The accelerating transition away from fossil fuels and toward electrification and renewable energy presents both risks and opportunity to investors. For those with significant fossil fuel holdings, returns are imperilled by demand risk, as energy consumption trends toward electrification. Investors have an opportunity to take advantage of this realignment by focusing on sectors and assets that are likely to grow as the energy transition accelerates.

The global investment firm Brookfield has established some of the largest private equity funds claiming to do so with its two “Global Transition Funds” and its “Catalytic Transition Fund.” The funds claim to offer investors exposure to climate-transition opportunities by directing capital toward the decarbonization of high-emitting assets, and by investing in clean energy.

Clear guidelines and adherence to best practices would offer stakeholders confidence that their bets into the transition economy are being placed accordingly.

– Michael Sambasivam and Adam Scott

Transition funds are an important investment class, as they can help supply some of the trillions needed to achieve net-zero by 2050 or sooner, while offering savvy investors a venue through which to access transition opportunities. But transition investing also requires rigorous due diligence: not all investments labelled as such legitimately contribute to the transition, and not all assets can be transitioned.

Fuzzy criteria could mislead investors

Brookfield’s funds currently lack the transparent guidelines that are necessary for transition investments to work. Clear definitions of “green” and “transition” investments would ensure that investors – both in the funds and in Brookfield itself – are getting what they were sold. Brookfield has opted instead to rely on vague language that suggests it adheres to external guidances that define credible, science-based transition investments, but without specifying the guidances involved or how they are applied.

Brookfield is not alone in this. Last year, we filed a complaint with the Ontario Securities Commission on the basis that Canada’s banks labelled investments as “sustainable” even though they resulted in increased greenhouse gas emissions. Each of Canada’s “big six” banks were involved in sustainably labelled transactions that financed the expansion of fossil fuel infrastructure.

Related

‘ESG tourists’ are leaving, but sustainable funds are still growing in Canada

RBC’s climate retreat sparks debate over anti-greenwashing law

Carney wants a pipeline. Building one will be harder than it sounds.

As Brookfield deploys transition capital on behalf of pensions and other clients, it is paramount that it ensures that it does not similarly mislead its investors. Comments from Brookfield Infrastructure CEO calling LNG a “leading transition fuel,” paired with Brookfield’s substantial and growing gas portfolio, led us to file a shareholder proposal asking for clarity.

Our proposal asks that Brookfield disclose the criteria used to determine asset eligibility in its transition-labelled funds. Clear guidelines and adherence to best practices would offer stakeholders confidence that their bets into the transition economy are being placed accordingly.

Methane gas has no place in transition investing

The Canadian financial sector’s systemic unwillingness to properly define the terms “transition” and “sustainable” shows the need for Canada’s upcoming green and transition taxonomy to adhere to strict best practices.

A Canadian green and transition taxonomy would serve as a classification system for which activities are aligned with Canada’s climate target of achieving net-zero emissions by 2050. Where Canada’s financial sector lacks the incentives or willingness to regulate itself, investors and the general public alike would benefit from guardrails that ensure that green and transition finance are not simply buzzwords.

We know what is needed to successfully transition the economy toward net-zero and to avoid cementing further transition risk into Canada’s finances. The International Energy Agency’s and the Intergovernmental Panel on Climate Change’s net-zero pathways make clear that financing new development of fossil fuel infrastructure is misaligned with net-zero by 2050. Suggestions that methane gas be labelled as transitional are not rooted in science but rather an attempt by fossil fuel companies to displace capital allotted to transition investments.

The fossil fuel sector’s newest campaign, in which liquefied natural gas is being falsely sold as a “bridge fuel” to allow developing economies to replace one fossil fuel (coal) with another (gas), is unfounded in both economics and climate science. LNG’s high life-cycle emissions make it a marginal emissions-reduction tool at best, while new gas investments of any type would lock in carbon emissions for decades, blocking transition.

LNG is not a transition fuel, and either Brookfield’s transition funds or Canada’s taxonomy would be undermined by pretending that it is.

A science-based and climate-aligned taxonomy would not prevent Canada’s financial institutions from managing capital as they see fit. Instead, it would mandate honesty, prevent greenwashing, create trust and ensure that transition capital is deployed in alignment with its mandate.

If Canada’s financial institutions earnestly stand by their green- and transition-labelled investments and investment vehicles, we should see them asking for the same.

Michael Sambasivam is a senior analyst at Investors for Paris Compliance, a shareholder advocacy organization holding Canadian companies accountable to their net-zero commitments.

Adam Scott is the executive director of Shift Action for Pension Wealth and Planet Health, a charitable project working to align Canada’s financial sector with climate goals.

The post What’s in your ‘transition fund’? Poor transparency puts investors at risk appeared first on Corporate Knights.

Based on data from more than a billion members in 43 countries, LinkedIn’s 2024 Global Green Skills Report projects that a full half of the jobs required by the green economy in 2050 will lack qualified candidates. “This data is a wake-up call, and there’s no more time to hit the snooze button,” says Sue Duke, LinkedIn’s vice president of public policy.

The study says that global demand for green talent is currently growing nearly twice as fast as supply, with demand increasing by 11.6% and supply by just 5.6%. The industries stocking up fastest on green expertise are utilities (23% of their job postings require green skills), construction (20.6%) and manufacturing (13%). Last year, demand for green skills grew most in the technology industry, where the energy appetite of artificial intelligence has led to a 60% surge in the share of jobs requiring green skills.

The study lends details and urgency to a transition that’s already been talked to death. A November 2024 blog post from the Smart Prosperity Institute warned that “Canada’s success depends on investing more in green jobs and skills.” Representing business, a Conference Board of Canada report called Teaching Green Skills, released in August 2024, found that Canada’s colleges and universities face grave challenges meeting the demand, including a lack of administrative focus, ongoing disconnects with employers, funding constraints and a shortage of advocates who could drive system change.

