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Changes in Agrifood Production Can Cut Greenhouse Emissions by a Third

agrifood global trade

Changes in Agrifood Production Can Cut Greenhouse Emissions by a Third

A groundbreaking report from the World Bank unveils a powerful strategy to slash global greenhouse gas emissions by almost a third while ensuring food security and resilience for all. “Recipe for a Livable Planet: Achieving Net Zero Emissions in the Agrifood System” outlines practical actions that can revolutionize the agrifood system, making it a pivotal player in combating climate change.

Read also: Red Sea Diversions Drive Surge in EU Maritime Carbon Emissions

Axel van Trotsenburg, Senior Managing Director of the World Bank, emphasizes the transformative potential of the agrifood sector: not only can it mitigate emissions, but it can also nurture healthier soils, ecosystems, and communities. By making strategic changes to how land is utilized for food production, emissions from the agrifood system could be slashed by a third by 2030.

Central to the report’s findings is the recognition that every country has a role to play in achieving climate goals. High-income nations can lead by example, redirecting subsidies away from high-emission food sources and investing in low-emission farming methods. Middle-income countries, meanwhile, hold significant potential to curb emissions through greener practices such as soil conservation and reducing food loss. Low-income nations can forge a path toward sustainability by prioritizing forest preservation and seizing climate-smart opportunities for economic development.

The report emphasizes that comprehensive action across all countries is imperative to reach net zero emissions. Investments totaling $260 billion annually will be required to halve agrifood emissions by 2030 and achieve net zero emissions by 2050. While this may seem daunting, the benefits far outweigh the costs, with projected returns exceeding $4 trillion. These benefits encompass improved human health, food security, job quality, and profitability for farmers, alongside vital carbon sequestration in forests and soils.

In essence, the report highlights the immense potential of the agrifood sector to drive meaningful climate action while simultaneously safeguarding food supplies and livelihoods. By embracing sustainable practices and investing in transformative solutions, nations can pave the way for a more resilient and sustainable future for all.

green

Accepting Gas as Sustainable Will Hurt Korea’s Green Finance Credentials

After six months of resisting industry calls to add liquefied natural gas (LNG) to its green taxonomy, the South Korean government this week finally succumbed to gas lobbyists. 

This is surprising as, only 2 weeks ago, President Moon Jae-in made a well-received, new emissions pledge—cutting the country’s greenhouse gas emissions to 40% by 2030.

The obvious dichotomy here is that recognizing gas and LNG as an environmentally sustainable “transition” fuel will likely lock South Korea into a high-emitting future, which directly contradicts the policy and market incentives created by President Moon’s new emissions reduction targets.

Released last week, the draft green taxonomy, known locally as the K-Taxonomy, prescribes an end-use emission technical screening criteria of 320g of carbon dioxide (CO2) per kilowatt-hour (kWh). A life-cycle emission standard is also expected, but it will only apply from 2025.

This means that new unabated LNG-power projects, of which around 10 gigawatts are expected to flood South Korea’s energy market by 2025, would qualify for green bond and loan financing if the draft K-Taxonomy is finalized without changes.

Emissions-wary ESG investors should be on alert

South Korean green debt amounted to US$42.8 billion on 30 September 2021, according to Bloomberg New Energy Finance. A third of it, around US$14.22 billion, funded power and energy companies.

If the current draft of the K-Taxonomy proceeds as is, ESG investors may find themselves inadvertently backing gas.

Gas is a fossil fuel that contributes carbon and methane to the atmosphere through its combustion, with lifecycle emissions that are dangerous and significant. Moreover, methane from gas has a warming effect up to 80 or 90 times more powerful than carbon over a 20-year period, making gas worse for the climate than coal in the short term.

The tension around the limited role for gas in energy transition is evident in the taxonomy work playing out in all global markets.

After much controversy, the European Union (EU) accepted gas-powered generation as a ‘transitional’ asset class under its Sustainable Finance Taxonomy, provided that a project’s lifecycle carbon emissions are limited to 100g CO2 per kWh.

At this specification, gas-powered projects in the EU will likely require the use of carbon capture technology (CCS), which is yet to be proven economically or technically viable at scale anywhere in the world. Under these conditions, gas is unlikely to be funded in the short to medium, or even the long term, under the EU’s taxonomy.

The K-Taxonomy is expected to be finalized by the end of 2021, and with its current draft not consistent with the gold-standard EU Taxonomy, investors are right to be wary.

