The Decade We Stopped Climate Change

By Aaron Ziulkowski, Walden Asset Management

A New York Times Magazine published in August included one single article: “Losing Earth: The Decade We Almost Stopped Climate Change.” The title contains the spoiler that we all already knew: We are not stopping climate change. But the focus of the article by Nathaniel Rich—a whopping 30,000 words—is a historical recounting of how close the U.S. and global community came to establishing a binding framework that would have set us on a path to limit warming to what scientists consider manageable. Several decades later, we have still not accomplished this feat.

While some readers likely found the article depressing, it gave me a bit of hope. Rich chronicled a time when the risks of climate change were appreciated and regulations to limit emissions were recognized as the prudent action to take. This knowledge was accepted and embraced by conservatives and liberals as well as leaders of business and advocacy groups. While this promising response eventually derailed, investors may be able to help return the U.S. to a 1980s context—poised to act to mitigate the worst impacts of climate change.

Here’s what we can do.      

Ask companies to set emissions reduction goals that align with climate science. While this may sound outlandish, it is not. Many companies recognize that climate change presents both risks and opportunities and are committed to doing something about it. Forty-eight percent of Fortune 500 companies have set public targets to reduce greenhouse gas emissions, improve energy efficiency, source more renewable energy, or some combination of the three. While some of these targets are not science-based (i.e., aggressive enough to reach carbon neutrality by the second half of the century), nearly five hundred companies from around the globe have publicly committed to set science-based targets, and over one hundred have already done so.

Ask companies to be more transparent about their political spending and lobbying, as well as lobbying done on their behalf by trade associations such as the U.S. Chamber of Commerce. The business community wields significant influence over public policy, for better and for worse. Transparency breeds accountability. As investors, we need to know how a company is lobbying, both because the reputational risk it might entail for the companies we invest in, as well as the risks that lobbying may create for the broader economy. According to AFSCME, more than 40 companies engaged by investors have strengthened their corporate lobbying policies, practices (e.g. a decision to end ties with a third party involved in controversial lobbying activities), and transparency.

Ask companies to proactively advocate for comprehensive climate legislation. While at the federal level it is unlikely there will be an opportunity in the near-term to pass comprehensive climate legislation, there is important groundwork that needs to be done to prepare for when the political moment is right. There are also numerous opportunities to influence state- and local-level policies related to climate change. We should ask companies, especially those that are setting their own goals and targets to reduce emissions, to support legislative and regulatory efforts that are consistent and indeed facilitate achieving their goals. For example, recently, in my home state of Massachusetts, the business community successfully mobilized to support strengthening climate legislation, including the sourcing of renewable energy. Groups like the Business for Innovative Climate and Energy Policy (BICEP), organized by Ceres, can help companies identify and participate in such efforts.

What we did not achieve in the past provides us our current goal and focus. The business community can be a supportive partner in fighting climate change, and investors have an important role in catalyzing that action.

How Well Are Your Financial Service Companies Incorporating ESG?

by Frank Sherman

Of US institutional investors, 43% incorporate ESG factors into their investment decision-making process, according to the sixth annual ESG survey by Callan. This percentage has almost doubled since the survey was first launched in 2013. Yet many financial service companies only pay lip service to these issues. How well do your financial advisors and money managers incorporate ESG best practices?

The Forum for Sustainable and Responsible Investment (US SIF) is committed to advancing sustainable, responsible and impact (SRI) investing across all asset classes. One of the core deliverables from their strategic plan is to identify and disseminate information about best practices within the field and provide tools for practitioners to undertake a rigorous and comprehensive approach to sustainable and impact investing. They published a Roadmap for financial advisors earlier this year on how to incorporate SRI investing into their practice. US SIF released a second Roadmap this month, this time focused on money managers. This Roadmap describes steps to establish board and senior level oversight; identify sources of ESG data, research and training; develop an ESG incorporation strategy; implement an investor engagement strategy; measure impact; and participate in building the field. Due to come out later this year, the third and final guide in the US SIF series will focus on asset owners.

I recommend that SGI members read and share these guides with their Investment Committees and question them on how well your financial advisors and asset managers have incorporated these best practices into their services.

Seventh Generation Interfaith will continue to support your corporate engagements and public advocacy on your community’s priority social and environmental issues. . . a key part of your SRI investment strategy.

EPA Rolls Back Auto Fuel Efficiency Standards

By Frank Sherman

Yesterday, the EPA announced a long awaited rollback of federal fuel economy standards for cars and light-duty trucks in the U.S. (Vox, Aug 2, 2018). (See a previous blog post about it here.) The proposal, released Thursday morning by the EPA and the US Department of Transportation, called the Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule freezes the fuel economy standard for model years 2021-2026. The rule also revokes California’s waiver to set its own rules under the Clean Air Act, a waiver also followed by 13 other states and the District of Columbia, representing approximately 35% of the vehicle market.