A giant advantage for green job seekers

LinkedIn’s deep data offers one positive indicator that could help move the needle. If green upskilling is to succeed, it has to start with talented job seekers wanting to learn complex new skills. Here’s their incentive: LinkedIn’s data finds that the hiring rate for green talent globally is 55% higher than for the general business population. In the United States, that advantage is actually 80% – at least it has been under the Biden administration.

The study found that government policy is a big driver of the green skills revolution. President Joe Biden’s infrastructure-building policies, especially the Inflation Reduction Act, have helped produce an 80-times boost in the share of U.S. workers with building-performance skills, LinkedIn notes. Progress is likely to continue at the state level. And while Trump has vowed to repeal the IRA, calling support for electric cars and wind power “the new green scam,” even the U.S. Chamber of Commerce, which opposed the IRA under Biden, now says it will defend parts of it. Some 85% of IRA investment funds have gone to Republican states, which will be loath to turn off the taps.

North of the border, building the green skills ecosystem will require a “team Canada” approach in which business, labour, government and educational institutions bury their differences and partner up to get things done – locally, regionally and nationally. Entire industries, from energy and forest products to plumbing and risk management, will have to be re-engineered. Business and post-secondary schools have to work together to create curricula, get more people trained and find the best ways to retrain older workers.

But there’s a bright green light at the end of this tunnel. “We see this as a great opportunity,” says Hem Dholakia, a senior research associate at the Smart Prosperity Institute in Ottawa. The challenges of building these new educational links – consensus-building, creativity and communication – are the same skills required for the energy transition. If Canada can accelerate these twin transitions, Dholakia says it will build an international edge that will make the country a magnet for foreign capital once again. “By putting in the building blocks of a skilled and inclusive workforce, we would be setting ourselves up for long-term economic growth.”

Of course, if Trump goes ahead with his recent threat to impose a 25% tariff on Canadian goods, Canada’s economy could tumble into an immediate recession that would throw off every economic forecast. Even so, that would be all the more reason for Canada to double down on the green economy and focus on international markets.

The post Green jobs are abundant. Green workers are not. appeared first on Corporate Knights.

That hard work is often hard to see, the product of millions of Canadians and thousands of businesses quietly, persistently adopting new approaches to life and work, eschewing waste, prioritizing collaboration and generally learning to do more with less. Since 2002, Corporate Knights has recognized this work by publishing the Best 50 list of Canada’s top corporate citizens – the businesses that prize sustainability as well as commerce.

Now in its 23rd year, the Best 50 helps track how Canadian businesses are meeting the low-carbon and green-transition challenge – as well as where they’re getting stuck in the process.

You already know many of these companies – you’ve ridden their buses (Société de transport de Montréal), pocketed their coins (Royal Canadian Mint), used their phone networks (BCE, Telus and Rogers), shopped there (Canadian Tire) or bought the T-shirt (Gildan Activewear). The companies that made the Best 50 are mostly corporations with more than $1 billion in annual revenues, as well as Crown corporations, large co-ops and members of the S&P/TSX Renewable Energy and Clean Technology Index. What sets them apart is their commitment to doing business differently – they’re companies that derive significant revenue from greener products and services, invest in increasingly sustainable projects, and prioritize equity in their operations.

Crucially, the companies’ average sustainable investment (as a percentage of total investment) hit 58.9% this year, up 9% over last year’s 49.7% – that’s compared to just 8.4% for the average large Canadian corporation.

2024 Best 50 ranking table

*Indicates a tie as a result of a formula correction
**Revised rank due to a formula correction

“How a company invests its capital expenditures today is a major determinant of how sustainable its revenue will be tomorrow. The fact that we’re seeing a significant jump in sustainable investments among Best 50 companies tells us that more corporate leaders see sustainability as a business imperative,” says Michael Yow, director of corporate rankings at Corporate Knights. There’s also evidence that companies can do better by doing good. Since the inception of this list on June 1, 2002, the stock prices of publicly listed companies on the Best 50 have outperformed the S&P/TSX Composite Index by 80% (as of April 30, 2024).

Driving into first place

In first place on the list this year is a different kind of public company: Société de transport de Montréal (STM) gets 85.4% of its revenues from delivering greener public transit. Better still, Corporate Knights researchers found that 82.3% of STM’s capital investments (up from 45.8% last year) now go toward building low-carbon infrastructure – including the expansion of its Metro line and a large underground garage to support subway service expansion.

Beyond cutting carbon, STM stands out for its commitment to equity and inclusion. In an era of runaway executive compensation, its CEO earns just 5.2 times more than the company’s average worker – well below the Best 50 average of 76 times. In addition, women make up half of the company’s board of directors, and STM has committed to “universal accessibility,” striving to minimize barriers to the use of transit for all its customers – even as it maintains a personalized para-transit service.

Second-place Stantec, which calls itself “a global leader in sustainable design and engineering,” is also committed to building sustainable cities. Ranked as the world’s ninth-most-sustainable company earlier this year on Corporate Knights’ Global 100 list, Edmonton-based Stantec has built its latest three-year strategic plan on “purpose-driven growth.” To Stantec, the climate crisis is one big opportunity; it’s focusing in particular on the energy transition, coastal resilience, ecosystem restoration, smart cities and international development.

The Best 50 includes many firms in industries central to the energy transition, such as power generation and transmission (which includes a whopping 14 companies, from giants such as Hydro-Québec and Ontario’s Hydro One to renewables specialists such as Innergex – last year’s top company – and Brookfield Renewable). But the list also identifies values-based companies in many other sectors, including manufacturing (six), communications (five), banks and insurance (four), and rail transportation, engineering services and forest products (two each). More evidence that any company, in any industry, can choose a more sustainable path.

The fact that we’re seeing a significant jump in sustainable investments among Best 50 companies tells us that more corporate leaders see sustainability as a business imperative.

