Green News

Major report makes the case for new carbon tax on imported goods and goods, as the Environment Secretary reveals the UK's climate targets could eventually cover carbon embodied in imported goods

Imported emissions have always been a hugely contentious issue, with campaigners maintaining national carbon targets should cover emissions arising from the manufacture of products produced abroad for the UK market. The argument goes that the UK's claims to be a decarbonisation leader are moot if the nation's appetite for clothes, technology, timber, food, and other goods continues to directly fuel destructive levels of deforestation and carbon emissions in other jurisdictions.

The government has tended to reject such arguments, insisting that focusing on territorial emissions produced in the UK is a simpler and more effective means of driving climate action. However, a pair of developments this week have signalled that the question of how to tackle imported emissions is up for debate once again and could see them more closely monitored and policed in the future. The government gave its strongest indication yet that it was considering expanding the scope of the UK's carbon reporting regime beyond territorial emissions this Wednesday, when Environment Secretary George Eustice told the Environmental Audit Committee there was an "openness in government towards a consumption-based target rather than an emissions-based target".

Initial discussions on the topic had taken place between the Department of Environment, Food and Rural Affairs (Defra) and the Treasury, he revealed, adding that any policy change would depend on the collection of more extensive data. "We are not in a position yet to do so with confidence that we have the right data going in to measure in that way," Eustice said.

Campaigners have long sought to highlight the direct relationship between British consumption and rates of deforestation, carbon emissions, and other forms of environmental degradation abroad. A report published last April by WWF calculated that 46 per cent of the UK's carbon footprint is not accounted for in national reporting and carbon targets due to being produced by imported goods and services, and British supermarkets have faced growing pressure to cut their ties with food producers and traders contributing to the deforestation of tropical forests.

Eustice's comments come as the Zero Carbon Campaign this week published a comprehensive report setting out how the introduction of a carbon price on imported goods could advance the effectiveness of the government's net zero agenda.

Advocates of border carbon adjustment mechanisms (BCAs) claim they are an important tool to prevent so-called 'carbon leakage' where domestic carbon pricing regimes result in companies moving their factories - and emissions - to regions with less ambitious climate measures. The approach, which has been floated by the French government and others, is also seen as a means of encouraging other countries to adopt their own carbon pricing regimes, so as to avoid the imposition of carbon tariffs on their exporters.

However, critics point out there is some debate over the degree to which carbon leakage poses a serious risk, given that there is little current evidence of the phenomenon to date. They also claim designing and implementing a BCA will take up a significant amount of political capital that could be spent elsewhere, and have suggested it would be more effective to pursue simpler solutions to addressing carbon leakage.

But in the paper published this week, the Zero Carbon Campaign argues the introduction of a BCA could protect domestic companies covered by the UK emissions traditing scheme (ETS) from unfair competition, ensure that jobs and industry remain in the UK, increase the effectiveness of the UK's emissions reduction efforts, and ease political opposition to the government's broader net zero agenda.

It concedes that while there is little historic evidence of large-scale carbon leakage in the UK, this does not mean the phenomenon will not emerge as domestic carbon prices increase over the coming decade. Moreover, it argues that it is in Westminster's interest to take action to address carbon leakage - whether the risk materialises or not - given that the issue is increasingly used to justify opposition to climate regulation. "Whether carbon leakage is a real risk or not, many people believe it is," the report notes. "And if the UK Government is to achieve its goal of net zero emissions by 2050, it will need to be able to assuage their fears."

The document also insists the UK should consider introducing a BCA in the near-term to avoid being "bounced into a mechanism designed by others" in the longer-term. The European Commission is to table plans for an EU BCA in the second quarter of this year, and US President-elect Joe Biden's climate plan includes a proposal to impose adjustment fees or quotas on countries failing to meet climate and environmental obligations, it notes. As such, the document suggests Ministers should engage in discussions with EU and US policymakers on BCA approaches in the run up to the COP26 Climate Summit.