The transportation sector has taken over from electric power generation as the largest greenhouse gas emitter in the United States. This short-sighted move not only undermines one of the most significant steps the U.S. has taken to address climate change, but also hurts the global competitiveness of the U.S. auto industry at a time when the world is demanding cleaner, more efficient vehicles. The Union of Concerned Scientists estimated that this rollback would add 570 million metric tons of greenhouse gas emissions by 2030, equivalent to 140 typical coal-fired power plants for a year. The Environmental Defense Fund (EDF) found that the proposal would result in nearly 200 billion gallons of cumulative additional gasoline consumption by 2040. According to Margo Oge, former head of the EPA’s Office of Transportation and Air Quality, the fuel savings alone through 2025 would add up to $1.7 trillion. Ceres estimated the proposal would result in the loss of $20 billion in sales by auto parts suppliers between 2021 and 2025.

The EPA argues that the proposed changes would save money and lives. The agency reported that the prior standards would cost $500 billion over the next 50 years. They claim that people will continue to drive older, less safe cars to avoid the cost of air pollution equipment installed in new cars. “More realistic standards can save lives while continuing to improve the environment,” said EPA Acting Administrator Andrew Wheeler in a statement.

But many question the EPA’s rational. “At first glance, this proposal completely misrepresents costs and savings. It also relies on bizarre assumptions about consumer behavior to make its case on safety,” said California Air Resources Board Chair Mary D. Nichols in a statement. The existing CAFE fuel standards would add an additional $2,340 to the overall ownership costs of a new vehicle or an additional $468 per year over five years. Given that air pollution from vehicles is responsible for 30,000 premature deaths annually, it stands to reason that the lives saved by improving efficiency and reducing air pollution outweigh the lives saved by potential car buyers on the margins upgrading to safer cars.

California plans to fight back. “The Trump Administration has launched a brazen attack, no matter how it is cloaked, on our nation’s Clean Car Standards,” wrote California Attorney General Xavier Becerra in a statement. “The California Department of Justice will use every legal tool at its disposal to defend today’s national standards and reaffirm the facts and science behind them.”

A 60-day comment period will begin once the proposal is published in the Federal Register. Ceres will be organizing investor comments during that time. Buckle your seat belts…

ICCR Climate Change Strategic Review

By Frank Sherman

The ICCR Climate Change Workgroup met in mid-June, hosted by the Nathan Cummings Foundation, an ICCR member in NYC, to evaluate the progress over the past year and chart out a path forward for the 2018-19 corporate engagement season. We took time to reflect on the social and faith trends; review the political and economic landscape; and map the growing investor actions on climate. We then evaluated our progress over the past couple years before developing a SWOT analysis, mission and vision. In the afternoon, we discussed the path forward by re-directing the existing programs and discussing some new areas to pursue.

Jake Barnett (Morgan Stanley Graystone), together with Mary Beth Gallagher (Tri-State CRI), presented the climate justice perspective by describing the disproportionate adverse impacts climate change has on vulnerable communities. These include decreased agricultural production due to drought resulting in increased migration, disproportionate impacts on women, increased disease burdens due to intensified heat and insect-borne diseases, and displacement from intensified storms due to lack of resilience (e.g. Hurricane Harvey and Maria). In addition, roughly 1.1 billion people lack access to electricity, making the provision of clean, affordable energy essential for communities trying to escape poverty. Unlike secular asset managers, the faith community can elevate climate change from a partisan political discourse to a moral issue that we are all called to address. We need to be bold and exhibit urgency by leveraging partner organizations (Human Rights Watch, Earth Justice, Sierra Club, etc.), and put a human face on the climate change impacts.

Aaron Ziulkowski (Walden Asset) provided the political and economic overview noting that, despite growing awareness, global GHG emissions continue to rise, although they have leveled off in OECD (developed) countries. The national commitments made in Paris fall short of the 2 degree scenario and get the world nowhere near the 1.5 degree ambition. Transportation has replaced electricity production as the top emitter in the U.S. due to the displacement of coal by natural gas. Despite the White House announced withdraw from Paris, several states have set targets for GHG reduction, renewable energy and CAFÉ standards (which reduce auto emissions) that exceed federal standards. Japan, the EU, China and India continue to increase CAFÉ standards while Trump’s EPA rolls back U.S. targets. The EPA is being sued for rolling back methane emissions standards in oil & gas production. Economists are confident that economics wins over politics with the cost of unsubsidized wind and solar electrical power now competitive with fossil fuels. We agreed to step up public advocacy and pressure corporations to do the same if the U.S. wants to remain competitive in a low carbon world.

