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ASSESSMENT OF THE CONSERVATION STATUS OF THE HAWKSBILL TURTLE IN THE INDIAN OCEAN AND SOUTH-EAST ASIA REGIONNEW1 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|Robert Baldwin*Five Oceans Environmental ServicesMuscat,OmanKatia BallorainCEDTM-Centre dEtude et de Dcouverte des Tortues MarinesSaint Leu,La RunionJrme Bourjea*IFREMERSte Cedex,FranceStephane CiccioneKeloniaSaint Leu,La RunionAndrew CookeRESOLVE sarlAntananarivo,MadagascarHeidrun Frisch-NwakanmaSecretariat,IOSEA Marine Turtle MOUBonn,GermanyChristine Madden HofWWF AustraliaBrisbane,AustraliaEmi InoguchiEverlasting Nature of AsiaKanagawa,JapanNicole EstebanSwansea UniversitySwansea,WalesJarina Mohd Jani*Universiti Malaysia TerengganuTerengganu,MalaysiaClaire JeanKeloniaSaint Leu,La RunionKongkiat KittiwattanawongThailand GovernmentThailandDeasy LontohAbun Leatherback Project,University of Papua,Manokwari,IndonesiaMuralidharan ManoharakrishnanDakshin FoundationBangalore,IndiaNaveen NamboothriDakshin FoundationBangalore,IndiaRonel Nel*The Nelson Mandela UniversityPort Elizabeth,South AfricaKimberly RiskasUniversity of QueenslandBrisbane,AustraliaRizza Araceli F.SalinasPhilippines Biodiversity Management BureauPhilippinesKartik ShankerCentre for Ecological SciencesIndian Institute of Science Bangalore,IndiaManjula Tiwari*Ocean Ecology Network,Research Affiliate of:NOAA-FisheriesLa Jolla,USACasper Van De GeerUniversity of ExeterCornwall,EnglandRyan WalkerThe Ecology Co-op West Sussex,EnglandLindsey WestSea SenseDar es Salaam,TanzaniaScott Whiting*Department of Biodiversity,Conservation and AttractionsPerth,Australia*Member of the Advisory Committee for the IOSEA Marine Turtle MOUAssessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia RegionAUTHORSMark Hamann1,2,Freya Flavell1,Jack Frazier2,3,Colin J.Limpus2,4,Jeff D.Miller2,5,Jeanne A.Mortimer6 AFFILIATIONS 1.College of Science and Engineering,James Cook University,Townsville,Australia2.Advisory Committee,IOSEA Marine Turtle MOU 3.National Museum Natural History,Smithsonian Institution,New York,USA4.Queensland Department of Environment and Science,Brisbane,Australia5.Biological Research and Education Consultant,Montana,USA6.Turtle Action Group of Seychelles(TAGS),P.O.Box 1443,Victoria,Mah,Seychelles;Department of Biology,University of Florida,Gainesville,Florida,USAACKNOWLEDGEMENTS AND CONTRIBUTIONS2|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia RegionLAYOUTDunia Sforzin,CMS SecretariatPROOFREADINGAna Berta GarciaCOVER IMAGEHawksbill Turtle:Olga TsaiISBN:978-3-937429-34-2 2021 CMS.This publication may be reproduced in whole or in part and in any form for educational and other non-profit purposes without special permission from the copyright holder,provided acknowledgement of the source is made.The CMS Secretariat would appreciate receiving a copy of any publication that uses this publication as a sour-ce.No use of this publication may be made for resale or for any other commercial purposes whatsoever without prior permission from the CMS Secretariat.DISCLAIMER The designations employed and the presentation do not imply the expression of any opinion whatsoever on the part of CMS or contributory organisations concerning the legal status of any country,territory,city or area in its authority,or concerning the delimitation of its frontiers or boundaries.Copies of this publication are available from the IOSEA website:https:/www.cms.int/en/publication/assessment-con-servation-status-hawksbill-turtle-indian-ocean-and-south-east-asia-region 3 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|Table of Contents1.Preface.72.Introduction.83.Hawksbill Turtle Synthesis.10Summary population identification.10Summary nesting .10Summary foraging.114.Areas within the IOSEA Region of Known Importance for Hawksbill Turtles.12Important Nesting Sites.12IOSEA Site Network Localities .12Important non-nesting sites.125.Gaps in the Biological Information.15Population structure.15Life history attributes.156.Key Pressures on Hawksbill Turtles of the IOSEA Region.16The tortoiseshell trade a summary.16Bycatch in legal fisheries .16Illegal use and Illegal,Unreported and Unregulated(IUU)Fishing .17Human interactions.18Climate change.18Marine debris and plastic pollution.217.Southwest Pacific Ocean.22North Queensland Management Unit.22Ecological range.22Geographic spread of foraging sites.22Geographic spread of nesting.26Trends in nesting data.26Threats to the population.26Management status and governance.26Management and protection.26Biological data breeding.27Biological data foraging.27Northeast Arnhem Land Management Unit.27Ecological range.27Geographic spread of foraging sites.27Trends in Nesting Data.28Geographic spread of nesting.28Threats to the population.29Migration and distribution of foraging areas.30Management and protection.30Management and governance.30Biological data breeding.30Biological data foraging.314|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region8.West Pacific/Southeast Asia.32Sulu Sea Management Unit.32Ecological range.32Geographic spread of foraging sites.32Geographic spread of nesting.32Trends in nesting data.33Migration and distribution of foraging areas.34Threats to the population.34Management and protection.37Biological data breeding.38Biological data foraging.38Western Peninsular Malaysia Management Unit.39Ecological range.39Geographic spread of foraging sites and migration.39Geographic spread of nesting.39Trends in nesting data.39Threats to the population.39Management and protection.42Biological data breeding.43Biological data foraging.43Gulf of Thailand Management Unit(s)(Putative).43Ecological range.43Geographic spread of foraging sites.43Geographic spread of nesting.43Trends in nesting data.43Threats to the population.44Biological data breeding.45Management and protection.45Biological data foraging.45Philippines.45Nesting.45Foraging.45Migration.45Threats.48Management and protection.48Indonesia.48Indonesia South China Sea,Java Sea,West and South Sulawesi.50Indonesia Aceh,West Sumatra,Bengkulu,East Java,West Java,and Nusa Tenggara Provinces.51Indonesia East Kalimantan and Celebes Sea regions.51Indonesia North and Central Sulawesi.51Indonesia Southeast Sulawesi,Maluku,North Maluku,West Papua,and Papua Provinces.53Viet Nam.54Singapore.54Timor Leste.545 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|9.Southeast Indian Ocean.56Eastern Indian Ocean Management Unit(Western Australia).56Ecological range.56 Geographic spread of foraging sites.56Geographic spread of nesting.56Trends in nesting data.56Threats to the population.56 Management and governance.57Management and protection.57 Biological data breeding.59Biological data foraging.5910.Southwest Indian Ocean.60Western/Central Indian Ocean Management Unit.60Ecological range.60 Geographic spread of foraging sites.60Geographic spread of nesting.60 Trends in nesting data.60Migration and distribution of foraging areas.63Threats to the population.63 Management and protection.63 Biological data breeding.64Biological data foraging.64Broader Southwest Indian Ocean.64Geographic spread of foraging sites.64Geographic spread of nesting.64Migration and distribution of foraging areas.68Threats to the population.69 11.Northwest Indian Ocean.70Persian Gulf Management Unit.70 Ecological range.70 Geographic spread of foraging sites.70Geographic spread of nesting.70 Trends in nesting data.73Migration and distribution of foraging areas.75Threats to the population.75 Management and protection.76 Biological data.78Red Sea(including the Gulf of Aden)Management Unit(s)(putative).79 Ecological range.81 Geographic spread of foraging sites.81Geographic spread of nesting.81 Trends in nesting data.81Migration and distribution of foraging areas.81Threats to the population.83 Management and protection.85 6|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia RegionBiological data breeding and foraging.87Maldives.87 Geographic spread of foraging sites.87Geographic spread of nesting.89Trends in nesting data.89Migration and distribution of foraging areas.89Threats to the population.89Biological data on nesting and foraging.9012.Northeast Indian Ocean.92Myanmar.92 Geographic spread of foraging sites.92Geographic spread of nesting.92 Trends in nesting data.92Migration and distribution of foraging areas.92Threats to the population.92 Biological data on nesting and foraging.92Bangladesh.92 Geographic spread of foraging sites.92Geographic spread of nesting.92 Migration and distribution of foraging areas.92Threats to the population.92 Biological data on nesting and foraging.92India and Western Thailand.92 India.92 Geographic spread of foraging sites.92Geographic spread of nesting.93 Migration and distribution of foraging areas.93Threats to the population.93 Western Thailand.93Threats to the population.93Sri Lanka.93 Geographic spread of foraging sites.93Geographic spread of nesting.93 Migration and distribution of foraging sites.94Threats to the population.94Biological data on nesting and foraging.9413.References.95 7 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|1.Preface The Memorandum of Understanding on the Conservation and Management of Marine Turtles and their Habitats of the Indian Ocean and South-East Asia(IOSEA Marine Turtle MOU),with its associated Conservation and Management Plan(CMP),is a non-binding framework under the Convention on the Conservation of Migratory Species of Wild Animals(Convention on Migratory Species,CMS).Through the MOU,states of the Indian Ocean and South-East Asia(IOSEA)region work together to conserve and replenish depleted marine turtle populations for which they share responsibility.The IOSEA Marine Turtle MOU took effect in September 2001 and as of May 2021 has 35 Signatory States.Supported by an Advisory Committee(AC)of eminent scientists and complemented by the efforts of numerous citizens groups,nongovernmental,and intergovernmental organisations,Signatory States are working towards the implementation of a comprehensive Conservation and Management Plan,which is an integral part of the MOU.Aware of the importance of compiling and making available up-to-date information on the status of marine turtle species covered by the MOU,particularly in order to identify and address gaps in basic knowledge and necessary conservation actions,the IOSEA Signatory States have commissioned a series of region-wide species assessments.Accordingly,in 2006 the IOSEA Secretariat published the first-ever species report:Assessment of the conservation status of the leatherback turtle in the Indian Ocean and South-East Asia,which not only provided a comprehensive review of biological and ecological aspects of the leatherback,Dermochelys coriacea(Vandellius,1761),but also covered legislative provisions as well as aspects of conservation related to nesting,foraging,and migratory phases.This was followed in 2013 by the release of the Assessment of the conservation status of the loggerhead turtle in the Indian Ocean and South-East Asia.Importantly,both the leatherback and loggerhead,Caretta caretta(Linnaeus,1758),assessments also included detailed recommendations and proposals for addressing deficiencies in both basic information and conservation measures that had been identified.The leatherback assessment was thoroughly reviewed and updated in 2012 to reflect new information and developments.Both the updated leatherback assessment and the loggerhead assessment are published online and remain available for free download from the CMS/IOSEA Marine Turtle MOU website1.The IOSEA Advisory Committee recommended that the hawksbill turtle,Eretmochelys imbricata(Linnaeus,1766)should be the next species to be treated by a comprehensive assessment,a decision which was approved by the Signatory States.Similar to the assessment of the loggerhead turtle,we herein review the status of the hawksbill turtle with regard to its distinct management units.We collated and synthesised information from the scientific and grey literature,national reports from Signatory States to the IOSEA,and experts within each of the four IOSEA sub-regions,namely:Western Indian Ocean(WIO),North-western Indian Ocean(NWIO),Northern Indian Ocean(NIO),and South-East Asia and Australia(SEA ).1 https:/www.cms.int/iosea-turtles/en/publications/technical-reports8|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region2.Introduction The hawksbill turtle(Eretmochelys imbricata(Linnaeus,1766)occurs in all of the worlds tropical and temperate oceans.Hawksbill turtle nesting is widespread and in some areas abundant within the Indian Ocean and South-East Asia(IOSEA)region.As is common for widely distributed and long-lived marine species,determining the hawksbills conservation status at management-relevant scales has been challenging(Meylan and Donnelly 1999;Mortimer and Donnelly 2008;Wallace et al.2011;FitzSimmons and Limpus 2014).Similar to other marine turtle species,the hawksbill turtle is comprised of numerous individual populations,which nest in separate locations to one another and often display distinct life cycle characteristics(FitzSimmons and Limpus 2014).Yet different nesting populations may also share nursery and foraging areas(Vargas et al.2016;Bell and Jensen,2018).As a result,conducting global status assessments(e.g.IUCN Red List framework)has proven challenging and sometimes controversial(Godfrey and Godley 2008).However,for conservation strategies to be effective,it is crucial to identify the relationships between the geographic areas used by each population,thereby allowing the identification of anthropogenic threats and impacts at the population level(FitzSimmons and Limpus 2014)and the implementation of effective management.There have been several attempts to categorise marine turtles into distinct population units below the species level,but above the nesting population level.The development of population genetics was used to determine genetically distinct populations,and subsequently to classify these populations as stocks or management units(as per Moritz 2002).The IOSEA region hosts at least eight hawksbill management units that nest within the region;a ninth management unit nests just outside the IOSEA,although non-reproductive individuals occur within the region(FitzSimmons and Limpus 2014;Vargas et al.2016).Moreover,additional management units could potentially occur in various locations throughout the IOSEA region where hawksbills nest but where no genetic data are available(FitzSimmons and Limpus 2014).Given that knowledge gaps in genetic structure exist for many regions of the world,Wallace et al.(2010a)introduced the concept of regional management units(RMUs)for all seven marine turtle species.Regional Management Unit(RMU)IOSEA Signatory States with documented hawksbill turtle nestingGenetic stocks included as per FitzSimmons and Limpus(2014)Northwest Indian OceanDjibouti,Egypt,Eritrea,India(Lakshadweep Islands),Iran,Kuwait,Maldives,Oman,Qatar,Saudi Arabia,Sudan,United Arab Emirates,YemenOf the turtle rookeries in Persian Gulf,only Iran and Saudi Arabia rookeries have been sampled for genetics.Persian Gulf MU Turtles from rookeries in India,Maldives,Oman,Yemen and from countries in the Red Sea are yet to be sampled.Southwest Indian OceanSeychelles,Chagos,Madagascar,Mozambique,Tanzania,Kenya,Comoros,Mauritius,French Overseas Departments of La Runion and MayotteOnly rookeries in the Seychelles and Chagos were sampled for genetic population structure.Western/Central Indian Ocean MU.Northeast Indian OceanSri Lanka,India(Nicobar and Andaman Islands),Thailand,Myanmar,BangladeshNo sampling for genetic population structure.Southeast Indian OceanAustralia(Western Australia)One management unit identified(eastern Indian Ocean,Western Australia)(Eastern Indian Ocean(MU).West Pacific/Southeast AsiaThailand,Malaysia,Indonesia,Philippines,Viet Nam,plus Singapore(not an IOSEA MOU signatory state)Sulu Sea(Malaysia)MU,Gulf of Thailand(Kho Kram)(possible MU)and western Peninsular Malaysia MU have been assessed.Rookeries in Indonesia,Singapore,Viet Nam,and Phil-ippines have not been assessed for genetic population structure.West Central Pacific Indonesia(West Papua)No sampling for genetic population structure.Southwest PacificAustralia(Northern Territory and Queensland),Papua New Guinea,plus Solomon Islands(not an IOSEA MOU signa-tory state)Three management units identified:North Queensland MU,Northeast Arnhem Land MU,and outside the IOSEA region Solomon Islands MU.No sam-pling for genetic population struc-ture has occurred in Papua New Guinea.Table 2.1.Outputs from the Wallace et al.(2010a)designations in the IOSEA region and the genetic stocks(management unit)designation by FitzSimmons and Limpus(2014).9 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|They identify seven RMUs for hawksbill turtles in the IOSEA,although six of them were considered putative(i.e.based on nesting records but lacking other biological or genetic evidence)and may require modification as more data become available.Together,these approaches identify the most appropriate management units(MUs)for hawksbill turtles(Table 2.1).There has been considerable debate about the most effective scale at which to undertake this review.The approach used by Wallace et al.(2011)aimed to assess each of the RMUs in terms of population risk levels(based on current population size,recent and long-term trends in nesting population size,rookery vulnerability,and genetic diversity)and existing threat levels(e.g.fisheries bycatch,direct take,coastal development,pollution and pathogens,and climate change).In doing so,they identified RMUs which could be considered the most threatened at a global scale,and also highlighted existing gaps in necessary conservation information.Two of the hawksbill turtle RMUs that were scored as both High Risk and High Threat(HR-HT)were within the IOSEA region:1)the Northeast Indian Ocean RMU,comprising management units in the Persian Gulf and also putative rookeries in the Red Sea and 2)the West Pacific/Southeast Asia RMU.In compiling our assessment on hawksbill turtles in the IOSEA region,we organised the region into RMUs and then use the genetic stocks approach as per the loggerhead assessment(see Hamann et al.2013a)based on the designations in FitzSimmons and Limpus(2014).For each of the recognised stocks,we harmonise information from the scientific and grey literature,national reports from Signatory States to the IOSEA,and expert opinion.10|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region3.Hawksbill turtle synthesis The hawksbill turtle has a global distribution and occurs in at least 97 countries,45 of which are within the IOSEA region and 35 of which are Signatory States to the IOSEA Marine Turtle MOU.In 1996 and again in 2008,the species was assessed at the global level as Critically Endangered by the IUCN Species Survival Commission.Meylan and Donnelly(1999)and Mortimer and Donnelly(2008)provide the supporting information for the 1996 and 2008 assessments,respectively.Summary population identification There are seven RMUs for hawksbill turtles in the IOSEA region:four in the Indian Ocean,one in South-East Asia,and two in the Indo-Pacific(Wallace et al.2010a).Within these RMUs,there are at least nine currently identified distinct populations/management units of hawksbill turtles that nest within the IOSEA region,and at least one management unit that occurs in the IOSEA region but contains hawksbills that nest in adjacent habitat(i.e.Solomon Islands)(see Figure 3.1 adapted from FitzSimmons and Limpus(2014)and Vargas et al.2016;2020 and Table 2.1).These nine management units have been classified as distinct based on a combination of genetic data and knowledge of reproductive behaviour.While the nesting populations are distinct,individuals from more than one population may use the same foraging areas.Research on hawksbill population genetics is ongoing,so it is likely that additional management units exist and are awaiting identification and further study.Summary nestingHawksbill turtles currently nest in at least 32 nations within the IOSEA region.All of these countries are Signatory States to the IOSEA Marine Turtle MOU except Singapore,Qatar,Djibouti,and Kuwait.There are no recent records to indicate whether hawksbill turtles still nest in Somalia,Viet Nam,Cambodia,or Bangladesh.Hawksbill turtle nesting also occurs in the Solomon Islandswhich is outside of the IOSEA regionbut nesting turtles from the Solomon Islands are known to migrate into Australian and Papua New Guinean waters.Figure 3.1.Distribution of hawksbill turtle nesting within the IOSEA region(after FitzSimmons and Limpus,2014).Pink dots denote rookeries with quantified nesting and the size of the dot reflects the relative abundance.Red dots denote beaches where unquantified nesting has been recorded.Yellow circles indicate genetically distinct management units.Data source:https:/apps.information.qld.gov.au/TurtleDistribution/11 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|Summary foragingData from capture-mark-recapture studies,tag recoveries,satellite telemetry,and fisheries bycatch indicate that hawksbill turtles have been recorded within the Exclusive Economic Zones(EEZs)of most of the Signatory States of the IOSEA Marine Turtle MOU.In addition,hawksbill turtles have been recorded in the waters of most neighbouring countries(e.g.non-Signatory States China,Japan,Solomon Islands).Population and biological studies on foraging turtles have been conducted in Australia,Seychelles,Chagos,Europa Island,the Persian Gulf region,and Indonesia.12|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region4.Areas within the IOSEA region of known importance for hawksbill turtles Important nesting sitesIndex nesting beachesNesting beaches,or Index nesting beaches,can be used as a first level approach to designate areas of importance for hawksbill turtles.An“Index Site/Beach”as broadly defined by Eckert and Eckert(2012:7)is“a nesting beach(or series of nesting beaches)where the consistent application of standardized population moni-toring protocols ensures that data collected are suitable for long-term analyses of population abundance and/or trend.Sampling strategies at each index site should be structured in a manner that allows inference to the entire nesting population of interest”and the ability to detect changes with a prescribed level of confidence.However,while this broad definition is a useful starting point for the determination of important nesting sites,the diligent,consistent long-term application of stand-ardised monitoring protocols for some index beaches could,if employed alone,be of limited use for inferring“entire nesting population”size and/or trends.Monitored index beaches are typically sites that are well protected(for example,strict nature reserves or national parks)and so do not usually represent the status or health of other nesting sites where protection is more limited or non-existent.In fact,simply the presence of monitoring personnel at a nesting beach will provide an added level of protection for nesting turtles.Because there are numerous critical questions for hawksbill turtles across the IOSEA region,a better understanding of population dynamics is needed.In particular,reproductive ecology(e.g.,aspects of nesting site fidelity,clutch frequency and size),recruitment,sex ratios at different life stages,survivorship,mortality,and the relationship(s)between these factors and bio-physical factors need to be studied further.Acquiring knowledge about these will require long term systematic survey programs that will aid in the abil-ity to use abundance data from nesting beaches to make defensible population inferences.Index beaches have been established for six of the seven known genetically distinct hawksbill populations(Management Units)and at the same time for each of the five Regional Management Units(RMUs)in the IOSEA region(Table 4.1).Two or more known management units,and thus multiple index sites,commonly comprise a single RMU.And while RMUs are a useful first-order classification,which are used in IUCN Red List assessments,focused management decisions rely on genetically distinct populations or man-agement units.Signatory States of the IOSEA Marine Turtle MOU generally focus management at the genetic stock level.Importantly,as genetic-based research continues to expand in geographic scope and sample sizes,and as techniques improve,the number of known genetically distinct popula-tions in each RMU,and more specifically in the IOSEA region,is likely to grow in number.IOSEA Site Network localitiesHawksbill turtles are listed as one of the key values/assets used in the designation of nine of the 11 Sites in the IOSEA Marine Turtle MOUs Network of Sites of Importance for Marine Turtles in the Indian Ocean South-East Asia Region(IOSEA Site Network),because the presence of hawksbill turtles has ecological,social,cultural,and/or economic importance for the sites.These nine sites in the Network are Europa Island(French Southern and Antarctic Lands),Sheedvar Island(Islamic Republic of Iran),Turtle Islands Wildlife Sanctuary(Philippines),Aldabra Atoll(Seychelles),Bu Tinah Shoal and Sir Bu Naair(UAE),Rufiji-Mafia Seascape(United Republic of Tanzania),Itsamia(Comoros),and Con Dao National Park(Viet Nam)2.Important non-nesting sitesMigrationDespite common perceptions,hawksbills disperse and migrate over different areas.The most extensive work on hawkbill turtle migration in the IOSEA region is from the Persian Gulf.Between 1999 and 2015 post-nesting female turtles were tracked from ten rookeries in four countries(n=90 turtles)by Pilcher et al.(2014a),three rookeries in Qatar(n=14 turtles)by Marshall et al.2020 and two rookeries in Kuwait(n=4)by Rees et al.(2019).The turtles demonstrated high individual variation in their migration routes and revealed foraging destinations around the south and southwest Persian Gulf and Omani coast of the Arabian Sea,including a confluence of routes around Ras Al Hadd in Oman.Migration routes were predominantly coastal.In addition,Pilcher et al.(2014b)and Marshall et al.(2020),but not Rees et al.(2019),found that turtles use cool water refuge areas during the summer months.Pilcher et al.(2014a,b)used data collected between 1999 and 2012 on migration routes to identify important turtle areas for hawksbill turtles in the Persian Gulf.In addition,data from other satellite tracking,recovery of flipper tags,and genetic sampling from turtles in foraging areas in the IOSEA region indicate turtles are migrating across national and international boundaries,and turtles from more than one management unit can share foraging sites.Continued use of satellite tracking will improve understanding of important migratory routes and genetic-based research on turtles in foraging sites will help identify patterns of 2 https:/www.cms.int/iosea-turtles/en/activities/site-network.13 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|Index nesting sitesCountry(or territory)Management unit(MU)as per FitzSimmons and Limpus(2014),Tabib et al.(2014)and Vargas et al.2016)RMU(Wallace et al.2010a)Milman IslandAustraliaNorth Queensland Pacific southwestNortheast Island(Groote Eylandt)(established but not currently monitored)AustraliaNortheast Arnhem Land Pacific southwestRosemary IslandAustraliaEast Indian OceanSoutheast Indian OceanPulau Momperang/Peserat,P.Kimar(Belitun Is),P.Segama,P.PenambunIndonesia Not yet defined.Given Indonesia straddles the equator and extends east-west over 45 degrees of longitude it is likely more than one MU will be iden-tified.Southeast AsiaPulau Gulisaan P.Selingan,P.BakkanganMalaysia(Sabah)Sulu Sea Southeast AsiaTerengganu and Pahang States(e.g.Pulau Redang,P.Tioman).Malaysia(Peninsula east)Not yet definedSoutheast AsiaKo KramThailandGulf of Thailand postulated Southeast AsiaBeaches in Melaka StateMalaysia(Peninsula west)Western Peninsula Malaysia Southeast AsiaAll beaches of SingaporeSingaporeNot yet definedSoutheast AsiaSheedvar,Qeshm and KishIranPersian Gulf.The Persian Gulf possibly includes more than one MUNorthwest Indian OceanJana,KaranSaudi Arabia Persian GulfNorthwest Indian OceanSir Bu Nair,Jebel AliUAEPersian GulfNorthwest Indian OceanFuwairitQatarPersian GulfNorthwest Indian OceanDiego Garcia Chagos ArchipelagoWestern Indian OceanSouthwest Indian OceanBeaches across the granitic and outer islands.Seychelles Western Indian Ocean.Sampling turtles from other rookeries in the southwest Indian Ocean could identi-fy additional genetically distinct populations,or link them to presently recog-nised MU(s)Southwest Indian OceanBeaches across the granitic and outer islands.Seychelles Western Indian Ocean.Sampling turtles from other rookeries in the southwest Indian Ocean could identi-fy additional genetically distinct populations,or link them to presently recog-nised MU(s)Southwest Indian OceanTable 4.1.Index nesting sites within the IOSEA region 14|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Regionconnectivity among and between foraging and nesting sites(which has been done for the south-west Pacific by Bell and Jensen 2018).Important foraging and refuge sitesThe concept of index sites can also be applied for standardised monitoring of designated sites for refuge and/or foraging turtles.Within the IOSEA region monitoring of foraging hawksbill turtles occurs in Australia(e.g.the Great Barrier Reef and Cocos(Keeling)Island),Chagos(Diego Garcia),and the Seychelles(granitic and outer islands).In addition,there are dive-industry based“citizen-scientist”sightings projects being initiated/underway in Egypt,Malaysia,Maldives,Mayotte,Mozambique,Philippines,Seychelles and Thailand,which all collect data on in-water sightings of hawksbill turtles(e.g.Williams et al.2015;Hudgins et al.2017;Long and Azmi 2017;Mancini and Elsadek 2019).However,while the non-nesting distribution,abundance and biological characteristics of hawksbill turtles are knowledge gaps for most of the IOSEA region,it is generally recognised that hawksbills are generally associated with coral or rocky reef habitats.Although recent research in the eastern Pacific Ocean and Galapagos has identified confined inshore estuarine bays,even mangrove habitats,as important for foraging and nesting hawksbill turtles(e.g.Alarcon et al.2019;Gaos et al.2012;2016),this habitat association is not well described from the IOSEA region.Therefore,at present,we can use just the presence of coral or rocky reef habitats in tropical waters as a starting proxy for the distribution of potentially important foraging and refuge habitats for hawksbill turtles.Since at least 2000,the distribution and status of coral reef habitats across the IOSEA has received increasing attention and has been well mapped across most of the region using combinations of satellite imagery,aerial photos and field-based surveys(UNEP-WCMC,WorldFish Centre,WRI,TNC(2021).Coral reef habitats occur in all IOSEA nations except Iraq(Wilkinson 2008;GCRMN 2021)and vary in their size(spatial area Spalding et al.2001;Wilkinson 2008;GCRMN 2021),status and condition(generally measured as a change in the percentage of hard coral cover)(Wilkinson 2008).In addition,non-coral,rocky-reef systems also occur throughout the IOSEA region,however these are less commonly mapped(e.g.north-western Australia).Coral reefs throughout the IOSEA region face combinations of common threats,from rising sea surface temperatures,pollution,fisheries-related impacts,tourism,breakage,and coastal development(Wilkinson 2008;GCRMN 2021).The status of the worlds coral reefs and summaries for all regions can be downloaded from(https:/ Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|5.Gaps in the biological information Population structureIn the IOSEA region,there is a key need for genet-ic research to be done on hawksbill turtle rookeries in Comoros,Djibouti,Egypt,Eritrea,France(La Runion),India,Indonesia,Kenya,Madagascar,Maldives,Mauritius,Mozambique,Myanmar,Oman,Philippines,Saudi Arabia(Red Sea),Sri Lanka,Sudan,Tanzania,Timor Leste,and Yemen to identify a complete suite of genetic-based man-agement units.Such research would provide a foundation for future status assessments and conservation activi-ties.Additionally,several IOSEA Signatory States whose sovereignty covers vast maritime areas and numerous islands separated by great distancessuch as France(La Runion),Indonesia and Seychellesmay be found to host more than one management unit,each of which may require different conservation plans and actions.In the Asia-Pacific region,a Marine Turtle Genetic Working Group was established in 2020 to enhance the technical capacity,standardise methodologies,identify research priorities,and establish a regional collaborative network to facilitate genetic studies in support of national and international marine turtle management and protection efforts.This Working Group currently has 60 members,with genetic sample collection and analysis underway in some of the priority areas noted above.In the southwest Indian Ocean,the continued genetic sampling of turtle rookeries under the INTERREG V(Reunion Island and Mayotte;Indian Ocean)project is collecting important in-formation about genetic population structure and could possibly reveal new hawksbill management units.Life history attributes A.Nesting populationsThere are substantial gaps in our knowledge of life history attributes for most hawksbill turtle nesting sites in the IOSEA region.The specific gaps vary between locations,and details can be found for each population by referring to the corresponding section of this report.Data on life history attributes are necessary for the development of accurate population models used in designing and implementing effective management plans.It is preferable that life history parameters be collected from at least one rookery for each management unit.Common gaps in life history attributes,evident in most management units,are attributable to missing or limited data on the following:Sampling for genetic mtDNA profiles Annual census figures at representative nesting beaches to quantify the number of females nesting per season,or the number of clutches laid per season,or the number of tracks(nesting attempts)made per season Quantified mortality estimates from anthropogenic and non-anthropogenic sources across all life history stages Quantified key demographic parameters including:the average number of clutches laid per female per year/nesting season the average number of years between breeding/nesting seasons for individual turtles the rate of female and male recruitment into the breeding population survivorship of adult females incubation success and hatchling recruitment Temperature profiles for incubation and hatchling sex ratios Information on habitat use during migration and inter-nesting periodsB.Non-reproductive populationsWithin the IOSEA region,there are substantial gaps in our knowledge of hawksbill turtle foraging areas,habitat use(oceanic and coastal),diet,growth,age,and survivorship.Additionally,while there have been numerous tracking and foraging area studies undertaken on populations in Australia,Seychelles,and the Persian Gulf,few published data on migration and home range exist for other populations.C.Oceanic post-hatchling populationsWithin the IOSEA region,there is a major knowledge gap regarding the distribution and abundance of these small,planktivorous hawksbill turtles and the threats associated with this life history stage.In other ocean basins,it is now being recognised that ingestion of fragmented hard plastic debris is a significant threat to post-hatchling turtles of all species.Within the Arafura Sea region,post-hatchling hawkbill turtles are among the most common turtles found entangled in ghost nets.Larger post-hatchling hawksbill turtles are at risk of being hooked in longline fisheries of the oceanic IOSEA region.16|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region6.Key pressures on hawksbill turtles of the IOSEA regionThe tortoiseshell trade a summaryThe information and status of hawksbill turtles sum-marised in this report needs to be considered in the con-text of the large-scale commercial trade in tortoiseshell products that has existed across the Indian Ocean region for some 2,000 years,with the trade intensifying in scope and volume since the 18th century.The global trade and its impact on hawksbill turtle populations has been well summarised by Milliken and Tokunaga(1987),Groom-bridge and Luxmoore(1989),Meylan and Donnelly(1999),and Mortimer and Donnelly(2008).While it is recognised that the international and domestic commercial trade of hawksbill turtles and/or their eggs dates back to the 9th century,demand for hawksbill turtle shell(scutes)to make tortoiseshell products rapidly expanded in the 17th century.For example,data on the trade of hawksbill tur-tle shell from the Seychelles between 1884 and 1982 indi-cate an annual trade of around 1,079 kg per year(Figure 6.1b).In the 20th century,the manufacture of products from hawksbill turtle shell became an established indus-try,which was largely concentrated in Japan but also oc-curred in most developed nations(Mortimer and Donnel-ly 2008).In the latter half of the 20th century,trade was well documented in national trade records(see Groom-bridge and Luxmoore(1989)for a summary).Around 1.3 million large-sized hawksbill turtles and 310,598 kg(8,394 per year)of raw hawksbill shell(bekko)was imported by Japan from countries in the IOSEA region between 1950 and 1992(Figure 6.1a).There are various weights cited in the literature to convert a kilogram of hawksbill turtle shell to the number of whole turtles.Using the conver-sions of 0.92 kg and 1.5 kg as equivalents for one turtle,between 285,000(7,722 per year)and 465,000(10,500 per year)hawksbill turtles were killed in the IOSEA region from 1950 and 1992 in order to supply Japan with raw turtle shell.At least 20 countries exported turtles for the trade,predominantly Indonesia,Tanzania,and the Philip-pines.Trade from IOSEA nations into Hong Kong,Korea,Sri Lanka,Taiwan,Europe,and the USA also occurred.In addition to the raw shell trade,there was considerable trade of other hawksbill turtle products(e.g.eggs,skin,stuffed turtles,processed shell).The hawksbill turtle was included on Appendix I of the Convention on Internation-al Trade in Endangered Species(CITES)in 1977.By 1990,Japan began to reduce its imports under international pressure,and in 1992 withdrew its reservation for marine turtles under CITES Appendix II and officially ceased its involvement in the international trade of marine turtle products.Following the closure of the Japanese bekko industry,there was an increase in the capture of hawksbill turtles to produce stuffed turtles with polished carapaces.Vessels from China and Viet Nam have been apprehended in the Philippines,Malaysia,Indonesia,and Australia for illegally taking,trading,or storing hawksbill turtles(IOSEA 2014;Miller et al.2019).Bycatch in legal fisheriesIncidental capture(bycatch)in legal fisheries is recognised across the world as a significant threat to marine turtle populations(Alverson et al.1994;Lewison Figure 6.1.(a)Kilograms of raw hawksbill shell use per year exported from the Seychelles and(b)Kilograms of unwor-ked bekko(hawksbill shell)imported into Japan from IOSEA nations per year between 1950 and 1986.Data extracted from Groombridge and Luxmoore(1989),tables 102 and 177,respectively.17 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|et al.2004;Bourjea et al.2008;Wallace et al.2010b).In general,the three major gear types shown to have the highest impact on marine turtles are gillnets,bottom trawls,and longlines.However,for most fisheries and especially artisanal fisheries,there are few quantitative studies from which to understand the severity of the threat.The same generality applies to the IOSEA region,where legal fisheries are considered to be a key threat to marine turtles,although quantitative data are not common(Bourjea et al.2008;Williams et al.2019).The governments of Signatory States of the IOSEA Marine Turtle MOU and fisheries regulatory bodies(e.g.IOTC,SIOFA,SPRFMO,WCPFC)have implemented bycatch reduction and/or observer programmes aimed at mitigating the issue and understanding the scale of impact.Management measures include a suite of operational controls(e.g.turtle excluder devices(TEDs),limits to trawl length and set times,fixed set depths,setting restrictions,bait and hook type)and spatial and temporal closures.However,the effectiveness of mitigation is rarely evaluated,and bycatch records are usually examined at the level of individual fisheries,making cumulative impacts hard to understand(Riskas et al.2016).We found 15 publications on marine turtle bycatch in the IOSEA region that were published during the past 12 years.Eleven of these described bycatch in fisheries operating in the southwest Indian Ocean,two in South-East Asia,and two in the northern Indian Ocean.Collectively,the papers indicate that bycatch of hawksbill turtles from longline and purse seine fisheries(oceanic fisheries)is very low,while bycatch from gillnets and coastal artisanal fisheries are likely to have the highest impact.The studies also indicate that bycatch is spatially and temporally variable and usually low in magnitude,making statistical analysis challenging.Two of the key challenges are to quantify the bycatch in coastal fisheries and to couple bycatch monitoring with tissue sampling to enable genetic-based stock assessments of IOSEA hawksbill turtles.Purse seine fisheries,however,involve two sources of sea turtle mortality.While turtle by-catch in the purse seines themselves appears relatively low,damage caused by drifting Fish Aggregating Devices(dFADs)used to attract their catch is more significant(Esteban et al.2021).The use of FADs has expanded greatly since the turn of the millennium,and tens of thousands of FADs are dumped into the Indian Ocean each year and in most cases are not recovered.One of the dangers of FADs is that once they are lost they continue to fish at full potential(Stelfox et al.2016).Because most FADs are constructed from discarded fishing net they are associated with large amounts of bycatch involving several species of pelagic shark,and turtles,including hawksbills,which become entangled by ropes and netting beneath FADs and drown.FADs also inflict considerable environmental damage when they wash onto coral reefs where they become virtually impossible to remove.In a review of the effects of ghost gear on cetaceans,elasmobranchs and marine reptiles,all hawksbills(n=43,3 studies)reported entangled in ghost gear worldwide were from Indian Ocean fisheries(Stelfox et al.2016),indicating the severity of the issue of ghost gear.Illegal use and Illegal,Unreported and Unregulated(IUU)FishingIn response to increasing concern about the illegal use and sale of hawksbill turtles and the role of illegal,unreported and unregulated(IUU)fisheries in the turtle trade(IOSEA 2014),CITES commissioned a study on the legal and illegal international trade in marine turtles,which included case studies from Mozambique,Madagascar,Indonesia,Malaysia and Viet Nam(CITES 2019).In addition,Riskas et al.(2018)conducted an IOSEA-wide survey of experts in marine turtle conservation and fisheries management to examine the threat of IUU fishing on marine turtles and identify barriers and opportunities for mitigation.Likewise,Williams et al.(2019)examined the illegal capture and commercial use of marine turtles in Mozambique(see also Miller et al.(2019).Importantly,all studies reach complementary conclusions:1.IUU fishing is likely to have significant impacts on hawksbill turtle populations throughout the IOSEA region through targeted exploitation and international wildlife trafficking.2.Where use relates to eggs or meat,it is often not known which species are involved.3.The motivations for use of turtles differ across the region.In the southwest Indian Ocean,illegal use of hawksbill turtles is predominantly for local domestic consumption or domestic trade.In South-East Asia,the illegal use of hawksbill turtles is more likely to supply both local and international markets,such as in the production of handicrafts and stuffed turtles.CITES seizure records also show trade occurs between countries of the South-East Asia sub-region.4.An organised domestic trade network was found in Madagascar,involving the movement of turtles or turtle meat(unspecified species)from coastal to inland areas.In South-East Asia,there was increased evidence of hawksbill turtles being caught,stored in pens,and then traded when a certain quantity of turtles had been reached.5.Individual fishers generally understood that the capture,retention,and selling of turtles was not legal,but the benefits of doing so were perceived to outweigh the risk of getting caught.6.Lack of enforcement of legislation is an issue that requires attention and improvement across the region.7.Increased attention on the turtle trade,especially the international trade,has largely driven the trade underground.In Indonesia and Malaysia,online 18|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Regionplatforms are increasingly being used to sell turtle products,including hawksbill turtle shell.8.The illegal trade in hawksbill turtlesparticularly in China and Viet Namprovides an incentive for other countries in the IOSEA region(and outside)to continue harvesting turtles illegally.9.Collectively,the illegal trade involves several nations,and threatens the recovery of depleted hawksbill turtle populations.10.There are considerable cultural,social,and economic drivers underpinning the illegal use and trade of marine turtles.These drivers are not well understood and likely intersect with multiple governance and social structures.11.There is a demonstrable need to strengthen monitoring,control,and surveillance(MCS)to combat IUU fisheries and to employ regional coordination to help build enforcement capacity in less-developed nations.12.More research is needed to better understand the social dimensions of socioecological systems,including the reasons for individual and group involvement in illegal use,their resilience to change,and opportunities to develop alternatives to illegal use and trade.13.There is a recognized need to improve scientific study of hawksbill products seized by customs agencies,such as the collection and analysis of samples taken from scutes(e.g.LaCasella et al.2021).These efforts are underway in Australia and the Philippines,with likely uptake in Viet Nam,Malaysia,and Indonesia later in 2021.Human interactionsMarine turtles,including hawksbills,are key attractions for tourism activities on beaches and dive areas.Appropriate management programmes must be developed and executed to reduce any potential negative impacts on turtles and their habitats.Turtle tourism is often closely coupled with citizen science activities,especially where scuba diving is involved.Important advances to understand and manage human interactions from tourism have been made,especially for green and loggerhead turtle conservation,but these could also be applied to hawksbills(e.g.Tisdell and Wilson 2001;Busaidi et al.2019).For nearly a century,the farming(i.e.captive breeding or rearing)of hawksbill and green turtles has occurred within and outside the IOSEA region.Attempts have been initiated for a variety of reasons,but since the 1960s and 70s,farming has been used primarily to investigate its potential as an alternative to consuming wild-caught turtles.Farming of turtles is difficult to achieve at scale,with most initiatives failing for a combination of reasons,including:1)complex technical and husbandry challenges in long-term rearing of large numbers of turtles across multiple age classes;2)uncertain economic viability,especially if access to valuable markets is prohibited by trade regulations;3)numerous unresolved issues associated with providing optimal diet and dealing with health,condition and disease outbreaks;4)negative public perception;and 5)legal issues related to the collection of initial stock,rearing of protected species,and sale of products.Climate changeClimate change is a ubiquitous global issue.While marine turtles have coped with changing climates over past millennia,the rate of current and predicted change,coupled with additional and cumulative threats and pressures(e.g.coastal development,pollution,fisheries),is unprecedented.While climate change is pervasive,the degree to which various species or populations of marine turtle are exposed and able to adapt to climate effects will vary considerably(Hamann et al.2013b).In our review of the recent literature(from 2009 to 2021),we found six publications focused on aspects of climate change related to hawksbill turtles in the IOSEA region.Four of these research papers focused on beach/sand temperatures or sea level rise(Butt et al.2016;Esteban et al.2016;Tanabe 2018;Chatting et al.2018;2021)and two focused on in-water behaviour(Pilcher et al.2014;Marshall et al.2020).Rising sand temperatures can negatively impact marine turtle population function by biasing hatchling sex ratios to be excessively female(i.e.feminising the population)and by causing excessive mortality of eggs and/or hatchlings.Butt et al.