The Sillion Briefing 20.09.2024
In this Briefing...
Volvo drops target – FTSE100 restatements
Coffee fine – Near-zero inhalers
EU Deforestation – CSDDD explainer
Hague bans ads – EU agriculture report
Carbon capture waste – National Grid struggles
Microgrids go big – SDR labelling delay
Corporate
Volvo cancels EV-only target
Automaker Volvo has dropped its target of selling only electric cars by 2030, a reflection of swirling uncertainties in the world of EVs and related infrastructure. An admirably ambitious target in its original form, Volvo is now aiming to turn at least 90% of its global sales to EVs and plug-in hybrids by 2030. CEO Jim Rowan referenced challenges with dropping EV demand and slow penetration of charging infrastructure, with prices for EVs still high compared to their fossil-fuel powered counterparts. Flip-flopping on policies – as happened in the UK – also creates a lack of clarity that slows progress. As corporate targets are often dependent on state-level policy commitments and the progress of the wider industry, companies will need an approach to target-setting and modelling which can adapt flexibly to developments. Be in touch with Sillion if you’re currently struggling with questions on targets and commitments, and we can help out.
Half of the FTSE100 restated sustainability info this year
Analysis from Deloitte has shown that 46 of the FTSE100 restated sustainability metrics in this year’s reporting. In financial reporting, such restatements of previously reported information are fairly rare, but more common in sustainability reporting given its relative recency. 89% of restatements related to emissions metrics, and were primarily due to changes in methodology. The high proportion of companies issuing restatements is unlikely to come as a major surprise. Corporations are still in the early stages of data gathering for many topics, particularly in the area of scope 3 emissions. In general, it’s encouraging to see companies being honest on their approaches, and being willing to revise disclosures as expectations for accuracy gradually increase.
$1.5m greenwashing fine leaves bitter taste for Keurig
Keurig Dr Pepper Inc. has been fined $1.5 million by the US Securities and Exchange Commission (SEC) over misleading claims made in its 2019 and 2020 Annual Reports on the recyclability of its K-Cup coffee pods. The company failed to disclose concerns from two major U.S. recycling facilities. Keurig did not admit to or deny the SEC's findings, but agreed to a settlement.
A breath of fresh air: near-zero emissions inhalers from AZ
This week pharma giant AstraZeneca announced that its new inhaler was ready to be submitted to regulators. Its new device uses a propellant with a 99.9% lower Global Warming Potential (GWP) than currently used propellants, bringing it to near-zero emissions. While inhalers contribute 0.04% to global emissions, they can account for up to half of the carbon footprint of large pharma companies, making this low-emissions alternative a meaningful step in reducing the sector’s impact.
Policy & Regulation
EU Deforestation Law causes trade challenges
The European Union's enforcement of the EU Deforestation Regulation (EUDR), set to take effect on 30th December, is causing concern around potential disruption to global supply chains, particularly in Southeast Asia and Latin America. Similar to the Carbon Border Adjustment Mechanism (CBAM), the EUDR mandates that certain imported commodities – including palm oil, cocoa, coffee, cattle, and wood – have not contributed to deforestation or forest degradation. The regulation is designed to reduce the environmental impact of products which originate from outside the EU.
The law, which was passed in 2022 and provided an 18-month adaptation period, has been criticised for the burden placed on producers outside the EU and for lacking adequate prior consultation with trading partners. The complexity of tracing palm oil products often involves multiple plantations, mills, and refineries, making compliance particularly difficult. Brazil has argued that the regulation is now acting as a trade barrier and asked the EU to reconsider, claiming the law could affect almost one-third of its exports to Europe. Malaysia and Indonesia have similar concerns. Indonesian palm oil producers warn that the country’s trade to the EU could drop by as much as 30 per cent and drive the cost up for a critical product. Building pressure on Brussels could result in a delay to the regulation.
CSDDD explainer from CDP
The Corporate Sustainability Due Diligence Directive (CSDDD), the EU’s new flagship due diligence legislation and a core part of the European Green Deal (alongside the CSRD), will apply to very large companies – over 5,000 employees and over €1.5 billion turnover – from 2027. Smaller companies will be within scope in subsequent years. Focused on requiring companies to address human rights and environmental impacts across the whole value chain, CSDDD is a sweeping directive which will also require entities to have climate transition plans in place. Climate disclosure platform the CDP has published a useful explainer on the directive, which you can find here.
Hague bans fossil fuel ads
The Hague has become first city in the world to pass legislation banning advertisements that promote fossil fuels and high-carbon services, including petrol and diesel cars, air travel and cruise ships. The law will apply across public spaces in the Netherlands city including billboards, bus shelters and public transport, and forms part of the city’s wider effort to become carbon neutral by 2030. The move is in line with the call from UN Secretary-General António Guterres earlier this year for government and media to treat fossil fuel advertisement in a similar way to tobacco advertising. Edinburgh and Amsterdam have enforced similar, though not as absolute, measures.
EU Agriculture report urges green incentives
The EU’s Future of Agriculture Report has called for a substantial overhaul of the Common Agricultural Policy (CAP), which is allocated €387 billion in funding by the EU (between 2021-2027). The report seeks to address the multiple crises facing European farmers, including the impacts of extreme weather, inflation, and competition from lower-cost global markets, which have led to widespread protests across the bloc. After extensive consultations with stakeholders, including farmers, NGOs, and retailers, the report recommends shifting subsidies away from land ownership to support "active farmers" most in need, focusing on economic viability and environmental sustainability. While the recommendations are not binding, EU President Ursula von der Leyen has indicated they will help shape a broader vision for agriculture and food policy, to be presented in the first 100 days of the new European Commission. Other suggestions within the report include:
Controversial proposals to incentivise reduced meat intake through taxes and labelling, as well as measures to help farmers transition away from livestock farming
Incentives within the CAP to encourage sustainable farming practices through subsidies and a separate ‘Just Transition Fund’
A €3 billion loan package to support young farmers in adopting sustainable practices
Setting an overarching emissions reduction target for the sector across the EU
Energy
enfinium attaches carbon capture to energy from waste
A pilot which connects Carbon Capture and Storage (CCS) technology to an energy-from-waste site is being trialled by UK energy operator enfinium. The goal is to deliver ‘negative emissions’ by absorbing and storing CO2 from decaying materials – such as food waste and plants – which have already absorbed CO2 from the atmosphere, adding to the overall carbon reduction impact.
