ESG Challenges: The Top 5 That Investors Face
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Investors’ Top 5 ESG Challenges

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The following content is sponsored by iShares by BlackRock.


Long-form infographic showing the top ESG challenges investors face: transitioning your portfolio, making sense of the data, choosing the right product, the emerging climate trend, and company engagement.

Investors’ Top Five ESG Challenges

Investors in Europe, the Middle East and Africa (EMEA) expect to dramatically increase their sustainable assets. In fact, sustainable assets are projected to grow from 21% of total assets in 2020 to 47% of total assets in 2025.

In this graphic from iShares by BlackRock, we outline the top five ESG challenges that European investors face amid this shift.

1. Transitioning Your Portfolio

Building a sustainable portfolio tailored to specific requirements can be time consuming, and the financial and sustainable impact may be unclear.

iShares’ approach: iShares offers transparency for investors across all their sustainable exchange traded funds (ETFs). Investors can evaluate a fund based on various sustainability characteristics on iShares ETF product pages. They can also build a portfolio using sustainable ETFs as core building blocks.

For investors looking for a ready-made portfolio, 80% of the assets within BlackRock’s Multi-Asset Portfolio ESG ETFs seek to track indices that meet certain ESG criteria.

2. Making Sense of the Data

Investors must be able to find and interpret ESG data so they can assess the measurable output of their investments.

iShares’ approach: At iShares, they are driving a push for standardisation across the industry to bring consistency and transparency to all investors. In 2021, they leveraged over 1,200 sustainability metrics within Aladdin, their risk and portfolio management system. They also strengthened multiple partnerships with data analytics firms.

3. Choosing the Right Product

Almost 50 new sustainable ETFs were launched in Europe in the first half of 2021 alone. With so many sustainable products, investors need clarity navigating the options.

iShares’ approach: To help investors choose an ETF that aligns with their goals, all iShares ETFs are classified according to BlackRock’s Sustainable Investing Framework.

  • Screened: Funds that seek to track indices that eliminate exposure to certain business areas.
  • ESG Broad: Funds that have an explicit ESG objective, which may also include a targeted quantifiable ESG outcome.
  • ESG Thematic: Funds with a focus on a particular Environmental, Social, or Governance theme.
  • Impact: Funds that seek to generate a measurable financial outcome alongside a financial return.

iShares believes that they have an approach for every sustainable investor.

4. The Emerging Climate Trend

Climate change has emerged as a crucial factor for investors to consider, yet investors often aren’t sure how to incorporate climate considerations into their portfolio.

iShares’ approach: iShares has three approaches to climate investing to help investors select the best climate option for them.

  • Reduce exposure to carbon emissions or fossil fuels. For example, this can include minimising or eliminating companies that have high carbon emissions relative to their sector peers.
  • Prioritise companies based on climate risks and opportunities. For example, this can include increasing the weighting of companies based on their commitments to align with Paris Agreement temperature goals.
  • Target climate themes and impact outcomes. For example, this can include investing in a specific sustainable activity or project, such as clean energy.

Based on these approaches, investors can pick an option that meets their climate goals.

5. Company Engagement

Investors want to ensure their sustainable fund provider is driving long-term value through engagement with companies.

iShares’ approach: iShares is backed by BlackRock’s investment stewardship team, which is one of the largest in the industry. The team has 10 offices around the world. This enables the team to have a local presence and frequent dialogue with companies.

In fact, during the 2020-2021 proxy year, BlackRock had 3,650 unique engagements—a new record for the team.

Navigating ESG Challenges

From choosing the right product to engaging with companies, sustainable investors have a lot to consider. iShares can help investors navigate the ESG challenges they face.

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Ranked: Emissions per Capita of the Top 30 U.S. Investor-Owned Utilities

Roughly 25% of all GHG emissions come from electricity production. See how the top 30 IOUs rank by emissions per capita.

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Emissions per Capita of the Top 30 U.S. Investor-Owned Utilities

Approximately 25% of all U.S. greenhouse gas emissions (GHG) come from electricity generation.

Subsequently, this means investor-owned utilities (IOUs) will have a crucial role to play around carbon reduction initiatives. This is particularly true for the top 30 IOUs, where almost 75% of utility customers get their electricity from.

This infographic from the National Public Utilities Council ranks the largest IOUs by emissions per capita. By accounting for the varying customer bases they serve, we get a more accurate look at their green energy practices. Here’s how they line up.

Per Capita Rankings

The emissions per capita rankings for the top 30 investor-owned utilities have large disparities from one another.

Totals range from a high of 25.8 tons of CO2 per customer annually to a low of 0.5 tons.

UtilityEmissions Per Capita (CO2 tons per year)Total Emissions (M)
TransAlta25.816.3
Vistra22.497.0
OGE Energy21.518.2
AES Corporation19.849.9
Southern Company18.077.8
Evergy14.623.6
Alliant Energy14.414.1
DTE Energy14.229.0
Berkshire Hathaway Energy14.057.2
Entergy13.840.5
WEC Energy13.522.2
Ameren12.831.6
Duke Energy12.096.6
Xcel Energy11.943.3
Dominion Energy11.037.8
Emera11.016.6
PNM Resources10.55.6
PPL Corporation10.428.7
American Electric Power9.250.9
Consumers Energy8.716.1
NRG Energy8.229.8
Florida Power and Light8.041.0
Portland General Electric7.66.9
Fortis Inc.6.112.6
Avangrid5.111.6
PSEG3.99.0
Exelon3.834.0
Consolidated Edison1.66.3
Pacific Gas and Electric0.52.6
Next Era Energy Resources01.1

PNM Resources data is from 2019, all other data is as of 2020

Let’s start by looking at the higher scoring IOUs.

