Monday, March 28, 2022

The ‘Sustainability’ Business: A Gathering of Rent-Seekers

The Economist Group, publisher of the Economist, has been hosting its seventh annual “Sustainability Week,” with one day in London and three others on virtual platforms.

The event’s website offers a revealing glimpse into the ecosystem that “sustainability” has created — an ecosystem that contains true believers, to be sure, but is also one in which opportunists can take advantage of the pathway it offers to power, profit, and prestige — or at least a job.

The roster of speakers features an impressive sprinkling of the prominenti, from the secretary-general of the U.N. to the secretary-general of the OECD to the president of Austria to the mayor of Stockholm to the co-head of “global public policy” for — wait for it — BlackRock.

But it was also striking how many on that roster hold positions that, to a greater or lesser degree, depend on the sustainability of the sustainability bandwagon. To take a sample, they included seven (or was it eight?) chief sustainability officers; a chief brand, innovation, international, and sustainability officer; two heads of sustainability; a global head of sustainability; a head of sustainability and inclusion; a vice president of sustainability; a vice president of inclusive impact and sustainability; a director of sustainability (not to be confused with a global sustainability director, although one of those was billed as a speaker too); a senior vice president of marketing for purpose and sustainability; a head of global impact; a director of SRI (or “socially responsible” investment); a director of a climate-risk initiative; an environmental-development director; a director of environmental action; a director of social purpose; a global head of climate business; a global head of impact; a professor in practice for sustainable finance; a head of sustainable energies; a research director for sustainable finance; a chief responsible-investment officer; a global head of climate business; a director of climate-resilience investment; a chief ESG innovation officer, a head of sustainable procurement; a global sustainability-services lead; an ESG solutions engineer; the managing director of a center for carbon transition, and more.

This selection does seem quite . . . extensive. Then again, the event’s website refers to “185+ speakers” and “65+ sessions.”

It’s hardly surprising that sustainability professionals would address an audience attending (virtually or otherwise) a “sustainability week.” Not having them there would be like a church service without priests. At the same time, the sheer number of them — a mere microcosm, incidentally, of the sustainability caste — is a reminder of how rapidly sustainability has caught on, and of the opportunities that it now offers.

While we must assume that all such professionals care sincerely about working toward their particular vision of the planet’s future, it would be naïve not to appreciate that their hiring (and the recruitment, doubtless, of teams to support them) is constructing a powerful interest group that will not only regard any opposition as a danger to the environment but also as a threat to their livelihoods. The implications of where that will lead do not have to be spelled out, and it is by no means a phenomenon confined to the private sector.

We can also be sure that sustainability’s paid evangelists will be doing their best to get their message out — and far beyond their own organizations. They will see that as their duty, of course, but the more converts they win to their cause, the more influential — and the more valuable — they themselves become.

An event like this must have sponsors. Naturally its organizers are not shy about explaining why this is one to back:

"Our commitment to quality, and our unique ability to reach c-suite executives mean that we are able to attract the most important, qualified influencers to speak at our events"

Series speakers past and present include Bill Gates, John Kerry, Tony Blair and Larry Fink. Larry Fink, well, who’d have thunk it?

Sponsors this time round included Deloitte, a firm active in the ESG business, Planetly by OneTrust (“OneTrust ESG simplifies the gathering, storing and assessing of your company’s ESG . . . data and metrics”), Mott Macdonald (ESG consultancy is one of the services it offers), Ecovadis (“the world’s most trusted provider of business sustainability ratings”), Wellington (an asset manager “embracing ESG”), BCG (“WEF [Davos] and BCG are shedding light on the financial materiality of ESG factors and how those factors will evolve”), and Accenture (“we help our clients reinvent their businesses at scale, creating business value and sustainable impact for all stakeholders”).

Yes, there’s an ecosystem. And the Economist Group is a part of it, quite literally, in word as well as in deed:

Since the Climate issue in 2019, The Economist’s climate coverage has permeated all aspects of our journalism. We take a clear-headed approach to analysing what does and does not work. A weekly email newsletter by the same name was launched shortly afterwards. In September 2021 we launched “To a Lesser Degree”, a podcast series exploring how everything—from finance to farming, transport to trade—must change to slow the pace of global warming. Over the last five years, our special reports have taken an in-depth look at the future of energy, water and the business of climate change. Our films reveal the politics of climate change, the definition of net zero and whether veganism could make a real impact on the environment. Our journalists explore the role that business and policy makers can play in reversing climate change, interviewing global leaders such as Bill Gates and Christine Lagarde.

