Global carbon intensity falls, but still falls short of global target

30 November 2016 Consultancy.uk

Global efforts to curb greenhouse gas emissions have improved significantly last year, relative to the prevailing average, with carbon intensity falling by -2.8%. To meet the target of the Paris Agreement, however, the world will need to step up its efforts to reduce emissions. China, the UK and the US are forerunners in reducing the carbon intensity.

The recent ratification of the Paris Agreement is the first step towards tackling an issue of global proportions. The scientific consensus behind the phenomenon of human induced climate change, has finally breached the unsustainable delusion of the political- and segments of the business worlds – even if recent events in the US risk taking a step back from any further strides.

In a new report from PwC, titled ‘The Paris Agreement: A turning point? The Low Carbon Economy Index 2016’, the accounting and consulting firm explores the transition to a low carbon economy globally. The report is based on the firm’s carbon intensity model, as well as various sources for key economic data, including the Word Bank and the Intergovernmental Panel on Climate Change.

Low Carbon Economy Index 2016

Paris Agreement targets

The global economy remains heavily focused on generating GDP from carbon production. The cycle is being uncoupled, however, as new technologies open up pathways away from damaging and polluting forms of energy generation. Carbon intensity, which reflects the carbon intensity in relation to GDP, has been on the decline – averaging a decrease of -1.3% annually between 2000 and 2015.

The most recent result reflect falls in coal consumption, down by -2.8%, with a switch to lower carbon gas (+1.7%) as well as oil (+1.9%). Renewable energy sources, such as wind and solar energy output grew by 17.4% and 32.6% respectively last year, on a relatively low base with respect to the energy system as a whole.

The progress continues to significantly lag behind what is deemed necessary, however, and even falls behind the policy plans of most major economies. With respect to keeping within the Paris Agreement’s 2 degrees celsius limit, annual decarbonisation of -6.5% is required – while the collective Intended Nationally Determined Contributions (INDCs) of G20 countries currently stands at -3% annually, which is well below target.

Low Carbon Economy Index

Global Carbon Intensity Index

As part of the research, the consultancy firm considers the top performers in reducing carbon intensity in the G20 between 2014 and 2015. While globally the G20 are on average 0.2% behind their INDC targets, the G7 and E7 both managed to outperform their target (which are at -3.4% and -2.5% annually respectively) at -3.6% and -4% respectively, last year.

In terms of individual countries, the UK took second spot with -6% carbon intensity – well outperforming the INDC target of -3.1%. China took the top spot, however, with a -6.4% change in carbon intensity, as the country sought to reduce its dependence on coal as well as deal with air pollution. The US, took the number three spot with on -4.7% – well above its INDC target of -4.1% but still short of the -6.5% target required globally to meet the Paris Agreement. South Africa and Mexico round off the top five.

A number of countries saw their energy intensity increase, including Indonesia, up 0.6%, Brazil, up 0.8%, Saudi Arabia, up 1.1% and Italy, up 4.7%.

UK’s energy mix 2000-15

UK trends

In the UK there is a trend away from coal, which fell more than 20% for the second year running, cementing the UK’s position as a leader in the Index. Other carbon energy sources remain key to generating the UK’s energy, with oil and gas generating the lion’s share in 2015. The research finds that renewable energy sources, such as wind and solar have picked up since 2010, generating around 9% of the country’s need – in line with nuclear.

Jonathan Grant, Sustainability and Climate Change Director at PwC, says, “In 2015 the world economy decarbonised at record levels but it still falls far short of the rapid reductions needed to achieve the two degrees goal. With each passing year, the global challenge gets tougher. To stay within the two degrees carbon budget the annual reduction in carbon intensity now needs to reach 6.5%, up from 5.1% four years ago. On business as usual trends we’ll use up the two degrees global carbon budget for this century by 2036.  But our Index shows that national targets set in the Paris Agreement only buy another four years. If governments want to hit the global goal of ‘well below two degrees’ they will need to raise the ambition of their targets immediately and do much more to accelerate low carbon investment.”

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Private equity firms ramp up sustainability focus

19 April 2019 Consultancy.uk

In line with business leaders across the industrial gamut, private equity firms are increasingly on board with sustainability projects. According to a new study, the investment arms for major funds are implementing a number of strategies aimed at supporting sustainable economic development in line with global goals.

While the business world has finally begun to acknowledge the danger of climate change, effective action plans remain difficult to achieve. The Paris Agreement has stipulated a clear target for the decades leading up to 2100, although massively reducing emissions while not crashing the economy could be a tall order.

Businesses that are able to acquire capital can use it to boost productivity and output, thereby creating a virtuous cycle of development. However, some businesses are better able to utilise resources than others, both in terms of their relative productivity, as well as the value of the respective outcomes relative to costs (including environmental harms). Financing can therefore provide an avenue to select businesses that are aligned with various global sustainability goals, while shunning those that drive little or unsustainable social value creation.

Top moves made by investment arms towards responsible investment

Profit has for the longest time been the central criterion for investment decisions. Yet profit at any cost is increasingly seen as creating considerable social harms, while often delivering only marginal value. As a result, the private equity sector, which was initially sluggish to change its ways with regards to sustainability, has started to see the topic as an opportunity as much as a challenge.

A new study from PwC has explored how far sustainability goals have become part of the wider investment strategy for private equity (PE) firms. The report is based on analysis of a survey of 162 firms and includes responses from 145 general partners and 38 limited partners.

Maturing sustainability

Top-line results show that responsible investment has become an issue for 91% of respondents. For 81% of respondents, ESG (environmental, social, and corporate governance) was a board matter at least once a year, while 60% said that they already have implemented measures to address human rights issues. Two-thirds have identified and prioritised Sustainable Development goals that are relevant to their investment segments.

Change in concern and action on climate-related topics over time

While there is increasing concern around key issues, from human rights protections to environmental and biodiversity protection, the study finds there are mismatches between concern and action. For instance, concern among investment vehicles around climate change has increased since 2016.

In terms of risks to the PE firm itself, concern has increased from 46% of respondents in 2016 to 58% in the latest survey. However, the number who have taken action remains far below those concerned, at 9% in 2016 and 20% in 2019. Given the relatively broader scope of investment opportunities, portfolio companies face higher risks – and more concern – from PE professionals, at 83% in the latest survey. However, action is less than half of those concerned, at 31%.

Changing climate

In terms of the climate footprint of the portfolio companies, 77% of respondents state concern in the latest survey. 28% of respondents are taking action through the implementation of measures to mitigate their concerns.

Concern and action taken on ESG issues

In terms of the more pressing issues for emerging responsible investment or ESG issues, governance concern of portfolio companies comes in at number one (92% of respondents), while 60% have taken action on it. Firms have focused on improving awareness – setting up policies and a range of training modules for their professionals around responsible investment decision making. Cybersecurity takes the number two spot, with 89% concerned and 41% implementing strategies to mitigate risks.

Climate risks take the number three spot in terms of concern for portfolio companies (83%), but falls behind in terms of action (31%). Health and safety track records are a key concern at 80% of businesses, with 49% implementing action. Gender imbalance within PE firms themselves ranks at 78%, which is being dealt with by 31%. A recent survey from Oliver Wyman showed that there is gender balance at 13% of GP teams in developed countries.

Biodiversity is also an increasingly pertinent topic, with risks from pollution and chemical use increasingly driving wider systematic risks around environmental outcomes. It featured at number eight on the ranking of most likely global risks for the coming decade, with its impact at number six. As it stands, biodiversity is noted as an issue at 57% of firms, with 15% implementing action.