The Week in Sustainability

The summer in the Northern Hemisphere has seen record-breaking heat waves. The stifling heat has served as a reminder of the harsh realities of the effects of climate change. The first week of July was the hottest ever recorded, with temperatures surpassing 110°F in Europe, while Phoenix, Arizona experienced its twentieth day of temperatures above 110°F. As the heat wave persists, concerns about health impacts and strains on the power grid continue to grow, exemplified by a recent study that examines the potential effects of a power outage during a five-day heat wave in Phoenix. 

The mechanisms behind heat waves start with a high-pressure system that forces air to sink and heat up, which then gets trapped. Climate change enhances this effect by increasing overall heat in the atmosphere and reducing moisture on the ground that would typically absorb some of the heat. The current El Niño cycle’s impact—warmer Pacific Ocean surface water—has also contributed to the ongoing heatwave as the warmer ocean decreases heat absorption.

The worrying forecasts so far in 2023 show that we’re poised to break the heat records of 2016, and there’s a strong possibility of 2024 surpassing this year’s records as the El Niño cycle plays out. However, amidst the dire circumstances, we’re still optimistic about the promising potential that lies in mitigation strategies. For example, we’re bullish on more urban trees and increasing solar energy utilization to help bring down temperatures in the long term—especially in places like Arizona, where there’s massive potential to maximize the use of solar power year-round.

Minerals critical to the energy transition

The International Energy Agency’s inaugural edition of the Critical Minerals Market Review offers intriguing insights into global energy markets as the world transitions from a fossil fuel-based system to renewable energy. While the transition has happened in significantly less time than it took to build a fossil fuel-based system (we’re already seeing record deployment of solar panels, wind turbines, and electric vehicles), it hasn’t been without challenges. The shift towards renewables and the growing demand for this technology underpin the growth in the critical minerals markets. In fact, the market size for energy transition minerals has doubled compared to 2017, making it a massive $320 billion industry.

The challenges with the energy transition are largely tied to critical mineral extraction. The demand for minerals like copper, nickel, lithium, and rare earth elements like neodymium used in electric vehicles has skyrocketed. But as market demand for these minerals grows, so must the mining industry. The mining boom raises concerns about the environmental and societal impacts of expanded mining operations. The Critical Minerals Market Review highlights an interesting tension between battery production for electric vehicles and consumer preferences, alongside potential negative implications of meeting the growing demand for minerals. While progress in improving the gender balance of workers and community investment by mining companies, concerns about worker safety, emissions, water use, and waste production persist. Furthermore, equitable access to the technology developed from these minerals for resource-rich countries remains unsolved and unanswered.

Climate change scenarios in financial services

The University of Exeter’s Institute and Faculty of Actuaries released a paper (The Emperor’s New Climate Scenarios) highlighting that commonly used climate models in financial services often underestimate the risks of climate change. It’s an area often overlooked in the discussions around climate change; however, financial services increasingly incorporate potential climate events into their risk assessments to improve their strategies. While it’s encouraging to see a willingness to understand how climate poses a material risk to company performance, the paper warns that these models often produce “artificially benign” predictions, which could pose significant economic risks.

The critical issue with these models is their failure to accurately incorporate the cost of real-world impacts of climate change. According to a survey by the Global Association of Risk Professionals, 80% of firms used climate-scenario analysis in 2022, but the models often overlooked the escalating costs of climate phenomena such as sea-level rise and crop die-off. 

Misinterpretation of these models is also prevalent due to financial firms’ lack of climate expertise. Models built on a near-term time horizon of one to five years should not be applied to longer-term decision-making, and assumptions that we are on track to meet the Paris Agreement are inaccurate. To rectify these issues, it’s recommended that models incorporate current emissions rather than assumed progress and that model creators convey what a model does and doesn’t describe. Paired with a qualitative narrative, this could bridge the gap between climate and financial experts and foster a better understanding of climate implications across industries.

‍

Australia’s proposed climate disclosure law  

The Australian government has proposed a new law to enhance climate-related financial disclosures from companies and other entities operating in the country. Drawing from the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), the proposed legislation intends to provide investors and stakeholders with reliable information about the financial risks and opportunities associated with climate change. It is part of the government’s broader efforts to address climate change, foster sustainable economic growth, and safeguard the interests of investors and the broader financial system. The law will likely apply to larger entities, including listed companies, banks, insurers, and superannuation funds, but would also impact smaller companies over three years. 

