Sunday, November 17, 2024

Wars and Climate Change -- A Juxtapose and a Paradox...

 

As an individual who has spent a few years in reading, researching and writing on climate change, the recent event of COP 29 at Baku has left with me with a sense of defeat and absolute helplessness. Nobody is listening to anybody on these issues concerning human lives or their right to sustenance form of living. Topics on Peace initiatives, mitigation and adaptation initiatives are given least importance while war and war-mongering nations are getting the full attention of the world. 

 Scientific integrity of arguments pertaining to global warming and sea level rise,  glacial climate intervention, overall impacts of climate change on global  food and water security and soil fertility has had no impact on the nations and global leaders who would rather spend more money on its military and defence either to protect their legitimate sovereignty from aggressors who wish to forcefully occupy their lands or to provide basic necessities like food and water to its starving nation like Sudan and Gaza. So, who do we turn to for financing global adaptation systems. If political leaders and climate leaders have lost their faith in the purpose of Climate Change Agreement, then it is time to just promote the global goal on adaptation that probably will help small island nations or least developed nations and developing nations that require large scale financial assistance to survive the adverse impacts of climate change. 

The Stockholm International Peace Research Institute identifies at least 25 companies profiting most from war topping almost $5 billion in arms and military service sales in 2021 with most of the companies headquartered in the United States, which during the earlier regimes promised contribution to  climate finance, and in China that uses the profits to promote its economic aggression in African and Central Asian countries by investing in extractive industries in regions that are conflict ridden and creating a debt-trap for these nations. 

The insecurity of nations over their territorial integrity, influx of migrants from war-torn regions,  increasing number of refugees and internally displaced persons has governing leaders looking for long-term solutions while global warming, floods, forest fires, cyclones and drought have been relegated to oblivion. Ultimately, all problems are anthropogenic and most of them have become endemic that people are learning to live without proper access to food, water and livelihoods. It is not too late for nations like the USA, UK, Germany and China to focus on humanitarian aspects and take up resolution of conflicts and promote peace initiatives in order  to present history  to its future generations in a more humane manner. Media should headline the absence of proactive measures by world's richest nations to mitigate the plight of innocent civilians across the world scrounging for a meal and glass of fresh water and proper medical aid and question the inertia among leaders in taking up humanitarian causes.  Media is powerful but those who can afford should pay for information to gain access to accurate and truthful information in order to take informed decisions. 

The European Union has by far been one of the best in finding solutions  for climate change impacts and should continue to be world leaders in addressing climate change and global warming.  The recent forecast of what might happen after January 2025 should push EU to consolidate its position on the global political map by taking up responsibility for global issues affecting innocent people. EU has always believed in playing a servile role within the international community without really understanding its own strengths and resilience, having survived two world wars. EU is capable of preventing total collapse of systems across the world and take up its role as a global leader in climate change and humanitarian issues.


Tuesday, July 25, 2023

A perspective on Green Investments and the ESG factor


According to recent research, investors should anticipate that green assets will under perform brown assets. Investors tend to invest in green assets and divest their stakes in brown holdings. The demand for green assets increases their market price while diminishing the value of future returns. Green assets are a 'climate hedge' as they will perform better than brown assets in the face of adverse climate change impacts, and investors tend to attribute more value to this hedging ability. When evaluating potential green investments versus brown investments, companies anticipate higher returns from green investments by measuring the greenness of an investment using the Morgan Stanley Capital International indices on environmental ratings. Eventually, when the returns fall below the cost of capital, brown investments tend to outperform green holdings. Further, research findings imply that greener assets have a lower cost of capital with all other parameters remaining equal, and therefore companies should use a lower cost of capital when evaluating potential green investments when comparing them with brown holdings, creating an incentive for investors to hold a portfolio with increased investments in green holdings.

Long-term climate strategies include shifting from fossil fuel consumption to clean electricity, clean fuels and electrification of end-uses is viewed as the most efficient and economical way to reduce emissions in power, transportation and construction sectors. In sectors that are deemed as hard-to-abate sectors such as industries and heavy-duty transportation that include aviation and shipping. It would be pertinent to quote an example of green investments in producing sustainable aviation fuel (SAF).  Technological advancement in production of SAF,  a low-carbon alternative to traditional jet fuel made from crude oil has accelerated investments in the technology aided by incentives from state and federal governments of the US and EU.  A consortium including the United Airlines has started a $100 million venture capital fund on Tuesday to invest in the technology. Aircraft manufacturer, Boeing has announced that it as doubling its use of sustainable fuel this year. Yet, as on date, no flights are powered by sustainable fuel because of the cost factor which makes it three times as expensive as conventional fuel and it seems difficult to overcome the considerable cost differential that exist between conventional fuel and SAF owing to the production pathways for SAF.