Jamie Bonham (NEI) mapped the growing awareness and complexity of various investor groups to manage climate risks and opportunities. ICCR has to find its unique voice while leveraging these larger asset managers and NGO’s. Sean Wright of EDF presented some ideas for continued engagement on methane engagements (“The ICCR methane campaign is making a critical difference”). Rob Berridge of Ceres discussed the overlap of the Climate Action 100+ (CA100) with existing ICCR engagements with 40 U.S. companies. He has been identified as the Ceres contact with ICCR on the CA 100+, and will encourage CA100 teams to include ICCR members in their engagements or at least keep us connected (note that SGI members are on the CA100 teams for Exxon, Chevron and Valero). Ceres will analyze the Fortune 500 companies to identify climate laggards that have slipped through the cracks for ICCR to consider engaging.

In assessing ICCR’s progress over the past couple years, we noted advances with heavy GHG emitters by asking for long-term 2-degree scenario plans and science-based reduction targets (SBT). We’ve made more progress with utilities than the transport sectors, while O&G companies continue to hold on to their business-as-usual model, although they too, are starting to develop 2degree scenario reports. ICCR also led the methane campaign with good results (…as attested by EDF) due to our trusted corporate relationships, convening power with companies and non-ICCR investors, and ability to bring NGO expertise and investor focus. Finally, ICCR members were ahead of the investor world engaging global banks and asking for climate related disclosure consistent with TCFD guidelines.

In reviewing ICCR’s capabilities, we felt our strengths included our reputation for long-term, respectful yet challenging engagements; our moral credibility to speak for people and planet; and collaborative culture between members and partners. However, we recognize that often times we lack focus and are spread too thin; we’re not as diverse as desired, in terms of race, faith traditions, and younger generations; and we’re sometimes not clear or consistent in our objectives (“asks”). Opportunities include focusing on climate justice; engaging mid-cap companies: regional companies in communities where we have a presence (CRI’s); diversifying our membership with millennials and other faiths; and better collaboration with partners (e.g. Ceres). In addition to the current political environment, we recognize threats to our dated model such as aging/consolidation of faith members; corporate opposition to shareholder rights; and overlap with some of our partners.

We developed a draft Mission statement: “Through the lens of faith and as stewards of creation, we engage companies as investors and participate in public advocacy to accelerate the just transition to a low carbon economy consistent with the Paris Climate Accord and in preference to those most vulnerable.” We then brainstormed a Vision or what success looks like in terms of the companies we engage, the communities for which we advocate, the environment and society. Out of this came the realization that ICCR needs to stay above political partisanship while having the audacity to (continue to) speak truth to power; be pioneers in addressing emerging, cross-cutting issues; and be true to our justice mission.

Going forward, we will continue the SBT engagements by collaborating with CA100, expanding the energy utility list, adding the Fortune 500 laggards, and identifying mid-cap/small-cap companies in communities where we have members. Engagement of local companies has the potential added benefit of encouraging support for pro-climate policies more broadly. We will shift our conversation from 2 degrees (where too many people will suffer) to 1.5 degree scenarios and will seat our climate change work within a frame of “Just Transition”. Just Transition focuses on the needs of workers and communities as the energy economy transitions away from a reliance on fossil fuels. We plan to expand the methane campaign by challenging the ‘clean natural gas’ mantra – working more closely with affected communities, engaging companies across the value chain, and bringing larger asset managers to the discussion. We will establish an Amazon team where we hope coordination among investors and collaboration with select NGOs will achieve better results than the individual efforts to date. This big tent effort with Amazon will address issues across program areas, including climate change. Finally, we will broaden the effort to engage the financial sector, focusing on regional banks.

We concluded with agreement that the growing investor attention towards climate change is a welcome development that is especially needed in the current political environment. ICCR needs to stay true to its mission and focus on those activities that incorporate marginalized communities and their needs into the vision that guides our corporate engagements.

ICCR Food and Water Strategic Review

By Frank Sherman

Last week, Chris & I participated in the ICCR Program Strategy Week. The Program Directors met with their Workgroups in NYC to evaluate the progress over the past year and chart out a path forward for the 2018-19 corporate engagement season. This article will summarize the Food strategy session.

The Food Workgroup has been focused on several issues over the past few years including the overuse of antibiotics in meat, supply chain deforestation, food waste, nutrition, pesticide use, and worker rights. As would be expected, many food & beverage (F&B) companies are confronted with many of these risks. Different ICCR investor groups often times deal with the same company in silos, leading to inefficient and ineffective engagements. In the future, the company leads will try to discuss their issue objectives and strategies with each other annually, inform each other of upcoming dialogues, and support each other with joint agendas.