–Michael Yow, director of corporate rankings, Corporate Knights

This year’s Best 50 list also demonstrates that the road to the future is not perfectly straight. For instance, CEOs are still pushing the limits on executive compensation. While the average ratio of CEO pay to average employee pay dropped this year to 76:1 from 108:1 among last year’s Best 50 cohort, that stemmed mainly from unusually large decreases at just two companies compared to 2023. Our researchers report that, of the companies appearing on both years’ lists, 21 firms green-lit increases in their CEO pay ratios, and just 13 managed decreases.

In another sign of fitful progress, executive gender diversity improved to just 28.4% this year, versus 26.8% last year. But while there are still more CEOs named Michael than there are female CEOs in Canada, 12% of Best 50 companies are led by women. Especially making their presence felt are Marie-Claude Léonard, a 20-year STM veteran who leads the top firm on the list; Tracy Robinson, appointed CEO of Canadian National Railway in 2022, who is the first Canadian woman to run a national railroad; Marie Lemay, who heads the most-improved organization, the Royal Canadian Mint; and Mairead Lavery, who runs Export Development Canada, the company with the lowest ratio of CEO pay to average worker pay.

Climate commitments legend

1.5°C: Business Ambition for 1.5C

SBTi: Science Based Targets initiative

FCCA: Fashion Charter for Climate Action

NZAM: Net-Zero Asset Managers Initiative

NZAO: Net-Zero Asset Owners Alliance

NZBA: Net-Zero Banking Alliance

The post These 50 Canadian corporations are betting big on green appeared first on Corporate Knights.

Many have argued the energy industry needs to change to reduce carbon emissions, but one concern that remains is the consequence this will have on economic prosperity.

Discussions vary across interest groups. Do we need to outright replace the fossil fuel industry with the renewable energy industry as soon as possible? Should we slowly phase out fossil fuels while making clean renewable replacements? Or, should we continue with a powerful fossil fuel industry while separately growing a renewable industry in parallel?

How these different choices could impact our economies seems unclear, and it is this lack of clarity that opens up the field for frustrating discussions. At the recent COP28 climate summit in the United Arab Emirates, the conference president shockingly said that there is “no science” behind any decision to phase-out fossil fuels from our energy systems — a statement which he later claimed was “misinterpreted.”

My recent research examines energy industry restructuring options for a green transition to renewable energy from an economic perspective.

Although economic analysis is helpful, it is not sufficient on its own for making these important decisions. So, my research also draws on sustainability which involves considering the conditions faced by future generations, and a concept known as equifinality reminding us to keep our minds open to many possible approaches that may satisfy the same objectives.

Renewable energy innovation and GDP

My research indicates that renewable energy innovation contributes to higher GDP. Contrary to some commonly held beliefs, a clean transition is, and has been for at least a decade, good for the economy — even in earlier stages of its development.

My findings also suggest that government and industry support for the fossil fuel industry negatively affects a country’s renewable energy innovation. The two industries are not compatible.

When the fossil fuel industry invests in itself, it also appears to improve GDP, which creates confusion about the best way to ensure economic prosperity while transitioning to clean energy.

But this investment, often made through lobbying, only prolongs the existence of the fossil fuel industry by keeping renewable energy competition out. This creates a false dichotomy between reducing emissions and improving GDP when, in fact, clean innovation can achieve both simultaneously.

My research indicates that clean innovation makes a stronger economy and reduces emissions. If we want to reinforce that dual progress, rather than accepting trade-offs, then we have to stop supporting the fossil fuel industry which aims to slow it down.

Helping renewable energy thrive

Economically speaking, the fossil fuel industry is negatively impacting consumer welfare by maintaining higher-than-necessary prices due to limited competition. This, in turn, bumps up GDP through inflated profits, having subsidised an already dominant polluting industry, reducing clean innovation and delaying cleaner progress — obviously not the way to grow a healthy economy.

In fact, GDP is not a standard of living measure or a measure of innovative competitiveness. To address inflation and the cost of living crisis, we should be promoting more competition across industries. This is a more productive type of capitalism that brings wider benefits to all of us, including more innovation, lower prices, and better products for domestic and export markets.

Government subsidies that boost the fossil fuel industry hinder consumer welfare and the transition to clean energy. Some examples include subsidies to fund more carbon capture and storage technology and the use of fossil energy in hydrogen storage systems.

Instead of funding these backward subsidies, governments should implement pollution taxes while also supporting renewable energy innovation.

My research demonstrates that pollution taxes work well with clean innovation capabilities. Supporting research and innovation in renewable energy and using a carbon tax as a tool can boost the economic benefits of transitioning to clean energy.

The findings of my work suggest that a robust economy is related to industry restructuring so that renewable energy innovation can thrive. Fostering novel scientific discoveries in clean energy innovation should be prioritized while reducing non-competitive industry formations and organizations, such as fossil fuel oligopolies and industry associations.

Making decisions with the future in mind

Increasing public awareness and understanding of fossil fuel industry games is a way to accelerate change. It’s important to recognize that industries at different life cycle stages contribute to the economy in different ways.

A newer rising industry with determined entrepreneurs, like that of renewable energy, invests in innovation to create value. On the other hand, a declining industry plays end-game strategies, like engaging in self-promotional activities, to maintain their existing position and create barriers to new industry entries.

However, consumer welfare increases with competition, not collusion. Economic analysis is not sufficient on its own for decision-making in this area because positive economic outcomes can be generated by different kinds of strategies supporting an industry’s life cycle goals.

Government policy decisions should be made based on economic analyses alongside broader sustainability criteria. Ignoring the equifinality argument and reverting to discussions about replacing coal with gas as a bridge only ensures fossil fuels remain in use for at least another generation of infrastructure.

Communities should apply sustainability and equifinality lenses to decision-making, understanding that there are many possible means to an end. For example, if a community has specific concerns about one type of renewable energy system, they should explore other alternative clean energy options instead of defaulting to fossil fuels.