(2016)used predictive climate models to examine the effects of increased air temperature and sea level rise on hawksbill turtle nesting sites in Australia.They found that by 2100 some of the current nesting habitats in Western Australia,Northern Territory,and Queensland are likely to be become unsuitable for nesting,either through increased sand temperatures or rising sea levels.Regarding temperature,there is potentially suitable nesting habitat to the south of existing sites,or turtles could begin nesting earlier or later in the season to avoid the warmest temperatures.Similarly,Chatting et al.(2021)used combinations of sand and air temperatures to forecast future sex ratios of hawksbill turtle hatchlings from rookeries in Qatar.They predict female bias in current and 2100 populations to be around 75%and 85%,respectively.Esteban et al.(2016)examined sand temperatures at depths comparable to incubating green and hawksbill clutches on Diego Garcia Island in the Chagos Archipelago.In Chagos,although hawksbills nest during the warmest period of the year(October-February)nests located under heavily shaded coastal vegetation(which is preferred by the species)would produce a balanced primary sex ratio.It follows that the Chagos Archipelago(especially Diego Garcia)provides a temperature-resistant nesting sanctuary for hawksbill turtles in the Western Indian Ocean(Hays et al.2020)and undeveloped nesting beaches for up to 20-50%of the nesting population of the SWIO region(Mortimer et al.2020).Nevertheless,extreme weather events such as anomalously warm temperatures during marine heatwaves(MHWs)are an increasing threat in the 19 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|IOSEA region.MHWs strongly influence sand temperatures on beaches as shown by the 2016 MHW in the Indian Ocean which caused high nest incubation temperatures that were unprecedented in the last 70 years and resulted in the most extreme female-biased hatchling sex ratio and lowest hatchling survival nests modelled for the last 70 years in the Chagos Archipelago(Hays et al.2021a).In the Seychelles,temperature data loggers were inserted into nests or buried at mid-nest depth between 1999 and 2003.Nest incubation temperature during the middle third of incubation was used to predict hatching sex ratios.The average incubation temperature varied significantly between nests,suggesting that these hawksbills can produce a variety of hatchling sex ratios,depending on the location and timing of nesting(Park et al.2003).Tanabe(2018)examined sand temperature profiles for hawksbill turtle rookeries in the northern region of the Red Sea between May and September 2018.Her research indicates that,with the exception of Small Gobal Island in the far northern section of the Red Sea,sand temperatures at the average depth of hawksbill turtle clutches are always above 29oC,and during the nesting season(late July to mid-September),they are above 33oC.Although this study spanned five months in a single year,it highlights a need to continue similar monitoring over longer time periods and multiple nesting seasons.Pilcher et al.(2014a,b)and Marshall et al.(2020)used satellite telemetry of hawksbill turtles in the Persian Gulf,where surface water temperatures during summer were found to average 33oC and peak at 34oC.During the summer months,the turtles made temporary movements Persian GulfSulu/Celebes Seas20|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Regioninto waters that were deeper and around 2oC cooler,moving back once the surface water temperatures had cooled down.To our knowledge,this is the first time a behavioural response has been linked to increased sea surface temperature.It is becoming clear from climate change research and the models used to predict future climate-related changes that the IOSEA region will be ecologically,socially,and economically vulnerable to increased air and sea surface temperatures as well as to sea level rise.There are several published accounts of documented changes in the regions climate(e.g.Al-Rashidi 2009;Shirvani et al.2015;McGregor et al.2016)and the impacts of climate change on ecological systems,such as coral reef habitats(Descombes et al.2015;Wabnitz et al.2018;Ben-Hasan and Christensen 2019;BryndumBuchholz et al.2019;Kubicek et al.2019).Modelling conducted by NOAAs Earth Systems Research Laboratory3 indicates that air temperatures across the IOSEA region are expected to rise by 0.9 to 2.2oC(Representative Concentration Pathway(RCP)4.5)or 2.0 to 4.2oC(RCP8.5)by 2100(Figure 6.2).Sea levels are also expected to rise by 0.3 to 0.47 m(RPC4.5)or 0.3 to 0.63 m(RCP8.5)by Figure 6.2.Predicted change to air temperatures over the next 80 years in four regions of the IOSEA.Data are derived from the average of CMIP5 climate model outputs(https:/www.esrl.noaa.gov/psd/ipcc/ocn/timeseries_lens.html).Left panels are predicted changes to mean annual temperatures and right panels are predicted changes to the anomaly relative to 1976-2005.Panels depict findings for the Persian Gulf(top),Sulu/Celebes Seas(second),northern Austra-lia(third),and Central Indonesia(bottom).RCP4.5 assumes that global annual greenhouse gas emissions peak around 2040 and then decline,and RCP8.5 assumes that emissions continue to rise throughout the 21st century.Red and blue shades are 95%confidence intervals for RCP8.5 and RCP4.5,respectively.northern AustraliaCentral Indonesia21 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|2100.Precipitation is also likely to change;however,the change is likely to be spatially and temporally variable,making it particularly challenging to predict in the long-term without using locally-derived weather data.There are currently no studies collecting hawksbill turtle sex ratio data from foraging areas.Such studies would enable comparisons to be made to examine changes over time.In 1996,at Diego Garcia in the Chagos Archipelago,Mortimer and Crain(1999)used androgen concentrations as indicators of the sex of immature foraging hawksbills(40-70 cm carapace length)and reported a sex ratio heavily skewed towards female.While there have been some published studies of beach-related impacts of climate change,such as increased incubation temperatures and sea level rise,a structured approach is required for each genetic stock so the situation can be monitored over the coming decades.A useful starting point would be to implement standardised collection of sand and air temperatures and baseline elevation mapping of nesting habitats.Marine debris and plastic pollutionMarine debris,particularly plastic pollution,has been recognised in recent years as a serious and widespread threat to marine turtle populations globally(Schuyler et al.2014,2016;Wilcox et al.2013;Duncan et al.2019;2021).Although most of the published accounts of impacts on marine turtles come from the Pacific and Atlantic Oceans,it is becoming clear that the IOSEA region contains substantial levels of plastic pollution(e.g.Hoarau et al.2014;Stelfox et al.2015;Schuyler et al.2016;Imhof et al.2017;Esteban et al.2021).The main threats that plastics pose to turtles are ingestion of plastic fragments,entanglement in abandoned,lost or otherwise discarded fishing gear(ALDFG)(also called ghost gear),and contamination of nesting habitat.Studies have investigated how heavy metals and chemical contaminants accumulate in turtles(Leusch et al.2020;Kittle et al.2018),but little is known about how plastic pollution affects turtle health.Key research gaps include:1)quantification of health impacts across populations and life stages;2)toxicological impact on turtle health;3)understanding how debris particles can act as vectors for heavy metals and chemical contaminants(Clukey et al.2018);4)identifying the oceanographic forces that disperse pollution;5)understanding the social and economic drivers contributing to the creation of pollution;and 6)the barriers and opportunities for improved management of marine debris and plastic pollution(see Vegter et al.2014;Nelms et al.2015;Duncan et al.2017).3 https:/www.esrl.noaa.gov/psd/22|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region7.Southwest Pacific Ocean There are two distinct management units for hawksbill turtles in the Southwest Pacific RMU:the North Queensland management unit and the Northeast Arnhem Land management unit.North Queensland management unit The North Queensland management unit was assessed using IUCN Red List criteria by the Threatened Species Technical Advisory Group,Queensland Department of Environment and Science(DES).This management unit is currently listed as Endangered under the Queensland Nature Conservation Act 1992.Limpus and Miller(2008),Limpus(2009),and Dobbs et al.(2010)provide a comprehensive review of the biology of this management unit.A recent analysis of the populations status is provided by Bell et al.(2020).Ecological rangeThe nesting distribution of this management unit and the neighbouring management unit in northeast Arnhem Land has been mapped(see Limpus et al.2008a)and genetic studies have been conducted on rookeries across northern Australia.Although hawksbill turtles in the two management units have similar mtDNA profiles,the turtles breed at different times of the year and are thus considered to be separate management units(FitzSimmons and Limpus 2014).Geographic spread of foraging sitesHawksbill turtles in this management unit have been recorded foraging on a wide range of habitats:coral reefs,rocky reefs,seagrass flats,and inter-reef habitats over the continental shelf(Limpus,1992;Limpus et al.2008b).Migration data obtained from satellite tracking and flipper tag returns indicate that turtles from the North Queensland management unit occur throughout the Gulf of Carpentaria,southern Indonesia,Torres Strait,Papua New Guinea,and the northern Great Barrier Reef(Figure 7.1)(DES Turtle Conservation Database;Limpus and Miller,2008;Limpus,2009;Barr et al.2021).A recent genetic-based study conducted on a foraging aggregation of hawksbill turtles on the Howick Reefs(northern Great Barrier Reef)found that 70 to 92%(mean 83%)of hawksbill turtles sampled came from rookeries in the Bismark-Solomon Sea region;only 15%were from the North Queensland management unit(Bell and Jensen 2018).Figure 7.1.Foraging areas linked to the northern Australia management units,based on satellite telemetry tracking and flipper tag recoveries for the three management units in Australia.Data source:https:/apps.information.qld.gov.au/TurtleDistribution/Index foraging area:Howick Group of reefs,northern Great Barrier Reef23 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|Estimated size of annual nesting populationNumber of beachesNesting beaches501-1,000 females/year1Sassie(Long Island)no recent data101-500 females/year19Hawksbury,Daymon,Milman,Boydong,Woody Wallace,Mt Adolphus Islands 11-100 females/year461-10 females/year37Unquantified nesting4Table 7.1.Summary of annual hawksbill turtle nesting population size at 103 recorded nesting beaches in Queensland.Based mostly on data collected up until 2000 and collated within the DES Queensland Turtle Conservation Database.Index nesting beaches:Milman Island(northern Great Barrier Reef)(Limpus and Miller,2008,Dobbs et al.2010,Bell et al.2020)Figure 7.2.Distribution of hawksbill turtle nesting beaches for the North Queensland management unit.Pink dots denote rookeries with quantified nesting and the size of the dot indicates relative abundance.Data source:https:/apps.information.qld.gov.au/TurtleDistribution/24|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia RegionFigure 7.3.Trend analysis of hawksbill turtle nesting census data from Milman Island between 1990-91 to 2015-16(unpublished data,DES Aquatic Threatened Species Program):Note:The multistate open robust design model(MS-ORD)was used to analyse the abundance and survival of the nesting population of hawksbill turtles at Milman Island on the northern Great Barrier Reef.The two states in this multistate framework were nesters and unobservable,where the latter state represents turtles that have skipped nesting and are therefore unobservable at the rookery(Kendall and Bjorkland 2001).The primary sampling consisted of annual austral summer nesting seasons,and secon-dary sampling occasions consisted of 12 successive sampling periods,each 14 days long.Model parameters included survival probability,temporary emigration probability,entry/arrival probability,departure probability and capture pro-bability.The final model was used to estimate nester abundance in each season(number of nesters 1 standard error).The blue line represents the long-term trend modelled using GAM weighted by the inverse standard error with 95%confidence intervals in grey.1Excessive legal harvest of eggs by Indigenous Australians in Torres Strait and on western Cape York Peninsula beaches.2Excessive loss of eggs to feral and native predators in Torres Strait and on western Cape York Peninsula beaches.3Legal take of hawksbill turtles in foraging areas by Indigenous communities in the Northern Territory,Indonesian New Guinea,and Papua New Guinea.4Substantial loss of post-hatchling hawksbill turtles in ghost nets,particularly in the Arafura Sea region.5Presumed substantial but unquantified mortality of foraging hawksbill turtles in the com-mercial fisheries of eastern Indonesia(Arafura Sea)and southern Papua New Guinea(Gulf of Papua).6Failure of CITES Signatory States to enforce CITES regulations banning the export of Appendix I listed species,such as hawksbill turtles(see also Vuto et al.2019).7Illegal trade in hawksbill turtles,particularly in China and Vietnam,which provides an incen-tive for developing countries in the IOSEA region to continue illegally harvesting turtles and their scutes illegally(see also Vuto et al.2019).Table 7.2 Summary of key threats related to the cumulative loss of turtles and eggs from the North Queensland management unit(based on the DES Hawksbill Turtle Threatened Species Assessment)25 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|Type of threatKnown or likely location of impact1=nesting beach 2=oceanic/high seas3=coastal foraging areasQuantified1=comprehensive documentation across population2=comprehensive documentation for some of the population3=non-published/anecdotal evidence only4=not quantifiedConsumption nesting beachEgg collection for food14Commercial use of turtles2Non-commercial use of turtles2Predation of eggs by non-native fauna12Predation of eggs by native fauna12Consumption foraging turtlesCommercial use of turtles34Non-commercial use of turtles34Climate change impactsIncreasing beach temperature12Beach erosion12Sea level rise13Coastal developmentHabitat modification(urban)2Habitat modification(industrial)4Light horizon disorientation2Fisheries impactsBycatch trawl2Bycatch longline22Bycatch gillnet33Impact to benthic ecology from fisheries34IUU fishing 33PollutionWater quality 34Entanglement in discarded fishing gear2,32Ingestion of marine debris2,33Noise pollution34Disease and pathogens34Summary of threats to the North Queensland management unit of hawksbill turtles 26|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia RegionGeographic spread of nestingNesting by this North Queensland management unit occurs within the eastern Arafura Sea eastern Gulf of Carpentaria region(Torres Strait and western Cape York Peninsula)and the northern Great Barrier Reef within the Coral Sea(Limpus et al.2008a)(Figure 7.2;Table 7.1).Trends in nesting dataThe hawksbill turtle nesting population at Milman Island,the chosen index nesting beach for the North Queensland genetic stock,has been monitored almost continuously for a quarter of a century,commencing in the 1990-1991 breeding season.The most recent published data is from the 2016/2017 breeding season.In the absence of data from a second index site,it is presumed that this nesting population has undergone a significant decline in recent years(Figure 7.3).This decline is occurring even though this rookery and its surrounding waters are within the most highly protected areas for marine turtles globally,i.e.the Great Barrier Reef Marine Park,and the associated World Heritage Area.Threats to the population The threats to this management unit have been well described in the Australian Governments Recovery Plan for Marine Turtles in Australia(Australian Government 2017).Residual risk was determined for each threat,i.e.risk remaining after existing management efforts are considered.Two very high risk threats were identified:entanglement in marine debris and international take(occurring outside of Australias jurisdiction).Two high risk threats were identified:climate change(increased temperatures and sea level rise)and predation by terrestrial predators.Ingestion of marine debris,impacts from pollution,domestic and international bycatch,and Indigenous take were all considered moderate-level risks.In addition,the largely unquantified cumulative loss of turtles and eggs via multiple significant threats to the North Queensland management unit was summarised in the Queensland Governments Hawksbill Turtle Threatened Species Assessment(unpublished)(Table 7.2).There are currently no clear indications of when or how these can be addressed;therefore,the current trends in negative impacts are likely to continue(Bell et al.2020).Given that almost all of these impacts have been oc-curring and have not been controlled for extended peri-ods and that many lie outside of Queenslands direct leg-islative control,the likelihood of a timely reversal of the significant decline in the North Queensland management unit is extremely poor.Management status and governance Nesting rookeries for the North Queensland manage-ment unit are located within a single state of Australia(Queensland).The management unit is listed as Endan-gered under Queenslands Nature Conservation Act 1994,and the species is listed as Vulnerable under the Austral-ian Governments Environment Protection and Biodiver-sity Conservation Act 1999,classifying it as a Matter of National Environmental Significance.The index site for the management unit(Milman Island)and many other nesting islands within the Great Barrier Reef are national parks and managed by the Queensland Parks and Wildlife Service.Foraging habitats in Great Barrier Reef waters are protected under the Great Barrier Reef Marine Park Act 1975.Rookeries and waters within the Torres Strait or western Cape York Peninsula regions,while outside of protected areas,fall under ownership of Indigenous groups.However,under the Torres Strait Treaty,Papua New Guineans are allowed to take turtles throughout much of the Torres Strait.Australia is a signatory to several international agreements aimed at minimising harm to the environment:the Convention on International Trade in Endangered Species of Wild Fauna and Flora(1973)CITES,the Convention on Biological Diversity(1992)CBD,Convention on the Conservation of Migratory Species of Wild Animals(1979)CMS,Convention on Wetlands of International Importance Especially as Waterfowl Habitat(1971)RAMSAR,Memorandum of Understanding on the Conservation and Management of Marine Turtles and their Habitats of the Indian Ocean and South-East Asia IOSEA,International Convention for the Prevention of Pollution from Ships(1973/78)MARPOL,Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter(1972)and United Nations Convention on the Law of the Sea(1982)UNCLOS.Site nameType Index site Y/NRelative importance(to the population)ProtectionMilman Island and numerous nesting islands of the northern Great Barrier ReefNesting YVery highQueensland Nature Conservation Act 1992Great Barrier Reef Marine ParkNesting and foragingYVery highGreat Barrier Reef Marine Park Act 1975Management and protection 27 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|ParameterValue Reference(s)Pivotal temperature29.2 C Dobbs et al.2010Remigration interval5 1.54 yearsLimpus 2009Clutches per season2.4(1.4)Limpus 2009Mean size of nesting adult(CCL)81.5 3.7 cmLimpus 2009Age at maturityEstimated 30 yearsLimpus 2009Biological data breeding ParameterValue Reference(s)Mean size at recruitment(to inshore foraging)(CCL)35 cmLimpus 2009Growth ratesMax 2.2 cm/year at 60 cmLimpus 2009Bell and Pike 20122.4(1.4)Limpus 2009Sex ratio in foraging populationsadults71maleLimpus et al.2008apubescent immature74maleLimpus et al.2008alarge pre-pubescent immature74maleLimpus et al.2008asmall pre-pubescent immature73maleLimpus et al.2008aBiological data foraging Northeast Arnhem Land management unitEcological rangeGenetic-based research has been conducted on rookeries across northern Australia and the nesting distribution of this management unit and the North Queensland management unit has been mapped(see Limpus et al.2008a).Although hawksbill turtles in the two management units have similar mtDNA profiles,the turtles breed at different times of the year and are thus considered to be separate management units(FitzSimmons and Limpus 2014).The ecological range for the management unit has not been well studied.Aside from their habitat in Australia,turtles from this management unit may also occur in southern Indonesia or Timor Leste.Geographic spread of foraging sitesBased on satellite telemetry(Hoenner et al.2016),known foraging sites occur within the Gulf of Carpentaria(Queensland and Northern Territory)and coastal waters of Arnhem Land,Northern Territory(Figures 7.1 and 7.4).It is also likely that hawksbill turtles forage along most of the coral and rocky reef habitats of the Northern Territory(e.g.Fog Bay near Darwin;see Whiting and Guinea(1997a).No tag recoveries from this management unit have been reported from overseas;however,hawksbill turtles reside in the coastal waters of Timor Leste,Indonesia,and Papua New Guinea and international connections therefore are possible.Geographic spread of nestingNesting locations for the management unit have been reasonably well surveyed,and while some low-density sites may not yet have been described,it is likely that all higher-density sites are known(Table 7.3).Nesting occurs predominantly on islands from the northeast Arnhem Land coast(e.g.Truant and Bromby Islands)and the Groote Eylandt region(e.g.North East Island).The majority of nesting events occur on the beaches of Hawk,Lane,and North East Islands,which are located off the northeastern coast of Groote Eylandt(Chatto and Baker 2008;Limpus et al.2008a).28|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia RegionFigure 7.4.Distribution of hawksbill turtle nesting beaches for the northeast Arnhem Land management unit.Pink dots denote rookeries with quantified nesting and the size of the dot reflects the relative abundance.Red dots denote unquantified nesting.Data source:https:/apps.information.qld.gov.au/TurtleDistribution/Estimated size of annual nesting populationNumber of beachesNesting beaches501-1,000 females/year0101-500 females/year1North East Island11-100 females/year11e.g.Truant Island,Hawk Island,Bromby Islands1-10 females/year19Unquantified nesting8Table 7.3.Summary of the estimated size of annual hawksbill turtle nesting population at 39 recorded nesting beaches in the northeast Arnhem Land management unit,mostly based on data Chatto and Baker 2008;Limpus et al.2008a).Index nesting beaches:Nil.There has been aperiodic monitoring at North East Island(Groote Eylandt)and Truant Island.Trends in nesting data:The status and trend of the management unit has not been determined.29 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|Type of threatKnown or likely location of impact1=nesting beach 2=oceanic/high seas3=coastal foraging areasQuantified1=comprehensive documentation across population2=comprehensive documentation for some of the population3=non-published/anecdotal evidence only4=not quantifiedConsumption nesting beachEgg collection 14Commercial use of turtles2Non-commercial use of turtles2Predation of eggs by non-native fauna14Predation of eggs by native fauna14Consumption foraging turtlesCommercial use of turtles34Non-commercial use of turtles34Climate change impactsIncreasing beach temperature12Beach erosion14Sea level rise14Coastal developmentHabitat modification(urban)2Habitat modification(industrial)2Light horizon disorientation2Fisheries impactsBycatch trawl2Bycatch longline22Bycatch gillnet33Impact to benthic ecology from fisheries34IUU fishing 33PollutionWater quality 34Entanglement in discarded fishing gear2,32Ingestion of marine debris2,33Noise pollution34Disease and pathogens34Summary of threats to the Northeast Arnhem Land management unit of hawksbill turtles30|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia RegionSite nameType Index site Y/NRelative importance(to the population)ProtectionNorth East Island(Groote Eylandt)Island,nestingYVery highNot protected,not inhabited;access controlled by local Aboriginal custodians.Beach not currently monitored.TruantIsland,nestingYVery highNot protected,not inhabited;access controlled by local Aboriginal custodians.Beach not currently monitored.Management and protection Migration and distribution of foraging areasTen adult hawksbill turtles were tracked using satellite tags from the index beach of North East Island.Each of them migrated to coastal habitats within northern Australia from northeast Arnhem Land to the southern coast of the Gulf of Carpentaria(Figures 7.1 and 7.4;Hoenner et al.2015).Lagrangian particle modelling conducted on virtual hatchling dispersal from North East Island indicates that hatchlings would disperse throughout the northwestern Gulf of Carpentaria and westwards into the Arafura Sea towards Western Australias Kimberly region,Indonesia,and Timor Leste.No field data has been collected to verify these Lagrangian models.Threats to the populationThe threats to this management unit have been well described in the Australian Governments Recovery Plan for Marine Turtles in Australia(Australian Government 2017).Residual risk was determined for each threat,i.e.risk remaining after existing management efforts are considered.Two very high risk threats were identified:entanglement in marine debris and international take(occurring outside of Australias jurisdiction).However,for the latter,there is no evidence of any international migration by turtles from this stock.Two high risks were identified:climate change(increased temperatures and sea level rise)and predation by terrestrial predators.Ingestion of marine debris,impacts from pollution,domestic and international bycatch were all considered moderate-level risks.It is likely that the issues related to the cumulative loss of turtles and eggs from the North Queensland management unit are also relevant to the northeast Arnhem Land management unit.However,quantitative data on these threats do not currently exist.Management and governanceNesting rookeries for the northeast Arnhem Land management unit are located within the Northern Territory of Australia.The species is listed as Vulnerable under Northern Territories Territory Parks and Wildlife Conservation Act 1974,and Vulnerable under the Australian Governments Environment Protection and Biodiversity Conservation Act 1999,classifying it as a Matter of National Environmental Significance.Most of the rookeries lie outside of national parks or other protected areas;however,most are located on islands with access and use restrictions managed by local Aboriginal Groups.ParameterValue Reference(s)Pivotal temperatureunknownRemigration intervalunknownClutches per seasonunknownMean size of nesting adult(CCL)unknownAge at maturityunknownBiological data breeding 31 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|ParameterValue Reference(s)Minimum size caught(CCL)27.3 cmWhiting and Guinea(1997b)Growth rates-overall2.3 cm/yearCCL 35 to 39.9 cm2.8 cm/year(n=1)CCL 40 to 44.9 cm2.3 cm/year(n=4)CCL 45 to 49.9 cm2.1 cm/year(n=6)CCL 50 to 54.9 cm2.4 cm/year(n=2)CCL 55 to 59.9 cm2.4 cm/year(n=5)CCL 60 to 64.9 cmNo dataCCL 65 to 69.9 cm2.8 cm/year(n=1)Biological data foraging Foraging hawksbill turtles have been caught in the Fog Bay region,near Darwin in Australias Northern Territory.The aggregation is predominantly comprised of sub-adult age classes(average CCL 49 cm;Whiting and Guinea(1997b)and adult-sized animals are believed to have moved into adjacent deeper water habitats.32|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region8.West Pacific/Southeast Asia There are at least three distinct management units for hawksbill turtles within the West Pacific/Southeast Asia RMU:the Sulu Sea management unit,the western Peninsular Malaysia management unit,and the Gulf of Thailand management unit(this could be more than one).It is likely there are additional management units in Indonesia,Singapore,and the Philippines.Sulu Sea management unitEcological rangeThe samples used to identify the Sulu Sea management unit were collected from Malaysian rookeries(FitzSimmons and Limpus,2014;Nishizawa et al.2016).There are rookeries in close proximity which remain to be sampled,e.g.in southern Philippines and islands in Indonesian waters of the Sulu Sea.Turtles from this management unit may occur throughout the Coral Triangle and South China Sea regions.Geographic spread of foraging sitesThere has been limited genetic-based research on foraging turtles in the region.Based on genetic analysis,flipper tag recoveries,and three satellite telemetry tracks from nesting hawksbill turtles tagged in Sabah,foraging turtles from this management unit are found in Sabah(Malaysia),the Sulu Sea(Philippines),and widely along the east coast of Kalimantan(Indonesia)(Nishizawa et al.2016)(Figure 8.1).It is likely that turtles from this management unit occur in coastal areas within the Sulu Sea and Coral Triangle region,including coastal waters of Malaysia,Philippines,and Indonesia.Geographic spread of nestingHawksbill turtles in the Sulu Sea management unit primarily nest on the beaches of the Turtle Islands Heritage Protected area(TIHPA)(Figure 8.2),including Pulau Gulisaan(90%of clutches),Pulau Selingan(8%of clutches)and Pulau Bakungan(5%of clutches)in Malaysia(Table 8.1).Nesting occurs year round,with a peak between March and August.A lesser degree of nesting occurs on many of the islands in the Semporna Figure 8.1.Migration of adult female hawksbill turtles from Sulu Sea nesting sites to dispersed foraging areas,based on flipper tag recoveries.Data source:https:/apps.information.qld.gov.au/TurtleDistribution/33 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|Estimated size of annual nesting populationNumber of beachesNesting beaches501-1,000 females/year0101-500 females/year1Pulau Gulisaan11-100 females/year1Pulau Lankayan1-10 females/year6Pulau Selingaan,Pulau Bakkungan,Pulau Libaran Unquantified nesting0Table 8.1.Summary of the estimated size of annual hawksbill turtle nesting at eight recorded nesting beaches in the Sulu Sea management unit.Index nesting beaches:Pulau Gulisaan,Sabah,MalaysiaFigure 8.2.Main hawksbill turtle nesting sites for the Sulu Sea management unit and adjacent rookeries.Pink dots denote rookeries with quantified nesting and the size of the dot reflects the relative abundance.Red dots denote unquantified nesting.region of Sabah,in the Sulu and Celebes Seas in Malaysia,Philippines,and Indonesia(Jolis 2014;Joseph 2017;Haziq and Hamid 2018;Migliaccio et al.2020),and within the 900,000 ha Tun Mustapha Marine Park,located between the South China and Sulu Seas(Jolis,personal communication).Trends in nesting dataThe hawksbill turtles of the TIHPA have been monitored since the 1970s(de Silva 1986);however,early efforts were hampered by poor tag retention and variability in survey effort.Chan et al.(1999)summarised the monitoring data from 1979 to 1996 and Joseph(2017)34|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Regionreported data from 1979 to 2016.Across the three nesting beaches in TIHPA,the number of clutches recorded annually varied from 243 to 713(Figures 8.3 and 8.4).Combined,the figures indicate a cyclical but overall declining trend from 1979 to 2016(Figure 8.3).At Pulau Gulisaan,the number of clutches reported in the most recent five years of available data(2012 to 2016)are lower(275 clutches per year)than the levels recorded between 1979 and 1983(Figure 8.4).Nesting trends and biological data have been summarised in detail by Joseph(2017).Data from 1999 to 2018 are available from a minor rookery(Pulau Lankayan)and this data shows a stable trend of around 50 clutches laid per year.Pulau Libaran,another nearby island in the Sulu Sea,is also known to support hawksbill nesting.On the islands of the Semporna region(outside of the management unit),data from 2006 to 2018 indicate that 11 clutches are laid per year at Pulau Mataking,Pulau Pom-Pom,Pulau Pandanan,Pulau Boheyan,Pulau Kulapuan,and Pulau Timba-Timba(Haziq and Hamib 2018).Low numbers of nests are also documented in Tun Mustapha Park(Jolis,personal communication).Less than 10 clutches per year are laid on Pulau Sipadan.The short-term monitoring at Pulau Mataking,Pulau Pom-Pom,Pulau Pandanan,Pulau Boheyan,Pulau Kulapuan,and Pulau Timba-Timba indicates an increasing trend in the number of clutches laid(Haziq and Hamid,2018;Migliaccio et al.2020).Migration and distribution of foraging areasSince 2000,around 4,000 nesting turtles have been double flipper tagged on the TIHPA islands(Joseph 2017).Tag returns from hawksbill turtles tagged while nesting in the Turtle Islands have been recovered in Sabah,in the southern Philippines,and along the east coast of Kalimantan in Indonesia.Pilcher et al.(2019)summarised the satellite tracking projects from Malaysia and reported on three females tracked after nesting in the Turtle Islands.One moved northward along the Sabah coastline and remained in Sabahs waters,and two moved southward along the Sabah and Kalimantan(Indonesia)coastline and remained in Indonesia.It is likely that foraging sites for this management unit occur in Indonesia,Philippines,and Malaysia.Threats to the populationThe threats to the Sulu Sea management unit have not been comprehensively assessed(Table 8.2).Figure 8.3.Number of hawksbill clutches recorded per year between 1979 and 2016 at the three islands within the Turtle Islands Heritage Protected Area,Sabah,Malaysia.Data from Joseph(2017).35 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|Figure 8.4.Number of hawksbill clutches recorded per year between 1979 and 2016 at Pulau Gulisaan,Sabah,Malay-sia.Data from Joseph(2017).1Illegal harvest of eggs for consumption or sale by people living or visiting islands.2Low and variable emergence success of clutches transferred to protective hatcheries.3Potential loss of post-hatchling(immature)hawksbill turtles in ghost nets.4Presumed substantial but unquantified mortality of foraging hawksbill turtles in the commer-cial fisheries of Indonesia,Philippines,and Malaysia.5The direct capture,and retention of bycatch,of hawksbill turtles for consumption or sale.6Failure of CITES Signatory States to enforce CITES regulations banning the export of Appendix I listed species,such as hawksbill turtles(CITES 2019;Vuto et al.2019).7Illegal trade in hawksbill turtles,particularly in China and Vietnam,which provides an incen-tive for developing countries in the IOSEA region to continue illegally harvesting turtles and their scutes(e.g.CITES 2019;Riskas et al.2018;Gomez and Krishnasamy 2019).8Habitat change/loss and coastal development(Haziq and Hamid 2018).Table 8.2.Summary of key issues related to the cumulative loss of turtles and eggs from the Sulu Sea management unit Issues of concern include egg poaching,habitat loss and development,climate change(sex ratios and sea level rise),and ingestion of,or entanglement in,marine debris.Examination of the degree to which each of these threats individually or collectively may impact hawksbill turtles from the Sulu Sea management unit is required.There is anecdotal and local expert knowledge to suggest that coastal erosion is impacting the quality of nesting habitat on Pulau Gulisaan(Joseph 2017).Nearly all clutches for this management unit are moved to protected hatcheries and the average emergence success of clutches is low(67%,range 50 to 85%).It is unknown why the emergence success is low and variable across years,or what impact this may have on population recovery.Following concerns about beach stability of Pulau Gulisaan,all clutches laid on Pulau Gulisaan since 2015 have been transferred to hatcheries on Pulau Selingaan during the morning following laying(Joseph 2017).This process involves a boat ride of 5-10 minutes in duration.While this is current best practice in the TIHPA,it is likely that the transfer of the eggs is 36|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia RegionType of threatKnown or likely location of impact1=nesting beach 2=oceanic/high seas3=coastal foraging areasQuantified1=comprehensive documentation across population2=comprehensive documentation for some of the population3=non-published/anecdotal evidence only4=not quantifiedConsumption nesting beachEgg collection 12,3Commercial use of turtles13Non-commercial use of turtles13Predation of eggs by non-native fauna12Predation of eggs by native fauna12Consumption foraging turtlesCommercial use of turtles33Non-commercial use of turtles32,3Climate change impactsIncreasing beach temperature14Beach erosion3Sea level rise3Coastal developmentHabitat modification(urban)1,34Habitat modification(industrial)4Light horizon disorientation14Fisheries impactsBycatch trawl33Bycatch longline34Bycatch gillnet33Impact to benthic ecology from fisheries4IUU fishing 33PollutionWater quality 4Entanglement in discarded fishing gear33Ingestion of marine debris33Summary of threats to the Sulu Sea management unit of hawksbill turtles 37 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|reducing the emergence success.Increased research on the processes involved could help identify the specific issues and allow corrective action to be taken to increase emergence success to consistently reach 80%.Although not recently quantified,the cumulative loss of turtles and eggs via multiple significant impacts on the Sulu Sea management unit is of primary concern(e.g.Table 8.2).There are currently no clear indications of when or how these can be addressed;therefore,the current trends in negative impacts are likely to continue.Management and protectionIn Malaysia,turtles fall under the jurisdiction of individual states.In Sabah,hawksbill turtles are listed as a totally protected species and the nesting sites are protected as part of TIHPA.The ban of turtle egg consumption and sale covers the whole state of Sabah.The two government bodies that oversee the management and protection of turtles in Sabah are Sabah Parks(only in marine protected areas)and the Sabah Wildlife Department.Type of threatKnown or likely location of impact1=nesting beach 2=oceanic/high seas3=coastal foraging areasQuantified1=comprehensive documentation across population2=comprehensive documentation for some of the population3=non-published/anecdotal evidence only4=not quantifiedNoise pollution4Disease and pathogens4Hatchery management(and egg collection)12Site nameType Index site Y/NRelative importance(to the population)ProtectionPulau GulisaanIsland,nestingYVery highTIHPAPulau SelingaanIsland,nestingNHighTIHPAPulau BakkunganIsland,nestingNHighTIHPAPulau LankayanIsland,nestingNMediumMPA,Sabah Parks38|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia RegionParameterValue Reference(s)Pivotal temperatureunknownRemigration interval1.8 yearsPilcher and Ali(1999)1.8 yearsJoseph(2017)Clutches per season2.7Pilcher and Ali(1999)1.9Joseph(2017)Clutch size120.4Chan et al.(1999)119.5Joseph(2017)120Haziq and Hamib(2018)95.8Migliaccio et al.(2020)Mean size of nesting adult(CCL)76.3 cmChan et al.(1999)79.8 cmJoseph(2017)79.8 cmJolis(2014)80.6 cmMigliaccio et al.(2020)Emergence success of clutches67%(50 to 83%)Joseph(2017)70%to 77%Jolis(2014)72.2%Migliaccio et al.(2020)Age at maturityunknownTable 8.3.Life history traits published for hawksbill turtles from the Sulu Sea Management Unit ParameterValue Reference(s)Mean size at recruitment(to inshore foraging)(CCL)unknownGrowth ratesunknownSurvivorship estimatesunknownBiological data breedingSeveral of the basic life history parameters have been described for this management unit(Table 8.3).Although several decades have passed since the initial studies on marine turtles in the Malaysian region,the pivotal temperature and the sex-determining range of temperature have not been determined for any nesting population.Of interest is the relatively low emergence success of clutches and the high variability of emergence success across years(Joseph 2017).It would be worthwhile examining the variation in relation to hatchery management practices or other environmental conditions.Biological data foraging Of 15 hawksbill turtles captured at Pulau Mabul near Semporna juveniles were the dominant size class.The mean size of sampled juveniles was 51.1 cm(CCL)and an adult was 74.3 cm(Palaniappan and Haziq Harith,2017).39 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|Western Peninsular Malaysia management unitEcological rangeThe rookeries of the western Peninsular Malaysia management unit were first surveyed in the early 1990s(Mortimer et al.1993).The samples used to identify the management unit were collected from rookeries in Melaka(FitzSimmons and Limpus,2014;Nishizawa et al.2016).There are unsampled rookeries in close proximity,for example in islands of Singapore,the Java Sea,southern Kalimantan(Indonesia),eastern Peninsular Malaysia(including islands),and the Riau Islands(Indonesia).Turtles from this management unit may occur throughout the Coral Triangle region;however,this remains to be determined.Geographic spread of foraging sites and migrationBetween 2006 and 2013,WWF-Malaysia tracked 15 hawksbill turtles from Melaka nesting beaches(one island and two mainland sites).Nearly all of these tracked turtles migrated southwards along the Malaysian coastline towards Singapore or the Riau Islands(Pilcher et al.2019).It is likely that turtles from the western Peninsular Malaysia management unit migrate to foraging areas in Indonesia,Singapore,elsewhere in Malaysia and possibly the Indian Ocean coast of Thailand.Geographic spread of nestingHawksbill turtles from the western Peninsular Malaysia management unit primarily nest on mainland and island beaches of the state of Melaka(Figure 8.5).Nesting on these beaches occurs all year,with a peak between June and August(Salleh et al.2017;2018).Nesting is distributed along 21 recognised beaches in Melaka,with approximately 20%of clutches occurring at Padang Kemunting,12%at Kem Terendak,and 10ch at Balik Batu,Pulau Upeh,and Meriam Patah(Mortimer et al.1993;Salleh et al.2018).Lower-level regular or aperiodic nesting occurs along the coast of Penang and the islands of Singapore(Figure 8.5,Table 8.4).There are also several rookeries in the Java Sea region of Indonesia,although it is yet to be determined which management unit they belong to(see section on Indonesia).Trends in nesting dataThe first surveys for the management unit took place in 1991,when the population was first scientifically documented.These surveys revealed the abundance of hawksbill clutches laid on beaches of Melaka to be around 330(Mortimer et al.1993),and the most recent published data(from 2006 until 2014)revealed yearly nesting ranged from 353 to 568 clutches per year(Salleh et al.2018).Hawksbill turtle monitoring in Melaka is coordinated by the Department of Fisheries Melaka.In terms of a trend,annual nesting data indicate that approximately 245 clutches were transferred to the hatchery each year between 1991 and 2004,and from 2004 onwards there has been an average of 419 clutches intercepted and protected per year,representing a 4%annual increase in the number of clutches being intercepted and protected per season on the beaches of Melaka(Figure 8.6).These figures may not in fact reflect an increase in the actual size of the nesting population,but rather an increase in protection effort.Rates of egg exploitation were probably higher prior to 2000.It follows that the current abundance is still likely to be below the pre-harvest baselines.Threats to the populationThe threats to the western Peninsular Malaysia management unit have not been comprehensively assessed.Issues of concern include habitat change and development.A survey conducted by WWF-Malaysia in 2012(J.A.Mortimer and WWF-Malaysia,unpublished data)indicated that habitat destruction due to unregulated coastal development threatened most of the nesting sites,with the possible exception of the beaches of Kem Terendak,which is a military base.Most of the nesting beaches in Melaka are either developed,adjacent to Estimated size of annual nesting populationNumber of beachesNesting beaches11-100 clutches/year5Padang Kemunting,Kem Terendak Balik Batu,Pulau Upeh,Meriam Patah,Tanjung Dahan,Tanjung Serai1-10 clutches/year2Penang State,SingaporeUnquantified nesting0Table 8.4.Summary of size of annual hawksbill turtle nesting populations and recorded nesting beaches in western Peninsular MalaysiaIndex nesting beaches:Melaka beaches40|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia RegionFigure 8.5.Distribution of hawksbill turtle nesting sites for the western Peninsular Malaysia Management unit and adjacent rookeries.Pink dots denote rookeries with quantified nesting and the size of the dot reflects the relative abundance.Red dots denote unquantified nesting.Melaka beaches are combined and included as a single one loca-tion.Data source:https:/apps.information.qld.gov.au/TurtleDistribution/Figure 8.6.Number of hawksbill clutches recorded per year at Melaka in Peninsular Malaysia.Data from the Depart-ment of Fisheries Melaka and Salleh et al.