TransAlta

TransAlta emits 25.8 tons of CO2 emissions per customer, the largest of any utility on a per capita basis. Altogether, the company’s 630,000 customers emit 16.3 million metric tons. On a recent earnings call, its management discussed clear intent to phase out coal and grow their renewables mix by doubling their renewables fleet. And so far it appears they’ve been making good on their promise, having shut down the Canadian Highvale coal mine recently.

Vistra

Vistra had the highest total emissions at 97 million tons of CO2 per year and is almost exclusively a coal and gas generator. However, the company announced plans for 60% reductions in CO2 emissions by 2030 and is striving to be carbon neutral by 2050. As the highest total emitter, this transition would make a noticeable impact on total utility emissions if successful.

Currently, based on their 4.3 million customers, Vistra sees per capita emissions of 22.4 tons a year. The utility is a key electricity provider for Texas, ad here’s how their electricity mix compares to that of the state as a whole:

Energy SourceVistraState of Texas
Gas63%52%
Coal29%15%
Nuclear6%9%
Renewables1%24%
Oil1%0%

Despite their ambitious green energy pledges, for now only 1% of Vistra’s electricity comes from renewables compared to 24% for Texas, where wind energy is prospering.

Based on those scores, the average customer from some of the highest emitting utility groups emit about the same as a customer from each of the bottom seven, who clearly have greener energy practices. Let’s take a closer look at emissions for some of the bottom scoring entities.

Utilities With The Greenest Energy Practices

Groups with the lowest carbon emission scores are in many ways leaders on the path towards a greener future.

Exelon

Exelon emits only 3.8 tons of CO2 emissions per capita annually and is one of the top clean power generators across the Americas. In the last decade they’ve reduced their GHG emissions by 18 million metric tons, and have recently teamed up with the state of Illinois through the Clean Energy Jobs Act. Through this, Exelon will receive $700 million in subsidies as it phases out coal and gas plants to meet 2030 and 2045 targets.

Consolidated Edison

Consolidated Edison serves nearly 4 million customers with a large chunk coming from New York state. Altogether, they emit 1.6 tons of CO2 emissions per capita from their electricity generation.

The utility group is making notable strides towards a sustainable future by expanding its renewable projects and testing higher capacity limits. In addition, they are often praised for their financial management and carry the title of dividend aristocrat, having increased their dividend for 47 years and counting. In fact, this is the longest out of any utility company in the S&P 500.

A Sustainable Tomorrow

Altogether, utilities will have a pivotal role to play in decarbonization efforts. This is particularly true for the top 30 U.S. IOUs, who collectively serve 60 million Americans, or one-fifth of the U.S. population.

Ultimately, this means a unique moment for utilities is emerging. As the transition toward cleaner energy continues and various groups push to achieve their goals, all eyes will be on utilities to deliver.

The National Public Utilities Council is the go-to resource to learn how utilities can lead in the path towards decarbonization.

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The Road to Decarbonization: How Asphalt is Affecting the Planet

The U.S. alone generates ∼12 million tons of asphalt shingles tear-off waste and installation scrap every year and more than 90% of it is dumped into landfills.

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Road to Decarbonization - How Asphalt is Affecting the Planet

The Road to Decarbonization: How Asphalt is Affecting the Planet

Asphalt, also known as bitumen, has various applications in the modern economy, with annual demand reaching 110 million tons globally.

Until the 20th century, natural asphalt made from decomposed plants accounted for the majority of asphalt production. Today, most asphalt is refined from crude oil.

This graphic, sponsored by Northstar Clean Technologies, shows how new technologies to reuse and recycle asphalt can help protect the environment.

The Impact of Climate Change

Pollution from vehicles is expected to decline as electric vehicles replace internal combustion engines.

But pollution from asphalt could actually increase in the next decades because of rising temperatures in some parts of the Earth. When subjected to extreme temperatures, asphalt releases harmful greenhouse gases (GHG) into the atmosphere.

Emissions from Road Construction (Source) CO2 equivalent (%)
Asphalt 28%
Concrete18%
Excavators and Haulers16%
Trucks13%
Crushing Plant 10%
Galvanized Steel 6%
Reinforced Steel6%
Plastic Piping 2%
Geotextile1%

Asphalt paved surfaces and roofs make up approximately 45% and 20% of surfaces in U.S. cities, respectively. Furthermore, 75% of single-family detached homes in Canada and the U.S. have asphalt shingles on their roofs.

Reducing the Environmental Impact of Asphalt

Similar to roads, asphalt shingles have oil as the primary component, which is especially harmful to the environment.

Shingles do not decompose or biodegrade. The U.S. alone generates ∼12 million tons of asphalt shingles tear-off waste and installation scrap every year and more than 90% of it is dumped into landfills, the equivalent of 20 million barrels of oil.

But most of it can be reused, rather than taking up valuable landfill space.

Using technology, the primary components in shingles can be repurposed into liquid asphalt, aggregate, and fiber, for use in road construction, embankments, and new shingles.

Providing the construction industry with clean, sustainable processing solutions is also a big business opportunity. Canada alone is a $1.3 billion market for recovering and reprocessing shingles.

Northstar Clean Technologies is the only public company that repurposes 99% of asphalt shingles components that otherwise go to landfills.

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