Key features of the reporting requirements:

• Precise climate-related financial disclosures in annual reports.
• Information on the financial impact of climate-related risks and opportunities on business activities.
• Disclosure of relevant metrics and targets related to climate-related risks.

Entities are encouraged to conduct scenario analyses to assess the potential financial impacts of various climate change scenarios. Companies must also disclose information about governance processes, controls, and procedures for managing climate-related risks and opportunities. External assurance of climate-related financial disclosures is also on the table and would enhance credibility and reliability. 

The Australian government plans to phase the proposed law to allow entities time to meet the new requirements. Still, the writing is on the wall: Australia acknowledges the need for globally consistent climate-related financial disclosures. The law aims to promote cross-border consistency and reduce regulatory fragmentation by considering global reporting standards like those developed by the International Sustainability Standards Board (ISSB).

ISSB ’s new sustainability disclosure standards 

The International Sustainability Standards Board (ISSB) has introduced two new disclosure standards, IFRS S1, and IFRS S2. The two finalized standards aim to establish a global benchmark for sustainability-related disclosures for capital markets. 

IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) centers around disclosing sustainability-related risks and opportunities across the short-, medium-, and long-term to facilitate better investor decision-making. Conversely, IFRS S2 (Climate-related Disclosures) details specific climate-related disclosures and is meant to work in tandem with IFRS S1. Both standards draw from the Task Force on Climate-related Financial Disclosures (TCFD) recommendations and aim to improve the quality of information available to investors and are supported by various global stakeholders, including investors, companies, policymakers, regulators, and international organizations like the IOSCO, the Financial Stability Board, G20, and G7 Leaders.

In addition to TCFD recommendations, the ISSB’s standards strive to unify and build upon existing sustainability disclosure initiatives like SASB Standards, CDSB Framework, Integrated Reporting Framework, and World Economic Forum metrics. The unification is a boon for companies already leveraging previous sustainability reporting investments because it helps tone down the complexity of multiple reporting frameworks. 

In short, these new disclosure standards promote global compatibility for financial markets. Both IFRS S1 and IFRS S2 will become effective for annual reporting periods beginning on or after January 1, 2024.

Youth tackle environmental policy in Montana

In a landmark civil case, Held v. State of Montana, 16 young individuals have charged that the state’s pro-fossil fuel policies infringe on their constitutional rights. The unique case focuses on the state constitution’s provision that demands maintenance and improvement of a clean environment for present and future generations. The litigation specifically targets the Montana Environmental Policy Act, which effectively excludes global warming from consideration in environmental assessments. 

The core of the legal battle hinges on whether climate change, a global issue, is attributable to Montana. The defense argues that a global problem like climate change cannot be the responsibility of the state. Conversely, the plaintiffs have presented testimonies stating that Montana’s contribution to climate change is both significant and quantifiable, suggesting that the problem is global and local.

In an optimal scenario, the plaintiffs seek the court’s definition of a “safe and healthful environment” where CO2 levels are below 350 parts per million, which could influence all subsequent policies the state implements. While a favorable ruling for the plaintiffs wouldn’t necessarily dictate direct remedial action from the state, it would pressure the Republican-led state legislature and potentially others around the country to uphold similar constitutional provisions. A decision is expected in the next few weeks. 

Clean air = 13.4 million sick days

The American Lung Association released a report titled “Driving to Clean Air,” highlighting the health benefits of renewable energy and electrification, specifically electric vehicles. The report highlights the premature death rates in the U.S.—between 60,000 and 300,000 annually—mainly attributable to air pollution-induced health issues like lung disease, heart disease, and other cardiovascular and respiratory illnesses. What is the most significant contributor to such health-impacting air pollution? Unsurprisingly, it’s transportation and the pervasive use of cars.