The report, which was authored by trade expert Sam Lowe, also sets out a number of questions policymakers should consider when designing a BCA policy, ranging from how precise the BCA should be, what products it should apply to, whether UK exporters should receive a rebate, and where the revenue collected through the BCA revenue should be spent. And it explores three potential BCA designs: a system where the carbon import duty broadly mirrors the UK ETS carbon price, a consumption levy, and a production charge on industrial producers. 

With the Energy White Paper published last autumn confirming the government plans to replace the EU's emissions trading scheme (ETS) with a UK ETS after the end of the Brexit transition period 1 January, the first option would be most relevant to the UK, the paper argues. However, it adds, all three could be theoretically be used, either exclusively or in tandem.

As the sustainable finance sector booms, asset managers and owners are under increasing pressure to use their financial clout to steer a greener future

2020 was the year much of the investment community really started to reckon with the role it needs to play in driving the transition towards a net zero economy. Membership of the UN-backed Net Zero Asset Owner Alliance coalition snowballed, a new Net Zero Asset Managers Initiative was launched, and some of the world's largest asset managers shifted their stance on shareholder climate resolutions and fossil fuel stranded asset risks - all while environmental social and governance (ESG) stocks outperformed the wider market during a historic economic downturn.

But delivering a fundamental reshaping of the financial system, as BlackRock chief executive Larry Fink acknowledged was necessary in his influential annual shareholder letter last year, is going to require more than green ambition and the occasional coal exclusion policy. A patchy regulatory landscape and a proliferation of ratings agencies and reporting frameworks - each with their own scoring systems and sustainability criteria - has prompted some to describe the sustainable finance movement as a 'wild west' environment characterised by both impressive new low carbon investment practices and inevitable 'greenwash'. While considerable progress has been made in securing ambitious climate pledges from major players, including bold commitments to deliver net zero emission portfolios, there is clearly a long way to go before default funds and pensions are truly low carbon, climate risk reporting is standardised, ESG claims are policed, and investors can easily access the data they need to assess companies' exposure to climate and transition risks.

These were just some of the conclusions drawn during a wide-ranging webinar hosted this week by BusinessGreen in association with Schroders, which saw a panel of green investment experts weigh in on the challenges and opportunities facing the growing number of investors that have pledged to deliver net zero emission portfolios.

Sagarika Chatterjee, director of climate change at the Principles for Responsible Investment (PRI), who is currently seconded to the high-level champions finance team for the COP26 Climate Summit, said investors would have to be at the forefront of the push to deliver more standardised ESG reporting frameworks. "We really have to see convergence," she said, emphasising how a more consistent approach would allow for a much-needed review of data being submitted by companies. "The meaningfulness of the data that is coming back needs to be reviewed. Is it fit for purpose? What does it tell us about the assumptions that are being made? Is it giving us exactly what we need as investors?"

Regulators are increasingly turning their attention to the issue and are ultimately expected to play "a big role" in standardising the ESG ratings landscape, she said. The US Federal Reserve's decision to join the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) in December is likely to filter through to the development of global best practice on sustainable finance, as central bankers set out their own demands, she added - a trend that is only expected to accelerate under the incoming Biden administration.

If ESG ratings is one area where standardisation could pay dividends for wider decarbonisation efforts, climate-related risk reporting is another. A growing number of corporates are now providing annual reports in line with the recommendations of the Taskforce for Climate-related Financial Disclosures (TCFDs), but some firms are continuing to turn a blind eye to the topic, while investors have complained that the quality of TCFD reports can vary. 

However, Hannah Simons, head of sustainability strategy at asset manager Schroders, urged companies to not let incomplete data sets prevent them from submitting climate-related risk disclosures. "I would encourage every company to start disclosing, because then year on year or even month on month, as you're making those changes and that evolution is happening, you can keep updating." she said. "If we just all held back till everything was perfect, we wouldn't see an increase in the level of companies disclosing quickly enough."

Moreover, those businesses and investors that are reluctant to report on the climate-related risks and the wider sustainability issues they face may not have a choice for much longer. The UK government has signalled plans to make TCFD reporting mandatory and, as Simons noted, landmark sustainable finance disclosure regulations coming into play in the EU from March are set to be felt in the UK. "Helping clients navigate what it is your fund or product is seeking to do is critical, and that is at the heart of the [EU] disclosure regulations," she said. "To really be able to convey and articulate how your fund is sustainable, and how you are investing in line with the objectives that you've set… So, while there have been historically have been potential challenges, as we go forward clients will be able to navigate that more easily."