Batteries passed up due to outdated systems, says National Grid
In an acknowledgement of fault from National Grid, the British network operator admitted that batteries are often passed over in favour of alternatives such as gas when meeting grid demand.
As batteries can be charged by green power sources such as wind during times of high supply, and then deployed when renewable supply is lower (such as at night), they’re a key part of a net zero grid. But due to outdated computer equipment and a lack of interconnection, higher emission gas-fired power plants are prefered in times of higher demand – partially down to computers not being advanced enough to inform grid operators as to the level of power in the battery. In instances when battery power would have been the cheaper option, they are overlooked in favour of alternatives up to 30% of the time. Energy secretary Ed Miliband has been bullish on overcoming “blockers” to energy infrastructure rollouts, with the challenges faced by the National Grid an indicator of the challenges ahead.
PG&E goes macro with microgrids
Measures to protect against extreme weather events are front and centre for Californian energy provider Pacific Gas and Electric (PG&E)’s energy security strategy, after over $30 billion in liabilities from wildfires forced the company into bankruptcy in 2019. The company has turned to microgrids – solutions which employ local energy generation and storage and can operate when disconnected from the wider grid – to mitigate disruptions. In instances where the grid is disrupted, microgrids can continue to operate, making them a potentially highly resilient solution. In response to extreme weather events increasingly impacting operations in the US, over 4,500 microgrid projects are in the works across the US.
Finance
FCA delays SDR labelling rules to 2025
The UK’s financial regulator, the Financial Conduct Authority (FCA) has announced that requirements for asset managers to comply with certain parts of the new ‘naming and marketing rule’ for sustainability-related investment products have been delayed until April 2025, to allow more time for firms to meet the new standards. The Sustainability Disclosure Requirements (SDR) and investment labels regime aim to clarify the marketing of SDR investments, introduce new fund labels, and implement an anti-greenwashing rule.
Calendar
2024
COP: COP16 Biodiversity Conference in Cali, Colombia – 21st October-1st November 2024
COP: COP29 in Baku, Azerbaijan – 11th-22nd November 2024
SBTi: Draft Corporate Net-Zero Standard (CNZS) V2.0 public consultation – Q4 2024
ESMA: ESMA Guidelines on fund names using ESG or sustainability-related terms to apply to funds – 21st November 2024
2025
CSRD: Undertakings previously subject to the EU's NFRD must report ESRS in their Annual Report this year (i.e. FY24 reporting) – 1st January 2025
UK SRS: UK Sustainability Reporting Standards (SRS) published – Q1 2025
UK SDR: UK Sustainability Disclosure Requirements (SDR) rules on labelling of sustainability-focused funds to come into force – April 2025
ESMA: ESMA Guidelines on fund names using ESG or sustainability-related terms to apply to funds which existed before the rule change – 21st May 2024
London Climate Action Week 2025 – 21st-29th June 2025
COP: COP30, Belém, Brazil – November 2025
SBTi: Corporate Net-Zero Standard (CNZS) V2.0 to come into force – by end of 2025
2026
CSRD: All large undertakings must report ESRS in their Annual Report this year (i.e. FY25 reporting). In CSRD parlance, a 'large undertaking' is a company exceeding two of the three following thresholds: Balance sheet total €25 million, net turnover €50 million, 250 employees – 1st January 2026
UK SRS: UK listed companies need to begin work on their IFRS Sustainability Standards (ISSB Standards) and transition plan reporting, in order to be ready for next year
2027
UK SRS: UK Sustainability Reporting Standards (SRS) to become mandatory for FY26 reporting, making the IFRS Sustainability Standards S1 and S2 (the ISSB Standards) and transition plan reporting mandatory – FY26 reporting
CSRD: Listed SMEs must report ESRS in their Annual Report this year (i.e. FY26 reporting). In CSRD parlance, an SME is a company which exceeds only one (or none) of the following thresholds: Balance sheet total €25 million, net turnover €50 million, 250 employees – 1st January 2027
CSDDD: The EU Corporate Sustainability Due Diligence Directive (CSDDD) will start applying to very large companies (over 5,000 employees and over €1.5 billion turnover) – 26th July 2027
2028
CSDDD: The EU Corporate Sustainability Due Diligence Directive (CSDDD) will start applying to large companies (over 3,000 employees and over €900 million turnover) – 26th July 2028
2029
CSRD: Non-EU undertakings with EU branches / subsidiaries must report ESRS for the previous business year. This applies if the non-EU undertaking has a net turnover generated within the EU above €150 million, and if it has either subsidiaries that are large undertakings or SMEs (CSRD definitions of these are given in the calendar above) with securities traded on an EU market; or if it has branches with net turnover generated in the EU above €40 million – 1st Jan 2029
CSDDD: The EU Corporate Sustainability Due Diligence Directive (CSDDD) will start applying to all remaining companies within its scope (over 1,000 employees and over €450 million turnover) – 26th July 2029
Questions on the above? Contact alexander.bridge@sillion.co.uk with any queries, comments or feedback.