The report’s model, which includes goals of 100% electric passenger vehicles by 2035 and 100% electric medium and heavy-duty trucks by 2040, and renewable energy powering the vehicles, anticipates a dramatic decrease in pollution levels. Although these goals are ambitious, they align with national and global policies. If we do manage to hold to those goals, the study says that most pollutants would decrease by 60–90% over 30 years (2020-2050), averting around 100,000 premature deaths and saving 13.4 million sick days. The health-related savings translate to a monetary value of approximately $1.2 trillion, underscoring the broader benefits of addressing climate change.

The story dominating climate news the past couple of weeks has been the record-breaking Canadian wildfires. The fires started in British Columbia and Alberta in late April, then spread extensively in May and June. The culprit? An unusually hot, dry spring combined with lightning in some areas and human error in others. Half of wildfires are ignited by lightning, with the rest caused by human activities ranging from discarded cigarette butts and unattended campfires to equipment malfunctions. But these events only spark the fires; their severity is largely due to climate change. Canada experienced a warmer and drier spring than usual, creating conditions ripe for fires to spread more rapidly and extensively.

But there’s an underlying story beyond the immediate damage caused by the wildfires. The East Coast of the U.S. experienced detrimental effects on air quality due to the fires. Prevailing winds carried the smoke from the fires, resulting in a noticeable deterioration of air quality in places like New York City and Washington D.C. Because the fires affected such populated cities in areas not used to these conditions, they prompted conversations around the personal impact of climate change. But as the particulate matter—and proverbial dust—settles, will the fires have any noticeable effect in shifting public sentimentwhen it comes to the climate crisis? 

Let’s not downplay the immediate victims, though. Thousands of Canadians have been displaced, and there’s massive damage to infrastructure by what is, in all likelihood, the worst fire season on record for the country. 

Some striking statistics: ‍

– More than 400 blazes were burning across Canada as of last Wednesday

– This year’s fire season has started earlier than usual—and it’s more aggressive, with this year’s fires already surpassing 4 million hectares in the first month 

– The United Nations predicts wildfires globally will increase in intensity by 57% by 2090, signaling a perilous new norm

Scientists correlate intensifying fire seasons with the climate crisis—studies show anthropogenic climate change has significantly increased the area of wildfires—which means global action is imperative.

If you’d like to help those affected by the Canadian wildfires, donate directly to organizations like The Canadian Red Cross and Firefighters without Borders.

California’s home insurance crisis gets worse amid rising climate threats

The current risk assessment models in the insurance industry are no longer tenable in the face of the climate crisis. Two major insurers, State Farm and Allstate, have halted new homeowners’ policies in California. And, you guessed it, it’s because of prevailing climate change-related disasters like fires and mudslides that make payouts to policyholders unsustainable for these insurance companies. It’s part of the trickle-down effect of increased climate-driven disasters. 

In California, regulatory measures that prevent insurers from raising rates have created a dilemma. While such constraints help maintain affordable costs for homeowners, they make it difficult for insurers to cover policy costs and handle increased payouts. The scenario has culminated in more considerable insurance market risks, which must accurately reflect the true extent of climate change-induced disasters. The implications for the insurance industry are far-reaching—it will have to raise rates, risk upsetting homeowners, or potentially go out of business if regulations prevent rate increases. Furthermore, the possibility of homes becoming uninsurable can affect potential homeowners’ ability to get a mortgage.

In short: Insurance companies must adapt their pricing and risk evaluation methods to account for climate change’s increased and unpredictable risks. 

The ripple effects of the Great Atlantic Sargassum Belt

Human activities have caused an unprecedented explosion of seaweed growth, notably Sargassum seaweed, in the Atlantic Ocean. It has created what’s known as the Great Atlantic Sargassum Belt and poses unforeseen and potentially significant impacts. 

The Great Atlantic Sargassum Belt originates from nutrient-dense agricultural runoff and deforestation debris carried into the Atlantic by the Amazon River floods. It stretches from the west coast of Sierra Leone, across the Atlantic, through the Caribbean, and into the Gulf of Mexico. 

Sargassum emits hydrogen sulfide, which smells foul and can cause eye, throat, and skin irritation. That means the excessive Sargassum growth washing up on shires will continue to affect tourism. Caribbean and coastal Florida economies will need more time and money to remove seaweed from beaches. 

