ESG Weekly Update – August 25, 2022

25 August 2022

EU: ECB Research Finds Introducing Carbon Pricing More Effective than Green Quantitative Easing

This month, the European Central Bank released a working paper entitled “Climate Change Mitigation: How Effective Is Green Quantitative Easing?” The paper considers whether central banks can effectively contribute to reduced global warming through “green quantitative easing” (QE), a process in which central banks’ privately issued financial asset holdings are gradually shifted toward green investments. The ECB research also considered the effectiveness of green QE in combination with other fiscal policies, including the introduction of a carbon tax.

The research found that green QE would result in a 0.04-degree Celsius reduction in global temperature by 2100 based on a scenario in which a global central bank moves its entire investment to green bonds.

In contrast, a global carbon tax of $50 per ton would be four times more effective, leading to a 0.17-degree Celsius reduction by 2100. Current carbon prices are at $53.75 per ton in the European emissions-trading system and $6.89 per ton in the Chinese emissions-trading system.


EU: Platform on Sustainable Finance Publishes Draft Report on Minimum Safeguards

Last month, the Platform on Sustainable Finance (PSF) published its Draft Report on Minimum Safeguards, which if adopted by the European Commission would fulfill criteria for environmentally sustainable activities under the EU Taxonomy Regulation. The minimum safeguards, which are set out in article 18 of the Taxonomy Regulation, require that companies implement procedures to comply with the OECD Guidelines for Multinational Enterprises (MNE), the UN Guiding Principles on Business and Human Rights, the eight Conventions on Fundamental Principles and Rights at Work and the International Bill of Human Rights. The PSF report establishes a close link between the minimum safeguards and other anticipated EU regulation, including the Corporate Sustainability Due Diligence Directive and the Corporate Sustainability Reporting Directive. The safeguards are also relevant to the definition of sustainable investments under articles 8 and 9 of the Taxonomy Regulation, which include a “do no significant harm” test and require compliance with good governance principles. The PSF report includes examples of what should be considered as non-compliance with the minimum safeguards and generally serves as important guidance from the European Commission. PSF is accepting comments to the draft report through September 6, 2022.

Draft Report

Global: Ceres Partners with Dutch Government to Spearhead Valuing Water Finance Initiative

This month, Ceres launched the Valuing Water Finance Initiative (VWFI), an effort to engage companies with significant water usage to “value and act on water as a financial risk and drive the necessary large-scale change to better protect the water system.”

Ceres, along with members of the Valuing Water Finance Task Force, developed the “Corporate Expectations for Valuing Water,” a series of considerations corporations and investors can refer to when seeking to address water risk, including:

  • ensuring current business processes do not impact water quality or availability;
  • integrating water management into business practices, including board oversight and policy engagement;
  • ensuring access to water and sanitation essentials across company value chains; and
  • protecting ecosystems that are critical to the freshwater supplies used by their businesses.

In addition, the VWFI will develop a water-related disclosure framework for financial institutions and use it to score and rank businesses. In this way the VWFI will highlight best practices and boost ambition while promoting leaders in the effort. A group of 64 signatories with $9.8 trillion of assets under management has joined forces with Ceres and the Dutch government, which hosts the global Valuing Water Initiative.

Valuing Water Initiative

Vanuatu: Pacific Island State Proposes Novel “Loss and Damage” Costing in Climate Action Plan

Vanuatu has updated its Nationally Determined Contribution (NDC) under the Paris Climate Accord, a document that sets out how a country plans to phase out fossil fuels and tackle destruction caused by storms and rising sea levels. Vanuatu’s updated plan is innovative in that it sets out a comprehensive plan to address “loss and damage” from global climate change at a country level.

Vanuatu is made up of 80 islands and is part of Oceania. Although it is carbon-negative, the island nation is at the forefront in experiencing many of the effects of climate change, including severe storms, drought and rising sea levels. In order to combat the crippling losses to GDP resulting from climate change, Vanuatu has proposed innovative country-level measures including the use of micro-insurance, building construction plans that minimize risks, essential healthcare and funding for people displaced by climate change. Vanuatu has estimated the cost of implementing these measures by 2030 at $178 million. In order to achieve full mitigation, Vanuatu anticipates financial and capacity-building support from global funds, including the Green Climate Fund, the Adaptation Fund or the Least Developed Countries Fund. Vanuatu is also calling for the creation of a Loss and Damage Finance Facility under the UN Framework Convention on Climate Change to fill critical financing gaps experienced by vulnerable communities.

Climate-vulnerable countries have called for similar plans for years to little effect. However, Vanuatu has identified loss and damage measures in the form of concrete, country-level solutions. Loss and Damage is expected to be a key issue and point of discussion at COP27, taking place in Egypt in November of this year.

Vanuatu Climate Plan