Simons added that emerging regulations should also help clients navigate the "spectrum of different approaches", such as ESG integration, best-in-class exclusions, thematic and impact investing, with more ease.

However, Mark Campanale, founder and executive chairman of financial think tank Carbon Tracker, cautioned that more radical work was required to restructure the investment sector if it is to deliver net zero emissions, repeatedly emphasising that enhancing the ESG market alone is unlikely to deliver the wholesale transformations necessary to futureproof investors' portfolios and shift capital towards zero emission industries.

Financial models need to be redesigned from the ground up, he said, warning that the "fundamental wholesale rebuilding of the global economy" would require trillions of dollars of new investment, as well as trillions of dollars of asset write-downs. "This is not an ESG rating issue," he said. "You can't just buy a rating and use it as a proxy for managing risk. We have to actually rebuild the models today to allow investors to futureproof their portfolios and make them more resilient. Rating agencies, in my experience, rarely pick this up. You have to go straight to the heart of financial models: all the assumptions within them, how you rebuild them, and how you stress test them."

The webinar also saw panellists weigh in on the merits of engagement and divestment strategies as a means of encouraging climate laggard companies to embrace the transition to net zero emission business models. 

On both fronts, activity has dramatically picked up over the last year. BlackRock, the world's largest asset manager, promised to pursue both approaches as part of a major pivot towards sustainability unveiled last January and has since voted against directors in favour of climate resolutions at a number of high carbon companies, while ending its active investments in major coal miners. Meanwhile, UK hedge fund manager Sir Christopher Hohn recently launched a major campaign calling on fellow investors to demand an annual say on corporates' climate plans, and just last week, Amundi and Man Group filed a climate resolution at HSBC, calling on the bank to publish a strategy and targets to reduce its exposure to fossil fuel assets in the wake of its net zero announcement. 

Shipra Gupta, head of investment stewardship at pension provider Scottish Widows, argued divestment was a "blunt tool", but she acknowledged it could be effective when applied in a "limited way". However, she stressed that exclusion by one investor does not prevent a high carbon company from tapping alternative pots of capital to pursue environmentally destructive activities. "Our objective ultimately is not just cleaning our portfolios, but actually having a real-world impact," she said.

Schroders' Simons broadly agreed with Gupta, detailing how the asset manager's policy was to only consider divestment after all efforts to constructively engage the company to reduce its emissions have been exhausted. "Divestment is an option, but once you've done it you can't come back," she explained. "So, we take a very active approach to our ownership and engage heavily with companies. Critical to that is setting out what the objective is that you're seeking, because if you set out the key milestone you're expecting, you can then work with the company."

But Campanale emphasised that engagement policies can run the risk of damaging investors' bottom line and lumbering them with stranded assets in the future. Reports this week revealed Dutch pension fund PMT had sold its stake in ExxonMobil, after failing to convince the firm to disclose in line with the Paris Agreement and losing €60m in the value of its shares in the past year, he noted. "Not a very profitable form of investment there," he said. "What individuals need to do is realise that they are trusting fund managers to take these decisions, but many fund managers are stuck with old conventional thinking that says: 'This is an ESG issue, not a risk issue, we'll engage these businesses to transform'."

As such, the public should be given a more active role in investment, Campanale said, commending Legal & General for introducing a new initiative that allows individuals to input how they want to vote with shares held by their personal pension and insurance schemes. "That really will introduce shareholder democracy, and the public relies on large institutional investors to decide how to vote. Let's empower individuals," he said. The government should also introduce a policy mandating that companies make the default pension schemes for staff "low-carbon or no carbon", he said.