The Economist is focused somewhat on the financial, so that’s an emphasis that would be expected at an event being organized by its parent. Moreover, as climate warriors have come to understand, harnessing capitalism is a way of advancing political aims (a specific response to climate change) without the inconvenience of going through the democratic process (The SEC’s new proposals on climate-related disclosure are just the latest example of this.)

And so, turning to this event’s agenda we see, among other treats, panels on greening the financial system, on innovation in green finance, on the best returns in green finance, and on how banks can gain competitive advantage by accelerating green finance. There were to be talks on investing for change (given by the founder and executive chairman of Engine No. 1, the activist fund that took on Exxon), on how digitization will improve company ESG data, and on analyzing environmental- and social-impact investments.

Another panel (advertised as “the road to nature-positive”) was to consider these compelling questions:

How can businesses across industries identify and calculate their natural-resource dependencies? What tools, metrics and targets exist to enable businesses to measure their impact on the natural environment? How can firms best understand the business risks that arise from environmental degradation and their own impact on biodiversity? What lessons can be applied from the journey towards net zero?

What lessons could be learned from the journey toward net zero?

Hmmm . . .

I wonder whether anyone suggested that, like all too many exercises in central planning, it has been an expensive shambles. Maybe one V. Putin (undisclosed location, Russia) took the time to send a message that he, for one, thought that the journey — which has, curiously, mainly been embarked upon by those in the West — was going very well.

Also on the agenda: a “fireside chat” on making money from sustainability, followed by a lunch break where the talk would revolve around unlocking investment for net zero, a topic so gripping that it was scheduled for further discussion during a networking break later the same day.

A conversation was promised on “embedding the value of natural capital in economic, financial and political decision-making”:


Environmentalists Are Blocking the Post Office From Replacing Busted 30-Year-Old Mail Trucks

The United States Postal Service (USPS) wants to add 165,000 new trucks to its fleet, which hasn't been upgraded in over 30 years. The agency says it must upgrade its trucks due to their "inefficient gasoline engines" and lack of "modern safety features." But now congressional Democrats hope to stall the agency's plan because it won't add enough electric vehicles, even though forcing the USPS to purchase an entirely "green" fleet would cost the financially troubled agency billions more than its proposed plan.

As required by the National Environmental Policy Act (NEPA), the USPS submitted its environmental impact statement for Next Generation Delivery Vehicle acquisitions in January 2021. The agency plans to purchase 50,000 to 165,000 new trucks over the next 10 years, of which 5,000 would be battery electric vehicles. This means that 10 percent of the new USPS vehicles will be emissions-free and the remaining 90 percent will be gas-powered.

The Environmental Protection Agency (EPA) as well as the White House Council on Environmental Quality quickly issued complaints, claiming that the USPS' statement did not fully comply with NEPA and that the agency must rely less on gas-powered vehicles.

In its letter to Jennifer Beiro-Réveillé, senior director of environmental affairs and corporate sustainability at the USPS, the EPA complained that the impact statement did not "disclose essential information underlying the key analysis of Total Cost of Ownership (TCO), underestimates greenhouse gas (GHG) emissions, fails to consider more environmentally protective feasible alternatives, and inadequately considers impacts on communities with environmental justice concerns." The White House said the purchase would conflict with President Joe Biden's effort to ensure that federal agencies achieve 100 percent zero-emission vehicle acquisitions by 2035. (The USPS is an independent agency and doesn't fall under the jurisdiction of Biden's zero-emissions executive order.)

In response, USPS said it would move forward with its proposal and that there is no legal basis to deny it. "Our commitment to an electric fleet remains ambitious given the pressing vehicle and safety needs of our aging fleet as well as our fragile financial condition," said Postmaster General Louis DeJoy in a press release. "But the process needs to keep moving forward."

Meanwhile, Rep. Gerry Connolly (D–Va.) has introduced legislation to block any USPS vehicle purchases unless 75 percent of the trucks are electric or emissions-free. And last week, a group of House Democrats penned a letter calling for an investigation into the purchase over its environmental impact. According to a spokeswoman, the letter has been received by the inspector general's office and is being carefully reviewed.

The cost of the purchase would be $6 billion over 10 years. Electrifying the fleet, however, would cost the USPS $2.3 billion more over 20 years due to the cost of manufacturing lithium-battery vehicles, as well as the 2021 average cost of kilowatt-hours ($0.11/kWh) versus gas ($2.71/gallon).

