Just Released: Sustainable Debt Primer: Four Steps to Follow Before Entering the Market.

The Climate Board is proud to announce the release of its latest report, Sustainable Debt Primer: Four Steps to Follow Before Entering the Market. Addressed to those who are new to the sustainable debt space, this primer provides a framework to help business leaders maximize their sustainable debt opportunity. Corporate sustainability leaders who are seeking additional financing and working to integrate ESG goals within company strategy will find the outlined steps helpful.

The report following this primer (to be released in Fall 2022) will take a deeper dive into what a borrowing company can do to maximize advantages, with insights and recommendations from issuers, institutional investors, and more.

Four steps from the primer:

  1. Understand the market, including overall growth trends, popularity of each green debt tool, supply and demand characteristics, and the potential impact of inflation.
  2. Decide which sustainable debt tool is right for you, based on each instrument’s type, use of proceeds, and purpose.
  3. Know the circumstances that could advance your company’s financial standing, reputation, project alignment, and insulation from financial volatility.
  4. Assess upfront monetary and non-monetary costs to determine the appropriate budgeting and resource allocation decisions.

Content includes: Snapshots and case examples that highlight practices and conditions associated with successful green debt offerings.

Intended audience: Finance and sustainability leaders of companies interested in entering the sustainable debt market to support their companies’ sustainability strategies and green projects.

Download the Executive Summary

For information on joining The Climate Board and gaining access to the full report and our complete library, contact us at www.theclimateboard.com/contact

$369 billion in Inflation Reduction Act climate investments: How does this compare to Build Back Better?

Build Back Better returns as the rebranded Inflation Reduction Act…but how does it compare on climate investment and impact?

The Inflation Reduction Act, which Senate Democrats hope to bring to a vote as soon as this week, budgets $369 billion for energy security and climate change investments. Understandably, most coverage of the bill has focused on what is in it, including fossil-fuel-friendly provisions that helped secure support from Senator Joe Manchin (D-WV) and changes to the tax treatment of carried interest that may yet cost the support of Senator Kyrsten Sinema (D-AZ). By any measure, it’s a massive investment likely to incentivize a whole range of climate action from private companies, public agencies, and individuals across the country. (Check out our summary and analysis of the bill here). It’s also significantly smaller in scale and scope than the expansive proposal President Biden and Congressional Democrats dubbed “Build Back Better.” The climate-related spending in the Inflation Reduction Act totals $186 billion less than the $555 billion called for in Build Back Better. Fiscal concerns and worries about inflation (the new title is no coincidence) compelled the new bill’s drafters to scale back the package. Understanding what programs and policies survived unscathed, which were slimmed down, and which were dropped entirely can paint a clearer picture of the political realities that shape the likely future of climate policy. Major thematic changes include:

Funding for climate resilience and mitigation is far less prominent in the new bill. For example, $20 billion in new funding for AmeriCorps programs (The Corporation for National and Community Service and the National Service Trust) and for climate resilience and mitigation-related workforce development are absent from the IRA proposal.

Agriculture and conservation would receive less additional funding under the IRA than under BBB (but still more than current levels). The IRA’s funding proposals in these areas total at least $35 billion less than BBB’s, with some programs now slated to receive only modest increases (e.g., just over $2 billion for restoration of the National Forest System instead of over $17 billion) and others missing from IRA entirely.

Unlike BBB, IRA does not propose to increase the individual tax credit for the purchase of new electric vehicles. IRA would make a number of changes to eligibility for these credits and would create a new credit for the purchase of used electric vehicles, but it does not increase the new vehicle credit amount from $7,500 to $12,500 as was proposed in BBB. (As a tax credit, this is not a provision that requires a new appropriation. The aggregate budgetary impact is not clear at press time.)

Funding for projects and programs that advance environmental justice is lower but still significant. Exactly which programs are plausibly linked to environmental justice goals is a matter of debate, but some estimates claimed that Build Back Better would entail over $160 billion to advance environmental justice priorities. Senate Democrats claim that the new bill would allocate $60 billion to such goals.