An educated public should reject simplistic and single-sided arguments and understand there are usually more nuanced solutions to problems supported by evidence-based analysis. By embracing a more holistic approach, we can develop more sustainable societies by opening up renewable energy possibilities.

This story was first published on The Conversation. Read the original article here. 

Deborah de Lange is associate professor, global management studies, at Toronto Metropolitan University.

The post Renewables have been driving economic growth, even with the deck stacked in favour of fossil fuels appeared first on Corporate Knights.

“Make no mistake, we are developing a clear understanding of the key levers needed to deliver a more profitable EV rental fleet in a world that is moving toward electrification,” Hertz CEO and Chair Stephen M. Scherr told a shareholder meeting last October, months before the EV sell-off news dropped.

“Transitions of this magnitude are not easy, and there are important factors, including charging infrastructure, the pace of OEM [original equipment manufacturer] production, and the growth of the EV aftermarket that we simply cannot control.”

EVs presented issues for Hertz that the company had not prepared for in its EV adoption projections. For one, Hertz said EVs came with significantly higher repair costs—not from regular maintenance, which executives said was cheaper than for internal combustion engine (ICE) cars, but from collision repair, where costs ran twice as high for EVs as their ICE counterparts.

There was also a higher rate of damaging incidents among EV rental drivers that made the cost difference a more significant issue. As one commentator pointed out, this may be because EV rental drivers who usually drive ICE vehicles may not have had enough time to get used to the differences in driving experience between the two vehicle types.

EVs are “heavier than gas-powered cars and they deliver the sort of acceleration that can slap the back of your head against the headrest, which could explain why Hertz said EVs are involved in more collisions than gas-powered rentals,” David Berman, investment reporter for the Globe and Mail, recounted from his own EV-driving learning curve.

Adding to that, Tesla had cut the list prices of its vehicles since Hertz’s initial investment, so that the company faced significant losses when it sold cars for salvage.

If you are “coming to the conclusion that Hertz’s ‘EV problem’ is, in reality, a ‘Tesla value and repair costs problem,’ you’re not alone,” wrote MotorTrend editor Alex Kierstein. “It’s difficult to draw conclusions about EV suitability for the rental car market when so many cost factors conspired against Hertz’s mostly Tesla fleet.”

Hertz’s executives have said the company still intends to pursue EV rentals as a long-term plan. Indeed, Scherr told shareholders there is “an undeniable transformation under way” as U.S. EV ownership rates rise, and as government and corporate demand for EVs grows.

Every year, EVs are increasingly taking up a larger share of total vehicle sales.

 

– Arthur Zhang, Canadian Climate Institute

“We know the challenges at hand and are working to remedy that, which we can,” said Scherr. “And we will pace ourselves accordingly with an expectation that our in-fleeting of EVs will be slower than our prior expectations, but we will be stronger for having begun the journey when we did.”

Berman said Hertz’s snail’s pace is not indicative of the wider market.

“By 2026, battery electric vehicles and plug-in hybrids will account for 42% of European new passenger vehicle sales and 52% of sales in China,” he wrote, and while the U.S. is “a notable laggard,” EVs will account for 28% of vehicle sales by 2026 even there.

Meanwhile, “by 2026, sales of gas-powered cars will be 39% below their peak in 2017.”

In Canada, ICE vehicle sales have already peaked, writes 440 Megatonnes, a project of the Canadian Climate Institute.

“Every year, EVs are increasingly taking up a larger share of total vehicle sales,” research associate Arthur Zhang says in a new blog post. “EV sales grew at a staggering annual rate of 46%, increasing over eightfold between 2017 and 2023,” and sales in the first three quarters of 2023 surpassed volumes for the entire previous year.

This article was first published by The Energy Mix. Read the original story here.

The post Hertz electric fleet sell-off does not spell doom for future of EVs appeared first on Corporate Knights.

And now, it is the backdrop to a key plank in the South American country’s dramatic pivot to a greener economy.

When President Gustavo Petro took office in 2022, he made the energy transition the cornerstone of his mandate, turning heads by drawing comparisons between the world’s addictions to cocaine and oil. His government says it will not issue any new oil and gas exploration contracts – a first for a major petroleum-producing country – and at COP28 in December in Dubai it joined the international alliance calling for a treaty to end the use of fossil fuels. 

“My own society would say, ‘How would the president produce such economic suicide?’ given that we depend on oil and coal. But this is not economic suicide,” he said at the climate summit. “We are talking here about an ‘omnicide,’ the risk of extinction of life on the planet. Here we are avoiding ‘omnicide’ on planet Earth. There is no other way; the rest are illusions.” 

This is not an inconsequential position to take, considering how heavily Colombia relies on its exports of oil, coal and gas. 

Oil accounts for roughly 2% of Colombia’s gross domestic product (GDP), while oil, gas, coal and other resources from extractive industries represent about 55% of the value of its exports. “It’s a double challenge,” admits Javier Campillo Jiménez, the newly minted vice-minister of energy and mines. “This is the first time in the country where we’re talking about a just energy transition.”

Enter La Guajira, struggling with rampant levels of poverty and poor infrastructure and home to a major polluting coal mine. The area is part of the 52% of Colombia that isn’t connected to the central electrical grid. Here, most people power their lives through diesel that is subsidized by the government. But with high levels of solar radiation and powerful knots of wind, the region is ripe to lead a renewables renaissance. 

By early 2024, La Guajira will be home to some 123 “energy communities” – small pockets that live and power themselves off “microgrids” fuelled by hydro, wind, geothermal and solar sources. The grids will be public infrastructure, administered and maintained by the communities, which can sell the energy to other customers or to the utility, generating local revenue. “We’re working with communities so they can actually be in charge of their own energy systems,” Campillo says.

The potential is huge, says Juanita Giraldo Quiroz, an environmental engineer who spearheaded an energy-community pilot project. “It could turn into the motor of the energy transition,” she says of La Guajira. 

