Tesla’s ‘Battery Day’ puts clean energy’s ESG paradox centerstage, underscores need for better data

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Tesla’s focus on supply chain sustainability during Tuesday’s “Battery Day” event pushed the clean energy industry’s environmental, social and governance (ESG) problem to the fore: investors that want to see a clean energy revolution often avoid investing in the companies that extract the raw materials needed to make that happen due to ESG concerns.

“There needs to be some element of transparency [so companies can] build their supply chains and meet their [ESG] goals,” said Andrew Miller, product developer at Benchmark Mineral Intelligence, a price reporting agency, proprietary data provider and market intelligence company that is focused on the lithium ion battery to electric vehicle supply chain.

Major global brands can’t stake their future on a business supply chain that is not sustainable, Miller said. Also, access to better data could help companies improve or showcase the sustainability practices in their supply chain, Charlotte Selvey Miller, senior analyst for ESG at Benchmark added.

Battery technologies, which are central for a clean energy transition, rely on lithium, manganese, nickel and cobalt, and all of these battery technology raw materials have come under scrutiny for their carbon, water, land use and/or community impacts.
ESG is inherently company specific, and in the battery minerals space, there have been big gaps in terms of company-level data availability, Miller said. To fill this need, Benchmark, which specializes in analyzing and collecting first-hand price and market data, is launching a new ESG division. The new division’s first ESG deep dive will cover lithium; reports covering other battery raw materials and areas of the supply chain will follow.

Earlier this week, the World Economic Forum, together with the “big four” accounting firms, released a set of universal ESG metrics and disclosures that companies can use regardless of industry or region. Separately, the World Economic Forum also announced that it collaborated with the Impact Management Project to bring together the efforts of the five leading independent global framework and standard-setters to work towards a comprehensive corporate reporting system around sustainability.

More work to do on the “E”

Even though large asset managers can impact corporate behavior through their substantial holdings in major companies and their outsized voting impact, some large asset managers aren’t pushing companies hard enough on climate change, a report by the shareholder advocacy group, Majority Action, said. For example, BlackRock and Vanguard, the world’s largest asset managers and among the top three shareholders in the vast majority of S&P 500 companies, voted to undermine global investor efforts to promote responsible corporate climate action—despite public commitments to hold corporate directors accountable in the 2020 proxy season, the report said, clearly referencing BlackRock CEO Laurence Fink’s letter to CEOs on the need for boardroom accountability on climate risk.

Despite the U.S. Department of Labor’s recent bid to restrict the ability of private pension plans that are covered by the Employee Retirement Income Security Act from factoring ESG considerations into investment decisions (ERISA), ESG investing is gaining momentum.

In the U.S., about half of individual investors have adopted sustainable investing, and 80% of asset-owner institutions are integrating sustainability considerations into their investment processes, according to the Morgan Stanley Institute for Sustainable Investing’s 2019 and 2020 Sustainable Signals reports.

Last year, in the U.S., $20.6 billion flowed into ESG funds, four times more than during the previous period, and even though the coronavirus pandemic triggered a global recession and months of severe market volatility during the first half of the year, sustainable funds—across stocks and bonds—weathered the period better than portfolios without a focus on ESG factors, the Morgan Stanley Institute for Sustainable Investing noted.

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