The table below outlines many of the major differences in climate-related spending and tax policy between IRA and BBB. While not comprehensive, it gives an indication of the types of changes made.

 

Climate Investment Comparison: Build Back Better vs. Inflation Reduction Act


Build Back Better

Inflation Reduction Act


% change

Total climate investment

$555 billion*

$369 billion*

33% ↓

Energy and natural resources

Extension of the Advanced Energy Project Credit

$5 billion*

$10 billion

100% ↑

Grants to Facilitate the Siting of Inter-state Electricity Transmission Lines

$800 million

$760 million

5% ↓

Interregional and Offshore Wind Electricity Transmission Planning, Modeling, & Analysis

$100 million

$100 million

0% =

Climate Pollution Reduction Grants

$5 billion*

$5 billion*

0% =

Lead Remediation Projects

$9 billion*

N/A

X

Funding for Water Assistance Program

$225 million

N/A

X

Electric vehicles, transportation, and infrastructure

Credit for the purchase of new EVs

$12,500

$7,500

40% ↓

Consumer rebates for electric home appliances and energy-efficient retrofits

$9 billion*

$9 billion*

0% =

Domestic manufacturing conversion grants

$3.5 billion

$2 billion

43% ↓

Community Climate Incentive Grant Program

$4 billion

N/A

X

Passenger Rail Improvement, Modernization, and Emissions Reduction Grants

$10 billion*

N/A

X

Climate Resilient Coast Guard Infrastructure

$650 million

N/A

X

Agriculture and conservation

National Forest System Restoration

$17.1 billion*

$2.15 billion

87% ↓

Investing in Coastal Communities and Climate Resilience

$6 billion*

$2.6 billion

57% ↓

Non-Federal Land Forest Restoration and Fuels Reduction Projects & Research

$6 billion*

N/A

X

Rural Water Grants for Lead Remediation

$970 million

N/A

X

Rural Energy Savings Program

$200 million

N/A

X

Assistance for Certain Farm Loan Borrowers

$1 billion

N/A

X

USDA Assistance and Support for Underserved Farmer, Ranchers, & Foresters

$1.4 billion

N/A

X

Department of Agriculture Research Funding

$2 billion

N/A

X

Soil Conservation Assistance

$5 billion*

N/A

X

Pacific Salmon Restoration and Conservation

$1 billion

N/A

X

Environmental justice

Neighborhood Access and Equity Grant Program

$4 billion

$3 billion

25% ↓

Grants to reduce air pollution at ports

$3.5 billion

$3 billion

14% ↓

Improving Energy or Water Efficiency or Climate Resilience of Affordable Housing

$2 billion

N/A

X

Strengthening Resilience Under National Flood Insurance Program

$20.5 billion*

N/A

X

Qualified Environmental Justice Program Credit

$1 billion

N/A

X

GHG reduction

Greenhouse Gas Reduction Fund (Green Bank)

$29 billion*

$27 billion*

7% ↓

Methane emissions reduction program

$775 million

$850 million

10% ↑

Other

Corporation for National and Community Service and the National Service Trust

$15.2 billion*

N/A

X

Workforce Development in Support of Climate Resilience and Mitigation

$4.3 billion

N/A

X

Climate Education

$20 million

N/A

X

*indicates investments valued at or over $5 billion

 

It’s also worth noting that the Infrastructure Investment and Jobs Act (IIJA) includes funding for at least some programs envisioned in BBB but left out of IRA. For example, BBB designated $2 billion of the newly-proposed Greenhouse Gas Reduction Fund to fund infrastructure and charging equipment for zero-emission vehicles. The Greenhouse Gas Reduction Fund features in IRA, but the provision for charging infrastructure does not. However, the IIJA does include $7.5 billion in related funding. Similarly, while BBB proposed $10 billion in grants for passenger rail improvements that are not included in IRA, IIJA directs $66 billion for similar purposes.