We’re working with communities so they can actually be in charge of their own energy systems.

 

– Javier Campillo Jiménez, Colombia vice-minister of energy and mines

This is an important piece of the energy puzzle for Colombia, which has been heralded by the International Energy Agency (IEA) as an “inspiring example” of a fossil-fuel-producing country that is charting a decarbonization course with equity in mind. The second largest country in South America by population – and a coal powerhouse in the region – is aiming to cut its greenhouse gas emissions by 51% by 2030. It is leaning into geothermal, carbon capture and hydrogen and using tax incentives and retraining programs to shift its extractive industry from drilling for fossil fuels to digging for minerals like lithium, nickel and cobalt that are the building blocks of cleaner energy. Colombia is also aiming to be coal-free by 2030, Campillo says. Renewables, mostly hydro and bioenergy, such as firewood and waste, represent 29% of its consumption, well above the IEA average. They made up 75% of the electricity generation in 2021, compared to an IEA average of 30%. 

For now, the country is engaged in a delicate balancing act, as the gas reserves it depends on for its transition dwindle and it starts to feel the economic pinch of a decarbonizing world. While the chairman of Ecopetrol, the state-run energy company, has said it has to increase its oil and gas production in order to fund the country’s energy transition, net revenue has been dropping, by 47% in the third quarter of 2023, because of the plunging price of crude on the international market. Indeed, Colombia could lose up to 10% of its export revenues and 8% of its GDP by 2050 as the planet shifts away from fossil fuels, according to the World Bank. 

“We are convinced that strong investment in tourism, given the beauty of the country, and the capacity and potential that the country has to generate clean energy could, in the short term, perfectly fill the void left by fossil fuels,” Petro told reporters in Davos last year.

The World Bank and other domestic and international energy experts maintain that wide-ranging reforms will be necessary to make up for fiscal shortfalls and finance climate action. The Colombian-based Centro Regional de Estudios de Energía (CREE) produced a road map to carbon neutrality last year. It highlights the need for “transformational, not incremental” changes to the country’s electricity system, which will have to boost its low-carbon generating capacity fivefold to meet net-zero by 2050. Putting a price on carbon, and greater investment in new technologies, will be crucial, the CREE report notes. 

“I don’t think the goals are that far off,” Quiroz says. “What it needs is a bit of a boost.” 

Campillo calls Colombia’s plans “ambitious, but also necessary.” Although Colombia represents only 0.6% of global carbon dioxide emissions, its vulnerability to climate change is becoming increasingly acute, as it faces a growing number of floods and deadly landslides. By 2050, the number of people affected by floods is expected to triple, according to a recent World Bank report, while the number of days with temperatures eclipsing 35°C will increase sixfold.

The energy transition in Colombia is occurring under the stark glare of growing violence against those who stake out positions in defence of land and the environment. Colombia has become the most dangerous territory in the region. According to Global Witness, 60 land and environmental defenders were murdered in Colombia in 2022, nearly double the number from the previous year.

We are convinced that strong investment in tourism … could, in the short term, perfectly fill the void left by fossil fuels.

 

– Gustavo Petro, Colombia president

While there is hope that Petro, who is the first leader to specifically pledge to protect land defenders – and has promised to impose stricter environmental controls for extractive projects – may help crack down on the violence, the reality on the ground remains dangerous, says Oscar Sampayo, an environmentalist and lawyer. He says that most of the violence targets people who are contesting deforestation for monoculture plantations, in particular coca plants, along with those who disrupt routes that traffic processed cocaine. But lives are also lost in opposition to large mining projects. And while social-movement and civil organizations are buoyed by the government’s pledge to put the brakes on new extractive fossil fuel projects, Sampayo expresses concern that limiting projects could have the unintended consequence of creating more stress on the 200-odd oil and gas contracts that currently exist, as contractors push to cross environmental assessment hurdles and secure permits on expedited timelines.

“The rationale of these companies is to maximize at all cost, and here ‘at all cost’ includes threats and the use of violent strategies. That’s what we’re worried about,” he says. 

Questions also remain about what a “just transition” actually means. “We need clarity on if this means democratization of energy, or if it’s going to be the same 20 companies controlling energy in Colombia,” Sampayo says. 

Quiroz, the environmental engineer, sees a golden opportunity with the microgrid-powered energy communities, if done correctly. She says that large-scale projects are becoming increasingly untenable because of fierce local opposition, in particular from Indigenous communities who consider growing encroachment by companies wanting to set up wind farms as an incursion on their ancestral territory. Earlier this year, for example, Enel Colombia cancelled a large wind-farm project in La Guajira following two years of protests and blockades by some Wayuu communities who said they had been neither consulted nor compensated, unlike other Indigenous communities.

For Quiroz, smaller-scale projects will be key, because they intrinsically come with local empowerment and participation. “When we’re talking about the energy transition, it’s not just about a focus on decarbonization,” she says. Other objectives are critical, such as shifting energy users from passive to active consumers who are part of the grid. “Our population is increasing, and so is the demand for energy,” she says. “Rather than focusing on generating and generating and generating, why not focus on using energy more efficiently, or having people generate it themselves at home,” she says. “If you have a user who is empowered, who is part of the electrical system, then their point of view is different.” 

That said, she says more has to be done by the government to ensure that the energy communities have the right regulations and support to be made reality. Campillo, the vice-minister, says that’s exactly what his team is focused on. He acknowledges the social, environmental and technical challenges that have hampered the transition in recent years, including issues around permitting, a lack of capacity or local expertise, corruption, and the shifting economic feasibility of some of the projects. But he says Colombia is on track to generate one gigawatt of renewable power by 2026 through its community strategy, with another five gigawatts coming from larger ventures. 

“We’re not looking at importing our energy transition. We’re looking at developing the necessary skills and the necessary capacity in the country so we can build our own,” he says. 