(2018).41 Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Region|Type of threatKnown or likely location of impact1=nesting beach 2=oceanic/high seas3=coastal foraging areasQuantified1=comprehensive documentation across population2=comprehensive documentation for some of the population3=non-published/anecdotal evidence only4=not quantifiedConsumption nesting beachEgg collection 11Commercial use of turtles3Non-commercial use of turtles34Predation of eggs by non-native fauna4Predation of eggs by native fauna4Consumption foraging turtlesCommercial use of turtles34Non-commercial use of turtles34Climate change impactsIncreasing beach temperature4Beach erosion4Sea level rise4Coastal developmentHabitat modification(urban)12Habitat modification(industrial)12Light horizon disorientation13Fisheries impactsBycatch trawl34Bycatch longline34Bycatch gillnet34Impact to benthic ecology from fisheries34IUU fishing 34PollutionWater quality 34Entanglement in discarded fishing gear34Ingestion of marine debris34Noise pollution34Disease and pathogens34Hatchery management(and egg collection)12Summary of threats to the western Peninsular Malaysia management unit of hawksbill turtles42|Assessment of the Conservation Status of the Hawksbill Turtle in the Indian Ocean and South-East Asia Regiondeveloped areas,or close to planned development zones.Further,most beaches are exposed to threats such as light pollution,climate change(sex ratios and sea level rise),and the ingestion of,or entanglement in,marine debris.Examination of the degree to which these threats may impact hawksbill turtles from the western Peninsular Malaysia management unit is required.Although not recently quantified,the cumulative loss of turtles via multiple significant impacts on the western Peninsular Malaysia management unit 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INNOVATIVE FINANCE TOWARDS LOW GREEN HOUSE GAS(GHG)EMISSION AND CLIMATE RESILIENCE FUTURECLIMATE SUSTAINABILITY WORKING GROUP(CSWG)G20 2022Final ReportSeptember 2022iiiClimate Sustainability Working Group(CSWG)G20 2022Contributors:Authors:INNOVATIVE FINANCE TOWARDS LOW GREEN HOUSE GAS(GHG)EMISSION AND CLIMATE RESILIENCE FUTURE STUDY 3.1Indonesia,September 2022Recover Together,Recover StrongervClimate Sustainability Working Group(CSWG)G20 2022AcknowledgmentsAuthorsThis report is a joint publication led through the United Nations Development Programme(UNDP),and supported by the United Nations Childrens Fund(UNICEF).The researchers and experts1 from those institutions are working together through research,policy assistance,and support.ContributorsWe thank the Ministry of Environment and Forestry of the Republic of Indonesia for its pivotal framing perspectives and all delegates of G20 CSWG for their detailed comments on the content of the report as well as all G20 members who provided valuable insights in virtual workshops and through a written survey in coordination with Global Green Growth Institute(GGGI)and NDC Partnership.This project is funded by UNDP Governance of Climate Change Finance(GCCF)and Climate Finance Network(CFN),in coordination with Global Green Growth Institute(GGGI)and NDC Partnership(NDCP)._Copyright 2022This publication may be reproduced in whole or in part for educational or non-profit purposes without special permission from the copyright holder,provided that the source is acknowledged.DisclaimerThe authors do not make any warranty,either express or implied,or assume any legal liability or responsibility for the accuracy,completeness,or any third partys use or the results of such use of any information,apparatus,product,or process disclosed of the information contained herein or represents that its use would not infringe privately owned rights.The views and opinions of the authors expressed herein do not necessarily state or reflect those of the Government of Indonesia or project funders.1 The paper was written by Dr.Christoph Nedopil viClimate Sustainability Working Group(CSWG)G20 2022Executive SummaryTo put the world on track with the objectives of the Paris Agreement and the 2030 Agenda and truly achieve this transition,the world needs a systemic transformation of finance involving all public and private stakeholders in government,business,and society with no easy silver bullet of a single finance instrument.G20 members representing over 85%of the worlds GDP,around two thirds of its population and responsible for about 75%of greenhouse gas emissions,have a key role to play in addressing these challenges holistically and provide direction for leaders,regulators,business executives,investors,non-governmental organizations,and all societies.Finance from both public and private sources needs to be mobilized and shifted from unsustainable to green activities.The G20 members need to scale up climate-friendly finance and investments,reduce counterproductive subsidies,create barriers for non-aligned investments through broader key policy actions,and benefit by accelerating technology solutions and industrial development programs of green energy,food systems,social infrastructure,sustainable trade and resilient infrastructure,etc.Scaling up investments in sustainable activities will yield and boost productivity and generate powerful co-benefits such as protecting ecosystems and biodiversity in both the short and long runs.Therefore,advancing enablers and solutions of climate finance that leverage all kinds of existing and innovative finance instruments and mechanisms is critical to financing green and sustainable transition.Finance will have to be invested smartly,with focused rigor in terms of the climate benefits whilst also maximizing socio-economic co-benefits to achieve a just transition addressing particularly vulnerable groups.The study is developed for the G20 Climate Sustainability Working Group(CSWG)and addresses actions within the areas of innovative climate finance that drive smart policy-finance interaction for mitigation and adaptation finance,as well as sustainable development more broadly to include social aspects.The study recognizes previous G20 and ongoing work on climate and green finance and is informed by discussions within related working groups e.g.,Sustainable Finance Working Group(SFWG),Development Working Group(DWG),and other studies within CSWG e.g.,Study 3.2 on carbon economic value and adds distinct content.This study further benefited from consultation meetings and responses to a questionnaire sent from G20 members2.2 The study received survey response from Indonesia,Japan,Mexico,Russia,Saudi Arab,UK,and USA.viiClimate Sustainability Working Group(CSWG)G20 2022SFWGDWGCSWG Study on Car-bon Economic ValueCSWG Study on Climate financeTarget audience Financial regulators Development Environmental ministries,market regulators Environmental/climate ministriesKey content Transition finance Improving credibility of financial institutions Scaling of sustainable finance instruments Development finance instruments Emission Trading Scheme,carbon tax pricing,voluntary carbon markets Public-private finance nexus Policy-finance nexus,e.g.,for harmonized standardsClimate-nature nexusDevelopment and social aspectsThe findings of this study to drive smart climate policy-finance interaction with a focus on ministries responsible for climate and environment under the premise to race to the top and leave no one behind while recognizing local differences are as follows:Improving interoperability of various standards for private and public finance can help reduce transaction cost,ensure positive impact,reduce greenwashing,and build trust for green finance by:o Developing a“traffic light classification system”that includes a red finance taxonomy to complete existing green finance taxonomies.This would be applied for public and private finance and includes definitions of counterproductive and hard-to-abate economic activities across sectors that need to be phased out as quickly as possible;o Developing legal standards on environmental thresholds and performance indicators(i.e.,technical screening criteria)that are enforced to minimize environmental risks;o Developing standards for measuring,verifying and reporting(MRV)data on environmental performance of investment and spending for better comparison to provide better comparability and reduce green-washing;o Utilizing green technologies and making environmental data publicly and easily available to improve transparency and trust in green finance and to facilitate informed climate finance decision making;o Improving the foundation for global markets and relevant asset classes to accelerate carbon-negative and nature/climate-positive investments,for example through the accelerated establishment of global carbon offset markets,ecosystem solutions,and common understanding of the fair application of carbon border adjustment mechanisms.This can include the use of proceeds from such mechanisms to support the transition in least developed countries.viiiClimate Sustainability Working Group(CSWG)G20 2022Private sector can be mobilized through new and existing climate finance mechanisms by:o Allocation of public finance to support sustainable and green development goals while avoiding significant harm to any SDG,e.g.,fiscal spending,subsidies,state-owned enterprises(SOEs),public funds,and state-owned financial institutions.This will also provide investment incentives for private sector;o Supporting SOEs and sovereign issuers to scale up green financial instruments(e.g.,green bonds,green sukuk),that in turn supports local green capital markets,particularly in developing countries;o Implementing ambitious,holistic and tailored green policy targets and supporting regulation(e.g.,climate laws,phase-out of coal,deployment of renewables,sector transition plans,and climate adaptation)to provide clear and reliable policy directions and reduce risks of unclear targets for financial sector engagement;o Crowding in private capital for higher risk green projects through accelerated utilization of global infrastructure development facilities(e.g.,GIF,MCDF)and other applicable climate finance instruments(e.g.,green public funds,blended finance,guarantee facilities,public-private partnerships/PPP)that support de-risking of finance;o Supporting scientific based analysis and advocacy to enable facilities and regulatory and financial measures for accelerated phase-out of unsustainable assets and rapid scaling of pilots;Development and social transition aspects can be better integrated in climate finance by:o Ensuring a globally just transition through responsibilities of different economies that particularly supports children and vulnerable groups through mitigation and adaptation financing and capacity building;o Enhancing analysis of environment assets and evidence-based approaches to reduce COVID-19 related debt impacts particularly in developing countries including through smart and green sovereign debt collaboration(e.g.,debt-for-SDG,debt-for-nature,debt-for-climate,sustainability-linked debt swaps).o Providing further climate finance support(e.g.,USD100 billion commitment)and technical capacity for developing countries green transition and capital mobilization(e.g.,green capital market development,green facilities)for both mitigation and adaptation measures.The report first gives an introduction on the transition journey ahead for climate finance in G20 members.It then provides a background on the current stage of climate finance,current ambitions of G20 members for smart policy-finance interaction.The recommendations build on the analysis and provide practices on how to improve policy-finance action to shift finance from polluting to green,to mobilize both public and private finance,and to improve climate finance in developing countries.ixClimate Sustainability Working Group(CSWG)G20 2022Table of ContentsAcknowledgments iiiExecutive Summary ivTable of Contents viiList of Figures ixList of Abbreviations x1.Introduction 12.Climate Finance Landscape Background 32.1 Climate finance flows and gaps 32.2 Counterproductive public and private finance 52.3 The cost and risk of failing in climate action 62.3.1 Social and economic risk of climate change 62.3.2 Climate-biodiversity nexus 72.4 Responsibilities for development and social considerations 83.ExperiencesinG20memberstocatalyzeandpromoteclimatefinance 93.1 Climate finance governance 103.2 Climate laws 113.3 Climate-finance regulatory tools 123.3.1 Definitions of green finance through taxonomies 123.3.2 Selected risk management,reporting and disclosure standards 143.3.3 Ecosystem solutions 153.3.4 Carbon pricing 163.4 Climate financing sources 173.5 Climate finance instruments 183.6 Climate finance in developing countries 193.6.1 Development finance commitments 203.6.2 Local green capital market development 203.6.3 Sovereign debt in developing countries 20 xClimate Sustainability Working Group(CSWG)G20 20224.The Way Forward 224.1 A transformative effort 224.2 Integration of climate factors into finance system 234.3 Technologies for climate and green finance 245.Actions to be taken:Stop counterproductive,mobilize green public and privatefinancethroughsmart,coherent,andtailoredpolicytools 265.1.1 Improving standardization to shift from unsustainable to green 265.1.2 Private sector mobilization 285.1.3 Just and development finance 286.Appendix 306.1 Appendix 1:Overview of relevant taxonomies 306.2 Appendix 2:Overview of Sustainable financial instruments 326.3 Appendix 3:Selected reporting standards 386.4 Appendix 4:Selected sustainable finance initiatives and standard setters 447.The List of Reference and further reading 46xiClimate Sustainability Working Group(CSWG)G20 2022List of FiguresFigure 1 Trends in Atmospheric CO2 concentration and political agreements(Source:Sustenio3)Figure 2 Landscape of Climate Finance in 2019-2020 (Source:Climate Policy Initiative 4,2021)Figure 3 Destination region of climate finance,by public/private (US$billion,2019/2020 annual average)(Source:Climate Policy Initiative)Figure 4 Climate finance source to developing nations(Source:Timperley,2021 8)Figure 5 Impacts of climate change on children-Global Childrens Climate Risk Index(UNICEF 24)Figure 6 Green financial frameworks(Source:Author)Figure 7 The EUs Sustainable Finance Strategy(Source:Intereconomics 33)Figure 8 Climate targets in G20(EU has 2050 climate-neutral target in law but was not included in the graph)(Data:Net Zero Tracker,Graphic:author)Figure 9 Global Greenhouse Gas Emissions by Sector in 2016 (Source:Our World in Data 2020 71)xiiClimate Sustainability Working Group(CSWG)G20 2022List of Abbreviations AbbreviationNameACTAccelerating Coal TransitionADBAsian Development BankASEANAssociation of Southeast Asian NationsBRIGCBelt and Road Initiative International Green Development Coalition CBAMCarbon Border Adjustment MechanismCBDConvention on Biological DiversityCBDCCentral Bank Digital CurrenciesCBIClimate Bonds InitiativeCCUSCarbon Capture,Utilisation and StorageCDPCarbon Disclosure ProjectCfDContracts for DifferenceCGTCommon Ground TaxonomyCIFClimate Investment FundsCOPConference of the PartiesCSRDCorporate Sustainability Reporting DirectiveCSWGClimate Sustainability Working GroupDACDevelopment Assistance CommitteeDFIDDepartment for International DevelopmentDFIsDevelopment Finance InstitutionsDNSDebt-for-Nature SwapsDSSIDebt Service Suspension InitiativeDWGDevelopment Working Group ESGEnvironmental,Social,and GovernanceESIEnergy Savings InsuranceETMEnergy Transition MechanismETSEmission Trading SystemEUEuropean UnionFAsFinancial AdvisorsFASTFinance toAccelerate theSustainableTransitionFFFoundation FrameworkxiiiClimate Sustainability Working Group(CSWG)G20 2022FMPsFinancial Market Participants FSAFinancial Services AgencyG20Group of TwentyGCCFGovernance of Climate Change FinanceGCFGreen Climate FundGEFGlobal Environmental FacilityGFANZGlasgow Financial Alliance for Net-ZeroGFITGreen Finance Industry TaskforceGHGGreen House GasGIFGlobalInfrastructureFacilityGIINGlobal Impact Investing NetworkGRIGlobal Reporting InitiativeHKMAHong Kong Monetary AuthorityIBPESIntergovernmental Science-Policy Platform on Biodiversity and Ecosystem ServicesICMAInternationalCapitalMarket AssociationIDBInter-American Development BankIDFCInternational Development Finance Club IFCInternational Finance CorporationIMFInternational Monetary FundINFFsIntegrated National Finance FrameworksIPCCIntergovernmental Panel on Climate ChangeISSBInternational Sustainability Standards BoardITMOsInternationally Transferable Mitigation Outcomes JSEJohannesburg Stock ExchangeLACLatin America and the CaribbeanLLPsLimited Liability Partnerships MASMonetary Authority of SingaporeMCDFMultilateral Cooperation Center for Development FinanceMDBsMultilateral Development Banks MFFMultiannual Financial Framework MRVMeasuring,Validating and Reporting NDCsNationallydetermined contributionsNFRDNon-Financial Reporting DirectiveNGEUNext-Generation-EUxivClimate Sustainability Working Group(CSWG)G20 2022NGFSNetwork for Greening the Financial SystemODAOverseas Development AssistanceOECDOrganization for Economic Co-operation and DevelopmentOJKFinancial Services AuthorityPPPPublic-Private PartnershipsPRBPrinciples for Responsible Banking PRIPrinciples of Responsible InvestmentPSIPrinciples for Sustainable InsuranceSASBSustainability Accounting Standards BoardSBFNSustainable Banking and Finance NetworkSBNSustainable Banking NetworkSDGSustainable Development GoalsSDRsSpecial Drawing RightsSECSecurities and Exchange CommissionSFDRSustainable Finance Disclosure RegulationSFWGSustainable Finance Working GroupSGXSingapore ExchangeSISustainable InfrastructureSMEsSmall and Medium Enterprises SOEsState-owned EnterprisesTCFDTask Force on Climate-Related Financial DisclosuresTNFDTaskforce on Nature-related Financial DisclosuresUKUnited KingdomUNUnited NationsUNDPUnited Nations Development ProgrammeUNEPUnited Nations Environment ProgrammeUNEP FIUnited Nations Environment Programme Finance InitiativeUNFCCCUnited Nations Framework Convention on Climate ChangeUNICEFUnited Nations Childrens FundUSUnited StatesVCMVoluntary carbon markets1Climate Sustainability Working Group(CSWG)G20 20221.IntroductionMajor crises,from COVID-19 to conflicts and fragilities,have set back the achievement of sustainable development goals,and even worse,risk undermining sustainable development trajectories:policy makers need to tackle the urgent crises and provide economic and social resilience.This must not come at the expense of long-term climate and biodiversity crises.According to Save the Children 2 a child born in 2020 will be exposed to twice as many wildfires,2.8 times as many crop failures,2.6 times as many drought events,2.8 times as many river floods,and 6.8 times more heatwaves over their lifetime than a person born in 1960.In addition,limiting global warming to 1.5C above pre-industrial levels reduces the risk of additional lifetime exposure to heatwaves by 45 percent,drought by 39 percent,river floods by 38 percent,crop failures by 28 percent,and wildfires by 10 percent for children born in 2020.To put the world on track with the objectives of the Paris Agreement and the 2030 Agenda,G20 members representing over 85%of the worlds GDP,around two thirds of its population and responsible for about 75%of greenhouse gas emissions 1,have a key role to play.They can address these challenges holistically and provide a sustainable direction for leaders,regulators,business executives,investors,non-governmental organizations and all societies.It is critical that governments accelerate their commitments to the Paris Agreements next five-year cycle to limit global warming.They also can provide inclusive climate financing as well as social protection and support for vulnerable groups and their communities such as child and/or gender responsive financing,so that they can adapt to and recover from climate shocks more effectively.More G20 members are working on developing and implementing core climate policies and much more needs to be done to reduce greenhouse gas(GHG)emissions(see Figure 1).By scaling up climate friendly finance and investments,reducing counterproductive subsidies,creating barriers for non-aligned investments through smart key policy actions,G20 members can accelerate technology solutions and industrial development programs of green energy,food systems,sustainable infrastructure,and trade.2Climate Sustainability Working Group(CSWG)G20 2022Figure 1:Trends in Atmospheric CO2 concentration and political agreements(Source:Sustenio3)Investments in low-carbon technologies,ecosystem solutions,and sustainable and resilient infrastructure can spur green growth and economic recovery,address inequalities,and accelerate the transformation towards climate-resilient economies.In contrast,a continuation of current policy with public and private financial flows supporting non-aligned economic activities,is akintopouringoilontothefiresofclimatechange.In the Article 2.1c,Parties commit to“making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”Now is the time to deliver on this commitment by converging post-COVID economic recovery programs with the transition to a low carbon climate-resilient global economy.By aligning all components of innovative finance,all kinds of funding opportunities can be seized bilateral,multilateral climate funds,multilateral development banks(MDBs),other development finance institutions(DFIs),as well as domestic finance.By fully aligning public finance with sustainable development goals,much larger volumes of private investment can be mobilized.3Climate Sustainability Working Group(CSWG)G20 20222.Climate Finance Landscape BackgroundAddressing climate change and building a sustainable future for now and the worlds future generations requires smart,tailored,and urgent policy action to drive an unprecedented global transformation of infrastructure,ecosystem resilience,food system and industrial development.The basis for this transformation is a massive shift of investments in technologies for low-carbon energy development,environmental and ecology protection,sustainable production and consumption,risk-informed and resilient infrastructure development.2.1 ClimatefinanceflowsandgapsGlobal climate finance 4 flows of US$632 billion were recorded in 2019-2020(which doubled from US$365 billion in 2013-2014)with equal contributions from the public and private sectors(see Figure 2).Figure 2:Landscape of Climate Finance in 2019-2020(Source:Climate Policy Initiative 4,2021)Almost half of global climate finance in 2019-2020 was spent in East Asia&Pacific(US$292 billion),followed by Western Europe(US$105 billion)and US&Canada(US$83 billion).Latin America,South Asia,Middle East and African countries together accounted for about US$100 billion in climate finance(see Figure 3).4Climate Sustainability Working Group(CSWG)G20 2022Figure 3:Destination region of climate finance,by public/private(US$billion,2019/2020 annual average)(Source:Climate Policy Initiative)For climate protection alone,Climate Policy Initiative(2021)4 estimates a global climate finance gap of US$3.6 to$4.1 trillion annually.McKinsey(2022)5 estimates that investment needs to increase by US$3.5 trillion yearly to US$9.2 trillion to achieve net zero transition goals.Finance for adaptation falls short.The Paris Agreement lays out a goal to balance finance between adaptation and mitigation.International community has called for50%of the total share of climate finance to be spent on adaptation projects that help people adapt to climate change,especially for developing nations.Adaptation currently only receives 21%of all international climate finance only$16.8billion in 2018,compared to an estimated need of$70 billion annually and upwards of$140-300 billion dollars by 2030 and$280-500 billion by 2050(see Figure 4).5Climate Sustainability Working Group(CSWG)G20 2022Figure 4:Climate finance source to developing nations(Source:Timperley,2021 8)Within the G20 members in their 2021 Leaders Statement,the UNFCC and IPBES,as well as during COP26 in Glasgow,global recognition of the need to integrate biodiversity and climate considerations has been accelerating.Both aspects should ideally be tackled together to generate co-benefits(e.g.,through ecosystem solutions,nature-climate solutions),utilize green financing more efficiently,and avoid further harm to either through insufficient integration.Taking this integration into consideration,biodiversity finance can promote climate protection,yet global biodiversity finance6 flows in 2019 amounted to only US$143 billion compared to US$536 billion financing need for ecosystem solutions7,according to UNEP(2021).Similarly,the 2020 Financing Nature report6 estimates a biodiversity financing gap of US$598 to US$824 billion per year.2.2 Counterproductive public and private financeThelackoffinancestandsforclimateactionandenvironmentalprotectionisexacerbatedbycontinuedpublicandprivatefinanceflowingintounsustainablesectors.Public finance contributes to climate change through state-owned enterprises,state-owned financial institutions,and public spending.While the G20 has committed to phasing out inefficient and counterproductive fossil fuel subsidies in 20099,global governments spent US$5.9 trillion(or 6.8%of GDP)on fossil fuel subsidies in 2020 according to a 2022 IMF study,and fossil fuel subsidies were expected to rise,according to a 2021 OECD study10.Similarly,with the agricultural sector being the second most important contributor to greenhouse gas emissions(when including land use change)it is also important to note that among the Aichi Target 3 of phasing out incentives including subsidies harming biodiversity by 2020 was only met by 25 out of 196 nations while about 90%of subsidies11 given to farmers tend to damage nature and fuel the climate crisis according to a 2021 UN report.6Climate Sustainability Working Group(CSWG)G20 2022In addition,SOEs are among the worlds largest corporate emitters of greenhouse gases,often due to a focus on traditional energy and transport assets:according to a 2022 joint Oxford and Columbia University study 12,SOEs in the power,industry and transport sectors alone emit at least an aggregate of 6.2 gigatons of CO2e annually(Scope 1),making them cumulatively larger emitters than any other single country except China.Similarly,CDP estimates 13 that the largest global SOEs are responsible for 42%of global greenhouse gas emissions.On the private side,the worlds 60 biggest banks have provided US$3.8 trillion 14 of financingforfossilfuelcompanies between 2015 and 2020 with US$751 billion alone in 2020.By October 2021,Bloomberg 15 reported US$459 billion fossil finance organized by the largest banks in the first 9 months of 2021.At the same time,improving green capital markets based on regulatory guidance,supervision strategies,and voluntary banking sector approaches have significantly expanded green finance instrument issuance16(e.g.,loans,bonds)in many developed and some emerging G20 members17.Yet,green finance only constitutes less than 10%of the market,even in the EU 18,while many developing economies(green)capital markets 19 are in need for further regulatory support,capacity and development to attract more issuances and investors.2.3 The cost and risk of failing in climate action2.3.1 Social and economic risk of climate changeA low level of addressing climate change risks up to 25%of global GDP by 2100,according to the NGFS(2020)20.Particularly,less developed countries would experience a higher relative economic loss relevant for peoples livelihoods,according to the IMF(2021)21 and the number of affected nations,according to S&P Global(2022)22.This risks exacerbating global inequalities and driving 68 to 135 million people into poverty by 2030,according to the World Bank(2020)23.The climate crisis also affects childrens rights,who risk being locked into poverty without strong adaptation policy,particularly in countries that are risk of natural disasters,according to UNICEF(2021)24(see Figure 5).Extreme climate crises increase social inequality because women and girls are more likely to live in poverty(70%of total global poor population)25,depend more on access to natural resources and bear a disproportionate responsibility for securing food,and fuel yet have less access to essential services,and face systematic violence that escalates during periods of instability.7Climate Sustainability Working Group(CSWG)G20 2022Figure 5:Impacts of climate change on children-Global Childrens Climate Risk Index(UNICEF 24)Urgent action is advised with costs rising exponentially the later action is taken:The cost of climate change mitigation and adaptation tends to rise exponentially the later climate change is mitigated:the UN estimates annual adaptation costs 26 in developing countries at US$70 billion should decisive actions be taken in 2021;this figure is expected to reach US$140-300 billion for decisive actions delayed to 2030 and US$280-500 billion in 2050.Contrary,by investing in climate change mitigation and adaptation net-gains of 15 million jobs could be achieved by 2050,according to a 2022 McKinsey 5 study.It would require re-training and possibly re-location of workforce to development,production,and operation site of new industries.2.3.2 Climate-biodiversity nexusA particular opportunity and necessity to address the climate crisis is to tackle it together with the biodiversity crisis,according to a 2021 statement by IBPES and IPCC 27.Climate change and biodiversity loss are mutually linked,with climate change leading to biodiversity loss and biodiversity loss leading to climate change.Increasing net-zero and nature-positive investments to address the biodiversity and climate challenges has been reflected intheGlobal Biodiversity Frameworks Target 19 28ofthe UN Biodiversity Conference(COP15)29,the Glasgow Climate Pact 30 of theUNClimateChange Conference(COP26).Some climate-positive actions for mitigation and adaptation might exacerbate biodiversity loss(e.g.,grey infrastructure,some technological solutions,and single-crop carbon offsets),which further exacerbates social and economic risks(e.g.,loss of ecosystem services such as water,pollination,soil quality).8Climate Sustainability Working Group(CSWG)G20 2022Attention is necessary,as some supposed biodiversity investments harm both biodiversity and climate(e.g.,planting trees in ecosystems that have not historically been forests,or reforestation with monocultures).Accordingly,investment in carbon-and species-rich ecosystems on land and in the ocean(e.g.,forests,wetlands,peatlands,grasslands,mangroves),increase of sustainable agriculture and forestry practices(e.g.,diversification of plants),and protection of existing ecosystems are areas that best combine climate-,nature-,and social benefits.2.4 Responsibilities for development and social considerationsAchieving the sustainable transition requires action from all countries.To reduce carbon emissions,particularly developed countries and countries with growing absolute emissions need to accelerate finance for the low-carbon and green transformation.Least developed countries and developing countries need to utilize received financial support in achieving the physical and social transformation to adapt to climate change,while protecting and restoring natural resources and ecosystem services.The pledge of providing US$100 billion per year from developed to developing countries in climate finance needs to be upheld and efficiently used to accelerate the reduction of greenhouse gas emissions based on the NDCs.Lastbutnotleast,asolutiontofinancingtheglobalclimatecrisiscannotworkwithoutaddressing the debt crisis for many low-income countries,where sovereign debt levels reached US$860 billion in 2020 31.9Climate Sustainability Working Group(CSWG)G20 20223.Experiences in G20 members to catalyze and promote climatefinanceRegulators,law makers,financial associations,and private organizations in G20 members and beyond have proposed,developed,and applied policies,systems,and instrument to accelerate finance for the green transition,that can serve as a role model for accelerating climate and green finance application.These ongoing practices are highly context specific and often cannot be easily compared or standardized.The ambition is therefore to ensure relevant impact,while it is important to harmonize where possible to ensure comparability,cross-border facilitation,and capital flows.Figure 6:Green financial frameworks(Source:Author)10Climate Sustainability Working Group(CSWG)G20 2022Key elements of a structured climate finance system are supposed to include(see Figure 6):Climate finance governance top-down(e.g.,China);bottom-up systems(e.g.,through voluntary standards),and mixed-systems(e.g.,EU);Dual goal of emission reduction and scaling of green opportunities;Climate related laws and regulations impacting climate finance(e.g.,climate laws);Climate-finance related regulatory tools,e.g.,o central bank and financial regulatory measures;o common definitions of real economy activities that need to be financed(e.g.,through green finance and sustainable finance taxonomies);o climate risk evaluation and management(e.g.,TCFD,TNFD),and disclosure standards to provide transparency in reporting and avoiding greenwashing(e.g.,the EUs Non-Financial Reporting Directive on corporate sustainability disclosure);o carbon pricing.Climate finance sources(e.g.,public,private,development finance);Climate finance instruments(e.g.,green bond,green credit,green sukuk,green fund);Integration of green financial system.3.1 Climate finance governance The policy environment of climate finance of the G20 members are organized depending on different institutional settings and development phases,which determine the power of the various players and the levers to influence development paths of climate finance.Broadly,they can be distinguished between top-down systems driven by governments(e.g.,China),cooperative systems(e.g.,EU)or bottom-up systems driven by market-players(e.g.,United States).A top-down governance system of green finance in China is rooted in its underlying political economy model labelled as Grand Steerage of the economy 32.For green finance,the state takes an active role in providing guidance,regulations,and financial backing through various line ministries.This allows for rapid growth of the green financial system with support from state-owned enterprises and state-owned financial institutions:after the establishment of the Green Financial System in 2015,China became one of the largest green bond markets with SOEs accounting for 42%of the green bond issuances volume.While Chinas green financial volume is among the largest in the world,its different regulators are responsible for various aspects of the green financial system with gradual integration of the different instruments and rules.The EUs multi-layered green financial system(see Figure 7)is a hybrid model.The system is based on multilateral framework(e.g.,Paris Agreement),EU frameworks(e.g.,EU Taxonomy,Fit-for-55),EU regulations(e.g.,Sustainable Finance Disclosure Regulation,EU Taxonomy),national ambitions of EU member states and financial markets,as well as voluntary approaches of financial institutions and other stakeholders(e.g.,Glasgow Financial Alliance for Net-Zero,GFANZ)or independent commitments by financial institutions.11Climate Sustainability Working Group(CSWG)G20 2022Figure 7:The EUs Sustainable Finance Strategy(Source:Intereconomics 33)The bottom-up system,meanwhile,is driven by industry associations,individual organizations,and initiatives.These aim to drive ambitions,share capacity and knowledge,as well as to provide transparency and accountability among its members and possibly to the public.These initiatives are often supported by multilateral or international organizations,including private organizations(see Appendix 4 for selected initiatives).For example,At COP26 in 2021,the Glasgow Financial Alliance for Net Zero(GFANZ)established a global network for different types of financial institutions to commit and share climate ambitions publicly,and to provide knowledge to its members.3.2 Climate lawsThe climate finance architectures and/or approaches in G20 members are to different extend geared toward the dual ambition of reducing harmful activities(e.g.,through carbon pricing and climate laws)and accelerating green activities(e.g.,through growth of green finance and relevant fiscal/monetary support measures).A basis for all green financial systems is the overwriting climate ambitions of the country that determines investors appetites and financial and technological innovation.The G20 members have mostly increased their climate ambition,but their climate targets are not sufficient to meet the Paris goals with multiple G20 members having non-binding and non-climate neutral targets beyond 2050(see Figure 8).12Climate Sustainability Working Group(CSWG)G20 2022Figure 8:Climate targets in G20(EU has 2050 climate-neutral target in law but was not included in the graph)(Data:Net Zero Tracker,Graphic:author)A number of G20 members have also issued specific laws to accelerate either the phase-out of specific polluting sectors(e.g.,Germanys coal exit law),or to accelerate the use of greener technologies(e.g.,EUs energy plan,Chinas national renewable energy targets).3.3 Climate-finance regulatory tools3.3.1 Definitions of green finance through taxonomiesMany G20 members and other global economies have developed green finance taxonomies as part of their green finance systems as a standard to define green economic activities(see Figure 7 and Appendix 1).Taxonomies and standards provide shared definitions for investors and policy makers,and reduce transaction cost 34 for investors aiming to invest in endorsed assets.Particularly market-driven standards allow for cross-border finance.Taxonomies have been issued by national and supra-national(e.g.,EU)governments,as well as private institutions,such as the Climate Bonds Initiative(CBI),ASEAN Green Bond Standard,ICMA Green Bond Principles.13Climate Sustainability Working Group(CSWG)G20 2022Figure 7:Global green Taxonomies(Source:Climate Bonds Initiative,2022 35)To further allow for cross-border finance,efforts to harmonize green taxonomies are ongoing.Progress has been made through the IPFS under the leadership of the EU and China in 2022 through the Common Ground Taxonomy 36 and as well as through the G20 SFWG.Nevertheless,harmonization continues to be challenging 37 due to different development status of countries,different approaches to green finance in terms of the financial system and definitions of green activities.Apart from providing“green standards”,a new,and promising,approach to shift finance is to define counterproductive economic activities.Amongst others,Indonesia 38,Singapore and China for its overseas investments 39,have issued such“red”taxonomies as part of“traffic light systems”.In these taxonomies,fossil fuel finance,for example,would be labelled red as a signal for investors and policy makers to restrict financing.With challenges on agreeing particularly on transition taxonomies,agreeing on economic activities that need rapid phase-out can be a viable pathway.An important aspect of applying green taxonomies are external reviews.Currently,private sector solutions dominate the green external review market offering different approaches,such as second-party opinions,third-party certifications,ratings for environmental,social and governance performance(ESG rating),assurance,and audit,etc.As concerns have arisen regarding the reliability and comparability of green labels,countries have started to put in place,or have upgraded,regulatory frameworks to guide private external review activities(EU,China).Chinas Green Bond Assessment and Verification Guidelines 40 provide an example how a central bank can support qualification of external institutions assessments and certifications of green bonds.14Climate Sustainability Working Group(CSWG)G20 20223.3.2 Selected risk management,reporting and disclosure standardsVarious G20 members and others have introduced standards to improve non-financial disclosure on the national,market and sector level(see Appendix 3 for an overview)-also referred to as“ESG”disclosure.These standards aim to provide more transparency on environmental impacts and environmental risk exposure to financial and commercial actors and thus provide both incentives for improving environmental performance and reducing environmental risks,as well as transparency for informed financial decision-making.In G20 members,these standards are driven by various entities,such as governments(e.g.,EU Sustainable Finance Disclosure Regulation),markets(e.g.,Shenzhen Stock exchange),member organizations with support from multilateral institutions(e.g.,Global Reporting Initiative),as well as by NGOs in collaboration with market players and governments(e.g.,TNFD,CDP).These standards provide frameworks for different aspects of disclosure(e.g.,climate,biodiversity risks and impacts),and address different types of market players(e.g.,financial institutions,broader economy).As various reporting standards are often in competition or co-opetition and therefore not standardized,an increasingly complex network of reporting standards has become available.This allows companies and financial institutions to choose ambitious or less ambitious standards,and thus increases the risk of greenwashing.National risk management and disclosure frameworks are therefore being developed.For example,the Japanese Financial Services Agency(FSA)in April 2022,released draft Supervisory Guidance on Climate-related Risk Management and Client Engagement.This guidance documents viewpoints of supervisory dialogues regarding financial institutions climate-related risk management and engagement with their clients to support the clients responses to climate-related opportunities and risks.Similarly,the EU provided various frameworks for non-financial disclosure(see Table 1Table 1).15Climate Sustainability Working Group(CSWG)G20 2022Table 1:Non-financial disclosure in the EU(Source:European Union 41)ScopeLarge corporations and all listed companiesFinancial market participantsofferinginvestment products,andfinancialadvisersFinancial market participants;all companies subject to Corporate Sustainability Reporting InitiativeInstrumentCorporate Sustainability Reporting Directive(CSRD)proposalSustainable Finance Disclosure Regulation(SFDR)Taxonomy RegulationDisclosureReport based on formal reporting standards and subject to external auditEntity and product lev-el disclosure on sustain-ability risks and princi-pal adverse impactsTurnover,capital,and operating expenditures in the reporting year from products or activities associated with TaxonomyStatusUnder negotiation,expected to apply from 2023Applies from 10 March 2021Applies from January 2022In May 2021,the Ministry of Economic Development of Russian Federation approved methodological recommendations for adoption climate change that consists of four documents,including recommendations for climate risk assessment.These recommendations are the basis for creating a national climate risk management system in Russia.3.3.3 Ecosystem solutionsEcosystem solutions play an important role for carbon sequestration which could result in carbon credits.China has also underscored the importance of carbon sequestration linked to nature-based solutions 48.The February 2022 UNEA-5 49 resolution marks the first time a multilateral body has adopted by consensus a universal definition of such ecosystem services.The recent State of Nature in the G20 report 50 of UNEP and others underscores the importance of making the financial case for ecosystem services.Greater engagement by private investors is needed to close financing gaps in this domain.Estimates by the 2021 State of Finance for Nature report 7 suggest US$133 billion is invested annually in ecosystem solutions.Of this total,86 percent or US$115 billion is public financing related to conservation,regeneration of forests,peat lands,agriculture,water conservation,and natural pollution control systems.The report estimates that private sector ecosystem solution financing is much lower,at 14 percent of total annual financing or US$18 billion per year with investments dominated by biodiversity offsets,sustainable supply chains,impact investment and private philanthropy investments.The report identifies five priorities to increase financing for ecosystem solutions:Increase Overseas Development Assistance(ODA);Reform agricultural subsidies;Mandate Multilateral Development Banks(MDBs)to increase ecosystem solutions financing;16Climate Sustainability Working Group(CSWG)G20 2022 Link developing country debt relief with ecosystem solutions investments;Support results-based ecosystem solutions public financing linked to green bonds.3.3.4 Carbon pricingPricing the environmental rights including carbon emission is an increasingly relevant tool to incentivize de-carbonization and nature-positive outcomes,and simultaneously to disincentivize emissions and natural exploitation.For detailed analysis relevant to this topic,please also refer to CSWG Study 3.2Emission trading systems(ETS)By 2021,65 carbon pricing schemes were applied in 45 national jurisdictions and 34 subnational jurisdictions,covering about 21.5%of global GHG emissions.As can be seen in Figure 8,The EU emission trading system(EU ETS)(and similarly the UK ETS after separating from the EU ETS)is the most mature with relatively high prices of above EUR100 per ton of CO2e.Figure 8:Carbon prices(USD/ton)in EU,California,and China(Source:ICAP)Voluntary carbon markets(VCM)that allow companies(and individuals)to reach their pledges of carbon neutrality by buying carbon offsets also in lieu of regulated carbon markets.In 2021,VCM for airlines have grown by 900%and corporate carbon offsets by 170B.McKinsey together with the International Institute of Finance estimates 43 that voluntary carbon markets could increase by a factor of 15 or more by 2030 and by a factor of 100 by 2050.Carbon credits could come from four categories:avoided nature loss(including 17Climate Sustainability Working Group(CSWG)G20 2022deforestation);nature-based sequestration,such as reforestation;avoidance or reduction of emissions such as methane from landfills;and technology-based removal of carbon dioxide from the atmosphere Paying for importing carbonPaying for“importing”carbon is another concept to price carbon emissions.In March 2022,the EU Council agreed on the Carbon Border Adjustment Mechanism(CBAM)44.Also other countries,notably the US in July 2021 45 and the UK in September 2021 46 introduced plans or evaluations of carbon border adjustment mechanisms.The ambition is to reduce carbon leakage and price consumption-based rather than production-based carbon emissions.This has been a source of contention from some developing countries with high exports into developed countries over who should be accountable for emissions.At the same time,some developing countries have expressed fears of such mechanisms adding costs to exports 47 and the idea that revenues from pricing carbon could flow back into developing economies in supporting a green transition.International carbon marketsCarbon markets and carbon offsets have been further strengthened by the agreement on Article 6 of the Paris Agreement at COP26 in Glasgow in 2021.Through the introduction of internationally transferable mitigation outcomes(ITMOs)and Article 6,paragraph 4,emission reductions(A6.4ER)with governance to avoid double-counting of carbon reduction credits and providing more flexibility than previous CDTM.However,implementation of Article 6 and international carbon markets rests on complex governance structures,pricing issues and technical capacity challenges 42,not only in developing economies.Furthermore,ensuring additionality of ITMOs continues to be a challenge with risks in under-ambitious NDC(i.e.,overperforming on NDCs and generating ITMOs)and perpetuity(e.g.,afforestation projects).3.4 Climate financing sourcesG20 members have access or have developed various public and private sources of climate finance.These include,for example:-public fiscal spending(e.g.,through subsidies in renewable energy);-green public funds through development banks or national green funds(e.g.,Chi-nas National Green Development Fund 51,or UKs Green Investment Bank);-development finance institutions,such as bilateral or multilateral development banks including their facilities(e.g.,World Banks Climate Support Facility or the Green Climate Fund);-private financial institutions,including o microfinance institutions particularly in developing economies(e.g.,UNEPs microfinance for ecosystem-based adaptation MEBA 26 supported by the German government);18Climate Sustainability Working Group(CSWG)G20 2022o commercial financial institutions issuing green loans and insurances(and micro-insurances as supported e.g.,by the ADB)for environmental insurances.