SUSTAINABLE BUSINESS REVIEW
GREEN FINANCE • INNOVATION • ECONOMICS
Trouble in Paradise A Love-Hate Relationship with Earth
ECONOMICS The 'Sustainable Space' Race: Investigating the New Space Economy
TECHNOLOGY & INNOVATION The Big Data for Sustainability
GREEN FINANCE Is "The Beautiful Game" Truly Beautiful?
INVESTMENT Equity Research Report on Trina Solar (TSL)
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About us The Sustainable Business Review is the UK's first student-led quarterly magazine producing thought-provoking opinion pieces around green finance, environmental economics and innovation. We aim to bridge the gap between corporates and students when discussing sustainability, and want to inspire the next generation of environmentally-driven leaders. We are a team of economists, engineers and business students, and we hope that you find our content insightful and it equips you with the knowledge to help gain a new perspective on our world.
Lead Editors
Professional Guests
Committee
Malaika Cornelio Economics Lead Keval Shah Economics Lead Rebecca Harrison Innovation Lead Grace De Bohun Finance Lead Jamie Alexander Finance Lead
Martin Wolf Chief Economics Commentator of the FT Kate Wylie Global Vice President of Sustainability at Mars Theresa Frappell Investor Relations Manager at Foresight Group
Artur Demka
Abdur Choudhury President Nathan Howell Vice President Laura Loboda Marketing Director Shabbir Farooqi Treasurer Asim Ali Sponsorship Director
Economics Authors
Innovation Authors
Finance Authors
Lakshumie Saththiyan Emily Calnan Andrea Fernandes Janina Gleed Mihir Shah Dominique Gomez Marina Symington Sania Zaffer
Aditya Chauhan Sachi Kulkarni Alex Westwood Maxine Miller Tejas Hirani
Ed Cox Sofia Akuamoah Jokubas Paicius Zahra Rahman Bozhidar Dinkov Sebastian Thomas Asha Pandit
Gekko Investments Analyst
About Green Finance Discover the world of ESG, corporates and financial markets all in one place. We aim to discuss topics such as green bonds, equities, global relations, company initiatives and investing.
Special thanks to Azizul Khan
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About Economics
Unearth the link between the low Explore the interplay between carbon economy and innovations in economic theory and the technology. We aim to discuss topics environment. We aim to discuss such as renewable energy, deep topics such as inequality, sustainable tech, agriculture, infrastructure and growth, developing economies, and Contact us to have your firm featured on our magazine. fashion. government policies.
ABOUT | 1
Contents
Sustainable Business Review Issue 2
Economics
3 8 13 17 20 24 27 30 33
Climate Change and International Agreements - Interview with Martin Wolf The 'Sustainable Space' Race: Investigating the New Space Economy The 21st Century 'Cold Rush': An Emerging Artic Economy The Climate Crisis and Its Toxicity to Human Health Femvironmentally Conscious Bioplastics: Could Plant-based Plastics Be An Alternative? How Ecological Economics Can Save Our Rainforests 'Stakeholder Capitalism': Does it Really Hold the Keys to a Sustainable Future? Carbon Trading vs CO2 Removal Certificates
Innovation
36 39 43 45 48 51 54
Supply Chains and Consumer Behaviour - Interview with Kate Wylie The Big Data for Sustainability The Limitations of Oil Spill Recovery Technology Solving the Renewable Power Dilemma Can Green Pharma Champion Change? Ooho Pods: The Future of Plastic-Free Hydration 4 Innovations Supporting a Green Fashion Transition
56 58 61 63 65 67 69 71
ESG Screening and Supporting SME's - Interview with Theresa Frappell Is "The Beautiful Game" Truly Beautiful? Water: the 21st Century's Liquid Gold Greenwashing their Sins Away : The Truth Behind Corporate Environmentalists Forestry Securitisation - Financial Solution to Deforestation ESG Funds have not Succumbed - how have they fared against the pandemic? Go Green or Go Home Purposeful can still mean Profitable with Proposed Coal Retirement Mechanism
73
ESG Equity Research Report on Trina Solar (TSL)
Finance
Investment
On the cover Our lead Economics article focuses on the nascent space economy - how the industry has grown over time and changed from being government-led to company-focused, as well as potential issues with the industry such as space debris and how to classify space travel as a good, page 8. Our lead Innovation article is focused on the uses of big data for measuring progress on the UN's Sustainable Development Goals, current big data analysis projects internationally as well as how insights generated through these big data partnerships can help to inform policy, page 39. Finally, our lead Finance article covers developments in the Forest Green football club, how the football sector performs on environmental and social issues and how they can make an impact in their local communities, page 58.
Q&A with Martin Wolf
Chief Economics Commentator at the FT
Page 3
www.linkedin.com/company/53117136
Q&A with Kate Wylie
Global Vice President of Sustainability at Mars
Page 36
Q&A with Theresa Frappell Investor Relations Manager at Foresight
Page 56
@nottinghamgesoc
nottinghamgesoc@gmail.com
CONTENTS | 2
Q&A Martin Wolf Chief Economics Commentator at the FT
Martin Wolf Why do you think, in spite of decades of talks and international efforts to combat climate change, emissions have continued to worsen over time? Well in some sense, that is fairly simple and in other ways fairly complicated. The simple answer is that the political systems of the world have not been able to respond because it has never become a high enough priority to their leaders, and that’s because it has never become a high enough priority to its people. Let’s be very clear, even in supposedly autocratic countries, if there is an overwhelming popular will to do something then leaders will have to respond.
The point is, the people at large have either been sceptical, indifferent, or have felt that have had far more immediate priorities. You have to remember that people in the world, even in richer countries but more likely so in poorer ones - are thinking about how they’re going to survive on a daily basis and how to have a better life for their family. They don’t want to have to deal with something that feels very remote, difficult to define exactly what it would mean for them, and what might get in the way of their economic hopes. Given that, the leaders have never really felt that they can do much more than pay lip service for this cause, and so emissions have continued to rise. It’s important to note, although emissions haven’t fallen in the developed world, the rise [in emissions] has overwhelmingly - in the last three decades - been in developing countries. This reflects their rapid economic growth, and their
aspirations for the better life I’ve talked about, which is particularly true in China. That’s the detailed answer to the simple answer. We would like to delve more specifically into The Paris Climate Agreement. This agreement was introduced in 2015 and was the firstever, universal legally-binding climate change agreement. Their aim has been to limit global average temperature increases to 1.5C and peak global emissions as soon as possible. Do you think the goals of these pledges go far enough, in terms of dealing with the scale of the issue of climate change? There are many problems with the Paris Agreement. Most importantly, the first was that there was a disjunction with the goal that you defined which they set out for themselves, and the plans that were put forward, the Nationally Defined Contributions. If you added up those plans, they led to increases in greenhouse gas emissions, which clearly meant the 1.5C target wouldn’t have been met. An additional problem was that there was no necessary reason to believe that they would deliver what they had promised. There are no sanctions that are effective in these cases, which has been made more obvious when the US, the country that emits about a quarter of the world's emissions, pulled out. This makes it less likely that we’ll hit the target, and makes it far more difficult to persuade others that they should make drastic efforts to reduce emissions. With the way the agreement had to be structured, it was very far - from an economists point of view - from the most efficient way of reducing greenhouse emissions. These were national plans, they weren’t interconnected in any real way.
At the moment, the only part of the world that seems to be at all likely to hit its target is Europe. In some of your talks and articles, you have spoken about the need for more ‘effective leadership’ when consolidating efforts and formulating strategies to combat climate change. What is your opinion on the Sustainable Development Goals (SDGs)? Do you think the SDGs are the first step to significant international cooperation and effective leadership? Or is it a superficial framework merely created to soothe public discontent? Well I’d like to answer this in two ways, one a bit broader about political leadership and one about the SDGs. The Paris accord - for all it’s huge failings, nonetheless, the first international agreement that looked to have some teeth after Kyoto happened because a deal was reached between the president of the US, Barack Obama, and the president of China, Xi Jinping; it happened mainly because of that. Europe, US and China make up the majority of global emissions; once you have these three groups together you have an international agreement. Unfortunately, that situation has disappeared, so the necessary condition is to have political leaders who think it's important, in major states, to consider the impact of climate change. Then this leads one to the SDGs. I have no objection to the SDGs, but I have a specific point about them. In terms of many development goals, i.e. what is going to happen within countries, the SDGs list a great many very desirable things, as did the Millennium Development Goals (MDGs). The MDGs were a success as they made a difference. But for a global challenge like climate change, as opposed to national development
Q&A | 4
Martin Wolf challenges, the SDGs cover the wrong countries because, where the countries these make a difference (such as for aid, etc.), these nations just aren’t a big enough part of the climate change problem as they’re not developed enough.
I also have a problem that’s not about climate change, but about the SDGs themselves which is, in my view, too much like a shopping basket. There’s a terrible dilemma and I’ve been involved in developmental issues many decades ago when I worked for the World Bank: You always have a trade-off in any planning exercise between comprehensiveness and manageability. You’d like to solve everything, but you can’t, as you have priorities. In my view, the SDGs compared to the MDGs, are too comprehensive as they just cover everything, and if you’re trying to do everything I’m concerned that they will end up doing much less than they would if they focused more on what seemed to be the highest priority areas today. I think for most developing countries, climate is not the most important thing. Redoing the energy system so that energy is cheap, abundant and available which modern technology can facilitate, such as solar power, is very desirable. Unfortunately, climate is not the main concern of developing countries; there are a few exceptions, such as India and Indonesia, but in general I think the SDGs are just a very long shopping list of everything you could possibly want to happen in the world, and in my view that is not very helpful.
How do we tackle a climate crisis when it seems like some parts of the world are moving in the wrong direction with the rise of climate scepticism, or even outright denial from lawmakers and parts of the media? What do you think would be an effective way of increasing the personal responsibility each stakeholder group feels towards climate change? I have two reactions to this. This is not based on scientific examination of polling, but my impression is that climate denial has slowly diminished in America. If you compare it with 10 to 20 years ago, more people around the world - even quite conservative people - have come to accept that this is a reality and that human behaviour is a dominant part of the reason the planet is warming. I think scepticism in the public at large has diminished. It is true, however, that for the first time we have a leader in major power who is openly and completely sceptical of climate change and, in my mind, Donald Trump is a very dangerous outlier. But I don’t think the body of opinion is moving against him.
The problem is that the shift in opinion is too slow; we don’t just need leaders who recognise this as a problem; we need leaders who are willing to act effectively, and because so little has been done we have to act very fast.
years globally. Energy systems have massive inertia in them, probably greater inertia than any other part of our economy because they involve, in every aspect, huge long-term investments, and that makes them unique. It’s obviously true for the electricity system, the fuel system moving entirely a whole country’s system to renewables is an enormous effort. We’ve done quite a bit in Britain but it’s an enormous effort, even as a developed country where we have more resources than most. As it’s a huge challenge, there are three necessary conditions for this to have to happen. The first is, the public genuinely wants this to happen and is led by the people to make this politically effective. The second is confidence that there are workable, scalable and globally relevant technologies which can be implemented everywhere. We’re much closer to this than we were 10 years ago, and it is a tremendous implementation effort. Third, I have come to the view that if we do make this effort, we’re clearly going to have to impose sanctions on countries that fail to cooperate.
Right at this moment, I can’t see how that can happen, because it’s clear in the written analysis I’ve read and done, that we really have to shift the energy systems dramatically in the next 10
Q&A | 5
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ECONOMICS
The Sustainable Space Race
Investigating The New Space Economy by Renee Gomez
ALSO IN THIS SECTION
13
An emerging arctic economy - the potential benefits and dangers
20
How women are bearing the brunt of man-made climate change
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The 'Sustainable Space' Race: Investigating The New Space Economy By Renee Gomez
Figure 1: A Falcon 9 rocket with a payload of 60 satellites for SpaceX’s Starlink broadband network lifts off (Malcolm Denemark / Associated Press) The Expanding Space Economy In the ongoing space race, the torch has been passed from Cold War battling governments, to new private companies – and the speed is picking up. According to the Space Foundation Report, the space industry reached a sizeable $432.8 billion in 2019 (Space Foundation, 2020) and is expected to reach $1 trillion in 2040 (Morgan Stanley, 2020). The names behind the biggest of the ‘New Space’ companies are both familiar and dazzling: Jeff Bezos with Blue Origin, Elon Musk with Space X, Larry Page with Planetary Resources, and much more. And of course, with brand names and innovation-centric business models come investment. For example, there were 8 private investments between 2000 to 2005, which rose to 93 between 2012 and 2018 (Goldman Sachs, 2019). By contrast, government-led space industry has been faltering. NASA, which was 0.7% of GDP during its
heyday in the 1960s, has slowly declined to just 0.1% (Weinzierl, 2018). It also relies heavily on contracting private industries to build its spacecrafts, rather than using its own manufacturing (Quartz, 2019). This is a delight to free market supporters – yet another case of privatisation leading to stronger economic gains. However, as in so many other industries, this fixation on profit is often at the expense of sustainability, and the lack of regulation of space so far does not bode well.
The Dark Side Of Space The rush towards a glorious space-faring future has come at the increasingly high cost of space pollution. Space debris – defunct man-made objects in space – poses an increasingly large risk to the future utility of space orbits. They can come from discarded rocket bodies, be released from satellites, and be formed from satellite fragmentatFROM THE COVER: THE SUSTAINABLE SPACE RACE | 9
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Figure 2: A visualization of the space debris problem around planet Earth. (European Space Agency) on. An object that’s just 1 cm can impact a satellite with the force of an exploding hand grenade. A 10 cm object can cause a catastrophic collision (European Space Agency, 2020). Concerningly, there are currently 900,000 pieces of space debris between 1 – 10cm, and more than 34,000 that are greater than 10 cm in size (Organisation for Economic Cooperation and Development, 2020). Furthermore, there are currently no removal methods in place; we simply wait for the debris to fall back to earth (Natural History Museum, 2020). This debris is primarily a danger in low Earth orbit (LEO), where most of it lies (Nature, 2018). Unfortunately, this danger is increasing at an explosive rate. Currently there are 2,000 active satellites in LEO, however about 23,000 are forecasted to be launched over the next 20 years (96% of which will be in LEO) (European Space Agency, 2020). It’s important to note that a large amount of these will come from ‘constellations – networks of satellites – created by space entrepreneurs such as Space X and Amazon. One would hope for a boom of new debris removal technologies in this case – however the economic incentives for private enterprise to solve this issue are incredibly low. So then, what can be done?
Space As A 'Good' To fully understand the problems faced by space farers, it may be useful to think of space as a ‘good’. This means that it is something that can be used, and benefits those who use it. But what kind of good is it? The answer depends on two factors: whether certain people can be stopped from using it (an excludable good), and whether using it affects someone else’s ability to use it (a rivalrous good) (Quickonomics, 2016). Considering the two conditions, space is certainly non-excludable. Like the oceans and the air, no one entity owns space, so it’s incredibly hard to restrict access. Non-excludable goods are often subject to an issue called the ‘Tragedy of the Commons’ (Garrett Hardin, 1963). This is when every individual acts according to their own self-interest in consuming a good - with no way to exclude anyone – it will lead to harmful overconsumption of said good. It has been played out in fisheries, marine plastic pollution and traffic congestion, and is beginning to slowly poison the space race.
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Figure 3: An infographic showing different kinds of goods according to access and limitedness (BoyceWire)
Steering The Space Race Straight At this point, some economists might rise from their seats and exclaim: “Why, the answer is simple... Enforce property rights!”. Property rights confer legal ownership of a good to an individual and will encourage them to protect the good from misuse (Econlib, 2020). However, this solution is blocked by the 1967 Outer Space Treaty, which prohibits nations from extending territorial jurisdiction to celestial bodies (Secure World Foundation, 2016). It’s clear that in the absence of resource division, collaboration is a necessary alternative to ensure that no party oversteps its debris limit. In Celestial Anarchy (Salter and Lesson, 2014), it is argued that in the absence of regulation, individuals (whether nations or companies) will work together to enforce their own informal property rights to guarantee smooth market operations for themselves. However, it is very possible that private enterprise may underestimate the effects of space debris, calculating solely what affects themselves. Therefore, it is ultimately up to individual nations to come together to drive the efforts to keep space viable for everyone. Collaborative efforts to build upon and improve outdated legislation - e.g. the IADC's 25-year on
post-mission orbits - is key to keeping the space race on the right track.
References A. Alchian, A., 2020. Property Rights - Econlib. [online] Econlib. Available at: <https://www.econlib.org/library/Enc/PropertyRights.html>. Fernholz, T., 2019. 2020 Is The Year Of The $1 Trillion Space Economy. [online] Quartz. Available at: <https://qz.com/1774249/2020-is-the-yearof-the-1-trillion-space-economy/>. Morgan Stanley. 2020. Space: Investing In The Final Frontier | Morgan Stanley. [online] Available at: <https://www.morganstanley.com/ideas/investing-inspace#:~:text=The%20Global%20Space%20Economy&text=Morgan%20S tanley%.>. O'Callaghan, J., 2020. What Is Space Junk And Why Is It A Problem?. [online] Natural History Museum. Available at: <https://www.nhm.ac.uk/discover/what-is-space-junk-and-why-is-it-aproblem.html>. Space Foundation. 2020. Global Space Economy Grows In 2019 To $423.8 Billion, The Space Report 2020 Q2 Analysis Shows - Space Foundation. [online] Available at: <https://www.spacefoundation.org/2020/07/30/global-space-economygrows-in-2019-to-423-8-billion-the-space-report-2020-q2-analysisshows/>. Witze, A., 2018. The Quest To Conquer Earth’S Space Junk Problem. [online] Nature.com. Available at: <https://www.nature.com/articles/d41586-018-06170-1>.
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ECONOMICS Zeder, R., 2016. The Four Different Types Of Goods - Quickonomics. [online] Quickonomics. Available at: <https://quickonomics.com/different-types-of-goods/> [Accessed 2 September 2020]. 2020. Ex-Ante Socio-Economic Impact Assessment Of The European Space Agency’S Clean Space Initiative. [ebook] European Space Agency. Available at: <https://spaceeconomy.esa.int/storage/downloads/yBxy3aVZgtg6vV8ViWSWsz2hF3cE uKSY6W3YIcLT.pdf>. 2014. Space Sustainability: A Practical Guide. [ebook] Secure World Foundation. Available at: <https://swfound.org/media/206407/swf_space_sustainability_booklet_2 018_web.pdf>. 2020. Space Sustainability: The Economics Of Space Debris In Perspective. [ebook] Organisation for Economic Cooperation and Development. Available at: <https://www.oecdilibrary.org/docserver/a339de43-en.pdf?expires=1599908374&id=id&acc name=guest&checksum=6D4B40627C5C64912AE375E6D843C4D9>. 2019. Goldman Sachs Profiles In Innovation: Space The Next Investment 2019. Goldman Sachs Profiles In Innovation: Space The
Next Investment Frontier. [ebook] Goldman Sachs. Available at: <http://www.goldmansachs.com/insights/podcasts/episodes/05-22-2017noah-poponak.html>. Hardin, G., 1963. The Tragedy of the Commons. Science, [online] 162(3859), p.2. Available at: <https://science.sciencemag.org/content/162/3859/1243>. 2016. Policy Aspects Of Space Debris And Space Sustainability. [ebook] Secure World Foundation. Available at: <https://swfound.org/media/205352/weedenstardust_keynote_jan2016.pdf>. Salter, A. and Leeson, P., 2014. Celestial Anarchy: A Threat to Outer Space Commerce?. Cato Journal, [online] 34(3). Available at: <https://www.cato.org/sites/cato.org/files/serials/files/catojournal/2014/9/cj34n3-8.pdf>. Weinzierl, M., 2018. Space, the Final Economic Frontier. Journal of Economic Perspectives, [online] 32(2), pp.173, 192. Available at: <https://www.hbs.edu/faculty/Publication%20Files/jep.32.2.173_Space, %20the%20Final%20Economic%20Frontier_413bf24d-42e6-4cea-8cc5a0d2f6fc6a70.pdf>.
Figure 4: A satellite constellation visible in the night sky (Mike Lewinski/IDA)
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The 21st Century ‘Cold Rush’: An Emerging Arctic Economy
Should We Break the Ice for A New ‘El Dorado’?
by Andrea Fernandes
A
rctic sea ice is hurtling towards its demise. The region is warming twice as fast compared to the rest of the planet and researchers are now predicting a total loss of Arctic sea ice by 2035 - a mere 15 years from now (Guarino et al., 2020). Coupled with unprecedented wildfires raging in a region previously thought “too frozen to burn” (National Geographic, 2020a) and record early snowmelt, the climate crisis is fueling irreparable Arctic destruction. 2020 is edging closer to the lowest ice levels ever seen (Figure 1) as Greenland’s ice sheet recently passed the
point of “no return”. Temperatures too are abruptly increasing to those last experienced during the Ice Age (Jansen et al., 2020).
Polar El Dorado This erratic warming could propel the Arctic into a “blue ocean mode” (an almost ice-free Arctic Ocean), making the lure of exploiting economic opportunity more viable, particularly as the world runs out of resource frontiers to explore. Commercial shipping, oil and gas and mineral extraction, tourism, and fishing have the potential to
Figure 1: Arctic Sea Ice Extent. Every year, Arctic sea ice the size of North Dakota, US melts forever.
STRIKING GOLD IN THE ARCTIC MELT? | 13
ECONOMICS generate multi-billion-dollar revenues (Alvarez, Yumashev and Whiteman, 2019). Home to oil, or black gold, the Arctic has significant hydrocarbon riches around 30% of the world’s undiscovered natural gas and 13% of undiscovered oil (Gautier et al., 2009). Stakeholders like Russia have thus moved in to exploit offshore resources, ushering in a future “cold rush.” Similarly, melting ice caps reveal the commercial feasibility of the now ice-free Northern Sea Route, whose operation would significantly reduce shipping distances. If the route comes into industrial play it would connect East Asia and Europe, suggesting shifts in trade flows between the two continents (Bekkers, Francois and Rojas-Romagosa, 2016). This strategic relevance and newfound access to a resource haven illustrate why the Arctic is rapidly emerging as a lucrative economic opportunity. However, reckless exploitation may lead to deeply detrimental global effects, including rising sea levels which pose a direct threat to coastal settlements. In response, the Arctic Council has several initiatives to boost sustainability, though not as comprehensive as the scheme centered on its polar cousin, Antarctica (the Antarctic Treaty System (ATS).
marine resources. Parts of marine-catch typically considered waste, like fish heads, will be used for high-value products like dietary supplements, animal feed and even energy to minimise biowaste (SDWG, 2019a). Similarly, the Arctic Sustainable Energy Futures Framework outlines a long-term energy planning process for socially desirable and economically practical energy solutions to lessen domestic fossil fuel reliance (SDWG, 2019b). The incorporation of renewable resources into remote energy networks
Refereeing Arctic Resilience vs Economic Bonanza The Blue Bioeconomy project (implemented by the Arctic Council’s Sustainable Development Working Group for instance, works to balance growth, social inclusion, and environmental protection by improving the use of living
Figure 2: Unfreezing the potentials of the Arctic. STRIKING GOLD IN THE ARCTIC MELT? | 14
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(microgrids) is also occurring. Additionally, the “Zero Arctic” carbon-neutral construction project aims to reduce energy consumption and greenhouse emissions. However, current governance treaties in the Arctic are severely lacking due to its unique geopolitical situation, especially in terms of environmental protection against external extractive industries that look to harness the region’s economic potential. Harsem et al. (2011) for instance, suggests replicating Greenland’s strategy of negotiating upfront “clean-up bonds” due to extreme weather making oil-spills likely.
weather-related losses rose from around US$ 50 billion in 1980 to around US$ 150 billion in 2012 (Alvarez et al., 2019) and it could increase in the next decade as warming accelerates. Rising industrial activity could also trigger Arctic coastal community and ecosystem damage through more black carbon pollution from shipping and oil spills (Harsem et al., 2011) in an already fragile environment.