While it is undeniable that there are major challenges that need to be addressed before the investment sector can begin to channel the bulk of its financial might into the transition towards net zero emissions, it is equally clear that asset owners and managers are increasingly aware of the vital role they must play in directing the development of a net zero emission economy from their position at the top of the investment value chain. The plunging valuations of oil and gas firms seen this year are likely just a precursor of trends that will accelerate over the coming decades as carbon taxes and climate laws proliferate, and the decarbonisation of industry, transport and energy  gathers pace. If 2020 is any indication of the decade to come, investors that fail to embrace a new role as active participants in the net zero transition will lose out.

Or, as Scottish Widows' Gupta put it: "there are decades when things don't happen, and then there's one year in which an entire decade happens... [Investors] are on top of the value of the investment value chain; we oversee asset managers and they oversee the corporates and the securities that they invest in - meaning we can actually have a really huge top down impact."

The 'Net zero investment: What role do investors play?' webinar was hosted by BusinessGreen in association with Schroders.

More than 100 billion garments are produced annually, and many end up in the landfill

120,000. Thats the number of tons of post-industrial textile waste produced in the United States annually.

Establishing a true circular economy for the apparel industry could help lessen the impact. But while some big fashion brands are dabbling in these processes - through clothing collection initiatives such as Girlfriend Collective's ReGirlfriend program or recommerce sites such as Eileen Fisher's Renew - this concept is far from mainstream.

"The fashion industry is not taking responsibility in the form of financial investments at the scale that is necessary," said Conor Hartman, COO and vice president of business development at Circ, a tech company that produces recycled textiles for the fashion industry. "If you look at all the major brands that are out there and talking about changing the landscape, very few of them are actually investing in solutions like ours, and putting their money where their mouths are. We'd like to see more of that."

Other factors that will come into play for circular fashion in 2021: practicing the future we want right now; investing in technology; and supporting legislation that would support a circular economy.

There are fashion companies that are starting to walk the talk. In October, Lauren Phipps, GreenBiz Group's senior analyst for the circular economy, shared a flurry of circular fashion news. Two developments: Levi's launched SecondHand, its first resale offering, and H&M opened Looop, which it described as the world's first in-store garment-to-garment recycling system.

"When you said to me 'what's going to happen in 2021?' two words popped into my head: progress and action. I'm an optimist," said Karla Magruder, founder of Accelerating Circularity, a nonprofit with a mission to divert textiles from the landfill. 

So, what needs to click for 2021 to be a groundbreaking year for circular fashion?

1. Lean into the will that 2020 has given people to change their habits

With rampant racial injustice, the west coast of the US on fire and the Covid-19 pandemic, it's hard to ignore the need to act to address each problem. The response to the Covid-19, despite its flaws, shows that when there is an urgent issue, people can work harder and faster to address it.

"I think our Covid experience really let us know how tight we are as a global ecosystem. And when that breaks down, everything breaks down," said Garry Cooper, CEO of Rheaply, a startup in asset efficiency software. "I think it's a good moment for the circular economy. The question for me is, how seriously do we take adopting circular principles?"

Cooper added that he thinks the business community is serious about doing just that right now.

2. Bridge gaps in the supply chain

Magruder mentioned that people already collect textiles and hand-sort them as part of the process for textile recycling. And there are efforts to get equipment in place to implement more mechanical sorting, which would work faster than humans.

For example, Fibersort, in development as of March, is able to automatically sort large volumes of mixed post-consumer textiles based on fiber composition.

But sometimes the people doing the sorting and the people doing the recycling don't talk to one another, which means that they aren't always working toward the same goal.

"[If] we can get these guys to all work together and talk together, I think we'll start to see some things shake loose," Magruder said. "I think there's opportunity for some good collaboration there."

One challenge that comes up for fashion and textile companies that launch recyclable products is making sure that they are actually collected and recycled at their end-of-life and able to be made into a new product.

"It really is about the whole system," Magruder said.

While Coyuchi is a different kind of textile company - it makes home textiles such as sheets and towels - it serves as a model for what could be done in the fashion industry. The company took back products and used the textiles to create a blanket.

GreenBiz spoke to Coyuchi when it announced this effort. It noted that it had to make sure that every link in its supply chain understood its role and all the tasks that needed to be done - from figuring out the amount of materials that would be recycled to what the resulting product from the recycled textile would be.