-public capital markets:o green bond markets;o equity markets with a focus on environmental,social and governance performance(such as the EU green capital markets union 18).-private equity,including impact funds.The appropriate source of climate and green finance is contingent on factors,including availability of funds(e.g.,capital markets tend to be more developed in developed countries,while microfinance is applied more widely in developing countries,bank credit is applied across the world in different degrees),risk and return requirements of investors(e.g.,public finance can provide negative return financing,while private equity would expect high returns),and scalability of finance(e.g.,very unique or small projects require specialized sources of finance,while scalable infrastructure finance is more standardized).3.5 Climate finance instrumentsClimate and green finance instruments aim to provide asset classes or tools to finance aligned projects.G20 members have developed and applied numerous instruments tailored to accelerate public and private financing for sustainable activities for different asset classes(see Appendix 2 for a more comprehensive list of climate and green finance instruments).These address individual,public,private and public-private finance(see Table 2).Table 2:Examples of climate and green finance instrumentsIndividual/micro enterprisesCommercial debtCommercial equityPublicPublic-private/development Green credit support Green microfi-nance Green mort-gageGreen credit/green loans Green bonds Sustainabil-ity-linked loans Transition bonds ESG funds Impact finance Green sovereign bonds(e.g.,Germany,China,Indonesia)Sustainabili-ty-linked sover-eign debt(e.g.,Indonesia)Debt-for-nature swaps(USA)Guarantees Subsidies National green funds Blended finance Guarantees Project de-velopment facilities Credit en-hancement facilitiesFurther instruments are tailored at specific environmental goals,for example through“payment for ecosystem services”to scale up financing for ecosystems,or national or subnational“carbon markets”to price carbon or more broadly climate emissions(e.g.,in Germany,South Korea,parts of the US,subnational in Japan etc.).19Climate Sustainability Working Group(CSWG)G20 2022A particular set of financial instruments and strategies that is gaining prominence are related to early retirement of heavy polluting assets,such as coal-fired power plants.Indonesia,as one country,is preparing Energy Transition Mechanism to retire coal power plant and transition it to new and renewable energy.Various private,public and development financial instruments 52 are being explored and have been applied(e.g.,in Germany)to accelerate the retirement of such assets.As part of this,Just Transition Mechanisms have been devised,e.g.,South Africas International Just Energy Transition Partnership 53 with the support of France,Germany,UK,US and EU.Climate finance instruments are ideally matching specific risk-return profiles of projects,investor preferences and market conditions.Accordingly,the relevance of the application of specific climate finance instruments is context dependent(e.g.,green bonds are more applicable in developed capital markets,while microfinance is more relevant to provide finance in informal markets).Particularly in emerging markets,green capital markets are often in need for further development 19 and specific financial market-based instruments are less applicable or need more support(e.g.,through government-led green bond issuance,such as in Indonesia,China).Other instruments are more applicable,such as green micro-finance,bank lending and blended finance,as well as support through guarantees or other green facilities.Also,sovereign lenders(e.g.,government,state-owned enterprises,state-owned financial institutions)can utilize green capital markets(e.g.,through the issuance of green sovereign bonds).Many G20 members have issued green sovereign bonds(or green sukuk)on the national and sub-national level,as well as through SOEs,including France,Germany,Mexico,China,Indonesia.If issued on local capital markets,these green sovereign bonds have strong potential to support local green capital market development 54.The availability of the instruments is dependent on regulatory approvals and support(e.g.,Japan is providing financial support for issuing green bonds,Chinas scaling of green bond and green credit markets is based on strong policy support and application through SOEs).The scalability of the instruments depends on available project pipelines and market conditions.Many of these instruments have been utilized without“green”aspects for decades,and thus need to be tailored to integrate effective climate aspects.Some innovative instruments,particularly on the derivatives markets,such as green asset-backed securities,still require more market discovery for proper pricing.3.6 Climate finance in developing countries Providing finance for infrastructure and capacity development from developed G20 members to developing countries for climate mitigation and adaptation,ideally integrated with nature protection and ecosystem solutions in developing countries,has been an important pillar in the protection and restoration of the global nature and climate.20Climate Sustainability Working Group(CSWG)G20 20223.6.1 Development finance commitmentsDevelopedcountriesatCOP26havereaffirmedtheircommitmenttoprovideUSD100billionperyearinclimatefinanceindevelopingcountries.Global funds have also been supported,such as the Global Environmental Facility(GEF)having provided more than USD139 billion in finance for nature in developing countries,and similarly the Green Climate Fund(GCF)that had provided USD10 billion in finance for climate-related projects.Bilateral engagements from G20 members through development banks,many of which are organized through the International Development Finance Club(IDFC),also committed to improve climate-finance and SDG implementation,e.g.,through its five voluntary principles.By September 2020,over 48 financial institutions,including 23 bilateral,regional,and national development banks,as well as 13 commercial financial institutions were part of the Initiative.3.6.2 Local green capital market developmentGreen capital market development in developing countries has been supported by G20 members,and multilateral financial institutions to catalyze private and public finance for green development.Support has been given for design and capacity building(e.g.,IFCs Sustainable Banking and Finance Network)and through underwriting green bond issuances in developing countries(e.g.,ADBs US$20 million investment in Georgias railway green bond)54.Local green capital markets have also been developed by green bond issuances from state-owned or state-backed companies and financial institutions based on their lower risk profile and larger issuance size,e.g.,in China and Indonesia.3.6.3 Sovereign debt in developing countriesAs COVID-19 continues to interrupt economic activities,induce higher public spending,and decrease tax revenues,sovereign debt issues in certain countries have become more challenging.Sovereign debt risks have further been exacerbated by recent disturbance of supply chain and geopolitical tensions.In 2020 it has noted that the debt burden 55 of low-income countries rose 12 per cent 31 to a record US$860 billion in 2020.The International Monetary Fund(IMF)sounded alarm bells in December 2021,warning that 60 per cent 56 of low-income countries are at high risk or already in debt distress,up from 30 per cent in 2015.Sovereign debt ratings 57 in 2021 and 2022 have fallen particularly in developing countries.The sovereign debt crisis has strained the availability of resources for conservation,while social considerations,such as the provision of jobs and job security,have led to stimulus efforts that potentially result in unsustainable economic growth(e.g.,by focusing on grey infrastructure,brown energy).In response to the sovereign debt issue,several initiatives have been launched since the pandemic:21Climate Sustainability Working Group(CSWG)G20 2022 The G20 Debt Service Suspension Initiative(DSSI)provided US$10.3 billion in debt-service relief to 40 countries.DSSI was available to 73 low-income countries,and was not extended beyond December 2021.The IMF-World Bank“Common Framework,”intended to coordinate debt restructuring among Paris Club and non-Paris club creditors,currently involves only three countries(Chad,Ethiopia,and Zambia).The IMF agreed to release US$650 billion in Special Drawing Rights 58 to help countries during the crisis.In November 2021 at the China-Africa FOCA summit,China pledged US$10 billion 59(of its share of US$40 billion in new SDRs)to help African countries recover from the pandemic.On 18 April 2022,the IMF approved a new,Resilience and Sustainability Trust 60 to help countries manage structural risks linked to climate change and the ongoing pandemic:roughly three-quarters of countries are eligible to apply for support through the new fund,which has initial pledges of US$40 billion.While welcomed,recent initiatives are likely insufficient in the face of sharplyworsening debt sustainability conditions.Among the suggestions is to turn to more comprehensive lessons of the past,notably the Highly Indebted Poor Countries Initiative and HIPC ,or updating a new version of Brady Bonds 61.The Tackling the Triple Crisis Proposal 62 proposes using debt swaps to help debtor countries meet climate,nature,and other goals.Debt-for-nature swaps(DNS)have been discussed as a concept to ameliorate multiple of these problems at the same time:it could reduce debt burdens,particularly in developing countries with high external public debt,and direct funds to conservation or restoration in these countries to create employment.DNS are a financial tool initially developed and applied in the 1980s to deal with this dual problem of nature loss and sovereign debt by exchanging sovereign debt for the conservation or restoration of nature.Accelerating environmental destruction and the accompanying need to mobilize billions to finance nature protection led to a resurgence of calls to apply DNS,including from large creditor regions,such as in September 2021 from the European Commission and the OECD.The US through the Development Finance Corporation(DFC)together with The Nature Conservancy has supported the government of Belize at the end of 2021 in a US$364 million financial transaction 63 that will enable the country to reduce its debt burden and generate an estimated US$180M for marine conservation.China,as the largest bilateral creditor in developing countries 64,is also evaluating the application of various forms of debt restructuring,including debt forgiveness on non-interest-bearing loans,and debt-for-sustainability swaps 65.Similarly,Indonesia agreed with Germany and Global Fund to a US$50 million debt-for-health swap 66 in 2021.Without solving the debt crisis quickly and decisively,sustainable development regarding social,environmental and economic progress will likely regress in many developing countries,particularly in light of accelerating inflation and exchange-rate volatility due to armed conflicts and supply chain issues.22Climate Sustainability Working Group(CSWG)G20 20224.The Way Forward Taken the current climate and green finance gap,and seeing current climate finance ambitions of G20 members,lessons can be drawn,and challenges can be identified.These can be summarized as:4.1 A transformative effortAs the combined effort of G20 members shows,transforming finance requires the comprehensive and rapid development and application of fiscal,monetary,regulatory,and voluntary instruments,tools,and systems.Through incentives and disincentives,these tools aim to reduce finance flows into counterproductive activities and accelerate sustainability-aligned finance by creating commonly accepted standards and reducing transaction costs through interoperability.At the same time,these tools need to ensure a just transition across countries and societies,secure and improve future generations wealth,while minimizing greenwashing risks to avoid erosion of public and investors trust in green transition.Shiftingawayfromfinancingunsustainableactivitiesiskeywithafocusonsectorsandactivities that currently most contribute to climate change and biodiversity loss which is closely related to climate change ambitions.Many of these sectors are overlapping for biodiversity and climate issues,in particular,the energy sector(transport,buildings and industry),agriculture and food systems,cement,chemicals,and waste(see Figure 9).Figure 9:Global Greenhouse Gas Emissions by Sector in 2016(Source:Our World in Data 2020 71)Ministries and regulators responsible for climate and environment have an opportunity to set environmental standards and thresholds,data standards,as well as create architectures of carbon markets and environmental rights markets.Close cooperation with related ministries responsible for public finance and SOEs,banking,financial markets,and economy,in addition to private sector stakeholders,promises the most effective results.23Climate Sustainability Working Group(CSWG)G20 2022As institutional settings vary between G20 members,any systematic approach between top-down and bottom-up approaches will be specific to each country.The overall approach is ideally harmonized among the G20 members to create lower cross-border financing barriers.Scalingofgreenfinancerequiressynergiesbetweentop-downandbottom-upaction:The top-down action sets policy signals and regulatory frameworks,such as disclosure regulations,public finance strategies,environmental standards(e.g.,emission standards),or environmental rights trading markets(e.g.,carbon markets),as well as monetary and fiscal incentives.The bottom-up actions set market-driven voluntary green financing instruments like ESG products,private sustainability markets for green goods,services and commodities,voluntary carbon offset markets to support corporate targets like net zero or nature positive goals.A key objective is to build synergies between these two green finance sources.4.2 Integration of climate factors into finance systemG20 members have embarked on the journey to incorporated climate factors into financing frameworks,strategies and mechanismsBased on the Addis Ababa Action Agenda 67,integrated national finance frameworks(INFFs)are envisaged to“align the full range of financing sources-domestic and international sources of public and private finance-and the policies that govern them for sustainable development.”Successful evaluation has been completed,e.g.,for Indonesia and Mexico.The Sustainable Banking and Finance Network 17 tracks progress of frameworks to promote sustainable finance of many developing countries(including relevant G20 members,such as China,India,Indonesia,Mexico).The UKs 2019 Green Finance Strategy 68 similarly sets out how to harness the strength of the UKs world leading financial sector to catalyze green investment and accelerate delivery of net zero.The Net Zero Strategy 69 outlines measures to transition to a green and sustainable future,including the goal to leverage up to 90 billion of private investment by 2030.The Government of Indonesia works on the Climate Change Fiscal Framework to implement several activities such as green budgeting,a Private Sector Climate Expenditure,and Institutional Review.Indonesia has developed a more advanced green finance framework than most its peers,being evaluated at the second highest stage in the SBFN 2022 evaluation 70:“its national framework extends beyond the banking sector and promotes ESG integration across the financial sector ecosystem.In addition to ongoing activities to raise awareness and build capacity,implementation tools and initiatives are in place”.Indonesia has also used public finance to develop green capital markets(e.g.,issuance of third green sovereign sukuk worth US$750 million in 2020,and the state-owned Bank Mandiri issued its first US$300 million bond in 2021).24Climate Sustainability Working Group(CSWG)G20 2022The EUs efforts are pooled in the EUs Strategy for Financing the Transition to a Sustainable Economy 41 that includes the 2021-2027 Multiannual Financial Framework(MFF)and Next-Generation-EU(NGEU).Through this,the EU aims to mobilize private finance through up to EUR 605 billion on public finance for projects addressing the climate crisis and EUR 100 billion in projects supporting biodiversity.Of the EUR 750 billion allocated for NextGeneration-EU,30%will be raised through issuance of NGEU green bonds,which will further develop green capital markets in the EU.Furthermore,through its Just Transition Mechanism,the EU aims to“ensure that the transition towards a climate-neutral economy happens in a fair way,leaving no one behind.It provides targeted support to help mobilize around 55 billion over the period 2021-2027 in the most affected regions,to alleviate the socio-economic impact of the transition”.Ideally climate factors can be further organized in comprehensive and reinforcing green financial frameworks based on the relevant governance system,laws and regulations,sources of finance and relevant financial instruments.4.3 Technologies for climate and green financeTo advance climate finance,a key bottleneck is informational asymmetry and transaction cost of data disclosure of environmental and climate risk.G20 members can take advantage of emerging technologies through the integration of big data,sensing technologies,enhanced(artificial)intelligence technologies,mobile platforms,blockchain technologies.These“digital finance“technologies make large amounts of data available more quickly at lower costs,increasing transparency and access to information related to sustainable investments.They also have the potential to promote greater inclusion and innovation,increase opportunities for citizen participation in the financial value chain and unlock new sustainable business models.Many G20 members have established industry and government competence to utilize technologies to advance the provision and efficiency of financial services not least through central bank digital currencies(CBDC)(e.g.,Brazil,Japan,and others).Tech Sprint organized by the Bank for International Settlement(BIS)and G20 in 2021 focused on green and sustainable finance focused on three topics:(1)data collection,verification and sharing;(2)analysis and assessment of transition and physical climate-related risks,and(3)better connecting projects and investors.Overall,digitalization or technologies have specific advantages for climate and sustainable finance to improve informed decision-making for regulators,investors and consumers based on improved data availability,transparency,comparability,as well as better data analyses,e.g.,for climate scenario analyses,understanding of interdependencies(e.g.,of nature-climate nexus risks):Collection of non-financial environmental data through smart technologies,sensing and autonomous vehicles(e.g.,drones),e.g.,for climate-related emissions at the source,pollution at the source,land-use change;25Climate Sustainability Working Group(CSWG)G20 2022 Improvement of transparency and consistency through provision of data and infor-mation via openly accessible platforms,including through mobile platforms;Improvement of comparability of data through utilizing algorithms to interpret data through artificial intelligence,e.g.,in the highly fragmented ESG data space or for multiple frameworks for environmental disclosure and risk management frame-works;Improvements in intelligence through better scenario analyses and stress testing,as well as risk analyses of interdependencies(e.g.,nature)through higher data availability and improved computing power.Furthermore,technologies can help mobilizing finance for green projects through reduction of transaction cost and information cost for investors.For example,the BIS Innovation Hub together with Hong Kong Monetary Authority(HKMA)established the Project Genesis in 2021 that allows any investor to invest any amount into safe government green bonds via an app.Over the bonds lifetime,the investor can see accrued interest,track in real time how reduction in CO2 emissions linked to the investment are made.Further,the investor can sell the bonds in a transparent market.26Climate Sustainability Working Group(CSWG)G20 20225.Actions to be taken:Stop counterproductive,mobilize greenpublicandprivatefinancethroughsmart,coherent,and tailored policy toolsBased on the identified developments of climate and green finance in G20 members,the identified gaps and the need for improvements,specific actions that G20 leaders in regulatory bodies responsible for climate change and biodiversity loss can consider have been identified.ClimatefinanceactionsconsideredbyG20membersarebasedonfivedimensions:1:With limited resources and time available,G20 members focus efforts on shifting finance away from those economic activities with the highest negative impact.2:Public finance through fiscal spending,tax policy,state-owned-enterprises(SOEs)and state-owned financial institutions leads the race to the top in collaboration with the private sector finance.3:Climate finance is fully integrated with biodiversity aspects to maximize effects of the green and sustainable transition for mitigataion and adaptation/resilience.4:G20 encourages jurisdictions to develop their own green finance approaches based on the 6 principles noted by the SFWGa.SWFG Principle 1:Ensure material positive contributions to sustainability goals and focus on outcomes;b.SWFG Principle 2:Avoid negative contribution to other sustainability goals(e.g.,through do no significant harm to any sustainability goal requirements);c.SWFG Principle 3:Be dynamic in adjustments reflecting changes in policies,technologies,and state of the transition;d.SWFG Principle 4:Reflect good governance and transparency;e.SWFG Principle 5:Be science-based for environmental goals and science-or evidence-based for other sustainability issues;andf.SWFG Principle 6:Address transition considerations.5:Climate finance enables a just transition for countries in different development stages,for different sectors and ensure a better life for future generations rooted in the SDGsSpecific actions that G20 members can consider can be distinguished in(1)harmonized standards for public and private finance,(2)private sector mobilization,and(3)just and development finance.5.1.1 Improving standardization to shift from unsustainable to greenImproving interoperability of various green and sustainable finance standards forprivateandpublicfinance to reduce transaction cost,to ensure positive impact,to reduce greenwashing,to build trust and to shift from dirty to green finance can be developed.While development of green taxonomies with a focus on mitigation has been increasingly successful and efforts to improve interoperability of green taxonomies are ongoing,27Climate Sustainability Working Group(CSWG)G20 2022definitions of counterproductive and hard-to-abate economic activities through a“traffic light classification system”are paramount.This has the potential to increase economic costs for environmentally harmful activities and shift money to non-harmful and green activities.The classification system of those economic activities should focus on e.g.,fossil fuel energies,transport-related infrastructure and services,agriculture and food systems,and resource extraction.To reduce greenwashing,environmental regulators can support in providing and enforcing legal standards on environmental thresholds and performance indicators(i.e.,technical screening criteria).These thresholds should describe what are maximum emissions and nature-negative outputs allowable(e.g.,what are emission thresholds or biodiversity loss thresholds for specific activities)and provide performance indicators(e.g.,what is considered a“positive biodiversity contribution”in different ecosystems and sectors).These thresholds are relevant for the inclusion/exclusion of economic activities in green finance taxonomies,as well as reporting.Similarly,as a basis for evaluating environmental performance,standards development for measuring,verifying,and reporting(MRV)comparable and standardized data on environmental performance that includes vulnerable groups can be accelerated.This should utilize digital technologies available that should provide better access to all stakeholders including regulators,market participants and consumers.Technologies should advance climate and environment data management,to allow financial markets/entities to capture risk and opportunities of climate friendly investment/business/finance.The data quality should be ensured and enforced through standards supported or issued by competent environmental regulators.The competent environmental regulator can also provide regularly updated baseline environmental data on a granular level as well as performance summaries in relation to climate,biodiversity,pollution,and adaptation.The foundation for global markets and relevant instruments to accelerate carbon-positiveandnature-negativeinvestmentsprovidesbroaderbenefitsifitisimproved.This includes a consensus for global and cross-border carbon pricing and carbon leakage avoidance,where the parts of the proceeds can be utilized to support climate mitigation/adaptation/just transition in least developed countries including capacity building and technical assistance.Furthermore,tools for further natural rights trading can be implemented to increase the use of ecosystem-based solutions as carbon offsets within Paris Agreement Article 6 consensus reached at Glasgow 42 and to build resilience.Data that is made publicly and easily available has a greater potential to improve transparency and trust in green finance e.g.,through a shared data repository,to evaluate relevant incentives and disincentives for aligning flows with sustainable development and climate targets and to facilitate smart climate financing decision making for example,for restructuring debts in developing countries,better standardize labelling of activities(e.g.,green,and red taxonomy).28Climate Sustainability Working Group(CSWG)G20 20225.1.2 Private sector mobilizationThese“traffic light system”standards can be applied for publicfinancethatincludes,e.g.,fiscalspending,subsidies,taxpolicy,state-ownedenterprises(SOEs)andstate-ownedfinancial institutions.Public financial and project engagement in non-SDG aligned or projects doing harm to an SDG can be ended by 2025 while state-owned financial institutions phase-out and divest from harmful projects by 2040.Exceptions can be provided to invest in harmful projects if they accelerate green development goals,such as when investing in a fund for early retiring coal-fired power plants.Availability of green public finance can be increased through issuance of sovereign or SOE green financial instruments(e.g.,green bonds,green sukuk).With more green public finance,through sovereign or SOE green financial instruments(e.g.,green bonds,green sukuk)green private sector spillovers and a mobilization of green private sector finance and businesses can be envisaged.By supporting governments,SOEs and SOFIs to utilize green financial instruments(e.g.,green bonds),local green capital market development with immediate benefits for private sector development can be achieved.The global infrastructure development facilities(e.g.,Global Infrastructure Facility(GIF),Global Environment Facility(GEF)and other applicable finance instruments(e.g.,non-sovereign guarantees,blended finance,PPP)can be used for more efficient crowding in of commercial development finance and private finance in high-risk assets if accelerated,e.g.,through capacity building for application and implementation of these financing mechanisms.As private sector finance requires clear policy directions to understand regulatory risk(rather than uncertain future announcements),clear,ambitious green regulatory and policy targets paired with public finance measures will mobilize private sector finance to support phase-out of dirty assets and deployment of climate-friendly investments.5.1.3 Just and development financeEnsure a globally just transition through responsibilities to ensure a just transition and reduce COVID-19 related impacts particularly in developing countries.This should include the fulfillment and ideally increase of the US$100 billion climate finance from developed to developing countries.Furthermore,G20 members can work together to reduce debt-burdens of highly indebted countries that include the evaluation of multilateral and bilateral debt-for-nature and/or debt-for-climate swaps to increase both development finance and fiscal space in highly indebted countries.The development cooperation can also support financial and technical capacity particularly for energy transition(e.g.,grid,energy storage)and adaptation finance possibly through multilateral agencies that would reduce risks of strategic national competition in development support.29Climate Sustainability Working Group(CSWG)G20 2022To further finance the green transition in G20 members and beyond,the use of global infrastructure development facilities(e.g.,GIF,MCDF)and other applicable financeinstrumentsthatprovideformoreefficientcrowdinginofcommercialdevelopmentfinancecanbeaccelerated.Also,the local(green)capital market development can be further supported.30Climate Sustainability Working Group(CSWG)G20 20226.Appendix6.1 Appendix 1:Overview of relevant taxonomiesEU taxonomy for sustainable activitiesThe EUtaxonomy is a classification system,establishing a list of environmentally sustainable economic activities.The EUtaxonomy would provide companies,investors,and policymakers with appropriate definitions for which economic activities can be considered environmentally sustainable.China Green Bond Endorsed Projects Catalogue The 2021 Edition Catalogue divides green projects into six major areas:Energy-saving and Environmental Protection Industry,Clean Production Industry,Clean Energy Industry,Eco-environment Industry,Green Upgrading of Infrastructure,and Green Services.China“Traffic Light System”for Overseas investmentsIn 2020,Chinas Belt and Road Initiative International Green Development Coalition(BRIGC)backed by multiple ministries issued the Green Development Guidance for BRI projects with a“Traffic Light System”.Projects are classified in“green”(environmentally beneficial without any significant harm to biodiversity,pollution and/or climate),“yellow”(environmentally neutral),and“red”(significant potential harm to any environmental dimension of pollution,biodiversity,or climate).Indonesias Green Taxonomy 38In January 2022,Indonesias Financial Services Authority(OJK)completed the first edition of Indonesias green taxonomy.The Green Taxonomy classifies sustainable financing and investment activities into three categories,namely:green(do no significant harm,apply minimum safeguard,provide positive Impact to the environment,and align with the environmental objective of the taxonomy,yellow(do no significant harm),and red(harmful activities).The“EU-China Common Ground Taxonomy Climate Change Mitigation(CGT)”.CGT put forward commonalities from the EU and Chinas taxonomiesandprovide generic methodologies for benchmarking taxonomies.As emphasized by the working group,the CGT has no legal implications and does not intend to be formally or legally endorsed by any jurisdictions.It is rathera source of inspirations and provides analytical toolkitsfor other jurisdictions when developing their own taxonomies.31Climate Sustainability Working Group(CSWG)G20 2022ASEAN TaxonomyThe new taxonomy follows previous ASEAN sustainable finance initiatives,such as the ASEAN Green,Social and Sustainability Bond Standards,and the ASEAN Sustainable Banking Principles.The ASEAN Taxonomy is a sustainable finance taxonomy with an initial focus on environmental objectives.It consists of two parts.The base is a Foundation Framework(FF)resting on four environmental objectives and two essential criteria to guide AMS in classifying economic activities in 3 tiers(green-amber-red).Singapore“Traffic Light System”73(not a G20 country,but with significance for financial markets in ASEAN and beyond)The Green Finance Industry Taskforce(GFIT),convened by the Monetary Authority of Singapore(MAS),issued a proposed taxonomy for Singapore-based financial institutions to identify activities that can be considered green or transitioning towards green.A“traffic-light”system was developed,which sets out how activities can be classified as green,yellow(transition),or red according to their level of alignment with environmental objectives.Japan Transition Finance TaxonomyThe Basic Guidelines on Climate Transition Finance(Guidelines)is one measure supporting this development strategy through strengthening the position of climate transition finance in Japan,especially in hard-to-abate sectors.In addition to its main objective,the Guidelines aims to introduce more funding contributing to achieving the 2050 carbon-neutral goals of Japan and align with the Paris Agreement.Russian Green Finance TaxonomyThe Russian Green Finance taxonomy covers both green and transition activities.It is compatible with recognized international taxonomies and reflects criteria for sustainable projects.Green taxonomy section covers activities in such areas as waste management,energy sector(including the whole spectrum of low-carbon energy solutions:solar,wind,geothermal power,biofuels,hydropower,nuclear and hydrogen),circular economy projects,CCUS,energy efficiency in buildings,industrial processes(steel,aluminum,cement,etc.),transportation fuels,vehicles and infrastructure,green mobility,land use and agriculture.Transitional taxonomy introduces criteria that encourage GHG emissions reduction in hard-to-abate sectors,namely,fossil fuel and natural resources exploitation and use32Climate Sustainability Working Group(CSWG)G20 20226.2 Appendix 2:Overview of Sustainable financial instrumentsCategoryNameAim/ScopeStatus and scaleExamples in G20Climatefinancepolicies and regu-lations as a basis forclimatefinanceinstrumentsGreen monetary policyCentral banks and other banking authorities are increasingly using their tools to provide the right price signals and incentives to align finance flows with climate goals 74.G20 central banks generally failing 75European Central Bank 75 etc.Green financial and real-economy policies-Stress testing to improve financial institutions resilience-Mandated disclosure of climate risks-Legal requirements for real economy(e.g.the energy,transport,agriculture,or water sectors)Very few G20 members implemented these instru-mentsPeoples Bank of China 76 for stress testing;NDC priority sec-tors;Climate-related financial disclosuresStrategies,voluntary disclosures,standards or frameworks,roadmaps,guidance documents,etc.(nonbinding)Very few G20 members implemented these instru-mentsTCFDCarbon pricing scheme(e.g.,carbon tax,carbon market)Put a price on carbon emissions so that the costs of climate impacts and the opportunities for low-carbon energy options are better reflected.-Almost half of all CO2 emissions 77 from energy use in G20 economies are priced as of 2021-Carbon prices have increased across G20 economiesKorea,Canada,Germany,China etc.33Climate Sustainability Working Group(CSWG)G20 2022CategoryNameAim/ScopeStatus and scaleExamples in G20Risk managementEnergy savings insur-ance(ESI)Address investment barriers to energy efficiency upgrades at small and medium enterprises(SMEs).-Secondary replica-tion in Europe led by GCF and IDB-Finance mobilized reached USD 250 million in 2018 78Mexico,Brazil,Ita-ly,India,TurkeyLong-Term Foreign Exchange Risk Man-agement instrumentAddress currency and interest rate risk for renewable energy finance and cli-mate investment in developingeconomies.-Implemented by TCX(established by a group of multilateral development banks in 2015)-30mn EUR 78 invest-ment from BMU IN 2015-30mn EUR from BMU in 2018-31mn EUR from UK DFID in 2019Germany,UKFinancing mechanisms and instrumentsGreen concessional financing(e.g.,loans)Provide early-stage project develop-ment,construction financing,and refi-nancing to wind,solar,and run-of-river hydro projects in low income,lower-mid-dle-income,and upper-middle income countries-Usually provided by MDBs and DFIs used for climate mitiga-tion purposes-Almost all MDBs and DFIs have a climate portfolio with some concessional loan G2034Climate Sustainability Working Group(CSWG)G20 2022CategoryNameAim/ScopeStatus and scaleExamples in G20Financing mechanisms and instrumentsNational climate fundsCollect,blend,and manage all incoming revenues streams(both international and national)related to climate change into centralized and nationally owned fund to allocate resources to green projects-US$1.4 billion Am-azon Fund(Brazil)with contributors from Germany,Nor-way,Malaysia-Green Climate Fund South Africa For an overview see the BU nation-al climate fund trackerInternational climate fundsOften funded through international gov-ernments and/or development finance institutions,these funds pool money to provide low-cost,long-term financing to lower the risk and cost of climate financ-ing applying different financing instru-ments(e.g.,grant,concessional debt,guarantees,equity instruments,blended finance)-US$10.3 billion Climate Investment Funds(CIF)estab-lished in 2008-US$10.3 billion,Green Climate Fund(GCF)Green non-concession-al loansProvide green credit for aligned projects through commercial financial institutions at market rates(e.g.,while the financial institution might be able to provide lower financing rates due to re-financing options)-Chinas green credit market reached about US$2.6 trillion in 2021ChinaGreen/transition bondsSupport specific climate-related or en-vironmental projects(or projects transi-tioning from brown to green)on conces-sional terms-One of the earliest and largest type of climate finance instruments;-volumes included in the Climate Bonds Green Bond Data-base in 1H 2021 period reached USD227.8bn EU,China,USA,etc.35Climate Sustainability Working Group(CSWG)G20 2022CategoryNameAim/ScopeStatus and scaleExamples in G20Financing mechanisms and instrumentsInsurance instruments(e.g.,insurance-linked securities,contingent credit,and loans)Cover risks from weather-related disas-ters in a combination of risk prevention and risk transfer mechanism-Swiss Re,The Nature Conservancy and re-gional governments in Mexico in“un-derwriting nature”initiative to protect the Mesoamerican coral reel 79MexicoMultilateral/bilateral/national grantsGrants can be offered by policy and private institutions to accelerate invest-ments,e.g.,through blended finance,that allows to crowd in private capital even in non-revenue or negative yield projects,including capacity building or technical plans-Multilateral devel-opment banks(ADB,World Bank)provide grants for capacity building-KfW provides grants for energy efficient renovation of private houses-Large foundations(e.g.,Gates Founda-tion,CIFF)provide grants for capacity building on climate changeG2036Climate Sustainability Working Group(CSWG)G20 2022CategoryNameAim/ScopeStatus and scaleExamples in G20Financing mechanisms and instrumentsFinancing facilitiesLending facility intended to increase cli-mate-related investments by addressing market constraints and using blended finance to crowd-in private investments,for example in infrastructure,but also provides capacity building and knowl-edge sharing-Green Climate Facili-ty by IDB)-Climate Finance Facility South Africa by DBSA-Global Environmen-tal Facility estab-lished in 1992-Global Infrastructure Facility(GIF)estab-lished by G20 with total investments of US$76 billion-MCDF established in 2021 by China and othersGuaranteesGuarantees help mitigate risks from investments to lower the threshold for private investors to invest;guarantees can cover the entire investment or parts thereof;-Performance or credit guarantees to cover the risk of a contracted power off-taker in renew-able energies;-IDB provides guaran-tees for the geother-mal development in Chile and Mexico 8037Climate Sustainability Working Group(CSWG)G20 2022CategoryNameAim/ScopeStatus and scaleExamples in G20Financing mechanisms and instrumentsClimate finance auc-tionsAn alternative to traditional public cli-mate finance,used to set a price floor for emission reductions which give auction winners the option of selling emission reductions to a public funder at a fixed price or to the market.