To develop or not The World Economic Forum (2014) has outlined how sustainable development can occur if cooperation,
Figure 3: Pinpointing sustainability
Thawing Ice, Global Sinking The Arctic is a perceived “canary in the mine” - an early warning barometer for global climate change effects. Hence, expanding Arctic industries without environmental considerations may counterbalance any achieved economic benefits with climate-centric catastrophes. Firstly, there are direct regional impacts to contend with, which include infrastructure damage from thawing permafrost, ecosystem changes and wildfire destruction on the tundra. Then there are indirect global impacts like sea level increases from the Greenland Ice Sheet melting, increasing greenhouse gas emissions, ocean acidification, and increased extreme weather events (Alvarez, Yumashev and Whiteman, 2019). These may have knock off economic effects on the tourism, agriculture, and insurance industries (Francis et al, 2017), and may sink the global economy through multipliers of stress, degradation, poverty and inequality. Clearly, “what happens in the Arctic, doesn’t stay in the Arctic” (Greenpeace, 2016). To frame this, yearly global
infrastructure, and cross-border investment (like WEF’s (2019) sustainable Arctic Investment Protocol) expanded, along with improved regulations. In parallel, as the issue of environmental stewardship rises in prominence, countries like Canada have returned security deposits paid by oil companies to drill in Canadian Arctic waters, which are offlimits until 2021 (WEF, 2020). Big banks like Goldman Sachs have also turned down funding towards Arctic fossil fuel extraction. A key sticking point though is if Western economic players retreat, the Arctic may be left to the interests of Russia or China who are even less stringent with environmental considerations.
STRIKING GOLD IN THE ARCTIC MELT? | 15
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References Guggenheim and WEF (2019) Financing sustainable development in the Arctic [online]. Available at: https://www.guggenheiminvestments.com/GuggenheimInvestments/media /PDF/Financing-Sustainable-Development-in-the-Arctic.pdf (Accessed: 29 August 2020) OneWeb (2019) Polar potential: The Arctic could exemplify sustainable development [online]. Available at: https://www.oneweb.world/assets/news/media/OneWebArcticRoundableWhitepaper.pdf (Accessed: 27 August 2020) Greenpeace (2016) What happens in the Arctic doesn’t stay in the Arctic [online]. Available at: https://www.greenpeace.to/greenpeace/wpcontent/uploads/2016/06/ArticoEN-LR.pdf (Accessed: 26 August 2020) National Geographic (2020a) A heatwave thawed Siberia’s tundra. Now, it’s on fire [online]. Available at: https://www.nationalgeographic.co.uk/environment-andconservation/2020/07/a-heat-wave-thawed-siberias-tundra-now-its-on-fire (Accessed: 4 September 2020) National Geographic (2020b) Arctic summer ice could disappear as early as 2035 [online]. Available at: https://www.nationalgeographic.com/science/2020/08/arctic-summer-seaice-could-be-gone-by2035/#:~:text=In%20July%20of%202020%2C%20the,last%20intact%20ice%2 Dshelf%20collapsed. (Accessed: 3 September 2020) National Snow & Ice Data Center (2020) Sea Ice Index, Version 3 [online]. Available at: https://nsidc.org/data/G02135/versions/3 (Accessed: 9 September 2020) Jansen, E. et al. (2020) ‘Past Perspectives on the Present Era of Abrupt Arctic Climate Change’ Nature Climate Change, 10, p714-721 [online]. Available at: https://doi.org/10.1038/s41558-020-0860-7 (Accessed: 6 September 2020) Gautier, D. et al. (2009) ‘Assessment of Undiscovered Oil and Gas in the Arctic’ Science, Climate, 324(5931), p1175-1179 [online]. Available at: 10.1126/science.1169467 (Accessed: 5 September 2020)Ocean Climate (2019) The Arctic: Opportunities, Concerns and Challenges [online]. Available at: https://ocean-climate.org/wp-content/uploads/2020/01/10.-The-Arcticscientific-fact-sheets-2019.pdf (Accessed: 29 August 2020)
SDWG (2019b) Arctic Sustainable Energy Futures Toolkit [online] Available at: https://arctic-council.org/en/projects/arcticsustainable-energy-futures-toolkit/ (Accessed: 6 September 2020) Smith School of Enterprise and the Environment and University of Nottingham (2011) The future of Arctic enterprise: Long term outlook and implications [online] Available at: https://www.smithschool.ox.ac.uk/publications/reports/sseearctic-forecasting-study-november-2011.pdf (Accessed: 5 September 2020) Alvarez, J., Yumashev,D. And Whiteman, G. (2019) ‘A Framework for Assessing the Economic Impacts of Arctic Change’ Ambio, 49, p407-418 [online]. Available at: https://doi.org/10.1007/s13280-01901211-z (Accessed: 26 August 2020) Guarino, M. et al. (2020) ‘Sea-ice-free Arctic During the Last Interglacial Supports Fast Future Lost’ Nature Climate Change [online]. Available at: https://doi.org/10.1038/s41558-020-0865-2 (Accessed: 3 September 2020) Bekkers, E., Francois, J. and Rojas-Romagosa, H. (2016) ‘Melting Ice Caps and the Economic Impact of Opening the Northern Sea Route’ CEPR Discussion Paper No. DP11670 [online]. Available at: https://ssrn.com/abstract=2877275 (Accessed: 2 September 2020)
Francis, J., Vavrus, S. And Cohen, J. (2017) ‘Amplified Arctic Warming and Mid-latitude weather: New Perspectives on Emerging Connections’ WIREs Climate Change, 8(5), p474 [online]. Available at: https://doi.org/10.1002/wcc.474 (Accessed: 31 August 2020)
Harsem, Ø. et al. (2011) ‘Factors Influencing Future Oil and Gas Prospects in the Arctic’ Energy Policy, 39(12), p8037-8045 [online]. Available at: https://doi.org/10.1016/j.enpol.2011.09.058 (Accessed: 7 September 2020)
WEF (2014) Demystifying the Arctic [online]. Available at: http://www3.weforum.org/docs/GAC/2014/WEF_GAC_Arctic_Demystifying Artic_Report_2014.pdf (Accessed: 30 August 2020) WEF (2020) The final frontier: how Arctic ice melting is opening up trade opportunities [online] Available at: https://www.weforum.org/agenda/2020/02/ice-melting-arctic-transportroute-industry/ (Accessed: 26 August 2020) SDWG (2019a) Blue Bioeconomy in the Artic Region [online] Available at: https://sdwg.org/what-we-do/projects/blue-bioeconomy-in-the-arcticregion/?it=blue-bioeconomy-in-the-arctic-region/ (Accessed: 6 September 2020)
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The Climate Crisis And Its Toxicity To Human Health Understanding the catastrophic impacts of climate change on the health and well-being of the general population By Sania Zaffer According to the World Health Organisation (WHO), the hefty costs of the damage that climate change inflicts upon human health is predicted to reach a colossal amount between $2 billion to $4 billion per year by 2030 (Farnier et al, 2018). While the connection between the climate crisis and health risks may not be transparent, the Covid-19 pandemic has shed light on the importance of public healthcare for the global economy and its interconnectedness with the general well-being of society. With healthcare acting as a crucial segment of economic prosperity, development, and moral responsibilities, the question remains: is climate change the biggest health threat of the 21st Century?
Climate Change And Its Impacts On Healthcare The long-term shift in climate conditions and the increased unpredictability in climate patterns has proven to be a threat multiplier, when it is associated with human health. Perpetuated by human actions, the steady change in the Earth’s temperature has led to catastrophic consequences which includes the expanding ocean, more intense natural disasters like storms, hurricanes and floods, and unreliable levels of rainfall that have left farmers disconcerted (National Geographic Society, 2019). While these are calamitous events, climate change also further intensifies direct health problems that are faced by people or causes the emergence of new diseases, since it induces extreme weathers. Such weathers birth various extreme forms of cardiovascular and water-borne diseases, which put children and the elderly at risk of the most serious consequences (Centers for Disease Control and Prevention, 2020).
Additionally, climate change is a contributor towards decreasing food security and depleted levels of nutrition consumed by the average human, due to its long-lasting impacts on agriculture and the quality of food production (Noiret, 2016). Another prevailing risk is the threat of population displacement that arises from rising sea levels (Farnier et al, 2018). However, these impacts are more pervasive amongst vulnerable populations, systems and regions, such as those in lower socioeconomic classes, developing countries and dependent elderly and children populations (Ebi et al, 2017).
Why Should Businesses Care? A strong, resilient healthcare system and the well-being of citizens are prerequisites for having a wellfunctioning, growing economy. Economic strength driven by a health system is directly related to sustainable development and the social benefits that are derived from creating a durable healthcare system (Boyce and Brown, 2019). Organisations like the WHO and the World Bank have reported that investments in public institutions like education and healthcare have yielded various economic benefits through human capital (Boyce and Brown, 2019). Economic conditions have large implications for businesses. Their growth and success are dependent on the cyclicality of the economy, in addition to the health of citizens, as they are the ones who induce demands that catalyse business growth. The World Economic Forum’s Global Risks Report has identified climate-related risks as a top threat for businesses every year since 2011. In 2018, this report also mentioned the risks that are connected with extreme weather events and natural disasters, proving that climate has a huge impact on businesses. Unmediated impacts are also observed by businesses as employee health could jeopardize their productivity, which is essential to ensure business efficiency (Farnier et al, 2018). CLIMATE CRISIS IS A HEALTH CRISIS| 17
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Figure 1: World Health Organisation; Environmental Impacts on Health (2020) CLIMATE CRISIS IS A HEALTH CRISIS| 18
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Solutions To Tackle This Issue Fortunately, there is an overlap when it comes to addressing climate change and improving health care measures, in order to prompt sustainable development. The established connection between the two implies that by investing in sustainable initiatives and supporting the transition to a carbon neutral, clean energy economy, businesses are able to indirectly support societal wellbeing. Innovative finance is an increasingly popular method to tackle market failures through improving value chains and funding enterprises and interventions that produce positive societal and environmental impacts. This form of impact investing has now expanded into the realm of funding healthcare and increasing its accessibility in order to meet the Sustainable Development Goals that have been set for 2030. Businesses' focus on healthcare and the well-being of their employees and the general society is illustrated through the coronavirus pandemic, as businesses showcased their flexibility and ability to soften their negative societal impacts. Businesses were able to develop detailed guides and revise regulations for employees on methods of operating safely during the coronavirus pandemic, prioritising societal health. This situation reinforces the importance of healthcare, with regards to economic prosperity and development of society. Along with that, other institutions have taken steps to soften and limit the already existing burden that the environmental condition imposes on vulnerable populations. The World Health Organisation regularly carries out projects to improve the healthcare infrastructure of developing nations, where the impacts of climate change are severe towards the health of their population. This includes creating effective plans to develop higher quality water and sanitation facilities to avoid water-borne diseases that developing countries like Bangladesh and Ethiopia are burdened with (World Health Organisation, 2018). With constant support towards making health institutions stronger to manage the detrimental impacts of climate change, alongside continuous investments into a greener, carbon-neutral world by businesses, the two interconnected crises can be confronted.
References Boyce, T; Brown, C. (2019). Economic and social impacts and benefits of health systems. World Health Organisation. Regional Office for Europe. Centers for Disease Control and Prevention (2020). Climate Change and Public Health - Health Effects - Temperature Extremes. [online] Available at: https://www.cdc.gov/climateandhealth/effects/temperature_extremes. htm [Accessed 8 Sep. 2020]. Ebi, K.L., Hess, J.J. and Watkiss, P. (2017). Health Risks and Costs of Climate Variability and Change. Disease Control Priorities, Third Edition (Volume 7): Injury Prevention and Environmental Health, [online] pp.153–169. Available at: https://www.ncbi.nlm.nih.gov/books/NBK525226/ [Accessed 8 Sep. 2020]. Environmental impacts on health. (2020). World Health Organisation. [online] Available at: https://www.who.int/phe/infographics/environmental-impacts-onhealth/en/ [Accessed 13 Sep. 2020]. Farnier, Lea; Lovatt, Joanna; and Oger, Cecile. 2018. “Climate Change and Health: The Business Case for Action.” Report. BSR, San Francisco. National Geographic Society (2019). Climate Change. [online] National Geographic Society. Available at: https://www.nationalgeographic.org/encyclopedia/climate-change/ [Accessed 8 Sep. 2020]. Noiret, B. (2016) Food Security in a Changing Climate: A Plea for Ambitious Action and Inclusive Development. Development 59, 237– 242. https://doi.org/10.1057/s41301-017-0092-y World Health Organisation (2018). Building adaptation to climate change in health in least developed countries through resilient water, sanitation and hygiene (WASH) [online] Available at: https://www.who.int/globalchange/projects/wash/en/ Accessed 13 Sep. 2020].
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Femvironmentally Conscious How women are bearing the brunt of man-made climate change By Lakshumie Saththiyan It is no surprise that everyone has felt the effects of climate change, whether it be frequent weather warnings or witnessing the inspiring climate marches. Climate change has varying effects on people depending on a range of factors: this includes where they live, whether there are policies in place to protect them, and even gender. Women have felt the costs more than men. As consumers, women purchase more sustainable products, as men fear they would give in to the “green-feminine” stereotype (R.Brough, et al., 2016). Yet, they rarely have a say on a political level. Representation is important on many levels, specifically to ensure that policies benefit all, rather than some. Fortunately (some) efforts are being made to integrate gender equality issues alongside climate change action.
Mother Nature’s Lack of Nurture Countries ranked lower on the Human Development Index are the most vulnerable to climatic impacts, since their livelihoods and income are dependent on it. The relationship between poverty and climate change is a huge disadvantage, particularly for women. While men tend to work away from home, women tend to be in charge of walking miles to secure water or fuel for cooking, often with their children. However, extreme weather conditions restrict travel mobility causing them to go weeks without sufficient food (Habtezion, 2013). Traditional socio-cultural norms result in fewer necessary resources for women compared to men, such as adequate access to finance that help them overcome these impacts. Additionally, climate-induced displacement is very common and more people are pushed out of their homes as global temperatures increase. In 2019 alone, 200,000 Ethiopians were forced to move because of droughts and flooding, and this is becoming increasingly recurrent for developing countries. Women are more likely to end up in displacement camps, since men move away for work. This means women are having to take on harsh informal jobs and also puts them at an extremely high risk of sexual violence.
Thankfully, there are organisations that prioritise those who do not receive support from their own government. Due to unpredictable rainfall, tribal women in 50 Indian villages saw their rice harvests fall. CARE International worked with them over seven years, providing them with financial skills and weekly weather forecasts which led to agricultural production growing by 33% (Rowling, 2020). The willingness of people to learn and execute sustainable behaviours is promising.
The “Green-Feminine” Stereotype There is an existing green gender gap with women showing more initiative than men about how their actions may affect the environment. Several studies show that men tend to litter more while recycling less, whilst women are willing to educate themselves on issues surrounding the planets’ health (Euronews, 2019). This gender gap has implemented a stereotype that sustainable actions are typically feminine. Men are pressured into maintaining their masculine gender identity due to societal expectations, but this leads to them abstaining from making eco-friendly choices. A study titled “Is EcoFriendly Unmanly?” (R.Brough, et al., 2016), made up of seven experiments with 2000 participants found that despite their own gender identity, people labelled
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ECONOMICS “eco-friendly products, behaviours, and consumers as more feminine than their non-green counterparts.” One of the experiments suggested that marketing has a strong influence on the decision of consumers. Many adverts for the green products were labelled as “girly” but then when the male participants were given masculine affirmations about the products, their preference for it significantly increased (R.Brough, et al., 2016). This indicates that society must overcome the view and stereotype that being green is for women. With women buying more ethical and sustainable goods, it may seem a paradox that men are generally in charge of implementing climate action policies.
When Gender Met Climate Change
imate policy and implementation through five priority areas (Figure 2). Considering marginalised groups allows for investments in climate change adaptation to be more effective because it can be targeted where most needed. Efforts to include women in the process of policy-making are increasing and the gender gaps in adaptation actions are slowly being narrowed. Implementing these actions isn’t the only thing that can promote a fair change; it is vital to address the social dynamics that could possibly challenge climate action (NAP Global Network, 2019). Regardless of gender identity, everyone should participate in climate action as much as they can to benefit in an equitable way. Our responses should not exacerbate inequalities but ensure that we pave the way for a healthier and happier world.
Figure 1: The Unequal Focus of the Genders (International Union for Conservation of Nature, 2015) Globally, women lack political influence and are underrepresented in the decision-making process regarding climate change. Only 19% of global parliament members are women, yet it’s been shown that when women are more involved, there is a holistic approach to tackling climate change and a greater response from citizens (Habtezion, 2013). The political dynamics in both developed and developing countries mirror this view. It’s important for women to act as agents of change; according to the UNDP Human Development Report, “greater involvement [of women] in politics and in NGOs could result in environmental gains, with multiplier effects across all the Millennium Development Goals” (Habtezion, 2013). The UNFCC COP established a Gender Action Plan (GAP) as part of the Enhanced Lima Work Programme, which aims to achieve gender responsive clWOMEN BEARING THE BLUNT OF CLIMATE CHANGE | 21
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Figure 2: The Five Priority Areas of the GAP (UNFCC, 2019) References Dazé, A., 2019. Why gender matters in climate change adaptation. [Online] Available at: https://www.iisd.org/articles/gender-climate-change [Accessed 25 August 2020]. Euronews, 2019. Is sustainability a women's issue?. [Online] Available at: https://www.euronews.com/living/2019/06/20/is-sustainability-a-women-sissue Habtezion, S., 2013. Overview of linkages between gender and climate change. New York, UNDP. International Union for Conservation of Nature, 2015. Gender and Climate Change. [Online] Available at: https://www.iucn.org/sites/dev/files/import/downloads/gender_and_climate_change_issues_brief_cop21__04122015.pdf NAP Global Network, 2019. Addressing why gender equality matters in climate change adaptation. [Online] Available at: http://napglobalnetwork.org/wp-content/uploads/2019/05/napgn-en-2019-infographic-addressing-gender-equality-in-climate-changeadaptation.pdf R.Brough, A. et al., 2016. Is Eco-Friendly Unmanly? The Green-Feminine Stereotype and Its Effect on Sustainable Consumption. Journal of Consumer Research, 43(4), pp. 567-582. Rowling, M., 2020. Why climate change increases gender inequality. [Online] Available at: https://www.weforum.org/agenda/2020/07/climatechange-environment-women-equality-inequality-parity/ [Accessed 25 August 2020]. UNFCC, 2019. Gender and Climate Change. [Online] Available at: https://unfccc.int/sites/default/files/resource/cp2019_L03E.pdf
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P
Bioplastics: Are Plant-based Plastics An Apt Alternative? by Emily Calnan
lastic is undeniably a versatile material that has become thoroughly integrated into every aspect of our everyday lives. This comes at a cost, as it is harmful to marine life. Each year, 8 million metric tons of plastic ends up in the ocean (Carroll et al, 2014). One of the biggest consumers of plastic is the packaging industry, accounting for nearly a quarter of the 348 million tons produced annually (WEF et al, 2016) (Plastic Europe, 2018). Single-use plastic is the biggest culprit, but only 9% of the plastic we use is recycled or reused (Geyer et asl 2017). We need a new solution, an innovative material which provides us with the same versatility but with fewer negative externalities. Bioplastics could be that solution, with an estimated global market worth $35.5 million dollars by 2022. This article will discuss three plant-based bioplastics which could help us lead a more sustainable lifestyle (UN Environment, 2018).
Figure 2: Annual plastic waste littered by European countries. The United Kingdom wasted 67,549 tonnes per year, which has a high risk of polluting marine life (Ritchie and Roser, 2018)
1 Seaweed
Figure 1: Represented is the rise in plastics production over the last 15 years in a percentage vs the percentage rise in 1950-1999. (Ritchie and Roser, 2018)
“Bioplastics are biodegradable materials that come from renewable sources and can be used to reduce the problem of plastic waste that is suffocating the planet and contaminating the environment.” - Sustainability for All
The production of seaweed has numerous benefits including its affordable price, ease of harvesting, and not requiring fresh water or fertiliser to grow. (Paslier, 2018). Bioplastic made from seaweed could reduce the shelf-life gap that occurs with plastic. The shelf-life gap is the difference between what is inside the container and its biodegradability. Plastic has a large shelf-life gap as it takes hundreds of years to break down. Seaweed conversely can break down in four to six weeks (Paslier, 2018). However, seaweed is currently more expensive compared to ordinary plastic as it requires manual processing (PKG, 2019). In the UK, Skipping Rocks Lab, an environmentally conscious start-up, has invented Ooho “an edible packaging for liquids made from seaweed extract” which degrades within six weeks and is cheaper than plastic (UN Environmental, 2018).
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ECONOMICS Award, 2019). However, he doesn’t yet consider his project to be a complete solution as products made from this material can only be used once (James Dyson Award, 2019). Nevertheless, the unique properties, functioning and innovative designs of such creations can help bring us closer to a lasting solution.
2 Bamboo Next in the search for a plastic alternative is bamboo - a grass plant which grows best in tropical climates yet can grow out of control even in the UK. A significant advantage of using bamboo is its availability and its ability to grow with a smaller water requirement than trees (Dierick et al, 2010). While bamboo itself is fully biodegradable and compostable, additional ingredients are needed to make the plastic alternative decreasing its biodegradability (Blogger, 2019) (Nayak and Mishra, 2016). Nevertheless, many companies have attempted to redefine their brands with more eco-friendly alternatives. Dell Technologies has created bamboo cushioning to replace the packaging that comes with their products (UN Environmental, 2018). This allows them to reduce the amount of water and energy used, ultimately eliminating 9 million kilograms of plastic (UN Environmental, 2018).
Image 1: Ooho’s Edible Seaweed Packaging (Wilson and Campus, 2019)
How can we make alternatives to plastic more viable?
