World Wildlife Fund Sustainability Works

As all eyes turn to Paris this week to watch the world’s top conditioned athletes strive to break world records in the pool, on the track and on the mat, climate change may not be top of mind, but it should be.

Just last year, our planet went for gold, and sadly pulled off an incredible feat: the hottest year on record. And earlier this week, another record fell: Earth’s hottest day ever. Here at World Wildlife Fund headquarters in Washington, DC, 15 of the last 25 days have seen temperatures soaring above 90 degrees and maxing out at 104 (and that’s before accounting for the heat index). And it’s not just the extreme heat – raging wildfires, catastrophic early in the season hurricanes, and floods are devastating the lives, economies and ecosystems, as countless national and world temperature and extreme weather records continue to be shattered.

But how did we get here? Back in Paris in 2015, world leaders came together and agreed to set and meet global climate targets, and while some progress has been made, the climate crisis is unfortunately moving faster than we are. As we sprint full speed ahead toward planetary tipping points it may seem inevitable that the world will continue to break too many climate records. But together, we can change the game.

Everyone has a role to play in identifying and implementing solutions, from governments, philanthropists and businesses through to local communities and Indigenous Peoples. If we’re going to stop runaway climate change, conservation efforts must be grounded in places and communities, supporting local leadership and rights. Corporate sustainability efforts must go beyond the status quo, delivering meaningful impact. And both must ensure real transparency and accountability. Here are just a few of the urgent actions needed:

• Scaling up renewable energy, energy efficiency, and energy access in a way that phases out fossil fuels while minimizing harm to nature and communities.

• Encouraging subnational entities–including cities, states, companies, and institutions–to promote, adopt and meet science based net zero targets and reinvent the ways we create, consume, transport and dispose of material in our economy.

• Meeting climate finance commitments that spur innovation and action in developing countries that respond to and build resilience to growing climate impacts.

Let’s seize this moment. World records should be reserved for athletes; it’s time to stop playing games with the future of our planet.

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Climate risk is making it into the headlines more frequently, signaling its growing importance across the economy and society. But what does climate risk mean for banks and the financial system? At its core, climate risk refers to the potential financial losses and instability caused by climate change, encompassing both physical risks (storms, floods, and wildfires) from extreme weather events and transition risk (regulatory changes, market shifts leading to stranded assets, and technological advancements) from the shift towards a low-carbon economy. As climate change accelerates, the integration of climate risk into financial decision-making is not just a necessity but a critical step towards ensuring long-term economic resilience.

The Federal Reserve Board (Fed) released its climate scenario analysis for the six largest banks in the United States in May of this year. If you missed it, you weren’t the only one, as the Fed released it quietly almost a year and a half after putting out the original participant instructions. The questions posed to these banks centered on determining if the banks manage climate risk well and if they collect enough of the right information. The answer is largely: hard to say. Each institution has its own way of figuring out its climate risk exposure, deciding which hazards to model, and what governance structures to use but they all struggle to access consistent and relevant data.

There are several reasons why data is difficult to obtain, including the complexity of compiling it and of determining what data is relevant, as well as the fact that not all corporations are required to collect it. If financial institutions start to require their clients to report data and the Fed calls for consistent climate risk monitoring – including beyond the largest banks - these issues can be overcome. Both need to occur. The Security and Exchange Commission (SEC’s) climate disclosure rule remains in litigation limbo but should provide some clarity for some climate reporting, though as the SEC does not require scope 3 reporting, imperfect data and reporting will continue.

It is important that the Fed ask questions about climate risk and that the banks are prepared – or at least that they are more aware of whether they are – to answer them. Banks were asked to model extreme hazard events (e.g., hurricane, wildfire and/or flooding) in a geographic region to which the bank has significant exposure with and without an insurance market to manage the risk. These scenario analyses should be common practice by now because these extreme weather events are becoming more commonplace. The bigger question is – are they?

The Fed’s summary was a kind of tepid book report of the banks’ scenario analysis. It invites more questions than concrete answers and actions. What comes next? What changes need to happen? Should there be a standardized process for determining and reporting these risks? In fact, Fed staff have listed data the largest banks produce in their own attempt to see how banks are assessing climate risk in a white paper, but won’t go so far as to say that these data are sufficient to assess climate risk. European banks have assessed transition risk more often than U.S. banks, in large part because their Central Banks are conducting more climate stress tests. As the Fed has an economy-wide view of these kinds of risks, what actions should the Fed take to minimize climate shocks to the economy? Certainly there’s more it can do to shore up the financial system, account for climate risk, and benefit the economy.