-Relatively new in-strument but with a proven track record 81.World Banks Pilot Auction Facility for Methane and Climate Change Mitigation(PAF);UK Contracts for Difference(CfD)programmeCoal exit financing mechanismsDevelop tools and incentives to retire coal-fired power plants ahead of sched-ule-Energy Transition Mechanism(ETM)by ADB launched in 2021-Accelerating Coal Transition(ACT)US$2.5 billion fund launched by CIF in Nov 2021-Reverse auctions in Germany Sustainability Linked loans Incentivize borrowers(not restricted to projects)to improve their overall sustain-ability performance-exponential increase in size and activity in recent years-$40 billion 82 of announced sustain-ability linked loan globally in the first six weeks into 2022Especially USDebt-for-climate/na-ture swapsdebt swap in which the debtor nation refinances and makes payments in local currency to finance climate/nature pro-tection projects Relatively small at hundreds of million-level per transac-tionParis Club mem-bers38Climate Sustainability Working Group(CSWG)G20 20226.3 Appendix 3:Selected reporting standardsCategoryNameApply toContentStatus GovernmentEU Sustainable Finance Disclosure Regulation(SFDR)All financial market partici-pants(“FMPs”)and financial advisors(“Fas”)in the EU,FMPs with EU shareholders,and those marketing in the EUIt imposes comprehensive sus-tainability disclosure require-ments covering a broad range of ESG metrics at both entity-and product-level.Applicable in March 2021;Level 2,which starts in 2023,will require compa-nies to justify their activ-itiesRecommendations to public joint stock compa-nies on the disclosure on non-financial activitiesPublic joint stock compa-nies in Russia It encourages public companies to disclose information about how they consider ESG factors and how they implement these factors into their business model and development strategy.Launched in July 2021,no recent update Administration Measures of Law-based Disclosure of Environmental Informa-tion by EnterprisesCertain high-polluting en-terprises in ChinaIt requires in-scope enterprises to disclose environment and pollu-tion related information in annual reports.Applicable in Feb 20221.the Companies(Strate-gic Report)(Climate-relat-ed Financial Disclosure)Regulations 2022 2.the Limited Liability Partnerships(Climate-re-lated Financial Disclosure)Regulations 2022All UK registered compa-nies and Limited Liability Partnerships(LLPs)with over 500 employees having annual revenue of more than 500 million.These revised regulations re-quire organizations to disclose climate-related financial informa-tion and ensure they consider the risks and opportunities they face because of climate change.Regulations passed in January of 2022 with an effective date of 6 April,202239Climate Sustainability Working Group(CSWG)G20 2022CategoryNameApply toContentStatus The US Securities and Ex-change Commission(SEC)Interpretive Guidance Re-garding Disclosure Relat-ed to Climate Change US public companiesIt provides guidance to public companies regarding theCommissions existing disclosure requirements as they apply to climate change matters.First published in 2010;SEC has proposed rules to enhance and standardize climate-Related disclo-sures in 2022Disclosure Guidelines for the Financial SectorFinancial sector in ChinaIt puts forward requirements on details to be disclosed by Chinese financial institutions on environ-mental information,and provides guidance for different financial sub-sectors such as commercial banks,asset management,insur-ance.Launched by Peoples Bank of China in Aug 2021MarketNASDAQ ESG Reporting Guide 2.0All Nasdaq marketsIt is a voluntary initiative and aims to help both private and public companies navigate the evolving standards on ESG data disclosure.Published in 2019 as an up-dated version of the 2017 guide,incorporating new developments(such as TCFD,SDGs,GRI Standards,EU NFR Directive)New York Stock Exchange ESG Guidance and Best Practices NYSE listed companiesIt highlighting key elements of good quality reporting and provides guidance on voluntary sustainability reporting.Provides resources for companies to report in line with frameworks like GRI,SASB,TCFD40Climate Sustainability Working Group(CSWG)G20 2022CategoryNameApply toContentStatus Euronext ESG Reporting Guide:Target 1.5CEuronext issuers and pri-vate companiesIt provides guidance for compa-nies to identify and prioritize ESG opportunities and risks;report efficiently;navigate,comply with and stay ahead of regulations and differentiate themselves in terms of their ESG approach.New edition announced in May 2022Johannesburg Stock Ex-change(JSE)1.Sustainabil-ity Disclosure Guidance 2.Climate Change Disclo-sure Guidance Serve as a guidance tool that may be used by JSE issuers on a voluntary basisIt is aligned with global expec-tations and best practice,and specifically tailored to the South African business context,serving as an umbrella fortopic-related guidance as needed.Draft open for public com-ment from 9 December 2021 28 February 2022Singapore Exchange(SGX)sustainability reporting guide(not a G20 country,but with significance for financial markets in ASE-AN and beyond)SGX listed companiesSGX-ST requires each issuer to publish an annual sustainability report,describing the primary components on a comply or explain basis,and in relation to the primary component in Listing Rules.Effect from 1 January 2022,issuers are required to describe their sustain-ability practices on a“com-ply or explain”basis with reference to climate-relat-ed disclosures consistent with the TCFD recommen-dations.41Climate Sustainability Working Group(CSWG)G20 2022CategoryNameApply toContentStatus Shanghai Stock Exchange&Shenzhen Stock Ex-change GuidelinesListed companiesThese guidelines encourage listed companies to disclose informa-tion related to social responsi-bility and environmental impact,among others.Launched in Jan 2022 by both two exchangesSector-ledTask Force on Climate-re-lated Financial Disclosure(TCFD)All organizations,especially organizations with public debtor equityA voluntary set of guidelines aimed at assessing a companys exposure to climate change risk.It provides both general and sec-tor-specific guidanceto assist organizations with imple-menting the TCFD recommenda-tions.As of Sep 2021,12 gov-ernments and dozens of centralbanks,supervisors,and regulators have formally expressed support for the TCFD recommendations,and more than 2,600 orga-nizations have now en-dorsed them,an increase of over 70%since last year.42Climate Sustainability Working Group(CSWG)G20 2022CategoryNameApply toContentStatus Taskforce on Nature-re-lated Financial Disclosures(TNFD)The TNFD framework is intended for use globally by corporates and financial institutions of all sizes.A risk management and disclo-sure framework for organizations to report and act on evolving na-ture-related risks,which aims to support a shift in global financial flows away from nature-negative outcomes and toward nature-pos-itive outcomes.In March 2022,TNFD released the first beta ver-sion of the framework for a 18-month market consul-tation.A further three iter-ations of the beta versions are planned June 2022(v0.2),October 2022(v0.3)and February 2023(v0.4)before the release of the final version v1.0 of the framework in Q3 2023.Carbon Disclosure Project(CDP)Global companies or citiesTheCDP(formerly theCarbon Disclosure Project)is an inter-national non-profit organization that aims to makeenvironmental reportingandrisk managementa business norm,driving disclosure,insight,and action towards asustainable economy.Since 2002 over 8,400 companies have publicly disclosed environmental information through CDP.The Sustainability Ac-counting Standards Board(SASB)Global reporting companies and investorsSASB Standards guide the disclo-sure of financially material sus-tainability information by compa-nies to their investors.Available for 77 industries,the Standards identify the subset of ESG issues most relevant to financial perfor-mance in each industry.The number of unique SASB Reporters since 2020 is 1858,with the number of 2022 YTD being 736.The total number of member organizations in SASB Alliance reached 281,representing 28 countries.43Climate Sustainability Working Group(CSWG)G20 2022CategoryNameApply toContentStatus Global Reporting Initiative(GRI)Global companiesGRI is the independent,interna-tional organization that provides GRI standards for sustainability reporting.The GRI Standards include three series of Standards to be used together:Universal Standards,Sector Standards,and Topic StandardsAround three-quarters(73%)of the worlds largest 250 companies and two-thirds(67%)of the N100(5,200 companies comprising the largest 100 firms in 52 countries)now use GRI.IRIS Impact investors in partic-ularIRIS is managed by the Global Impact Investing Network(GIIN)and is the generally accepted system for measuring,managing,and optimizing impact.Over 27,000 users have registered to use IRIS materials.44Climate Sustainability Working Group(CSWG)G20 20226.4 Appendix 4:Selected sustainable finance initiatives and standard settersLead Organization/NameContentType of organiza-tionCoalition of Finance Minis-ters for Climate ActionTheCoalitionwill help countries mobilize and align the finance needed to implement their na-tional climate action plans;establish best practices such as climate budgeting and strategies for green investment and procurement;and factor climate risks and vulnerabilities into members economic planning.Govern-mentDevelopment Assistance Committee,OECD(OECD DAC)DAC Principles for Evaluation of Development Assistance.The OECD DAC measures and monitors bilateral development finance targeting climate change objectives using two Rio markers:climate change mitigation and climate change adaptation.Govern-ment/mul-tilateralFinance toAccelerate theSustainableTransition-In-frastructure initiative(FAST INFRA SI)The FAST-Infra initiative launched theSustainable Infrastructure(SI)Label a consistent,glob-ally applicable labelling system designed to identify and evaluate sustainable infrastructure assets.The label aims to facilitate due diligence processes and structuring of investments for sustain-able infrastructure assets,thereby reducing transaction costs.Associa-tionInternational Sustainability Standards Board(ISSB)Established in November 2021 by the International Finance Reporting Standards Foundation(IFRS),the ISSB aims to deliver a comprehensive global baseline of sustainability-related disclo-sure standards that provide investors and other capital market participants with information about companies sustainability-related risks and opportunities to help them make informed decisions.Associa-tionNetwork of Central Banks and Supervisors for Greening the Financial System(NGFS)The Networks purpose is to help strengthening the global response required to meet the goals of the Paris agreement and to enhance the role of the financial system to manage risks and to mobilize capital for green and low-carbon investments in the broader context of environmental-ly sustainable development.To this end,the Network defines and promotes best practices to be implemented within and outside of the Membership of the NGFS and conducts or commissions analytical work on green finance.Govern-ment/reg-ulator45Climate Sustainability Working Group(CSWG)G20 2022Principles of Responsible Investment(PRI)The PRI is the worlds leading proponent of responsible investment.It works:-to understand the investment implications of environmental,social and governance(ESG)factors;-to support its international network of investor signatories in incorporat
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MSCI ESG Research LLCESG and Climate Trends to Watch for Welcome to MSCIs ESG and Climate Trends to Watch for 2023.Were heading into the new year against a backdrop of a major war in Europe,inflation,cost-of-living crises,energy markets in turmoil,rising interest rates,pandemic fatigue,political uncertainty and what feels like an unending stream of climate-induced disasters.At the same time,ESG itself is being put under the spotlight.Regulators around the world are upping the ante on everything from greenwashed fund names to stricter climate target disclosures,while the very idea of ESG investing is increasingly politicized.Which is to say:Theres a lot going on around the world.And it is shaping both the investment environment and the challenges and opportunities facing companies.Now,if youre a longtime fan of our annual ESG trends research,youll notice things look a little different this time.The large-scale trends shaping the ESG-investing world are well-known at this point:climate change risk and the road to net-zero,the growing existential threat of biodiversity loss,social inequalities,regulation and,lately,debate and controversy over what exactly ESG should be.So this year,weve gone back to basics and asked the experts on our research team:With everything that is happening around us,what specifically will you be watching in 2023,and why?The following pages contain a selection of the answers to that question.Not surprisingly,many touch on climate change across a variety of angles:from carbon credit funds to insured emissions,and from scrutiny of net-zero targets to decarbonizing industrial real estate.Regulation is now top of mind not just in the EU,but increasingly in the U.S.and APAC markets:from requirements for financial institutions to conduct climate stress tests,to deforestation-free market-access rules,to investors getting ahead of potentially mandatory requirements to report on the SFDRs Principle Adverse Impact indicators.Our team also has their eyes on supply chain issues,including the prospects for lab-grown commodities,tracking goods through blockchain technology and the mining of e-waste to reshape the dynamics of controversial raw material sourcing.And to round it off,weve got a host of issues affecting everyday lives in what seem to be increasingly difficult times:striking rail workers(were looking at you,U.K.),poor air quality,new ground rules for internet companies and more.We hope youll dive in,make yourself at home and come away with some fresh,and in-depth,perspectives.What will you be watching in 2023?Meggin Thwing EastmanGlobal ESG Editorial Director,ESG Research Director,EMEA LondonChanging governance1.Market conditions could test investors commitment to say-on-climate voting2.Will climate-focused boards help improve emissions trajectories?3.As Asian companies add female directors,human capital could benefit 4.As boards age,whats the trade-off between experience and youth?Responses to regulation5.Regulators turn their gaze to ESG funds 6.Climate target disclosure standards:Regulatory inconsistencies remain 7.Will banks be ready for climate stress test regulations?8.ESG ratings may fill in some blanks for Principal Adverse Impact indicators 9.Cutting deforestation:Market restrictions get real 10.Beyond GDPR:New regulations could alter the global digital landscapeInnovations in the supply chain11.Cottons crunch point and the future of fiber12.Mining old electronics to fuel new energy tech 13.GMO regulatory resistance may be softening 14.Can blockchain help supply chains move away from controversy?Work life15.Ill be working on the railroad Not?16.Choking on smoke:human capital risks from air pollution 17.News shifts from pandemic to climate change,but labor hangs on 18.Bargaining with labor:Managing worker shortages in hard times 579111315171921232527293133353739ClimateWorkforce InvestmentRegulationBiodiversityGovernanceSupply chain 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 3 Research InsightsMSCI ESG Research LLCContents 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 4 Research InsightsMSCI ESG Research LLCTurning points19.Is the honeymoon over for green bonds?20.Sovereign policy dilemma:Energy security vs.the clean-energy transition 21.Energy crisis,Ukraine war driving fossil fuel agenda,but dont rule out renewables 22.Nuclear energy contemplates a comeback 23.Patent activity suggests energy firms still dig fossil fuels New frontiers in measurement and transparency24.Pulling back the veil on banks loan emissions 25.Insurance emissions:the actuarial revolution has begun 26.Emissions attribution could help keep portfolios aligned with net-zero27.Net-zero:Companies are aiming high,but are their strategies practical?New investments28.Lab-grown commodities:the new frontier?29.Turning steel green(er)with blast furnace upgrades 30.Greening industrial real estate one warehouse at a time 31.New risks and opportunities in climate adaptation32.Investing in emissions:carbon as a new asset class?ClimateWorkforce InvestmentRegulationBiodiversityGovernanceSupply chainThis document is research for informational purposes only and is intended for institutional professionals with the analytical resources and tools necessary to interpret any performance information.Nothing herein is intended to promote or recommend any product,tool or service.For all references to laws,rules or regulations,please note that the information is provided“as is”and does not constitute legal advice or any binding interpretation.Any approach to comply with regulatory or policy initiatives should be discussed with your own legal counsel and/or the relevant competent authority,as needed.4143454749515355575961636567Research InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 5 Florian SommerLondonMarket conditions could test investors commitment to say-on-climate votingMore investors voted against corporate climate strategies in the 2022 proxy season compared to 2021,according to our analysis below.We found that investors tended to vote against climate plans in 2022 where the companys emissions trajectory was misaligned with global temperature targets,as measured by MSCI Implied Temperature Rise(ITR).1 Recent turmoil in energy markets and a focus on energy security may change some investors voting behavior.2 In 2023,we will be watching whether investor opposition to corporate climate strategies will continue to increase,or whether more investors will give companies the benefit of the doubt on their climate plans in challenging market conditions.We identified 53 constituents of the MSCI ACWI Investable Market Index(IMI)that held management-sponsored votes on their climate plan in the last two years.3 Investors approved all these corporate climate strategies,mostly by large majorities.However,the average proportion of votes against went from 3.1%in 2021 to 9.6%in 2022,indicating increasing uneasiness among some investors.Our analysis of the limited number of votes in 2022(43 companies)suggests that many dissenting investors may have opposed corporate climate strategies that they felt were not ambitious enough.With more say-on-climate votes scheduled for 2023,we will be watching whether or not this dynamic will hold.David MuirheadLondonClimateGovernanceChanging governanceTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 6 Companies emissions trajectories and 2022 say-on-climate vote resultsAnalysis covers all 43 constituents of the MSCI ACWI IMI that held management-sponsored say-on-climate votes in 2022 to date.The percentage of votes against accounts for votes in favor and votes withheld/abstained.Data as of Nov.9,2022.Source:MSCI ESG Research and company disclosures1 MSCI Implied Temperature Rise is designed to show the temperature alignment of companies,portfolios and funds with global climate targets.It compares a companys current and projected greenhouse-gas emissions across all emission scopes with its share of the remaining global carbon budget for keeping global warming well below 2C.It converts a companys“undershoot”or“overshoot”of its carbon budget to an implied rise in average global temperatures this century,expressed in degrees Celsius.2 Masters,Brooke.“Shareholders back away from green petitions in US proxy voting season.”Financial Times,July 1,2022.3 Votes in either 2021 or 2022,data as of Nov.9,2022.Changing governanceResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 7 Investors are increasingly showing themselves willing to challenge board directors on their companies climate performance,including scrutinizing climate risk management disclosures or emissions-reduction plans in some markets.4 In 2023,we will be watching whether climate-focused boards help emissions-intensive companies stand up to that scrutiny.A recent study found that U.K.-listed companies with better governance practices tended to achieve higher carbon-emissions reduction compared to historic levels and to industry peers.5 If this holds more widely,boards that spend significant time on environmental or sustainability issues and include directors with climate experience could help firms address climate transition risk and reduce real-world emissions.Specifically,dedicated environmental or sustainability committees may focus director attention on climate-related issues.Boards that include climate-savvy directors may be better able to build support for emissions targets,compared to those that do not.These factors could help companies respond to questions from investors about their approach to climate change.To explore these issues,we looked at board practices at a group of climate laggards:38 constituents of the MSCI ACWI Index in emissions-intensive industries that were strongly misaligned with global temperature targets as of November 2022,as measured by MSCI Implied Temperature Rise(ITR).6 In the exhibit below,the seven companies highlighted in green had a board sustainability committee and at least one director with climate-related experience,based on our analysis.7 Their future emissions trajectories may answer whether climate-focused boards can help companies align with global temperature targets.Will climate-focused boards help improve emissions trajectories?David MuirheadLondonFlorian SommerLondonClimateGovernanceChanging governanceTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 8 Climate board practices at select emissions-intensive companiesAnalysis covers 38 constituents of the MSCI ACWI Index with an ITR above 3.2C.Under the Global Industry Classification Standard(GICS),these companies were classified in these sub-industries:independent power producers and energy traders,electric utilities and construction materials.These three sub-industries were the most emissions-intensive GICS sub-industries,based on our data for fiscal year 2020.GICS is the global industry classification standard jointly developed by MSCI and S&P Global Market Intelligence.Source:MSCI ESG Research and company disclosures(as of November 2022)4 Verney,Paul.“Resolution round-up:Investors to target directors at climate laggards,ISS poll suggests.”Responsible Investor,Oct.18,2022.5 Luo,Le,and Tang,Qingliang.2021.“Corporate governance and carbon performance:role of carbon strategy and awareness of climate risk.”Accounting&Finance 61:2891-2934.6 Please see the note below the accompanying chart for more details about these companies.ITR is designed to show the temperature alignment of companies,portfolios and funds with global climate targets.It compares a companys current and projected greenhouse gas emissions across all emission scopes with its share of the remaining global carbon budget for keeping global warming well below 2C.It converts a companys“undershoot”or“overshoot”of its carbon budget to an implied rise in average global temperatures this century,expressed in degrees Celsius.7 We identified environmental or sustainability committees based on official board committee names.Our evaluation of climate-related director experience is based on a review of disclosed director biographies.Changing governanceResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 9 When analyzing companies and their board composition,we have previously observed a correlation between the presence of female directors and strong talent-management practices,as well as higher growth in employee productivity.In 2023,well be watching whether the APAC regions regulatory efforts to increase the presence of women on boards also manifests in improvement of companies human capital management.Malaysia introduced a 30%-female-director recommendation in its corporate governance code in 2017,and India strengthened gender-diversity requirements in 2020 to include an independent female director at the top 1,000 companies based on market cap.8 While India had previously mandated the appointment of one female director,there was criticism that companies were meeting the requirement with female relatives of controlling shareholders and senior managers.9 Generally,independent directors should help enhance management oversight and protect the interests of non-majority shareholders,while the requirement for an independent female director could also help improve talent-management practices.Most recently,large Korean companies scrambled to appoint at least one female director ahead of a new board-diversity regulation that came into effect in August 2022.10 Given the prevalence of controlled companies and family firms11 in APAC,12 many new female directors will likely come from connected interests,but we would also expect the number of independent female directors to increase.Will regulatory efforts have the desired effect?While not necessarily evidence of causality,the exhibit below shows that,on average,companies with at least one female director had higher human-capital-management performance than those without any female directors(4.3 vs.3.7 on a 0-10 scale).13 The difference was even greater at companies that had at least three female directors or 30%women on the board,a potential“tipping point.”We will be watching whether this relationship holds as regulatory pressure intensifies,and whether other markets will follow Indias example to incorporate aspects of independence in the push to increase board diversity.As Asian companies add female directors,human capital could benefitMoeko PorterTokyoSK KimSeoulWorkforce GovernanceChanging governanceTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 10 Human-capital management at companies with female directorsAmong the constituents of the MSCI Emerging Markets Investable Market Index(IMI),we selected APAC companies with labor management or human capital development as a weighted key issue in the MSCI ESG Ratings model:China(n=529),India(n=139),Indonesia(n=29),South Korea(n=328),Malaysia(n=65),Philippines(n=21),Taiwan(n=103)and Thailand(n=45).The MSCI Emerging Markets IMI(n=3,064)captures large-,mid-and small-cap representation across 24 emerging markets.Data reflects the distribution of management scores under our human-capital-development key issue for companies with varying levels of female-director representation.Data as of Oct.25,2022.Source:MSCI ESG Research8“Malaysian Code on Corporate Governance(As at 28 April 2021).”Securities Commission Malaysia,April 28,2021.“Securities and Exchange Board of India(Listing Obligations and Disclosure Requirement)Regulations,2015.”Securities and Exchange Board of India,July 25,2022.9 Singh,Gagandeep.2020.“Corporate Governance:An Insight into the Imposition and Implementation of Gender Diversity on Indian Boards.”Indian Journal of Corporate Governance 13:99110.10 Korean companies listed in the KOSPI index,with total assets greater than KRW 2 trillion are required to appoint at least one female director as of August 2022.11 MSCI ESG Research considers a company where the largest shareholder or shareholder group holds 30%or more of the voting rights a controlled company,and considers a company a family firm when the family holds 10%or more of the voting rights and at least one seat on the board of directors.12 Porter,Moeko.“Keeping it in the Family.”MSCI Research Insight,Sept.17,2022.(Client access only.)13 Human-capital-management performance refers to average key issue score for the labor-management and human-capital-development key issues under the MSCI ESG Ratings methodology.Changing governanceResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 11 The average age of newly appointed directors is on track to hit a record high next year,with first-time male directors in developed markets approaching 60.But women and emerging-market directors are younger.Amid ongoing global demographic shifts,in 2023 well be watching how nomination committees consider the potentially significant implications of age for director skill sets,as well as for board continuity and diversity.The average age of new directors for constituents of the MSCI ACWI Index has risen from 54.8 years in 2018 to 56.3 years in 2022.Globally,significant age gaps exist between male and female directors and between those who serve on the boards of companies in developed and emerging markets.14 When combined,these trends are amplified.This may mean companies in emerging markets have an edge when harnessing new technologies and pursuing business innovation:Younger directors may enhance a boards generational diversity and help companies chart a path forward in an increasingly complex and technology-dependent business environment.However,boards and their nomination committees will require strong onboarding programs to maximize the contributions of younger directors who are likely to bring fewer years of professional experience and who may be less familiar with the nuances of board work.15 Additionally,nomination committees may need to monitor how new directors affect board-age diversity to ensure an appropriate balance.Boards seeking younger talent may also be forced to consider these directors other commitments:They are more likely to be full-time employees at other companies,which could limit their capacity for board work.16 Meanwhile,nomination committees for developed-market boards with an abundance of older men may need to take a fresh look at their approach to director recruiting and consider diversifying their director-age demographics to bring wider perspectives to board discussions.Tanya MatandaTorontoAs boards age,whats the trade-off between experience and youth?Harlan TuffordTorontoGovernanceChanging governanceTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 12 14 Market classifications are based on the MSCI Market Classification Framework,July 2022.15“Directors Responsibilities in Canada.”Osler,Hoskin&Harcourt LLP and the Institute of Corporate Directors,Oct.1,2014.16“Episode 58:How do we get more young people serving in the boardroom.”Future Directors Podcast,March 1,2021.Constituents of MSCI ACWI Index,as of Oct.18,2022.MSCI ACWI Index constituents(n=2,625),developed-market constituents(n=1,397)and emerging-market constituents(n=1,228).Includes directors who joined a board in the 12 months prior to Oct.18 in each year.Source:MSCI ESG ResearchAverage age of new directors by market and genderChanging governanceResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 13 RegulationFor much of the past decade,ESG-oriented funds have operated with limited regulatory guidance.17 But that looks to be rapidly changing.Regulatory interest in fund names and funds classification and disclosure obligations are ramping up globally.Spearheaded by the EUs Sustainable Finance Disclosure Regulation(SFDR),which imposes requirements on more transparent reporting for ESG funds,other major market regulators are following suit.In 2023,well be watching for changes in ESG fund names and labels as unfolding disclosure regimes hold managers to stricter account.Australia,Hong Kong and Singapore,for example,have provided guidance to standardize disclosures on the integration of ESG factors in the investment-selection process.Regulators in the EU and Canada have gone further by seeking to classify sustainable funds,with more extensive ESG integration requiring more disclosure.The U.S.has taken tentative steps with a similar but not directly comparable proposal,a significant move for the worlds largest fund market(representing over 60%of global fund investments).If these collective proposals take effect,they could see USD 3.6 trillion of sustainable investments(8%of global fund assets)subject to oversight.For investors,this could mean better-informed decisions.But it could also lead to the emergence of a multitude of disconnected regional standards for ESG-fund classifications,a challenge for investors in pursuit of a common ESG objective across jurisdictions.Regulators turn their gaze to ESG fundsSita SubramanianNew YorkRumi MahmoodLondonInvestmentResponses to regulationTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 14 Jurisdictions with active and proposed regulations or guidelines for ESG fundsSolid text boxes represent regulations in force,while dashed boxes represent proposed or planned regulations.List of jurisdictions with regulations or guidelines proposed or in force for ESG funds:U.S.(proposed);Canada;EU;U.K.(planned);Singapore;India(proposed);Hong Kong;Australia(including Section 1013DA);Malaysia;New Zealand;Philippines(proposed);Thailand(proposed);Taiwan.Data as of Oct.12,2022.Source:MSCI ESG Research17 ESG funds are defined as any fund that employs any ESG considerations in its security-selection process(values and screening/ranking/exclusions/integration/optimization,etc.,and their combinations).In simplest terms,it is the widest possible net under which any and all funds employing any ESG considerations in security selection are captured.All fund characterizations based on data from Broadridge and MSCI ESG Research,as of July 2022.Responses to regulationResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 15 Investors need comparable,consistent and meaningful information to make decisions.A 2022 survey by the Task Force on Climate-related Financial Disclosures(TCFD)identified consistent reporting of climate targets as one of the biggest areas for companies to improve.18 Yet,despite the efforts to create common reporting standards across jurisdictions,differences persist.Regulatory misalignment on climate targets could mean critical data gaps remain,leading to continued difficulty in assessing and comparing corporate pledges.In 2023,we will be watching to see how climate target disclosure frameworks move toward implementation:with further convergence and consistency or added fragmentation?In 2022,we saw the proposed drafts of the“big three”climate disclosure standards from the International Sustainability Standards Board(ISSB),the European Financial Reporting Advisory Group(EFRAG)and the U.S.Securities and Exchange Commission(SEC).We assessed the extent to which the big three measured up against a set of key target factors,which in our view represent the essential information needed for a comprehensive disclosure of a companys climate targets.This includes data points we assess as part of the MSCI Climate Target Scorecard,which collects information on companies targets and converts it into a standardized framework to allow for better comparison.In our assessment,we found:The European Sustainability Reporting Standards(ESRS),proposed by the EFRAG,are the most detailed,asking companies to report fully on 11 of the 12 areas we assessed.All three frameworks require the disclosure of basic target information such as target year and type(i.e.,absolute or intensity-based).However,neither the ISSB nor the SEC ask companies to fully report on more detailed measures such as whether or not their targets align with science-based criteria.Only one of the three standards asks companies to specify the coverage of emissions subject to the target(coverage ratio of scope).When it comes to expressing the percentage change from the baseline,the regulations leave space for companies to not disclose.While some advances have been made toward more consistent and more comparable climate disclosure standards,this clearly remains a work in progress.Climate target disclosure standards:Regulatory inconsistencies remainEmma Zhe WuShanghaiZohir UddinLondonClimateRegulationResponses to regulationTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 16 Data as of November 2022.Source:MSCI ESG ResearchGaps in alignment between the proposed big three disclosure frameworks on climate targets18“2022 Status Report.”Task Force on Climate-related Financial Disclosures,October 2022Responses to regulationResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 17 An increasing number of authorities across the world are requiring financial institutions to conduct climate-risk stress tests,with more likely to follow.Yet our analysis of banks across jurisdictions with existing or planned requirements for climate stress tests found that,while some banks were better placed than others,none could claim to be fully prepared(see exhibit below).In 2023,well be watching which banks can rise to the challenge of developing climate-risk data and modeling capacities to meet the demands of regulatory climate stress tests.Understanding the exposure of a banks balance sheet to climate-related risks has become increasingly important and not just for the 117 signatories to the Net Zero Banking Alliance,with a combined USD 70 trillion in assets,that are working to transition their lending and investment portfolios to net-zero.In at least 18 jurisdictions,banks already are or soon will be subject to regulatory climate stress tests.19 Recent climate stress tests conducted by the European Central Bank(ECB),Bank of England,Hong Kong Monetary Authority and Bank of Canada found that:20 1.Sector-level climate-risk credit-modeling capabilities and the allocation of income and exposures by sector/country and by emission intensity remained a major challenge,with fewer than 10%of banks assessed by the ECB using sufficient forward-looking and granular climate-risk information in risk-management practices.21 2.Addressing data gaps particularly those related to Scope 3 emissions and the climate-related transition plans of customers and counterparties will be critical for understanding the full picture of climate-risk exposure.3.Uncertainty around the timing of the materialization of climate-related risks and the lack of historical data are hindering the development and validation of climate risk models.With or without net-zero targets,coming regulations mean that banks need to be able to quantify the exposure of their balance sheets to climate-related risks going forward.Remediating the climate-related data and modeling shortfalls exposed by climate stress tests to date will be paramount.Will banks be ready for climate stress test regulations?Sita SubramanianNew YorkSimone Ruiz-VergoteFrankfurtAnqi LiangFrankfurtClimateRegulationResponses to regulationTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 18 Y-axis indicates jurisdiction(number of banks included in analysis shown in brackets).The exhibit shows the number of banks disclosed as having conducted climate-risk analysis in each of the four categories in each selected jurisdiction.The EU includes multiple member states,many of which have also announced regulatory climate stress tests.Analysis includes banking-industry constituents of the MSCI ACWI Index as of Oct.30,2022.The banking industry is defined according to the Global Industry Classification Standard(GICS),which is the industry-classification standard jointly developed by MSCI and S&P Global Market Intelligence.Source:MSCI ESG ResearchBanks performance on disclosed climate risk analysis indicators19“Scenarios in Action.A progress report on global supervisory and central bank climate scenario exercises.”Network for Greening the Financial System,Oct.19,2021.“Federal Reserve Board announces that six of the nations largest banks will participate in a pilot climate scenario analysis exercise.”Federal Reserve Board,Sept.29,2022.20“2022 climate risk stress test.”European Central Bank Banking Supervision,July 7,2022.“Results of the 2021 Climate Biennial Exploratory Scenario(CBES).”Bank of England,May 24,2022.“Pilot Banking Sector Climate Risk Stress Test.”Hong Kong Monetary Authority,Dec.30,2021.“Using Scenario Analysis to Assess Climate Transition Risk.Final Report of the BoC-OSFI Climate Scenario Analysis Pilot.”Bank of Canada and Office of the Superintendent of Financial Institutions,Jan.14,2022.21“Walking the talk.Banks gearing up to manage risks from climate change and environmental degradation.Results of the 2022 thematic review on climate-related and environmental risks.”European Central Bank Banking Supervision,Nov.1,2022.Responses to regulationResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 19 In the coming year,financial-market participants subject to the EUs Sustainable Finance Disclosure Regulation(SFDR)must begin reporting Principal Adverse Impact indicators(PAIs)the negative environmental or social impacts associated with their portfolio holdings,and from 2024 they will also need to report year-on-year changes.But companies themselves will not have to report PAIs until 2024.In 2023,we will be watching how asset managers try to bridge the gap between scarce PAI data and an urgent need to monitor and manage their exposure.A sustainable investment,as defined by SFDR Article 2(17),should not cause significant harm under any of the mandatory PAIs.Under the revised Markets in Financial Instruments Directive(MiFID II)rules,consideration of PAIs in portfolio construction is one way to serve an investors sustainability preferences.22 Given data issues for some PAIs and the widespread adoption of ESG ratings in investment processes,it is possible that asset managers will leverage them to proxy the PAIs of their portfolios.While that is not the intended purpose of ESG ratings,could they prove to be a useful guide while we wait for more complete corporate disclosures?In a case study where we increased a hypothetical portfolios weighted average MSCI ESG Rating by 20%through portfolio optimization,we found that most weighted average PAIs decreased,and data coverage improved.23 It may be that companies that better managed ESG issues also tended to better manage,and disclose,a wider range of external impacts.Portfolio PAIs only scale the holdings of constituents with available data;and where data coverage is low,such PAIs are not purposeful for comparing different portfolios.Still,for asset managers looking to manage PAI exposure,ESG ratings might provide a useful starting point until more extensive corporate reporting rules come into force in the EU and elsewhere.ESG ratings may fill in some blanks for Principal Adverse Impact indicatorsYuliya FerencFrankfurtRegulationInvestmentResponses to regulationSimone Ruiz-VergoteFrankfurtTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 20 Using MSCI ESG Ratings as a proxy to improve PAI metricsThe MSCI ESG Ratings coverage universe encompassed 8,198 issuers as of June 2022.The optimization was designed to achieve a 20%improvement in the MSCI ESG Score over that of the coverage universe,from 6.3(MSCI ESG Rating A)to 7.3(MSCI ESG Rating AA),while retaining the same GICS sector allocation as in the coverage universe.The optimized hypothetical portfolio contained 1,902 stocks.Source:MSCI ESG Research22“Commission Delegated Regulation of 21.4.2021 amending Delegated Regulation(EU)2017/565 as regards the integration of sustainability factors,risks and preferences into certain organisational requirements and operating conditions for investment firms.”European Commission,April 21,2021.23 This section contains analysis of historical data,which may include hypothetical,backtested or simulated performance results.A different set of assumptions from the one described here may produce different results.There are frequently material differences between back tested or simulated performance results and actual results subsequently achieved by any investment strategy.The analysis and observations in this section are an example for illustrative purposes only and are limited solely to the period of the relevant historical data,backtest or simulation.Past performance whether actual,backtested or simulated is no indication or guarantee of future performance.None of the information or analysis herein is intended to constitute investment advice or a promotion of any product or a recommendation to make(or refrain from making)any kind of investment decision or asset allocation and should not be relied on as such.91%Responses to regulationResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 21 RegulationDespite COP26 commitments to halt and reverse forest loss,24 2021 saw tree-cover loss of 25.3 million hectares globally,an area larger than Great Britain.The Amazon alone lost an area equal to the size of Northern Ireland.25 In addition,the summer of 2022 saw a wave of wildfires around the globe,burning down millions of hectares more.COP1526 is scheduled to address such natural capital losses,while the European Parliament recently voted in favor of stringent new regulation that would require all products sold in the EU to be deforestation-free.In 2023,well be watching which companies with high deforestation exposure can improve their due diligence and supply-chain monitoring programs as they seek to maintain access to key markets.Under the proposed regulation,the EU will not accept products made or based on land that was deforested after the end of 2019.27 This should reduce its deforestation footprint and would significantly increase regulatory pressure for companies with EU market exposure.Palm oil,soy,timber and beef production are the main drivers of deforestation.28 But the regulation isnt limited to these obvious suspects.Leather car seats,rubber used for clothing and printed paper products are among other goods affected producers and distributors here may need to take action as well.Based on our analysis,however,the level of preparedness does not appear to be high.Only 11.7%of listed food-products companies and 18.2%of food retailers had disclosed a deforestation policy,while the numbers for auto components(3.3%)and textiles,apparel and luxury goods(3.7%)were even lower.29 Even at paper and forest products companies the figure was below 40%.And policies are only a first step eliminating products rooted in deforested land from a supply chain is typically a major endeavor requiring extensive due diligence.Complying with the new regulation may therefore require significant efforts on the part of companies.Firms that have been thinking of deforestation as an issue for somebody else or someday down the road may have to get a handle on it and in a hurry.Cutting deforestation:Market restrictions get realArne KlugFrankfurtClimateBiodiversityResponses to regulationTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 22 24“Glasgow Leaders Declaration on Forests and Land Use.”UN Climate Change Conference UK 2021,Nov.2,2021.25 University of Maryland and World Resources Institute.“Global Primary Forest Loss.”Accessed Oct.12,2022.www.globalforestwatch.org.Tree-cover loss is defined as the removal of tree canopy through human-caused or natural events.26 The 15th Conference of the Parties to the Convention on Biological Diversity in Montreal,Canada,commonly abbreviated as COP15,will take place from Dec.7 to 19,2022.27“Climate change:new rules for companies to help limit global deforestation.”European Parliament,Sept.13,2022.Products include:cattle,cocoa,coffee,palm oil,soya and wood;and products that contain,have been fed with or have been made using these commodities(such as leather,chocolate and furniture).Parliament wants to also include pig meat,sheep and goats,poultry,maize and rubber,as well as charcoal and printed paper products.28“The Global Assessment Report on Biodiversity and Ecosystem Services.”Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services,201929 Constituents of the MSCI ACWI Index as of Oct.12,2022.Paper and forest-products companies lead,but deforestation policies remain thin on the groundShare of companies within selected industries of the MSCI ACWI Index that have disclosed a deforestation policy;industries included where at least 2%of the peers have disclosed a policy.Data as of Oct.12,2022.Source:MSCI ESG ResearchResponses to regulationResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 23 Over the last several years,European regulators have had Big Tech firmly in their sights.The landmark General Data Protection Regulation(GDPR),enacted in 2016,changed the way companies process and protect user data.Not only does it seek to safeguard consumers rights to privacy,but it can lead to hefty fines for violators.GDPRs principles have since been adopted in several other jurisdictions.30 Now,the digital landscape may be seeing its next regulatory realignment,with the passing in 2022 of the EUs Digital Markets Act(DMA)and Digital Services Act(DSA).In 2023,we will be watching which of the big internet players can adapt fastest to the new regulations and who acts to get ahead of possible moves in other jurisdictions.By focusing on size and reach,the DMA specifically targets big tech companies,the so-called“internet gatekeepers.”Its vast scope includes provisions that might push these companies to open their walled-garden ecosystems(platforms that limit users access to competing services),facilitate competitive practices and ensure transparency in their advertising services.The DSA has a narrower focus:to manage disinformation and illegal content on consumer-facing platforms.Compliance with both acts starts in 2024.The rollout of GDPR,and subsequent adoption of similar standards in other markets,may serve as a useful comparison.Within the EU,GDPR immediately resulted in improvements in privacy practices,but significant enforcement actions and fines only emerged in subsequent years,according to the CMS.Law GDPR Enforcement Tracker and MSCI ESG Research.It remains to be seen whether regulators will repeat this exploratory and precedent-building approach before penalties start to roll out.Below is our interpretation of the application of the European Commissions proposed quantitative indicators to indicate whether a company qualifies(succeeds at becoming)an internet gatekeeper.Beyond GDPR:New regulations could alter the global digital landscapeGabriela de la SernaLondonAndrew YoungLondonRegulationResponses to regulationTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 24 Identifying the gatekeepers(though you know them already)Constituents of the MSCI ACWI Index,as of Sept.29,2022.