Image 2: Dell Bamboo Cushioning (Mohan, 2012)
3 Potato The starch from potatoes can be turned into a biodegradable material, such as ‘Potato Plastic’ and ‘Peel Saver’. Potato Plastic is a thermoplastic made from potato peelings and water, which can be used to create compostable cutlery, straws, and bags (UN Enevironmental, 2018). Peel Saver is an ecological packaging which is fully biodegradable and acts as an alternative to plastic street-food packaging (Hitti, 2018). Pontus Törnqvist, creator of Potato Plastic, wanted to make a consciousness product which provides a full life cycle of being made by and returning to the earth (James Dyson
Image 3: Potato Plastic (Törnqvist, 2019)
Image 4: By using the peel waste from fries the starch and fibre components bond with each other and harden to make the packaging above. (Hitti, 2018)
Government funding and research are needed to support individuals and companies in creating ecofriendly materials and products. As public sector support can be a lifeline to the sweeping plastic replacement initiative, a plausible mode of governmental action could be the implementation of 'plasticreplacement schemes’ on a mass scale to encourage alternative plastic use. In 2018 the UK government “vowed to eliminate avoidable plastic waste by the end of 2042” (Hughes, 2018). In 2019, the EU on the other hand, voted to ban single-use plastic (cutlery, straws, stirrers, and cotton balls) by 2021 in all EU member states (Rankin, 2019). While both institutions are striding towards a greener world, the EU appears to demonstrate more responsiveness to the urgent nature that climate change and environmental degradation issues embody. In light of these circumstances, as a democracy, it is essential for us to push for more legislation to combat plastic
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Figure 3: This SWOT analysis shows the costs and benefits to plant materials and in order to replace plastic it is imperative to understand them as it has more costs relative to the costs of sustainable substitutes. (Kershaw, 2018)
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pollution. Even though the SWOT analysis above (Figure 3) shows that there are a lot more positives than negatives there is still a lot we are still unsure of. While bioplastics play an important role in achieving the goal of a plastic-free world, a UK parliament study published in 2019 voiced concerns that “backlash against plastic” as “we are concerned that such actions are being taken without proper consideration of wider environmental consequences, such as higher carbon emissions” (Publications.parliament.uk. 2019). Additionally, UCL professor Mark Miodownik, points towards the lack of recycling systems for many of these new materials (Abboud, 2019). Therefore, further research is clearly necessary to fully understand, develop, and implement these potential plastic-replacing solutions. It is clear that we cannot leave our local communities and the global ecosystems to suffocate in plastic. Thus, it is crucial that at the heart of all decision-making processes over the viability of each sustainable substitute to plastic, the clarity of the urgency of this endeavour should be maintained.
REFERENCES Abboud, L., 2019. Can We Break Our Addiction To Plastic? The Future Of Packaging. [online] Ft.com. Available at: <https://www.ft.com/content/27cf9734-faa7-11e9-98fd4d6c20050229> [Accessed 2 September 2020].
Blogger, G., 2019. Lies Of The Bamboo Toothbrush: The Plastic Industry’S Perverse Greenwashing. [online] State of the Planet. Available at: <https://blogs.ei.columbia.edu/2019/11/11/plasticindustry-greenwashing/> [Accessed 1 September 2020]. Carroll, C., Sousa, J. and Thevenon, F., 2014. Plastic Debris In The Ocean | IUCN Library System. [online] Portals.iucn.org. Available at: <https://portals.iucn.org/library/node/44966> [Accessed 1 September 2020]. Dierick, D., Hölscher, D. and Schwendenmann, L., 2010. Water use characteristics of a bamboo species (Bambusa blumeana) in the Philippines. Agricultural and Forest Meteorology, [online] 150(12), pp.1568-1578. Available at: <https://www.sciencedirect.com/science/article/pii/S01681923100022 00#!>. Geyer, R., Jambeck, J. and Law, K., 2017. Production, Use, And Fate Of All Plastics Ever Made. [online] Science Advances. Available at: <https://advances.sciencemag.org/content/3/7/e1700782/tab-pdf> [Accessed 2 September 2020]. Hitti, N., 2018. Peel Saver Is An Ecological Packaging For Fries Made From Potato Skins. [online] Dezeen. Available at: <https://www.dezeen.com/2018/09/26/peel-saver-potato-skinsecological-packaging-fries/> [Accessed 1 September 2020]. Hughes, L., 2018. Theresa May Targets Plastics In War On ‘Throwaway Culture’. [online] Ft.com. Available at: <https://www.ft.com/content/31125996-f62e-11e7-88f75465a6ce1a00> [Accessed 2 September 2020]. James Dyson Award, 2019. Potato Plastic. [online] Available at: <https://www.jamesdysonaward.org/en-
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ECONOMICS SE/2018/project/potato-plastic/> [Accessed 29 August 2020]. Kershaw, P., 2018. Exploring The Potential For Adopting Alternative Materials To Reduce Marine Plastic Litter. [ebook] United Nations Environment Programme. Available at: <http://www.indiaenvironmentportal.org.in/files/file/Exploring%20t he%20potential.pdf> [Accessed 1 September 2020]. Mohan, A., 2012. Dell: 'Powering The Possible' Of Green. [online] Packaging World. Available at: <https://www.packworld.com/issues/sustainability/article/13360646/ dell-powering-the-possible-of-green#next-slide> [Accessed 1 September 2020]. Nayak, L. and Mishra, S., 2016. Prospect of bamboo as a renewable textile fiber, historical overview, labeling, controversies and regulation. Fashion and Textiles, [online] 3(1). Available at: <https://link.springer.com/article/10.1186/s40691-015-0054-5> [Accessed 29 August 2020]. Paslier, P., 2018. As Shops Ditch Plastic Packaging, Seaweed Will Take Over. [online] WIRED UK. Available at: <https://www.wired.co.uk/article/post-plastic-future-seaweedpackaging-wired-world-2018> [Accessed 1 September 2020]. Plastics Europe, 2018. Plastics – The Facts 2018. [ebook] Available at: <https://www.plasticseurope.org/application/files/6315/4510/9658/Pl astics_the_facts_2018_AF_web.pdf> [Accessed 1 September 2020]. PKG, K., 2019. How Feasible Is Using Seaweed As Packaging?. [online] Pkgbranding.com. Available at: <https://www.pkgbranding.com/blog/how-feasible-is-usingseaweed-as-packaging> [Accessed 1 September 2020]. Publications.parliament.uk. 2019. Plastic Food And Drink Packaging - Environment, Food And Rural Affairs Committee House Of Commons. [online] Available at: <https://publications.parliament.uk/pa/cm201719/cmselect/cmenvfr u/2080/208002.htm> [Accessed 3 September 2020]. Rankin, J., 2019. The Last Straw: European Parliament Votes To Ban Single-Use Plastics. [online] the Guardian. Available at: <https://www.theguardian.com/environment/2019/mar/27/the-laststraw-european-parliament-votes-to-ban-single-use-plastics> [Accessed 1 September 2020].
he-last-straw-european-parliament-votes-to-ban-single-useplastics> [Accessed 1 September 2020]. Ritchie, H. and Roser, M., 2018. Plastic Pollution. [online] Our World in Data. Available at: <https://ourworldindata.org/plasticpollution> [Accessed 1 September 2020]. Sustainability For All, n.d. What Are Bioplastics?. [online] Activesustainability.com. Available at: <https://www.activesustainability.com/environment/what-arebioplastics/> [Accessed 1 September 2020]. Törnqvist, P., 2019. Potato Plastic. [image] Available at: <https://medium.com/dyson-on/meet-the-inventors-produceplastics-d23ea382aabb> [Accessed 29 August 2020]. UN Environment. 2018. Back To The Future As Innovators Seek Plastic Alternatives. [online] Available at: <https://www.unenvironment.org/news-and-stories/story/backfuture-innovators-seek-plastic-alternatives> [Accessed 3 September 2020]. Wilson, J. and Campus, S., 2019. “Edible Water Bottles” Developed By Imperial Start-Up To Be Trialled At Marathon | Imperial News | Imperial College London. [online] Imperial News. Available at: <https://www.imperial.ac.uk/news/190938/ediblewater-bottles-developed-imperial-start-up/> [Accessed 1 September 2020]. World Economic Forum, Ellen MacArthur Foundation and McKinsey & Company, 2016. The New Plastics Economy — Rethinking The Future Of Plastics. [ebook] Available at: <http://www.ellenmacarthurfoundation.org/publications> [Accessed 1 September 2020].
Ritchie, H. and Roser, M., 2018. Plastic Pollution. [online] Our World in Data. Available at: <https://ourworldindata.org/plasticpollution> [Accessed 1 September 2020]. Sustainability For All, n.d. What Are Bioplastics?. [online] Activesustainability.com. Available at: <https://www.activesustainability.com/environment/what-arebioplastics/> [Accessed 1 September 2020]. Törnqvist, P., 2019. Potato Plastic. [image] Available at: <https://medium.com/dyson-on/meet-the-inventors-produceplastics-d23ea382aabb> [Accessed 29 August 2020].
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The Road to Recovery Starts Here: How Ecological Economics Can Save our Rainforests by Janina Gleed The rainforest is a home, a habitat, a shelter, a pharmacy, a supermarket and an ecosystem that supports many lives and livelihoods. Yet every minute we lose an area of the rainforest the size of 36 football fields. if tropical deforestation were a country, it would rank third after China and the United States as a source of the greenhouse gas emissions that cause climate change (Figure 1), and those emissions must be reduced if we are to keep global warming below 1.5 degrees Celsius.
Figure 1: Emissions from tropical deforestation are extensive Despite negotiating solutions on a transnational basis, such as through the United Nations Convention on Climate Change; logging a forest is often more financially profitable than conserving it (Environmental Defense Fund, 2019). As the only safe, natural, and proven technology for carbon capture and storage, forests are our best hope for balancing carbon emissions with removals (Figure 2).
Halting deforestation and allowing damaged forests to grow back would be equivalent to reducing current emissions from all sources by up to 30%. While the economics behind forest conservation has relied on a mainstream economics framework, ecological economics proposes an alternative lens through which forest conversation and the mitigation of climate change acceleration can be approached.
Figure 2: The relationship between forests and climate change
Can Ecological Economics Create A New Status Quo? The narrative behind ecological economics sounds ideologically compelling: it integrates the economy, nature, and society (Figure 3), so why isn’t ecological thought a more dominant force in economics?
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ECONOMICS To address this question, one must highlight that the rate of resource exploitation stands in a non-linear relationship to the internalisation of environmental costs. The discrepancy between deforestation and reforestation serves as a prime example. In a sustainably managed forest, an initial loss of tree coverage should result in a gain a few years later once young trees grow large enough to appear as a gain in forest cover (Global Forest Watch, 2018). The opposite is true when it comes to reforestation, where efforts lag behind deforestation, resulting in a permanent loss of tree cover. This non-linear relationship makes it hard to internalise the real environmental cost resulting from economic activity.
What Does A Forest Cost? To determine the value of forest conservation as opposed to deforestation, ecological economics considers not only the costs and benefits from conservation but also the opportunity cost (Warren-Thomas et al. 2018). Indonesia’s rainforests, covering about 80% of the country as recently as the 1960s, have seen a surge in demand for commodities like rubber, paper, and palm oil. Combined with corruption and political cronyism, this has led to a profit driven resource grab by large corporate interests and to one of the highest deforestation rates globally. Less than half of the country’s original forest cover now remains.
Figure 3: Disjointed VS Integrated: comparing the mainstream economic approach and the ecological approach (Boulding, 1966) Moreover, environmental protection faces the challenge of temporal discounting. Temporal discounting is the phenomenon of ascribing less value to the future costs arising from today’s high deforestation rate than to the costs of deforestation in the present. Environmental processes span over long time-periods, which pose challenges to policy makers and economists. This is heightened in ecology as temporal discounting is intergenerational. Evidently, the preservation of forests may not necessarily affect current generations directly but will greatly impact future generations by preserving earth’s CO2 absorption capacity and keeping vital ecosystems intact.
These forests, threatened by the expansion of rubber plantations for example, need rubber producers to be compensated for the income they would receive from deforestation activity. These opportunity costs rely on Indonesia’s institutionally regulated selection criteria for logging (Warren-Thomas et al, 2018). Deforestation in Indonesia, per hectare of dense forest, comes at an average opportunity cost of 194 tons of carbon that the forest would have absorbed.
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ECONOMICS
Financing To Protect Indonesia’s Rainforests: Will Carbon Markets Deliver?
Current Trends And Alternatives
Carbon financing is a common way to internalise externalities under a mainstream economic framework. This innovative funding tool places a financial value on carbon emissions and allows companies wishing to offset their own emissions to buy carbon credits earned from sustainable projects. Revenues could go to the reforestation projects that compensate for the carbon absorption capacity lost through deforestation. However, this calculation works only under the assumption that the market price of carbon is sufficiently high to offset the incurring cost. This ‘real’ carbon cost attempts to estimate the benefit of conservation in carbon terms. While the required market price for carbon should oscillate somewhere between $30 - $51 per ton of carbon, the current price oscillates between $5 - $20 per ton (Carbon Brief, 2017). Thus, the current market price of carbon is insufficient to offset the cost of deforestation (WarrenThomas et al., 2018). Furthermore, this price neglects the more policy-relevant, social cost of carbon (Environmental Defense Fund 2017), including compromised health around the world, increasing food prices, and the destruction of property. From an ecological economics standpoint, carbon financing is insufficient to address commodity-driven deforestation in Indonesia. Carbon prices should be increased to at least offset the damage from carbon emissions and absorption. Even a price of $30- $51 does not address all aspects of deforestation that ecological economics would consider, such as the loss of biodiversity, or the long-term effects of bringing an existing ecosystem out of balance. Carbon financing is one solution that decreases opportunity cost and incentivises forest conservation. Other alternatives include mechanisms whereby corporations pledge to “eliminate deforestation from their supply chain” (Riley 2017).
Ecological economics poses significant challenges to mainstream economics and most notably, viability, as our current societal structure places a greater importance on profitability than mitigating the climate catastrophe that is growing beyond a manageable scale. This makes it difficult for ecological economics to be adopted as a new status-quo in economic thought. However, it can be utilised as a lens through which we can reconsider the role nature plays in socio-economic affairs and identify necessary steps to avoid traps presented by generational discounting or the illusion that economic growth can be sustained independently from the natural world.
References "Deforestation: Solved Via Carbon Markets?". 2018. Environmental Defense Fund. https://www.edf.org/climate/deforestation-solvedcarbon-markets. Fisher B, Lewis S, Burgess N, Malimbwi R, Munishi P, Swetnam R, Turner R, Willcock S, and Balmford A. “Implementation and opportunity costs of reducing deforestation and forest degradation in Tanzania” Nature Climate Change 1 (2011): 161–164. “Global Forest Watch”. 2018. Global Forest Watch.Com. http://www.globalforestwatch.org/ Luttrell C, Sills E, Evinke M.F, Aryani R, and Ekaputri A.D. 2018. “Beyond Opportunity Costs: Who Bears the Implementation Costs of Reducing Emissions from Deforestation and Degradation?” Mitigation and Adaptation Strategies for Global Change 23 (2): 291–310. doi:10.1007/s11027-016-9736-6. "Q&A: Will the Reformed EU Emissions Trading System Raise Carbon Prices? | Carbon Brief". 2017. Carbon Brief. https://www.carbonbrief.org/qa-will-reformed-eu-emissions-tradingsystem-raise-carbon-prices. Riley, T. (2017). Companies' ‘zero deforestation’ pledges: everything you need to know. the Guardian. from https://www.theguardian.com/sustainablebusiness/2017/sep/29/companies-zero-deforestation-pledgesagriculture-palm-oil-environment "The True Cost of Carbon Pollution". 2017. Environmental Defense Fund. https://www.edf.org/true-costcarbon-pollution. Warren-Thomas EM, Edwards DP, Bebber DP, Chang P, Diment AN, Evans TD, Lambrick FH, et al. 2018. “Protecting Tropical Forests from the Rapid Expansion of Rubber Using Carbon Payments.” Nature Communications 9 (1): 911–11. doi:10.1038/s41467-018-03287-9. “Why Saving Our Forests Should Be A Global Priority”. 2018. World Economic Forum. https://www.weforum.org/agenda/2018/01/q-a-whysaving-our-forests-should-be-a-global-priority/
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ECONOMICS
‘Stakeholder Capitalism’: Does it Really Hold the Keys to a Sustainable Future?
Stakeholder capitalism has been hailed as the sustainable economic model that will salvage our sinking ship. But is it really the perfect solution? By Mihir Shah What Is ‘Stakeholder Capitalism’? Shareholder capitalism has dominated the Western world for the past half century, bringing incredible highs, but also unfathomable lows, in the form of recessions and depressions (Schwab, 2019). It is characterised by rapid job creation and market creation unlike anything ever seen before. However, the 2008 Financial Crisis revealed that the short-term, profit-focused model has ignored the fundamental role of a corporation: being a ‘social organism’ (Schwab, 2019), whose actions have a wider impact than on their share price. Shareholder capitalism led to financial ruin in 2008, but also environmental and social disaster. For example, it has created an evergrowing wealth gap between C-Suite executives and their employees. However, today, behavioural economists are questioning the key fundamental of classical economics that upheld shareholder capitalism: that people will always act in their own self-interest (Anstey, 2019). Opinions are changing, as a recent survey showed that 90% of CEOs believe sustainability is key to their companies’ success (Anstey, 2019). To this end, the ‘Thunberg Effect’ has created a push towards ‘stakeholder capitalism’, which looks to serve the interests of all stakeholders and create long-term growth. This includes customers, suppliers, shareholders, and local communities (D'Souza, 2020). These fundamentals may be able rectify the mistakes of the past half century.
Breeding Sustainable, Long-Term Growth As explained above, the short-term nature of shareholder capitalism created unsustainable incentives for company employees from top to bottom. Stakeholder capitalism fixes this through changes in the way stakeholders are regarded. Stakeholders are acknowledged in every step of the decision-making process, which prevents one-sided, unsustainable decisions being made. From an environmental perspective, this is the only way to take back control of the unravelling environmental disaster
caused by shareholder capitalism. Stakeholder capitalism gives those along the supply chain, as well as communities impacted by the supply chain, a voice. Unlike shareholder capitalism, this ensures that environmental concerns are being addressed. Figure 2 affirms public opinion, on the importance of stakeholders, with 87% regarding various stakeholders as ‘most important for success,’ in comparison with only 13% choosing shareholders.
John Lewis’ ‘Partnership Model’ John Lewis already uses stakeholder capitalism through its ‘Partnership Model’, where all company employees get a share of the company and act as partners rather than employees. Through this, all stakeholders are shareholders, which is one of the basic premises of stakeholder capitalism. This model has proven successful through quicker job creation and continued profitability, even though their profits may have been less than their competitors (Wood, 2012). This paints a positive picture of a stakeholder capitalist future.
Is There A Better Alternative? For all its benefits, stakeholder capitalism has fundamental flaws, which has raised concerns over its global feasibility, ultimately leading to the question: is it destined to fail? Many claim that the major flaw is a lack of financial incentive to use stakeholder capitalism, in comparison to the profits-focused shareholder capitalism, but that is not necessarily the case. Recent analysis by JUST Capital found that the companies performing highest on worker pay and environmental impact also generate 6.4% higher return on equity in comparison to their competitors (Whittaker, 2020). The real issue is the fact that stakeholder capitalism could create ‘Dilbert-style’ managers. The Dilbert principle, created by Scott Adams, suggests that companies tend to
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ECONOMICS
Figure 1: Changes in income since 1970 (Seeking Alpha, 2020)
Figure 2: Survey of who public believe is most important for success of a company (Greene, 2020)) IS STAKEHOLDER CAPITALISM THE SOLUTION? | 31
ECONOMICS systemically promote the least competent employees to management positions, so to limit the damage they’re capable of doing (Dilbert's Principle: When incompetent people are promoted on the job, 2020). Whilst this is a very cynical view of promotion within a corporation, the intrinsic ideals of Gilbert-style managers paint a worrying picture for the future of stakeholder capitalism. One of the major issues of stakeholder capitalism is that it can create confusion as to where priorities lie when making a decision. The increased number of stakeholders leads to conflicting rules and procedures. This means an increased focus on procedure, in comparison to substance, ineffective communication, and delayed decision making. Shareholder capitalism avoided this problem by having one clear incentive: profits, which allowed for more efficient and decisive management (Denning, 2020). To this end, an alternative has been introduced: customer capitalism. The goal of customer capitalism is to maximise customer satisfaction, while also ensuring shareholders earn an acceptable return on their equity (Martin, 2020). The Copernican Revolution of management solves the fundamental issues caused by stakeholder capitalism by providing a direct focus of all decision-making at the firm, as Figure 3 shows. However, this model doesn’t explicitly take into account sustainable practices, because maximising customer value may not involve maximising environmental protection, as stakeholder capitalism aims to.
No One Clear Solution For The Future It is clear that the proposed systems each have their own individual merits, whilst also their own drawbacks. A one-size-fits-all system underestimates the complex nature of the sustainability issues we face. To this end, a
hybrid system may be the way forward, however there is a lot of work that needs to be done before this can become a reality. Ultimately, however, the fact that the conversation is being had is a very belated start to constructive change.
References Anstey, C., 2019. We Need An Economic Model That Works For People And The Planet. [online] World Economic Forum. Available at: <https://www.weforum.org/agenda/2019/09/how-to-make-markets-moresustainable/> [Accessed 8 September 2020]. Bebchuk, L. and Tallarita, R., 2020. Opinion | ‘Stakeholder’ Capitalism Seems Mostly For Show. [online] WSJ. Available at: <https://www.wsj.com/articles/stakeholdercapitalism-seems-mostly-for-show-11596755220> [Accessed 8 September 2020]. Denning, S., 2020. Why Stakeholder Capitalism Will Fail. [online] Forbes. Available at: <https://www.forbes.com/sites/stevedenning/2020/01/05/why-stakeholdercapitalism-will-fail/#4cec8d2b785a> [Accessed 7 September 2020]. D'Souza, D., 2020. What Is Stakeholder Capitalism? [online] Investopedia. Available at: <https://www.investopedia.com/stakeholder-capitalism4774323#:~:text=Stakeholder%20capitalism%20is%20a%20system,interests%20of%20 all%20their%20stakeholders.&text=Supporters%20of%20stakeholder%20capitalism% 20believe,and%20health%20of%20any%20business.> [Accessed 28 August 2020]. Exploring your mind. 2020. Dilbert's Principle: When Incompetent People Are Promoted On The Job. [online] Available at: <https://exploringyourmind.com/thedilbert-principle-why-companies-promote-incompetent-employees/> [Accessed 7 September 2020]. Govindarajan, V. and Srivastava, A., 2020. We Are Nowhere Near Stakeholder Capitalism. [online] Harvard Business Review. Available at: <https://hbr.org/2020/01/we-are-nowhere-near-stakeholder-capitalism? referral=03758&cm_vc=rr_item_page.top_right>[Accessed 8 September 2020]. Martin, R., 2020. The Age Of Customer Capitalism. [online] Harvard Business Review. Available at: <https://hbr.org/2010/01/the-age-of-customer-capitalism? registration=success> [Accessed 7 September 2020]. Schwab, K., 2019. Why We Need The 'Davos Manifesto' For A Better Kind Of Capitalism. [online] World Economic Forum. Available at: <https://www.weforum.org/agenda/2019/12/why-we-need-the-davos-manifesto-forbetter-kind-of-capitalism/> [Accessed 25 August 2020]. Seeking Alpha, 2020. The Limits Of Shareholder Capitalism. [image] Available at: <https://seekingalpha.com/article/2161793-the-limits-of-shareholder-capitalism> [Accessed 28 August 2020]. Whittaker, M., 2020. 5 Reasons To Give Stakeholder Capitalism A Chance. [online] Forbes. Available at: <https://www.forbes.com/sites/martinwhittaker/2019/09/12/fivereasons-to-give-stakeholder-capitalism-a-chance/#26d846744626>[Accessed 7 September 2020]. Wood, Z., 2012. The John Lewis Model And What Others Could Learn From It. [online] the Guardian. Available at: <https://www.theguardian.com/business/2012/jan/16/john-lewis-model-lessons> [Accessed 8 September 2020].