Animal agriculture accounts for 70% of antibiotic use, most of which is not medically necessary. Although we are engaging the meat producers, our focus has been on restaurants and retailers. We have been successful in reducing antibiotics in poultry with Sanderson Farms being the last holdout (43% vote). We’ve made far less progress on beef, pork and turkey; however we anticipate a beef policy from McDonald’s by the end of the year which may be the catalyst for the industry. We will also collaborate with Karner Blue Capital on engaging F&B companies on animal welfare issues.

Deforestation has been a nexus of issues from deforestation and soil erosion to biodiversity loss and land & labor rights abuses. Investors and allied NGO’s have made considerable progress on palm oil with 74% of SE Asia’s palm oil refining capacity now covered by these No Deforestation, No Peat, No Exploitation (NDPE) sourcing policies. We plan to weigh in on RSPO’s update of the Principle & Criteria to strengthen them. Company commitments to source certified timber & pulp are also fairly extensive whereas commitments on sustainable beef and soy are far fewer, partly due to the lack of investor and NGO focus. This coming season, we will work with the broader global PRI investor coalition to focus on these commodities at companies who are creating the biggest impact.

With up to 40% of food (and all the resources that goes into producing it) wasted in the U.S., investors are calling on F&B companies to assess, reduce and optimally manage their food wastes. Kroger stepped up with their Zero Hunger-Zero Waste program with a target of zero food waste by 2025. Progress was also made at Target, Darden, McDonald’s, Kellogg and Hilton. The company target list will expand next season with stronger demands for companies to measure and report on waste reduction progress.

With more than 1 in 3 adults and 1 in 6 children considered to have obesity in the U.S. while 15% of American households are food insecure, nutrition continues to be a societal issue that we focus on. ICCR investors are engaging F&B manufacturers, retailers and restaurants to establish nutrition policies, improve product profiles, and change their marketing strategies, especially towards children. We have made progress in collaboration with the Access To Nutrition Index to encourage companies to improve their ranking. We will continue to work with UConn Rudd Center on marketing to children and minority communities.

We’ve increased our focus on food supply chain labor rights. We continue to support of the Coalition of Immokalee Workers and are starting to advocate for meat processing workers in the U.S. We are planning a campaign on the poultry sector where workers are typically immigrants and often undocumented leading to abuses. This is also the case for farm workers who are subject to unethical recruitment practices. We plan to work with Oxfam who’s recently released report, Behind the Barcodes, exposes the root causes behind human suffering in food supply chains.

The Food Workgroup has a full agenda, and Seventh Generation Interfaith members are welcome to jump in.

Introducing SGI’s 2018-2020 Strategic Plan

Dear SGI members and friends,

On behalf of the SGI Board, I am proud to present the SGI Strategic Plan for 2018-2020.  This marks a renewed beginning for us as an organization and a structural shift from a “founder-focused mission” to a “member-led coalition.”  We embrace the same passion, focus and values as our founders.  We will continue Fr. Mike’s legacy and mission to “bring Good News to the poor and the planet.”  We will work collaboratively with “ICCR and others to improve corporate decision-making and public policy on environmental, social and governance issues.”  We created the path for our future.  We welcome you to join with us, promote SGI and participate fully in this mission.

 

Faithfully,
Dan Tretow
Board President

Fuel Economy Standards Under Threat

The Environmental Protection Agency faces an April 1 deadline to decide whether Obama-era corporate average fuel economy standards for cars and light trucks from 2022 to 2025 are attainable or should be revised. The earlier conclusion issued by the Obama EPA that no changes to the 2025 standards are needed has already been abandoned by Administrator Scott Pruitt. He also dismissed the possibility of setting standards beyond 2025. “Being predictive about what’s going to be taking place out in 2030 is really hard,” Pruitt said. “I think it creates problems when you do that too aggressively. That’s not something we’re terribly focused on right now.”

In the meantime, Pruitt signaled a showdown with California who has a waiver from the federal law allowing it to set its own air pollution requirements. California set more stringent CAFE targets for both 2025 and 2030. “California is not the arbiter of these issues. California regulates greenhouse gas emissions at the state level, but that shouldn’t and can’t dictate to the rest of the country what these levels are going to be.”

The transportation sector has taken over from electrical power generation as the leading emitter of greenhouse gases (GHG) in the U.S. SGI joined many investors within the Ceres Investor Network earlier this year to send letters to the EPA and members of Congress, as well as to GM and Ford, in support of strong Corporate Average Fuel Economy (CAFE) standards. More recently, SGI signed on to letters addressed to GM and Ford urging them to call out the Alliance of Automobile Manufacturers to end its lobbying and public advocacy that questions climate science. The Alliance efforts to roll back the CAFE standards are in opposition to the auto industry’s support of actions to reduce GHG emissions. The letter also urges Ford and GM to publicly express opposition to changes to the CAFE standards that would lead to increases in GHG emissions.

SGI members continue to advocate that business and our government leaders take immediate action to avert climate change.