NEWSLETTER by Alessia Falsarone. The author acknowledges the team at The University of Chicago Circular Economy and Sustainable Business Management Program and all participants of the innovation knowledge hub for their insights and collaboration.
One of the most notable highlights of the 28th meeting of the Conference of the Parties (COP) to the UN Framework Convention on Climate Change was the signing of the Decarbonization Charter by more than 50 oil and natural gas producers on December 2nd in Dubai. These companies, which represent 40% of emissions, have committed to achieving a net zero pathway for carbon emissions (Scope 1 and 2) by 2050, along with a near zero methane emissions reduction by 2030. This commitment is especially significant since over half of the signatories are national oil companies. Additionally, the pledge to adopt advanced technology for data collection and monitoring underscores the geopolitical and economic importance of adhering to international policy guidelines. The fact that the US and China will contribute their own bilateral roadmap on methane reduction magnifies the sovereign and commercial urgency of achieving net zero targets for the industry.
Investing in the future energy system involves prioritizing renewables, low-carbon fuels, and negative emissions technologies. It must also recognize the significance of circularity in accelerating the decarbonization of operations and strengthening all supply chains that support the Global South.
| The Science of Impact
An important aspect to consider as COP28 unfolds and emission reduction pledges from the world’s leading oil and gas companies continue to emerge is the post-COP28 scenario. How will everyday life be affected by these pledges and for how long, once everyone returns to their homes and workplaces?
The Decarbonization Charter is announced at a time of severe global instability. Through their ADAPT Framework, the team at PwC has been calling attention to a handful of urgent issues that are changing the way people live and work: asymmetry, disruption, age, polarization and trust. The circular economy can act as the reset button to address many of the challenges, starting from the core of the Decarbonization Charter. In fact,
- Asymmetry and polarization: as communities and nations fracture, circularity emphasizes interdependence and mutual benefit.
- Disruption: circularity addresses the disruptive threat of climate change and pressure on resources by developing a more sustainable economic model.
- Trust: as trust in institutions erodes, circularity offers an opportunity to develop more transparent supply chains and demonstrate environmentally and socially responsible practices.
When considering the goals of the Charter, it is crucial to recognize the importance of circularity in defining the measures that will be implemented after COP28. For instance, circularity plays a critical role in ensuring that supply chains in the Global South have access to renewable energy resources. This is essential for avoiding further disruptions to local infrastructure and addressing the growing divide in qualifying for export-quality goods and services.
| Circularity Roadmaps Explained
When it comes to the circularity of energy, many of the technological developments that could accelerate its evolution are within their sphere of operations. These include innovations in materials composition and efficiency, electrification, hydrogen production, biochemistry and synthetic chemistry, and carbon capture and use. Timing-wise, the post-pandemic recovery has also brought to the surface key challenges that the guiding principles of a circular economy can help address, i.e. the need to rationalize operations, to construct more localized supply chains and to build resilience.
Jeroen van Hoof, Global Energy, Utilities & Resources Leader (PwC Netherlands), explains why companies are adopting circular economic models in their business strategies. He provides a valuable example of how energy, utilities and resources sectors can define circular roadmaps for each state of production, distribution and consumption needs.
Plant Engineering reports how the oil and gas industry can be incredibly wasteful. At a 20% top-line growth in the past 5 years, the sector has produced over 18 billion barrels of waste fluids yearly in the US alone. If the goal is carbon neutrality, for many thought leaders in the field, a top priority continues to be reducing hydrocarbons rather than eliminating them. Moreover, by focusing on a “more localized, more regionalized system” would increase efficiencies while leveling off wasted resources (Peter Godfrey, Managing Director, Energy Institute Asia Pacific).
| Investing in the Circular Economy
Stewardship activities and investor due diligence questionnaires are starting to incorporate circularity in their evaluation of sustainable investment practices. This is no surprise as both buy-side and sell-side have been actively utilizing the circular economy in the design of financial products for their clients. During the summer of 2022, ISS ESG, the responsible investment arm of ISS | Institutional Shareholder Services, in cooperation with ING Group and the Ellen MacArthur Foundation, published the first Investor’s Guide to the Circular Economy.
A key finding of the report suggests that embracing circular economy principles can help address the rising cost of living by reducing raw material prices, as companies with circular business models tend to offer greater value to customers while using fewer resources. In addition, from an investor’s perspective, research indicates that companies with a more circular approach exhibit lower default risk and higher risk-adjusted returns on their stocks. In addition, public and private investments in circularity have been increasingly consistently, even during the COVID pandemic.
Circularity plays a significant role in addressing biodiversity loss and enhancing the effectiveness of net zero strategies. However, ISS ESG warns about the lack of emphasis on circular economy in many investor-level net zero frameworks and climate investment strategies. This is evident in the early Net Zero Asset Owner Alliance’s Target Setting Protocol, which only briefly mentions circular business models for reducing emissions in the construction and buildings sector. Furthermore, current ESG investing practices may have adopted a narrow focus on carbon emissions, neglecting the broader climate impact of their companies’ product portfolios.
Including circular economy considerations in climate investing strategies can minimize potential blind spots and ensure a wider pool of sustainable finance solutions in the future.
| You don’t want to miss this week
From Rome (Italy) to Dubai (UAE), and Brussels (Belgium) this week offers new opportunities to connect with fellow circularity practitioners both in person and in hybrid mode.
Discover, grow and leave your mark!
〉December 5th: The 6th Annual ICESP Conference – Critical and Strategic Raw Materials: Secondary Sources for Supply(Rome, Italy and virtual). Now at its 6th annual gathering, the Italian Circular Economy Stakeholder Platform (ICESP) will provide a platform for extensive discussions in the private and public sector ecosystems, to explore the procurement of secondary sources for critical and strategic raw materials in alignment with the European Circular Economy Strategy Plan. Note: The event will be held in Italian.
〉December 6th: Achieving a Just Transition to the Circular Economy (Thematic Area 3, Pavilion 325, COP 28 – Dubai)*. Held in conjunction with COP28, the International Labour Organization is hosting the Just Transition pavilion together with other international organizations in an effort to engage in informal exchanges and develop partnerships to advance climate action. As part of the main program agenda, this expert panel will feature representatives from the Circle Economy Foundation and discuss how to effectively safeguard workers from job losses and create decent work opportunities—especially in the Global South where most circular economy activities are currently located.
〉December 6th- 7th: First CBE JU Stakeholder Forum(Brussels, Belgium). The theme of the first stakeholder forum of the joint undertaking for circular bio-based industries in the EU will bring together 600 actors of regional bio-economy value chains. The forum will focus on three questions that are crucial for the successful development of circular bio-based sector: (i) How can we boost investments in the bio-based sector? (ii) What financing models could foster the replication of industrial plants in EU? (iii) Which emerging technologies does the sector need to remain competitive on the global market? In addition, forum participants will engage on in-depth discussions on defining future skills and identifying existing gaps to support the development of the circular economy.
Note (*): The event will be held in the Just Transition Thematic Area (Area B7, Building 88, third floor) at COP28. Also available through livestream here.
Off to another impactful week!
| All opinions expressed are those of the author and/or quoted sources. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.