Let’s be clear: larger banks are more diversified than smaller, regional institutions and are therefore more able to manage climate-related risk. They were also the only ones subject to the Fed’s scenario analysis pilot. But the financial system is comprised of more than big, multinational banks. Medium-sized and regional banks also have significant exposure to climate risk. The FDIC shows that community banks held 30 percent of commercial real estate loans in 2019 and small banks in the Midwest hold a larger concentration of agricultural loans than multinational banks. These smaller financial institutions play an important role in regional economies and if they fail, communities will suffer. If a regional bank has significant exposure to mortgages in flood-prone areas, how is it mitigating that risk? Or if a commercial bank has significant transition risk because it lends primarily to the oil and gas sector, how can that be effectively mitigated? The Commodity Futures Trading Commission (CFTC) recommends providing oversight to these risks, and I tend to agree.

Banks play a crucial role in the economy by providing loans, managing investments, and supporting businesses. Climate risks can threaten their stability and ability to function effectively. By understanding and managing these risks, banks can: ensure they remain financially viable, protect their clients and investments, and contribute to the global effort to combat climate change by supporting sustainable practices and projects. These sustainable practices and projects are profit-making investments and would avoid stranded assets, so this is just good financial practice – far from charity. By managing these risks effectively, banks can ensure smoother sailing through uncertain waters, protecting not only their assets but also the broader economy and society. It’s time that the Fed step up and take a stronger leadership role in helping the economy – and consequentially people and nature too – weather increasingly expensive and catastrophic climate risks.

When people think about decarbonizing the chemical sector, they often imagine a daunting task. It’s true that this industry has long been considered “hard to abate,” and the complexity of the processes involved has historically proven a significant challenge. Helping to pave the way toward a solution to these obstacles, the Renewable Thermal Collaborative’s (RTC) new Chemical Sector Assessment has laid out a clear and achievable roadmap for decarbonizing the chemical sector. While implementing these solutions may not be simple, the solutions themselves are fairly straightforward. Chemical companies, downstream corporate consumers, and policymakers must act together today to transition the chemical sector onto a net-zero pathway.

The food system accounts for one-third of global greenhouse gas (GHG) emissions. From cradle to landfill, about 70% of these emissions originate directly from farms. Downstream companies that ship, process, package, or store these products add another 15%, and ultimately consumers who cook and dispose of waste, add the remainder. To determine who is responsible for generating various emissions—and track improvement over time—we use GHG accounting standards, a set of guidelines that outline which emissions sources to include, the necessary data for these calculations, and the methodologies to be employed.

One critical concept from these standards is emissions “scopes.” A company’s Scope 1 emissions originate from its own operations, while its Scope 2 emissions originate from its purchased electricity and heat, and its Scope 3 emissions (which often account for 90% or more of its total emissions) originate from upstream and downstream activities, such as the production of purchased materials, transportation of purchased products, and the use of sold products and services. Thus, a company in the middle of the supply chain must account for—and help mitigate--the emissions of the inputs it procures (Scope 3), its own Scope 1 and 2 emissions, and the emissions other companies and consumers add to it after they sell it (Scope 3 again).

The EPA this past week announced $20 billion in long-anticipated awards under the Greenhouse Gas Reduction Fund (GGRF). The GGRF is largest direct investment vehicle under the historic Inflation Reduction Act, which is the foundation of the Biden Administrations clean energy agenda. The GGRF is aimed at supplying much needed capital to transform local neighborhoods and provide support for community financing for the energy transition. What makes this moment so unprecedented is that 70% of the funds are being directed toward vulnerable and disadvantaged communities. This will significantly reduce greenhouse gas emissions for underserved communities which have often bore the brunt of carbon and environmental pollution. The GGRF marks a pivotal moment by scaling up the dollars available to these communities to invest in reducing energy costs, improving public health and creating good-paying clean energy jobs.

Climate change is expensive. In 2023 alone, NOAA recorded 28 climate change related disasters in the U.S. whose damages clocked in at more than a billion dollars each. Those 28 disasters cost the U.S. economy just shy of $93 billion in a single year. To give a sense of contrast, from 2018 to 2022, federal product liability Approved Class Action Settlement Awards and Punitive Damages, which are part of a category of risk that private companies are required to report on, together totaled about $415 million nationwide over five years. And despite the uncertainty involved in litigating class action product liability, an investor would be rightfully upset if a company failed to disclose a pending suit.

