Hello from Impact Delta.
In this issue, we look at how EV adoption is going in the leading country, Norway. We'll also look at how reading/education solutions require more than just curriculum for greatest impact, how the proxy season is going for carbon proposals, and how biodiversity credits are rapidly developing along the lines that carbon credits did 15 years ago.
Norway as the EV canary in the coal mine - The growth of electric vehicles is undeniable, and a trend that is only likely to continue. Skeptics have pointed to challenges with consumer range anxiety, changing driving habits, and stress on the electric grid from a dramatic increase in EV penetration. The clearest answer to concerns comes from Norway, where progressive policies have shifted 80% of new car sales to EV compared to the US target of 50% of new car sales being EV by 2030. The benefits have been substantial, with dramatically lower NOX pollution (a leading cause and aggravator of asthma) among other environmental benefits. Additionally, the power grid has not been negatively affected, and the employment at gas stations has not collapsed, as many now offer EV chargers. The presence of charging infrastructure has been less of a challenge than making sure the chargers are working, as off-line chargers are the largest complaint to date. This may partly explain why Ford has been willing to consider Tesla’s charging standard given the reliability of its charging network against other systems (Electrify America, ChargePoint, etc.).
Mississippi reading – The recent focus on reading proficiency (or lack thereof) in the US highlights interesting systemic solutions. Although much of the progress has been attributed to leveraging scientific evidence that phonic based teaching methods are far superior to the standard that has been widely adopted over the last two decades, the dramatic growth in Mississippi reading performance includes a more holistic approach. Of note, one approach has been holding back students instead of passing them on if they aren’t meeting proficiency. This approach has often been criticized as leading to an increase in absenteeism and increased dropout rates, however, the latest results indicate no such adverse effects if applied the way Mississippi has done. If anything, this model may become more prevalent as research and trends highlight the challenges boys are currently facing, given the comparatively slower cognitive development relative to girls in school.
Climate proxy season, what a difference two years makes – Chevron and Exxon held their annual meetings on Wednesday May 31, and substantively all of the climate related shareholder proposals were defeated. Beyond this, Total has just announced it is selling its venture arm, which was investing in many energy transition opportunities. This is in marked contrast to the momentum over the prior two years. In Exxon’s 2021 meeting, three dissident board members were elected to the board by Engine no 1 and its institutional supporters like CalSTRS among others. With the oil price currently in the mid-$70s, it seems to be harder to push oil companies to focus on climate and emissions than when prices were higher. Additionally, any climate proposal that is not supported by one of the larger institutional investors does not seem to be making traction. We’ll be watching to see how this evolves if profits rebound and the current focus on short term performance returns to focusing on longer term risk.
Carbon market growing pains – With that slowdown in corporate actions at fossil fuel companies addressing climate risk, the carbon markets become more relevant to drive capital to mitigate emissions. However, the application and claims of the carbon markets are under increasing scrutiny as users are increasingly concerned about greenwashing. Delta airlines is currently being sued by customers for its claims of carbon reduction and carbon neutrality. The complaint is that the airline’s claims are not backed up by actual reductions in emissions, but instead reflect credits it purchased. These credits in turn are not proven to have additionality or sufficient quality or duration to be a true reduction in emissions. Companies that anticipate reaching ‘net zero’ by purchasing credits instead of focusing on absolute emissions reductions are likely to remain (rightly so) accused of greenwashing.
Nature is just as important as carbon – Despite the controversy over whether the credits actually deliver climate benefits, this market has been around in some form for nearly two decades. By contrast, the concept of biodiversity credits is even more nascent and unproven. However, a recent study has focused on the gap between current spending of $150 billion for conservation efforts against the best estimate of $1 trillion of annual spending necessary to address biodiversity impacts on ecosystem services humans need for survival. With the development of the Biodiversity Credit Alliance working with the UN, this is a sector that is resembles carbon markets 15 years ago. The complexity of ecosystems makes the data to verify biodiversity benefits more challenging than carbon. However, as more long-term investors are expressing concerns about the impact of biodiversity loss on future portfolio returns, innovation in data and validation would help this market become a useful tool to address what is otherwise a difficult investment factor to incorporate in portfolio construction. The companies that can address this data and verification challenge will be the key to unlocking this potential.