The post Can oil-rich Colombia lead the green revolution? appeared first on Corporate Knights.

A flawed but still transformative COP28 declaration signalled a transition out of fossil fuels and the dawn of renewable energy as United Nations climate negotiations concluded in Dubai, United Arab Emirates around noon local time today.The COP28 decision text, released Wednesday morning, included language about “transitioning away from fossil fuels in energy systems” and “reducing both consumption and production of fossil fuels in a just, orderly and equitable manner so as to achieve net zero by, or before, or around 2050 in keeping with the science”.

The historic provisions, arrived at after round-the-clock negotiations by climate ministers and other senior officials, appeared in the energy transition section of the 21-page document. “A call to transition energy systems away from fossil fuels—the first time oil and gas had been included in a COP agreement—won over those demanding strong action; but oil producers and developing countries were reassured by assertions that countries are free to follow their own paths to net zero,” Bloomberg News reports.

“Taken together with a call to triple renewables deployment, [take] action on methane emissions, and get a loss and damage fund going, Dubai may well be the most significant COP since the Paris Agreement in 2015.” Initial analysis indicated the surrounding language was about as weak as it could be in the constellation of United Nations legal jargon, with phrasing that merely “calls on” countries to take action rather than pushing for it in stronger terms.

But it was still a major advance over an earlier draft, published Monday by the COP28 Presidency, that was dismissed as “unacceptable”, “incoherent”, “grossly insufficient”, and a “slap in the face” by angry, frustrated, and increasingly sleep-deprived delegates.

Ultimately, the final deal “could amount to a historic agreement as it addresses the impacts of polluting and harmful energy sources, and shapes a path towards energies that are safer and more reliable,” said Canadian Environment and Climate Minister Steven Guilbeault, who played a lead role in the talks. “The package is not perfect; no UN text is. But as someone who has been in this space for more than 20 years, I see a vision we can rally around.”

“What matters is the message this sends out to potential fossil fuel investors,” Climate Home News reporter Joe Lo wrote on social media. “In the previous text, you couldn’t say that governments had agreed to transition away from fossil fuels. Now I think you can.”“It is an enhanced, balanced—but make no mistake—historic package to accelerate climate action,” COP28 President Sultan Al Jaber said after delegates accepted the deal.

How a deal was done

Earlier, officials were working through the night in Dubai, United Arab Emirates, apparently closing in on a deal that would salvage two weeks of COP28 negotiations with compromise language pointing toward a phaseout of fossil fuels.

After the overwhelming response galvanized by the original decision text, “there’s been a change in tone at the COP28 climate summit in Dubai,” Bloomberg News reported. “The shift was suddenly palpable late Tuesday as top negotiators from Japan, Canada, Norway, UK, and the U.S. rallied together outside.” U.S. climate envoy John Kerry was grinning, and “within an hour, ministers were coming out again, describing progress in bridging a deep divide over the future of fossil fuels and plans for a new draft text in the early hours of the morning.”

COP28 CEO Adnan Amin told Bloomberg negotiators were on the cusp of a deal, Kerry said the discussions were “moving in the right direction,” and Canadian Environment and Climate Minister Steven Guilbeault said the emerging decision would “keep 1.5C within reach. I leave the meeting encouraged. Much more than yesterday.”

Bloomberg said it had seen a working draft of the eventual compromise text “that would call on nations to swiftly transition away from using fossil fuels,” while “steering clear of polarizing promises to ‘phase out’ fossil fuels that had drawn fire from Saudi Arabia and other oil-producing nations.” At that stage, the text was “more declarative than an earlier version released Monday evening, which didn’t commit countries to specific steps such as tripling renewable power and boosting efficiency.”

Crucially, Bloomberg recalled, the Monday draft referred only to steps countries “could” take to drive down emissions and speed up the energy transition. The new draft said nations “should” take those steps, a small shift in nuance that made a big difference in what one veteran COP observer had been calling “UN-speak”.

As overnight gave way to early morning in Dubai, there was some indication that discussion might have turned to the always-contentious area of international climate finance, though those essential details remained unaddressed as the COP concluded.

“Developing nations have long expressed frustration that the U.S. and other wealthy countries have not offered more aid to help them weather climate-fuelled disasters. Some poorer countries are also dependent on their fossil fuel reserves to boost national wealth, meaning a deal to phase out those fuels would slash their income,” Politico wrote. “Additional aid could be a carrot to persuade some holdouts to agree to the tougher language on the production and burning of coal, oil, and natural gas, by far the biggest sources of climate pollution.”

Guilbeault told media that wealthy nations “all recognize we need to do more when it comes to financing,” Politico said.

But negotiators from China, India, and other countries said they would not accept language on a fossil fuel phaseout or phasedown, Politico added.

“To tell us to stop fossil fuels is an insult. It’s like you are telling Uganda to stay in poverty,” the country’s minister of energy and mineral development, Ruth Nankabirwa, said on social media. Uganda would be open to “a long-term phaseout”, she added, but only if “developing nations can exploit their resources in the near term, while wealthy longtime producers quit first.”

This story first appeared in The Energy Mix. Read the original article here. 

The post ‘First nail in the coffin’ for fossil fuels at COP28 appeared first on Corporate Knights.

Rising rates are making it harder for this debt-heavy industry to meet its costs, causing many companies to trim profit forecasts, reduce dividends and pull back expansion plans, triggering a stock market selloff.

How long these climate-critical industries will remain in a slump is an open question, as central banks seem to be in no hurry to reduce interest rates. But one hopeful sign is that investors have shown strong interest in climate-related funds in 2023, a signal they are optimistic about the industry despite the recent carnage in share prices.

Central banks around the world launched a round of aggressive interest-rate increases in early 2022 after inflation started to rise sharply. At first, the hikes were not considered a major threat to the climate transition. But now, in its most recent energy outlook, the International Energy Agency (IEA) says rate hikes pose a significant challenge to the sector, even though it believes that use of oil, natural gas and coal will inevitably peak this decade, to be replaced by widespread electrification powered largely by renewable energy.