Figure 3: The Copernican Revolution In Management (Denning, 2020) IS STAKEHOLDER CAPITALISM THE SOLUTION? | 32
ECONOMICS
Carbon Trading versus CO2 Removal Certificates
C
Two Approaches to Using Market Forces in Tackling the Climate Crisis by Marina Symington
limate scientists are broadly in consensus that the world must reach carbon-neutrality by 2050 in order to limit global warming to 2°C. This requires a radical reduction in total CO2 emissions and governments and private organisations around the world have endeavoured to achieve this through various techniques. Carbon trading and carbon removal are two such techniques that aim to harness the power of markets to incentivise lower emissions.
the EU’s greenhouse gas emissions (Muûls, et al., 2016). The EU ETS operates as a ‘cap-and-trade’ system. This means that governments set a total limit for the number of tradable permits in the market, which can then be traded (Bayer & Aklin, 2020). Such schemes aim to incentivise organisations to use cleaner energy sources by effectively putting a price on pollution. The price of permits is determined by the market forces of supply and demand. If there is high demand for
Carbon Trading Carbon trading (also known as emissions trading) is a “market-based policy instrument that is designed to reduce emissions with minimal cost to society, while stimulating technological innovation to further reduce this cost in the future” (Muûls, et al., 2016). The idea of carbon trading is to create a market in which permits can be bought and sold. These permits allow an organisation to emit up to a certain amount of CO2. Organisations that emit more CO2 than their permit allows can buy surplus permits from organisations that have more than they need. The largest tradable pollution permit scheme is the European Union’s Emissions Trading Scheme (EU ETS), which was launched in 2005 and covers 45% of
permits, then the price will rise. Similarly, if there is a low supply of permits (i.e. the total number of permits issued, as controlled in the cap-and-trade scheme), this will drive prices up and is intended to encourage a switch to renewable energy sources.
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ECONOMICS
CO2 Removal Certificates CO2 Removal Certificates (CORCs) are a new initiative launched by the Finnish company Puro.earth in June. Each certificate represents the removal of 1 tonne of CO2 from the atmosphere and is available for businesses to purchase. Puro.earth issues these certificates to suppliers of carbon net-negative technologies. Currently, these take the form of three carbon removal methods: biochar, carbonated building elements and wooden building elements. These are carbon-negative because they remove more carbon from the atmosphere than they emit during production (Horta, 2020). Businesses can then purchase these certificates in order to make their own business carbon neutral. The world has become increasingly more aware of the need for climate action and businesses recognise that there is value
in promoting themselves as a carbon neutral entity. Puro.earth, who are the “world’s first carbon-removal marketplace” (Collins, 2020), therefore, hope to exploit the need for businesses to compete and differentiate themselves by being carbon neutral. As more companies become carbon neutral, pressure will grow for others to follow suit or risk being out-competed. This is something larger companies are beginning to brand themselves on. Apple recently announced their plans to become “carbon neutral across its entire business and manufacturing supply chain by 2030” (Cummings, 2020). Furthermore, 69% of business are planning to focus their budgets on becoming more sustainable (Bennett, 2019).
However, multi-national corporations and larger businesses will be able to afford sustainable strategies – including CORCs – more easily than small businesses. This is especially true in light of the recent pandemic, which has led to adverse economic conditions for smaller organisations in particular.
The Perfect Fix or an Idealistic Dream? The benefit of carbon trading over carbon removal is that companies are required to pay for their emissions and the government reduces the total credits available over time, which forces a reduction in total carbon emissions. Carbon trading, however, disproportionately affects smaller businesses because it is much easier for larger organisations to pay for extra credits. Meanwhile, carbon removal has the advantage of actively taking carbon out of the atmosphere and entirely relying on businesses feeling the pressure to compete, rather than government regulation. It comes at the cost of higher production costs of businesses in the
short-term while carbon-neutrality remains expensive. Assessing the impact of carbon trading is difficult, given you are comparing real emissions to hypotheticals. This is known as the counterfactual. Estimates show that there was approximately an 11.5% decrease in CO2 emissions in ETS sectors (Bayer & Aklin, 2020). This is despite critics arguing that the price of permits is too low and insufficient to incentivise cleaner energy sources. Meanwhile, the impact of Puro.earth’s market for carbon removal certificates remains to be seen. The company has the potential to attract
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ECONOMICS funding towards carbon removal technologies and make large-scale removal a possibility. Previously, there had been little incentive to scale up carbon removal because there is, for the most part, no cost to CO2 emissions. The UN’s Intergovernmental Panel on Climate Change (IPCC), has stated that carbon removal will be a vital part of becoming carbon neutral by 2050 because it will “compensate for residual emissions” and “achieve net negative emissions to return global warming to 1.5°C following a peak” (Collins, 2020). 1.5°C of global warming is widely accepted as the point beyond which the effect on the environment will be irreversible. Even with strategies such as the EU ETS, global emissions are still on track to exceed this. Therefore, many argue that carbon must actively be removed from the atmosphere. As the reality of the climate crisis grows, people are desperate to find an ‘easy fix’. While both carbon trading and carbon removal have the potential to reduce carbon emissions, it is likely that a combination of several strategies will be needed. Neither of these strategies alone will be enough to solve the gargantuan scale to which the climate crisis has grown, but they may help to reduce carbon emissions in general.
References Bayer, P. & Aklin, M., 2020. The European Union Emissions Trading System reduced CO2 emissions despite low prices. PNAS, 117(16), pp. 8804-8812. Collins, L., 2020. World's first carbon-removal marketplace offers businesses an easy route to net-zero emissions. Recharge, July. Horta, E., 2020. Fortum. [Online] Available at: https://www.fortum.com/about-us/blogpodcast/forthedoers-blog/how-can-carbon-removal-helpcompanies-become-carbon-neutral [Accessed September 2020]. Muûls, M., Colmer, J., Martin, R. & Wagner, U., 2016. Evaluating the EU Emissions Trading System: Take it or leave it? An assessment of the data after ten years. Grantham Institute, Issue 21, p. 1. NEA, 2015. Infographics: How does the EU ETS work?. [Online] Available at: https://www.emissionsauthority.nl/documents/publications/2015/ 12/10/infographic-how-does-the-eu-ets-work. puro.earth, 2020. puro.earth. [Online] Available at: https://puro.earth/why-puro-earth/
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Q&A Kate Wylie Global Vice President of Sustainability at Mars
Kate Wylie It would be great to gain some insight into the challenge of embracing sustainability at a company as large as Mars, with such an extended supply chain. Mars operations account for a very small percentage of its carbon footprint, so how do you go about engaging suppliers to tackle these issues? To start, I’ll talk about how we think about sustainability at Mars. We take an impact-based approach, so that is about actually analysing the impact our company has on the world. To do this, we chose three environmental criteria - greenhouse gas footprint, water footprint and our land footprint and then for analysing our supply chains we also have two social criteria - human rights and income.
In the past there has been a web of supply chains, so we've tried to open them up to understand everything First and foremost, all the interactions we have with individuals in our supply chain are financial, as we are paying either directly or indirectly for goods. However, we also believe that we should use our impact-based approach, not just for looking at our own operations, but it should also be used to analyse our full value chain, going right from farmers to our factories. Our approach to tackling this was fairly data-driven and involved finding out a large amount of information about our suppliers. We buy hundreds of raw materials from all around the world and for each one there are various buyers, who in turn buy from thousands of suppliers who then buy from hundreds of thousands of farmers. I rang various people up and created a spreadsheet, to try and
find out who buys which good and what sort of quantities they purchase. From there we got information on where the farms were located. Once you know the volumes of raw materials and where the farms are located, then for each raw material you can then analyse their supply chains against those different impact criteria I talked about. For example, cocoa production has farmers who live in poverty, there are human rights issues that we have to be aware of and manage and work through and there’s also deforestation concerns. For each supplier we modelled out how many farmers have we got, what’s the human rights situation, what’s the greenhouse gas footprint, what’s the water footprint and gave them all of them hotspots to track progress on each criteria. And then we built teams within our business unit whose whole job is just about working with the buyers on these issues. The whole thing about this is understanding your supply chains, in the past there has been a web of supply chains, so we’ve tried to open them up to understand everything. The issue of supply chain transparency and its importance is frequently spoken about. How does work like this create value for both the company and its stakeholders? So, I think first and foremost if you’re a company that believes that people’s human rights should be respected, that farmers in your supply chain should not be in poverty, that deforestation has to be stopped, then the only way to solve that is by having supply chain transparency. Our chief sustainability and procurement officer has given a few interviews where he talks about the “commodity era” being over. You used to buy raw materials by phoning up and asking questions such
as “how much is this?” and “does it meet our specification on quality?”. We didn’t know where it was grown; all the suppliers are kind of traded off against each other and contracts were short-term, maybe a year or so. That’s really shifting now. In order to really invest in a supply chain to drive that change you need to have transparency to help you understand the supply chain and the issues it may have, but you also then need to have longer-term contracts because you’re investing in the supplier. That longer term contract with our suppliers is so valuable as they actually then implement the required changes to make their production more sustainable. Supply chain transparency is absolutely fundamental. With palm oil, for example, buying it like a commodity means that you don’t know where you’re buying from. This then also means that you don’t have assurances that there are no human rights abuses and deforestation within the supply chain. When we mapped our supply chains, we were buying from a number of suppliers and they were buying from 1500 mills, which process palm oil, who were then buying from multiple farms. We don’t purchase much palm oil, but it expands so quickly and onto so many farms, that there’s no way you can manage that without transparency. We shrunk our purchasing to only be from 100 mills, but in some cases we are buying from one supplier who buys raw materials from one mill who buys them from only one plantation. In that case, we can know exactly what is happening in our supply chain and can work closely with them on improving this. Given that Mars have reduced emissions by 3.5% last year, how feasible do you think your target of a 25% reduction is by 2025?
Q&A | 37
Kate Wylie We will get there. We’re not taking the linear route I suppose is the way to describe it. It is really tricky because if you think about our supply chain, around 80% of our carbon emissions come from our supply chain and roughly 40% of that is from deforestation. We’re currently helping to address deforestation through our palm oil supply chains, although there is a bit of lag in seeing the effects of the activities. Hopefully we’ll have a bit of a ramp up on this soon, but we are absolutely committed to hitting the target that we’ve set. There are deep conversations internally to model out how we’re going to get there and also what we want to do beyond 2025. Another area we’re working on is with our beef and dairy supply chains. We’re looking at whether we should shift to alternative sources but also how we can work with the beef industry and dairy industry to try and reduce their carbon emissions.
Once you innovate as much as possible, with any packaging that remains you've got to make sure it's circular or recyclable. One of the most significant environmental challenges faced by companies is, of course, in relation to packaging. Although recyclable plastics are now very common, a very small proportion of plastic is actually recycled and this strategy also relies on consumer behaviour. The Mars website discusses the importance of engaging consumers in this issue. How is Mars doing this? This is an incredibly complicated topic and I don’t think there is just one solution. There are a basket of
solutions and it completely depends on where you are in the world, but I’ll focus on the UK. So first of all you’ve got to look at just reducing your packaging in any way you can – for example, can you remove packaging layers, thin out the packaging, or shift from single serve to reuse models. There’s some really interesting innovation there, that we’ve been trying out in our pet foods. For example, we’re looking at serving it in a stainless steel container that gets delivered and contains about 10 days worth of food. Then you send it back and you get a refill, so you’re not actually using single serve packaging at all so it produces much less waste. So once you innovate as much as possible, with any packaging that remains you’ve got to make sure it’s circular or recyclable. That then has a few parts to it, so one is the design, making sure it’s created for a recycling system; two is ensuring the recycling systems are in place. I used to live in London, and when I moved 20 minutes down the road it was a completely different recycling system with all different bins. All of these systems need to be made much simpler on the infrastructure side and then, as you said, consumer behaviour is also important. With consumer behaviour I think it has two elements, one is firms like us and the government making it simple. There’s a good labelling system coming out in the UK now that says recyclable or not recyclable, which makes life simpler for consumers. Firms like us should put that on our packaging, but we then also need consumers to make sure they read it and then put it in the right bin so I think everyone has to play their part in it ultimately. Collaboration seems to be a buzzword when it comes to meeting
sustainability targets. What is the value of partnerships generally and how effective do you think they have been at advancing Mars towards its sustainability targets? Partnership is a bit like the word innovation, it’s a bit of a buzzword and there’s confusion over what it actually means. However, we believe that working with others to solve these massive systemic challenges is absolutely fundamental. For example, we are working with our peers on design, because if Mars designs packaging one way, Unilever designs theirs a different way, then the system this all goes into is still very messy. Say for example you wanted to use carbon black for your packaging, which is difficult to detect as sorting systems can’t see it very easily due to the colour. Within these partnership, we all agree to not use carbon black and instead use a very dark grey. We also have an investment fund with Danone where we both invested $15 million in building agricultural supply chains, and then we buy the raw materials from these supply chains. I think partnerships such as these where you actually do work and drive change are invaluable.
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INNOVATION
Green solutions in a digital world
The Big Data for Sustainability by Aditya Chauhan
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FEATURED
INNOVATION
The Big Data For Sustainability By Aditya Chauhan What is big data?
Meeting the Sustainable Development Goals
The volume of data generated annually is growing faster than ever before. To put this into context, every minute: 4,146,600 videos are watched on YouTube, Instagram sees 46,740 new photos posts and 16 million text messages are exchanged (Forbes, 2018). A buzzword of the 21st century, the term â&#x20AC;&#x2DC;big dataâ&#x20AC;&#x2122; is fairly straightforward, describing data sets which are so large and complex, that advanced, computational analytical methods are required to investigate trends.
The United Nations established the Sustainable Development Goals (SDGs) in 2015. The 17 targets, which form part of the 2030 Agenda for Sustainable Development, address a host of issues including poverty, inequality and climate change. Big Data can be used to streamline and monitor international efforts towards meeting the Sustainable Development Goals (SDG).
Current progress There are several ongoing big data projects, operating at pilot stages across the globe. One such project, led by a joint effort between the United Nations and the Indonesian government, is the Vulnerability Analysis Monitoring Platform for Impact of Regional Events (VAMPIRE) platform, which analyses satellite imagery and generates maps that incorporate anomalies related to climate and rainfall. This helps to track slow-onset climate change
How is it applied in the real world? Big data analytics are already widely applied in private sector problemsolving, from boosting customer acquisition to improving the detection and mitigation of fraud. This is facilitated by the real-time monitoring of transactions. There has been a lag in big data applications within the public sector, but with the growing recognition of its value, this is rapidly changing. A notable advance was the United Nations' incorporation of big data analysis into its 2015 agenda for sustainable development. Figure 1. Digital Agriculture (Project Breakthrough, 2017)
FROM THE COVER: BIG DATA AND SUSTAINABLE DEVELOPMENT | 40
INNOVATION (Folk, 2020). Other projects using satellite imagery data have generated small area estimates of women’s literacy and access to modern contraception in Bangladesh (UN ESCAP, 2017). Figure 1 shows how Big Data extracted from one activity can be used to achieve several SDGs.
Incorporating big data within government policy Data analytics is key to improve sustainable regulation. Governments can now implement the latest sensor technology and adopt real-time reporting of data on environmental quality. This data can be used to monitor the emissions of large utility facilities and, if required, implement a regulatory framework to regularise the emissions. The value of such data solutions has been demonstrated by IBM’s Smarter Cities Challenge. In this initiative, nations are able to leverage unrivalled technological tools, including IBM cognitive computing and cloud platform in order to yield high quality data
analysis of environmental and social variables. Cities who have participated include Memphis, which improved response times during health crises and New York, which increased housing access across the city (Wilson, 2017).
The limitations Data volumes are doubling in size around every two years (Forbes, 2018), and although new technologies have been developed for data storage, this poses two main challenges: successful data analysis and privacy. Collecting, storing and analysing large amounts of data requires advanced technology and infrastructure, which can be expensive, limiting the access of less developed countries to this technology. In a survey by the UN’s big data task team, there were significantly higher response rates from high-income countries than lower-income ones (UN, 2017). As a consequence, the implementation of big data solutions favours wealthier nations and may have the opposite effect than desired: the growth of inequality. Privacy is another major concern. It is essential that those processing data respect the rights of those they collect data from. The fact that a large volume of data is collected passively can complicate this. Even removing sensitive information from data sets may not always be enough to guarantee privacy, since individuals can still be identified by combining information from multiple data sets.
Adopting big data for sustainable development
Figure 2. IBM Smart Cities Challenge (Wilson, 2017)
Big data clearly has a vital role to play in achieving the SDGs, but as organisations and governments increasingly incorporate data analytics into their operations, they must remain cautious of its limitations, particularly surrounding privacy concerns. However, with the responsible collection and analysis of data, and international cooperation to prevent the growth of inequality, the opportunities big data presents for sustainable development should be embraced.
References Folk, E., 2020. Use of Big Data in Achieving Sustainable Development Goals. [Online] Available at: https://www.bioenergyconsult.com/big-data-sustainable-development-goals/ Forbes, 2018. How Much Data Do We Create Every Day? The Mind-Blowing Stats Everyone Should Read. [Online] Available at: https://www.forbes.com/sites/bernardmarr/2018/05/21/how-much-data-do-we-create-every-day-the-mind-blowing-stats-everyone-shouldread/#6a921a8260ba IAPP, n.d. A brief history of the General Data Protection Regulation. [Online] Available at: https://iapp.org/resources/article/a-brief-history-of-the-general-data-protection-regulation/ [Accessed 6 September 2020].
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INNOVATION Jose Andre Moura, C. S., 2015. Security and Privacy Issues of Big Data. p. 36. Poel, 2015. Data for Policy: A study of big data and other innovative data-driven approaches for evidence-informed policymaking. Brussels, s.n. Project Breakthrough, 2017. Digital Agriculture: Feeding the future. [Online] Available at: http://breakthrough.unglobalcompact.org/disruptive-technologies/digital-agriculture/ [Accessed 31 August 2020]. UN ESCAP, 2017. ECONOMIC AND SOCIAL SURVEY OF ASIA AND THE PACIFIC 2017: Year-end Update, Bangkok: United Nations publication. UN, 2017. Big Data for Sustainable Development. [Online] Available at: https://www.un.org/en/sections/issues-depth/big-data-sustainable-development/index.html [Accessed 31 August 2020]. UN, 2017. Digital Agriculture: Feeding the future. [Online] Available at: http://breakthrough.unglobalcompact.org/disruptive-technologies/digital-agriculture/ [Accessed 31 August 2020]. Wilson, 2017. Smarter Cities Challenge aims to make lasting urban improvements [Accessed 18th September 2020] Wilson, M., 2017. IBM Smart Cities Challenge. [image] Available at: <https://www.ibm.com/blogs/cloud-computing/2017/02/17/smarter-cities-challengeimprovements/> [Accessed 23 September 2020].
(Big Data for Sustainable Development, 2020)
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INNOVATION
The Limitations Of Oil Spill Recovery Technology – Can We Clean Up Our act? Another year, another major oil spill that has made headlines By Maxine Miller
On the 25th July, Japanese-owned bulk carrier vessel, the Wakashio, ran aground on a coral reef off the coast of Mauritius. The ship, believed to have been carrying 4,000 tonnes of fuel oil, inevitably spilled its load into the region of the Indian Ocean that is home to some of the world’s most renowned marine ecosystems, inhabited by numerous endangered species. Mauritius, a country reliant on their marine life to attract tourists and support their economy, declared an environmental emergency and has since been grappling to restore their waters to their previous state.
Although the majority of the oil has now been recovered, the consequences of the spill are still being felt; for example, 47 whales and 24 dolphins have been found dead washed-up on Mauritian shores since the spill (Degnarain, 2020). These figures continue to rise since the decision to deliberately sink the remainder of Wakashio.
Figure 1: Number of oil spills (>700 tonnes) from 1970 to 2019 (ITOPF, 2020).
As seen in Figure 1, the number of annual oil spills has decreased significantly in recent decades due to more stringent regulations and requirements such as the use of double-hulled tankers, a double-layered ship design which reduces the risk of spills by up to 60% (DeCola, 2009). However, a single spill still has the power to cause a detrimental environmental impact, highlighting the need to pursue new clean-up innovations.
Figure 2: Aerial view of the Wakashio bulk carrier from mid-August 2020 (Agence France-Presse Getty Images, 2020).
Oil absorbent pads – a solution? Previous oil spill recovery operations have implemented tools including ‘smart sponges’, chemical dispersants and oil skimmers to contribute to a more expeditious clean-up operation. Another example is the use of oil-eating bacteria, which was found to have removed 200,000 tons of oil following the 2010 BP Deepwater Horizon spill (Du and Kessler, 2012). The recent Mauritius spill has served as yet another opportunity to trial a new innovation: Sorbene oil absorbent pads. 10,000 units of these Graphene pads, supplied by Mumbai-based start-up Log 9 Spill Containment Pvt Ltd, have significantly contributed to Mauritius’ clean-up operation. The structure of these pads allows them to absorb large volumes of oil, up to 86 times their weight, and their high elasticity and hydrophobic nature guarantee good water-resistance to help efficiently absorb spills from land or bodies of water. Furthermore, the pads can be reused 6-7 times, reducing Mauritius’ quantities of waste related to the clean-up. The contribution of this product is assumed to have been effective as Mauritian Prime Minister Pravind Jugnauth announced on the 12th August that almost all the fuel oil from the ship had been recovered from Mauritius’ waters, representing a relatively quick clean-up operation.