*EEA refers to the European Economic Area.It includes EU countries as well as Iceland,Liechtenstein and Norway.*TMT refers to the combined information technology and telecommunications services sectors,as per the Global Industry Classification Standard(GICS).GICS is the global industry classification standard jointly developed by MSCI and S&P Global Market Intelligence.*The interpretation of these criteria was made by MSCI ESG Research for illustrative purposes only and may differ significantly from the European Commissions ultimate determination.We assessed that the regulation may likely include at least these five companies,which appear to surpass the monthly-active-users(MAU)threshold(sources:Alphabet:10-K,2019;Meta:10-K,2018;Apple:Q2 2020 earnings call;Microsoft:Q4 2021 earnings call;Amazon:Annual shareholders letter,2021).*Based on MSCI ESG Researchs geographic-exposure assessment and company reports.Source:MSCI ESG Research30 Aridor,Guy,Che,Yeon-Koo,and Salz,Tobias.2020.“The Effect of Privacy Regulation on the Data Industry:Empirical Evidence from GDPR.”NBER.Responses to regulationResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 25 Liz HoustonLondonCotton makes up over a quarter of all the clothes we wear,but its harmful impacts,like soil degradation and water consumption,have spurred demand for more environmentally sustainable options(see exhibit below).31 Apparel retailers have responded by working with third-party certifiers for sustainable cotton and exploring cotton alternatives.However,catastrophic flooding in Pakistan and the withdrawal of some certifications from much of China have created supply headaches.In 2023,well be watching to see which retailers can navigate near-term shortages in responsibly sourced cotton,and which ones are prepared to back new,alternative fibers.A short-term supply shock gives us a glimpse into how cottons long-term future could play out.Water scarcity and extremes in rainfall are expected to increase production risks in cottons most important growing regions,making life far more precarious for cotton farmers.32 At the same time,ballooning demand for sustainable cotton may make certification efforts more challenging.To meet this demand,Better Cotton,the industrys largest sustainability initiative,estimates that the current number of farmers with which it works will need to triple to an estimated total of 7.5 million by 2030.33 Against this backdrop,the apparel industry has been developing alternative sources of sustainable fiber,including lab-grown cotton and processes to recycle post-consumer textile waste into new materials.These innovations may hold solutions to some of the environmental and social challenges facing the industry today.To benefit textile companies and investors,these new technologies will have to show not only that they can operate at scale,but that they get there quickly(and cheaply)enough to avoid potential shortages of responsible materials.Cottons crunch point and the future of fiberClimateSupply chainInnovations in the supply chainTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 26 Apparel retailers increasingly relied on third-party certification for responsible cottonData is based on apparel retail constituents of the MSCI ACWI Index,as of Oct.21,2022.Source:Refinitiv,MSCI ESG Research31 In 2021,companies in the apparel-retail sub-industry with combined revenues of over USD 100 billion were sourcing cotton certified to a third-party standard.This reflects revenue from eight out of 12 constituents of the MSCI ACWI Index in the apparel-retail sub-industry that report sourcing third-party certified cotton.Apparel-retail sub-industry defined according to the Global Industry Classification Standard(GICS).GICS is the global industry classification standard jointly developed by MSCI and S&P Global Market Intelligence.32 Robinson,Noah.“Cotton industry unprepared for climate change threat to crop and farmers.”Reuters,June 23,2021.33“2021-30 Strategic Direction.”Better Cotton Initiative,December 2021.Innovations in the supply chainResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 27 In the last four years,China and the EU have strengthened policies and guidelines on the circular treatment of materials and waste,including electronic waste(e-waste).In September 2022,the U.S.followed suit,passing a bill specifically on recycling electric-vehicle(EV)batteries.In 2023,we will be watching which companies up their efforts to mine secondary metals from e-waste both as a way of keeping regulators happy and boosting access to metals critical for clean-energy technologies.Efficiently extracting metals from e-waste could reduce dependency on mining,including in regions prone to conflict and poor labor practices.It also means fewer emissions.For example,a modern Midas touch that extracts gold from e-waste emits 80%less carbon dioxide than conventional mining.34 In addition to precious metals like gold and copper,e-waste also contains critical metals commonly found in many types of rechargeable batteries.Turning e-waste into a viable source of secondary metals could help meet rising demand for clean-energy technology,including EVs and energy storage solutions.Cobalt may be a bellwether for these efforts to mine e-waste recycling programs could reduce the projected 2040 demand for mined cobalt by 35%.35 But there remains a sizable gap between theory and practice.Although the total recovery rate for cobalt could theoretically reach 95%using existing technology,current recovery rates are at just 30%.36 And more broadly,while global e-waste continues to rise by 9.2 million tons between 2014 and 2019,reaching a total of 53.5 million tons the growth in documented collection and recycling rates has been agonizingly slow from 16.9%to 17.4%over the same period.37 This gap is particularly evident in technology-hardware and household-durable companies,which have yet to ramp up the collection and recycling capacity of critical metals from e-waste(see exhibit).But necessity is the mother of invention.A dwindling supply of clean-energy metals,combined with tightening regulations,may be the catalyst needed to push e-waste recycling into the next phase.Mining old electronics to fuel new energy techSiyu LiuNew YorkClimateSupply chainInnovations in the supply chainTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 28 34“A New Circular Vision for Electronics.”World Economic Forum,January 2019.35 Dominish,Elsa,Florin,Nick,Wakefield-Rann,Rachel,“Recycling Electric Vehicle Battery Minerals Can Significantly Reduce Need for New Mining.”Earthworks,April 2021.36“A New Circular Vision for Electronics.”World Economic Forum,January 2019.37 Forti,Vanessa,Bald,Cornelis Peter,Kuehr,Ruediger,and Bel,Garam.“The Global E-waste Monitor 2020:Quantities,flows and the circular economy potential.”United Nations University,July 2,2022.Analysis includes 68 technology-hardware and household durable constituents of the MSCI ACWI Index,as of Sept.27,2022.Based on the public disclosure of these companies(e.g.,annual reports and 10-Ks),we analyzed the differences in the reporting of e-waste collection and recycling metrics,as well as any targets related to these collection and recycling efforts.Source:MSCI ESG ResearchA long way off from a circular economy for metalInnovations in the supply chainResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 29 In 2022,both China and the EU,two of the worlds largest corn producers,continued to prevent widespread commercialization of genetically modified organisms(GMOs)for food crops such as corn and soybean.This has been due to real and perceived concerns about their health and environmental impacts,as well as the business practices of companies that sell them.In 2023,amid signs that China and the EU may be revisiting their stances,well be watching for more concrete steps toward GMO food crops,and which food and agriculture companies are ready for any emerging opportunities.The EU and China,already large importers of GMO soybean and corn,respectively,have signaled that they may look to loosen the restrictions on GMO seed products.In particular,the EU Green Deal mentioned the development of“seed technology,”while in 2021 the European Commission launched a(still ongoing)review of EU rules on GMOs.In China,research funding for GMO development has increased and the government has been amending its GMO regulatory framework.38 The rising threat of droughts,demand for increasing agricultural yields in the context of national decarbonization commitments and softening consumer resistance,39 may all be altering the long-held policy calculus.Meanwhile,new gene-editing techniques could allow seed makers to engineer crops with the ability to withstand harsh environmental conditions such as droughts40 or require less insecticide compared to non-GMO crops.41 This,combined with the increased adoption of regenerative farming,could allow countries to embrace land-use and agrichemical policy changes that would decrease emissions while preserving domestic food security.For food and beverage companies whose products are sourced from crops,especially corn and soybean,additional commercialization of GMOs could lead to both reduced(or less-volatile)input costs and lower exposure to water-stress risks due to drought-resistant crops.However,questions may remain about the success of commercialization due to continued opposition from consumers and NGOs around biodiversity,patents,herbicide resistance and the perceived human health effects.GMO regulatory resistance may be softeningCole MartinLondonRegulationClimateBiodiversityInnovations in the supply chainTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 30 Our analysis included all issuers within MSCI ESG Ratings coverage,across 68 ESG industries,as of Oct.28,2022.Each dot reflects,for each ESG industry,the proportion of issuers that were operating in geographies with moderate or high exposure to water-stress risks(y-axis),and whose assets were classified in business segments with moderate to high levels of water intensity(x-axis).Risk exposure was based on assessments from the MSCI ESG Ratings model.Source:MSCI ESG ResearchFood and beverage companies water dependence could drive interest in drought-resistant GMOs38 Byrne,Jane,“Will GM seed planting see China reduce its dependence on feed imports?”FeedNavigator,Jan.18,2022.39“Special Barometer:Food Safety in the EU.”European Commission,June 2019.40 Nuez-Muoz,Leandro,Vargas-Hernndez,Brenda,Hinojosa-Moya,Jess,Ruiz-Medrano,Roberto,and Xoconostle-Czares,Beatriz.2021.“Plant drought tolerance provided through genome editing of the trehalase gene.”Plant Signaling&Behavior 16(4),1877005.41 Greenthal,Eva,and Jaffe,Greg.“In the weeds:Understanding the impact of GE crops on pesticide use.”Center for Science in the Public Interest,April 2021.Innovations in the supply chainResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 31 Aura ToaderLondonCan blockchain help supply chains move away from controversy?Modern-slavery regulations that require companies to identify human-rights violations,such as child labor,forced labor or human trafficking,in their supply chains are either in effect or pending implementation in several jurisdictions,including the EU,Canada,U.S.and Australia.Consumers have also been exerting increasing pressure by including ethical considerations in their purchasing decisions.42 In 2023,well be watching pilot projects that use blockchain for supply-chain transparency and traceability,where successful experiments could herald the beginning of a sea-change in supply-chain management.Admittedly,the task ahead is considerable.As raw materials ship in bulk,certified and noncertified materials can become comingled,making batch traceability difficult.For larger companies,this difficulty compounds as they look to trace materials through multiple tiers of suppliers.Blockchain offers a potential tool for this thorny issue,through a decentralized,immutable record of all supplier transactions.For example:Walmart Inc.has partnered with IBM to track pork products in China in a farm-to-table approach;Unilever plc adopted SAP SEs GreenToken blockchain technology to source 188,000 tons of palm oil;and Ford Motor Co.used the technology to track cobalt a key mineral for lithium-ion batteries from mine to end user.So far,these pilot projects have been relatively niche.Solving traceability challenges will require much broader adoption.That may mean a combination of factors,including greater standardization and interoperability between systems,43 and companies willing to experiment with new technology.We do not expect to see the challenges of supply-chain transparency solved overnight,but we will be watching for signs of a much-needed turning point.Supply chainInnovations in the supply chainTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 32 42“How consumers are embracing sustainability.”Accessed Oct.14,2022.https:/ Jabbar,Sohail,Lloyd,Huw,Hammoudeh,Mohammed,Adebisi,Bamidele,and Raza,Umar.2021.“Blockchain-enabled supply chain:analysis,challenges,and future directions,”Multimedia Systems 27:787-806.Modern slavery:A global issue across all industriesThe map is based on an analysis of all controversy cases(with a status of“Ongoing,”“Concluded,”“Partially Concluded,”“Historical Concern”and“Archived”).We identified the MSCI ESG Ratings industries with the highest number of modern-slavery-related controversies(forced labor,child labor,bonded labor,human trafficking and migrant workers)and filtered for those with at least 10 controversy cases.For the 15 industries identified,we conducted a deeper analysis and categorized each controversy case based on the type of human-rights violation(e.g.,child labor),country/region where the controversy took place and respective commodity/product.We then identified the countries with the highest number of controversies and highlighted on the map those with at least five controversies.The most prevalent types of human-rights violations were highlighted per country,along with their respective commodity/product.Data as of September 2022.Source:MSCI ESG ResearchInnovations in the supply chainResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 33 Bentley KaplanCape TownIll be working on the railroad Not?With COVID-19 travel restrictions beginning to lift,2022 should have been the jump-start the rail industry needed.Instead,the year has been fraught with disruptions.Weve seen recurrent strikes in the U.K.s passenger-rail industry44 and a narrowly averted industrywide shutdown in U.S.freight rail.45 Further industrial action across several countries,including the Netherlands,46 France,47 Australia48 and South Africa49 suggests that all may not be well between rail companies and their employees.In 2023,well be watching to see which railroads can build out better communication channels to their employees and whether those efforts can stem a rising tide of labor strikes.While complaints differ by market,similar threads run through these agitated workforces,which have been hit by company downsizings,COVID-19-related reductions in pay packages and inflationary pressures.One starting point to ease this growing tension may lie in a very basic approach efforts by company management to listen to employee feedback or gauge morale.As the exhibit below shows,rail companies may be falling short in this regard.Among 10 sub-industries50 where labor disputes and controversies have been most common(including hypermarkets and airlines),rail companies reported one of the lowest frequencies of employee surveys.Strikes may well be a perennial risk for this highly unionized industry(averaging 60.4%of workers).51 But finding better ways to monitor workforce morale could provide an initial way to address rising dissatisfaction.Workforce Work lifeTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 34 44 Georgladis,Philip.“UKs biggest rail union seeks mandate to continue strikes into spring.”Financial Times,Oct.12,2022.45 Hunnicutt,Revot,Shepardson,David,and Holland,Steve.“US rail strike averted,but labor deal faces tough union votes.”Reuters,Sept.16,2022.46 Van Campenhout,Charlotte.“Ongoing labour dispute brings Dutch trains to a halt again.”Reuters,Sept.9,2022.47 Sandford,Alasdair.“France strikes:Transport hit amid nationwide walkout over pay and cost of living.”Reuters,Oct.19,2022.48 Australian Associated Press.“Sydney train strikes:NSW government and rail unions to seek conciliation next week.”Guardian,Sept.9,2022.49 Banya,Nelson.“South Africas rail and port workers to strike this week over wages.”Reuters,Oct.4,2022.50 Classified according to the Global Industry Classification Standard(GICS).GICS is the global industry classification standard jointly developed by MSCI and S&P Global Market Intelligence.51 For railroad companies in MSCIs ESG Ratings coverage that reported this data,as of Nov.7,2022.Rail faces labor controversies but falls short in efforts to gauge workforce moraleAll issuers within MSCI ESG Ratings coverage were included in the assessment.Data as of Nov.7,2022.Proportion and percentage figures represent the average for issuers by GICS sub-industry.Controversies were sourced from MSCI ESG Controversies data and includes all cases classified as“ongoing,”“partially concluded”or“concluded.”The 10 GICS sub-industries shown here were those with the highest proportion of controversies per company that were also assessed in the MSCI ESG Ratings model on the labor-management key issue.This key issue assesses a companys management programs in the context of its exposure to workforce-related risks.More detail is provided in the MSCI ESG Ratings Methodology document.Source:company disclosures;MSCI ESG ResearchWork lifeResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 35 The World Health Organization(WHO)has named air pollution as the number-one global environmental health risk,causing millions of premature deaths and substantial economic losses.52 While companies polluting the air themselves may face risks that regulators or impacted communities might push for facilities to be shut down or overhauled,53 it may be overlooked that companies generating minimal pollution can also be impacted through worsening employee health or difficulty retaining talent in polluted regions.54 As the terms of work continue to evolve post-pandemic,and air quality starts to look like a perk,in 2023 well be watching to see which companies work the hardest to stop their employees from choking on smoke.Using MSCI Asset Locations,we looked at potential company exposure to pollution-related risks,including ultrafine particulate matter PM2.5 a particularly harmful pollutant.55 To illustrate this exposure,we looked at the 10 constituents of the MSCI ACWI Investable Market Index(IMI)with the highest revenues in India a country with some of the worst air-pollution levels in the world.56 We found that not a single company asset was located in an area where the particle level was below the WHO-recommended threshold of 5 g/m3;57 some were in areas where the particle level exceeded 100 g/m3.Such pollution levels may not be surprising for an electric utility using coal to generate power(e.g.,NTPC Ltd.),but our analysis also covered banks(ICICI Bank Ltd.,State Bank of India and China Construction Bank Corp.),a retailer(Rajesh Exports Ltd.)and an electronics distributor(WT Microelectronics Co.,Ltd).Jurgita BalaisyteHong KongSimon AlbrechtZurichChoking on smoke:The human-capital risks from air pollutionWorkforce Work lifeTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 36 Air pollution exposure may pose human-capital risks regardless of industryPM2.5 exposure of the 2020 annual mean value(averaged for all locations in India)for the 10 constituents of the MSCI ACWI Investable Market Index with the highest revenue generated in India,as of July 1,2022.Red line shows the WHO guideline of 5 g/m3.The box represents the interquartile range/median,with significant outliers excluded(all 13 of which were above 80 5 g/m3).Source:Air Quality Life Index,MSCI ESG Research52“Global air quality guidelines:particulate matter(PM2.5 and PM10),ozone,nitrogen dioxide,sulfur dioxide and carbon monoxide.Executive summary.”World Health Organization,2021.53 Pasricha,Anjana.“Delhis Air Pollution Crisis Prompts Shutdown of Thermal Plants,Schools,Colleges.”Voice of America,Nov.17,2021.54 Xue,Shuyu,Zhang,Bohui,and Zhao,Xiaofeng.2021.“Brain drain:The impact of air pollution on firm performance.”Journal of Environmental Economics and Management,Volume 110.55 Greenstone,Michael,Hasenkopf,Christa,and Lee,Ken.“Air Quality Life Index June 2022:Annual Update.”Energy Policy Institute at the University of Chicago,June 2022.56 Beng,Richard Fuller,Landrigan,Philip,and Balakrishnan,Kalpana.2022.“Pollution and health:a progress update.”Lancet Planetary Health 6:E535-E547.57 The concentration of an air pollutant is given in micrograms(one-millionth of a gram)per cubic meter of air g/m3.Work lifeResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 37 Since 2020 we have seen a significant shift in media attention from largely pandemic-driven news about how companies dealt with their workforces toward a renewed momentum around climate change.Of the markets we examined,this shift was starkest in China,while U.S.media has remained more focused on human capital.In 2023,well be watching how further shifts in media attention may provide insights into the perception of ESG risks and issuer-engagement priorities as they evolve in different markets.During 2020,the glut of news pieces related to human capital was directly driven by the impact of COVID-19,as business operations and the future of work radically shifted.At the same time,boards and executives of companies scrambled to adjust to this sea change in worker expectations and the reality of maintaining operations.58 However,with the advent of COVID-19 vaccines and subsequent reopenings,focus quickly shifted back to tackling climate change and attention there grew substantially,especially in China.In the U.S.,though,human capital remained a dominant newsworthy theme,comfortably outstripping the climate crisis,as companies contend with a tight labor market in the face of elevated worker discontent across the country.59 Although one may contend that news is often a reactive medium,investors may wish to keep their eyes and ears open for any shifts in ESG risk sentiment and interest as a gauge of new ESG risks at the market level.News shifts from pandemic to climate change,but labor hangs onSatish ShindeMumbaiArun SharviralaTorontoJonathan PonderTorontoClimateWorkforce Work lifeTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 38 A proprietary algorithm was used for primary topic collection,prior to manual validation to ensure proper classification of the topics to ESG themes.We used these topics to collect the news articles from September 2019 to August 2022.Calendar years are adjusted accordingly to reflect news articles from September to August.Source:Lexis-Nexis,MSCI ESG ResearchTrends in news mentions globally58 Ng,Matthew A.,et al.2021.“Has the COVID-19 Pandemic Accelerated the Future of Work or Changed Its Course?Implications for Research and Practice.”International Journal of Environmental Research and Public Health.59 Gurley,Lauren K.“Labor movements next big challenge:Keeping momentum as economy slows.”Washington Post,Oct.24,2022.Work lifeResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 39 SK KimSeoulAura ToaderLondonLiz HoustonLondonBargaining with labor:Managing worker shortages in hard timesAfter the reopening of economies following the COVID-19 pandemic,labor markets have tightened and many companies struggled to fill vacancies.At the same time,most developed and emerging economies saw substantially higher inflation,pushing up the cost of living.This has contributed to rising hourly earnings for workers,with industries such as retail,hotels and restaurants potentially seeing the biggest impact on profits due to their large workforces and reliance on relatively low-paid employees.In 2023,we will be watching for new winners and losers as the ground continues to shift under companies tackling complex workforce relations and demands for higher wages.Rising employee costs have become an increasingly important issue for companies in consumer sectors,more broadly,reflected in growing mentions of wage-related terms in company filings since June 2015(see exhibit below).For some employers,including those in the U.K.,wages have been growing through nationally mandated increases.Elsewhere e.g.,in the U.S.companies have proactively raised wages ahead of a potential increase in the legal minimum wage.Even when overheated labor markets have cooled down,research shows that employee satisfaction has been a persistent indicator of excess returns,particularly in times of crisis.60 Many employers have reflected on their strategies in this area.Committing to paying a living wage could attract and retain workers in a tight labor market.Reorganizing or reducing bonuses and benefits to fund higher basic wage rates may be tempting,but could arguably be short-sighted.Offering nonstatutory benefits,such as paid parental leave or health insurance,could help companies make themselves more attractive.Our research shows that as of June 2022,only 10%of hotels and travel,restaurants,food and staples retailing and consumer discretionary retail constituents of the MSCI ACWI Index offered a broad range of nonstatutory benefits to their employees.If the same old strategies arent getting the job done,companies willing to take more creative approaches might find a new advantage.Workforce Work lifeTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 40 We looked at company filings from June 2015 to September 2022 and used natural-language processing to quantify trends in discussions and proactive measures around potential increases in employee-related costs.Annual reports,10-Ks,40-Fs and 20-Fs of MSCI ACWI Investable Market Index(IMI)constituents were matched and analyzed using keyword analysis.Results were aggregated for related keywords,which included:wage,minimum wage,minimum hourly wage,wage increase,labor cost increase,living wage,fair wage and minimum wage increase.We compared the performance of 146 consumer discretionary constituents of the MSCI ACWI IMI retailing(n=66),food&staples retailing(n=53),hotels(n=10)and restaurants(n=17)versus the overall index constituents.Data as of Oct.26,2022.Source:MSCI ESG ResearchA growing focus on wages for retail,restaurant and hotel companies60 Boustanifar,Hamid,and Kang,Young Dae.2022.“Employee Satisfaction and Long-Run Stock Returns,19842020.”Financial Analysts Journal 78:129-151.Work lifeResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 41 Despite inflationary pressures,the supply of green bonds retreated by just 1%during the first half of 2022,compared with the second half of 2021.61 But that could be just the first sign of things to come.In 2023,we will be watching whether green bonds can maintain a credible growth path in the face of rising interest rates,lower spread premiums and growing concerns about greenwashing.Since the first major launch of green bonds in 2007,62 they have been on a rapid upward trajectory,growing from a total issuance of USD 37 billion in 2014 to USD 578 billion in 2021.63 This growth reflects a broader enthusiasm for green,social and sustainability(GSS)bonds,which accounted for 1.7%of the global USD 100 trillion bond market in 2020.Despite a collective interest,green bonds specifically have continued to hold pole position,making up roughly 60%of the total issuance value of GSS bonds each year.But the honeymoon period may be starting to wane,as yield spreads of green bonds have remained lower(eight basis points on average)compared with conventional bonds.64In addition to lower yield spreads,investors may also be weighing the credibility of green bonds and specifically the“greenness”of the activities they are funding.65 Without a widely adopted,standardized framework,issuers have had some flexibility in the labeling of their bonds.Between January 2021 and September 2022,of the more than 600 bonds we assessed,approximately one in five fell short of explicit green-bond criteria(see exhibit),with some even going so far as to fund fossil-fuel generation or transmission.Investor skepticism may be soothed by developments that include the proposed EU Green Bond Standard,but until these types of standards are in place,companies may have to work harder against the perception that they are issuing“green-ish”bonds with potentially questionable practices and reduced yields.Is the honeymoon over for green bonds?Meghna MehtaMumbaiYoon Young ChungBostonVishakha PandeyMumbaiClimateInvestmentTurning pointsTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 42 One in five green bonds falls short of Bloomberg MSCI Green Bond Index criteriaAnalysis of 632 investment-grade self-labeled green bonds tracked by MSCI ESG Research from January 2021 to September 2022.The universe of these bonds is restricted to all self-labelled green bonds meeting the Bloomberg Global Aggregate Index criteria.While around 81%of these bonds are part of the Bloomberg MSCI Green Bond Index,the remaining 19iled to meet the MSCI green bond and green loan assessment methodology.These bonds are potentially funding projects which are not considered green as per the methodology.Sources:Bloomberg MSCI Green Bond Index,Bloomberg Global Aggregate Index,MSCI ESG Research61“Green Bond Pricing in the Primary Market:January-June 2022.”Climate Bonds Initiative,Sept.16,2022.62 AAA-rated issuance from multilateral institutions European Investment Bank(EIB)and World Bank.63“$500bn Green Issuance 2021:social and sustainable acceleration:Annual green$1tn in sight:Market expansion forecasts for 2022 and 2025.”Climate Bonds Initiative,Jan.31,2022.64 Caramichael,John,and Rapp,Andreas.“The Green Corporate Bond Issuance Premium.”Federal Reserve Board,June 2022.65 Flood,Chris.“Fears rise over greenwash bonds.”Financial Times,March 21,2022.Turning pointsResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 43 Economic sanctions on Russia in response to its invasion of Ukraine have led to international markets avoiding Russian energy,higher shipping costs and greater competition to secure alternative energy supplies.National energy security has long meant possession of,or ready access to,fossil-fuel reserves,but a handful of countries have managed to alter the calculus.In 2023,well be watching how continued energy-market disruptions impact the global clean-energy transition in different countries and what it could mean for longer-term sovereign risk exposure.With European governments scrambling to find alternative energy options to substitute Russian hydrocarbon supplies,the move to a zero-carbon economy seems to have become a secondary concern,at least for now.Some governments have resorted to importing coal,the most carbon-intensive fossil fuel,and locked into long-term gas contracts at the expense of investment in renewables.Yet several governments have also committed to accelerate renewable expansion.These policy shifts could have a crucial impact on how governments adjust their plans for energy transition.Our analysis,as detailed in the exhibit below,showed that some countries appeared to be better positioned to manage the transition to a low-carbon economy than others.For example,Denmark and New Zealand are among countries with some of the highest energy security and progress toward energy transition because they diversified their energy supplies and invested in renewable energy early enough to stay on track to meet their net-zero emission targets.These countries could be better placed to use the global energy-market disruptions to their benefit and capture green opportunities.Over the medium term,we would expect them to be able to mitigate energy risks and sustain higher growth dynamics.However,countries with poor energy security and limited transition efforts might be forced to sacrifice long-term GDP growth prospects in favor of immediate carbon-intensive solutions,delaying the global clean-energy transition.Magdalena SordylNew YorkSovereign policy dilemma:Energy security vs.the clean-energy transitionClimateTurning pointsTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 44 MSCI assesses the exposure of countries to ESG risks and their management of those risks in the MSCI ESG Government Ratings.The axis titles used in the chart are a simplification of the analysis undertaken for both energy security and low-carbon-transition preparedness.The positioning of countries along each axis reflects an aggregation of risk exposure and management in their energy security and readiness for a low-carbon transition,respectively.Outliers are highlighted for illustrative purposes.Data as of October 2022.Source:MSCI ESG Research.A trade-off between energy security and energy transition is not inevitableTurning points 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 45 Research InsightsMSCI ESG Research LLCResearch InsightsMSCI ESG Research LLCEnergy crisis,Ukraine war driving fossil-fuel agenda,but dont rule out renewablesThe ongoing war in Ukraine and high-inflationary environment may limit near-term pressure to reduce global greenhouse-gas(GHG)emissions as governments prioritize energy security and affordability.But for power companies,swapping coal and oil for natural gas may not be the only practical option.In 2023,well be watching which companies are keeping their eyes on longer-term decarbonization trends and expanding deployment of renewables.The U.S.is releasing oil from its strategic petroleum reserve,which may encourage a near-term increase in hydrocarbon production.66 Across the pond,the U.K.is launching a new oil and gas licensing round67 and some EU member states are delaying their planned phaseout of coal-power plants.68 And if natural-gas prices remain elevated,this may continue to boost demand for more emission-intensive coal and oil products as cheaper alternatives for producing power and heat.But for companies sticking with their net-zero plans,these alternatives come with complications.Renewables face some short-term uncertainties such as supply-chain bottlenecks,windfall taxes on low-carbon power generation and trade wars.But looking beyond 2023,long-term regulatory tailwinds could encourage the deployment of renewables and once again put them at the forefront of the fossil-fuel agenda.Elchin MammadovLondonMathew LeeNew YorkClimateTurning pointsTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 46 Research InsightsMSCI ESG Research LLCNetworks and renewables dominate capex plans of major utilities in U.S.and EuropeData for 26 European and U.S.-based power-generating constituents of the MSCI ACWI Index,as of Aug.5,2022.Definitions of capital expenditures are based on MSCIs ESG climate-change metrics.66“President Biden to Announce New Actions to Strengthen U.S.Energy Security,Encourage Production,and Bring Down Costs.”The White House,Oct.18,2022.67 Fisher,Jonah.“UK defies climate warnings with new oil and gas licences.”BBC News,Oct.7,2022.68 Zachov,Aneta.“EU countries eye coal over gas supply fears.”Euractiv,March 15,2022.Turning pointsResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 47 A global energy crunch and greater demand for low-carbon energy has shifted support toward nuclear power.In 2023,we are watching whether an industry that enjoyed its last rise to prominence in the 1990s69 will be able to manage high costs,long project lead times and labor constraints to rejuvenate itself.In July 2022,the EU voted to label nuclear energy a sustainable activity under their green taxonomy,aiming to make it easier for capital to flow into nuclear assets.While this move received criticism for enabling increased radioactive waste,China,South Korea and other countries developing taxonomies have taken the same approach.70 Further,following Russias invasion of Ukraine,several countries including Germany,South Korea,Japan,Belgium,France,Netherlands and the U.S.have either reversed nuclear phaseout plans,moved to restart idled reactors,offered subsidies to extend the life of existing atomic units or announced the addition of new plants.71 The near decadelong lead times needed for project development means that nuclear energy will always be a long-term game.72 Companies that are already operating nuclear plants or have committed to plans to add new nuclear capacity in the coming years are therefore likely to benefit the most from more favorable regulatory conditions.However,a nuclear renaissance is not guaranteed:Potential obstacles include construction delays,higher levelized costs compared to other technologies(not only wind and solar,73 but dispatchable hydropower,coal and gas power with carbon capture and storage74)and an aging workforce(25%age 55 and above75).Therefore,astute financial decisions and human capital management may become the keys that unlock new opportunities in nuclear energy.Nuclear energy contemplates a comebackHanna TruebBostonElchin MammadovLondonMathew LeeNew YorkClimateRegulationTurning pointsTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 48 Biggest earners in nuclear power show clear differences in current and planned fleet capacityThe top 10 constituents of the MSCI ACWI Investable Market Index in terms of estimated percentage of revenue from nuclear power generation.Planned nuclear capacity refers to nuclear projects that are announced or under construction but not yet operational.Bubble labels and size correspond to each companys current installed nuclear capacity in gigawatts.Data as of Oct.13,2022.Source:S&P Capital IQ,MSCI ESG Research69 Nuclear power generation as a percentage of total global energy generation peaked at 17%in 1996.“Statistical Review of World Energy.”BP,Sept.21,2022.70“What the inclusions of gas and nuclear in the EU Taxonomy could mean for investors and asset managers.”S&P Global,Feb.22,2022.71 Connolly,Kate.“Germany to delay phase-out of nuclear plans to shore up nuclear security.”Guardian,Sept.5,2022.Lee,Heesu.“Korea pares back renewables as it taps nuclear for climate goal.”Bloomberg,Aug.30,2022.Patrick,Philip.“Japans nuclear renaissance:The global energy crisis has shifted public opinion.”Spectator,Aug.25,2022.“Belgium reaches initial deal to prolong nuclear power by 10 years.”Euractiv,Jul.22,2022.Clifford,Catherine.“What the climate bill does for the nuclear industry.”CNBC,Aug.22,2022.Stuart Leeson,Sofia.“Dutch cabinet to reveal plans for new nuclear power plants.”Euractiv,Jun.27,2022.“Macron sets out plan for French nuclear renaissance.”World Nuclear News,Feb.11,2022.72“Median construction times for reactors since 1981.”World Nuclear Association,Sept.25,2020.73“Levelized Cost of Energy Analysis 15.0.”Lazard,Oct.28,2021.74“LCOE range for selected dispatchable low emissions electricity sources in the Sustainable Development Scenario,2030,2040 and 2050.”International Energy Agency,Jun.29,2022.75“Global Energy Talent Index Report 2022.”Airswift,Jan.2022.Turning pointsResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 49 As oil prices are projected to stay above USD 90 a barrel in 2023,76 energy companies are likely to continue to generate hefty profits,as in 2022.In the first quarter of 2022,they saw median profitability growth of 127%year-over-year.77 Historically,high energy prices have also driven patenting activity toward renewable-energy technologies.However,examining the current patent portfolios of energy companies specifically we found that they were still firmly focused on the traditional business of fossil fuels and petrochemicals.78 In 2023,as energy companies look to continue benefiting from high oil prices,well be watching what they do with their cash-filled coffers:double-down on existing business models or funnel more toward clean-tech investments.Viewing patents as a proxy for investment in innovation can offer a glimpse into how energy companies are likely to change(or not change)their future business strategy.Using MSCI ESG Researchs patent database,79 including 57 types of low-carbon patents,we analyzed the patent portfolios of 1,714 energy companies to identify the 10 leading types of low-carbon patents for the energy industries.80 Such patents cover all technologies or equipment intended to reduce emissions from existing processes,including those that ultimately yield fossil fuels.On aggregate,the largest concentration of patents complemented the traditional activities of fossil-fuel extraction.Three of the four largest integrated oil and gas companies held a cluster of patents related to petrochemicals and enhanced efficiency of refining and production methods(ExxonMobil Corp.,Shell plc and Chevron Corp.).An alternative concentration of patents around renewables may signal more aggressive investment toward the energy transition e.g.,in solar-power technologies(TotalEnergies SE).This means analyzing patent data may offer investors insight into how wedded energy companies are to fossil fuels and whether this matches their stated energy-transition ambitions.Patent activity suggests energy firms still dig fossil fuelsUmar AshfaqNew YorkMathew LeeNew YorkClimateTurning pointsTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 50 76“Short-term energy outlook.”U.S.Energy Information Administration,Oct.12,2022.77 Milman,Oliver.“Largest oil and gas producers made close to$100bn in first quarter of 2022.”Guardian,May 13,2022.78 Grubb,Michael et al.“Induced innovation in energy technologies and systems:a review of evidence and potential implications for CO2 mitigation.”Environmental Research Letters,March 29,2021.79 For more on MSCIs patent database and value assessment methodology,please refer to:“MSCI Climate VaR methodology part 3:Technology opportunities,”MSCI ESG Research,June 2020.