TBLI Weekly - May 30th 2023


TBLI Weekly - May 30th 2023

Your weekly guide to Sustainable Investment

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‘Unpredictability is our biggest problem’: Texas farmers experiment with ancient farming styles

A study is under way in the water-scarce region to see if commodity farmers can use the regenerative technique of cover cropping as a way to adapt to rapidly changing weather conditions

by with photographs by Verónica G Cárdenas in the Rio Grande Valley

In one of the toughest growing regions in the US, commercial farmers like Frank Machac are experimenting with a style of ancient agriculture more known for soil health than profit.

They are perhaps unlikely budding agroecologists. “My number one concern is yield, I’m not worrying about climate change,” said Machac, 60, a ruddy-faced straight talker with 30 years’ farming experience in the Rio Grande Valley (RGV).

Machac is among a group of farmers decked in sturdy boots and faded jeans gathered around a mini weather station in a hot and muddy field of sorghum – an ancient nutritious grain grown for cattle field on commercial farms across the RGV.

The 400-acre field is part of a real-farm collaborative research project to figure out how – or if – cover cropping, a regenerative agricultural technique, can help commodity farmers become more climate resilient.

“If cover crops can make agriculture more sustainable without me losing money, then it can’t hurt, but we have to get it right,” said Machac, who currently rents 3,000 acres across Hidalgo county, Texas.

Cover crops are planted between growing periods for cash crops – grains, legumes, vegetables and fruits farmed to sell or eat – to nourish and stabilise the soil rather than leave it exposed. It’s an ancient practice being heavily promoted by the US government, as a way to help 21st-century farmers mitigate and adapt to rapidly changing weather conditions.

But cover cropping poses particular challenges in this water-scarce region where around half the farmland depends exclusively on rainfall – and many are climate skeptics.

For the past two years, portable weather monitors measuring temperature, rainfall and soil moisture have been collecting data across the field which is flanked by disused oil rigs and mesquite trees. Between July and December, half was covered in iron clay cowpeas and sunn hemp, heat- and drought-tolerant nitrogen-rich legumes, while the other half was farmed as usual – with no off-season cover crop – as a side-by-side control.

It is one of four farms in four adjacent counties that are currently enrolled in the study led by Alexis Racelis, program director of the agroecology and resilient food systems program at University of Texas RGV. Racelis and his crew of international students also collect data on yield, nitrogen content, soil stability, pollinators and microbes – good and bad.

In November 2022, cattle belonging to rancher and landowner Betty Perez (who rents to Machac) were herded into the fenced research field to chomp on the legumes and fertilise the soil in their own way for about a month. The 30 or so cows and a few calves loved the cowpea, which is around 25% protein, but not so much the sunn hemp – a view shared by Machac, who found its long taproots hard (and expensive) to get rid of. “Never again, I’ll stick to cowpea!”

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We desperately need to embed science in sustainability investing

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum./

Author: Francesco Curto, Ex-Global Head, Research, DWS; Ex-Head, Cash Return on Capital Invested (CROCI) Investment Strategy and Valuation Group, Deutsche Bank AG

  • How can the financial sector really make capital have an environmentally and socially sustainable positive impact on our planet and humanity?
  • Disclosure and accounting rules need to go beyond financial materiality towards integrating full environmental and social costs of business.
  • We need to bring scientists into the debate on how to embed science and the economic impact capital has in corporate financial statements.

In December, I happened to be in Montreal, Canada at the same time as the United Nations (UN) conference on Biodiversity, COP15. As I was taking a stroll, I literally walked into a peaceful protest taking place downtown. The protest was against the UN conference.

In the previous days, several other protests had also taken place. The protestors’ argument was that an agreement to protect biodiversity would give the impression that the issue was being addressed, but such an impression was not backed up by reality. The illusion of progress could make things worse.

At around the same time, a research paper, “The End of ESG”, was published. In the paper, Alex Edmans, Finance Professor at the London Business School, argues that: “ESG is both extremely important and nothing special. It’s extremely important because it’s critical to long term value… Thus, ESG doesn’t need a specialized term… It’s investing… We want great companies, not just companies that are great at ESG.”

If you are confused, you are not alone. And it is not easy to make sense of it.

Impact of capital

Clarity starts from focusing on the concept of “capital”. As investors, we play an important role in capital allocation. Such financial capital will be used by management to run daily operations, which has an impact on the environment and society. Our analysis suggests that the economic life of such operating capital for the non-financial sector is 14 years, with a remaining life of 7 years. The life of invested capital can vary much going from five years for IT equipment to as high as 40 years for some infrastructure investments.

Such capital does have an impact on the environment and society, from water pollution to modern slavery and the climate crisis.

In Alex Edman’s view, I see the thinking of Adam Smith, who through his famous book “The Wealth of Nations” described how free markets can incentivize individuals, acting in their own self-interest, to produce what is societally necessary. This idea was further elaborated by Milton Friedman and his doctrine that an entity’s greatest responsibility lies in the satisfaction of the shareholders.