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INNOVATION
The economic clean-up Concerns have already been raised regarding the compensation that Mauritius will eventually receive. According to maritime law, the country may only be eligible for a maximum compensation of $18 million. While this is being finalised, tourism, a key pillar of the Mauritian economy, will undoubtedly falter, thus threatening the livelihoods of a fifth of the country’s workforce (Bhuckory, 2020). Tourism had already been hit by the impact of Covid-19. In May, the central bank announced that Mauritius had lost 12 billion rupees in foreign exchange due to the fall in tourism over the previous two months. This led to national carrier Air Mauritius being placed in voluntary administration. Desperate to restore their economy as well as their shores, local volunteers have been driven to fabricate their own innovations to accelerate the clean-up, such as homemade oil booms (floating barriers to contain oil spills). Notably, hairdressers in the town of Mahebourg have been collecting hair trimmings to stuff inside nylon stockings that are then floated out using plastic bottles (De Ferrer, 2020). This use of hair to control oil spills is a promising area of innovation for the future. Studies have found that fur and hair, gathered from dog groomers and hairdressers, can be equally as effective as synthetic alternatives when it comes to cleaning up crude oil (Murray et al. 2020).
Figure 3: Infographic data relates to spills of 7 tonnes and over from 19702019 (ITOPF, 2020).
They were even proven to be more efficient than propylene plastic fibre, the most commonly used resource to clean up oil spills in aquatic environments.
Eliminating the problem Although these innovations and other known spill recovery methods appear encouraging, ultimately there exists no risk-proof method to transport hydrocarbon-based products and inevitably there will be more spills in the future. The final solution to this problem will only occur when the need to transport large volumes of hydrocarbon products is eliminated entirely and these products are replaced by alternative sources of clean fuels. This process will require development and implementation of new technologies, which could take several decades. Therefore, it is important that during the interim, a significant effort is made to minimise risks and maximise spill recovery efficiency, by improving the presently available technologies and strengthening regulatory oversight to aid the prevention of similar crises. References Bhuckory, K., 2020. Oil Spill Poses New Threat To Mauritius’S Tourism Industry. [online] Bloomberg.com. Available at: <https://www.bloomberg.com/news/articles/2020-08-13/oil-spill-poses-newthreat-to-mauritius-s-tourism-industry> [Accessed 4 September 2020]. De Ferrer, M., 2020. Mauritius Oil Spill: Volunteers Use Hair And Stockings To Limit Damage | Living. [online] Euronews.com. Available at: <https://www.euronews.com/living/2020/08/10/mauritius-oil-spillvolunteers-use-hair-and-stockings-to-limit-damage> [Accessed 1 September 2020]. DeCola, E., 2009. A Review of Double Hull Tanker Oil Spill Prevention Considerations. Report to Prince William Sound RCAC, p.8. Degnarain, N., 2020. 47 Whales Now Confirmed Dead In Mauritius Amid International Condemnation Of Global Shipping. [online] Forbes. Available at: <https://www.forbes.com/sites/nishandegnarain/2020/08/31/internationalcondemnation-of-global-shipping-grows-as-47-whales-confirmed-dead-inmauritius/#1b1d92ba79a8> [Accessed 1 September 2020]. Du, M. and Kessler, J., 2012. Assessment of the Spatial and Temporal Variability of Bulk Hydrocarbon Respiration Following the Deepwater Horizon Oil Spill. Environmental Science & Technology, [online] 46(19). Available at: <https://pubs.acs.org/doi/abs/10.1021/es301363k> [Accessed 4 September 2020]. ITOPF, 2020. Oil Tanker Spill Statistics 2019. London: ITOPF Limited, p.8. The Economic Times. 2020. Log 9 Supplies Sorbene Oil Pads To Aid Oil Spill Clean-Up In Mauritius. [online] Available at: <https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/log9-supplies-sorbene-oil-pads-to-aid-oil-spill-clean-up-inmauritius/articleshow/77690496.cms?from=mdr> [Accessed 1 September 2020]. Murray, M., Poulsen, S. and Murray, B., 2020. Decontaminating Terrestrial Oil Spills: A Comparative Assessment of Dog Fur, Human Hair, Peat Moss and Polypropylene Sorbents. MDPI Environments, [online] 7(52). Available at: <https://www.mdpi.com/2076-3298/7/7/52> [Accessed 1 September 2020].
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Solving The
Renewable Power Dilemma
By Alex Westwood
T he threat of climate change is driving the world towards renewable power sources, particularly wind
and solar, which have seen more growth in the last 3 years than any other sectors of the power industry (IEA, 2020). Their continued expansion is hugely important, but there is one major obstacle that lies ahead.
The intermittency problem Unlike fossil fuels, wind and solar are intermittent sources of power. Sometimes, very little electricity is generated - but the electricity supply still needs to meet demand. This problem is seen daily with the solar power “duck curve”, shown in figure 1. During the day, solar power can produce lots of electricity, which eases demand on the other sectors of the grid (gas, nuclear, hydroelectric, etc). However, generation at night is always zero – no matter how much solar power is installed. This means the night load on the rest of the grid is completely unchanged, which generally results in increased fossil fuel use at night. Furthermore, this problem is exacerbated by the fact that peak demand usually occurs in the evening – just after solar power generation drops off.
Wind power faces a similar problem. While it does not experience total power drop off every night, extended periods of low generation occur if winds are low for several days, again leaving fossil fuel plants to pick up the slack. The green solution? Massive-scale energy storage.
If a grid had enough wind and solar capacity to generate excess energy at times, this could be stored and used later. Energy storage infrastructure is already in use across the world but will need to be scaled up considerably to support completely zero-carbon energy.
Pumped hydro storage - how does it work?
Figure 1: Graph showing net demand on a grid with increasing levels of solar power capacity (Sheha et al, 2020).
Pumped hydro storage is a tried and tested method of energy storage and accounts for a staggering 96% of global storage capacity (EESI, 2020). Electricity is bought during low demand periods and used to pump water from one reservoir to another. The second reservoir is at a higher altitude than the first, so electrical energy from the grid is essentially converted into gravitational potential energy when the water is pumped up. At peak demand, water is then released back to the lower reservoir via a turbine system, converting the stored gravitational energy back to electrical energy which is sold to the grid (see figure 2).
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INNOVATION
Upper Reservoir
Pump / Generator
Lower Reservoir
Figure 2: Diagram of a pumped hydro storage facility (HydroTasmania, 2018)
Electric Mountain The storage capacity of pumped hydro can be colossal. Dinorwig power station in Wales, better known as “Electric Mountain”, has a capacity of 9 GWh (Scott and Dibble, 2018) – equivalent to about 3 billion AA batteries. Dinorwig has been very successful, but it also highlights some obstacles to the future expansion of pumped hydro. The site has highly specific geography and there are few other locations like it, so potential for expansion is limited. It was also the largest civil engineering project ever commissioned by the UK government at the time, taking 10 years and £4.7 billion (in today’s money) to construct (ICE, 2018). Such large upfront costs and long waits for return on investment are unattractive to private investors, so projects are highly dependent on government support.
Developing the concept There has recently been a great deal of innovation around pumped hydro technology, with researchers aiming to make it more geographically versatile and financially accessible to energy companies. Projects like StEnSEA (Stored Energy in the Sea) aim to do this using pressure energy instead of gravitational potential. Hollow concrete and steel
spheres, 30 metres in diameter, are positioned deep underwater where the pressure is very high. Electricity is generated when the pressurised water flows through turbines into the spheres, and electricity is used when the water is pumped back out. Fraunhofer Institute for Wind Energy Systems saw promising results from a 1:10 scale prototype in 2017 (Fraunhofer IWES, 2017), and further analysis suggests the technology could be both effective and cost-competitive (Wang et al, 2019). However, it is still early days and the design is yet to be tested at full scale.
The future for energy storage technology Across the world, the growth of pumped hydro has been very slow in recent years, partly due to high upfront costs and geographical limitations. China looks to be leading the market and is currently forecast to build 50 GW of pumped hydro by 2030 (FT, 2019). But outside of China, in the same time frame, only 28 GW is set to be constructed. The rest of the world seriously needs to increase investment in the technology and support research projects, like StEnSea, if zero-carbon energy is to be achieved. Additionally, the development of other storage methods (flywheels, lithium-ion batteries, etc) will be important, as different technologies can play slightly different roles in supporting the grid (EESI, 2020). Overall though, one thing is certain: rapid expansion of
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INNOVATION
the energy storage industry will soon be required if the explosive growth of solar and wind power continues.
Figure 3: Installation of the StEnSea Prototype in Lake Constance (Hessian State Prize, 2018)
References Environmental and Energy Study Institute (2020). A Look at the Status of Five Energy Storage Technologies. <https://www.eesi.org/articles/view/a-look-at-the-status-of-five-energystorage-technologies> Financial Times (2019). Renewable energy: Australia bets on a ‘water battery’. <https://www.ft.com/content/dbc4f49a-7fe7-11e9b592-5fe435b57a3b> Hessian State Prize for Energy (2018). <https://www.hessischer-staatspreisenergie.de/preistraeger/2018/stensea-stored-energy-in-the-sea/> HydroTasmania (2018). What is pumped hydro. <https://www.youtube.com/watch?v=_PH0IJ-_qOI> Fraunhofer Institute for Wind Energy Systems (2017). Offshore Pumped Hydro Storage – Project STENSEA. <https://www.etip-snet.eu/wpcontent/uploads/2017/06/2-StEnSEA-Project-Matthias-Puchta.pdf> Institute of Civil Engineers (2018). <https://www.ice.org.uk/what-is-civilengineering/what-do-civil-engineers-do/dinorwig-power-station> International Energy Agency (2020). Global Energy Review 2020. <https://webstore.iea.org/download/direct/2995> Moataz Sheha, Kasra Mohammadi and Kody Powell (2020). Solving the duck curve in a smart grid environment using a non-cooperative game theory and dynamic pricing profiles <https://www.sciencedirect.com/science/article/pii/S0196890420306464> Tom Scott and Kevin Dibble (2018). Britain's Largest Battery Is Actually A Lake. <https://www.youtube.com/watch?v=6Jx_bJgIFhI> Zhiwen Wang, Rupp Carriveau, David S.‐K. Ting, Wei Xiong and Zuwen Wang (2019). A review of marine renewable energy storage. <https://onlinelibrary.wiley.com/doi/full/10.1002/er.4444#>
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INNOVATION
Can
Green Pharma
Champion Change? The pharmaceutical industry is not innocent
By Sachi Kulkarni
W
hilst automobiles are often hailed as the biggest compromisers of air quality, research has shown that the pharmaceutical industry releases 55% more carbon emissions than the entire automotive industry (Miller, 2020). There are growing concerns surrounding the lack of environmental responsibility assumed by some of the industry’s biggest players. The term ‘Big Pharma’ refers to the collection of the world’s largest pharmaceutical companies, some of which are the most powerful firms in the world. In 2019, the top ten Big Pharma companies amassed a global revenue of almost $400 billion (Statista, 2020).
For Big Pharma, environmental responsibility is a low priority. Their soaring profit generation, combined with a growing demand for products, provides no incentive for them to improve environmental and social impact. The incorrect disposal of unwanted pharmaceutical drugs, alongside air, water and land pollution from manufacturing plants, is a significant cause for concern. Research from a large production hub in Pantancheru, India, showed that the spillage of an antibiotic into the neighbouring ecosystems amassed to 44kg a day, which is enough to treat 44,000 people (Miller, 2020).
Figure 1: The environmental impact of antibiotics (Centrient Pharmaceuticals, 2019)
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INNOVATION With a growing and ageing population, the emergence of new diseases and increased frequency of lifestyle diseases, pharmaceutical demand continues to grow. As a result, the number of drugs released into the environment will only rise.
Green Pharma and the quest for change All is not lost, as the demand for green pharmaceutical practices is growing under the pressure for change from both regulatory bodies and consumers. A number of firms have established green manufacturing programs, for example the Innovative Medicine Initiative’s CHEM21 project. The project is one of Europe’s largest public-private partnerships, with the aim to develop sustainable alternatives to catalysts used in medicines (CHEM21, 2020). The initiative's flagship outcome was the production of flucytosine, an antifungal drug, using fewer raw materials, cheaper chemicals and generating reduced wastage. This has made the drug cheaper to purchase, and the production process safer and cleaner (IMI, 2017).
Small pharmaceutical companies have also been working towards producing affordable and accessible green drugs. One example is Lumen Bioscience, who have patented technology that uses food algae to create antibody drugs. The production itself is simple, needing only a few raw materials and is completed at their factory, reducing both costs and allowing for sustainable, controlled production (Lumen Bioscience, 2020).
So, why won't Big Pharma change? Despite accumulating pressure to implement more sustainable practices, there has been a slow response from Big Pharma companies. Even with public commitments to sustainable change, such as AstraZeneca’s promise to be completely carbon neutral by 2030, it is evident that Big Pharma companies need to cooperate instead of making individual, futile promises (Nawrat, 2020). The industry's key players have enormous carbon footprints, as illustrated by figure 2, which shows the emissions intensity of major industry players in 2015 plotted against their 2015, 2020 and 2025 targets, 2 2 measured in metric tonnes of CO equivalent (Mt-CO ). Even though there are clear targets in place, these do not provide a strong enough incentive to reduce their
Figure 2 Carbon footprint of Big Pharma’s largest players (Belkhir and Elmeligi, 2019)
carbon emissions - 3 companies exceeded their 2015 target (Belkhir and Elmeligi, 2019). This highlights the need for stricter sanctions and government intervention in order to see real change.
What needs to be done? Contrary to financial concerns, it is becoming increasingly clear that compliance with environmental laws will not hinder the growth of these companies, but rather create value. Johnson & Johnson, who are operating voluntarily in lieu with the Paris Agreement, experienced a revenue growth of approximately 7 to 25% (Miller, 2020). It is imperative that Big Pharma companies work towards their commitments by combining biotechnology and green manufacturing in order to create sustainable production practices. However, if Green Pharma innovation still fails to drive sufficient progress towards reduced emissions and wastage targets, there needs to be change at an institutional level in order to truly facilitate sustainable development in the Big Pharma collective.
References
Belkhir, L. and Elmeligi, A., 2019. Carbon Footprint of the global pharmaceutical industry and relative impact of its major players. Journal of Cleaner Production, 214, pp.185-194. CHEM21, 2020. CHEM21. [online] Chem21.eu. Available at: <https://www.chem21.eu/> [Accessed 7 September 2020]. Compton, K., 2020. Big Pharma - Drug & Device Companies, Lawsuits & Facts. [online] Drugwatch.com. Available at: <https://www.drugwatch.com/manufacturers/> [Accessed 3September 2020]. de Braal, H., 2009. Hygienic Band Sealer Uses A Modular, Ergonomic Design
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INNOVATION For Medical Packaging. [online] PharmTech. Available at: <https://www.pharmtech.com/view/hygienic-band-sealer-uses-a-modularergonomic-design-for-medical-packaging> [Accessed 12 September 2020]. IMI, 2017. Green Manufacturing For de Braal, H., 2009. Hygienic Band Sealer Uses A Modular, Ergonomic Design For Medical Packaging. [online] PharmTech. Available at: <https://www.pharmtech.com/view/hygienic-bandsealer-uses-a-modular-ergonomic-design-for-medical-packaging> [Accessed 12 September 2020]. IMI, 2017. Green Manufacturing For The Pharmaceutical Industry. [online] IMI Innovative Medicines Initiative. Available at: <https://www.imi.europa.eu/projects-results/success-stories-projects/greenmanufacturing-pharmaceutical-industry> [Accessed 6 September 2020]. Lumen Bioscience, 2020. About. [online] Lumen.bio. Available at: <https://www.lumen.bio/about> [Accessed 3 September 2020]. Lumen Bioscience, 2020. Science. [online] Lumen.bio. Available at: <https://www.lumen.bio/science> [Accessed 7 September 2020]. Miller, C., 2020. Why Is Big Pharma Still Overlooking Its Colossal Negative Impact On Climate Change? | Hall & Partners. [online] Hall & Partners. Available at: <https://www.hallandpartners.com/its-time-for-sustainable-pharma> [Accessed 3 September 2020]. Statista, 2020. Available at < https://www.statista.com/statistics/281306/majorglobal-pharmaceutical-companies-based-on-pharma-revenue-2012/> [Accessed 10 September 2020]
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INNOVATION
Ooho Pods: The Future of Plastic-free Hydration By Tejas Hirani
It takes nearly 450 years for plastic bottles to biodegrade (WWF, 2018), yet enough plastic materials are disposed of annually to circle the earth four times (Harveston, 2018). With governments and big brands not taking enough steps to find a large-scale radical alternative to plastic bottles, this issue is being left on the side whilst it continues to grow. Action must be taken now to find the most sustainable - and scalable - plastic-free alternative.
Figure 1: The trend in global plastic production over time (Geyer et al, 2017)
In the 2019 London Marathon, a shocking 760,000 plastic bottles were used (Syred, 2018), highlighting the desperate need for an innovative solution that is both environmentally-friendly and suitable for mass production. The Ooho pod innovation, produced by London-based Skipping Rocks Lab, fits both of these important features. The pod, which has already been trialled in notable events such as the London Marathon and Glastonbury, releases five times less carbon dioxide and requires nine times less energy during production, compared to regular plastic bottles (Harveston, 2018).
What is Ooho?
Figure 2: Infographic showing the extent of the global plastic waste problem (Parker, 2019)
Ooho is a biodegradable pod that is used for liquid storage. With a rising number of companies partnering up with start-up founder Skipping Rocks Lab, such as Lucozade Sport and JustEat, there is call for it to be expanded into other industries, including healthcare. First making an appearance at the London Marathon,
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INNOVATION Ooho pods reduced plastic wastage by 210,000 bottles in 2019 (Nace, 2019). While this innovation is not widely known and is still at a very small scale, its growing association with large events and consequent reduction of plastic waste is gaining the product a valuable reputation as a sustainable green solution.
Producing the pods The pods are made by a process known as spherification, which mixes calcium chloride and brown algae extract to form a tasteless and waterproof membrane. The spongy pod can hold a variety of liquid samples, such as water, cocktails or condiments, making it a versatile, multi-use product. The natural materials used to produce the membrane means that the pods are completely edible.
Is this a scalable solution? The biggest challenge for these water pods is scalability. A recurring problem is the efficient production of the pods on a bigger scale, to accommodate for events as large as marathons and festivals. If the number of partnerships rises and multiple companies start to place orders, Skipping Rocks Lab may struggle to meet demand if there is a sudden surge. According to Skipping Rocks Lab, one person usually can produce between 10-20 pods in an hour, which is simply insufficient if this innovation is to be scaled up and adopted across several industries (Wilson, 2019). By 2022, the start-up is aiming to develop machines that they will be able to lease to companies who can produce Ooho pods daily onsite
760,000 plastic bottles were used in the 2019 London Marathon (Syred, 2019)
Figure 3: A picture of the finished Ooho Pod with a water sample (Ooho Water, 2019)
rather than stock taking up valuable storage space (PA Consulting, 2019). It seems that governments have a significant role to play in potentially subsidising the cost of these machines to facilitate the growth of Ooho. Current incentives include: £4 million being given to business owners undertaking projects that seek to reduce plastic waste and the deposit return scheme to keep plastic bottles out of the ocean. The government may need to implement more in market incentives and new environmental taxes as well as stricter environmental regulations so that there is a greater shift towards finding viable alternatives to plastic bottles such as Ooho.
The next steps for Ooho A further concern is whether these pods appeal to companies across multiple industries. Currently, the target market seems to be outdoor festivals and sports events. The Chief Financial Officer of Skipping Rocks Lab has talked of gaining new sponsors that would allow for bigger and more customised pods to appeal to more companies. With the prediction that the volume of plastic will exceed fish in the oceans by 2050 (Harrington, 2017), it may only be a matter of time until Ooho pods will expand into a range of diverse industries.
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(Ritchie and Roser, 2020)
References Bullock (2018), “Key facts about plastic pollution” Greenpeace USA, 8th June. https://www.greenpeace.org/usa/key-facts-about-plasticpollution/ Accessed 4th August 2020 Edie (2018), “JustEat expands trials of seaweed-based sauce sachets to replace single use plastics”, 31st October. https://www.edie.net/news/5/Just-Eatexpands-trials-of-seaweed-based-saucesachets-to-replacesingle-use-plastics/ Accessed 3rd August 2020 Geyer, R., Jambeck, J.R., & Law, K.L. (2017), “Production, use and fate of all plastics ever made”, ScienceMag, 19th July. https://advances.sciencemag.org/content/3/7/e1700782.full Accessed 5th August 2020 Harrington (2017), “By 2050, the oceans could have more plastic than fish”, Business Insider, 26th January. https://www.businessinsider.com/plasticinocean-outweighs-fish-evidence-report-2017-1? r=US&IR=T#:~:text=By%202050%2C%20the%20oceans%20co uld%20have%20more%20plastic%20than%20fish&text=Alrea dy%2C%20the%20ocean%20is%20filled,the%20Great%20Pyr amid%20of%20Giza Accessed 4th August 2020 Harveston (2018), “Edible water pods could replace billions of plastic bottles per year”, Environmental Magazine, 6th December. https://emagazine.com/ediblewater-pods/ Accessed 5th August 2020 Nace (2019),” London Marathon runners were handed seaweed pouched instead of plastic bottles”, Forbes, 29th April. https://www.forbes.com/sites/trevornace/2019/04/29/londonmarathonrunners-were-handed-seaweed-pouches-insteadof-plasticbottles/#26e8ff522ba2 Accessed 4th August 2020
Ooho Water (2019), “Ooho Water, the edible bottle”, 5th December. http://www.oohowater.com/ Accessed 4th August 2020 PA Consulting (2019), “Starting a revolution with a waste-free alternative to plastic bottles”. https://www.paconsulting.com/our-experience/notplastarting-arevolution-with-a-waste-free-alternative-to-plasticbottles/ Accessed 6th August 2020 Parker (2019), “How the plastic bottle went from convenience to curse”, National Geographic, 27th August. https://www.nationalgeographic.co.uk/environmentandconservation/2019/08/how-plastic-bottle-went-miraclecontainerdespised-villain. Accessed 5th August 2020 Patel (2019), “Meet the Bengaluru start-up making edible water pods from seaweed”, TheBetterIndia, 3rd May. https://www.thebetterindia.com/180797/bengaluruinnovation-ediblewater-pod-seaweed-plastic-free-india/ Accessed 4th August 2020 Ritchie, H. and Roser, M., 2020. Plastic Pollution. [online] Our World in Data. Available at: <https://ourworldindata.org/plastic-pollution> [Accessed 22 September 2020]. Wilson (2019), “Edible water bottles developed by imperial start-up to be trialled at marathon”, Imperial College London, 16th April. https://www.imperial.ac.uk/news/190938/ediblewaterbottles-developed-imperial-start-up/ Accessed 5th August 2020 WWF (2018), “The lifecycle of plastics”,19th June. https://www.wwf.org.au/news/blogs/the-lifecycle-ofplastics#gs.f0jik8 Accessed 5th August
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INNOVATION
4 BRANDS SUPPORTING A
FASHION TRANSITION
GREEN
Photo from Afrik21, 2020)
By Sachi Kulkarni Fashion is renowned for being one of the world's most polluting industries. With a shift in consumer preferences towards socially and environmentally responsible fashion, which has only accelerated during the pandemic, it is likely that the companies developing innovative, sustainable approaches to their operations will come out on top. Both established brands and fashion start-ups are developing new technologies and materials to tackle the waste issue that plagues the fashion industry. The following list compiles four fashion brands pioneering new technologies and products to drive a sustainable transition.
