Carbon Tax, Climate Risk & Green Swans - ESG Weekly Roundup #4
Independent contractor models are at risk of getting cancelled. Operating models will need to be more resilient after COVID-19.
Hi there,
Every Sunday I’m putting together this brief roundup of what I’ve been reading, videos and podcasts. I'll write longer pieces on weekdays. This week I’m going to start a new series that goes back to basics on ESG issues. I’m calling it “Alphabet Soup” because of all the acronyms (SDG, TCFD, GRI, SASB etc) that everyone talks about, and it will start on Tuesday. If you have any feedback please let me know in the comments or on Twitter.
Cheers,
Brennan
Chart of the Week
Source: The Environmental Bias of Trade Policy by Joseph Shapiro
This fascinating paper finds that “dirty” industries have lower tariffs and trade barriers than “clean” industries. This implies that trade policy changes alone - higher tariffs on “dirty” industries - could achieve similar CO2 emission outcomes to large global climate-change policies at a lower cost to economic output.
At a broad level, this paper suggests that trade policy can have important impacts on environmental outcomes. The implicit subsidy to CO2 in trade policy this paper analyzes, which has not been previously identified, totals $550 to $800 billion per year. For comparison, all direct global subsidies to fossil fuel consumption, which are a major focus of political debates involving the U.S., EU, World Bank, and IMF, together total about $530 billion per year. General equilibrium model-based analyses require strong assumptions but suggest that if countries imposed similar tariffs and NTBs on clean and dirty industries, global CO2 emissions would fall, while global real income would largely not change or slightly increase. The resulting change in global CO2 emissions has similar magnitude to the estimated effects of some of the world’s largest actual or proposed climate change policies.
Quote Of The Week
Recent research from Boston Consulting found 52% of investors in a U.S. survey disagreed or strongly disagreed with the view that it was important for healthy companies to “fully pursue their ESG agenda and priorities as they navigate the crisis, even if it means guiding to lower EPS or delivering below consensus”.
Source: Reuters
Articles Worth Reading
“Green Swan 2” from the BIS – Climate change and Covid-19: reflections on efficiency versus resilience
The damage caused by Black and Green Swans to societies and their economies have a lot in common. (i) They are unexpected by most agents, who look at the past as being a good proxy of the future; (ii) both feature non-linear propagation, caused by and triggering multiple destructive forces that feed-back on each other; (iii) their effects cascade into multiple sectors and countries simultaneously; and (iv) they are of a very large magnitude and intensity.
COVID-19 drops US energy reliance on coal and CO2 emissions, for a time.
After decreasing by 2.8% in 2019, EIA forecasts that U.S. energy-related carbon dioxide (CO2) emissions will decrease by 11% (572 million metric tons) in 2020. This record decline is the result of restrictions on business and travel activity and slowing economic growth related to COVID-19. CO2 emissions decline from all fossil fuels, particularly coal (23%) and petroleum (11%). In 2021, EIA forecasts that energy-related CO2 emissions will increase by 5% as the economy recovers and stay-at-home orders are lifted. Energy-related CO2 emissions are sensitive to changes in weather, economic growth, energy prices, and fuel mix.
NZX-listed package and mail delivery firm Freightways was accused of issues with wage subsidy use. The use of independent contractors in an operating model can be a high-risk ESG factor to evaluate carefully.
Lawyer Garry Pollak said the way Freightways - which owns NZ Couriers and a number of other courier outfits - was approaching the wage subsidy was likely illegal.
"Who benefits from the wage subsidy? It's not the applicant to the wage subsidy who is the contractor, it's the courier company and that's exactly what the wage subsidy scheme is not intended to do."
Mr Pollak last week won a case in the employment court that a courier driver was in fact an employee, despite the company claiming he was an independent contractor
He said the situation with drivers during lockdown was no different - with courier companies wanting to treat their drivers like employees only when it suited them.
"They are taking advantage of the situation to benefit themselves."
Online delivery platform GrubHub generates phone numbers for customers, so if you think you are ringing your pizza shop directly to save them the platform fee, they could still get stung a fee because of how broad the contract terms and conditions are!
In a recording of a phone call made to Patsy’s during the coronavirus pandemic, a customer said, “I don’t want to go through a third party.” But the customer had used the phone number supplied by the platform — and Grubhub charged Juliano’s restaurant $7.45 for that call.
“People don’t realize they are doing this, that by dialing a phone number they’re charging the restaurant [almost] $8,” said Juliano.
The ACCR has produced an excellent briefing note about private prisons and risks. Serco plc and GEO Group’s underwhelming track records on human rights and health & safety are highlighted.
This brief outlines the exacerbated human rights impacts resulting from the coronavirus pandemic in private prisons and immigration detention, and describes the activities of Serco Group and GEO Group with regard to their provision of prison, immigration detention and security services on behalf of the Australian government.
The risks of moving fast in a crisis and relaxing internal controls when paying away funds has resulted in hundreds of millions of dollars of suspected fraud in US unemployment benefits.
The attackers have used detailed information about U.S. citizens, such as social security numbers that may have been obtained from cyber hacks of years past, to file claims on behalf of people who have not been laid off, officials said. The attack has exploited state unemployment systems at a time when they are straining to process a crush of claims from an employment crisis unmatched since the Great Depression.
Situations like this remind us that protection of “personally identifiable information” or PII is critical because of the potential for misuse years down the track from any privacy breach.
Videos To Watch
I prefer to watch videos like this at 1.5x playback speed. There’s so much great video content out there, but not nearly enough time. At least at a high playback speed, you can decide to stop watching if you’re not interested sooner.
A good episode on the impact of COVID-19 on sustainability finance. The hosts discuss the materiality of ESG factors, how ESG is incorporated into investment processes and outlook based on client questions.
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