Perhaps the most important comparison between BBB and IRA regards the expected impact each would have on emissions. With all due caveats about the myriad assumptions and uncertainties inherent in long-term projections of policy impact, early analysis suggests that IRA could lead to a 40% reduction in U.S. greenhouse gas emissions by 2030 (relative to a 2005 baseline). That’s less than the 50-52% BBB was projected to achieve, but the reduction in proposed new climate spending (33% less in IRA) is greater than the proportional decrease in emissions impact.

 

Inflation Reduction Act Relative Efficiency

Build Back Better

Inflation Reduction Act

% change

GHG emissions reduction goal for 2030, from 2005 levels

50-52%

40%

~20%

Climate investment value

$555 billion

$369 billion

~33%

 

It seems that IRA may be a more efficient allocation of resources, at least if emissions reduction per dollar of federal government spending is a relevant measure. However, a few questions loom:

  1. Are federal incentives even the right tools? IRA is heavy on carrots and light on sticks. This is not a bill that mandates emissions reduction or penalizes climate-unfriendly behaviors. Instead, it aims to change the investment calculus for companies and individuals throughout the economy. Debates about the relative merits of such market interventions are beyond our scope here, but still relevant. What is clear is that incentives will change if IRA is passed, and business leaders would do well to think through those changes well in advance.
  2. What do the diminished ambitions to address adaptation and mitigation concerns signal about the government’s priorities? Economic competitiveness and geopolitical considerations weigh in favor of the clean-energy focus of IRA, but the negative physical impacts of already-locked-in levels of climate change on businesses and individuals will require attention at some point—if nothing else, through emergency response funding.
  3. Is a 40% reduction in emissions by 2030 enough (probably not), a good start (most definitely), or the limit of our collective political willpower (not necessarily, but uncertain)? IRA, if passed, is surely not the final legislative word on climate. But whether it represents true momentum or a temptation to rest on laurels is unclear.

Here at The Climate Board, we’re watching the legislative give-and-take as policymakers push toward a vote on IRA. If—when—things change, we’ll be here to help you and your teams understand what’s happening, what it means, and what you should be doing in response. Be sure to sign up for updates and let us know what kinds of policy research and analysis would help you most.  Reach out at www.theclimateboard.com/contact

Just Released: Accelerating Decarbonization of Construction and Infrastructure.

The Climate Board is proud to announce the release of its latest research report, Accelerating Decarbonization in Construction and Infrastructure: Five Recommendations for Industry Leaders. Focused on the most common barriers to widespread adoption of low carbon materials, methods, and technologies, this report offers a proactive and practical vision for migrating the construction and infrastructure industries toward a decarbonized future. Leaders throughout project value chains will benefit from clearly stated strategic recommendations illustrated by real-world case examples.

With this report, The Climate Board continues its service to the construction and infrastructure industries. The insights in the study are the fruit of ongoing research efforts involving dozens of research calls with industry experts, extensive tracking of market and technological developments, and network-building activity including a multi-stakeholder roundtable held in March 2022 in partnership with Transurban, a founding member of The Climate Board.

Insights from the report:

  1. Scalable progress depends on incumbent leaders, not on external disruptors. Companies expecting the overall pace of decarbonization to be set mainly by technological breakthroughs or by regulatory imperatives are consigning themselves to passive positions. Active evolution driven by today’s leaders is critical if decarbonization is to benefit the business in the long run.
  2. Most companies have practical opportunities to build momentum toward decarbonization without undermining core business objectives. A bit of savvy in project selection and forethought in initiative planning helps companies build the skills and experience necessary for eventual large-scale decarbonization.
  3. Carbon-conscious conversations need to happen earlier and more often. In too many cases, emissions targets or other environmental concerns are sideline concerns held only by a few stakeholders. Certain reasonable and feasible modifications to project planning (described in the report) bring the right voices and perspectives into the light and enable efficient, consensus-driven carbon reduction.

