growth exceeded expectations in 2023, the report forecasts that GDP will slow from 2.7% to 2.4% in 2024 – trending below the pre-pandemic growth rate of 3.0%. Headwinds such as growing geo-political conflicts, tighter financial conditions which can slow global trade and industrial output, and the rising severity and frequency of weather events, are heightening the underlying risks and vulnerabilities affecting growth.

Despite this backdrop, the report emphasizes the need to fight climate change and accelerate progress towards the Sustainable Development Goals (SDGs), urging the mobilization of USD $500 billion per year in financing for investments in sustainable development and climate action. It also advocates for increased global collaboration and prudent policies, such as industrial policies that bolster innovation and productive capacity to build resilience and accelerate a green transition.

A new UN-convened Net-Zero Export Credit Agencies Alliance (NZECA) aiming to decarbonize global trade will, for the first time, align public finance institutions with the goal of net-zero emissions by 2050. According to Inger Andersen, Executive Director of UNEP: “Public finance has been the missing piece in the net-zero financial landscape”.

NZECA members – who represent approximately USD $120 billion in global trade in 2022 – have committed to transition all operational greenhouse gas emissions from their business activities to align with pathways to net zero by 2050. Alliance members will also set and publicly disclose intermediate science-based targets for 2030 or sooner for the highest emitting sectors in their portfolios, and commit to end new direct support for the fossil fuel energy sector by the end of 2024. A dedicated work track for climate solutions and transition finance will also be established with upwards of USD $2 billion to USD $6.5 billion each towards green technologies.

On the heels of a global COP28 pledge to triple nuclear capacity, Ontario-based Bruce Power introduced the first carbon offset protocol for nuclear generation to facilitate accreditation for emissions reduction in the electricity sector, enabling companies to use carbon offsets based on clean nuclear power to support their decarbonization strategies.

Bruce Power and GHD, a global professional services company, collaborated to develop the carbon offset protocol for nuclear generation, showing how the energy sector and nuclear power can contribute to the transition to a zero-carbon economy. The protocol acknowledges increased nuclear output from improved efficiency, equipment replacements, upgrades and technological advancements of existing systems that do not produce more greenhouse gases to generate electricity.

Bruce Power’s Project 2030 seeks to optimize nuclear output from existing assets and projects, with investments in power recovery projects that can raise annual output from a current level of 6,500 megawatts to 7,000 megawatts through the 2030s. The carbon offset protocol can help to support further strategic investments in nuclear generation.

Research by the Voluntary Carbon Market Integrity Initiative (VCMI) and WaterAid’s Resilient Water Accelerator (RWA) shows that 4% of the world’s carbon emissions could be saved within the global water sector.

According to the research, the global water sector has over 1.3 billion CO2e per year in carbon mitigation potential (equivalent to half of the EU’s annual emissions), through carbon-crediting projects that could improve coastal blue carbon, wastewater and drinking water treatment, irrigation, energy efficiency and more. Such projects that can reduce carbon and improve water outcomes have the potential to generate high integrity credits in the voluntary markets.

VCMI and RWA are calling on the international community to develop much needed water-related policy actions and to mobilize investments into more resilient water, sanitation and hygiene systems to cope with the changing climate. Their research also indicates a new untapped potential for the carbon markets where high-quality, high-integrity carbon credits are valued by corporate buyers as part of their net-zero strategies.

Chart: Potential Total Global Addressable Emissions Reduction Credits by Sector

The Climate Bonds Initiative (CBI) launched a consultation on its V4.1 draft certification standard for use-of-proceed climate bonds. It proposes to expand the eligibility criteria to include earlier-stage research and development (R&D) investments for innovative climate technology solutions, among other proposals.

The draft update intends to recognize the role of emerging technologies in achieving a net-zero transitions. It is proposed that the eligibility of R&D expenditures for use-of-proceed climate bonds would be continually assessed to ensure that the relevant climate goals are being achieved.

CBI’s Climate Bonds Standard and Certification Scheme is a voluntary labelling scheme used globally by bond issuers and investors to prioritize investments that align with the Paris Agreement goal of limiting global warming to 1.5C. Over USD $270 billion of use-of-proceeds green bonds have been certified since the scheme was launched in 2012.

• A proposed federal regulatory framework for an oil and gas sector greenhouse gas emissions cap seeks to establish a national cap-and-trade system, capping 2030 emissions for the sector at 35% to 38% below 2019 levels. The mechanism aims to help producers find the most cost efficient way to cut emissions and remain competitive in a global economy that is rapidly moving to net-zero. The final regulation is expected in 2025.
• A new federal electric vehicle availability standard seeks to boost the sale and supply of zero-emission vehicles (ZEVs) in Canada. From the 2026 model year, new targets will require at least 20% of light duty vehicles for sale in Canada to be ZEVs, increasing annually to 60% by 2030 and 100% by 2035. The move complements existing government and private sector investments to expand charging infrastructure, battery and automotive manufacturing and consumer incentives.
• The Canada Growth Fund (CGF) agreed a ‘precedent-setting’ carbon credit offtake commitment with Alberta-based Entropy. Under the deal, CGF will purchase up to 185,000 tonnes per year of carbon credits in Alberta’s TIER system for 15 years, fixing an initial price of $86.50 per tonne. The commitment, which is in addition to $200 million in direct investments, will help to de-risk investments in carbon capture projects, guaranteeing long-term price signals for the market.
• The federal government seeks to establish a nature accountability framework in 2024 to assess and report on Canada’s progress towards its nature and biodiversity commitments of preserving 30% of land and water by 2030. The bill aims to set an accountability framework for the implementation of concreate steps at federal level from now until 2030, including the development of a national 2030 Biodiversity Strategy.

