Keeping up with ESG - May 2024

Hello reader 👋🏼

This edition read time: 10 minutes

Today we cover:

• Climate risks threatening nine critical commodities

• The burnout crisis among sustainability officers

• LME's CBAM consultation 

• Key economies most affected by CBAM

• Final approval of the Net Zero Industry Act and the CSDDD

• Plus, other essential news and reports.

KEY REPORTS THIS MONTH

Climate Risk to Key Commodities — PwC Report

PwC's report highlights climate risks to nine critical commodities: copper, cobalt, lithium, wheat, rice, maize, zinc, iron, and aluminium. It explores the impact of climate threats like heat stress and drought on production and supply chains, offering actionable insights for businesses.

Key Takeaways:

• By 2050, over 70% of lithium and cobalt production will be significantly impacted by climate change.

• Around 40% of global copper production, particularly from water-stressed regions like Chile, will face significant impacts.

The Unsustainable Role of a Chief Sustainability Officer

An analysis by Eco-Business highlights the growing burnout among Chief Sustainability Officers (CSOs). The role is increasingly overwhelming, requiring the balancing of conflicting demands from various departments and senior management. CSOs face immense pressure to achieve ambitious sustainability goals, navigate complex regulatory landscapes, and meet high and often contradicting expectations from the public, leading to significant stress and burnout.

My perspective, quoted in WSJ Sustainability this week, underscores these frustrations:

Morgan Stanley Survey: Sustainability is a Key Value Creation Driver

Morgan Stanley's Sustainable Signals: Corporates survey reveals that 85% of companies see sustainability as key to value creation, integrating it into their long-term strategies. The survey highlights sustainability priorities, barriers, and financial implications for businesses.

Key Takeaways:

• 85% of companies view sustainability as essential for value creation.

• High investment needs are the top barrier, cited by 31% of respondents.

• Over 90% expect climate change to impact their business models by 2050, with nearly a quarter already experiencing effects.

CBAM ESSENTIAL UPDATES

ICC Highlights CBAM Compliance Challenges

The International Chamber of Commerce (ICC) has raised significant concerns about the compliance challenges faced by companies during the first reporting period of the Carbon Border Adjustment Mechanism (CBAM). Issues include accessing the CBAM platform, submitting reports, high administrative burden, data collection, protecting confidential information, and unclear default values. Read the full open letter here.

These challenges highlight the need for streamlined processes, automation and clearer guidelines to ensure effective compliance and data management.

LME's CBAM Consultation 

The London Metal Exchange (LME) has initiated a CBAM consultation and broader sustainability discussion paper. LME proposes that producers of all LME-listed primary aluminium brands must upload verified emissions data to LMEpassport, aligning with CBAM requirements. Non-compliance could result in the suspension or delisting of these brands.

My take on the way the industry is reacting to these changes was featured in the LME Market Insight section, highlighting key concerns and opportunities. We encourage all readers to review the consultation paper and provide feedback to the LME team.

Infographic: Developing economies hit hardest by CBAM

Analysis by S&P Global Commodity Insights shows that Canada, Brazil, South Africa, and Turkey will be most exposed to CBAM, with iron and steel being the most targeted sectors.

Our Exclusive CBAM Webinar

Our recent webinar with industry experts covered the macroeconomic effects of CBAM on metal markets and practical management strategies. Topics included managing CBAM, assigning responsibilities, data collection, and cost estimation. It will be available on demand for the next two weeks.

REGULATORY UPDATE

EU Council Approves Net Zero Industry Act

The EU Council has given final approval to the Net Zero Industry Act (NZIA), aiming to bolster domestic production of clean tech equipment and compete with the US and China. The NZIA sets ambitious benchmarks: producing at least 40% of the EU’s annual deployment needs for climate and energy technologies by 2030 and capturing 15% of the global market value for these technologies by 2040.

However, the measures in the NZIA appear insufficient to make Europe truly competitive with China and the US, especially when compared to the strong incentives of the US Inflation Reduction Act (IRA).

Final Approval for the Corporate Sustainability Due Diligence Directive

The EU Council has given final approval to the Corporate Sustainability Due Diligence Directive (CSDDD), mandating large companies to address their negative impacts on human rights and the environment within their supply chains. While you may have seen multiple approvals in the past, this is the conclusive one — CSDDD is here to stay.

We will release a separate newsletter in the coming weeks with detailed implementation guidance for businesses to navigate these new requirements effectively.

Non-Compliance Cheaper Than Compliance?

A recent report reveals that it may be cheaper for companies to opt for non-compliance with the EU’s stringent disclosure rules rather than adhere to them. The high administrative burden, complex data collection requirements, and compliance costs have made it financially viable for some businesses to simply pay the fines instead.

While pragmatic, this is a risky and short-term approach that most companies cannot afford to take. Most businesses are likely to strive for compliance, but the fact that non-compliance appears financially viable indicates serious administrative challenges in adhering to these rules. It underscores the need for the EU to streamline the process to ensure effective and fair implementation.

It was quite a read, so we have a little poll for you 👇