The Moon administration risks missing out on new pools of global capital

With the inclusion of gas in the K-Taxonomy, Korean policymakers have effectively signaled they aren’t up to the task of leading market development with a green taxonomy.

Instead, they are showing a preference for remaining in lock-step with emerging market Southeast Asian counterparts who have flagged their intention to recognize gas-powered generation as “green”.

This puts South Korea at risk of deterring serious ESG investors who typically prefer “dark green” assets—solar, wind and geothermal for example.

The United Kingdom’s (UK) inaugural sovereign green bond issued in September 2021 demonstrated that risk when it provided a mixed portfolio of green and controversial assets like “blue hydrogen”, which uses methane gas in its production. Several leading debt investors immediately expressed criticism over the sovereign’s opportunistic ‘green’ bond and avoided it entirely.

China is working with the EU to harmonize their respective taxonomies

By contrast, China—the largest green debt market in the region—took a different and much more strategic approach, learning from market trends and adapting.

Its first green taxonomy in 2015 categorized “clean coal” as a green project that qualified for the issuance of green bonds, drawing widespread criticism, particularly from foreign investors.

Recognizing the significance of a truly green taxonomy, in mid-2021, China removed fossil fuel-related projects and the new Green Bond Endorsed Project Catalogue—its equivalent green taxonomy—now excludes gas, LNG and coal-fired power activities.

Like South Korea, China relies on burning fossil fuels to power the country. However, President Xi Jinping’s pledge to accelerate the country’s transformation to a green and low carbon economy, and to achieve carbon neutrality before 2060, has opened the door to a much more strategic view on how China’s green finance market should develop, and which technologies should be incentivized.

China is also working with the EU to harmonize their respective taxonomies by the end of 2021. This is a positive initiative between jurisdictions in response to investor requests for a common standard on green or sustainable projects. The move also indicates that the Asian giant is ready to compete for global green capital.

China understands that ESG-focussed investors have become more forensic in their research and decision-making on what the different taxonomies recognize.

More notably, China’s mindset for justifying green energy activities appears to be unfazed, at least for now, by its need to finance new coal and gas-related projects, said to be required to see them through the energy transition phase—reasoning that its Asian counterparts, including South Korea, have defended and used to classify their own gas-powered projects as green.

But fossil fuel projects have a long history of being successfully financed. The existence of a green or sustainable finance taxonomy does not prevent assets or projects that the taxonomy excludes from being funded through conventional sources of finance. As in the past, fossil fuel power projects will continue to raise funds through traditional non-labeled debt market instruments.

Investors want green taxonomies

Meanwhile, investors around the world are urging governments to step up and commit to clear, strong and investable policies that will unlock the capital needed to transition to a net-zero economy.

Despite its now hollow new emissions pledge, the Moon administration appears unprepared to rise to the occasion. It risks missing out on new pools of global capital if it does not get the policy settings right, and instead chooses to pander to the fossil fuel industry.

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Christina Ng is a Research and Stakeholder Engagement Leader – Fixed Income, Institute for Energy Economics and Financial Analysis (IEEFA).

esg Maximizing Sustainability Reporting Using Transportation Invoice Data

Supply Chains & The ESG Imperative: The Buck Stops with the C-Suite

Nike and Chipotle tied executive compensation to sustainability goal achievement. Mary Barra of GM allocated $27B to the development of electric and self-driving vehicles through 2025. Citi recently added circular economy and sustainable agriculture focus areas for its $250 billion Environmental Finance Goal, which it expanded from the original $100 billion goal that it met four years early. Environmental, Social, and Corporate Governance (ESG) is a top concern for today’s businesses and it’s not going away.

This said, there are plenty of businesses still grappling with the challenge. Whether it’s unethical child labor practices in China creating business concerns for H&M or environmental recklessness in the Amazon region creating problems for McDonald’s, Walmart, and Costco, these days the C-Suite is working hard to gain real visibility into risks lurking deep in the supply chain that could cause serious negative repercussions back at HQ.

Let’s call it the new ESG imperative. The movement towards embracing ESG responsibility as a core corporate value has been some time coming. 2000 saw the launch of the Global Reporting Initiative, which redefined corporate governance to include sustainability measures. Today, these standards have been adopted by more than 80% of the world’s biggest corporations.

Sustainable Investing & Regulations Drive Adoption

ESG has risen to even greater prominence today as a form of sustainable investing, whereby investment into new ventures is evaluated through a more holistic lens that looks at the environmental sustainability and societal impact of the funded project and not merely at its projected raw financial performance.