• The UK government will establish a new carbon border adjustment mechanism (CBAM) by 2027 to levy foreign imported products – such as iron, steel, aluminum, fertilizer, cement and more – with a carbon price equal to those products produced in the UK. The move aims to mirror the EU-wide CBAM which entered into its first reporting phase on October 1, 2023. The UK CBAM-equivalent will also impose new compliance and reporting requirements on UK importers, and non-UK producers exporting into the UK will need to ensure accurate carbon accounting of their covered products.
• Two consultations on the UK’s Emissions Trading Scheme (ETS) have launched, seeking feedback from stakeholders in the power, aviation and industrial sectors on proposed changes to its ‘free allowances’ allocation methodology and on market policies that address risks. The UK ETS Authority has also confirmed the scheme will run until at least 2050, providing long-term clarity for market participants.

The EU Council and Parliament have provisionally agreed the Corporate Sustainability Due Diligence Directive (CSDDD), which will require large companies with more than 500 employees and a net worldwide turnover over of €150 million generated within the EU to address the environmental and human rights impacts of their activities and business partners along their value chains.

CSDD will mandate covered companies to integrate specific due diligence processes into their corporate policies, and to identify and mitigate any human rights and environmental impact violations. The provisional agreement that was reached clarifies the penalties and civil liability that companies can incur for non-compliance. The directive still needs to be formally adopted by both institutions.

The U.S. Commodity Futures Trading Commission (CFTC) approved proposed guidance for the listing of voluntary carbon credit derivative contracts, including considerations for an CFTC-regulated exchange, that could help to boost voluntary carbon market integrity, transparency, liquidity, and price discovery.

The suggested guidance identifies factors that an exchange should consider when designing and listing such contracts which could promote the standardization of voluntary carbon credit derivatives. The announcement suggests that the CFTC aims to contribute more concertedly to efforts to improve standards in, and oversight of, the voluntary carbon market which has experienced public scrutiny in recent years.

The International Capital Markets Association (ICMA) has finalized a Code of Conduct for ESG Ratings and Data Products Providers which sets internationally-interoperable standards on the availability and quality of ESG ratings and data information available to investors.

The Code recognizes that the market has become increasingly reliant on third party ESG data and ratings companies. It therefore aims to enhance market integrity through increased transparency, good governance and controls in the sector, and by improving the comparability of products and providers. The Code also aligns with recommendations by the International Organization of Securities Commissions (IOSCO) and is seen as a benchmark that could lead to potential future regulation.

According to UNEP’s State of Finance for Nature 2023, an estimated USD $7 trillion per year in private and public finance flows have had direct negative impacts on nature.

Despite growing awareness and commitments by both public and private sectors to address nature loss, such as zero-deforestation pledges, the financing for nature-based solutions (NBS) has only increased 11% – to USD $200 billion – since UNEP’s previous report edition in 2022. This represents only a third of NBS finance needed by 2030.

While these findings reveal a significant gap, the report also highlights opportunities to shift NBS investments toward protection, restoration and sustainable land management initiatives that can transform sectors most closely linked to nature loss, including in construction, oil and gas, food and tobacco, real estate and infrastructure.

The report recommends eliminating nature-negative finance by: re-aligning biodiversity targets for businesses, repurposing environmentally harmful public subsidies including support for activities beyond sustainable rates in the agriculture, forestry, fisheries and fossil fuel energy sectors, and scaling NBS investments threefold to USD $542 billion by 2030, among others.

It’s official – the next UN Convention on Biological Diversity, known as COP16, will be held in Colombia on October 21 to November 1, 2024.

At COP16, governments will be expected to take stock of their respective National Biodiversity Strategies and Action Plans, and to develop a monitoring framework for the implementation of goals under the 2022 Kunming-Montreal Global Biodiversity Framework to preserve 30% of land and water by 2030.

Following the announcement, the World Wildlife Fund (WWF) issued a statement warning that while global progress towards the Kunming-Montreal Global Biodiversity Framework has been encouraging, overall it has been insufficient, with many countries yet to submit revised national biodiversity strategies or funded implementation plans.

WWF are calling on national leaders to boost biodiversity commitments and to build synergies on the heels of the COP28 climate talks that could help to increase international biodiversity finance to at least USD $30 billion per year by 2030.

CIBC Perspectives: Investing in Sustainable Finance Education and Research with The Schulich School of Business

Roman Dubczak, Deputy Chair, CIBC Capital Markets, hosted a discussion with the Dean of the Schulich School of Business, Detlev Zwick, and the inaugural CIBC Chair in Sustainable Finance, Dr. Olaf Weber. The conversation provided insights on how business schools are adapting to sustainability challenges to educate the next generation of leaders, leveraging strategic partnerships to accelerate climate action through peer learning and collaboration across industry, government and academia.

Running time: 26 minutes, 11 seconds

CIBC Perspectives: The COP28 Climate Conference – Key Implications for Businesses

CIBC Capital Markets’ Roman Dubczak was joined by Roy Choudhury of Boston Consulting Group and Tom Heintzman of CIBC Capital Markets to discuss themes from the COP28 climate conference including climate finance, emissions reduction, future of fossil fuels, carbon markets, and the key implications for businesses.

Running time: 19 minutes, 23 seconds

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