1.
2.
Presize.ai, ranked as one of the top 100 fastest growing German start-ups (Business Insider, 2020) has created software which utilises Artificial Intelligence in order to reduce waste and costs from incorrect sizing predictions or orders (Presize.ai, 2019). Its pioneering technology generates a 3D model of a shopperâ&#x20AC;&#x2122;s body and matches them to their perfect fit of clothing, creating a more personalised user journey and reducing the significant environmental impact of the return process.
The fashion industry contributes 10% of global annual carbon emissions (World Bank, 2017)
Food waste in landfill decomposes to release methane, a toxic greenhouse gas with 21% more global warming capabilities than CO2 (Forbes, 2018). Dyelicious, a Hong-Kong based start-up, create dyes from local food waste, helping to support the transition to a circular local economy and creating a cost-effective alternative to conventional food dye production. However, developing the technology required is both time-consuming and costly on a larger scale, so companies like Dyelicious may only be able to create change on a local level for the time being (Jiejun, 2017).
INNOVATIONS IN FASHION | 54
INNOVATION
3.
Sea microorganisms are one of the fastest-growing organisms on earth, containing substances that, once converted into biodegradable yarns, benefit both the environment and the skin. AlgiKnit, a New York-based biotech start-up, is creating durable, renewable and biodegradable yarns from seaweed, targeted solely towards the fashion industry (AlgiKnit, 2020). However, with funding and resource challenges, and with the technology still under development, the products may take a while to reach larger scale production.
In the UK, each person buys on average 26.7kg of clothing every year
4.
A shocking 10,977 litres of water are required to make just one pair of standard cotton jeans (Triarchy, 2020). Through its sustainable and innovative design approach, Triarchy, a Canadian denim brand, has committed to tackling this problem. Its factory uses 85% recycled water, achieved through a system in which natural bacteria feeds on indigo dye, which is then returned to the washing process (Triarchy, 2020). Sustainability is at the core of their textile production. Every part of the product is made from recycled materials, right down to the care label, which is made from recycled plastic bottles. However, with a pair of jeans ranging from £149, a price which reflects the steep cost of sustainably sourced fashion, it is clear why such brands fail to reach the masses and why fast fashion still dominates the industry.
(Chinasamy, 2019)
References About Us — Algiknit. AlgiKnit. Available at: <https://www.algiknit.com/aboutus> [Accessed 13 July 2020]. Business Insider, 2020. Ranking: Die Top 100 Der Am Schnellsten Wachsenden Startups In Deutschland. Business Insider. Available at: <https://www.businessinsider.de/wirtschaft/startups/die-top-100-der-am-schnellsten-wachsenden-startups-indeutschland-juni-2020/> [Accessed 21 July 2020]. Chinasamy, 2020. 'A monstrous disposable industry': Fast facts about fast fashion. Unearthed. Available at https://unearthed.greenpeace.org/2019/09/12/fast-facts-about-fastfashion/#:~:text=The%20UK%20is%20the%20epicentre,Italy%2C%20the%20Netherlands%20and%20Sweden. [Accessed 20th September 2020] Forbes, 2018. What Environmental Problems Does Wasting Food Cause? Forbes. Available at: <https://www.forbes.com/sites/quora/2018/07/18/what-environmental-problems-does-wasting-food-cause/#6668cab22f7a> [Accessed 14 July 2020]. Jiejun, L., 2017. Dyelicious: Creating A Splash Of Colour From Kitchen Waste. News.cgtn.com. Available at: <https://news.cgtn.com/news/3263544d33597a6333566d54/share_p.html> [Accessed 14 July 2020]. Presize.ai, 2019. Presize.Ai | The Perfect Fit Without Trying. Presize.ai. Available at: <https://www.presize.ai/> [Accessed 14 July 2020]. Triarchy, 2020. About. [online] Triarchy - Sustainable Denim. Available at: <https://triarchy.com/pages/about> [Accessed 12 September 2020]. World Bank, 2017. How Much Do Our Wardrobes Cost To The Environment?.World Bank. Available at: <https://www.worldbank.org/en/news/feature/2019/09/23/costo-moda-medioambiente#:~:text=The%20fashion%20industry%20is%20key,the%20automobile%20and%20technology%20industries.> [Accessed 12 September 2020].
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Q&A Theresa Frappell Investor Relations Manager at Foresight
Theresa Frappell How have your clients responded so far to the growth in sustainable debt with green bond offerings being commonly nearly three times oversubscribed - do you think this is a short-term ‘craze’ or something that is here to stay? I certainly think it’s more than a short-term craze, at the moment a lot of companies are doing what they can to survive and there is a lot of focus on government initiatives such as the Future Fund and the Coronavirus Job Retention Scheme. The way we see it at Foresight, taking a slightly different approach, is that COVID-19 is going to exacerbate a funding gap that already existed in their part of the market. Particularly as we focus on SMEs (Small and Medium-sized Enterprises) who are doing what they can to survive and will have to pay off the debt in the future as well as move into a growth phase.
During this time, close attention is being paid to how companies are treating their customers. This is more where we see ourselves and what we focus on rather than green bonds. We see our role as more of that supporting small businesses through this time, helping to get them to the next stage of funding beyond COVID-19. I know a section of your Private Equity team at Foresight focuses around this regional investment into small to medium-sized enterprises. Have you found that these firms have been hit worse than the market as a whole recently? It’s been more about getting management teams to focus quickly.
Particularly in smaller companies they often don’t have the frameworks that they need to react so quickly. So that is something that we try to work alongside companies to develop so when situations like this hit, they are able to make decisions faster. It’s about being able to react quickly when something like COVID-19 comes along; if you are an entrepreneur you typically have a lot of responsibilities which means it can be hard to put systems in place as quickly as needed. In terms of the recession we are facing, is there a point when you believe your portfolio companies will begin to sacrifice their ESG principles in an attempt to support profitability? Have you seen any evidence of this so far? I haven’t seen any evidence of this yet, what we see at Foresight is when working with our portfolio companies to consider long-term implications, those companies prioritising ESG principals are the ones that are going to last and be more successful longterm. During this time, close attention is being paid to how companies are treating their customers. There are always news stories about how a certain company has made their staff redundant during COVID-19 etc. and there is close attention being paid to customers and how companies treat them, as well as their employees. Companies are all dealing with different priorities and we work with them to preserve their position in the market by providing our ESG framework; this gives the companies a useful lens through which to view their objectives. I don’t think people are sacrificing ESG; I actually think it’s becoming more important and people are seeing that this is something that does need to be applied. How do you ensure that the companies you invest in at Foresight
incorporate ESG factors? At Foresight, we’ve applied a 5 principle approach to our ESG framework. Awareness, so making sure that companies have some kind of awareness. A lot of companies know they need to do well but don’t know how to go about it, or have the resources to do so. We work with companies to make sure that they have that framework and are able to apply this approach. We also look at how they approach the environment, whether they follow good practices for limiting, or mitigating their environmental impact, particularly within the context of the industry they operate in. On top of this, we look at the impact the company has on its employees, customers and society as a whole. In addition, we look at what governance structures they have in place, but also third-party interactions. Is Corporate Responsibility evidenced in their supply chain and how does it promote their ESG values? Lots of companies have a similar approach, where they apply a framework which helps them to assess how their company is going to operate. We also work with them to implement these practices and their own policies, so we take very active ownership in our companies and engage with them on these issues.
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GREEN FINANCE
FINANCE IN FOCUS
Is "The Beautiful Game Truly Beautiful? by Seb Thomas
ALSO IN THIS SECTION
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The Truth Behind Corporate Environmentalists
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Financial Solutions to Deforestation
FEATURED
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IS "THE BEAUTIFUL GAME" TRULY BEAUTIFUL? With 3.5 billion fans, football is the world’s most watched sport (Sourav, 2020). Not only does the sport contribute to every country’s culture and economic prosperity, but it has great potential to lead by example through transforming passion into a vehicle for positive sustainable change (Sancroft Team, 2018). The graph to the right demonstrates that there is hunger amongst the 19,334 supporters polled for ESG changes (Skelton & Lockwood,2019).
BY SEBASTIAN THOMAS
Environmental Existentialism
Keeping a pitch in top condition requires water, heating and energy intensive lighting for grass growth. Floodlights, video screens, and scoreboards can have large electricity demands, while thousands of fans traveling to and from matches emit carbon dioxide and generate huge amounts of waste. The carbon footprint of the 2014 FIFA World Cup was estimated at 2.7 million tonnes of CO2 equivalent (Hardcastle, 2013). Life Tackle estimates an average football fan generates 0.8 kilos of rubbish per visit to a stadium. Extrapolated to all fans attending matches across Europe, this amounts to 750,000 tonnes per year, more than Liechtenstein produces annually (Pundy, 2019).
The Model Citizen
Forest Green Rovers springs to mind when people talk about green football clubs – and not just because of their name. Dubbed ‘the world’s greenest football club’ by FIFA and winning the United Nations ‘Momentum for Change’ climate action award (BBC, 2018) due to its unparalleled sustainability measures, it deserves to be put on a pedestal. Solar panels, electric car chargers, water recycling, an organic pitch, and an entirely vegan menu for players and fans at their Gloucestershire stadium are all present. Rainwater is recycled around the stadium; all waste cooking oil is recycled into biofuel; and the pitch is mowed by a solar-powered robotic lawn mower. Local farmers use its grass cuttings to condition their soil and the entire club is powered by 100% green energy (UNFCC, 2019). But the League 2 outfit also focuses on helping people. Their Ambassador Scheme allows students to observe how their values are upheld by players. The Fit2Last free educational programme for the local community teaches the benefits of sport, health and sustainability through lessons and visits from players, and they selflessly advise other sports clubs
seeking to replicate their practices. Media attention brings visitors, benefitting local businesses, and many of the club’s fans alongside the 17 foreign fan clubs (McCarthy, 2019) have become vegans, bought electric cars and live more sustainably, showing that there are spillover effects (UNFCC, 2019).
The Big Boys
BBC Sport with UN-backed Sport Positive Summit analysed each Premier League club’s sustainability schemes, simplified into categories in the infographic on the followin page (Skelton & Lockwood, 2019). Teams that score well, like Arsenal have their own policies in place in all the 8 categories in the green circles, while teams that score less well, such as Crystal Palace, had no policies that covered clean energy, water efficiency or had any club news coverage on sustainability. Clearly, a large proportion of clubs do have some kind of schemes in place, but Professor Mike Berners-Lee commented these are "only just scratching the surface" (Skelton & Lockwood, 2019).
The Sense in Social Schemes The social and corporate governance issues surrounding football clubs are also important to consider. Football contributes hugely to the UK economy, creating over 100,000 jobs and paying £2.4bn in taxes in 2014 (Gregory, Arnold & Mullen, 2015). However, at the same time, 3 of the top 5 highest paid athletes in the world are footballers (Badenhausen, Settimi & Becoats, 2020) while there were workers in Bangladesh making the 2018 England World Cup football kit on a 21p an hour wage (Adams, 2018). These inequality issues are common in the game.
"THE BEAUTIFUL GAME" | 59
FINANCE due to the coronavirus pandemic, References: C. (2018). England’s £160 World Cup kit is made in despite not paying their players less and Adams, Bangladesh by workers on 21p an hour [Online]. Available still spending millions on new players at: https://www.telegraph.co.uk/news/2018/05/31/englands(Hawkins, 2020). But, as always, there 160-world-cup-kit-made-bangladesh-workers-21p-hour/ [Accessed: 1st September 2020). are exceptions to the rule. A paper by Badenhausen, K., Settimi, C. and Becoats, K. (2020). HighestFrick and Wicker (2015) finds that a Pai Athletes In The World [Online]. Available at: trickledown effect socially occurs in https://www.forbes.com/athletes/#71f05b8955ae (Accessed: 1st September 2020). football, where men’s World Cup title BBC. (2018). Forest Green Rovers named ‘greenest football in the world’ [Online]. Available at: wins have a positive effect on club club https://www.bbc.co.uk/news/uk-england-gloucestershirememberships and fitness in Germany. 45677536 (Accessed: 1st September 2020). BBC. (2020). Marcus Rashford brings food brand giants West Ham FC’s “Players’ Project” together to tackle child food poverty [Online]. Available at: (Accessed: 1st involves more than 30 programmes https://www.bbc.co.uk/news/uk-53979648 September 2020). spanning health, education and Dobbins, T. and Prowse, P. (2017). How football’s richest clubs fail to pay staff a real living wage [Online]. Available at: community initiatives in Newham and https://theconversation.com/how-footballs-richest-clubs(Accessed: 1st surrounding areas, with EY valuing this fail-to-pay-staff-a-real-living-wage-74347 September 2020). socio-economic contribution at £300 FIFA. (2018). Climate Action at the 2018 FIFA World Cup [Online]. Available at: million (Premier League, 2020). https://www.fifa.com/worldcup/news/2018-fifa-world-cup(Accessed: 1st September 2020). Manchester United forward and England climate-action-campaign Frick, B. and Wicker, P. (2015). The trickle-down effect: international Marcus Rashford received how elite sporting success affects amateur participation in German football. plaudits for successfully campaigning to Applied Economics Letters, 23(4):1-5. 10.1080/13504851.2015.1068916. tackle child food poverty (BBC, 2020). Gregory, M., Arnold, P. and Mullen, D. (2015). The economic Richer clubs have also shown impact of the Premier League [Online]. Available at: https://www.sportsthinktank.com/uploads/ey-thewillingness to aid poorer clubs. For economic-impact-of-the-premier-league.pdf (Accessed: 1st September 2020). example, Manchester City FC allowed Hardcastle, J. L. (2013). FIFA to Offset 2014 World Cup’s Metric Tons of Carbon Emissions [Onlin Available at: Bury to use their Carrington training 2.7m https://www.environmentalleader.com/2013/09/fifa-tooffset-2014-world-cups-2-7m-metric-tons-of-carbonground rent-free since 2014.
Ballgame Becoming Beautiful?
Whilst players, managers and executives command lucrative wage contracts, this wealth bonanza doesn’t always result in equitable distribution within clubs themselves and in the local communities. Of the 92 professional clubs in England and Scotland, only 5 were accredited with the Living Wage Foundation in 2017, paying club staff the voluntary living wage above the legally required one (Dobbins & Prowse, 2017), which doesn’t demonstrate an economic trickle-down effect. Recently, many top Premier League clubs placed thousands of backroom staff on furlough
The FIFA 2018 World Cup released 2.1 million tCO2e, a 22% decline from the previous tournament, whilst FIFA and local stakeholders worked together to neutralise these emissions (FIFA, 2018). This shows promise, but the Premier League has an absence of clear, defined long-term collective strategy regarding ESG, and these risks can damage their reputation and licenses to operate, resulting in profitability dents. They engage regularly with job sectors identified as highest risk for modern slavery and have lengthy supply chains that must be managed responsibly and ethically, but very little attention is paid to these so far (Sancroft Team, 2018). “The Premier League has dipped its toe in,” says Berners-Lee (Skelton & Lockwood, 2019), yet the sport is becoming more beautiful by the day.
emissions/ (Accessed: 1st September 2020). Hawkins, B. (2020). Punishment: Football clubs who furlough staff should be banned from signing players after coronavirus pandemic, rants talkSPORT host Georgie Bingham [Online]. Available at: https://talksport.com/football/691696/football-furloughstaff-banned-signing-coronavirus/ (Accessed: 1st September 2020). McCarthy, C. (2019). Dale Vince, Forest Green Rovers: “It has two years before we had all the skeletons out of the closet.” [Online]. Available at: https://www.sportbusiness.com/2019/10/dalevince-forest-green-rovers-it-was-two-years-before-we-hadall-the-skeletons-out-of-the-closet/ (Accessed 5th September 2020). Premier League. (2020). Positive impact [Online]. Available at: https://www.premierleague.com/this-is-pl/the-premierleague/1748774?articleId=1748774 (Accessed: 1st September 2020). Pundy, D. (2019). How sustainable can football be? [Online]. Available at: https://www.euractiv.com/section/healthconsumers/news/how-sustainable-can-football-be/ (Accessed: 1st September 2020). Sancroft Team. (2018). Skelton, J. and Lockwood, D. (2019). How green are Premier League clubs? [Online]. Available at: https://www.bbc.co.uk/sport/football/50317760 (Accessed: 1st September 2020).Sourav. (2020). Top 10 Most Popular Sports in The WorldUpdated 2020] [Online] Available at: https://sportsshow.net/top-10-most-popular-sports-in-theworld/ (Accessed: 1st September 2020). UNFCC. (2019). Creating the Greenest Football Club in the World – Forest Green Rovers | United Kingdom [Online]. Available at: https://unfccc.int/climate-action/momentumfor-change/climate-neutral-now/creating-the-greenestfootball-club-in-the-world-forest-green-rovers (Accessed: 1st September 2020).
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water
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THE 21ST CENTURY'S LIQUID GOLD
BY ZAHRA RAHMAN Water may not be something we think about often, but the truth is that currently there is an evolving water crisis taking place globally. Water scarcity is a real issue that threatens every continent, from rural villages to megacities. It’s predicted that by 2030 almost half the global population will be living in areas experiencing high water stress (United Nations, 2017). Water covers 70% of the Earth, but only 3% of it is freshwater (water that humans can drink and use) and just 1/3 of freshwater is available for extraction (US Bureau of Reclamation, 2019). Water scarcity has always existed; physical scarcity is due to natural factors like droughts, but human factors such as urbanisation are placing greater pressures upon already vulnerable water systems (Bond et al, 2019). Water is finite and over the past century, water use has grown at over twice the rate of population growth due to economic factors. As this trend continues, the global water crisis will become a defining issue of this century.
What is the value of water? Water is arguably the most valuable commodity on Earth, at least in non-price terms. Since water is a basic human right its price doesn’t accurately reflect its value. For many, water is affordable and accessible, making it easy to undervalue and consequently over consume. Unlike oil and other commodities, water itself doesn’t have a global market and accordingly, there is no market price for trading. This can make it difficult to identify the true value of water; water is needed to live but how would life be quantified? However, water bills provide insight into the growing cost of water provision - globally the average combined water and wastewater tariff has risen by 3.8% from 2017 to 2018 (GWI, 2018). In many countries rising costs have been driven by the expenses associated with outdated infrastructures and implementing new management systems.To understand why water is valuable it’s important to recognise the effects of water scarcity.
BREAKDOWN OF FRESHWATER USE
How has our water use changed? Since industrialisation, economic development, and rising populations have led to unsustainable, excessive uses of water – the agricultural sector makes up 70% of total water consumption followed by other industries. Growing cities and urbanisation have led to greater levels of extraction from underground stores (aquifers) where water is withdrawn faster than it is recharged. The impacts of these practices are widespread; as water shortages become more frequent (exacerbated by climate change) billions will struggle to access water. By 2030, it’s predicted global water requirements will exceed water supplies yearly by 40% (U.S. NIC, 2012). These shortages will affect entire industries, supply chains will be disrupted and waterintensive industries like agriculture that heavily rely upon freshwater will be hardest hit.
What does this all mean? Cape Town, South Africa is an example of a water crisis being sooner than anticipated and highlights the importance of water. After three years of minimal rainfall, in 2018 the city was approaching day zero when there would be no water left to supply the city with. Residents were forced to cut back water consumption and were only allowed up to 50 litres a day. As the entire city reduced its consumption, with the agricultural sector using 60% less water, day zero was repeatedly pushed further back from April to May to the next year. Eventually, Cape Town averted a crisis, but the threat remains, and the city has completed changed its relationship with water. Cape Town stands as an example of what cities around the world are set to face in the next few decades.
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What is the solution? However, water insecurities have created opportunities for investors to get involved. As the water demand grows countries will have to reassess the way they manage and supply their water. Sustainable management and improving infrastructures are key ways to alleviate water stress and investors are a key part of this solution. A growing appetite for green bonds signals that investors are actively making their portfolios more sustainable and will have a vital hand to play in this fight. Private equity funds are already integrating ESG goals into their approaches; the number of fund managers that signed onto the UN’s Principles for Responsible Investment doubled from 2013 to 2018, proving the popularity of sustainability. There is an incentive for investors to pay attention, as if a crisis isn’t evaded it will create enormous financial risks – 60% of real-estate investment trust properties are set to be affected by water stress by 2030 (Walsh, 2020). As demand for green bonds expands it must finance projects that address water management, infrastructure, and innovation. This is already taking place, as in 2017 a £250M green bond was issued to fund Anglian Water’s sustainable water projects – the investment finances a range of developments including improving water recycling. Investing in water is profitable too, as each dollar invested in improving access and sanitation produces on average $6.80 in returns (Hutton and Bank, 2015). Overall the emerging influence of green finance shows that the financial sector will be a key tool to mitigate a global water crisis. Water insecurity affects everyone and investors must recognise their importance to decelerate a growing problem before it’s too late. The value of water is immeasurable and it’s important we acknowledge how precious water is and reduce our consumption to take steps towards a sustainable future.
THERE IS A GROWING INTEREST IN RESPONSIBLE INVESTING Item 2 29%
71% of global investors said they were interested in sustainable investing
2015 Item 1 71%
15%
85% indicated interest in sustainabilityfocused strategies
2020
Morgan Stanley, 2019 85%
References: UnitedNations Environment Programme. International Resource Panel. Working Group On Sustainable Water Management (2017). Options for decoupling economic growth from water use and water pollution : a report of the Water Working Group of the International Resource Panel. U.S. Bureau of Reclamation (2019). Water Facts - Worldwide Water | Bureau of Reclamation. [online] Usbr.gov. Available at: https://www.usbr.gov/mp/arwec/water-facts-ww-water-sup.html. Bond, N.R., Burrows, R.M., Kennard, M.J. and Bunn, S.E. (2019). Water Scarcity as a Driver of Multiple Stressor Effects. Multiple Stressors in River Ecosystems, pp.111–129. Global Water Intelligence (2018). The Global Water Tariff Survey. [online] Global Water Intelligence. Available at:https://www.globalwaterintel.com/global-water-tariff-survey [Accessed 10 Sep. 2020]. U.S. National Intelligence Council (2012). Global Water Security Report [online] Available at: https://www.dni.gov/files/documents/Special%20Report_ICA%20Glob al%20Water%20Security.pdf. Walsh, B. (2020). BlackRock report shows how climate-related water stress will hit the business sector globally. [online] Axios. Available at:https://www.axios.com/blackrock-waterscarcity-climate-change-investments-d422ebf9-b64b-4d69-88e9b7df4d633e2f.html [Accessed 10 Sep. 2020]. Hutton, G. and Bank, W. (2015). Benefits and Costs of the Water Sanitation and Hygiene Targets for the Post-2015 Development Agenda Post-2015 Consensus. [online] Available at: https://www.copenhagenconsensus.com/sites/default/files/water_sani tation_assessment_-_hutton.pdf [Accessed 10 Sep. 2020].
