Sustainability Newsletter Edition 43

Top Story

Climate litigation on the rise – governance boards take note

Global investment manager, Investcorp, released its top 10 climate predictions for 2024. Among them, is the expectation that climate action will become a major legal battleground in the year ahead.

Quick recap: The rise of climate litigation builds on the momentum seen in 2023 across novel cases in the US and EU, including lawsuits alleging climate-related harms against five of the largest oil and gas companies, and environmental and public health harms from single-use plastics against leading food and beverage companies.

Why is this interesting? There has been growing politization of the term ‘ESG’ in certain jurisdictions, like in the US, as businesses face increasing investor criticism, political influence, and legal risks over ESG efforts. A new study from the London Business School, makes the argument for using ‘Rational Sustainability’ as the new nomenclature for ‘ESG’, to better evoke the preservation of long-term value creation methods to those with an ESG label, while rationally recognizing diminishing returns and trade-offs. Watch this space.

Energy Transition & Decarbonization

Low-emissions electricity generation will cover 100% of demand growth by 2026

The International Energy Agency (IEA) released its annual Electricity 2024 report, forecasting that the extra need for power through to 2026 will be met entirely by renewable electricity generation, such as solar, wind, hydro and nuclear.

Quick recap: The report finds that the annual demand for global electricity is set to grow at a faster rate of 3.4% between 2024 and 2026, vs. 2.2% in 2023, due to improving economic outlook and end-use consumption growth for electric vehicles, heat pumps and data centers. This additional demand will be covered entirely by renewables generation, which is expected to make-up 50% of global electricity generation by 2026, up from less than 40% in 2023. As renewable energy grows as a percentage of the energy mix, global CO2 emissions are also expected to drop to 54% in 2026, from 61% in 2023, reaching a record low in IEA data.

Why is this interesting? This marks a significant decoupling of electricity demand and emissions, as the power sector becomes more electrified and less carbon intensive. While electricity’s role in final energy consumption increased to 20% in 2023, from 18% in 2015, it still needs to grow much faster in the coming years. The IEA’s Net Zero Emissions (NZE) by 2050 Scenario estimates that electricity should make up 30% of final energy consumption by 2030. However, wholesale electricity price trends may impact the competitiveness of final energy consumption in some regions. For instance, in Europe, energy-intensive industries paid twice as much for electricity as those in the US and China.

RMI: ‘Financing the energy transition is a story of capital reallocation’

The Rocky Mountain Institute (RMI)’s latest report, The Great Reallocation, suggests that capital requirements (capex) for renewable energy may already be within reach.

Quick recap: According to the report, global capex for fossil fuels and renewables stood at USD 1.1 trillion each in 2023. Under the International Energy Agency (IEA)’s Announced Pledges (APS) scenario, renewables capex would need to reach USD $1.8 trillion in 2030, a 0.7 trillion increase from today. The report finds that fossil fuel capex has been declining at 3% per year since 2015 but needs to fall a further 5% per year from 2023 to 2030, to reach USD 0.7 trillion in the IEA’s APS scenario. Therefore, as fossil fuel capex decreases by roughly half, it will provide half the growth for renewable capex.

Why is this interesting? RMI make the case that the transition to renewables would not require a surge of capex but rather a reallocation of it. The analysis also offers alternate framing from the standard approach used by organizations like the IEA which count rising capex on clean energy end-use but not falling capex on fossil fuel end-use – claiming that clean energy capex is ‘far more manageable’ than conventional analysis suggests.

New climate initiatives launched at Davos aimed at private sector

Climate, nature and the energy transition were among the central themes at this year’s 54th World Economic Forum Annual Meeting in Davos.

Quick recap: With a focus on rebuilding trust in the face of increasing global fragmentation, this year’s Davos discussions around decarbonization, and the cost and complexity of such a large transition, were described as ‘more measured but deeper than at any previous Annual Meeting’.

Why is this interesting? A number of new initiatives were launched at Davos aimed at the private sector to drive energy efficiencies, address energy demand, and protect and restore nature. Examples include the First Movers Coalition for Industry of 100 companies catalyzing early market demand for breakthrough climate technologies in high-emissions industry sectors, like steel and cement, and the First Movers Coalition for Food with 20 food companies leading a procurement commitment of up to USD $20 billion by 2030 to accelerate sustainable farming and transitional funding.

Carbon Markets

How much are buyers willing to pay for durable CDR?

A analysis by CDR.fyi sheds light on the carbon dioxide removal (CDR) market outlook for the year ahead.

Quick recap: Based on a survey of purchasers and suppliers worldwide, the analysis reveals that today’s buyers are motivated to buy more durable CDR than ever before and are budgeting over $100 per tonne. According to the report, durable CDR price expectations diverge from the $5 – $10 range in the voluntary carbon markets for less permanent carbon credits.

Why is this interesting? As technologies and supplier capacity grow, the prices of credits from durable CDR are expected to drop but keep a premium based on perceived quality. Key to scaling this market is finding buyers and signing contracts essential in drawing growth capital and project financing.

Higher quality carbon credits correlate to greater price premiums, new study

Carbon rating agency, BeZero Carbon, released new research showing a correlation between carbon credit ratings and price.

Quick recap: The study, covering over 50 million carbon credit transactions from BeZero’s own ratings since April 2022, show an average 25% price difference between credits separated by one BeZero rating notch, such as between ‘C’ and ‘B’. The premium reaches 80% for credits with a rating of ‘A’ or above, compared to ‘BBB’.