Worse yet, the Sargassum seaweed has become a plastic trap, making it more likely that wildlife will ingest more plastic. The plastic tangled in the seaweed also attracts a kind of bacteria called Vibrio, which can pose health risks to humans and marine life. The proliferation of Sargassum also poses an existential threat to coral reefs, physically smothering the reefs from light and oxygen. In extreme cases, large patches of Sargassum can choke desalinization plants, which happened in St. Croix and led to an 18-day state of emergency.

Facing the heat: unmasking the deadly consequences of heatwave-induced blackouts

In a recent collaborative research paper, scientists from multiple universities, including the University of Michigan, Georgia IT, Arizona State University, Northeastern University, and the Houston School of Public Health, have raised serious concerns over heatwave power grid failures. The paper, published in the Environmental Science and Technology journal, investigated the public health risks associated with blackouts during heatwaves in major cities. This topic is relevant as major blackouts have more than doubled in the past eight years, often occurring in summer due to the high demand for electricity caused by air conditioning use. The frequency of heatwaves has nearly tripled from 2016 to 2021, increasing the strain on the power grid and heightening the risk of blackouts.

Using the cities of Atlanta, Detroit, and Phoenix as representative models for most of the country's climate zones, the researchers found some alarming potential consequences of a heatwave-triggered blackout. In Phoenix, a five-day heatwave without power could result in around 900 deaths per 100,000 people. The situation would be less severe in Detroit and Atlanta, with 31 and 1 deaths per 100,000 people, respectively. The study also showed that emergency room visits would likely overwhelm hospital capacity in Atlanta and Phoenix. However, potential improvements like increasing the number of street trees, painting rooftops with reflective material, and developing backup generation and microgrids were suggested to mitigate the impacts of such heatwaves.

Climate change in a new light: unpacking the rebranding debate and the power of relatable narratives

The second section of the transcript focused on a critical topic: the rebranding of climate change. Arnold Schwarzenegger's recent interview on CBS, where he argued that climate change should be discussed in terms of pollution to garner public concern, sparked the conversation. Schwarzenegger's statement is not a novel perspective; communication issues around climate change have been discussed for over a decade, with various entities calling for a shift in the narrative to mobilize people effectively.

The discussion brought out a few problems with Schwarzenegger's suggestion, including the likelihood that people only act on pollution issues when directly affected and the danger of dismissing CO2 as a pollutant. The concept of "creeping normalcy," or the boiling frog syndrome, was highlighted as part of the climate change communication problem, where the gradual nature of climate change impacts prevents it from being viewed as an immediate threat. Some participants suggested alternative terms like "climate emergency" or "climate crisis," better to capture the urgency and severity of the issue. Additionally, the need for communication to focus on specific, relatable impacts of climate change was emphasized.

A splash of relief: Colorado River and the water conundrum

In April, our discussion around the U.S. Bureau of Reclamation deliberating over Colorado River water withdrawals seems to have culminated in an agreement. The New York Times reported the conclusion of a rather prolonged dialogue about water cutback, initially pitched by Secretary Haaland at an estimated 2 million acre-feet per year (that’s about 650 billion gallons of water per year), the compromise lands at 3 million acre-feet over 3.5 years, a sizeable reduction despite being smaller than the initial proposition. These measures, drastic for those states involved, are a result of thoughtful negotiation and a fortuitous streak of record winter rainfall.

Now, the finer details of this arrangement reveal that only about 700,000 acre-feet of these cuts are voluntary. The rest are entangled with federal grant payments amounting to $1.2 billion from the Inflation Reduction Act, which will be funneled into tribal communities, irrigation districts, and cities willing to trim their residential and industrial water use. The question of agricultural water consumption also comes to the forefront, as it stands at 79% of the Colorado River’s water use, massively overshadowing the 12% used by residential areas. Interestingly, 55% of this huge agricultural demand feeds livestock for meat and dairy. That means a shift in dietary habits could have far-reaching environmental benefits.

Pioneering corporate nature standards: The dawn of SBTN

Let’s shift gears and focus on the Science Based Targets Network (SBTN), a consortium of over 80 organizations formed to align business operations with Earth’s ecological boundaries. The SBTN recently published its inaugural corporate standard for science-based targets for nature. This benchmark encourages companies to scrutinize and prioritize their environmental impacts across land and water parameters. It provides a solid methodology for setting targets grounded in science, thereby addressing pressing environmental issues.