Intended audience: Business leaders throughout project value chains, including project owners, developers, engineers, designers, materials manufacturers, financial partners, public sector partners, and others.

Content highlights:

  • Conceptual overview of opportunities and obstacles
  • 5 strategic recommendations for building momentum toward decarbonization at scale
  • Case profiles of organizations and technologies that exemplify the recommendations
  • Field guide to emerging technologies

Download the Executive Summary 

For information on joining The Climate Board and gaining access to the full report and our complete library, contact us at www.theclimateboard.com/contact

SBTi-committed companies make up 35% of global market cap

On Monday the Science Based Target Initiative (SBTi) released its 2021 Progress Report, which contains a number of encouraging findings about the global economy’s progress on emissions reduction.

Here’s what we at The Climate Board took away from the report.

It won’t be long before participating in SBTi is simply an expectation for large companies. Overall participation in SBTi doubled in 2021, with 2,253 companies now either setting approved targets or formally committing to do so, up from 1,039 in 2020. Commitments aren’t languishing unfulfilled, either; the cumulative number of approved targets in 2021 also nearly doubled. The magnitude of SBTi’s growth is even clearer in economic terms: SBTi members now represent 35% of global market capitalization. $38 trillion in market value is now associated with ambitious climate action and emission reductions. This dramatic growth is a great sign for the planet, and for the emissions-conscious business community. As more companies sign on to SBTi, it will become harder for others to remain on the sidelines, and those who do run the risk of falling behind – not just on the declaration of their goals, but on progress towards them.

Companies with approved targets are outperforming important benchmarks. SBTi-approved companies reduced carbon dioxide-equivalent emissions by 29% between 2015 and 2020. They also have reduced their Scope 1 and 2 emissions since setting their targets by an average of 8.8% per year – more than twice the reduction needed to align with a 1.5°C temperature target. These companies are showing that measurable, meaningful, and sustained emissions reduction is possible. It’s also important to note that SBTi companies are outperforming their non-committed peers. Scope 1 and 2 emissions fell globally in 2020 by 5.6%, largely on account of the COVID-19 pandemic, but companies with approved targets pushed further, reducing their own emissions by 12.1%. It’s very encouraging that these companies did not settle for the “natural” emissions reduction associated with economic calamity, but indeed continued to lead and outperform. A powerful example has now been set for the hundreds of new participants in the SBTi.

Supply chain engagement is still an important missing link for driving emissions reduction through the economy. Scope 3 emissions tend to make up a significant share of a company’s emissions profile, with value chain emissions making up between 65 and 90% of a company’s overall carbon footprint. The small and medium sized-enterprises (SMEs) that make up much of larger companies’ value chains are beginning to play a more significant role in SBTi, as 177 SMEs set targets in 2021, up from only 29 in 2020. But many smaller companies will need support from larger partners to tackle decarbonization. It’s concerning that only 16% of companies have set engagement targets for their supply chains.

Complete and consistent emissions reporting is sorely lacking. SBTi found that in 2021, 28% of member companies had no public information regarding the progress made against their targets. That’s actually more than the 13% of companies not providing information in 2020. Perhaps some leeway can be given to the many new SBTi participants who have yet to build up reporting and disclosure capabilities, but the grace period must be short, especially as mandatory reporting looms in the United States and regulations strengthen worldwide. Transparency is essential to demonstrate progress, shine a light on best practices, and justify further investments.

On balance, we believe SBTi’s findings are news to celebrate, amplify, and reflect on. Corporate climate action is making an impact, and there’s plenty of reason to believe that progress will continue. But it’s always worth remembering that trends and statistics are made of real companies, led by real people, doing real things. Nothing is automatic or inevitable, and those hoping to lead the transition must continue to actively break down barriers to further action.

The Climate Board works with businesses to navigate climate issues and drive rapid progress. No matter where your company is in its climate action journey, we can help. Reach out to our team at info@theclimateboard.com for more information.

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