Investment levels  in the production of electro-fuels or power-to-liquids have been insufficient due to high production costs thereby creating a negative feedback loop among investors. The demand for SAF needs to be consistent with the certainty for future supply of the product and eliminating the  risk factor surrounding its production pathways.  Presently, the lack of real large-scale demand for SAF has stymied the deployment of the product at a global level.

Policy development by the International Civil Aviation Organization (ICAO) has brought in a three-phase program known as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) that aims to stabilize international aviation emissions at 2020 levels by 2035. It is stated that a mandatory participation by all countries starting 2027 could create new demands for SAF globally. It is estimated that low-cost pathway for production of SAF could reach price parity with conventional jet fuels in 2027. Additional incentives and/or tax credits can render costlier production pathways to become cost-competitive as has been brought in under The Inflation Reduction Act of the USA.  Investments in producing sustainable CO2  via point-source capture or direct air-capture (DAC) and green hydrogen (H2) can help in producing clean fuels. Scientists believe that only SAF technology has the potential for unbounded production.

A European Corporate Governance Institute working paper on finance focused on a "natural experiment in responsible investment" conducted by the world's largest public pension fund, Japan's Government Pension Investment Fund (GPIF). In 2018, the GPIF gave its largest portfolio manager a compensation-based mandate to enhance the ESG performance of portfolio companies. The authors concluded that "engagement by the asset manager has led to improvements in certain ESG scores for mid- and large cap companies." The mandate was distinct from the asset management contract already in place to invest in and manage equity securities. The incentive of remuneration for stewardship services above and beyond a standard asset management fee motivates passive managers of assets to increase the value of active stocks, creating financial incentives to improve a company’s ESG scores and consequently increasing equity investments in such companies.

 To understand if ESG criteria have been met by companies, it is essential to be aware of the calls for stringent norms for scrutiny, regulation, and reform of practices followed by ESG rating agencies that wield a substantial influence over market fluctuations and retail investors. It is recommended that regulatory agencies prohibit rating agencies' direct outreach to businesses in order to reduce their influence and prevent an imbalance in favour of those who pay them for consulting and insurance services. These agencies require universal norms for ESG compliance by companies based on standards such as resource efficiency, waste management, ecological harm, and disclosure of the amount of 'natural capital' inputs to their businesses. Profits from the practise of sustainable business processes should not be the only metric used to declare ESG compliance. For an accurate assessment of ESG compliance, the negative environmental impacts of business processes that tend to affect the environment should be used to offset profits. The objectives of rating agencies should not be based on a company's market capitalization or financial significance. It should aid in enhancing corporate performance, thereby contributing to sustainability and the circular economy. The methodology employed by rating agencies to collect and aggregate relevant data has been criticised by financial analysts as lacking transparency. It is simple to attract investments using ESG ratings on sustainability, but the absence of uniformity and harmonised benchmarks for compliance assessments can divert funds to projects and companies that engage in greenwashing.

In 2021, the International Organisation of Securities Commissions urged global regulators to investigate the veracity of claims made by various ESG data providers regarding environmental and social governance. In response, the Securities and Exchange Board of India (SEBI) mandated that all ESG rating agencies register with the regulator in order to prevent conflicts of interest and increase transparency in rating ESG compliances by corporations. It is important for large-scale investors and institutional investors to compare the outcomes of ESG compliance by companies that impact several industries and sectors to get an overall view to guide their future investments. Several ESG data providers sell volumes of data online, which means that the data available on their website has been verified both quantitatively and qualitatively. One such website, for example, is Statista, which provides information from individual nations pertaining to various sectors for a price.

References:

1.     Pástor, R. F. Stambaugh, and L. A. Taylor (2022). Examining green yields. 146(2) Journal of Financial Economics: 403-424.

2.     Pástor, R. F. Stambaugh, and L. A. Taylor (2021). Balanced investments in sustainability. 142(2) Journal of Financial Economics: 550-571.