“Financing costs for clean energy projects have recently been driven up significantly by rising interest rates in markets around the world, in particular in emerging market and developing economies,” the IEA states in its most recent energy outlook, published  October 24. It points out that high interest rates are pushing up costs for clean energy companies as well as consumers.

“Increases in financing costs have the biggest impact on large-scale projects involving capital intensive technologies such as offshore wind, grids or new nuclear power plants, but rising interest rates also affect consumers that rely on credit to finance an EV or the installation of a heat pump,” says the IEA. “The progress of electrification will depend on reducing the cost and improving the availability of capital.”

These costs now threaten the climate transition, according to economists Thomas Ferguson and Servaas Storm. “High interest rates de-incentivize investments in renewables, lock our economies more deeply into fossil-fuel dependence, slow down decarbonization and put us more strongly on the road to hothouse Earth,” they wrote in a commentary in The Guardian in May.

Solar and wind companies hit hard

Recently, prospects for the clean energy sector have appeared bleak.

Bloomberg estimates that green stocks globally have lost US$280 billion in value since they hit their peak of more than US$600 billion in August 2022.

The value of the MSCI Global Alternative Energy Index, a measure of the value of major solar, wind and other clean energy companies, has dropped by 41% (as of October 27) from the beginning of the year. Top listings in the index include wind turbine giant Vestas, large European renewable power company Ørsted, major Canadian renewable producer Northland Power and several global solar companies.

On October 20, solar stocks dropped dramatically after being under pressure for weeks. Solar equipment distributor SolarEdge dropped 26% after announcing “substantial unexpected cancellations and pushouts of existing backlog.” The announcement hit other solar stocks as well as Enphase Energy fell 12%, SunPower nearly 9% and Sunrun more than 3%.

Clean energy stocks are sensitive to high interest rates because they need heavy amounts of debt to finance expansion of their infrastructure, such as solar and wind farms. When rates go up, overall costs rise sharply just as energy utilities and other purchasers pressure these companies to keep electricity prices low.

Compared with the major oil and gas sector, which can increase fuel production by drilling existing reserves, clean energy companies must borrow heavily to grow. The indebtedness ratio for the clean energy sector is 3.8 times debt to 12-month earnings, almost four times higher than the 1.1 ratio for large oil and gas companies, according to a recent research post by Charles Schwab Corp. This is jeopardizing the ability of the sector to survive at a time when it should be continuing its recent rapid expansion, spurred on by higher oil and gas prices driven by the wars in Ukraine and Gaza, as well as government programs like the U.S. Inflation Reduction Act and the European Green Deal.

“Given all those trends, it would seem that alternative energy stocks should be thriving,” Charles Schwab says. “Instead, they are among the world’s worst performers this year.”

Climate and sustainability funds show strength, but not in the U.S.

Despite the slump in clean energy share prices, sustainable and climate funds are showing resilience with investors, according to recent reports from investment information provider Morningstar. Global assets of mutual funds and exchange traded funds (ETFs) with a climate-related mandate surged by 30% to US$534 billion between January 2022 and June 2023, Morningstar says.

The company notes that climate fund assets have grown at “a faster clip” than the larger sustainable fund market (although the numbers don’t include the impact of recent share-price declines). Sustainable funds are funds managed with an explicit environmental, social and governance (ESG) focus and include climate funds.

Assets of conventional mutual funds (without an explicit ESG focus) dropped 5% in the same period, and conventional ETFs were down 8%.

The number of climate funds globally has grown from fewer than 200 in 2018 to more than 1,400 currently, which has been a key driver of rising investor interest. Most are equity funds, but they also include 125 green bond funds, which are expected to attract growing interest. Recently, BlackRock Inc. announced a major new private debt fund to help meet the fast-rising debt needs of climate-transition companies.

Sustainable funds have also grown, according to Morningstar. In the third quarter of 2023, these funds attracted US$13.7 billion in net new investment, compared with the non-ESG mutual fund and ETF market, which had net redemptions of almost US$3 billion.

Growth hasn’t occurred everywhere, however. Europe, by far the largest sustainable fund market with 84% of total global assets, saw net inflows of US$15.3 billion in the third quarter, compared with net redemptions in the United States of US$2.7 billion. Interest in Europe is being driven by a flurry of new regulations to encourage the sustainable investment industry, while proposed new rules are stalled in the U.S., and many Republican lawmakers are publicly attacking ESG investing.

In Canada, sustainable funds experienced net withdrawals of US$52 million in the third quarter, but total assets declined by only 0.3%, half the rate of decline of conventional funds at 0.6%.

The share of the total investment market in Canada held by responsible investment grew last year, rising to 49% at the end of 2022 from 47% in 2021, according to a report released last week. (Responsible investment includes assets of sustainable funds plus conventional assets managed under informal ESG guidelines.)

The report by Canada’s Responsible Investment Association also showed that 93% of asset owners and managers surveyed track greenhouse gas emissions, the top-cited ESG investment factor.

“Sustainable funds should continue to gain ground as investor demand for strategies that align with their sustainability preferences continues to grow,” Morningstar says.

The climate transition is at the top of the list for these sustainability preferences, and investors appear to be ready and willing to commit capital when conditions improve for the industry.

(Disclosure: the author has investment holdings in a number of renewable energy stocks, including Northland Power, cited in this article.)

Eugene Ellmen is a former executive director of the Canadian Social Investment Organization (now Responsible Investment Association). He writes on sustainable business and finance.

The post High interest rates threaten to delay the energy transition appeared first on Corporate Knights.

