Weekly round up 5
Summer is nearly over (even before it really started - at least it is here)
This is the last of our summer holiday weekly round up’s. Next week is September and we get back into a more normal routine.
What caught our eye this week
Bridging the gap between sustainability and finance
Here are three stories that we found particularly interesting this week and why. We also give our lateral thought on each one.
Shareholder activism over AMR targetting food companies.
Almost two-thirds of the world's population face water security issues.
Europe waters down its Pesticide Reduction Act.
Shareholder activism over AMR targetting food companies.
The FT reports that investors are increasingly putting pressure on food companies to address the overuse of antibiotics in food production, particularly those that produce or buy large amounts of meat - roughly 70% of antibiotics are used in the animal farming industry. Companies including McDonald's, Hormel Foods, Brinker, Yum! Brands and Abbot Laboratories have faced investor resolutions on the topic in the past year.
AMR is a macro threat to the sustainability of the human race and other species. It is of a similar level to that of the worst impacts of climate change and biodiversity loss. Together they pose a triple threat with many overlapping underlying causes and exacerbating factors. For AMR, bringing together biological, behavioural, and physical solutions with appropriately incentivising funding we should be able to continue to enjoy the benefits of our microbe partners whilst avoiding their darker side. This is potentially a massive, if complex, investment theme for those who care about sustainability; the potential goes well beyond the pharma industry.
It's a topic we have written on extensively. A starting point is the Primer we published back in October 2022. A lot of focus is on developing new antibiotics and incentivising that development. Behavioural changes such as better stewardship in agriculture as mentioned above are also important. A lesser focused area is how physics and material science can help too.
Link to blogs 👇🏾
Almost two-thirds of the world's population face water security issues.
Water - it’s something we take for granted, until we don’t have enough of it, or if it’s too polluted. And yet without it, life is not really viable.
The fine folk at The Visual Capitalist have done their normal excellent job of turning a recent report from the United Nations University into an easily understood graphic.
The bottom line is that countries facing water security issues account for 72% of the world’s population, with an additional 8% of the global population facing critical water insecurity. That includes 4.3 billion people in the Asia-Pacific region alone, and an additional 1.3 billion people across Africa. Many of these countries are grappling with issues including fast-growing populations and drought conditions faster than they can develop the necessary infrastructure to deal with them.
We need to find ways to scale up investment in this area, before the challenge becomes almost insurmountable.
We have written on water before in The Sustainable Investor - both on issues that can arrive and also on potential solutions.
Link to blogs 👇🏾
Europe waters down its Pesticide Reduction Act.
Pesticide reduction. The gap between intent and reality on the ground can be large. Back in June 2022, to great fanfare, the European Commission released its proposal (Sustainable Use of plant protection products Regulation or 'SUR') aiming to halve the use of pesticides by 2030, and to promote more sustainable farming practices.
Since then the proposal has faced a wall of objections, and now some politicians are suggesting that the European Parliament, a key party to any EU regulation, may not vote on the proposal before the European elections next year. Which raises the risk that a new parliament might start over again.
It’s hard to know if the opposition is just politics, or if it’s more about farmers livelihoods and the lack of alternative products. Regardless, it’s possible that the SUR may end up being like its predecessor: a non binding directive. The aim back then (2009) was to measure and reduce usage of pesticides. Despite this, sales have remained stable at c. 360,000 tonnes. Even the Commission’s own auditors describe progress as “limited”.
We are generally skeptical about the ability of regulation, on its own, to make the required progress. In parallel we need investors to get behind the alternatives - and get buy-in from farmers on the ground.
One area of concern is that pesticides are a vector for introducing PFAS into the food and water system. This is something we wrote about back in November 2022.
Link to blog 👇🏾
In case you missed it ...
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Here is a selection of recently published Deep Dives, Perspectives and Quick Insights that our subscribers get to read in full.
Coffee, deforestation and new supply chains (Agriculture / Natural Capital)
Is green steel coming of age? (Greener Energy Applications)
Plus a few from the archives:
The good stuff in wastewater - part 1 (Built Environment / Wellness)
Sunday Brunch - who decides the topics for engagement?
Ooh ah, just a little bit - transition is a series of steps (Transitions / Human Rights)
What subscribers are reading this week
Coffee, deforestation and new supply chains
(Agriculture / Natural Capital, Premium and Professional)
Over the last month or so we have been publishing on sustainability in coffee. Demand for coffee is growing, but at the same time the industry is facing a triple impact. Climate change is potentially reducing the land area where coffee can be grown. Deforestation and supply chain regulations are adding to the industry's complexity. A lack of capital among farmers, many of whom are very poor, is limiting the ability of the industry to respond.