3.     Berg, F., Koelbel, J. F., & Rigobon, R. (2022). The divergence of ESG ratings has led to widespread confusion. Finance Review, 26(6), 1315-1344.

4.     Berg, F., Koelbel, J. F., Pavlova, A., & Rigobon, R. (2022). ESG ambiguity and stock returns: Addressing the issue of noise (No. w30562). Bureau of Economic Research, National.

5.     Go to https://www.esgthereport.com

6.     Go to https://www.statista.com

7.     Go to https://www.sasb.com.

8.     Go to https://www.globalreporting.org.

9.     Inputs from Financial Times and The New York Times


Thursday, December 15, 2022

 

Personally, as an attorney I have  been overwhelmed by Law of Injunctions in environmental cases. On preliminary research I was surprised to read the volume of opinions and treatises on how injunctions relating to environment and natural resources management be decided by courts. This paper was published in the Atiner Journal of Law in January 2021.   I am now posting a version of the paper with recent updates on the topic of natural capital accounting which is essential as a concept that can serve jurists as an aid to decide injunction pleas  filed in public interest. 


Hypothesizing A New Standard for Environmental Injunctions.

Monday, December 12, 2022

 

F.Sherwood Rowland  while accepting the Nobel Prize in Chemistry in the year 1995 made a profound statement pointing out our complacency in tackling global warming and climate change impacts. He stated thus “What is the use of having developed a science well enough to make predictions if, in the end, all we’re willing to do is stand around and wait for them to come true? As early as 1979 the then President of United States Jimmy Carter was presented with a report by the National Academy of Sciences that investigated the contention whether human activities  might have an adverse impact on the climate of the world and predicted a doubling of CO2 in the atmosphere that could  rise global temperatures to about 3 degrees Celsius. The report failed to have the necessary impact on international community to act decisively and wisely on the ways of nature reacting to callous human actions in commercial ventures. Business communities were more concerned about the decrease in profits if they were compelled to limit fossil fuel emissions in their business activities and the costs of changing their business-as-usual models to more sustainable ones. The denial by business and finance communities on climate change in the early 80s and 90s was the biggest obstacle to climate action. The communities ensured that their thoughts on climate change  reached  the public by using blatantly false campaigns and bought out expertise,  distracting them from gaining scientific awareness on the consequences of activities fueled by fossil-fuels. The markets that were indicators of the state of economy were not offered  the necessary incentives to absorb the cost of negative externalities  and change their business mechanisms. Instead the business and finance communities chose to look the other way when scientific consensus on climate change impact was gaining traction. This lack of oversight has led to increase in climate related poverty and environmental refugees. I am presenting here a working paper that calls for a paradigm shift in designing the business and human rights treaty, currently under negotiation, that aims to hold global Transnational corporations accountable for current state of our climate and weather patterns.

 

 

 A Climate Treaty under the regime of International Poverty Law.


Wednesday, March 31, 2021

Subsequent to my post on Climate-related Financial Disclosures dated 22nd March, 2019, I am updating the same with more information on recent publications. As mentioned earlier, since most of my writings on the blog and other papers were hacked, I have chosen to edit the same now while providing links to websites that can help readers gain access to updated and valuable information on the topic in discussion. 

Read on... 

Monday, August 17, 2020

The Concepts of Suspended Sovereignty and Responsibility to Protect

 

    The statutory regulation of  storage, handling and disposal of hazardous materials is related to occupational hazards and not really part of  environmental law. Most important statutes deal with handling of hazardous wastes, disposal and remediation.  When some materials turn hazardous due to prevailing  conditions owing to extended time of storage in an unregulated situation and in an  unsafe place and finally reacts with the atmospheric elements to turn into unstable and dangerous compounds can become ticking bombs and result in an environmental crisis causing severe pollution of air, water and soil. 