To be sure, there is a growing sense that ESG-funneled investments will perform better than most, as the global community begins to place increased priority on ethical behavior, fair labor practices, combatting human rights abuses, diversity, inclusion, and climate change. In 2018, a survey on climate and sustainability services found that just 32% of investors conduct a structured review of ESG performance. By 2020, that number had jumped to 72%. The pandemic has added fuel to this argument, where sustainable equity funds withstood early pandemic market dips, better than non-sustainable counterparts.

Let’s be clear. There are laws and regulations that will force us to take responsibility for certain aspects of our supply chain. Here in the United States, for instance, the Securities & Exchange Commission (SEC) is promulgating an effective ESG disclosure system – one that would require publicly traded companies to elucidate their broader ESG exposures in their extended supply chain, as part of their annual 10K filings, beyond some existing mandatory disclosure requirements in the area of board membership diversity.

The SEC’s John Coates, Acting Director of Corporate Finance, said on March 11, 2021: “The SEC is well equipped to lead and facilitate a discussion on when and how ESG risks and data must be disclosed, and how to create and maintain an effective ESG-disclosure system that would promote the disclosure of decision-useful, reliable and, where appropriate, globally comparable ESG information.”

“There remains substantial debate over the precise contents and details of what ESG disclosures might or should encompass. Part of the difficulty is in the fact that ESG is at the same time very broad, touching every company in some manner, but also quite specific in that the ESG issues companies face can vary significantly based on their industry, geographic location and other factors,” Coates added.

This isn’t mere posturing. Last Friday the SEC put out a risk alert, citing instances of misleading claims, inadequate internal controls, and weak policies found in an examination of investment advisors, companies, and funds.

Flipping the Script

Clearly, this is only the beginning of what is to come from a government mandate perspective. Even without strong compliance drivers, there are ample, solid business reasons for executives to move proactively to 1) understand/visualize their ESG profile in their extended supply chain and 2) optimize how they position their ecosystems to be operationally resilient and to yield top performance by being “ESG-forward.” It’s short-sighted to see this in defensive or even cynical terms, or to think that real hard-nosed business execs don’t really take ESG seriously. But implementing that desire can be difficult. As I recently told the Financial Times, said businesses want help identifying their exposure but struggle with the many tiers of suppliers on which they depend.

What if we can flip the script? Go beyond what is merely the minimum (the basic “compliant” level) and actually find and reward positive behavior. The power of transparency means the right thing to do is a massive business opportunity. This goes beyond the investment world; this goes straight to the core of the corporate world and the myriad extended supply chains of finance, manufacturing, energy, aerospace and defense, pharma, automotive and beyond.

Done right, we can encourage the creation of a better, healthier, safer global economy. We help rebuild trust in the global supply chain. We can reveal and reward the good, as well as see the bad and put a higher cost of doing business in pursuing those out-of-fashion ways of operating.

Likely Changes for the Future

To be sure, there have been a number of self-correcting moves along these lines of late. The large solar-power industry here in the U.S., repped by the Solar Energy Industries Association, resolved to eschew solar-panel product components from a region of China reportedly involved in unethical child labor. The SEIA has been urging its members to move supply out of the Xinjiang autonomous region following reports of forced labor among the local Uighur ethnic-minority population.

Relatedly, numerous international companies involved in sourcing components from the same region – making a range of products from footwear to consumer electronics – are reevaluating their sourcing from Xinjiang in western China as reports surface of forced labor in factories located in this remote region.

In sum, when speaking of resilience in supply chains, more and more companies are realizing that we all have a shared responsibility to upholding our values, protecting the environment and finding a visible seat at the table for ethics. More and more boardrooms, rightly so, are focused on exposure to ESG risk, if you will, of a business. It’s a matter of improving your top and bottom line and of securing your brand’s global reputation.

The following hypothetical scenarios, where improved visibility into your extended supply chain and a will to change into an ESG-forward posture is the new normal, could prompt businesses to:

-Not source lumber from native forests that are not being replenished… in the case of a worldwide home-goods producer

-Refrain from using products tested on certain species… a CPG giant focused on personal care products

-Eliminate the use of child labor at cobalt mines in Congo… a global electric-car/hybrid automaker

-Ensure diversity in your supplier base to increase innovation and economic impact in various socioeconomic demographics

The rising prominence of ESG reflects the moral imperative that faces us as business leaders to hold ourselves accountable for the future of our planet and future generations.

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Jennifer Bisceglie is the founder & CEO of Interos