Soapbox Snippets March 2024

Soapbox Snippets March 2024

In the latest of our monthly edition of Soapbox Snippets, we round up some of the news from the world of sustainable investing.


SEC disclosures

After two years of debate, the SEC has finalised its climate-related disclosure rules. Overall, it's considered as a step in the right direction, with many fearing that the new rules might not pass at all. Public companies will now be required to report greenhouse gas emissions and explain how they identify key information about the risks and opportunities their businesses face due to climate change.


However, these rules have been significantly watered down from their initial form. The biggest change from the proposed rules being that companies will not be required to disclose ‘scope 3’ emissions. The number of companies required to report ‘scope 1’ and ‘scope 2’ emissions has also been narrowed significantly.


Then there's the small print (I know, yawn) that allows companies to not report at all if they themselves deem their emissions to be "immaterial". How many companies will use this small print remains to be seen.


The original intention, which was to enhance and standardise climate-related disclosures is somewhat met… but not really.


IEA Global Methane Tracker 2024

The IEA recently released their Global Methane Tracker, marking the first comprehensive update on global methane emissions since the Dubai COP28 in December.


This report underscores the critical role of methane emissions, which have contributed to nearly a third of the rise in global temperatures since the Industrial Revolution, and highlights that they remain alarmingly high, posing a significant obstacle to meeting international climate targets.


According to the report, methane emissions from the production and use of fossil fuels reached close to 120 million tonnes in 2023, showing a slight increase compared to 2022 and to stay within the 1.5°C warming limit outlined in the Paris Agreement, methane emissions from fossil fuels must decrease by 75% within this decade. The report also highlighted that in 2023, the global fossil fuel operations lost an alarming 170 billion cubic meters of methane, surpassing the natural gas production of Qatar!


Despite efforts, methane emissions from the energy sector remained near record levels last year. However, recent policy initiatives and regulations, coupled with new commitments arising from the COP28 climate summit, hold promise for a reversal in this trend.


IEA analysis suggests that full and timely implementation of methane reduction pledges made by countries and companies could halve methane emissions from fossil fuels by 2030. Additionally, advancements in satellite technology continue to enhance our understanding of methane emissions and their sources, facilitating improved transparency and swift mitigation of large leaks.


In March, the EU passed the AI Act, marking a significant milestone in the regulation of artificial intelligence. The act that echoes the ambition and broad scope of the GDPR, aims to govern the rapidly evolving landscape of AI technologies. With the absence of comparable US legislation, it is poised to shape the future of AI governance in the western world.


However, while the act is in its final stages - awaiting a formal approval vote in the Council of Ministers - it has already garnered attention for its ambitious scope. It sets regulations for general-purpose AI systems, with a strong emphasis on addressing applications deemed high-risk. These cover critical sectors such as infrastructure, education, healthcare, banking, migration, justice, and law enforcement.


General-purpose AI systems, and models they are based on, must meet certain transparency requirements, including compliance with EU copyright law and publishing detailed summaries of the content used for training. The more powerful models that could pose systemic risks will face additional requirements, including performing model evaluations, assessing and mitigating systemic risks, and reporting on incidents.


In addition to establishing regulatory frameworks, the AI Act explicitly prohibits certain AI applications, including untargeted facial image scraping, emotion recognition in workplaces and schools, and biometric categorisation systems using sensitive characteristics. It also addresses concerns about AI systems that may manipulate individuals or exploit vulnerabilities, although it stops short of a complete ban on biometric identification systems in law enforcement.


Despite these measures, there are concerns about the enforcement of these rules, particularly regarding high-risk algorithms. To address this, the EU plans to establish the European AI Office, tasked with overseeing AI matters across the union.


Further questions linger about whether the penalties outlined in the AI Act will serve as effective deterrents for companies. Regulators will have the authority to impose fines ranging from $8.2 million to $38.2 million or between 1.5% and 7% of a company’s global turnover, depending on the severity of the violation. Yet, there is scepticism, as previous fines imposed on tech giants have often been viewed as insignificant.


Enforcement of the AI Act will be phased in, with banned use cases taking effect within six months, obligations on providers of general-purpose AI systems enforceable within a year, and other provisions rolling out within two to three years. However, given the rapid pace of AI advancements, there's a possibility that the landscape may significantly change by the time these provisions come into effect.


Circular economy could save $100bn on waste management costs annually

According to the United Nations Environment Programme’s (UNEP) Global Waste Management Outlook 2024 (GWMO 2024) report - which is the biggest update on global waste generation and the cost of waste and its management since 2018 – the circular economy could save $100 billion on waste management costs.


The report found that municipal solid waste generation is predicted to grow from 2.3 billion tonnes in 2023 to 3.8 billion tonnes by 2050 - a 66% increase. When combining factors such as pollution, poor health, and emissions from poor waste disposal practices, UNEP warns that this rise will cost $361 billion, up from a direct cost of $252 billion in 2020.


The report emphasises that embracing better waste management controls and focusing on prevention as part of a switch to a circular economy could drastically cut costs. Better municipal waste management alone could limit net annual costs by 2050 to $270.2 billion, but decoupling waste generation from economic growth and promoting waste avoidance could deliver a net gain of $108.5 billion annually.


Shell Shock: climate change and Easter egg prices

With Easter around the corner, Easter egg prices might leave you hopping mad.


Which? has found that some Easter egg prices have risen by upwards of 50%. Cocoa growers in West Africa have been battling the extremes of climate change, seeing a drop in yields.


First, high temperatures have increased rates of evaporation meaning there is less moisture for cocoa plants. On top of that, intense rains towards the end of 2023 created wet conditions allowing fungal infections to spoil cocoa beans.

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Aegon AM Responsible Investment Specialists

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