"I would say that those conversations went on for at least a year before we were able to ship the product to be recycled to the recycler. It's a lot of coordination," said Coyuchi CEO Eileen Mockus at the time.

3. Invest in and scale technological solutions

Fashion technology company Circ has a 2030 goal to recycle 10 billion garments, which accounts for roughly 10 per cent of the global annual production of textiles, according to Hartman. More than 100 billion items of clothing are produced each year.

Patagonia led the company's recent $8m Series A funding round and was joined by Marubeni America, Card Sound Capital and Alante Capital.

"It really takes industry giants like that working together with us with the technology solution, and with the vision that we have," Hartman said. "When fashion brands make those investments, the wider investment community sees that as a point of confidence and can follow."

Circ's technology can take textile waste made from cotton or polyester or poly-cotton blends and give them a new life. Hartman said it can break down the polyester into its chemical building blocks, which is then made back into a virgin-grade polyester; and it can recover the cotton used for making man-made cellulosic fibers.

In 2021, the company will work with brand partners, which it couldn't name at the time of reporting, to produce garments using its technology.

"From there, we'll be out working to build the first factories ... Our aim is to have those facilities all over the world," said Hartman, whose company is based in Danville, Virginia. "We have global ambitions. This is a global problem. And we'd like to see our technology deployed as widely as possible to do that."

4. Support and push for legislation at all levels of government

"Some of the usual suspects are already making moves in this arena," Hartman said, noting that France recently banned textile landfilling, from retailers and from brands for unsold inventory.

And people are watching developments of the European Union for a textile strategy, which the European Commission started accepting feedback for on 5 January. 

"This strategy will help the EU shift to a climate-neutral, circular economy where products are designed to be more durable, reusable, repairable, recyclable and energy-efficient," reads the initiative's webpage.

In the US in November, the Massachusetts Department of Environmental Protection proposed to add textiles - and mattresses - to the list of materials banned from disposal in the state.

Legislation such as this and the regulations in France and the EU could push companies to implement circular fashion principles and strategies more widely across their products and potentially at a faster rate than they're currently doing.

This article originally appeared at GreenBiz.

Partnership will see two state-of-the-art warehouses build in East London and Midlands partly powered by on-site solar

Mars has teamed up with delivery giant DHL to invest £350m in two state-of-the-art warehouses in Midlands and East London, in a move the firms estimate could remove one million road miles per year from the US food giant's operations.

Part of a multi-year partnership between the two companies announced today, the two facilities will be "partially solar powered" and rated among the most energy efficient buildings in the UK, while boosting Mar's warehouse capacity by over 50 per cent, they claim.

Mars estimates the move will help shrink its UK carbon footprint by 7.7 per cent, equivalent to the annual emissions of heating more than 500 homes, by providing more space to efficiently store and manage the deliveries of the 1.2 million pallets of its products transported each year.

The new logistics operation will avoid one million road miles each year, while helping Mars to keep pace with increasing customer demand for its products, according to the firm.

"Our partnership with DHL will deliver a world class logistics operation that is sustainable, smart and agile," said Tim Walker, supply chain director at Mars UK. "What is good for our business is also good for the planet. This project is a meaningful step in our sustainability journey as we look to create the world we want tomorrow - which we know starts with how we do business today."

The two purpose-built depots - East Midlands Gateway and London Thames Gateway - are set to become operational in the spring of 2022 and 2023 respectively, according to Mars. The sites have been designed with a combined square footage of over a million feet.

Across its global business and value chain, Mars has set science-based targets to reduce its total greenhouse gas emissions by 27 per cent by 2025, and 67 per cent by 2050, from 2015 levels. Within its own operations, meanwhile, the firm is targeting net zero emissions by 2040.

Jim Hartshorne, DHL Supply Chain's managing director for retail and consumer, and Ireland, said the two firms' share environmental commitments and joint investment would also help create long-term jobs at both hubs.

"This project will be the foundation of the UK logistics chain for Mars for many years to come and we are incredibly proud to be selected to lead in this project," he said.