Soapbox Snippets June 2024
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Article Type
Sustainability Soapbox
Topic
Responsible Investing
Published
July 02, 2024
Read time
8 mins
Author
Aegon AM Responsible Investment Specialists
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In this months Soapbox Snippets, we round up some of the latest sustainable investing insights and developments.

 

Flying Greener

At the end of June, the German airline company Lufthansa announced that it would be introducing an environmental surcharge to its tickets starting next year. The surcharge, ranging from €1 to €72 per ticket, is being implemented to pass the costs from the EU's Refuel Sustainable Aviation Fuel (SAF) rules that will soon come into effect. From January 1, 2025, aviation fuel suppliers at EU airports will be required to include at least 2% SAF in their fuel supply. This quota will gradually increase over the next few decades, reaching 6% in 2030, 20% in 2035, 34% in 2040, 42% in 2045, and potentially as high as 70% in 2050.

 

Lufthansa's surcharge will be imposed on flights departing from the 27 European Union countries, the United Kingdom, Switzerland and Norway, all of which are engaged in the Sustainable Aviation Fuel (SAF) regulations and have established carbon emissions trading systems.

 

While the production of SAF currently presents challenges, including higher costs (at least twice the cost per tonne of incumbent hydrocarbon aviation fuel) and capacity hurdles, Lufthansa's decision marks an important stride towards reducing the aviation industry's carbon footprint. Lufthansa is leading the way with these changes, and it is setting a positive example that is likely to encourage other airlines to follow suit, collectively propelling the industry towards a more sustainable and environmentally responsible future.

 

EU Agrees to Restore Nature

After months of discussion and delays, the European Union agreed upon its flagship biodiversity policy this month. The Nature Restoration Law will require member states to introduce measures to restore nature under their jurisdiction on one-fifth of land and sea by 2030, and 90% of land and sea by 2050.

 

Over 80% of Europes natural habitats are classed as being in poor health currently and the Nature Restoration Law aims to reverse this. The law also includes the ambition to restore peat lands to enable absorption of CO2, specific measures to protect insect pollinators, and the specific target of planting at least 3 billion additional trees across the bloc by 2030.

 

The proposed law is not without its detractors. Finland, Hungary, Italy, the Netherlands, Poland, and Sweden voted against the law. Belgium abstained. Notably, the law came under fire from farmers on the continent, who protested the rising costs resulting from EU regulations.

 

Luxury sweatshops

Milans court of Justice has demanded luxury firms scrutinise their suppliers to ensure labour laws are respected. This is following probes into luxury good firms regarding a manufacturing method that may put peoples lives at risk to improve profit margins.

 

Probes this year have uncovered sweatshops near Milan that were definitely not as luxurious as the markets they are serving. Workers, often illegal immigrants, endured poor conditions; eating, sleeping and safety mechanisms on machinery were considered luxuries that were foregone to increase output.

 

This move by the courts is to ensure that control systems are effective in supply chains. More importantly, however, it is attempting to ingrain a culture that questions why some products cost so little. For example, one probe found handbags being charged to the company at €53 when it retailed for €2,600, because costs had been kept low through poor working practices.

 

Added to this is the unfair competitive advantage these companies enjoy, which can push more responsible retailers out of business. However, recent scandals suggest that the reputational damage it can cause if uncovered may help curb inhumane working practices.

 

Global Energy Outlook

In June, the International Energy Agency released its World Energy Investment report for 2024, which provides a global benchmark for tracking capital flows in the energy sector. For the first time, the world is now spending twice as much on clean energy as it is on fossil fuels. But it's suggested that this ratio needs to be more like 3/1 for the rest of the decade if we are to achieve the goal of limiting global warming to 1.5deg.

 

Within power generation, investment in solar now surpasses all other generation technologies combined. Set to grow to $500 billion in 2024, falling solar module prices have offset the higher interest rate environment which has held back other clean projects.

 

But overall energy consumption is still dominated by fossil fuels according to the Energy Institute's Statistical Review of World Energy, released around the same time. The report revealed that global greenhouse gas emissions from energy consumption reached a record high last year. Despite the record increase in renewable investment, demand for fossil fuels continued to rise. Energy emissions increased by just over 2% in 2023 compared to 2022, standing 5% above the pre-COVID levels of 2019.

 

More positively, for the first time since the Industrial Revolution, the share of fossil fuels in Europe's energy consumption has fallen below 70%, and in the United States there was a 17% decrease in coal consumption, reducing fossil fuels to just over 80% of the energy consumed.

 

Its suggested that both economies are showing signs of peaking or post-peak fossil fuel demand.

 

Meanwhile in China, the world's largest energy consumer, fossil fuel use climbed by 6% to a new high. But explosive growth in clean energy investments mean Chinas emissions are set not only to fall in 2024, but to also go into structural decline.

 

Both reports paint a mixed picture for overall global emissions, and concerted action from major emitters will be crucial in the battle to bend the emissions curve downward.

 

And finally - competition is getting hot in Paris

In a previous edition of our Snippets soapbox, we highlighted that some golf courses in Scotland will soon be under water. We saw the recent Germany v Denmark football game suspended because of lightening and now the Olympics are at threat over extreme weather caused by global warming.

 

There have been parts of Europe where registered temperatures have stayed above 40c for days recently, and weather forecasters cannot rule out the possibility of these high temperatures continuing during the Olympics in Paris. In a report published last week, Lord Coe, President of World Athletics, said climate change should increasingly be viewed as an existential threat to sport as it could affect the events, competitors, spectators and officials.

 

Meteo France, the French national weather service, has said that this summer is likely to be warmer than average. There have been deadly summer heatwaves in the past such as the highest recorded temperature in Paris (42.6c) set at the end of July 2019. More recently there have been temperatures of up to 36 degrees in the same timeframe in 2022, where estimated heat related deaths totalled 11,000 people in France alone.

 

Tokyo holds the record for the hottest Olympics on record in 2021 with temperatures of 34 degrees and high humidity, which resulted in quite a few athletes fainting or being sick at the finish line of races. Lets hope that the competition is the only thing that sizzles this year.

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Aegon AM Responsible Investment Specialists
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