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The Other Challenge for Climate-Change Modeling
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Welcome back. Questions relating to the human dimensions of climate change, and how they could affect business, fall under the heading of transition risk in corporate climate disclosures. Will consumers switch to eco-friendly products? Will courts increasingly determine that polluting companies are responsible for the impacts of climate change and should bear the cost? Will governments raise carbon taxes? And how quickly could such changes occur?
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Such questions are influencing scientific discussion of climate change. The United Nations’ latest climate-change mitigation report introduced a section on the interaction of social change and climate. A recent paper in the journal Nature modeled how the complex interaction of factors such as changing social norms and public policy could influence global temperatures.
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Abundant data and computing power are making it easier to model the behavior of social systems, and some companies are using them to gauge business risks. Still, scenario planning based on current trends only goes so far. Sebastian Gatzer, a partner at McKinsey who advises consumer-goods companies, said taking the lead on climate means starting with the destination in mind. "You have to get a clearer picture of how the future looks, what the net-zero economy looks like," he said. "What will we need? What are the new revenue pools? What are the new business models?"
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Also this week: Caterpillar's refurbished engines; severing palm oil's deforestation link; investing in gold without mining it.
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Content from our Sponsor: DELOITTE
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New Sustainability Focus is Shaping Infrastructure Plans
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Federal and state officials implementing historic U.S. infrastructure spending have different expectations for the influence of ESG goals in project funding and design decisions. Read More ›
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How sustainability concerns will influence spending habits is a source of uncertainty for companies. Shoppers at a mall in Singapore. PHOTO: THOMAS WHITE/REUTERS
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Grappling with transition risk. How companies could be hit by heat waves, floods and other physical hazards are only half of the picture for companies facing pressure to assess their exposure to climate risks. The other half concerns questions about people.
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Risilience, a U.K. risk-analysis company that spun out of Cambridge University last year, builds "digital twin" replicas of businesses to model how they could be affected by a range of risks, ranging from extreme weather to cyberattacks. The company, which has signed up clients including Maersk and Burberry, uses a range of techniques from social science to build a picture of how transition risks could play out, drawing from survey data, economic models and game theory.
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An engine block is disassembled at a Caterpillar plant. Remanufactured engines are sent to dealers for complete equipment rebuilds. PHOTO: ANDREA MORALES FOR WSJ
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New profits from old engines. Caterpillar is aiming to increase its revenue from remanufacturing—taking apart engines from broken-down trucks and compactors, fixing them up and selling them again—by 25% above 2018 levels by 2030. Caterpillar says remanufacturing an engine produces 61% less greenhouse gas than making a new one and cuts demand for water and raw materials. Executives said the effort will help Caterpillar meet growing demand🔒 for more environmentally friendly equipment.
Caterpillar missed a previous target to increase remanufacturing revenue by 20% from 2013 to 2020. That was in part because remanufacturing operated within other parts of the company and lacked its own focus, according to Brian Edwards, the Caterpillar executive who now oversees remanufacturing. It was turned into its own business division last year.
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Barriers to a green grid. President Biden said last year that the U.S. would aim for a carbon-free grid by 2035, but his administration has yet to pass major legislation to get there. The Clean Energy Buyers Association, a coalition that includes Amazon, Google and Walmart, is pushing for challenging nearer-term targets. Executives at a climate conference hosted by the nonprofit Aspen Institute in Miami Beach this week said shifting away from fossil fuels at such a pace would require the deployment of technologies that aren’t currently available, and could raise energy prices.
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“It’s just our creme de la creme”
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— Fifth-generation fisherman Cane Faircloth of wind-farm plans in a prime fishing spot off the Carolinas, the latest example of climate policy colliding with coastal businesses.
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Trucks loaded with palm oil fresh fruit bunches line up outside a palm oil factory in Indonesia. PHOTO: WILLY KURNIAWAN/REUTERS
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High prices seem to be sparing forests. When palm-oil prices soared in 2012, thousands of square miles of Indonesian land were converted to industrial plantations to produce the commodity. As prices rose again in 2020 and 2021, TheTreeMap, a forest-monitoring organization, expected another deforestation surge. So far, that hasn't happened.🔒
The shift stems from tighter government regulations, high-quality satellite imaging and the work of environmental groups, which pressured businesses to stop buying palm oil grown on recently deforested land. “It looks like the link between prices and expansion has broken,” said David Gaveau, a scientist who heads TheTreeMap.
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150,699 ounces
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A startup wants to sell blockchain tokens backed by the rights to an Ontario gold deposit worth roughly $286 million—and leave the gold underground.🔒 The pitch is that investors get exposure to the precious metal without causing carbon emissions.
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Nestlé's Product Quality, Safety in Spotlight Amid French Probe
Nestlé is being investigated by French authorities in a criminal investigation for involuntary manslaughter, deceitful practices and endangering others. French authorities are investigating over 50 cases of potential E. coli illnesses mostly in children, including cases where two children died earlier this year, linked to the company's frozen pizza, sold in several European and African countries. This could stir up concerns regarding the quality and safety of Nestlé's products and carry negative social implications. In March, the Swiss food company voluntarily recalled the product and stopped production at a factory in France. French officials ordered Nestlé to close the factory last month after an inspection
showed it violated European food safety laws and posed a threat to public health.
This is a sample of exclusive analysis of sustainability news from the Journal’s environment, social and governance (ESG) research analysts, whose work is primarily published by Dow Jones Newswires to help institutional investors and wealth managers integrate ESG factors into portfolio models, risk management programs and financial advice. The commentary by our research analysts is independent of the news coverage by reporters at the Journal. For more information about Dow Jones Newswires, click here.
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The growth of renewable electricity around the world could stall next year unless stronger policy is introduced quickly, the International Energy Agency said. (Recharge)
Samsung is under growing pressure over its fossil-fuel emissions, as rivals such as Apple make more ambitious environmental commitments. (Financial Times)
European Union lawmakers reached a compromise on an overhaul of the bloc's emissions-trading scheme. (Euractiv)
Gen Z has a reputation for espousing eco-friendly consumption, but not when it comes to fashion. (Inside Climate News)
U.K. airlines missed every climate target they set since 2000 except for one, according to new research. (BBC)
BlackRock said it would support a smaller proportion of shareholder resolutions on issues such as climate change this proxy season, saying some proposals didn't align with its clients' interests. (Reuters)
The voluntary carbon-credit market has a credibility problem that regulators can help resolve, according to the chair of the Commodity Futures Trading Commission. (Risk.net)
New research found that scaling up bioenergy with carbon capture and storage—essentially growing crops and burning them for fuel—would exacerbate water scarcity. (Wired)
Chevron and Saudi Aramco were among the investors in a $200 million funding round by U.K. carbon-capture startup Carbon Clean. (Sifted)
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