If the coffee industry is going to continue to prosper, we need to find solutions. These must include finding the capital needed for investment, which in turn could assist in providing farmers with a living wage. Collaboration will be key, with a role for governments, companies and NGO's. In this sense coffee is a microcosm of the issues faced by the wider agricultural industry, and solutions developed here could be applied across other commodities. The upcoming World Coffee Summit, being held in London on September 13th 2023, could not be more timely.
Link to blog 👇🏾
Is green steel coming of age?
(Greener Energy Applications, Professional)
The last few years have seen a dramatic change in the outlook for green steel, especially in Europe. Less than five years ago the consensus on green steel was that “investments in zero-carbon alternatives still come at prohibitive commercial risk”. Now, nearly all European steelmakers have announced plans to replace their old, high carbon emitting blast furnaces with direct reduction iron and electric arc furnaces. We have realistic plans for production at scale by the end of this decade.
In the US, legislation and corporate climate commitments aimed at their supply chains has the potential to drive demand for green steel which in turn could bring in investment into capacity.
So is green steel at a tipping point? RMI think so.
We take a look at why RMI believe that green steel is at a tipping point and what the financial considerations are when thinking about the transition to greener steel more broadly.
Not only is green steel an important sector from an emissions perspective but it could also be the trail blazer for a number of other important transitions.
Link to blog 👇🏾
From the archives
The good stuff in wastewater - part 1
(Built Environment / Wellness, Premium and Professional)
In a world of increasingly scarce resources, wastewater can provide us with heat (for our buildings) plus raw materials for fertiliser and for energy. It now makes sense to better use the good stuff in our waste water - resources that we are currently just wasting.
Why this is important? We tend to think about wastewater treatment as being an environmental and health issue. That is why we treat our sewage rather than just pump it into rivers and the sea. In our growing circular economy, recycling the resources in our wastewater increasingly makes financial sense.
In their 2021 update, UN Water estimated that globally nearly half of household water flows were NOT safely treated. The data shows massive variations, with the lowest levels of treatment in Central and Southern Asia & Sub-Saharan Africa. Funding this is a massive challenge, so finding alternative revenue streams can really help.
Link to blog 👇🏾
Sunday Brunch - who decides the topics for engagement?
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Unless you have been living off grid, you will know that one of the defining debates around ESG and Sustainability relates to engagement - by which we mean interacting with companies to get them to change their behaviour.
This has often been defined in terms of fiduciary duty. Should asset managers only care about delivering the 'best' financial return for their investors/clients, or should their role be wider (and if so how much wider)?
Many people argue that asset managers, such as say Blackrock, should be engaging with the companies that they are invested in on a broad range of Environmental, Social and Governance issues. A key question that remains largely unanswered in this debate so far is how does the asset manager decide what topics to engage on, and how do they decide what changes they want to see happen? The answer is not as obvious as it might seem.
We don't think it's for the asset manager alone to decide this. This is something that their clients, the asset owners and the individual savers in the investment value chain chart (see the full blog), should also be heavily involved with. We need to find a way that this can happen, so that the choices and trade-offs implicit in sustainable investing are well understood upfront. This goes beyond voting.
We need to move asset owners, the real providers of investment capital, to the centre of this process. After all its their money that the finance industry actually manages.
One final point before digging down into this topic - there is absolutely nothing in this debate that impacts the ability of asset managers to offer sustainable products to their clients. Or to make engagement on specific issues part of their mandate.
This is simply about the best way to deal with issues that have both financial and societal dimensions.
Link to the full blog 👇🏾
Ooh ah, just a little bit - transition is a series of steps
(Transitions / Human Rights, Professional)
Transition is a series of steps: stages, individual action & nudges (and their limitations). Training for a triathlon and transitioning in sustainability have many parallels. There are barriers to change: nirvana fallacy, bite-sized content and binaries and when balanced journalism causes an imbalance. Small steps and nudges can be effective. Examples discussed include preventing conflicts between cyclists and cars, how 'superpower satsumas' helped kids to eat more healthily, picking no sugar drinks options at McDonald's, wasting less food through measurement, and using less 'small power'.
Why this is important: Perfect can be the enemy of good. However, we can't teleport to the ideal. We need to make the right sequential moves to get there.
The thing with sustainability transitions is that whilst there is a starting point, there is no end point. The world is a continually changing place and we are continually transitioning. Getting from walking to completing a triathlon doesn't happen overnight. The same is true in sustainability. It's a series of steps.
Link to blog 👇🏾
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