    The Beirut blast is clearly an environmental and ecological crisis that can affect the air quality, soil and water resources in and around the city. It is not clear if it will cause any disruption of air quality within the region.  The incident has exposed to the world the total ignorance, neglect and criminal negligence of the Lebanese government in handling hazardous materials. Ammonium Nitrate has many uses including the making of explosives. The port authorities have clearly ignored several warnings and neglected the storage of a reactive and flammable compound by leaving it unregulated for several years without putting in place requisite safety standards despite its proximity to general population. It simply  calls for strict liability on the part of the Government without none else to take the blame.  In the case of Lebanon, the storage of such volatile materials and exposing them to atmospheric elements for more than six years and thus endangering the lives of those living within the vicinity places the liability  directly on the port authorities.  Citizens have a right to sue the government and claim compensation for the damage incurred by them as several citizens were left homeless.  But, does the government have the wherewithal to compensate its citizens either monetarily or otherwise? It seems it is helpless as one follows the various news articles published on the internet and watching the recent interview of  Minister of Economy and Trade Mr. Raoul Nehme by  BBC’s Stephen Sackur.  It is more than evident that  only there is no one in the government willing to take responsibility for the act of   criminal negligence committed against its people of with every one of the Ministers passing the buck and claiming international monetary aid without accountability.  Given the state of economy in the country with poverty levels rising, and failure of the government to provide basic amenities including electricity and drinking water to its citizens, Lebanon can very well be declared a fragile and failed state calling for intervention by the international community to save the nation from complete breakdown. A fragile and failed state threatens public health care infrastructure, thus risking global healthcare systems considering the COVID -19 pandemic. It further  destabilizes regional security and requires humanitarian intervention by the UN and international community. 

    In this light, I wish to state here that the  paper in this post was written by me  in the year 2012 and published it while I was spending some time in the US.  I just noticed that  this paper was hacked to pieces and I had to edit the same for the purpose of this post. The print out that I normally store seems to have vanished and therefore, I do not have an earlier copy to compare and edit. In the event of any factual errors in the paper, it may have been due to my oversight in reviewing. I have not really updated the paper with any recent information.  The content of the paper reflects my thinking on the subject that prevailed at that point in time.  I am posting it here with the hope that there may be readers who think on the same lines as I do for the benefit of the helpless citizens of Lebanon and similar nations facing  serious environmental crisis. The international community needs to come together to set an example of how international monetary aid can demand absolute accountability and transparency from governments or nations receiving such aid and assistance.

 Working Paper on 'Making the United Nations work for Global Commons': Amending the UN Charter

Sunday, August 2, 2020

Corrigendum to earlier blogpost titled "When Economic interests override Environmental Concerns"



The title “When economic interests override environmental concerns” in one of my blog posts is an objective claim referring to the exclusive issue of demanding a social impact assessment for the Chennai-Salem Corridor at a stage when the original project had been commissioned and was clearly underway. My title presumably does not endorse the view that environmental norms need to be diluted to attract investments.   In retrospect, I am now convinced that the apt title for the blogpost would have been “When political interests override environmental concerns”. The title and the blog post express the futility in reopening environmental and social assessment of a project, that has changed its targets and direction midway to suit political and vested interests. The phrase. ‘Economic interests” specifically refers to those investors who have been awarded contracts in the Bharatmala project and any reopening of assessments could lead to stoppage of work merely because a major route within the state of Tamil Nadu has been changed to suit political purposes.  Essentially, strategic environmental assessment needs to be completed before commission of the projects and contracts have been awarded. It would be legally incorrect to subject the original project whose EIA is completed, at least on paper, to large scale changes that can affect a different region that has not been assessed for environmental and social impacts in the original EIA report.

 

The blog post merely espouses the case of those investors who may face financial constraints if the contracts have been stalled for reasons that are political. It further believes the best option available to all stakeholders would be to proceed with the implementation of original project where environmental impact assessment and social impact assessment have been completed.  Yet, as on date, from details available on the internet, it appears that contracts have been awarded for only 27% of the project and the rest have been delayed for several reasons including COVID-19.

 

Despite all good intentions, the pandemic has brought to standstill many a project including large scale infrastructure projects. In the interregnum, it may be time to review the project and the EIA reports prepared in relation to the entire Bharatmala project with an inquiry into the shelving of Chennai-Madurai Economic Corridor and if the project is to be recommenced post-pandemic, it must follow the original project plan of creating the Chennai-Madurai Economic Corridor, instead of the Chennai-Salem Highway. In any case, acquisition of land for such large-scale infrastructure projects should follow after an extensive EIA report has been prepared since the report shall list out if any agricultural lands are being acquired for the purpose and if any ecologically sensitive areas are being threatened. Further, the EIA report needs to list out any mitigation and adaptation plans are in place subsequent to such acquisition. Acquisition of any land for such large-scale infrastructure projects should be within norms listed for land-use change and if such changes can be justified with a cost-benefit analysis.