The backstory of this development finds its roots in the COP 15 in Montreal, a convention dedicated to biodiversity, where governments across the globe agreed upon a Biodiversity Framework that aims to curb biodiversity loss, shield natural ecosystems, and increase biodiversity-related financing. 

Additionally, pressure from investors has led companies to assess and report on nature and biodiversity-related issues, guided by a new disclosure system—the Taskforce on Nature-related Financial Disclosures (TNFD). All these initiatives reflect the single materiality approach of financial materiality, which aims to safeguard nature and biodiversity and comprehend financial material risks and opportunities related to them. Despite being early days for the SBTN targets, the 17 companies involved in the pilot project show promise—it also marks a turning point in our collective approach to sustainability.

In the latest move toward more stringent power plant standards, the U.S. Environmental Protection Agency (EPA) unveiled a draft rule that aims to reduce emissions from the power sector by over 75% by 2030. The rule, which represents the Biden administration’s response to the Supreme Court’s rejection of the Proposed Clean Power Plan, outlines five emissions reduction targets for different types of plants. For instance, new and existing gas plants are required to capture 90% of their emissions by 2035 or shift primarily to hydrogen by 2038. Similarly, existing coal-fired power plants are expected to achieve the 90% target by 2030, but only if they plan to remain operational by 2040. The rule is based on achievable emissions reductions with carbon capture and storage (CCS) technology, although it doesn’t mandate the switch to renewables.

The discussion among environmental experts suggests that this rule offers a more flexible approach to achieving significant emission reductions. Still, it’s limited by the Supreme Court’s ruling, which hampers the EPA’s capacity to mandate renewable energy. The reliance on CCS and hydrogen technologies as the basis for the standards is noteworthy, given their cost. It’s a move that potentially encourages power generators to opt for cheaper renewable solutions or retire existing fossil fuel-based plants. 

While the rule sets a slow trajectory, with no requirements until 2030, the impact is significant—it aims to reduce CO2 emissions by ten million metric tons in 2028 compared to the previous year. The hope is that this approach will drive the retirement of some coal-fired power plants while avoiding the need for expensive retrofits. Despite the challenges, the EPA highlights the broader benefits, including preventing 300 premature deaths due to air pollution and producing up to $85 billion in benefits from avoided climate change and health impacts by 2030.

Climate events impact insurance everywhere

The frequency and severity of climate disasters have increased significantly in recent years, and insurance companies and home and property owners are footing the bill. The number of events that cause $1 billion or more in damage has reached an average of 20 per year, compared to 2–4 per year in the 1980s. 

As insurance companies struggle to cover the rising costs, insured homeowners across the U.S. face the consequences—the national average for property coverage has doubled since the early 2000s. This has led many homeowners, particularly in high-risk states like Florida and California, to forgo insurance coverage due to the high costs. That means they’re on the hook for the full cost of a climate disaster directly affecting their property. In response, insurance companies have started to pull out of high-risk areas, causing potential issues for property owners and prompting differing state-level responses.

The increased premiums also affect renters—owners of commercial properties or, say, apartment buildings that face these additional costs often pass them onto tenants. The surge in climate events and corresponding insurance reactions underscore the broader societal implications of climate inaction.

The popularity of the Inflation Reduction Act

The Inflation Reduction Act (IRA), a signature climate law of President Biden, has seen significant utilization and investment since its enactment eight months ago. The law, which contains substantial incentives and investment to encourage the growth of renewable energy technologies, has spurred over $150 billion in clean energy projects, outpacing expectations by about 50%. Interestingly, the majority of these investments are happening in the South and Midwest—areas typically associated with declining industry—and in Republican districts despite none of them voting for the law.

However, the Act’s success has led to budgetary concerns due to the use of tax credits beyond expectations. Initial estimates suggested the IRA would cost about $400 billion over ten years, but updated figures from the budget office suggest it could cost 50% more, or around $600 billion. Republicans in the House, citing fiscal responsibility, are trying to roll back many parts of the law, leading to a potential risk for the IRA’s future. However, experts caution that the current surge of investment might stabilize in the coming years as demand for these technologies stabilizes, potentially curbing the projected costs.