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March/April 2023

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Sustainability

March 08, 2023
By Dan Zeiger

At Davos, Climate Words Are Usually Followed by Waiting 

From a sustainability perspective, the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland has a reputation of being more about words than action. And the most recent convening in January appeared to fit that mold, with soundbites from former Vice President Al Gore and climate activist Greta Thunberg generating as much attention as any commitments made by business leaders. 

“Companies come together to make large, voluntary commitments,” says Tim Mohin, partner and director at Boston Consulting Group, the global management consulting firm. “Often, unfortunately, these commitments are not fulfilled, and no one is held to account. So, it is sort of an accountability crisis, as I’ve called it, where people are going to start getting fed up with so many unfulfilled promises.”

With that critical context, among the climate commitments at Davos: 

  • Nine industrial clusters in the U.S., Europe and Asia have joined a WEF initiative that aims to secure net-zero commitments from 100 clusters by 2050. Industrial clusters account for nearly 20 percent of global carbon dioxide (CO2) emissions; the current 17 signatories pump out a combined 451 metric tons of CO2 annually.
  • The Global Battery Alliance launched a proof of concept designed to add transparency to electric vehicle battery supply chains. A “passport,” or digital twin, would track information on a battery’s mineral sources and manufacturing process. 
  • A philanthropic initiative was announced: Called the Giving to Amplify Earth Action, it aims to raise the financing necessary to achieve net-zero emissions and other climate objectives. It will demand serious generosity, as US$3 trillion in public and private funds are needed each year to meet such goals by 2050.

While many companies are leaders in environmental, social and governance (ESG) standards, others will have to be prompted by regulations (page 38). “There’s a lot of blah blah blah, a lot of words (on sustainability progress),” Gore said during a session at the WEF. “And there are some meaningful commitments.  But we are still failing badly.”

ESG Insight

Little Slowing of Asia-Pacific  Funding, but Investors Beware

While environmental, social and governance (ESG) investing has taken darts in the U.S., thanks mostly to hostility regarding pension funds and public investing in red states, sustainable funding has kept up the pace in the Asia-Pacific region.

According to research by Revinitiv, a financial market data provider headquartered in New York and London, ESG-themed bonds grossed US$142 billion in Asia-Pacific last year, not far off the record of $144 billion set in 2021. Issuance of such bonds fell 30 percent in the U.S. and Europe. Chinese entities issued more than half of the region’s  ESG bonds last year, valued at $84 billion, followed by South Korea ($20 billion) and the Philippines ($8 billion).

Beijing has made ambitious climate pledges, including to nearly double wind and solar power capacity by the end of the decade — goals that demand big investments. However, investors should be cautious about Chinese companies that rank lower on ESG scores than those in even emerging-market nations. And given the country’s murky transparency, the realities on the ground are likely even worse.

Liqian Ren, who manages China investments for a U.S.-based fund, told the Financial Times that a recent dropping of three technology companies meant turning over more than a quarter of the fund’s main China index. “It’s a big part of the portfolio,” Ren said. “But on the other hand, this is indeed an area that people do care about … and the whole point of ESG is (to take) a stance on some issues.”

Spotlight

Electric Vehicle Sales Boost Puts Focus on Supply Chains

Global sales of electric vehicles (EV) hit a double-digit milestone — 10 percent of market share — last year, and while the pace will likely continue to be deliberate, the upward trajectory is here to stay. Raising the efficiency and transparency of EV vehicle and battery supply chains becomes more critical.

A report by Wood Mackenzie, a United Kingdom-based global research and consultancy group for such industries as energy, chemicals, metals and mining, examines the state of EV vehicle and battery supply chains.

“While 2021 was a breakout year in the EV market, it grew … in 2022 despite considerable supply chain challenges,” the report states. “The war in Ukraine and disruptions in China restricted EV production for several months in the first half of the year, (and) 2022 saw the  peak of soaring battery metal prices that began in the middle of 2021.”

Among the trends identified by Wood Mackenzie researchers:

  • The global EV market will reach new levels of maturity  as demand increases in the U.S. and Europe.
  • Battery manufacturers will get some relief from raw materials prices while raising supply chain resiliency.
  • Supply chain sustainability will become a higher priority, particularly amid the rollout of such regulations as the European Union’s Carbon Border Adjustment Mechanism, which will include nickel and other battery precursor metals.

Sustainability Stat

30%

Reduction target for methane emissions  in the milk supply chain before the end of  the decade by Danone, the Paris-based international food products company. Agriculture and livestock activities account for nearly 40 percent of global emissions of methane, a greenhouse gas 80 times more potent than carbon dioxide (CO2).

Danone, which works with 58,000 farmers in 20 countries, said in a press release that it has reduced its methane emissions  by about 14 percent since 2008.

“As one of the largest dairy companies, we take the challenge of both producing more to feed a growing population and greatly reducing emissions and impact on climate,” Danone CEO Antoine de Saint- Affrique said in a press release. “This step change requires a collective effort. Working with farmers, partners and governments, we have the power and duty to build farming models that benefit the climate and society.”

“Eliminating supply chain waste is key to addressing both the needs of businesses and consumers,” the report states. “Effectively navigating volatile demand increases margins, reduces environmental damage and even gives businesses an opportunity to divert the recouped losses back into better materials, increased worker wages and investment into corporate social responsibility.”

About the Author

Dan Zeiger

About the Author

Dan Zeiger is Senior Copy Editor/Writer for Inside Supply Management® magazine, covering topics, trends and issues relating to supply chain management.