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Source: IYNF
Greenwashing Their Sins Away: The Truth Behind Corporate Environmentalists
BY SOFIA AKUAMOAH Corporate Greenwashing
Greenwashing is when a firm spends more time and money on falsely advertising itself as sustainable, than they do on actually becoming green - a marketing tool to divert attention away from damaging processes. These firms are undoubtedly unethical, exploiting environmentally conscious consumers who believe they are being green by shopping with one firm over another. The 2015 Nielson poll showed that 66% of consumers are willing to pay more for an environmentally sustainable product (Watson 2016). So, firms throw in a panoramic of a forest in their marketing campaign, claim to be sustainable, and increase the price of their good by up to 50%; profiting out of the genuine (and legitimate) environmental concerns of their customers.
However, Greenwashing has gone beyond the point of a superficial advert fooling consumers, to a form of financial fraud which firms use to manipulate ESG investors. In Asia, ‘socially responsible’ debt, was found to be funding jobs and housing, rather than going towards the environment. South Korea showed off its $54.7bn raised from ESG notes since May 2018, but further investigation revealed only 5% of this money actually went towards environmental initiatives. In other words, out of the 426 ESG notes issued over the past 3 years, only 22 raised debt for ‘environmental’ purposes, whilst 387 went to ‘social’ causes (White 2020).
Cases of greenwashing are continually being exposed, such as the operator of Three Gorges Corp in China issuing green bonds despite criticism for polluting water and damaging ecosystems. In Brazil, GDF Suez issued green bonds to Jirau Dam, the actions of which led to flooding of a rainforest (Malhotra 2020). In January 2020, the Italian CMA imposed its first greenwashing fine against the energy company Eni. The firm was fined €5 million for claiming its
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FINANCE palm oil-based diesel was ‘green’, when in actuality it was contributing to mass deforestation (Konsta 2020). Telecoms group Verizon was probed in a Morgan Stanley report for using green finance to fund its 5G endeavours (Temple-West 2020). And Tesco is the most recent in the hot seat as their new marketing campaign explicitly states that they are against deforestation since all of their meat comes from the UK and Ireland, whilst feeding the cattle soya, the farming of which is detrimental to the Amazon rainforest (Vitali 2020). Green finance is evidently being corrupted, and the gateway is the vague definition of ‘green’ which allows for ‘creative’ interpretation. Whilst ESG is a non-financial measure of a company, it has become an integral part of the decision-making process for investors, who are looking for risk mitigation and investments which weather storms better than the rest. Proven by HSBC research which showed that from December 2019 to March 2020, companies with high ESG ratings outperformed those with lower ratings by about 7%. Thus, ESG is undoubtedly a sign of strong firm resilience and performance, especially during economic downturns (Konsta 2020). However, a firm which uses ESG notes to build a factory employing 20 people and a firm which uses ESG notes to decarbonise their production processes, are two completely different things, yet both are valued using the umbrella term ‘ESG’.
which developed the Green Bond Principles, there is no legal definition or enforcement of ‘green’, leaving it open to interpretation by firms. Being ‘green’ has always been painted as a bewildering concept, when in reality, implementation of ESG financial regulations is all that is needed for companies to publish Green Statements.
References Konsta S 2020, Loose talk…can lead to litigation, Lexology, viewed 15 August 2020 <https://www.lexology.com/library/detail.aspx? g=bfaf4db5-0a4f-4402-a5b8-d41c1287c58a> Malhotra S 2020, Green Bonds: Is it green finance or green-washing?, DownToEarth, viewed 14 August 2020 <https://www.downtoearth.org.in/blog/energy/green-bonds-is-it-greenfinance-or-green-washing--72755> Temple-West P 2019, Bankers push back against ‘greenwashing’ criticism, Financial Times, viewed 14 August 2020 <https://www.ft.com/content/c4cefa40-f4ab-11e9-b018-3ef8794b17c6 > Vitali C 2020, Tesco’s deforestation claims are misleading the public, Greenpeace, viewed 21 August 2020 <https://www.greenpeace.org.uk/news/tesco-deforestation-meatadverts/> Watson B 2016, The troubling evolution of corporate greenwashing, The Guardian, viewed 14 August 2020 <https://www.theguardian.com/sustainablebusiness/2016/aug/20/greenwashing-environmentalism-liescompanies> White E 2020, Asia’s biggest market for ESG debt hit by ‘greenwashing’ concerns, Financial Times, viewed 16 August 2020 <https://www.ft.com/content/15602932-5bb1-49de-90bf-15932bc1aac4>
Why Greenwashing Needs to be Tackled
If left unchanged, greenwashing could harm the development of green finance. Investors may grow sceptical as ESG becomes a risky business because the returns from a firm which is green, do not outweigh the consequences of investing in a firm which is greenwashing and will inevitably face legal charges. The cost of greenwashing is paid by the consumer, insurer, investors and ultimately the firm itself when its actions are uncovered. Companies have long overplayed the Jekyll and Hyde routine, but greenwashing is a whole new chapter, so caution is imperative as the cost of association with them could be significant. Nevertheless, due diligence can only be carried out to a certain extent when certain data is non-existent.
Solutions to Greenwashing In the short-term, companies must be transparent about their activities and allocation of resources, and state whether they follow voluntary ESG standards. Ultimately, this draws back to the fundamental problem with green finance, which is, what does it mean to be ‘green’? Whilst there are many organisations which offer green criteria to voluntarily follow, such as Capital Market Association
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Source: EcoWatch
Forestry Securitisation - Financial Solution to Deforestation BY JOKĹŞBAS PAIÄ&#x152;IUS
The importance of forests is no longer in doubt in biology and climate science. Planting more trees is one of the simplest ways to combat climate change and reduce atmospheric carbon. It is estimated that the Earthâ&#x20AC;&#x2122;s ecosystem could support up to 25% more forest area than currently exists. That would be enough to negate around 20 years of carbon emissions (Bastin et al., 2019). However, trees are also quite important in the financial world. Timber is a vital commodity to numerous industries such as homebuilding and furniture manufacturing and contributes around 1% of global GDP (Pines, 2020). In recent history, timber has been regarded as a profitable commodity to invest in. Its profitability between the years 19702000 has been at 15.2% (Smith, 2001).
Timber is also attractive because of its low correlation with stock and bond prices, which makes it a viable option to help diversify an investment portfolio. Therefore, a variety of investors, e.g. pension funds, owns areas of timberlands. (Murphy, 2019). More recently, due to Covid-19, there has been a demand surge as people are renovating their houses. The prices have increased by 104% in 2020 (Dempsey, 2020). The dilemma is that deforestation is already a major issue in the context of climate change but financial incentives to cut trees down are strong and will likely remain that way in the future. Hence, public and private institutions across the globe are coming up with ways to promote Sustainable Forest Management (SFM). If firms are to transition into more sustainable practices, it is not going to be cheap.
Therefore, it is important to create mechanisms that help raise capital for the companies making the transition. Therefore, forest-backed bonds have emerged as a way to provide funding to SMF operators. Forest-backed bonds could be attractive to both firms and investors. If a firm became more oriented towards sustainability, it could start generating different types of revenues. Most notably, they could charge a premium for sustainable timber. However, there could be various new sources of revenue, such as grants from international organisations and ecotourism. On the other hands, two types of potential investors have been identified. Firstly, impact investors. These are investors who are willing to make compromises to achieve a positive environmental effect.
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FINANCE For example, Brazil has created a market for trading forests certificates. If a landowner wished to deforest an area of tropic forest, he would be obligated to buy forest certificates. On the contrary, landowners that maintain and/or restore natural forests are granted forest certificates. Enterprises that wish to cut down forest area, must purchase enough certificates to offset the negative environmental effects caused by deforestation. It is expected to become the largest forest-trading market in the world, and a similar model could be successfully applied to other areas, where payment for ecosystem services are needed (Soares-Filho et al., 2016). Similar schemes have also been introduced in other countries. In the US, certificates are traded for wetland areas. Landowners who develop, maintain, or restore areas in compliance with ecological standards, are granted credits, which they can sell to firms, whose activities are contributing to the destruction of these lands. This is known as mitigation banking. in the UK, ‘The Woodland Carbon Guarantee’ is designed to help the UK reach net zero emissions by 2050. It will give land It is argued that forest bonds are a managers, who plant trees, an option to very powerful tool in financing forest sell carbon units either to the preservation as it allows companies to government or on private markets. raise finance reliably and has a good Companies that emit CO2 will be track record of financing public-private obligated to buy enough carbon units to partnerships (Cranford et al., 2011). offset their emissions. Another study on forest-backed bonds To summarise, trees are very concluded: “Forest-backed bonds important in the fight against climate provide a means with which to kick start change. However, with timber being major private investment in tropical high in demand, various financial natural forests, enhancing their value solutions must be implemented to help relative to competing land uses in a way properly manage forests around the that benefits all key stakeholders” world. (Petley et al., 2007). Since conventional financial instruments may not be enough for a serious transition into sustainable forestry, different countries have come up with programs to try and preserve the forests.
These could anything from diversified financial institutions to NGOs and religious institutions. Alternatively, it could be institutional investors. These are the investors that manage the largest amount of money in the private sector. They have the highest investment standards e.g. a high credit rating and liquidity is required. Even if forest bonds might not meet these criteria, there is increasing interest from institutional investors as they realise potential future limitations of unsustainable investment (Cranford et al., 2011). Table 1 shows what compromises are acceptable to investors, if they were to invest in green forest bonds:
References: Bastin, J. F., Finegold, Y., Garcia, C., Mollicone, D., Rezende, M., Routh, D., Zohner, C. M., & Crowther, T. W. (2019). The global tree restoration potential. Science, 364(6448), 76–79. https://doi.org/10.1126/science.aax0848Cranfor d, M., Henderson, I. R., Mitchell, A. W., Kidney, S., & Kanak, D. P. (2011). UNLOCKING FOREST BONDS A HIGH-LEVEL WORKSHOP ON INNOVATIVE FINANCE FOR TROPICAL FORESTS. www.company-london.comCrossley, R. A., Lent, T., de Callejon, D. P., & Sethare, C. (1996). Unasylva - No. 188 - Funding sustainable forestry - Innovative financing for sustainable forestry. http://www.fao.org/3/w3247e07.htmDempsey, H. (2020, August 24). Lumber prices soar to alltime high on renovation demand | Financial Times. https://www.ft.com/content/2e142bd28f17-40e7-8f2f-e5746ceb2224Harcourt, A. (2019, June 24). Timber Investing: A Valid Long-Term Growth Strategy? https://www.bedelfinancial.com/timberinvesting-a-valid-long-term-growthstrategyMurphy, C. (2019, May 23). How Timberland Investments Can Diversify Your Stock Portfolio. https://www.investopedia.com/terms/t/timberl andinvestment.aspPetley, S., Grayson, J., Gillespie, N. M., Turnbull, S., Gaines, A., Wackernagel, A., & Ltd, E. (2007). ForestBacked Bonds Proof of Concept Study.Pines, L. (2020, August). Wood As a Commodity: The Process & Price Drivers Of Lumber Commodity.com. https://commodity.com/softagricultural/random-lengthlumber/#Global_Lumber_ProductionSmith, E. R. (2001, August 26). Investing; Not Just for the Birds: Timber Is a Commodity for the Long Run The New York Times. https://www.nytimes.com/2001/08/26/business/ investing-not-just-for-the-birds-timber-is-acommodity-for-the-long-run.htmlSoares-Filho, B., Rajão, R., Merry, F., Rodrigues, H., Davis, J., Lima, L., Macedo, M., Coe, M., Carneiro, A., & Santiago, L. (2016). Brazil’s Market for Trading Forest Certificates. PLOS ONE, 11(4), e0152311. https://doi.org/10.1371/journal.pone.0152311Un derstanding the Basics of Mitigation Banking. (n.d.). Retrieved September 2, 2020, from https://www.investopedia.com/articles/dictiona ry/031615/understanding-basics-mitigationbanking.aspWhat You Need to Know about Impact Investing | The GIIN. (n.d.). Retrieved September 12, 2020, from https://thegiin.org/impact-investing/need-toknow/#who-is-making-impact-investments
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ESG funds have not succumbed - how have they faired against the Coronavirus pandemic? BY ASHA PANDIT Environmental, Social & Governance (ESG) principles have been making headlines lately. From the rise in renewable energy to companies showcasing how they’re becoming more socially aware, there’s no doubt the world around us is transitioning into a more sustainability-conscious society. Flows into ESG funds hit a record level in July 2020, with inflows of £362 million globally. According to Calastone (2020), the largest global funds network, the monthly records for inflows into ESG funds have been increasing since April 2020. In spite of the pandemic already starting to plague other areas of activity, a record total of £1.2 billion inflows into ESG had been received between April and July 2020, greater than the previous five years of inflows combined across the entire Calastone Fund Flow Index. The scale of this record-breaking increase can be seen to the right. It is clear ESG funds have not faced the same tribulations as many others. Equity funds suffered outflows of £240 million in the same month as ESG funds enjoyed £362 million in inflows. The average pension fund fell by 15.2% in Q1, making it the worst quarterly performance on record and surpassing the falls seen during the Financial Crisis. By the end of Q2, it was no surprise that despite the best pension fund quarterly performance since Q3 2009, a full recovery was impeded and pension funds remained 4.4% down from their position at the start of the year (Moneyfacts, 2020).
So, what’s the secret? Why have ESG funds not only survived the trials of the coronavirus pandemic, but seemingly flourished? Unsurprisingly, major slumps in fossil fuel and airline related stocks earlier this year accentuate ESG funds’ success. As explained by Lorna Blyth, ESG funds have “little exposure” to these sectors, which had otherwise “suffered in the sell-off” (FT Advisor, 2020). Similarly, Adrian Lowcock, head of personal investing at Willis Owens, attributes the “primary reason” for the ESG funds’ success as “fairly simple – oil” (Interactive Investor, 2020a). He goes on to mention that “any downturn is likely to see ESG funds perform at least slightly better,” since oil and airline companies face cyclical performance; less energy is used by businesses and consumers and less flights are made during a downturn period. However, even excluding the influence of 2020’s unusual market conditions, a study by Morningstar (2020) has found the majority of sustainable funds tend to outperform traditional funds.
Source: Calastone (2020)
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Source: Visualcapitalist
Nonetheless, the Covid-19 pandemic has only reinforced the importance of ESG principles for both investors and governments alike, with renewable energy projects at the heart of many economies’ recovery plans going forward. References:
Apart from ESG funds often incorporating tech stocks, which have performed highly over this same period, what else has helped ESG funds flourish? According to Louisiana Salge, impact specialist at EQ investors, a “key reason” behind the increase in ESG inflows revolves around the idea that during “market volatility and economic downturn”, investors prefer higher quality stocks (Interactive Investor, 2020b). Typically, companies dedicated to ESG principles are those deemed to be of higher quality, given that they are usually well-run with good performance and offer better risk protection. As a consequence, investors’ attention is drawn to these businesses which are “more likely to thrive in the long-run.” Edward Glyn, head of global markets at Calastone, describes the “real momentum” behind ESG funds’ popularity as being the increase in “appetite for investment products that align with savers’ ethical concerns” (Financial Times, 2020). In a time where “caution on equity markets has prompted outflows from equity funds”, ESG has responded to the “very strong investor demand” (Calastone, 2020). Part of this investor demand stems from the well-established idea that ESG funds offer “better margins” for investors, and that inflows to ESG funds have benefited from a “huge marketing push by the fund management industry.” Liam Fowler, a chartered financial planner and investment manager at Heron House Financial Management, estimates that up to 30% of the firm’s new money will be put into ESG investments from now onwards, as ESG funds are “the future” (Interactive Investor, 2020b); this is a sentiment shared by many. Given the recent tech stocks plunge, fears of a secondwave and release of poor US macroeconomic data prompting the sell-off, it is possible this will be translated into a lower Q3 ESG fund performance than otherwise anticipated.
Calastone.com. 2020. Global ESG Funds See Highest Inflows On Record, Giving Hope For Active Managers As Equity Funds Overall Suffer Outflows In July – Calastone. [online] Available at: <https://www.calastone.com/global-esg-funds-see-highestinflows-on-record-giving-hope-for-active-managers-as-equityfunds-overall-suffer-outflows-in-july/> [Accessed 4 September 2020]. Ft.com. 2020. ESG Funds Attract Record Inflows During Crisis. [online] Available at: <https://www.ft.com/content/27025f35-283f4956-b6a0-0adbfd4c7a0e> [Accessed 4 September 2020]. Ftadviser.com. 2020. Ep 2 - Why Responsible Investment Funds Outperformed. [online] Available at: <https://www.ftadviser.com/investments/2020/06/17/ep-2-whyresponsible-investment-funds-outperformed/> [Accessed 4 September 2020]. Interactive Investor 2020a. [online] Available at: <https://www.ii.co.uk/analysis-commentary/reason-why-esgfunds-outperformed-during-market-sell-ii511022> [Accessed 4 September 2020]. Interactive Investor 2020b. [online] Available at: < https://www.ii.co.uk/analysis-commentary/esg-funds-havenever-been-more-popular-investors-ii513180> [Accessed 4 September 2020]. Moneyfacts.co.uk 2020. Pension Funds See Signs Of Recovery | Moneyfacts.Co.Uk. [online] Moneyfacts. Available at: <https://moneyfacts.co.uk/news/retirement/pension-funds-seesigns-of-recovery/> [Accessed 4 September 2020]. Morningstar.com. 2020. [online] Available at: <https://www.morningstar.com/content/dam/marketing/emea/sh ared/guides/ESG_Fund_Performance_2020.pdf> [Accessed 4 September 2020].
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Go Green or Go Home Introducing Mortgage
the
Green
Most climate-conscious people have the altruistic motives of reducing air pollution, saving, and recycling resources, to make the planet a greener and cleaner place. One of the latest ways to go green is the green mortgage, a sound financing option for homeowners and an energy-saving solution. A green mortgage differs from a regular mortgage in that the house which the mortgage finances must meet specific energy efficiency standards. To be eligible for a green mortgage every home must have an Energy Performance Certificate (EPC) which gives the property an energy efficiency rating from A or 100 (most efficient) to G or 0 (least efficient). To qualify for a green mortgage the home you want to purchase must have an energy efficiency rating of 81 or above, or be in bands A or B. The most straightforward approach to owning a green home is to buy a new-build and certified property through one of the developers partnered with the bank. For most, however, the most affordable way to a green home is to improve a preexisting house.
BY BOZHIDAR DINKOV
However, the lender may agree to give you a larger loan to cover the costs of the upgrades depending on which equity loan scheme you pick. For example, Barclays offers a 75% loan to value (LTV) on both its 2-year and 5-year fixed-rate equity loan scheme.
Greening our buildings to fight climate change Green mortgages not only offer increased comfort, wellbeing and lower bills for homeowners but a lower risk investment for investors. The reasoning behind this is simple. Since energy efficiency lowers energy usage, energy-efficient homeowners should have lower bills which makes them less likely to default on their mortgage repayments because they have more disposable income. An analysis by the Bank of England supports this. The study (Benjamin Guin, Perttu Korhonen) conducted in October 2018 involved 1.8 million properties and found out that 0.93% of energy-efficient homes are in payment arrears compared to 1.14% of energy-inefficient homes when controlling for factors such as borrower income and loan to value ratio of the mortgage. The study concluded, â&#x20AC;&#x153;that energy efficiency is a relevant predictor of mortgage defaults.â&#x20AC;? The benefits of green mortgages, however, stretch beyond better interest
rates and lower bills as green mortgages can be an instrument for banks to reduce risk in their portfolios in a property market such as the one in Europe. The high average age of building stock in Europe poses a risk to banks and investors as inefficient buildings might incur higher operating costs over time and are subject to devaluation if they are non-compliant to more stringent legislation. Increasing the share of energyefficient mortgages would reduce the risk for stakeholders while providing a sustainable solution to future generations. The operation of buildings is a significant contributor to climate change, responsible for over a third of carbon emissions and almost 40% of total energy use in Europe. An analysis by Buildings Performance Institute Europe for 16 European countries shows that 97% of the building stock must be upgraded to achieve the 2050 decarbonisation vision. Achieving this means finding capital needed for improvements and upgrades to our existing and future buildings. The UK government recognised this problem and hopes to use green mortgages to incentivise people to purchase energyefficient homes or upgrade their existing ones as part of its Climate
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Change Act to reduce carbon emissions by 80% by 2050. The Climate Change Act was passed in 2008 and has made the UK into one of the most successful countries in the developed world in reducing our emissions. The UK has maintained substantial economic growth, by implementing its Clean Growth Strategy, which has energy efficiency as its cornerstone and aims to work with lenders to provide capital and create new high-value jobs, while reducing greenhouse-gas emissions by 42% faster than any other G7 nation. The accuracy of these claims, however, has been disputed and numerous organisations from BP and RyanAir to H&M and high-profile individuals like the governor of Bank of England have been accused of greenwashing.
What are some of the challenges to scaling up green mortgageâ&#x20AC;&#x2122;s securitization? The first and probably the most obvious challenge is the uncertain demand for green Asset-Backed Securities. Green ABS are currently a niche investment rather than massmarket. However, with climate-conscious millennial investors entering the market, pension funds and sovereign wealth funds may start to look at their portfolios and use their funds for more socially responsible purposes. The investment incentives of renewable energy are beginning to look attractive, and demand for green ABS can undoubtedly start to grow, after all, it will be bond-buyers, not bond issuers who drive the demand up. As mentioned before, instruments such as green mortgages can be tremendously powerful in the fight against climate change while providing economic incentives for all stakeholders and a whole new clientele entering the market may make green mortgages mainstream. The other obvious implication of socially responsible investing is the lack of international criteria to distinguish between the different types of green home improvements which creates difficulty in identifying green assets in existing loans. While the benefits of green mortgages might look attractive in an increasingly carbon-conscious society, their future is far from certain.
References: Guin, Benjamin and Korhonen, Perttu, Does Energy Efficiency Predict Mortgage Performance? (January 31, 2020). Bank of England Working Paper No. 852 (2020), Available at SSRN: https://ssrn.com/abstract=3532373 or http://dx.doi.org/10.2139/ssrn.3532373Richardson, S., 2018. CREATING AN ENERGY EFFICIENT MORTGAGE FOR EUROPE TOWARDS A NEW MARKET STANDARD. 1st ed. pp.1-28.
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Purposeful Can Still Mean Profitable with Proposed Coal Retirement Mechanism BY EDWARD COX
The Problem with Coal At the current rate of retirement, emissions from existing coal power plants alone will cause average global temperatures to rise by more than 1.5°C by 2050. This is without taking account of the vast expansion of coal power planned over the next decade. (Kanak, 2020) Due to scale economies, more competitive markets and investment in renewables, coal has reached its cost crossover point. This means that this year renewables such as photovoltaic (PV), concentrated solar (CSP) and wind power will more often than not achieve lower power costs than coal; the cheapest of the non-renewables (Lehr & O’Boyle, 2020). Replacing the planet’s costliest 500GW of coal with PV and wind power could cut global CO2 emissions by 5% all while saving US$23B per year. (IRENA, 2020) Data taken and adapted from Lazard, 2018
The Coal Phaseout
However, the economic cost of burning coal comes no way near the human cost, with the airborne pollutants belched out by coal plants killing between 500,000 and 800,000 people each year, by the worst estimate (End Coal, n.a). The sun has finally set on coal power.
