The Sillion Briefing 09.08.2024
Need-to-know corporate sustainability and ESG news, delivered fortnightly
In this edition...
SBTi publications
SAF challenges
China transition dependency
SDR open for use
Record offshore wind allocation
GRI - TNFD mapping
Hotly-anticipated SBTi publications leave door open for offsets
Since a controversy earlier this year around potentially including a greater carbon offset allowance within its flagship target-setting standard, the Science Based Targets initiative (SBTi) has been watched closely for the release of promised technical publications which the organisation said would inform its position on offsets. Last week these publications were released, but in something of an anticlimax, they fail to provide a firm conclusion on carbon credits, with the SBTi stating “mixed” results from the review. Ultimately, no new tangible recommendations on changes to its Corporate Net Zero Standard (CNZS) have emerged, with a review commissioned by SBTi on the latest research around carbon credit use concluding that there was not enough evidence to draw clear conclusions around their effectiveness in corporate target setting. While this isn’t an endorsement, it certainly doesn’t scrap an expansion on offsets either, with eyes now on the organisation’s updated draft standard which is set to be published in late Q4 this year. A new version of the Standard is aimed to be finalised in late 2025.
Currently, the SBTi’s widely-used CNZS requires firms to aim for a minimum of 90% reduction in scope 3 emissions by 2050, with carbon credits only allowed for the remaining 10% of emissions. Those who are critical of the floated expansion to this allowance argue that by increasing it, corporates would turn to low-integrity offsets markets, which are flooded with projects that fail to deliver on their claims. An Edie review found that three quarters of businesses also don’t want greater allowances. Companies which Sillion speaks to and works with echo this as well, with many arguing that an allowance of offsets might render their hard and expensive work on scope 3 emissions redundant, as offsets represent an easier but less impactful option. The SBTi’s own research synthesis, released as part of these recent publications, found that only 12 to 33% of current carbon credits delivered their stated benefits.
Following a tumultuous few months which has seen ex-CEO Luiz Amaral step down citing personal reasons, policy bodies including NewClimate Institute have come out in praise of these publications for ‘sticking to the science’. Carbon Market Watch argue that they represent a “clear rebuttal” of the SBTi’s statement back in April which started the controversy, which is now widely speculated to have been pushed through by the SBTi’s Board in defiance of its technical team.
Barrels of oil to be consumed per day in 2029, according to the International Energy Agency (IEA). This is forecast to represent ‘peak oil’, after which use of the resource will decline. A worthwhile long read from the FT speculates on the politics between big oil and the IEA’s influential reports.
One number:
105.6mn
Corporate
SAF challenges continue across aviation industry
Back in November, Virgin Atlantic made history with the first transatlantic flight powered entirely by sustainable aviation fuels (SAF). However, this milestone has been quickly challenged by the UK’s Advertising Standards Authority (ASA), who have banned a Virgin Atlantic promotional for being ‘misleading’. The ASA argued that the phrase ‘100 per cent sustainable aviation fuel’ falsely implied zero carbon emissions, while SAFs in fact reduce emissions by around 20%. This marks the ASA’s first banning of an advert for claims related to SAFs – although not the first time aviation adverts have been in the crosshairs.
SAFs remain a promising, but very difficult to scale carbon reduction solution. Recently, Air New Zealand withdrew its 2030 SBTi target, citing the unaffordability of SAF and a global lack of progress towards more fuel-efficient aircraft as primary reasons. With Air New Zealand being well-reputed for its sustainability stance, the action is a warning sign of the challenges the industry will continue to face in meeting targets.
