IPCC Report and Other ESG News This Week

FactSet StreetAccount publishes regular company-level and summary-style ESG news. Below is our recap of key ESG developments and insights over the past week.

This week, the UN Intergovernmental Panel on Climate Change (IPCC) released its synthesis of its prior five years of work. The report stressed the need for urgent near-term action, finding current emissions reduction targets were insufficient to prevent the worst effects of climate change. UN Secretary General Guterres urged developed countries eliminate carbon emissions by 2040, ahead of a 2050 target, as it is likely the target to limit warming to 1.5C will be overshot (though sustained net negative carbon emissions could reduce levels again), with few nations on track to achieve their climate commitments. The report called for 60% reduction of global GHG emissions by 2035, compared to 2019 levels, concluding that the green energy transition must accelerate. Nearly 3B people are already vulnerable to climate impacts and more extreme weather due to rising sea levels and growing likelihood of climate "tipping" points could lead to more populations being impacted and some irreversible changes. Developing nations are generally more heavily impacted from extreme weather exacerbated by climate change.

However, major oil producers are not planning for a drop in fossil fuel consumption. In the same week, Shell reported that it has no intention of setting a scope 3 GHG emissions target, which includes emissions arising from customers using its fuel. FactSet Truvalue Labs data (Figure 1) show that Shell is seen as below median in comparison to peers for GHG news flow sentiment. Even the most well-regarded firm, TotalEnergies, projects no reductions in its customers’ emissions through 2030. Figure 2 looks back to 2016, which roughly corresponds to the beginning of the UN IPCC’s current reporting cycle. The figure shows news sentiment has grown more positive for Total Energies while it has receded for many oil producers, most notably the large US producers. Climate Action 100+ assessments show that ExxonMobil, Chevron, and ConocoPhillips do not have relevant scope 3 emission targets in place, likely contributing to the negative sentiment. Meanwhile, Occidental Petroleum does have such a target and CA100+ found the company’s projects consistent with IEA climate goals.

Figure 1: FactSet Truvalue Labs GHG Emissions Insight Scores for Select Oil and Gas Companies

Source: FactSet Truvalue Labs

Figure 2: Changes in FactSet Truvalue Labs GHG Emissions Industry Insight Percentile Since 2016

Source: FactSet Truvalue Labs

Thematic performance

Thematic sectors mixed on the week with solar outperforming as concerns over credit availability eased along with higher share prices in the financial sector. Markets also weighing tailwinds from EU's Net Zero Industry Act; analysts note Enphase as a key potential benefactor of the plans though solar sector suggests limits on Chinese PV imports could dampen the bloc's energy transition. Industry giants additionally warned the plans lack the clarity and funding needed to counter the US IRA.

Battery makers trading higher amid falling material costs, gains led by Eve Energy following strong earnings last week and host of positive analyst actions. Chinese EV makers are outperforming US rivals this week after Xpeng gained on cost-cutting measures despite subdued Q4 results and NIO surged after its CFO suggested the company is "very confident" it will meet its 250K EV sales target this year. Meanwhile, legacy automaker Ford reported its EV unit lost $2B in 2022 and Evergrande NEV warned its EV unit may be shut down absent new financing.

In contrast, APAC transition materials underperforming US peers as lithium prices continue to slide, halving since Nov-2022 on easing supply constraints. EV infrastructure stocks softer amid concerns US funding requirements to build chargers using domestic materials could slow near-term deployment. Hydrogen names are lagging despite support from Nel and HydrogenPro. Analysts eyed the former as a potential winner of EU green plans; the latter announced a 500 MW facility in Texas in a bid to capitalize on IRA incentives.

Environment

The EU Commission announced the Green Claims Directive proposal setting forth rules on corporate environmental claims in order to combat greenwashing. The bloc’s Net Zero Industry Act will force oil and gas majors to store CO₂ underground, targeting 50M tons of injections by 2030. Ahead of the UN Water conference taking place from March 22-24, the body released a report warning demand for fresh water will outstrip supply by 2030.  

California will be permitted to enforce tighter restrictions on, and eventual phase out of, diesel trucks, in a controversial EPA decision opposed by the trucking industry. A new analysis of the potential positive ramifications of the IRA found the US grid could be 90% carbon free by 2030 due to tax credits. In a discouraging report for the carbon offset market, however, an analysis of 300 carbon offset products found they are systematically over-credited, resulting in junk offsets.

Social and Governance

Collective labor activity in focus this week as UK rail union members voted to accept the Network Rail pay offer amid ongoing public strikes, which should bring an end to the worst of recent disruption. Thousands of Starbucks workers participated in a nationwide walkout on Wednesday as workers urge the company to increase staffing and permit more employees to qualify for health insurance. The walkout came ahead of a shareholder vote on Thursday, March 23, calling for an independent review of Starbucks’ practices on union activity. Protests continued to erupt in France after President Macron incited public anger by forcing a bill raising the retirement age through parliament without a vote.

Diversity, equity and inclusion stories from the work highlight some progress being made while plenty still to go. Australia will hold a historic vote from October through December on creating a new Indigenous people advisory group to Parliament. An audit showed Rio Tinto needs greater measures to protect indigenous cultural heritage at its mines. Nomura was one of the worst performers of major banks for female representation in senior management. Female leadership in tech is falling. Spotify spent less than 10% of its $100M Creator Equity Fund meant to foster diversity in content.

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