The purchase is part of DeJoy's 10-year Delivering for America plan to make the USPS more efficient and financially viable. Considering the agency's longtime financial unsustainability, it should be prioritizing its fiscal performance over its environmental impacts right now. Forcing the USPS to buy fewer trucks than it needs or necessitating another federal bailout further jeopardizes the agency's ability to serve Americans.


Green Democrats do an end-run around Congress

Democrats, banks, regulators and activists have increasingly set their sights on the financial sector and legal system, not Congress, for pushing their aggressive climate agenda.

Employing so-called environmental, social and governance (ESG) initiatives, financial institutions and government agencies have quietly implemented policies prioritizing a focus on factors unrelated to a company’s bottom line, experts said. The ESG movement has swept across the corporate world, leading to individual pledges from companies promising to become more sustainable and improve internal diversity.

In the latest example of the ESG and sustainable investing movement, the Democratic-majority U.S. Securities and Exchange Commission (SEC) proposed a sweeping set of rules Monday that would require publicly-traded companies to disclose their carbon emissions and how they were planning to transition away from fossil fuel reliance. Senate Banking Committee Ranking Member Pat Toomey was one of many lawmakers to immediately slam the proposal, saying it “hijacks the democratic process and disrespects the limited scope of authority that Congress gave to the SEC.”

“Congress is really unwilling to impose much in the way of costs and to address climate change,” David Kreutzer, the senior economist at the Institute for Energy Research, told the Daily Caller News Foundation in an interview. “Frustrated by that, people in Washington want to use non-legislative ways to impose these costs and raise the price of energy-intensive goods and energy in general.”

“One of the ways that they’re doing it — it’s like an all fronts attack — is under the guise of environmental, social and governance investments,” he added. (RELATED: New York To Divest Pensions From Fossil Fuel Companies)

‘Priorities Are A Little Misplaced’

Regulators have also targeted Americans’ pensions. In October, the Department of Labor (DOL), which is tasked with regulating private sector pensions under the 1974 Employee Retirement Income Security Act, reversed a Trump-era rule that placed barriers to fiduciaries’ ability to consider ESG factors when selecting investments.

Similar to the SEC proposal Monday, the DOL rule stated that “climate change and other ESG factors can be financially material” for investors.

“The primary purpose of fiduciaries is to look out for the wellbeing of the pensioners who contribute to these funds,” Pat Pizzella, the former deputy secretary of labor during the Trump administration, told the DCNF. “Not to speculate on risky or trendy, expensive ESG products. I think their priorities are a little misplaced.”

He added that the Trump administration’s view was to look at ESG investing from a legal point of view. Pizzella predicted that individuals with pensions managed by fiduciaries that invest in risky ESG-focused companies or funds would eventually take the institutions to court.

“I think if we are going to hear about climate risk, we ought to hear about it from the National Weather Service, not the Securities and Exchange Commission,” he added.


Morgan Stanley Flags EV Demand Destruction as Lithium price Soars

Electric vehicle battery makers will need to raise prices by almost 25% due to soaring lithium carbonate prices, leading to crimped margins and possibly demand destruction, according to Morgan Stanley.

Chinese prices for lithium carbonate, the key ingredient in many batteries, have jumped fivefold over the past year, analysts including Jack Lu said in a note. The pass-through of costs could push EV manufacturers to raise prices by as much as 15% and may hit demand, they said in the note dated March 24.

“Historically, the battery price cost curve had been declining at a pace of 3% to 7% annually for so many years in a row it almost seemed inevitable,” the analysts said. “But molecules don’t play by the same rules as Moore’s Law. The world has changed, and along with it is a new paradigm of input costs.”

Lithium carbonate prices have surged as demand from car-makers has outstripped supply, highlighting how the energy transition may be slowed by a shortage of materials and refining capacity. China’s top lithium producers -- Ganfeng Lithium Co. and Tianqi Lithium Corp. -- reported a surge in preliminary revenue in the first two months of the year on the back of the rally.

Most battery manufacturers in China -- which dominates the lithium-ion battery industry -- buy the material on the spot market, rather than though long-term contracts, Morgan Stanley said. However, big companies like Contemporary Amperex Technology Co Ltd. may be able to get some discount, it said.

Despite the rising prices, Morgan Stanley is overweight on Tesla Inc., with a price target of $1,300 per share, about 30% higher than its current level. There’s scope for “profound” long-term changes in the battery industry, and Tesla’s scale, technology and vertical integration make it best placed to address the challenges relative to other EV manufacturers, it said.




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