The problem with this view is that, as Professor Sir Partha Dasgupta, author of the UK government-commissioned report “The Economics of Biodiversity”, convincingly shows, individual self-interest and profitability is not resulting in socially optimal outcomes. So, yes, in a world that focuses strictly on financial return, then incorporating ESG risks and opportunities into a competitive analysis of a stock in the market should not be seen as anything special. Indeed, EU regulations require investors to consider ESG risks and opportunities in decision-making. ’Extra’ financial data should be part of normal investor practice and it should be agile, forward-looking and based on a clear understanding of the stock price impact of the operational risk, rather than on the operational risk itself. For those who believe that ESG is a risk management tool, it should stay that way.

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Experts call for ‘loss and damage’ fund for nature in developing world

Rich nations should pay for biodiversity loss, which disproportionately affects poor countries, say scientists

What Is “Responsible AI” And Why Is Big Tech Investing Billions In It?

The boom of artificial intelligence (AI) and super-intelligent computation has taken the world by storm. Pundits are calling the AI revolution a “generational event”—one that will change the world of technology, information exchange and connectivity forever.

Generative AI specifically has redefined the barometer for success and progress in the field, creating new opportunities across all sectors, ranging from medicine to manufacturing. The advent of generative AI in conjunction with deep learning models has made it possible to take raw data and prompts to generate text, images and other media. The technology is heavily based on self-supervised machine learning from data sets, meaning that these systems can grow their repertoire and become increasingly adaptable and appropriately responsive as they are fed more data.

Kevin Scott, Chief Technology Officer for Microsoft, writes about how AI will change the world, describing that generative AI will help unleash humanity’s creativity, provide new ways to “unlock faster iteration” and create new opportunities in productivity: “The applications are potentially endless, limited only by one’s ability to imagine scenarios in which productivity-assisting software could be applied to complex cognitive work, whether that be editing videos, writing scripts, designing new molecules for medicines, or creating manufacturing recipes from 3D models.”

Both Microsoft and Google are at the forefront of this development and have made incredible strides in AI technology in the last year. Microsoft has integrated the technology seamlessly into its search functions, in addition to creating platforms for developers to innovate in other useful areas. Google has also progressed significantly on this front, showing immense promise with its Bard platform and PaLM API.

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Australian banks lending billions to fossil fuel projects despite supporting emissions reductions, analysis suggests

Big four have pledged to align business practices with Paris agreement but loophole allows them to fund sector, activist group says

Australia’s big banks have loaned more than $13bn for fossil fuel projects over the past two years even as they publicly advocate for emissions reductions, a new report suggests.

Analysis by environmental activist group Market Forces has found that while Australia’s major banks largely avoid providing direct project finance to new coal, oil and gas projects, they do fund corporate entities that develop them.

Market Forces said the financing arrangements represented a loophole that enabled lenders to bankroll fossil fuel production while claiming not to directly support new projects.

“Customers are worried their banks are hiding behind a smokescreen, claiming to be committed to net zero by 2050 while funding new fossil fuel developments that would lock in decades of emissions,” said Market Forces acting chief executive, Will van de Pol.

According to Intergovernmental Panel on Climate Change analysis following the landmark 2015 Paris agreement, greenhouse gas emissions from existing fossil fuel infrastructure are more than enough to push the world beyond its climate goals.

To limit global warming to 1.5C above pre-industrial times, emissions need to be reduced by 45% by 2030 and reach net zero by 2050.
The country’s big retail banks – Commonwealth Bank, Westpac, ANZ and National Australia Bank – have publicly supported the Paris agreement and pledged to align their business practices with the accord.

The Australian Banking Association said the banking industry would provide more than $135bn by 2025 to finance sustainable initiatives. Banks are already helping in the energy transition by providing climate-related products and services, the association said in a policy statement on the sector’s support for the Paris agreement.

The Market Forces report found that ANZ loaned $4.6bn supporting fossil fuels in the past two years – the most of any of the big four. NAB increased its lending to the sector to $4.5bn over the same period.

Westpac provided $2.3bn to fossil fuel companies while the Commonwealth Bank reined in its fossil fuel spend to $1.6bn.

More than half has been directed to new and expanded fossil fuel projects and to companies pursuing plans that Market Forces said were out of line with achieving net zero.

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SG-based Trirec taps Thai energy firm to launch cleantech fund

Singapore-based VC firm Trirec has partnered with Thai energy company Innopower to launch a venture fund to invest in decarbonization solutions.

The new fund, called Energy Ignition Ventures, has a minimum fundraising target of US$100 million for its first vehicle.

Energy Ignition Ventures will look for companies tackling greenhouse gas issues in the agriculture, mobility, buildings, and energy sectors. The fund will focus on firms “with a clear decarbonization impact and a proven product-market fit, along with early commercial traction,” it said in a statement.

Innopower is a joint venture between Thai energy companies Electricity Generating Authority of Thailand, Ratch Group, and Electricity Generating Public Company.

Meanwhile, Trirec’s portfolio includes firms such as battery-as-a-service startup Oyika, battery recycling platform Green Li-ion, and alt-meat manufacturer YouKuai.

The launch of Energy Ignition Ventures comes amid an increase in demand for climate tech startups in Southeast Asia. East Ventures and Temasek Foundation recently launched a competition in Indonesia called Climate Impact Innovations Challenge to help spur innovation in renewable energy, food and agriculture, mobility, and marine resources.

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