The scale of coal power expansion in many low-income countries and the sluggishness of the retirement process in many high-income countries shows that if obligations to the environment, consumers wallets and peoples’ health are to be met, third parties will need to get involved to speed up the transition to renewables. In order to increase the rate of coal retirement the current trend among investors of divesting in coal will not suffice. Investors will need to take a more active role in retiring coal plants themselves. Thankfully we will not have to rely on investors’ altruistic sensibilities to make this happen; as swapping old coal for new renewable power has the potential to be profitable.
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The Coal Retirement Mechanism Donald Kanak, Chairman of Eastspring Investments, describes a possible coal retirement mechanism (CRM) by which private and public funds are used to buy up and then retire ageing plants. A multinational development bank (MDB) oversees a sustainable energy transmission mechanism which will assist the previous plant owners with investment into low carbon energy infrastructure, which is contractually obliged as part of the sale. Revenue from the coal plant will be returned to CRM investors before the plant is prematurely retired (Kanak, 2020).
A stylised CRM, adapted from Kanak, 2020 In the US, many similar but far smaller schemes have arisen in the form of ‘solar for coal swaps’. Here, local energy cooperatives, which purchase electricity from utility companies on behalf of residents in an area, have been dissenting from incumbent electricity providers. To take one example, the Kit Carson Electricity Collective (KCEC) from New Mexico, fed up with paying a premium for coal power, swapped coal power for solar with the help of the third-party energy developer Guzman Energy. Guzman helped KCEC finance its $37M exit fee from contracts with its existing electricity provider, in return KCEC used Guzman to develop PV power in the local area (Nussey, 2018). As with many other instances, the cost differential between solar and coal power is large enough to provide consumers with price cuts while providing investors with returns generated through energy sales. Within five years of completion, KCEC expects consumers to be paying 45% less for their electricity (Nussey, 2018).
Kanak’s proposed CRM is on a significantly larger scale than ‘solar for coal’ swaps as it involves the decommissioning of entire coal plants not just exiting contracts. However, the project’s outlook remains just as positive. By Kanak's estimations, revenue from plants purchased by a CRM would provide investors with a 5% return within 15 years (Kanak, 2020).
There's No Time Like The Present Current market activity suggests that future CRMs could attract investors’ attention. Despite a general run on active equity funds towards passive ones in the aftermath of the pandemic related shocks this March, active ESG funds have not suffered the same fate. Even ignoring the benefits borne to them by their insulation from the collapse in oil and gas prices, ESG funds have, in general, outperformed traditional funds (Riding, 2020). This has attracted a lot of investor attention which has helped ESG funds see inflows of USD71.1BN between April and June this year. This exceeds inflows from the past five years combined. Although CRMs would be longer-term investments, their reliability may still be attractive in our increasingly volatile world. References: End Coal (n.a) Health, Available at: https://endcoal.org/health/#:~:text=Coal%20is%20responsible%20for%20o ver,of%20coal%2Drelated%20air%20pollution. IRENA (2020). Renewables Increasingly Beat Even Cheapest Coal Competitors on Cost [Press Release] 02 June, Available at: https://www.irena.org/newsroom/pressreleases/2020/Jun/RenewablesIncreasingly-Beat-Even-Cheapest-Coal-Competitors-on-Cost Kanak, D. (2020), How to replace coal and accelerate the energy transition in developing countries, Available at: https://www.weforum.org/agenda/2020/05/how-to-replace-coal-andaccelerate-the-energy-transition-in-developingcountries/#:~:text=Achieving%20both%20retirement%20of%20existing,of %20the%20currently%20expected%20lifetime Lazard (2018). Lazard’s levelized cost of energy analysis – version 12.0, Available at: https://www.lazard.com/media/451086/lazards-levelizedcost-of-energy-version-130-vf.pdf Lehr, R, O’Boyle, M. (2020) Solar for Coal Swaps. Available at: https://energyinnovation.org/wp-content/uploads/2020/07/Solar-for-CoalSwaps-Brief_July-2020-1.pdf Nussey, B (2018) A battle for clean energy: the Kit Carson coop story, Available at: https://www.freeingenergy.com/a-battle-for-clean-energythe-kit-carson-coop-story/ Riding, S (2020) ‘ESG funds attract record inflows during crisis’, Financial Times, 10 August, Available at: https://www.ft.com/content/27025f35-283f-4956-b6a0-0adbfd4c7a0e
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Equity Research Report September 2020
FEATURED
EQUITY RESEARCH REPORT
Company: Trinar Solar Headquarters: China Founded:1997 Industry: Photovoltaics Ticker: TSL Price: 15.66 CNY Market Cap: 32.39 Billion CNY Target Price: 17.29 CNY Investment Recommendation: BUY Investment Summary Trina Solar Co. Ltd is the worldâ&#x20AC;&#x2122;s leading Photovoltaic (PV) and smart energy solutions provider. With significant capital invested in Research & Development of new PV products, they have secured over 800 patents and sell the worlds most efficient PV panels, EPC and O&M. Established in 1997, Trina Solar quickly rose to be the global leader in PV innovation and module shipments. In the first half of 2020, due to the COVID-19 pandemic, the PV industry's global market demand declined compared to original expectations, however the Chinese PV industry maintained relatively stable growth. According to the 2020 mid-year annual report, after investing $123.92 million in Research & Development, the total revenue reached 1.84 billion (+16.56% year-on-year), while net profits hit $73 million (+245.81%). With regard to solar cells, Trina went through third-party testing by the ISFH CalLab in Germany to confirm conversion efficiency of 23.39% in its PERC cell, which was produced with standardized industrial equipment and was the highestefficiency industrial PERC cell to pass the international ISO/IEC 17025 standard. Combined with the high-efficiency commercial use Vertex Series, TrinaPro utility scale solutions, and a highly popular residential module, Trina Solar captures the entire solar panel market globally, well-diversifying its sectoral operations.
Net Margin is on the rise, but operating margin has been falling steadily (aligned with industry trends), attributed to larger R&D investment and steady fall of prices in the industry. Source: MarketScreener.com
EPS has grown substantially in the past 3 years with a further expected rise in 2020. Source: MarketScreener.com
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EQUITY RESEARCH REPORT Current Solar Market Outlook and COVID-19 disruption The declining costs and rising capacity of renewable energy sources along with the increased competitiveness of battery storage had been the main drivers of rapid growth. But shelter-in-place orders, labor constraints, and supply chain disruptions have slowed this growth trajectory in the near term. The wind and solar industries have seen almost 100,000 job losses since March. As the virus spread in April, the EIA revised its annual wind and solar installation forecasts down to 32 GW, cutting the solar forecast by 10 percent to 12.6 GW. By June, the 2020 combined forecast was back up to 35.8 GW, a rapidly evolving circumstances prompted an upward revision to the wind forecast to 23.2 GW and no change to the solar forecast. These fluctuations underline the current uncertainty about growth, especially in the short term. Despite major short-term downfalls, the long-term outlook for the renewable energy industry remains positive as it builds on the massive economies of scale achieved over the past few years. As shutdowns to control the spread of the virus increased, global demand has been brought down to 129.1 GW as opposed to previous figures of 134.4 GW (Source: PV InfoLink). Coronavirus has led to a decline in electricity consumption (daily electricity demand has fallen in the range of 2% to 17% year over year, with considerable regional variation), with the EIA forecasting a 5.7% decline in electricity consumption this year, renewable energy sources have consistently accounted for a higher share of power generation due to their near-zero marginal costs.
Global demand has been brought down to 129.1 GW as opposed to previous figures of 134.4 GW (Source: PV InfoLink)
Despite the disruption in the supply chains caused by the pandemic, 2020 is expected to be a record year for capacity installations (though the growth is expected to slow down to 13% - less than in 2019), with China leading the industry with the expected 78.4 GW of additional capacity compared to 31.9 GW in Europe and 24.4 GW in the US. (Source: IEA)
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EQUITY RESEARCH REPORT Global investment in clean energy and efficiency has fallen in 2020, while Trina Solar has hit a new record of investment, signalling the strong resilience to the pandemic. However, global investment in energy storage has fallen by 10% in 2020, which may disrupt the demand for solar panels in the future. Recovery The current solar market outlook predicts a rapid expansion at a 25.3% CAGR, with solar energy taking 30% of all energy produced annually. As the pandemic continues to unfold in the second half of 2020 and utilities face revenue challenges, solar and wind plants will likely continue to be operated more than costlier fossil-fuel plants. However, market factors are likely to spur further growth, especially: 1) Focus on grid resilience continues to drive renewables and storage – due to COVID-19 utilities must consider workforce logistics, employee health and safety, operations, and supply chains. As a result, utilities and their customers are expected to continue deploying microgrids, often including solar and storage, to help ensure power continuity. 2) New types of collaborations likely while many stakeholders adopt a wait-and-see approach – corporations committing to transitioning to clean energy has continued in the first half of 2020 (As of April, companies have announced deals of at least 2.7 GW of capacity), and the pool of companies striving to become 100% powered by clean energy is expanding globally. 3) Renewables’ low costs will likely continue to usher in a new era of competition, intensified by COVID-19 impacts
Energy storage was losing momentum going into the Covid-19 crisis. Annual installations of energy storage declined in 2019 for the first time in a decade. The COVID-19 crisis is likely to compound these effects, as batteries have a particularly complex supply chain that includes cells, modules, packs and installers. Recovery plans and associated policies could counteract this recent dip in progress and provide a boost so storage can better serve its critical energy integration role. Moving forward, the recovery phase of the pandemic will be crucial for the short-term solar pipeline, which would depend on the consumer and corporate demand patterns, geographical factors, and the rate of recovery. However, continued corporate commitments to clean energy, renewables’ competitive costs, and significant R&D investment will likely ensure long-term growth.
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EQUITY RESEARCH REPORT The resilience of the solar industry did not prevent the COVID-19 pandemic from causing disruptions in the production and the supply chains, however 2020 is still expected to be the record year for global solar shipments and capacity installations with China leading the industry that Trina Solar is currently positioned in. At the same time, the solar industry itself is not enough to ensure its prosperity; developments of storage, tax benefits and state intervention are one of the few factors that need to be utilized for maximum utilization and expansion of the newly installed capacity, especially since the industry revenues have been falling for the past 2 years (with a recovery in the last 12 months). Trina Solar COVID-19 impact and recovery The era of increased uncertainty around China-based companies due to the heightened tensions between China and the US and the COVID-19 pandemic has severely impacted the companyâ&#x20AC;&#x2122;s share price. While positive announcements of launching most efficient panel series, beating the performance records, and becoming the best-selling company globally, have put an upward pressure on the stock, the annual trend is downward sloping with a recent recovery to the July level. The AECEA has predicted further solar component price falls in the next quarter, on top of an estimated 20% reduction in the cost of making solar wafers and cells during the January-to-May period, and a 10% retreat in module costs during the same window. At the same time, Trina Solar has capitalized on a large Chinese market for solar panels and a very positive Chinese consensus on the company.
China's market for PV modules is the largest in the world; ever more ambitious production capacity plans have been outlined by the worldâ&#x20AC;&#x2122;s biggest solar manufacturers since last year, even as energy consumption has slumped around the world because of Covid-19-related industrial shutdowns, prompting oversupply fears. However, module production capacity in China was 17% higher in the first three months of the year than in the same period of last year, even though export levels fell slightly, down 3%, compared to the 10% globally. Market distribution wise, aggressive scaling up, driving innovation, increasing performance, combined with a continued price reduction pursued by leading companies has the potential to effectively wipe out smaller competitors in the near to mid-term, and thus may trigger an unprecedented industry consolidation, with Trina Solar becoming a domestic bimonopolist (along with Jinko Solar). The benefit of a fully vertically integrated enterprise further implies a robust supply chain system, with less risk of a pandemic affecting business performance.
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EQUITY RESEARCH REPORT Risks Political risk – rising tensions between the US and China produces uncertainty for China-based companies like Trina Solar.· Storage – global investments in energy storage, main complementing industry to solar, have fallen by 10% due to COVID-19. This may impact the demand patterns in the next 5 years subsequently put a downward pressure on the stock. Uncertainty of recent privatization – Trina Solar has been private for 3 years until June 2020 while owned by the CEO Jifan Gao. The resulting uncertainty is caused by the financial information withheld from the public, although 2020 reappearance on the stock market has had a positive impact on the share price, which went up 110% on the first day. COVID-19 – despite the resilience of the solar industry, supply chains of complementing elements such as storage have been severely impacted by the pandemic, and only recently started recovering to last year’s figures. However, companies such as Trina Solar are in a advantageous position of receiving credits from the State, which has ambitious expansion plans for the solar industry in China following the announcement of the 14th 5-year plan.
Competitive Positioning In 2017, After being listed on the New York Stock Exchange for nearly 20 years, Trina Solar has gone private after being effectively purchased by a CEO-owned sole owner company. The reasons given were the increased political risk associated with an ongoing trade war between China and the US. Trina later reappeared on the Shanghai Stock Exchange in 2020 (+110% on the first day), becoming the first solar company to be listed on the STAR market. During the private years, the company has invested over 1bn USD and released a new commercial solar module, which became the most popular solar module globally (based on module shipments). Despite the rapid expansion of its competitors’ and the pandemic, Trina Solar’s market share has outgrown every competitor. Rated Best Financials for several years in a row, Trina Solar has recently released a 600-Watt panel in July, aiming to compete with the best-selling SPLITMAX and TALLMAX product lines. While historically not known for having top industry efficiency or performance, the company’s products, rated on the Efficiency-Performance-Warranties-Price matrix, are considered as good value for money by all top Renewable Energy retailers (before credits), and a 2017-2019 period of substantial R&D investment has led to beating multiple efficiency records and acquiring the largest market share by PV installations, which may change the consumer consensus on the company for the better. Trina Solar has beaten the record for global solar shipments, outperforming its main competitor Jinko Solar. The company has shown robust operational strategy and continued to invest in R&D despite it falling across the industry in 2020. Although historic rankings of Trina’s products have been beaten by other competitors such as Motech Solar and Jinko Solar, recent release of the new modules will boost Trina’s reputation as the seller of the high-efficiency, high-performance, cheap solar modules. Furthermore, revenue expansion strategy of Trina Solar puts it on track to becoming the dominating firm in the Chinese market, which is expected to undergo a consolidation stage in the next 6 years. Finally, the analysis of Trina’s performance has revealed that its successful expansion can be attributed to 4 main factors: resilient globalization strategy, competent risk assessment, meaningful production portfolio, and a full-scale transformation of the business. This approach has ensured growth in 2018 despite the rise of internal trade barriers, propelling Trina Solar to become the world’s leader in production scale and market share.
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EQUITY RESEARCH REPORT Comparable Company Analysis Model
Summary: Average median share price of Trina Solar for 2019, 2020, and 2021 are $2.68, $2.70, and $2.62 respectively â&#x20AC;&#x201C; lower than current share price. Across industry earnings are low relative to the price, with Motech Solar falling below zero. Valuation multiple EV/EBITDA, the most applicable metrics for a rapidly expanding firm, implies undervalued stock of TrinaSolar.
Remarks: Analysis incorporated 1 earnings-based metric and 2 revenue-based metric of P/E ratio, EV/EBITDA, and EV/Revenue, across 7 global solar leaders, and positioned Trina Solar. A distribution of multiples across all 7 leaders was created and projected onto the Revenue-based on Earnings-based figures of Trina Solar to determine the implied fair price range of its stock. Discounted Cash Flow Valuation technique, although being the go-to in determining the intrinsic value of the company, was not used here to value Trina Solar due to high volatility of cashflows. With the COVID-19 pandemic and the post-COVID-19 recovery the volatility is likely to increase, especially in industries with historically volatile cashflows. Comparable Company analysis aims to compare the company to its main competitors, and value it based on its position on the industry value distribution. We believe this method is a more reliable valuation technique in the context of a highly volatile solar industry in the current economic climate. The analyst believes the stock is fairly priced with price incorporating geopolitical risk and the COVID- 19 pandemic but has a potential to rapidly increase in value. This is supported by a 16% rise in revenue year-on-year and a 236% increase in net income year-on-year, launching new series of the most efficient panels globally, and coming first in the global module shipments in the first half of 2020.
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EQUITY RESEARCH REPORT
Analysis • Earnings across all solar module leaders historically have been relatively low, with LONGi Solar having the highest P/E ratio of 32.0 in 2020. This is indicative of the general pattern of falling revenues due to the interconnectedness of solar energy and storage. Trina Solar falls on the higher tail of the earnings distribution with a current P/E ratio of 27.89, but the net income is relatively low, though aligned with industry to calculate a fair share price. • On the revenue side, Trina Solar positions itself on the top end of the EV/EBITDA and EV/Revenue distributions due to undergoing substantial market expansion and capturing the biggest market share globally. Relative competitive advantage of having close access to the Chinese market (biggest solar market with an upcoming 14th state 5-year plan for reaching 390GW of capacity by 2024) implies rapid expansion in the race for market power during the consolidation phase of the industry (Source: weforum.org). • Prudential median estimates across all 3 metrics predict an implies share price of $2.85, suggesting an undervalued stock of Trina Solar, with a forecast of reaching $2.67 due to predicted falling margins of its competitors in 2021.
Analysis of the Cashflow Statement
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EQUITY RESEARCH REPORT • Revenue growth rate is larger than that of its domestic competitors (whose revenues has been falling on average by 5% in the past 4 years) but average compared to global solar leaders of around 16%. A fall in revenue in 2019 by 9.4% in 2018 and 8.4% in 2019 can be attributed to macroeconomic factors and a US-China trade war based on similar fall in revenue of major competitors. The current forecast of 14.46% growth until 2025 is aligned with industry growth and indicative of a successful market expansion. • Free Cash Flow has been growing in general with positive correlation with revenue and a stable net income margin, indicative of a stable business model and market expansion. FCF is volatile with values falling below zero in 2017 and 2014, which is attributed to substantial investment in capital. • Free Cashflows are positive and rising with a dip in 2017 due to the start of a period of substantial investment. • Capital Expenditure is average compared to industry trends. Within the firm it is relatively large as a % of Cash Flow from Operating Activities, but very stable and falling as a % of Revenue (currently stands at 16% with previous values ranging from 20% to 12%). This aligns with the rapid industry expansion and a revenue-based expansion strategy of most competitors, although Trina has a competitive advantage residing in the largest domestic solar market. Trina Solar has had a decade of a significant investment that transmitted into large revenue growth allowing it to become the biggest solar company in the world. Cashflows in general have been volatile, but the financials remained strong due to the stable net income margin, although operating margin has been falling recently, but remained above industry average, signalling strong presence in the market and the ability to generate profit from sales. Financial Health To accurately evaluate the financial health and long-term sustainability of Trina Solar, a number of financial metrics can be considered. Four main areas of financial health that should be examined are liquidity, solvency, profitability and operating efficiency. The analysis of these areas is then applied to context, specifically to the COVID-19pandemic and the industryspecific patterns, to determine the positioning of Trina Solar and its financial stability. Liquidity Solar industry, especially in the past 5 years of rapid global expansion, has exhibited highly leveraged, capital-intensive capital structure; historically, current ratios have never exceeded 1.30 mark on average with a more prudent Acid Test ratio never exceeding 1.00. Solar firms generally have 50-70% of liabilities tied in long-term borrowing, with the remaining 30-50% in short-term (typically less than 1 year) debt. High leverage is justified with substantial perceived goodwill from investors, and a rapid increase in demand for solar energy over the next 20 years, causing firms to adapt a revenue-expanding strategy in the battle for ever-increasing market share. Trina Solar has had a decade of debt-fuelled operations and R&D expansion and continued investing heavily during the peak of the COVID-19 pandemic. While historically being an above-average leveraged company, Trina Solar has been engaging in reducing its long-term debt substantially over the last 3 years. At the same time, the market expansion strategy has been incredibly beneficial in terms of the ability to borrow significant amount while increasing the cash reserves from growing sales, in addition to benefiting from vertical integration and engaging in M&A activity for efficiency purposes. The historically high leverage ratios of the solar industry have resulted in fast industry expansion. The seemingly high leveraged Trina Solar has risk metrics placing it in the top quartile of the industry, with gradual reduction in the Debt-to-Equity Ratio. 2019 marked the stage of market consolidation in the Chinese market Trina has been heavily engaged in, and, being the biggest and fastest growing market, it has been the target of many Chinese-based companies, including Trina Solar.
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EQUITY RESEARCH REPORT As a result, the industry saw a spike in R&D investment, with D/E ratio reaching the 1.99 mark for Trina with 2.14 as an average. However, Trina Solar continues to be an asset-rich company despite having the biggest investments in Research & Development, benefitting from a healthy balance of borrowing and debt-fuelled profit growth. Across the industry, the leverage varies substantially, with many companies suffering interest rate spikes and drop in equity due to the COVID-19 pandemic. This, however, does not seem to impact Trina Solar as its revenue growth strategy ,a decade-long process of ploughing back profits, have helped it resurface as the biggest solar company in the world. Operating Efficiency and Profitability Operating margins were used to assess Trinaâ&#x20AC;&#x2122;s ability to make profit through sales, and on the whole, Trina Solar has always been the high-end profit generator among its main competitors. The increasingly volatile metric has surprisingly been very stable for Trina, with values ranging 6-7% with average operating margin ranging 1-5%. The established reputation of a good-for-money PV manufacturer and solid supply chains Trina has managed to maintain its ability to generate profit without engaging in excessive price slashing like its top competitors. Although operating margins have fallen by 1% in the last 5 years (while still sitting at the above average industry level), Trina Solarâ&#x20AC;&#x2122;s announcement of a 236.5% increase in profits has crushed any doubts of unstable profitability of the company, and the future outlook is looking bright with the release of the most efficient commercial solar panel series in the coming years. From the point of shareholders, Trina Solar continues to be an attractive investment. Net margins, while not as high as some of its top competitors like LONGi Solar, have also been astonishingly stable and well above average (although high volatility of net margins in the industry biases judgement). Further, the profitability of the company has grown during the time it was private and is projected to grow further as it announced the highest profits in the last decade combined with an incoming improvement in political and economic conditions in both the domestic and overseas markets. Overall, Trina Solar continues to be an example of the financial stability for many other solar companies, with a well-established reputation of an enterprise that is more than capable of becoming the global monopoly in the coming years.
This investment report is prepared by, is the property of Gekko Investments and is circulated for informational and educational purposes only. The contents should not be viewed as investment advice, and readers should seek their own professional advisors before making investment decisions. The information and material presented in the report should not be used or considered as an offer or a solicitation to sell, or an offer or solicitation to buy or subscribe for any securities or other financial instruments mentioned.
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Sustainable Business Review Green Economy Society Nottingham nottinghamgesoc@gmail.com
Sustainable Business Review, 2020. Published September 2020.