A step forward with a new rule

The Securities and Exchange Commission (SEC) published a draft rule in 2022 on how publicly traded companies should report on their climate risk. In response, the SEC received over 24,000 comments on the draft rule and finally voted on a final rule on March 6, 2024. It is not often that such a mundane government meeting about financial reporting receives so much attention but there is a very good reason why: climate risks are increasing, they are expensive, and they can’t be managed if we don’t know where the problems are.

SEC Chair Gensler made clear that SEC staff have been working for years to develop and finalize this climate disclosure rule to provide decision-useful information to investors because climate risks are material and we couldn’t agree more. Climate risk can – and very often does – impact a company’s bottom line and it is critical that investors have sufficient information in the financial report to determine if a company’s finances are sound. Some companies have been reporting on climate risk for years and often do so in stand-alone sustainability reports, but this SEC rule standardizes the process and requires the reporting to occur in the financial report where it belongs and in a way that allows investors to compare across entities on an apples-to-apples basis.

Infrastructure, permitting, and tracking systems key to success

On December 22, 2023, the U.S. Department of the Treasury released proposed rulemaking for the clean hydrogen production tax credit under the Inflation Reduction Act (IRA). The IRA offers a production tax credit of up to $3 per kg of hydrogen produced based on carbon intensity. Electrolytic hydrogen, produced by using electricity to split water into hydrogen and oxygen, could be eligible for the highest-level tax credit if zero-carbon electricity (i.e. electricity produced from renewable sources or by nuclear power) is used. The average cost to produce green hydrogen, renewable-based electrolytic hydrogen, before the tax credit is approximately $5-6/kg. This means that the tax credit has the potential to significantly lower the production cost of green hydrogen.

Green hydrogen is a versatile and critical decarbonization solution for hard-to-electrify sectors like heavy industries (e.g. chemical and steel) and long-haul heavy-duty transportation. It could also play an important role in enhancing grid resilience and reducing renewable curtailment in the power sector.

The main issues to look for in the proposed guidance are the “three pillars” related to the electricity used to produce hydrogen: temporal matching, incrementality, and deliverability. Together these create a framework environmental groups and many in the hydrogen industry have advocated for to ensure that green hydrogen delivers genuine climate benefits and contributes to greening the electric grid. The hydrogen industry has been anxiously awaiting detailed guidance as it will have significant implications for their project siting, design, and profitability.

Low-carbon fuels such as green hydrogen and renewable natural gas (RNG) are critical for decarbonizing hard-to-abate sectors such as industry and transportation. Green hydrogen is produced with renewable electricity through electrolysis that splits water into hydrogen and oxygen. RNG is methane produced from anaerobic digestion of organic matter like animal manure or food waste, which is processed and can then be used to replace conventional natural gas.

According to the Renewable Thermal Vision Report published by the Renewable Thermal Collaborative (RTC), clean hydrogen can supply approximately 13% of the heat used in industrial processes in the US by 2050. While RNG is likely to have a smaller role in the overall energy mix due to supply constraints, it can help mitigate methane emissions that would otherwise be emitted from manures or food waste.

An increasing number of companies are looking to clean fuel solutions like green hydrogen and RNG to address their thermal energy footprints by decarbonizing industrial process heat. As always, early success stories are essential to accelerating the growth of new technologies and nascent markets—and we heard many of them at the RTC’s recent Annual Summit in Washington, D.C.

Large industrial energy buyers and fuel producers shared early success stories about their on-the-ground experiences deploying these decarbonized fuels on the panel “Deploying Decarbonized Fuels: Case Studies and Infrastructure Opportunities.”

Yesterday at New York Climate Week, World Wildlife Fund (WWF) launched the Nature-Based Solutions Origination Platform (NbS-OP), a new model for scaling up, aligning and mobilizing public and private finance for high-quality nature-based solutions (NbS) under an integrated landscape finance approach. With this model, interventions to address nature loss, expand sustainable livelihoods, and mitigate climate risks are planned, financed and implemented holistically across large tropical forest territories, helping to ensure lasting success. The five initial landscapes where the NbS-OP will focus are the Atlantic Forest (Brazil); the Central Annamites (Viet Nam); Madre de Dios (Peru); the Northern Highlands/Diana (Madagascar); and the Yucatán Peninsula (Mexico).