Why is this interesting? The correlation between price and quality has been noticeable in the latter half of 2023 across the voluntary carbon market and is expected to continue into 2024. Carbon credit ratings provide risk information to market participants, giving them a new and valuable input into price discovery and helps to make the market more efficient. The study shows that BeZero ratings have a growing influence on how credits are valued in the voluntary carbon market.

Sustainable Finance

Biodiversity in labelled debt Use of Proceeds on the rise

According to an analysis by Sustainable Fitch, labelled bonds that include terrestrial and aquatic biodiversity conservation in their use of proceeds (UoP) have risen in recent years.

Quick recap: Based on data from Environmental Finance, Sustainable Fitch concludes that 16% of new labelled debt issuances included biodiversity-related UoP in 2023, up from 5% in 2020. Around USD $480 billion in outstanding green, social and sustainability (GSS) bonds included the same as of January 2024.

Why is this interesting? Sustainable Fitch observes that more corporate issuers’ labelled bond frameworks are including biodiversity-related UoPs, especially in sectors with significant impacts on nature such as energy, utilities and manufacturing. As financing for biodiversity and nature conservation grows, there is increasing momentum by companies, investors and regulators to standardize information appearing in company financial and sustainability reporting. For instance, the Taskforce for Nature-related Financial Disclosures (TNFD) recently announced it had support from 320 worldwide organizations to adopt its disclosure recommendations. Similarly, the Global Reporting Initiative (GRI) recently published a revised biodiversity standard to help organizations understand which decisions and business practices lead to biodiversity loss, where in their value chain impacts can occur, and how they can be managed.

Governance & Policy

New actions to build-out the US EV charging network

The Biden-Harris Administration announced USD $325 million in new funding to build-out the US domestic electric vehicle (EV) charging network.

Quick recap: The new funding will support programs that improve the reliability and resilience of domestic public EV chargers, advance EV technologies, and train workers for EV charging deployment and maintenance. Additionally, a 30% tax credit has been announced for installing EV chargers in low-income communities and non-urban areas.

Why is this interesting? Since President Biden took office, the number of publicly available charging ports has grown by over 70%, putting the US on track to deploy 500,000 chargers by 2026 and achieving Biden’s goal four years early. Additionally, some USD $25 billion in investments in the U.S. EV charging network have been announced to date. Of this, USD $10 billion came from the private sector. This momentum continues as several dozens of private companies from across automakers, charging companies and manufacturers, and hospitality and retail have already announced major commitments to expand EV charging in the US.

Emerging Sustainability Themes

Circularity gap widens as global consumption rises – how companies can help

The Circle Economy Foundation and Deloitte published The Circularity Gap Report 2024, warning that as material consumption rises, industries and governments can do more to change socially and environmentally-exploitative practices.

Quick recap: The report finds that from 2018 to 2023, the global economy has consumed 582 billion tonnes of materials, nearly as many materials as the 740 billion tonnes consumed in the entire 20th Century. The report also warns that the share of recycled materials used by the global economy dropped from 9.1% in 2018 to 7.2% in 2023, which means a 21% decline in circularity over the last six years.

Why is this interesting? The report identifies key global systems – food, the built environment, and manufactured goods – where circular solutions would have the most impact to maximize benefits for people and minimize the pressure on the planet’s natural resources. Companies in the food, construction and manufacturing sectors can contribute to circularity through 12 key approaches, among them implementing industrial symbiosis and efficiency, extending the lifetime of machinery, equipment, and goods, prioritizing circular materials in construction, and be as energy efficient as possible.

Charting the market

The volume of sustainable finance debt declined in the fourth quarter of 2023 to $259 billion, compared to $305 billion in the fourth quarter of 2022.

Below is a breakdown of volumes by product type.

Source:
Source: Prepared by CIBC Capital Markets, based on data from Bloomberg L.P. as of December 31, 2023.

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

Videos

CIBC Perspectives: 2024 Outlook – Sustainable Finance

Roman Dubczak, Deputy Chair, CIBC Capital Markets, hosted a discussion with our sustainable finance experts, Siddharth Samarth, Managing Director & Head of Sustainable Finance, and Amber Choudhry, Managing Director, Debt Capital Markets, to look at emerging trends in sustainable finance in the year ahead and reflect on the past year.

CIBC Perspectives: Fifth Annual ESG Survey Results

Roman Dubczak sat down with Shaz Merwat, ESG Analyst, Equity Research, to discuss the results and key takeaways from our 5th annual ESG survey.

Please click here for a related report from the Equity Research team.

The CIBC logo and “CIBC Capital Markets” are trademarks of CIBC, used under license.

Key Contacts

Roman Dubczak
Deputy Chair
Susan Rimmer
Managing Director And Head, Global Corporate & Investment Banking
Giorgia Anton
Managing Director and Head, Research
Amber Choudhry
Managing Director, Debt Capital Markets
Gayatri Desai
Managing Director, Global Corporate Banking
Ryan Fan
Managing Director and Vice-Chair, Global Markets
Jacqueline Green
Managing Director and Head, Financial Markets & Senior Client Coverage
Tom Heintzman
Managing Director and Vice-Chair, Energy Transition & Sustainability
Siddharth Samarth
Managing Director, Sustainable Finance
Robert Todd
Managing Director, Energy, Infrastructure & Transition

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