In a September French parliamentary report, Jean-Paul Mattei of the MoDem group, part of President Emmanuel Macron’s ruling majority, spoke favourably of a such a tax to finance the ecological transition. At the beginning of the summer, Social Democrat MEPs Aurore Lalucq and Paul Magnette submitted a request to the European Commission for a “European citizens’ initiative” on the subject. If it gathers a million signatures in at least seven countries within a year, it could lead to the drafting of a European directive introducing an “ecological and social wealth tax” targeting the 1% richest households. In July, the commission gave the green light to the collection of signatures.

A study commissioned by the Green Group in the European Parliament and carried out by the NGO Tax Justice Network looked at the potential impacts of such an initiative. It found that a European tax on the 0.5% richest households would bring in 213 billion euros a year, anything but insignificant.

This is all the more remarkable given the virtual disappearance of wealth taxes within the member states of the EU. In 2023, only Spain still has one, with a threshold of 700,000 euros and rates that vary from one autonomous community to another. While it seems unlikely that such a tax will be reinstated at national level in France and Germany – the two countries that were the subject of our work – the debate seems very different at European level when climate issues are involved.

Ended in France, suspended in Germany

One of French president Emmanuel Macron’s early measures was the abolition of the impôt de solidarité sur la fortune (ISF), a “solidarity tax” on wealth enacted in 1981 by François Mitterand’s government. To plug the budgetary hole, Macron replaced it with a tax on property wealth, the IFI. Despite the new tax, the change considerably reduced revenues: the ISF brought in 4 billion euros to public coffers in 2017, the IFI only 2.35 billion euros in 2022. The impact of the change on reducing the tax exile rate or improving the country’s competitiveness remains unproven.

In Germany, a wealth tax is still part of the country’s Basic Law (which acts as the country’s constitution) although it has not been levied since 22 June 1995, when the Federal Constitutional Court ruled that it didn’t respect the principle of equality before the tax – property was assessed on the basis of 1964 property values, while financial assets were assessed at market value. As property was taxed less heavily than financial assets, the court asked Helmut Kohl’s government to revise the property values on which wealth tax was based. As the Kohl government chose not to do so, the tax was automatically suspended – though not abolished – on 1 January 1997.

An unlikely return to the national level

In the two countries often described as the “engines of Europe”, the question of a return of capital taxation has frequently arisen. In Germany, all the left-wing parties put it on their manifesto at every legislative election, but with the exception of die Linke, none is taking action.

Interviews we conducted with SPD and Green Party members of parliament between 2010 and 2016 show that the defence of wealth tax is just a façade. Its main purpose seems to be to rally electoral, association, and trade-union support rather than be included in the various coalition contracts negotiated over the years. For example, in 2021 the SPD and the Green Party joined forces with the Liberal Party (FDP, right-wing) to form a new government. While they were in a strong position to reintroduce a tax on society’s richest, even through a temporary measure, the possibility was quickly dismissed, and without any real surprise.

Various strategies to reintroduce the wealth tax in France have been uniformly rejected by Emmanuel Macron, with Economy Minister Bruno Le Maire saying that creating such a tax “is not the solution”.

This situation is largely due to how opponents of a wealth tax have reframed the debates. While originally conceived as a solidarity measure in France and as a budgetary resource for the Länder in Germany, opponents have successfully emphasised their supposed effects on businesses](https://link.springer.com/article/10.1007/s11211-021-00383-y). Although business assets have been excluded from the tax base, the tax was decried as a disguised corporate tax. The claim was that the ISF would lead to an exile of the wealthiest in a context of tax competition between states, a flight of capital and thus job losses.

A European solution?

Caught in this impasse, the advocates of a wealth tax have shifted the battle to the EU level and linked it to a new issue – the environment.

An analysis of parliamentary archives for the period 2010-2016 shows that no party in France or Germany, including ecologists, used this political framing. The issue of reducing social and economic inequalities through taxation has therefore given way to a potentially more consensual issue that is likely to attract wider support. A similar strategy has already been observed in the case of other public policies such as the reform of the labour code in Portugal.

By moving to the European level, the supporters of a wealth tax can bypass the criticism that individual nations’ firms are being weakened in European economic competition. It is certainly this dimension that has led France’s Ministry of Economics to keep open the possibility of a European wealth tax.

If the European Citizens’ Initiative reaches the required number of signatures, it would enable supporters of the wealth tax to mobilise European public opinion. In many countries, including Germany, public opinion seems to be in favour of such a measure.

While a wealth tax still has a long way to go to make a major comeback in Europe, there is movement in Brussels. Such a tax would also lay the foundations for a common tax system that would strengthen the EU as a whole, at a time when the continent’s far-right Eurosceptic parties, in advance of the 2024 elections, are seeking to weaken it.

The post Should we bring in a wealth tax to finance the green transition? appeared first on Corporate Knights.

The United Auto Workers (UAW) strike began on September 15 at selected Detroit plants run by automakers General Motors, Ford, and Stellantis, and has since expanded in a bid for better wages, benefits, and job security for members.

But weeks of negotiation ensued after the Detroit Three said they could not afford to meet union demands because they needed to invest profits in the costly transition from gas-powered cars to electric vehicles, reports the Associated Press.

Push to Unionize EV Plant Workers

“Perhaps most important to the union is that it be allowed to represent workers at 10 electric vehicle battery factories, most of which are being built by joint ventures between automakers and South Korean battery makers,” AP adds. “The union wants those plants to receive top UAW wages. In part that’s because workers who now make components for internal combustion engines will need a place to work as the industry transitions to EVs.”

On October 6, the UAW announced the strike was working, after an unexpected concession by GM to allow workers at its joint venture battery plants to be covered by union contracts, Reuters reports. The union said it would hold off additional strikes against the Detroit Three, but on October 9, 4,000 unionized workers at Mack Trucks went on strike after a separate five-year deal was voted down. The total number of UAW members on strike now exceeds 30,000 across 22 states, the union says.

The post How politicians are pitting auto worker rights against the green transition appeared first on Corporate Knights.