Trade
Europe’s green transition too reliant on China
New research from credit ratings agency Moody’s has found Europe is overly dependenton China for critical raw materials and transition technologies, opening the bloc up to supply chain risks and price volatility. Use of raw strategic materials like lithium, nickel, copper, cobalt and rare earths is expected to quadruple between now and 2040, with the vast majority currently imported to Europe from other jurisdictions. The EU’s Critical Raw Materials Act came into force in May as a solution to this, with three goals for the EU’s annual consumption of raw materials – 10% are to originate from local extraction, 40% to be processed in the bloc and 25% to come from recycled materials. The speed with which this Act was adopted – a record eight months from its original publication – indicates the urgency felt across the bloc to mitigate these supply chain vulnerabilities.
Finance
Labour moves to regulate ESG ratings agencies
Chancellor of the Exchequer Rachel Reeves has moved to introduce legislation aimed at regulating ESG ratings providers, with the aim of bringing forward a bill next year. Often criticised for lacking transparency and being difficult to compare to one another, the pressure to regulate has grown over the past few years as investors of different stripes have increasingly sought to integrate sustainability considerations into their investment processes. Reeves has decided that it will be the Financial Conduct Authority (FCA), rather than a new body, which will eventually set the rules of the new regime. Following the introduction of SDR last month – see the story just below – asset managers will be keen to see the nature of the new law, and to see greater supervision over the ratings industry.
SDR sustainable fund labels now open for use
As of the 31st July, the UK Financial Conduct Authority (FCA) is allowing asset managers to display its new sustainable fund labels – known as the Sustainability Disclosure Requirements, or SDR. With fund names having previously come under fire for a lack of verifiability, the new SDR regime asks asset managers to provide clear information on fund contents and select one of four specified labels:
Sustainability Focus, for sustainable assets
Sustainability Improvers, for transition finance
Sustainability Impact, for investments targeting a particular ESG impact
Sustainability Mixed Goals, for products that blend the other labels
Those in the world of sustainable finance will likely be encouraged by the greater clarity and verifiability that SDR aims to bring. Firms have until the 2nd of December this year to ensure that sustainable funds are marketed in line with the FCA’s new rules.
Energy
Record 1.5bn for next UK renewables auction
Newly appointed Energy Security and Net Zero Secretary Ed Miliband has announced a 50% increase in the budget allocation for the upcoming Contracts for Difference (CfD) auction round, raising it to a record £1.5 billion. Scheduled for this month, Allocation Round 6 (AR6) will dedicate £1.1 billion exclusively to offshore wind, reflecting Labour's ambition to quadruple offshore wind capacity by 2030 and accelerate grid decarbonisation. In a statement, the UK Government emphasised that this move sends "a strong signal to industry to invest in UK waters," particularly in light of last year’s CfD challenges. Despite an increase in the number of projects, the previous round secured only a third of the capacity and a fifth of the output compared to the previous year, with no accepted offshore windfarm bids. The Government attributed these setbacks to global inflation and its impact on the supply chain for wind development.
Disclosures
GRI and TNFD launch biodiversity mapping tool
The Global Reporting Initiative (GRI) and the Taskforce on Nature-related Financial Disclosures (TNFD) have published a document mapping overlaps between the TNFD framework and GRI standards. While relatively simple, the guidance document and correspondence table will be helpful for GRI-aligned companies looking to start on TNFD.
If you fall within this bracket, or would like to talk to us about TNFD (or GRI!) then you can be in touch with Sillion for a conversation on these frameworks and how you might meet them.
Calendar
Q4 2024 | SBTi: Draft Corporate Net-Zero Standard V2 Public Consultation
December 2024 | EU Deforestation Law due diligence obligations imposed
Q1 2025 | UK Sustainability Reporting Standards (SRS) published
FY24 reporting | CSRD: EU firms already subject to NFRD (and large non-EU subsidiaries) to report ESRS
FY25 reporting | CSRD: Large private companies to report ESRS
FY25 reporting | CSRD: Non-EU companies (incl. UK) to report ESRS for large subsidiaries
FY26 reporting | ISSB S1 and S2 standards become effective in the UK
FY26 reporting | Transition planning, likely through TPT framework, to potentially become mandatory through UK SRS
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