“If it’s not profitable, it’s not sustainable.”
The mail arrived today with the most delightful surprise. A newly published book by my friend Urvashi Bhatnagar, co-authored with our Yale professor Paul Anastas. The book, The Sustainability Scorecard: How to Implement and Profit from Unexpected Solutions, is a very welcome reminder that there are climate solutions out there and profits to be had in their pursuit. There are trillions of dollars ready to be deployed to companies developing and scaling those solutions. Last week’s surprise announcement of the Inflation Reduction Act bill will accelerate progress and provide incentives and funding for climate innovation.
Urvi’s book is practical and inspirational, grounding and uplifting. It includes a foreword by Marc Tarpenning, co-founder of Tesla, who invokes economist Herbert Stein’s observation that things that cannot go on forever will stop. By extension, things that are not sustainable cannot be profitable in the long term. The book’s conclusion rounds out the syllogism: “if it’s not profitable, it’s not sustainable.” In the end, the book is about sustainable solutions that drive profits.
I spend a lot of time thinking about climate disclosures but that’s hardly the goal. Rather, its a means to an end. Good, clear disclosure will help protect investors and will facilitate the flow of capital to the solutions we badly need. Urvi’s book is a reminder that these solutions are within reach.
Mixing it up a bit
I thought we might change things up a bit with the format of this newsletter and include a new section - Disclosure Deep Dive - that breaks down some of the disclosure frameworks such as the GHG Protocol and TCFD for folks who don’t live and breathe climate disclosures. Then we’ll include an overview of some of the key regulatory developments around the world - principally curated by my exceptional colleagues, Anissa Vasquez and Kevin Stephen.
For the Disclosure Deep Dives, I thought we would start with the Greenhouse Gas Protocol and the Task Force on Climate-related Financial Disclosure (TCFD) since they form the common throughline for climate disclosures across jurisdictions. These will include pieces on:
An overview of the GHG Protocol and TCFD and how they work together
GHG Protocol: What it is, how it works, and why it matters
TCFD: Its history and adoption around the world
TCFD: What it says and how it works
TCFD: Governance - What is good governance? How do you know if you have it? Who decides?
TCFD Risk Management: How to think about climate-related risks
TCFD Strategy: Building a strategy to address climate related financial risks and opportunities. Dealing with uncertainty, testing the resilience of your strategy, and scenario analysis.
TCFD Metrics and Targets: Why set them? How do they help companies and investors?
Inside out or outside in? Single versus double materiality
Beyond climate - TCFD applied more broadly
I would very much welcome input into topics that might be of interest. For a full rundown on the sustainability news of the week, my colleague Tim Mohin’s newsletter, ESG and Climate News, is fantastic and reflects his exceptional insight and leadership in the climate and ESG world (his newsletter is also supported by the amazing team of Anissa and Kevin).
Canada in process of new methane emissions regulations
As the Inflation Reduction Act proposes new methane emissions regulations in the U.S., the Canadian government is also working on new rules for methane emissions regulations for the oil and gas industry. The government’s proposed rules may set a cap on methane emissions as part of the country’s commitment to reduce oil and gas methane emissions by 75% by 2030. The Pembina Institute, as part of a coalition of climate and energy groups in Canada, submitted recommendations for the government to implement new methane-related rules by 2025 and commit to a “near-elimination of methane emissions by 2030” to align itself with the targets set by the global Oil and Gas Climate Initiative.
ECB report finds climate shocks can spread rapidly across financial markets
The European Central Bank and European Systemic Risk Board (ESRB) published a study stating that financial risks from climate shocks can reverberate through the European financial system. For instance, nature-related impacts like wildfires or droughts could cause rapid climate risk reassessments and fire sales of financial securities, while rising carbon prices could lead to a domino effect of company defaults due to rising costs. The report examines options for a coordinated European policy response to address the financial impacts of climate changes, recommending that these policies work alongside financial regulations to reduce climate stressors on financial markets.
Japan plans green transition road map for emissions-heavy industries
Japan’s Ministry of Economy, Trade and Industry will unveil a decarbonization road map for steel, chemicals, and six other carbon-intensive industries as early as this year, aiming to engineer a smooth decarbonization process with minimal economic impact. Transition steps will include setting industry-specific emissions reduction targets and investing in greener technologies as part of a 2050 net-zero goal–a target which Japan estimates will require a $1.1 trillion investment to reach. The Japanese government hopes that having a decarbonization plan in place will encourage banks and financial institutions to increase investment in carbon-heavy industries to finance a transition.
Singapore’s monetary authority unveils disclosure rules for ESG funds
The Monetary Authority of Singapore (MAS) released reporting and disclosure requirements for ESG funds last week. The rules are intended to help retail investors understand the ESG characteristics of the funds they are investing in and reduce greenwashing by financial firms. The new guidelines are expected to come into effect by January 2023 and will require disclosure by ESG funds of investment strategies, criteria and metrics used for picking investments, and risk mitigation strategies.
FCA says voluntary climate disclosures are falling short
Reviews conducted by the UK’s financial regulators found that public companies have made “significant steps” to improve their climate disclosures but that gaps in disclosure remain. The Financial Conduct Authority (FCA) and Financial Reporting Council (FRC) reviewed 171 companies in the U.K. and concluded that some companies could be downplaying climate risks on their bottom line or exaggerating their compliance with TCFD disclosure requirements.
In particular, the FCA and FRC noted that companies need to provide more detailed disclosures in areas like sector- or geography-specific climate impacts, scenario analysis, and links between climate risks and other risk management processes. Sacha Sadan, the FCA’s director of ESG, noted that the agency is “pleased to see improvements in the completeness and consistency of disclosures … but there is clearly more to do.” Regulators warned that companies could face “appropriate action” if inconsistencies in climate disclosures are not addressed.
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Wyatt joined Persefoni from the U.S. Securities & Exchange Commission (SEC), where she served as Senior Counsel for Climate & ESG to the Division of Corporate Finance, led the rulemaking team through drafting proposed climate disclosure regulations, and worked closely with the Office of International Affairs.
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Persefoni is a leading Climate Management & Accounting Platform (CMAP). The company’s Software-as-a-Service solutions enable enterprises and financial institutions to meet stakeholder and regulatory climate disclosure requirements with the highest degrees of trust, transparency, and ease. As the ERP of Carbon, the Persefoni platform provides users a single source of carbon truth across their organization, enabling them to manage their carbon transactions and inventory with the same rigor and confidence as their financial transactions.