(Client access only.)80 We defined energy companies as those within MSCIs coverage in the following industries as of Oct.5,2022:energy equipment and services,integrated oil and gas,oil and gas exploration and production,oil and gas refining,marketing,transportation and storage.Top 10 low-carbon patent categories for the energy industryThe four companies displayed are the largest integrated oil and gas companies within MSCI ESG Researchs coverage by low-carbon patent scores and represent almost 30%of the total low-carbon patent values within the energy sector.MSCI ESG Researchs Low-Carbon Patent Score seeks to establish a picture of the relative level and quality of patents held by companies.Each patent receives a score based on forward citations,backward citations,market coverage and Cooperative Patent Classification(CPC)/International Patent Classification(IPC)coverage.MSCI ESG Researchs model currently covers 96 million unique patents that have been granted from over 70 patent authorities worldwide.Data as of Oct.13,2022.Source:MSCI ESG ResearchTurning pointsResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 51 Virag Bokodi BudapestCody DongShanghaiFor banks,greenhouse-gas(GHG)emissions associated with their loans are fundamental to analyzing climate transition risk.Until recently,estimations and disclosures have been limited.Some banks in developed markets have already started to partially report GHG emissions associated with their lending books,but banks in emerging markets like China have yet to follow suit despite likely being,in some cases,some of the worlds largest financers of new emissions.In 2023,we will be watching to see if the increasing regulatory and investor pressure felt by developed-market banks to disclose loan emissions spreads to big emerging-market lenders.The number of companies that have committed to measure and disclose financed emissions under the harmonized reporting standard for financial institutions developed by the Partnership for Carbon Accounting Financials(PCAF)81 has grown rapidly.82 But they are concentrated in developed markets.Using the MSCI Total Portfolio Footprinting solution,which follows PCAF principles and banks publicly available loan breakdown by sector,83 we calculated a high-level loan emissions estimation for a sample of six state-owned Chinese banks(the“big six”).84 These banks accounted for around 45%of the total loan balance in the country,as of the end of 2021.85 As of October 2022,none of them had reported loan emissions.Loan sectors with high emission intensity represented nearly 30%of the total loan balance of these banks,as of the end of 2021,but these sectors share of total loan GHG emissions was approximately 80%.Differences in emissions intensity measured by loan size between individual banks were driven by the sector distribution of loans.More detailed inputs from banks themselves could bring higher-quality estimations and help all stakeholders better understand the resulting risk exposure and financed contributions to climate change.Pulling back the veil on banks loan emissionsClimateNew frontiers in measurement and transparencyTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 52 Breakdown of loan balance and emissions for the big six state-owned Chinese banksEmission data is calculated using GHG-emissions intensity(Scope 1 and 2)by loan sector using the MSCI Total Portfolio Footprinting methodology(quality score of 5).Emissions data includes both required(known use of proceeds)and optional(unknown use of proceeds).In this analysis,high-emission-intensity loan sectors are defined as those with 100 tons CO2 equivalent/USD 1 million,which include utilities,oil,gas&consumable fuels,metals&mining,transportation and manufacturing.Medium-emission-intensity loan sectors are defined as those with 10-100 tons CO2 equivalent/USD 1 million,which include commercial-other,wholesale,hotels,restaurants and leisure,telecommunication services,information technology and commercial and professional services.Low-emission-intensity loan sectors defined as those with 10 tons CO2 equivalent/USD 1 million,which include real estate,services,financials,credit card,consumer,retail-other and mortgage.Data as of Oct.13,2022.Source:MSCI ESG Research81“The Global GHG Accounting&Reporting Standard for the Financial Industry.First Edition.”PCAF,Nov.18,2020.82“The Partnership for Carbon Accounting Financials(PCAF)welcomes 200th financial institution:Japan Post Bank Co.,Ltd.”PCAF,Jan.31,2022.Special PCAF News Update:Fall 2022.”PCAF,Sept.8,2022.83 MSCI Total Portfolio Footprinting maps bank-disclosed loan sectors to the Global Industry Classification Standard(GICS).GICS is the global industry classification standard jointly developed by MSCI and S&P Global Market Intelligence.84 As defined by the China Banking and Insurance Regulatory Commission.85 Calculated using company reported loan balances divided by total outstanding loans in China according to Peoples Bank of China.New frontiers in measurement and transparencyResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 53 Cody DongShanghaiSylvain VanstonParisInsurance emissions:The actuarial revolution has begunFinanced emissions has become a mainstream ESG concern,but“insured emissions”the attribution of an insurance-company clients emissions to its insurance underwriter is an emerging concept.In 2023,we will be watching which global insurers act first to measure their insured-emissions footprints and position themselves ahead of investor pressure or any future regulatory-reporting requirements that might emerge.Insurers do not“own”their customers,yet they do have an“enabling”influence over their activities.Insurers that wish to evaluate the carbon emissions of their assets and liabilities strive to connect their role as asset owners and as risk carriers.The Net-Zero Insurance Alliance(NZIA)has partnered with the Partnership for Carbon Accounting Financials(PCAF)to develop the first global standard for measuring insurance-associated emissions(IAEs).The final guidance was released in November 2022,with a focus on commercial lines and retail-motor lines.The reporting and the reduction target of IAEs may help incentivize insurers to influence low-carbon behaviors for their customers.Insurers that support the PCAF framework are expected to report on their IAEs and,by July 2023,NZIA members are also expected to publish decarbonization targets using this new metric for their commercial-lines and retail-motor portfolios.Effectively,the only ways to achieve these targets are to influence insurance clients or reorganize insurance-business exposure,neither of which may come easy.Nonetheless,with much of the world needing insurance for one thing or another,insurers dedicated to net-zero may have an influential role to play in driving decarbonization of the global economy.To claim any credit for that,they will need to measure their insured emissions.ClimateNew frontiers in measurement and transparencyTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 54 Measuring insurance-associated emissions as the foundation for other initiativesSource:MSCI ESG Research(adapted from PCAF)New frontiers in measurement and transparencyResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 55 Bhaveer ShahSingaporeEmissions attribution could help keep portfolios aligned with net-zeroFollowing a volatile year for markets,investors now face the challenge of accounting for the ups and downs in their portfolios associated financed emissions.To help overcome this challenge,new analytical models inspired by traditional performance-attribution analysis are emerging.In 2023,we will be watching how investors might adopt these models to help them understand changes to their financed emissions and work toward staying aligned with long-term decarbonization pathways.These new models may be able to decompose headline emissions into their contributing factors,in part by segmenting changes in portfolio emissions from new,exited and existing positions a particularly helpful tool during erratic market periods like 2022.Furthermore,with sharp adjustments to asset valuations sometimes affecting carbon-footprint intensity metrics,emissions-attribution models might help identify how factors like foreign-exchange fluctuations affected emissions intensities.Emissions-attribution models may also help isolate temporary one-off developments such as the sudden divestments from Russian markets from long-term trends.Ultimately,emissions-attribution analysis has the potential to provide a framework for investors to understand the causes behind temporary deviations in their emissions profiles,helping them work toward staying aligned with long-term net-zero financed-emissions trajectories.Investors stakeholders may also benefit from additional granularity and transparency into metrics that may currently be reported only at a headline level.ClimateInvestmentNew frontiers in measurement and transparencyTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 56 Example attribution analysis of changes in portfolio emissions intensityThis analysis is performed on a hypothetical basket of issuers that is based on the MSCI ACWI Investable Market Index from April 30,2021,to April 29,2022.The diagram is illustrative only and does not constitute any form of investment advice or actual index performance.Source:MSCI ESG ResearchNew frontiers in measurement and transparencyResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 57 Kenji WatanabeTokyoSiyao HeBeijingNet-zero:Companies are aiming high,but are their strategies practical?Climate-target credibility is likely to become the next frontier for institutional investors aiming to decarbonize investment portfolios and reduce real-economy emissions of greenhouse gas(GHG)in accordance with United Nations-led net-zero initiatives,such as Net-Zero Asset Owner Alliance.We have observed an increasing number of companies setting climate targets,including net-zero emission targets.Yet questions remain as to whether these targets are achievable.In 2023,well be watching which companies up their climate target game in the face of what we expect to be increasing pressure from institutional investors who have their own portfolio net-zero targets to meet.Of the 9,238 constituents in the MSCI ACWI Investable Market Index(IMI)as of October 2022,36%(3,306)have set climate targets.86 Of these,715 companies have set targets aligned with the Paris Agreement and approved by the Science-Based Targets initiative(SBTi)87 and 45 have set net-zero emissions targets for 2050 or earlier under the SBTi corporate net-zero standard,one of the most rigorous net-zero standards across industries.An additional 582 companies have committed to setting SBTi-approved net-zero targets in the next two years.Such third-party validations can boost investor trust in the information companies disclose and improve the transparency of climate targets.With other disclosure frameworks and regulations in the pipeline,companies and investors may have a more standardized manner of assessing climate targets.The Glasgow Financial Alliance for Net Zero(GFANZ),for example,has proposed its own framework to help investors assess the soundness and credibility of corporate climate targets.We found companies with SBTi-approved targets typically scored better in the GFANZ framework than those without(see exhibit).This may suggest that companies that went through a rigorous third-party target-validation process(e.g.,SBTi)were more likely to have disclosed transition planning and capital allocation for decarbonization activities and demonstrated successful track records increasing the transparency of emissions-reduction strategies and enhancing the feasibility of climate targets.With the focus on corporate climate targets likely to intensify and regulations around disclosure likely to tighten,investors should be able to make better informed climate-investing decisions going forward.Antonios PanagiotopoulosLondonClimateNew frontiers in measurement and transparencyTABLE OF CONTENTS 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.Research InsightsMSCI ESG Research LLCMSCI.COM|Page 58 Credibility assessments of constituents of the MSCI ACWI IMI with climate targetsFor the 3,306 constituents of the MSCI ACWI IMI with climate targets,as of October 2022.*GFANZ portfolio-alignment measurements credibility indicators and CDP data metrics.CDP is a not-for-profit charity that runs the global disclosure system for investors,companies,cities,states and regions to manage their environmental impacts.Source:CDP,MSCI ESG Research86 The MSCI ACWI IMI constituents referenced in the report are as of Oct.17,2022.Target-level data was downloaded from MSCI ESG Manager on this date.87“Companies taking Action”and“SBTi Corporate Net-Zero Standard.”SBTi,October 2021.SBTi is a multinational organization promoting the adoption of climate targets aligned with the Paris Agreement.SBTi-related target-level data was downloaded from these reports.New frontiers in measurement and transparencyResearch InsightsMSCI ESG Research LLC 2022 MSCI Inc.All rights reserved.Please refer to the disclaimer at the end of this document.MSCI.COM|Page 59 Helen MarlowLondonLab-grown commodities:The new frontier?Lab-grown diamonds have moved firmly into the mainstream,and leather,cotton and even fur could be next.For companies facing controversy or criticism over the environmental or human-rights impacts of their raw materials,this could look like a game-changer.In 2023,we will be watching industry investmen
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Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456Footprint Drinks ESG Trends Report 2023 Whos doing what,why and what needs to happen now:an analysis of the key ESG trends in the drinks industryStrategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456About this research 2Benchmarking review and scoring 2Consumer research 2Acknowledgements 2Report team 2Foreword 3Executive summary:2023 insights 41.Strategy and culture 52.Energy and emissions 53.Clients and consumers 64.Waste 65.Raw materials,the environment and water 76.Social impact and employees 71.Strategy and culture 81.1 Turn targets into action 91.2 Dont let perfection get in the way of progress 101.3 Engage staff on strategy 101.4 Harness green finance 112.Energy and emissions 122.1 Tackle and manage operational emissions 132.2 Engage up and down your value chain 142.3 Offset with caution 153.Clients and consumers 163.1 Drive responsible alcohol consumption 173.2 Use labelling to boost healthier,more sustainable drink options 183.3 Harness marketing to highlight sustainability credentials 193.4 Support safer drinking environments 194.Waste 204.1 Work to reduce or eliminate packaging in all areas 214.2 Keep pushing on recyclability 224.3 Keep reusables front of mind 244.4 Do more to tackle food and drink waste 245.Raw materials,the environment and water 265.1 Embrace regenerative agriculture 275.2 Set water reduction targets and understand its carbon impact 285.3 Consider self-supply 296.Social impact and employees 306.1 Keep up momentum on diversity 316.2 Provide opportunities AND address labour shortages 336.3 Understand the power of a strong corporate culture 336.4 Maintain a focus on mental health 346.5 Pay a living wage 34About Coca-Cola Europacific Partners 35About Footprint Intelligence 35References 36Contents FO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 231Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456FO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 232About this researchFootprint Intelligence was commissioned by Coca-Cola Europacific Partners to write this report.The research comprised of in depth,semi-structured interviews with drinks industry experts,a benchmarking review of 28 leading brands to provide the scoring for each category,original consumer research conducted by Vypr,as well as desk-based research,involvement in industry events and forums,and comments and insights gathered from other opinion leaders linked to the industry.Benchmarking review and scoringIn order to benchmark industry progress on Environmental,Social and Governance(ESG)reporting,a scoring system was developed by Footprint especially for this report based on the World Benchmarking Association and The Food Federations Food and Agriculture Benchmark.The benchmark includes 45 indicators distributed across four measurement areas of governance and strategy,environment,nutrition and social inclusion.For this report,the metrics were refined to suit the drinks industry,and a total of 24 areas were assessed and scored using publicly available ESG reports for 28 of the countrys leading drinks companies.These companies were chosen for their market size and position.The assessment was undertaken in June/July 2022.Companies were scored against a set of parameters,and scores collated to give a score for each measurement area.Industry scores were reached by taking the percentage of the achieved score out of the maximum points available.This was then converted into a score out of 10.AcknowledgementsFootprint Intelligence is hugely indebted to the industry experts who generously gave their time and insights as part of the research process.zDanielle Bekker,founder,Good Living Brew CozLaurence Cox,sustainability manager,Carlsberg Marstons Brewing CompanyzPranav Chopra,founder,NEMI TeaszTimiko Cranwell,UK&I director of legal and corporate affairs,Budweiser Brewing groupzOliver Drury,director of communications,AdnamszJonny Easter,conservation and sustainability manager,Warners zTom Fiennes,commercial sustainability director,Britvic plczRebecca Gale,account director and head of sustainability,WaterscanzJulian Hunt,vice president,public affairs,communications and sustainability,GB,Norway and Sweden,Coca-Cola Europacific PartnerszKate Nicholls,CEO,UKHospitalityzRob Pitcher,CEO,Revolution Bars GroupzCharly Thieme,operations manager,Brighton SpiritsReport team Report and research lead:Amy Fetzer Research support:Chris Terry Report copywriter:Nick HughesSubeditor:David BurrowsDesign:Trevor Marshall Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456Foreword Sustainability in the broadest sense has been at the forefront of all of our minds over the past year or so.COP26,hosted in the UK in late 2021,brought carbon reduction into sharp focus for businesses with the Government challenging us all to put plans in place to halve carbon emissions by 2030,and reach Net Zero by 2050.Since then,other global factors have forced us to think more broadly about sustainability with the war in Ukraine driving us all to consider our energy use and efficiency,and the long,hot summer leading to headlines about how we can build resilient water supplies.At the same time,significant regulatory changes are underway,most notably preparations for the introduction of the Deposit Return Scheme in Scotland,and ongoing discussions about the introduction of similar schemes across the UK.If introduced effectively,these have the potential to transform recycling in the UK and help establish a truly circular economy.There has never been a more important time for us to work together to confront and find solutions for these challenges and ensure that,as an industry,we lead the way in doing business responsibly.Its a commercial imperative.One of the many vital insights in the third Footprint Drinks ESG Trends Report 2023 is a clear demonstration that consumers purchasing decisions are increasingly influenced by their perception of brands(and venues)commitment to sustainability.The reality is that we must all act to maintain our license to operate.At Coca-Cola Europacific Partners,weve set our own ambition to reach net zero across our supply chain by 2040 and reduce our greenhouse gas(GHG)emissions by 30%by 2030(versus 2019).But being a truly sustainable business is about much more than those headline targets.Behind them sit a range of pilots,trials and initiatives were undertaking,in every area of our business,as we strive to reduce our impact on the environment.And were not alone in our efforts.This Report shows the truly impressive extent of innovation taking place across the sector to reduce energy use,cut emissions,drive down waste and support our people.And its absolutely right that we learn from,and challenge,each other to ensure were doing all we can,not only to achieve our individual net zero targets,but to support the wider industry and supply chain.Thats why I urge you to read and digest this Report and consider what more we could all be doing to improve the sustainability of our sector.Julian HuntVice president,public affairs,communications and sustainability,GB,Norway and Sweden,Coca-Cola Europacific PartnersFO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 233Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456EX E CU T IV E SU MMARYFO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 234Executive summary:2023 insightsWelcome to the Footprint Drinks ESG Trends Report 2023.It scans the horizon,identifying key trends and opportunities to help drinks industry leaders build their business,develop a proactive strategy,benchmark good practice and identify issues in need of greater attention.These are challenging times for the hospitality sector.Skyrocketing energy costs,soaring food prices and a squeeze on household incomes have combined to create a perfect storm of difficult trading conditions.For many businesses that have so far survived the combination of punches thrown first by the pandemic and then the cost of living crisis,profitability is in peril.In this context,its tempting to conclude that the development and execution of ESG strategies could take a back seat as businesses try to ride out the economic storm and their customers deprioritise sustainability in their purchasing decisions.That was certainly the case during the financial crash of 2008,according to UKHospitality CEO Kate Nicholls.Changed landscapeYet there is evidence that sustainability is now too embedded to be side-lined.The landscape has shifted amid the growing realisation among businesses that sustainability and cost efficiency are two sides of the same coin.“The cost environment will drive businesses commercially to make very hard-headed and pragmatic“Net zero targets have been set and a relentless effort to make improvements,big and small,must become ingrained into business strategy and culture.The industry is coming together now is the time for further action.”Julian Hunt,vice president,public affairs,communications and sustainability,GB,Norway and Sweden,Coca-Cola Europacific Partners decisions around things like waste,energy and water.Its going to be ever more important to control those costs,”says Nicholls.This will drive the more efficient and sustainable use of resources.Whether it is brewers generating their own renewable energy;drinks suppliers innovating to reduce or remove packaging;or bar owners using cutting edge technology to monitor their water usage,the dominant trend identified in the Footprint Drinks ESG Trends Report 2023 is for businesses to channel their ESG ambitions into reducing costs and driving efficiencies.The worldwide floods,fires,heatwaves and droughts experienced in 2022 serve as a reminder if one is needed that time is running out to fix a food and drink system that has helped push the planet to the brink.Our research reveals an industry that has worked frantically to create strategies and set targets,and which is now in the throes of setting out exactly how these challenging ambitions will be achieved.This report reveals the pressing issues,opportunities and the areas most in need of action.Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456EX E CU T IV E SU MMARY:2 02 3 INS IGHTSDrinks businesses score highly for strategy and culture our benchmarking review of leading brands found the vast majority have clear sustainability strategies and targets.The onus is now on hammering out the specifics of how these will be achieved,and then reporting on progress.Businesses score well on energy and emissions for concerted action our review found 71%have set scope 1 and 2 targets,57%have set scope 3 too.Progress is being made on linking carbon reduction targets to the latest science.But more must be done to tackle value chain emissions.zEngage up and down your value chain zCollaborate with supply chain partners to tackle the scope 3 emissions that account for c.90%of total emissions3 zSwitch to renewable energy and invest in efficiency measureszIts low-hanging fruit that delivers meaningful near-term emissions reductionszOffset with cautionzUse as a last resort and reduce reliance on offsets over time59%of consumers consider a brands green credentials when choosing what drink to buy40%of consumers would choose a drinks venue whose signage said it was committed to net-zero by 203060%of people will choose a place to work based on their beliefs and values1 60%reductions in scope 1 and 2 emissions expected for breweries sourcing renewable energy21 Strategy and culture 2 Energy and emissions FO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 235Score:8/10Score:7/10Sustainability paysNet-zero mattersAnd attracts talent.As does green energy.Take action:Take action:NET-ZERONet-ZeroFOOTPRINT STATFOOTPRINT STATzEngage staff in ESG:make employees aware of what you are doing and why zDont let perfection get in the way of progresszBalance rigour in identifying optimal solutions with the agility to seize opportunitieszTake advantage of green loans and other forms of finance to help build sustainable infrastructureStrategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456EX E CU T IV E SU MMARY:2 02 3 INS IGHTS51%of the UK consumers surveyed by Footprint say climate change is an issue of concern;and 31%said theyd choose a drinks venue with eco-certification over one without.Its clear that businesses which dont demonstrate tangible action risk missing out on future custom.Health also continues to grow as a key drinks trend.Reducing food waste is a win-win opportunity for businesses but there is little evidence that work to reduce waste in operations and throughout the supply chain is happening at scale.Progress is stronger on packaging,but government dithering on new legislation is hindering progress.zDrive responsible alcohol consumptionzMainstream alcohol portfolios now require a low-or no-alcohol optionzUse labelling to boost healthier drink optionszAlcohol brands should provide transparent nutritional informationzHarness marketing to highlight sustainability credentialszSimple messages that dont preach are the most effective zSupport safer drinking environmentszHelp make venues safer and more inclusive,especially for women zWork to reduce or eliminate packaging in all areaszThis includes secondary packaging used in transit and logisticszKeep pushing on recyclabilityzOffer support for well-designed deposit return schemeszKeep reusables front of mindzThe industry must collaborate to find ways to deliver reuse at scalezDo more to tackle food and drink wastezBy-products can often be used in place of virgin ingredients63%of consumers choose low-or no-alcohol versions of drinks instead of their alcoholic alternatives sometimes or often69%want to hear from pubs and bars about the work theyre doing to tackle plastic and packaging wasteEarly adopters such as SERVEDs hard seltzers are advertising the CO2e associated per kg of product69%want to hear from pubs and bars about the work theyre doing to tackle food waste3 Clients and consumers 4 WasteFO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 236Score:5.5/10Score:3/10Low and no is here to stayPlastic is still a major concernCarbon footprinting is on the way.As is food waste.Take action:Take action:CO2CO2FOOTPRINT STATFOOTPRINT STATFOOTPRINT STATStrategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456EX E CU T IV E SU MMARY:2 02 3 INS IGHTSThe natural resources that businesses rely upon such as energy and water can no longer be taken for granted.Companies must use their resources as efficiently as possible in the interests of both the planet and their own commercial viability.Progress has been made on social issues but there remains a lack of reporting on key metrics such as workforce diversity and ethnic pay gaps.Employee health and wellbeing remain critical issues.zEmbrace regenerative agriculturezSupport producers to farm more sustainablyzSet water reduction targets and understand their carbon impactzChanging staff behaviours and identifying water waste can save money and resourceszHarness partners to save waterzCoca-Cola is working with the Norfolk Rivers Trust to reverse the decline of freshwater environments in NorfolkzConsider self-supplyzSourcing direct from the wholesale market can improve cost savings and water efficiencyzKeep up momentum on diversityzEstablish targets to improve boardroom representationzProvide opportunities AND address labour shortageszSupporting underrepresented groups helps social mobility and can ease recruitment challenges zCreate a strong corporate culturezMeasures to support existing staff boost retention and attract new talentzMaintain a focus on mental healthzContinue to evolve and improve actions to support staffzPay living wageszAnd ensure the supply chain is free from worker exploitationInnocent has launched a farmer innovation fund offering up to 100k to projects that reduce carbon in agriculture437%of black hospitality sector workers have experienced or witnessed racism in their current workplace along with 28%of Asian workers and 29%of mixed ethnicity workers5 66%want to hear from pubs,bars and drinks brands about the work they are doing to preserve water,and to protect waterways,rivers and oceans Among food sector workers,kitchen,catering and waiting staff are most likely to be on or below the minimum wage65 Raw materials,the environment and water 6 Social impact and employees FO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 237Score:5/10Score:7/10Businesses are backing regenerative farmingRacism still exists within the sectorBut they need to do more about saving water.And low pay remains a challenge.Take action:Take action:FOOTPRINT STATStrategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456CHAPTER1F O OTPR I N T DR I N KS E S G T RE N D S RE P O RT 2 0 2 38Strategy and CultureStrategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456STR AT E GY AND C U LTU REThis years 8/10 score for strategy and culture reflects the fact that virtually all major players have set sustainability strategies a good business decision considering 59%of our panel of 1,000 UK consumers reported considering a brands green credentials when choosing what drink to buy.This is an increase from 56%in our 2021 survey,despite the cost of living crisis and other major consumer concerns.Our analysis of the top 28 drinks brands revealed that the highest-scoring drinks brands had set short-and long-term goals and were reporting on progress.Most companies reviewed had a sustainability strategy in which they outlined current actions and future targets.Some goals are short-term,quick wins whilst others are longer,time-bound targets that may take a decade or more to achieve.Many companies have been ambitious in their target-setting and some have assigned accountability for prioritising and delivering the actions to a governing body.1.1 Turn targets into action Government commitments at the 2021 COP Glasgow summit do not“At COP26 last year we had a lot of net-zero pledges,which was great.But were now getting into the nitty gritty of implementing the practical steps to make them happen.And thats by far and away the hardest part.”Timiko Cranwell,UK&I director of legal and corporate affairs,Budweiser Brewing Group 47%of global consumers want to make environmentally friendly choices but only 23%have managed to do so42FO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 239Strategy and Culturego far enough in putting the world on a 1.5 degree trajectory.There is a huge gap in emission reduction potential that businesses must fill and thats before you consider the need to tackle the interlocking crises around biodiversity,water scarcity,public health and more besides.But setting targets is just the first step on the road to sustainability.Delivering them requires an organisation-wide commitment to drive change at every level of the business.Strategy and culture should reflect the fact that achieving ESG goals is central to the long-term sustainability and commercial success of the business.That requires getting the support and sponsorship of the leadership team,securing the necessary financial and human resources,and FOOTPRINT STATScore:8/10of consumers consider a brands green credentials when choosing what drink to buy59%the level of dangerous warming that will result even if governments take all the actions promised at COP2672.4CStrategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456of FTSE 100 companies now include ESG measures as part of executive incentive plans10 of hospitality workers want to work for a sustainable business8of people will choose a place to work based on their beliefs and values999X%FO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 23STR AT E GY AND C U LTU REsetting out a detailed roadmap for delivery with transparent reporting of progress.Collaborative initiatives,such as the Zero Carbon Forum,have developed sector-specific roadmaps for achieving net-zero,while other organisations like Wrap and Business in the Community can offer support on specific issues such as waste,equality and diversity.1.2 Dont let perfection get in the way of progressThe importance of rigorously measuring baselines,setting targets and identifying optimal solutions should not be understated.But the urgency of achieving climate targets which limit warming to 1.5 degrees means this needs to be balanced with a willingness to act decisively when opportunities present themselves.There is a risk that businesses wait for perfect solutions to arise when the reality is that most solutions are imperfect,involve trade-offs or infrastructure that is still being developed.The journey to net-zero,for example,should be considered an iterative process where some roads lead to dead ends but others result in meaningful reductions in emissions.In practice,this might mean taking a chance on an unproven technology or investing in infrastructure that might be expensive upfront but will increase efficiency(and save cost)for years to come.Tom Fiennes,commercial sustainability director at Britvic,says the soft drinks producer is taking 10proactive action by investing in several promising solutions as part of its Healthier People,Healthier Planet strategy.The manufacturer plans to install its first heat capture systems in Great Britain in 2023 and is also starting to explore how new technologies like hydrogen might replace fossil fuels in the energy mix,despite current infrastructure not yet supporting hydrogens operational use at scale.“Delivery mechanisms for getting hydrogen into factories dont exist at the moment.Theres a big infrastructure change that needs to take place over time before companies like us are going to be in a position to invest but we can still test and learn in the meantime,”he says.1.3 Engage staff on strategy Drinks businesses will not be able to deliver their ESG commitments without the support and buy-in from those on the ground it is in the breweries,manufacturing plants,distribution centres,pubs and restaurants where commitments made on paper come face-to-face with the operational reality.In our industry review of leading drinks brands,the highest scorers had linked remunerations with ESG targets and were reporting on progress.As a minimum,sustainability strategies were signed off by the highest governing body of the company.The industry as a whole could improve by embracing this type of accountability.Engaging your employee base in what you are doing and why you are doing it is critical to creating a culture where everyone is pulling in the same direction.Laurence Cox,sustainability manager at Carlsberg Marstons Brewing Company,explains that in the past there were certain areas of the business where people knew how ambitions concerning the environment or responsible drinking were linked to their particular job role,but there Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456of UK hospitality firms plan to hike prices as energy costs soar1143%STR AT E GY AND C U LTU RE47%of global consumers want to make environmentally friendly choices but only 23%have managed to do so42FO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 2311were many other people who didnt believe it related to them.“Now were getting to the point where we need to get everyone to understand how it fits with their role,and how everyone has a massive role to play.This is particularly important with our recent Together Towards Zero and Beyond strategy update.”hesays.Rob Pitcher,CEO of Revolution Bars Group,notes how the operator has a Zero Hero in every one of its 69 outlets who is empowered to seek out new ways to achieve its sustainability goals.“The best initiatives that we have rolled out across the Group have come from these people,”says Pitcher.“They are the backbone of our strategy.”Employee wellbeing can also help.Charly Thieme,operations manager of Brighton Spirits Group,notes that“wellbeing is a core part of being a sustainable business.Maintaining high levels of satisfaction,involvement,transparency,and flat hierarchies keep the team engaged with the vision of the business.”1.4 Harness green financeOnly 37%of hospitality businesses across the UK are currently turning a profit,according to a survey published in June 2022 by the British Beer and Pub Association,British Institute of Innkeeping and UKHospitality12.The situation is unlikely to ease in 2023 for pubs,restaurants and caterers along with the brewers and manufacturers that supply them.The huge cost pressures facing businesses can mean the case for investing in equipment upgrades or new green infrastructure may be difficult to make.Increasingly,however,there is help available for businesses looking to finance the transition to a more sustainable business model.Banks are starting to offer so-called green loans whereby repayments are added to the cost of energy bills and lenders abide by the golden rule,which states that the cost of the loan should not surpass the cost of energy saved.Grants or subsidies may also be available from central and local government to make sustainable switches.As part of the governments existing 582m plug-in vehicle grant scheme,funding is available for 20%of the purchase price of a zero emission HGV,up to a maximum of 25,000.Banks compete over green financeNatWest,RBS and Barclays are among the major banks offering green loans to eligible UK businesses to help fund sustainable projects and their transition to clean energy supplies.Loans can be used to fund green investments in things like solar panels,electric vehicles or heat pumps on commercial buildings.The money can also often be used in sustainable agriculture or for forest restoration,and for conservation purposes or marine management.Terms vary between banks but many loans are offered without arrangement fees or early repayment charges and offer borrowers a range of options,with fixed and variable interest rate loans available and repayment terms ranging from three months to 25 years.Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456F O OTPR I N T DR I N KS E S G T RE N D S RE P O RT 2 0 2 312CHAPTER2Energy and emissionsStrategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456EN E R GY A ND EMI SSI ONSWith 71%of leading drinks brands now publishing scope 1 and 2 emissions targets and reporting on progress,and with 57%doing the same for scope 3 too,our review highlighted the measurable progress being made in energy and emissions.Those who havent published their plans and progress should be wary that their inaction will be exposed.However,the industry still needs to ensure targets are science-based of which many are not to keep warming within 1.5 degrees to meet the goals of the Paris Agreement.2.1 Tackle and manage operational emissions“For our suppliers and customers,were an important part of their scope3 emissions and likewise they are for us.That means having important conversations now,up and down our value chains.”Julian Hunt,vice president,public affairs,communications and sustainability,GB,Norway and Sweden,Coca-Cola Europacific Partners47%of global consumers want to make environmentally friendly choices but only 23%have managed to do so42FO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 2313Energy and emissionsReducing energy use while greening the energy supply is a win-win for both cost and the environment.Some of the nearest term commitments in corporate FOOTPRINT STATof consumers would choose a drinks venue because its signage said it was committed to being net-zero by 203040%Score:7/10reductions in scope 1 and 2 emissions expected for breweries sourcing renewable energy1363%net-zero plans involve switching to 100%renewable energy,generating on-site renewable power or implementing energy efficiency measures.These are what one might consider the low-hanging fruit.The Zero Carbon Forum says pubs switching to a renewable tariff can expect to achieve a 34%saving in scope 1 and 2 emissions.For a brewery,sourcing green energy can have an ever-greater downward impact on scope 1 and 2 emissions,offering a 63%saving14.Beyond a switch to renewable supplies,businesses are also investing in a range of initiatives to reduce emissions at their sites:zChivas Brothers is installing new bio plants and high-efficiency technology to improve efficiencies in the distillation process across its Aberlour and Miltonduff single malt distilleries15.zBudweiser Brewing Group UK&I has partnered with Protium,the UK-based green hydrogen energy services company,to explore the deployment of zero emission green hydrogen at Magor brewery in South Wales,one of the largest breweries in the UK16.Net-ZeroNET-ZEROStrategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456EN E R GY A ND EMI SSI ONSzBulmers Cider has installed what is now the largest rooftop solar panel farm in Ireland at its manufacturing facility in Clonmel Co.The solar panels provide 10%of electricity used onsite and will reduce the Clonmel sites carbon emissions by 4%,saving 286,746kg of CO2 per year and almost 1m tonnes over the next 20 years17.2.2 Engage up and down your value chainFO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 2314This years Trends Report found a significant increase in collaboration between businesses up and down the drinks value chain.Our review of ESG reporting found many are working with suppliers to identify scope 3 emissions and help reduce them.This is motivated in part by a desire to tackle the scope 3 emissions that account for the vast majority of businesses total emissions(see infographic below).Many of the major brands also scored highly for stakeholder engagement,demonstrating how they identified stakeholders and how engagement fed into the companys sustainability strategy.Many stakeholder strategies are tied to local communities,and there is plenty of evidence of companies engaging with communities around the point of origin for some of their ingredients and raw materials.Working with these communities helps companies understand the impact of the business and provides an opportunity to find collaborative solutions to climate change mitigation and adaptation.The Zero Carbon Forum says engaging with suppliers and garnering commitments to reduce their carbon footprint could account for an 11.2%reduction in scope 3 emissions.Fleet decarbonisation provides a 10%saving and focusing on local and sustainable sourcing can contribute 4.3 .One example of collaboration across the supply chain is the Net Zero Hospitality initiative.This was developed by Net Zero Now,in partnership with Coca-Cola Europacific Partners and Pernod Ricard,and has been rolled out by the Sustainable Restaurant Association.The initiative provides practical support and guidance to make the process of going net zero easier and more cost effective for hospitality venues.Having launched as a pilot scheme in the summer of 2021,it has now recruited more than 2,500 venues,helping these businesses to calculate and take active steps to reduce their carbon footprint,while also enabling the likes of Coca-Cola PubsBreweriesRestaurantsQuick Service RestaurantsHotelsCMBC greens its fleetCarlsberg Marstons Brewing Company(CMBC)introduced two fully electric HGV trucks to its logistics fleet in 2022 capable of delivering over 10,000 pints of beer per day to pubs18.The Renault trucks are considered ideal for urban distribution including routes into Londons Ultra Low Emission Zone and deliver freshly-brewed beer to pubs on a daily basis,operating out of the companys Cardiff and Thurrock(Essex)distribution depots.The move to two,fully electric vehicles will see the brewer replace up to around 19,000 diesel-fuelled road miles per vehicle per year with the potential for additional electric trucks to be introduced into CMBCs existing fleet of 270 traditional vehicles in the future.CMBC has also installed charging points at the Cardiff and Thurrock depots that will be powered by electricity from renewable sources.What percentage of total emissions come from scope 3?19 83%Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456EN E R GY A ND EMI SSI ONS47%of global consumers want to make environmentally friendly choices but only 23%have managed to do so42FO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 2315Europacific Partners and Pernod Ricard to tackle elements of their scope 3 emissions.“Everyone has to collaborate by default because there is a real sense of were all in this together.”Tom Fiennes,commercial sustainability director,BritvicIts critical that businesses make it clear what their expectations are for their suppliers.Britvic strives to build strong relationships with its supply chain partners where both parties promote socially and environmentally responsible business practices and has approached this by sending out a questionnaire to all of its suppliers.Fiennes says this is achieving two things:“The first is to ensure they understand what our own commitments are as a business and what we are trying to achieve.The second is that doing this actually challenges our suppliers on what they are doing to reduce their own impacts.”Pitcher from Revolution Bars Group has been impressed at the engagement the business has had from its suppliers to-date.“Whats really pleasing to see is how far the major suppliers have come in recent times and how willing they are to partner with us on sustainability initiatives so we can deliver on our carbon reduction strategy.”Companies should also look to collaborate with smaller businesses to help both parties achieve their sustainability ambitions.“Small businesses want to do something,theyre just not quite sure what to do,or how to do it,”says Timiko Cranwell,UK&I director of legal and corporate affairs,Budweiser Brewing Group.“I think thats where large companies like us can really help out.”2.3 Offset with cautionexpected increase in price per tonne of carbon by 20252126rbon offsetting has proved a popular way for businesses to neutralise the residual operational and value chain emissions they cant reduce themselves.The practice enables businesses to purchase carbon credits by funding environmental projects such as tree planting or renewable energy generation,often on the other side of the globe.Schemes administered by the likes of Verra and Gold Standard exist to certify projects,however the practice of offsetting remains under scrutiny over its rigour and its potential to distract from companies own emission reduction efforts.A London School of Economics article from February 202222 highlighted a number of examples where offsetting programmes had failed to deliver the promised impact:these included a study which found that most Indian wind farms financed with credits would likely have been built anyway,and a study of forest offsets under Californias cap-and-trade programme which found that almost 30%of projects were credited with greater emission savings than they really achieved.Best practice for businesses is to prioritise reducing their own direct emissions and those right across their value chain before resorting to offsets.The Oxford Principles for Net Zero Aligned Carbon Offsetting(or The Oxford Offsetting Principles)provide guidelines to help ensure offsetting actually helps to achieve a net zero society.There are four key elements to credible net zero aligned offsetting,according to the multidisciplinary team from the University of Oxford:1.Prioritise reducing your own emissions first,ensure the environmental integrity of offsets purchased,and disclose how offsets are used.2.Shift offsetting towards carbon removal,where offsets directly remove carbon from the atmosphere.3.Shift offsetting towards long-lived storage,which removes carbon from the atmosphere permanently or almost permanently.4.Support the development of a market for net zero aligned offsets.Therefore,where carbon credits are being purchased to enable businesses to make net-zero or carbon neutral claims for specific brands or products,the reliance on offsets should be reduced over time if they are to meet The Oxford Principles.Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456F O OTPR I N T DR I N KS E S G T RE N D S RE P O RT 2 0 2 316CHAPTER3Clients and consumersStrategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456C L IE N TS A ND C ONSU MERSCustomers and clients care about sustainability.Even in the midst of the cost of living crisis,Footprints 2022 consumer survey of more than 1,000 people found that 51%said climate change was an issue of concern,coming fifth after the cost of living crisis(73%),energy costs(73%),food costs(68%),and the economy(55%).And in our market research,31%of consumers would choose a drinks venue that had an eco-accreditation over one that didnt.Whilst this may be a drop of 14%percentage points from the 45%who did so in 2021,it indicates that concerns about green issues are resilient and will remain an important factor when choosing between similar options.We are also seeing a trend towards healthier consumption habits as evidenced by a market shift towards more permissible drinks with a healthy halo,such as those low in calories,sugar or alcohol.3.1 Drive responsible alcohol consumptionOne of the key drinks trends to emerge in recent years is the growth in demand for low-and no-alcohol“Operators are seeing an increased demand and appetite for low-and no-alcohol drinks,healthier options and cleaner drinks,rather than it just being all about alcohol.”Kate Nicholls,CEO,UKHospitality47%of global consumers want to make environmentally friendly choices but only 23%have managed to do so42FO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 2317Clients and consumersoptions:42%of drinks industry leaders see it as the number one emerging trend24.Some 63%of our consumer panel said they choose a non-alcoholic version instead of its alcoholic alternative sometimes or often,while 35%reported that they regularly drink low-or no-alcohol versions of drinks,such as wine,beer,spirits and cocktails.Ghostship,at 0.5%,is Adnams third best-selling beer,according to sales figures shared with Footprint from summer 2022.These statistics reflect the growing trend for consumers to seek out healthy alcoholic options like spritzers,seltzers and low-or no-FOOTPRINT STATof UK consumers said climate change was an issue of concernprefer venues with eco-accreditation511%FOOTPRINT STATof UK consumers choose low-or no-alcohol versions of drinks instead of their alcoholic alternatives sometimes or often63%Score:5.5/10Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456C L IE N TS A ND C ONSU MERSBrewers see low-or no-alcohol options as central to their future growth plans.Budweiser has committed to generate 20%of its beer volumes from no-and low-alcohol options by 2025.Businesses should also show their support for responsible alcohol consumption by continuing to fund organisations which provide tools to help people understand the impact of alcohol consumption and help reduce harm.As an example,Budweiser ran a pilot scheme in Manchester with Drinkaware as part of alcohol awareness week to provide safe spaces where members of the public can privately discuss their alcohol consumption with trained staff.FO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 23183.2 Use labelling to boost healthier,more sustainable drink optionsConsumers looking for a healthier,more sustainable drink option need information to help them make informed choices.Nutritional labelling,most commonly in the form of a traffic light/guideline daily amount hybrid label,now comes as standard for many major soft drinks brands(Coca-Cola and Robinsons are just two examples);however,the provision of this information is much patchier for alcoholic beverages.The government promised to consult on plans to provide calorie labelling on alcohol products as Seltzer brand serves up carbon transparencyPremium British hard seltzer brand SERVED,co-owned by musician and climate and nature champion Ellie Goulding,introduced carbon footprint labelling to its range from April 2022.The brand partnered with CarbonCloud,a climate intelligence platform,to analyse the environmental footprints of its drinks from the production of agricultural inputs up to the point the product reaches the chiller cabinet.Though this might not be a full footprint as it doesnt take into account what happens once it leaves the chiller(wastage,packaging,recycling etc),the process of footprinting enables a brand to focus on the emission hotspots in its products.SERVEDs lime and raspberry hard seltzers,for instance,have a footprint of 0.41kg and 0.42kg CO2e per kg of product respectively.SERVEDs co-founder Dean Ginsberg said carbon labelling“provides much needed environmental transparency it allows consumers,who are increasingly looking for more sustainable choices,to make informed decisions on the products they consume”.However,labels will only enable fully informed choices if the labels are standardised and adopted widely.alcohol beers,wines and spirits,and demonstrate that this is an area of opportunity for the whole industry to embrace.Indeed,from being a niche offering just a few years ago,the vast majority of mainstream beer brands now have a low-or no-alcohol variant within their portfolio.However,the brands leading in this space are also engaged in internal and industry-wide programmes to promote responsible consumption,and have set aside marketing budget to promote no-and low-alcohol options and responsible choices.“The selection of non-alcoholic drinks now available is completely unrecognisable to even five years ago,”says Pitcher at Revolution Bars.One focus of a significant amount of product innovation has been seltzers25,which combine sparkling water with light fruit flavouring and sometimes alcohol(in hard seltzers).Another big change in the past year has been the distribution achieved by low-or-no variants,including their availability on tap.San Miguels 0,0 beer,for example,was available on draught at selected bars at Lords Cricket Ground during the summer26.By having a low-or no-alcohol option on tap,pubs,restaurants and bars can not only take advantage of growing consumer demand for more permissible tipples(healthier versions of unhealthy products),they can also send a message to customers that these options are considered on an equal footing with higher strength alternatives.Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456 FOOTPRINT STATof people have used social media to find out about their favourite pub,bar or venues eco-credentialsC L IE N TS A ND C ONSU MERSFO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 2319part of its 2020 obesity strategy but over two years later no consultation has been delivered.Some suppliers are getting ahead of the regulatory curve by providing information voluntarily.Carlsberg,for instance,provides information about the ingredients and nutritional values of its beers across all its Western European markets.Footprints review of ESG reporting showed only a minority of drinks companies are committed to disclosing full nutritional information on their product packaging.There is growing interest too in carbon labelling as a means of arming consumers with the knowledge about the environmental impact of their choices.Our consumer survey,in which 40%said theyd choose a drinks venue on the basis of it being committed to achieving net-zero by 2030,indicates consumers will respond positively to more information on carbon.Dairy-free milk brand Oatly is considered a pioneer in this space having displayed carbon footprints on its product range since 2019.3.3 Harness marketing to highlight sustainability credentialsWhen it comes to health and sustainability and consumers,our benchmarking found that the leaders in this space had allocated budget specifically for healthy and responsible marketing campaigns and were reporting on progress to promote healthier choices.Soft drinks companies are generally doing much more in relation to healthier marketing than those producing alcoholic drinks.Marketing channels like social media are an important way for brands to communicate their messages on health and sustainability.Take AB InBevs commitment to achieve net zero across its value chain by 2040,and the multi-channel messaging that accompanied the announcement27.The key is to make messages simple since companies have only a small window of time to capture peoples attention.“Part of the problem is some of the current messaging is too complicated.If it requires too much explanation,its taken too long,”says Danielle Bekker,founder of Good Living Brew Co.Pitcher says youve got to be short,succinct and focus on one key message at a time.Its also important not to preach.“You cant run ahead of your consumers.You need to take them on the journey with you but they dont want to be reminded about the planet dying when they are out for a good time.They just expect you to be getting on with the job of reducing your businesss impact.”3.4 Support safer drinking environments Concerns for the safety of women have been brought into sharp focus by tragic recent events including the murders of Sarah Everard,who was kidnapped walking home in the evening,and Sabina Nessa,who was attacked on the short walk between her house and the pub.Businesses involved in the night-time economy cannot prevent such incidents from occurring but they can take steps to help create safe,inclusive environments in and around venues such as pubs and clubs.43%Budweiser Brewing Group is working to support the development of the Walk Safe app,which can help women get home more safely after a night out.“One of the things were really focusing on is making peoples working environment within the industry safer but also making pubs themselves very inclusive,safe spaces where people are free to have a good time,”says Cranwell from Budweiser Brewing Group.Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456F O OTPR I N T DR I N KS E S G T RE N D S RE P O RT 2 0 2 320CHAPTER4WasteStrategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456WAST EAlongside the rise in costs of doing business,firms in the drinks sector are having to work through the implications of new legislation in the shape of deposit return schemes(DRS)in Scotland and England and a new extended producer responsibility(EPR)regime which will see businesses foot the full bill for the cost of dealing with packaging waste.However,reducing waste be it packaging or ingredients is another win-win opportunity for businesses.Plastic production,use and disposal around the globe contributes about 1.8 billion tonnes of carbon emissions annually28.Consumers still care about the issue too:46%of our panel listed plastic waste as a major concern(above other key issues such as housing and education).But plastic isnt the only problem as an example,40 billion glass spirit bottles are produced annually,generating 22 million tonnes of CO2 emissions29.But changing deeply embedded practices and behaviours takes time and resources,while new barriers keep emerging for example in the form of limited“In the home,plastics are relatively well recycled,but its a different story when people are on the go.Deposit Return Schemes will help drive significant change to consumer behaviour in the future.”Tom Fiennes,commercial sustainability director,Britvic21Wastesupplies of recycled plastic.There is very little evidence of work to address food waste in ESG reporting,with the industry scoring poorly on reducing waste in operations and supply chain engagement.Overall,the industry scored only 3/10.Commitment and creativity is needed to reduce the environmental footprint of packaging and ingredients and build greater circularity into drinks supply chains.4.1 Work to reduce or eliminate packaging in all areas FOOTPRINT STATof consumers want to hear from pubs and bars about efforts to tackle food waste69%FOOTPRINT STATof consumers want to know what pubs and bars are doing to reduce plastic and packaging waste69%Score:3/10FO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 23Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456WAST EzInnocent drinks has reduced plastic in its 900ml juice and 420ml Juicy Water bottles saving 273 tonnes of plastic each year.zBritvic has redesigned its Robinsons 1.75l double concentrate bottle enabling non-recyclable polystyrene shelf display trays to be replaced with reusable ones.This redesign also enables more bottles to be packed onto pallets,which reduces the number of lorries on the road.FOOT PRINT D RIN KS E S G T R E ND S R E PO RT 20 23224.2 Keep pushing on recyclabilityFor products where there is currently no viable,sustainable alternative to single-use,drinks suppliers have been working to ensure products are 100%recyclable,and that all the product is actually recycled.For example,as the recycling of PET in drinks bottles is relatively high,a lot of innovation has focused on making plastic caps integral to the bottle design thereby increasing Efforts to eliminate problematic or unnecessary single-use plastic packaging have continued during the past year nearly half of companies reported reducing single-use plastic in their packaging.The highest scoring businesses are also working with their supply chains to reduce single-use plastic and have set targets for elimination.They are also looking to reduce the secondary packaging used in transit and logistics.“Our packaging efforts are still mainly focussed on primary packaging,such as our bottles and cans,and secondary packaging,with innovations such as Snap Pack to remove plastic rings.However,we are increasingly improving our tertiary packaging e.g.by increasing the use of recycled materials.Our ZERO packaging waste targets,including 50%recycled content in our cans and bottles by 2030,are helping drive these improvements.”says Cox at Carlsberg Marstons Brewing Company.Wraps latest Plastics Pact annual report30 contains a number of examples of drinks brands successfully removing unnecessary plastic:zDanone has launched a new five litre water dispenser evian(re)new.The suppliers first in-home dispenser is made from 100%recycled plastic and uses 60%less plastic compared to 1.5l evian bottles.Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456WAST EFO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 2323Tonic on tapSome suppliers are looking at ways to remove packaging entirely through innovation in on-trade dispensing.In November 2019,the Britvic-owned The London Essence Company launched Freshly Infused,a patented dispense system technology that can replace the need for glass mixer bottles thereby reducing packaging by 96%.Now installed in over 800 venues,the draught system includes five flavours and provides a more sustainable way of serving,while at the same time offering operational efficiency.“For our customers it has an enormous impact on their own greenhouse gas emissions and also saves them a lot of storage space,”says Britvics Fiennes.“If you can replace glass with a premium product that has the same quality,which historically for bag and box dispense solutions has not always been the case,you can actually get to that nirvana of having the right product for the consumer but with significant reductions on every sustainability measure.”Recycling realities Only 40%of small and medium-sized hospitality businesses recycle as part of their waste management regime,according to Biffa research31.Reasons given for not recycling by SMEs are:zNo room for additional bins(17%)zToo expensive(17%)zNot knowing where to start(12%)zNot getting round to it(8%)zToo difficult to manage(6%)the chances of them being recycled.Coca-Cola Europacific Partners has introduced attached caps to its 1.5l and 500ml plastic bottles which reduce the potential for the cap to be thrown away after use.The new attached caps design is being gradually rolled out across Coca-Cola Zero Sugar,Diet Coke and Fanta with all plastic bottles across Coca-Colas brands set to be attachable by the end of 2024.Clear bottles are also far easier to recycle than coloured,and another trend is to move to clear caps rather than coloured which makes recycling easier32.There have also been moves towards paper bottles,with Carlsberg and Diageo working on pilots to test feasibility33.Suppliers have also been looking to increase the volume of recycled plastic in their products(products with less than 30%recycled material are subject to a new plastics tax in the UK),but are finding it challenging to source sufficient quantities of recycled material.“Most beverage producers that use PET are committed to getting recycled content but it is very,very hard to get access to it,”explains Julian Hunt,vice president,public affairs,communications and sustainability,GB,Norway and Sweden at Coca-Cola Europacific Partners.This is in part why support among businesses for well-designed deposit return schemes has grown in recent years,the theory being that these schemes will help build greater circularity into the drinks supply chain thereby boosting supply of recycled PET.Hunt says the priority for suppliers like Coca-Cola is that DRS schemes being developed in England and Scotland are“consistent”and“work for both businesses and consumers”.Governments must also address industry concerns around complexity and costs34.The industry is also lobbying for a mechanism which gives a“right of first refusal to beverage producers to facilitate their fair access to the food-grade recycled materials coming from the products they placed on the market and which were successfully collected,”according to a report by Eunomia35.This is because rPET is also being Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456WAST EFO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 2324director of communications at Adnams.Coca-Cola Europacific Partners meanwhile has partnered with Eurest,the workplace brand of Compass Group,to launch a six-month controlled trial of its latest beverage dispensing machine,the New Compact Freestyle.The machine enables consumers to purchase Coca-Cola drink brands and personalise temperature and carbonisation levels to their taste using their own vessels,thereby eliminating the need for PET or glass bottles,or aluminium packaging.Hunt believes it will be important for the whole industry to“move as one”if significant progress is to be made on reusable options.4.4 Do more to tackle food and drink wasteConsumers care about food waste,choosing pubs and bars that say they are tackling it over ones that dont.In our consumer panel,41%also listed it as an issue of concern(this was above housing,education and unemployment).Alongside this,69%of consumers said they wanted to hear from pubs and bars about the work theyre doing to tackle food waste.Whilst redistributing waste food products often for animal feed or energy,or even packaging(such as Coronas beer pack made from surplus barley straw36)is commonplace in the drinks industry,very few companies are reporting on food waste reductions in their operations in their ESG reporting.Many have met zero waste to landfill commitments,but there is much more to be done on redistributing surplus food,using food waste as a resource,or,better yet,ensuring it is not produced in the first place.Cask beer has a relatively short shelf-life because of the yeast content,but rather than destroy it Adnams sends surplus beer to a local anaerobic digestion(AD)plant to be used in energy generation37.Beer can also be mixed with solid feeds and fed to livestock,mainly pigs.Following the first coronavirus lockdown,Bristol-based Butcombe Brewing Co recycled 1,500 casks of unused beer to produce a semi-liquid animal feed for local pig farms38.Gin maker Warners is trialling redistribution apps such as Too Good to Go for short-dated products,and is also looking at redistributing surplus ingredients via local business networks and organisations such as Food Loop.Reducing packaging and making it more recyclable is an important sign of progress on resource efficiency,but removing the need for single-use packaging is even higher up the waste hierarchy.There are also strong indicators that the public is embracing reuse with the majority(61%)now carrying reusable bottles and cups for drinks on the go.Reuse models involving drinks products are still in their infancy but some brands are leading the way.Adnams has introduced refill stations into five of its retail stores.Customers can buy a refillable bottle with their first order and return multiple times to top it up with beer,wine or spirits.“The beauty of that is not only is it really simple but its also cheaper for our customers,”says Oliver Drury,FOOTPRINT STATof consumers carry a reusable cup or bottle for drinks on the go61%FOOTPRINT STATof consumers would choose a venue that said it was tackling food waste47%hoovered up by the fashion sector for use in clothes,which amounts to downcycling.4.3 Keep reusables front of mindStrategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456WAST EFO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 2325Warners has also challenged itself to use waste products in the production of its drinks.The distillerys Trash&Treasure project involves looking beyond the default position of sourcing virgin materials or ingredients,and instead replacing them with by-products of local industries.As an example,dried citrus peels imported from Egypt have been replaced with fresh waste peels from fruit preparation factories located within 15 miles of the distillery that would otherwise have gone to landfill.Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456F O OTPR I N T DR I N KS E S G T RE N D S RE P O RT 2 0 2 326CHAPTER5Raw materials,the environment and waterStrategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456R AW M AT E R I ALS,THE ENVI RONM ENT AND WATERThe devastating heatwave and drought that impacted much of the UK in 2022 was further evidence,if it were needed,that our climate is rapidly changing.Experts predict that such extreme,once-in-a-generation weather conditions will become common events in the years ahead.This means natural resources that businesses rely on,such as energy and water,can no longer be taken for granted.Whilst the companies reviewed are,for the most part,showing commitment to carbon emission reductions,the same cannot be said for other areas of environmental impact.The pressure is on companies to make their use of resources as efficient as possible not only to ensure the continuity of their own operations but as part of their social licence to operate.5.1 Embrace regenerative agricultureCompanies were scored on their commitment to promoting farmer resilience through training,identification of risks,providing“Our aim is to get nature positive.This year weve had yellowhammer nesting in our lemon verbena;grey partridge nesting in our angelica crop;and botanicals supporting reed bunting and sedge warblers too.We know that were starting to have a beneficial impact on farmland birds at our farm,which is vital when populations have reduced by around 56%in the last 40 years.”Jonny Easter,conservation and sustainability manager,Warners47%of global consumers want to make environmentally friendly choices but only 23%have managed to do so4227Raw materials,the environment and waterfinance and resources for crop diversification and engaging in research to further sustainable development.As a whole,the 28 reviewed scored a lowly 4/10 for their efforts on regenerative agriculture.More must be done to promote food security and ensure farmed land is suitable for growing crops and ingredients in the future.Regenerative agriculture is defined by Groundswell as“any form of farming,ie the production of food or fibre,which at the same time improves the environment.”Groundswell sets out five principles to follow:1)Dont disturb the soil2)Keep the soil surface covered3)Keep living roots in the soil4)Grow a diverse range of crops 5)Bring grazing animals back to the land39.In practice,this may include growing a greater diversity of crops to support biodiversity and investing in techniques that help to improve the water cycle and store carbon in the soil.A shift to more regenerative agriculture underpins the net-zero FOOTPRINT STATof consumers want to hear from pubs,bars and drink brands about the work they are doing to preserve water,and to protect waterways,rivers and oceans FO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 23Score:5/1066%Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456R AW M AT E R I ALS,THE ENVI RONM ENT AND WATER5.2 Set water reduction targets and understand its carbon impactFO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 2328Water is a critical input to the production of drinks from the irrigation of crops to its use in manufacturing and as an ingredient.But in many of the worlds food and drink growing regions,a stable supply of good-quality water can no longer be relied upon43.Our analysis found that nearly 60%of reviewed brands are taking action to preserve,protect and restore waterways.Those companies that scored highest have conducted reviews of high-risk products and introduced technology and resources to preserve fresh water supplies.Business efforts to use water more sustainably largely focus on implementing water efficiency measures on site.Changing staff behaviours for instance by not leaving taps running or reducing strategies of many large businesses.Companies who operate further up the supply chain from farm level are increasingly supporting producers to farm in ways that are better for nature.zNestl is investing CHF1.2bn(960m)in regenerative agriculture across its supply chain zCompass says 70%of its fresh meat,dairy and vegetables will be sourced from regenerative agriculture sources by 2030zFirst Milk will pay a premium to farmers who commit to a regenerative farming planzInnocent has launched a farmer innovation fund offering up to 100k to projects that reduce carbon in agriculture and inspire farmers to start using carbon saving practices40 zPernod Ricard is investing in suppliers engaged in restoring and promoting biodiversity41.Martell Mumm and Perrier-Jout have already moved to zero herbicides in vineyards,and are exploring alternative methods of weed control42.A key first step for businesses relying on a switch to regenerative agriculture to help achieve their environmental commitments is to create a baseline for their current impact.Jonny Easter,conservation and sustainability manager at Warners,notes how the gin maker is currently engaged in work to map its ecological footprint that will sit alongside its carbon footprinting work.“We are currently rolling out 24-hour AI water monitoring which will allow us to pinpoint leaks and the misuse of water in all of our outlets.We did the same for electricity several years ago and removed a huge amount of waste and cost.”Rob Pitcher,CEO,Revolution Bars GroupOnly 17%of UK rivers meet the EU Water Framework Directives definition of good ecological status46UN projections are that global demand for fresh water will exceed supply by 40%by 203047Agricultural supply chains use 70%of global freshwater resources44 Wraps Courtauld Commitment 2030 water target is for 50%of the UKs fresh food to be sourced from areas with sustainable water management4570P%Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456R AW M AT E R I ALS,THE ENVI RONM ENT AND WATERFO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 2329use by chefs in cooking can deliver big wins for little capital investment.Businesses can also make significant savings by identifying maintenance issues early like faulty ball valves in toilets or leaky pipes and fixing them.More and more businesses are investing in systems that give them visibility over their water use and help identify areas where use is higher than it needs to be.Revolution Bars is in the process of rolling out 24-hour artificial intelligence-enabled water monitoring,which will allow the business to pinpoint leaks and misuse of water in all of its outlets.“We did the same for electricity several years ago and removed a huge amount of waste and cost,”says Pitcher.Cox at Carlsberg Marstons Brewing Company says its investment in real time data means automation and those on the production line at their Northampton brewery can see how different variables are impacting water use.“Theres a lot of gains to be made in identifying with the data where issues are happening and then the team can come up with solutions,”he says.Water supply and treatment also contributes to a businesss scope 3 carbon emissions and is also linked to the Task Force on Climate-Related Financial Disclosures(TCFD)reporting.Waterscan account director and head of sustainability Rebecca Gale says that by working with partners to identify which areas of the supply chain have the greatest water impacts,drinks businesses can subsequently target both carbon emissions as well as mitigate climate-related water impacts in these areas.5.3 Consider self-supplySelf-supply,whereby a business buys water-supply services direct from the wholesale water market,Water works The Coca-Cola Foundation has been working in partnership with the Norfolk Rivers Trust(NRT)on a water sensitive farming(WSF)initiative to protect one of the most water-stressed areas in the UK49.The initiative aims to reverse the decline of freshwater environments in Norfolk,and parts of Suffolk and Cambridgeshire key sugar beet producing regions of the UK.The initiative focuses on working with farmers to improve soil health and water quality and quantity,and aims to deliver a raft of wider benefits including flood risk management,carbon storage,groundwater protection and improved habitats for biodiversity.can drive improvements in both cost savings and water efficiency.Self-supply is a particularly attractive option for the drinks industry as it delivers improved control and insight through direct access to the wholesalers,meaning drinks brands can be more informed on water availability and quality issues that could directly impact operations.As well as being a more cost-effective route,it optimises water efficiency.“Self-supply enables wholesaler collaboration and helps prioritise investment in efficiency,for example,by ensuring that water is metered and that metering is monitored,which enables benchmarking both within the business and outside to ensure outliers can be identified and issues targeted,”says Gale.Olympic-sized swimming pools of water saved by Whitbread over three years by implementing water efficiency measures and technologies across its sites48 68Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456F O OTPR I N T DR I N KS E S G T RE N D S RE P O RT 2 0 2 330CHAPTER6Social impact and employeesStrategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456S O CIA L IM PAC T AND EMPLOY EESThere is no doubt weve seen a step change in business engagement on social issues in recent years driven by movements such as#MeToo and#BlackLivesMatter.Yet there remains a distinct lack of reporting on key metrics such as workforce diversity and ethnic pay gaps.Businesses have the potential to go beyond current regulatory requirements and set the standard for reporting on these,and other,key indicators.On human rights,the companies reviewed scored 7/10 with the highest scorers demonstrating how the company promotes the rights of workers in their own organisations and what methods are used to ensure suppliers are following measures to do the same.But on the real living wage,the companies scored just 2/10,with only a couple demonstrating they made sure producers were paid a fair wage.This makes it a priority to both address the wider lack of representation,for instance among long-term unemployed or people with disabilities or refugees,and to ensure all employees are being paid the living wage as a minimum.“Weve got to be quite humble.Weve got to recognise weve got more to do.But even if its not perfect,its important we at least go out there and talk about what were doing.”Julian Hunt,vice president,public affairs,communications and sustainability,GB,Norway and Sweden,Coca-Cola Europacific Partners.47%of global consumers want to make environmentally friendly choices but only 23%have managed to do so4231Social impact and employees6.1 Keep up momentum on diversityIts fair to say the hospitality industry is still in the early stages of its journey towards greater diversity and inclusion(D&I).Very few companies disclosed workforce diversity,though there was more evidence of reporting and action when it came to gender equality and empowerment.For some companies,the mandatory requirement to publish gender pay gaps since 2017 has provided the impetus to develop and deliver D&I strategies and commitments;but even the most progressive businesses will need to go further.In April 2022,the UK Financial Conduct Authority(FCA)announced new rules requiring listed companies to report information and disclose against targets regarding the representation of women and ethnic minorities on their boards and executive management54.The targets require that at least 40%of the board should be women;at least one of the senior board positions should be a woman;and at least one member of the board should be from an ethnic minority FOOTPRINT STATMore than half of UK-based employees would leave their jobs in favour of organisations that can offer better support for stress and burnout50 50%FO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 23Score:7/10Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456S O CIA L IM PAC T AND EMPLOY EESzImprove transparency through ethnicity pay gap reportingzCreate an inclusive culture in which talent from all diversities can thrive.Greene Kings calling time on racism commitment includes a target to double the number of BAME(Black,Asian and Minority Ethic)team members from 5%to 10%by 2030,create 1,000 job opportunities for young people over the next five years with 40%of participants from BAME backgrounds,and bring a more diverse group of voices into the business to help shape the companys future and brand development56.FO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 2332Coca-Cola Europacific Partners is taking a grassroots approach to increasing the representation of colleagues from diverse ethnic groups.Last year,the GB business launched The Equity Programme in which multicultural employees and their line managers take part in an educational programme and listening groups.The aim is to improve understanding of the challenges colleagues face in their daily lives,such as biases,stereotypes and microaggressions,and help break down barriers.The programme has now been rolled out to 350 colleagues across GB.Pitcher from Revolution Bars Group says its fantastic to see the background excluding white ethnic groups.On ethnicity specifically,the most progressive companies have already established targets to improve boardroom representation.For example,Britvics Change the Race Ratio commitment55 requires the drinks supplier to:zIncrease racial and ethnic diversity among board members,with at least one racially diverse board member by 2024zIncrease racial and ethnic diversity in senior leadership,with 10%of senior leadership roles held by Black,Asian and minority ethnic employees in Great Britain and Ireland by 202537%of black hospitality sector workers have experienced or witnessed racism in their current workplace along with 28%of Asian workers and 29%of mixed ethnicity workers51 Almost 1 in 3(30%)employees across SIBA,the Society of Independent Brewers,breweries is now female but only 8%of female workers are brewers52 Out of 177 UK CEOs,just 40%of their employers include race and ethnicity representation in their corporate strategy and just 10%linked it to the CEOs bonus and incentive plan53Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456S O CIA L IM PAC T AND EMPLOY EESFO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 2333D&I conversation being had more widely across the industry over the last 12 months.“Continual improvement is going to be needed over many years to ensure we become a truly inclusive and diverse industry,”he says.6.2 Provide opportunities AND address labour shortagesCompanies must also look beyond race and gender to understand how they can support all underrepresented groups.“Theres now quite a lot of discussion around disability and neuro-cognitive ability,but also social mobility,”explains Nicholls from UKHospitality.She suggests businesses will increasingly be challenged over“what you are doing to make sure youve got the most diverse workforce to service the most diverse customer base”.According to a MAPAL Group survey59:of hospitality leaders ranked company culture as a top three factor for retaining staff,followed by progression(53%),work life balance(49%)and salary(46%)58%said recruitment and retention was the biggest challenge they faced 79%said they were planning to launch coaching and mentoring programmes.58%Providing opportunity and plugging employment gapsThe mission of NEMI Teas is to help lower unemployment levels among refugee communities in the UK.This currently sits at nearly 22%compared to less than 3.8%for UK nationals.The company recognised that refugees face two major hurdles in breaking into the UK workforce,namely a lack of local work experience and an inability to provide local referee details.To tackle this problem,the company is offering hospitality training and employment opportunities to refugees within its business.“We have partnered with Groundwork London and The Hotel School,both based in London,to recruit refugees who have undergone basic hospitality training and are now looking for paid work experience,”says NEMI Teas founder Pranav Chopra.Other examples of businesses supporting people from disadvantaged groups into work include:zGreene Kings releasing potential scheme which helps 100 prison leavers find employment57 zCH&COs partnership with employment charity Well Grounded which offers permanent roles and work placements in the speciality coffee industry to Londoners facing barriers to employment58.6.3 Understand the power of a strong corporate cultureWorkers are increasingly basing job decisions on the culture,opportunities for progression and work life balance offered by prospective employers rather than salary alone60.Businesses are looking to address problems with recruiting new talent by putting a greater emphasis on employee retention:zGreene King has launched a new long-term team member support scheme with one-off financial grants available of up to 5,000.The grants will help people with unexpected life emergencies such as the threat of homelessness,loss of income due to sickness,58%said they plan to enhance learning and development initiatives over the next 12 monthsStrategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456S O CIA L IM PAC T AND EMPLOY EESThe coronavirus pandemic exacerbated challenges around mental health.Research by workplace activity provider Wildgoose found that 64%of those in the industry have experienced increasingly poor mental health at work over the last 12 months,compared to the previous year64.More employers are making mental health awareness,and action to address it,a priority.Britvic now has around 60 mental first aiders and has moved to a working well model which places a focus on output not hours worked.AB InBev has developed a wellness app that allows staff to access counselling in a couple FO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 2334of clicks removing traditional barriers to accessing support for mental health issues.6.5 Pay a living wagerelationship breakdown or bereavement,which could result in financial difficulties61.zBrewDog is to give 750 staff shares worth 120,000 as well as share half of its bar profits with all bar workers as part of its roadmap for the future62.6.4 Maintain a focus on mental healthAccording to their published ESG reporting,our analysis scored the top brands 2/10 for their published commitments to paying workers a real living wage.The real living wage is a voluntary scheme to pay staff wages above the legal minimum wage to ensure pay meets every day needs,such as an employees weekly shop or a surprise visit to the dentist66.What counts as a legal minimum wage is dependent on age and whether workers are on apprenticeship schemes.Only those aged 23 and over are entitled,by law,to the national living wage.Among food sector workers,kitchen,catering and waiting staff are most likely to be on or below the minimum wage67.Up to September 2022,the real living wage was between 4%and 17%higher than the minimum or National living wage,depending on age and whether a London weighting applies.The low 2/10 score shows more drinks brands need to commit to the real living wage as 22%of workers in the food system earn the national minimum wage or below,compared with 8%of workers across the whole UK economy.And,as the cost of living goes up,paying a real living wage is going to become more and more important.Yet even those businesses that have committed to paying a real living wage for their direct employees can go further by engaging with their supply chain and ensuring suppliers are paying their workers a real living wage,both in the UK and internationally,as well.At the very least businesses should be paying employees the real living wage within their own operations and they should also ensure there is no worker exploitation happening within their supply chains.Taylors of Harrogate has been working with IDH,the sustainable trade initiative,to measure the living wage gap with its tea and coffee suppliers68.The companys ambition is to see a living wage being paid to all employees and a living income earned by all farmers within its supply chains.Taylors is now developing new approaches with key suppliers that will test how it can close the gap.95%of employees feel their companies dont do enough to identify and support those struggling with their mental health63of workers in the food system earn the national minimum wage or below6522%Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456 Coca-Cola Europacific Partners is one of the leading consumer goods companies in the world.It makes,moves and sells some the worlds most loved brands serving 600 million consumers and helping 1.75 million customers across 29 countries grow.It combines the strength and scale of a large,multi-national business with an expert,local knowledge of the customers it serves and communities it supports.The Company is currently listed on Euronext Amsterdam,the NASDAQ Global Select Market,London Stock Exchange and on the Spanish Stock Exchanges,trading under the symbol CCEP.For more information about CCEP,please visit and follow CCEP on Twitter at CocaColaEP.About Coca-Cola Europacific Partners in GB In Great Britain(GB),Coca-Cola Europacific Partners employs some 3,600 people across England,Scotland and Wales across its eight manufacturing sites,offices and depots.It is committed to minimising the environmental impact of products and operations,with a particular focus on sustainable packaging,water stewardship,and energy and climate protection.Coca-Cola Europacific Partners has committed to accelerate the decarbonisation of its business by reducing absolute greenhouse gas(GHG)emissions across its entire value chain-including scope 1,2 and 3 emissions.It has also set a path to become a Net Zero business by 2040 in alignment with a 1.5C pathway and the Paris Climate Agreement.This is supported by a three-year 250m investment.Coca-Cola Europacific Partners make,sell and deliver the following products in GB for The Coca-Cola Company(TCCC):Coca-Cola original taste,Diet Coke,Coca-Cola Zero Sugar,Fanta,Dr Pepper,Lilt,Sprite,Schweppes,GLACAU Smartwater,Powerade,Oasis,Reign Total Body Fuel,Appletiser and Costa Coffee RTD.In GB,it also makes,sells or delivers Monster,Relentless and Capri-Sun.35FO OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 23About Footprint Intelligence The evershifting sustainability debate makes it vital for businesses to have accurate intelligence to make informed decisions.Footprint Intelligence is Footprint Media Groups research and analysis division,helping companies develop successful strategies in the context of responsible business practices.Footprint Intelligence aims to drive,promote and share best practice by helping industry resolve pressing sustainability issues.It asks tough questions and finds answers.It uses research and industry insight to bring businesses together to identify solutions,opportunities,trends and challenges.About Coca-Cola Europacific PartnersConsumer research We are also grateful to consumer research expert Vypr for providing access to its consumer research panel.A series of consumer surveys were published through Vyprs panel in August and September 2022,garnering over 1,000 responses per question,though product comparisons closed at c.500 responses.Vypr is a leading predictive consumer intelligence platform that combines research into behavioural science with a well-segmented consumer panel.Vypr works with retailers including The Co-op Food and Starbucks,brands like Weetabix and Mller,and large manufacturing groups such as Cranswick PLC and 2 Sisters Food Group.Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456R EF E R E N CE S1 https:/ 2 https:/ https:/ https:/www.innocentdrinks.co.uk/content/dam/innocent/gb/en/files/GARR_V15.pdf 5 https:/bihospitality.co.uk/research-and-insights/6 https:/www.foodfoundation.org.uk/publication/broken-plate-2022 7 https:/www.bbc.co.uk/news/science-environment-59220687 8 http:/www.brita.co.uk/news-stories/made-to-matter?utm_medium=Affiliate&utm_source=BRITA_Report&utm_campaign=UK_UK_B2B_QuellST_MadetoMatterMedia_20220309_Conversion&utm_content=Pressrelease_1x3 9 https:/ 10 https:/www.pwc.co.uk/human-resource-services/pdf/esg-in-executive-pay-the-evolving-landscape.pdf 11 https:/ 12 https:/www.ukhospitality.org.uk/news/609740/Only-1-in-3-hospitality-businesses-is-currently-profitable.htm 13 https:/ https:/ https:/www.pernod- 16 https:/budweiserbrewinggroup.co.uk/site/news/company/budweiser-brewing-group/budweiser-brewing-group-go-green-with-hydrogen-at-wales-brewery/17 https:/www.shelflife.ie/bulmers-sustainability-project-opens-in-clonmel/18 https:/www.carlsbergmarstons.co.uk/newsroom/cmbc-introduces-electric-hgv-trucks-capable-of-delivering-10-000-pints-per-day-to-pubs/19 https:/ https:/ https:/ 22 https:/www.lse.ac.uk/granthaminstitute/news/searching-for-trust-in-the-voluntary-carbon-markets/23 https:/www.ox.ac.uk/news/2020-09-29-oxford-launches-new-principles-credible-carbon-offsetting24 https:/ https:/ https:/www.carlsbergmarstons.co.uk/newsroom/san-miguel-0-0-to-be-served-on-draught-at-lord-s-cricket-ground/27 https:/ab-inbev.eu/core-value/sustainability/net-zero-ambition/28 https:/wrap.org.uk/taking-action/plastic-packaging 29 https:/ecospirits.global/30 https:/wrap.org.uk/sites/default/files/2021-11/The UK Plastics Pact Annual Report 2020-21.pdf#page=4 31 https:/ https:/ https:/ https:/www.ukhospitality.org.uk/news/609741/Still-no-answers-to-fundamental-questions-on-Scotlands-Deposit-Return-Scheme.htm35 https:/zerowasteeurope.eu/press-release/efficient-waste-collection-schemes-closed-loop-recycling-and-access-to-recycled-content-are-crucial-to-accelerating-the-transition-to-a-circular-economy-in-europe/36 https:/www.ab- OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 23ReferenceStrategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456R EF E R E N CE S37 https:/ https:/ https:/ https:/www.innocentdrinks.co.uk/content/dam/innocent/gb/en/files/GARR_V15.pdf 41 https:/www.pernod- 42 https:/www.pernod- 43 https:/wrap.org.uk/taking-action/food-drink/actions/reducing-water-stress 44 https:/wrap.org.uk/taking-action/food-drink/actions/reducing-water-stress 45 https:/wrap.org.uk/taking-action/food-drink/initiatives/courtauld-commitment/courtauld-2030-water-roadmap46 https:/assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/601943/WFD_state_aid_exemption_2017.pdf 47 https:/wrap.org.uk/taking-action/food-drink/actions/reducing-water-stress 48 https:/ https:/www.coca-cola.co.uk/sustainability/water-and-environment/norfolk-rivers-trust-and-water-sensitive-farming-initiative 50 https:/employeebenefits.co.uk/half-uk-staff-would-leave-job-better-burnout-support/51 https:/bihospitality.co.uk/research-and-insights/52 https:/ 53 https:/www.pwc.co.uk/ceo-survey.html 54 https:/www.fca.org.uk/news/press-releases/fca-finalises-proposals-boost-disclosure-diversity-listed-company-boards-executive-committees 55 https:/ https:/www.greeneking.co.uk/our-company/calling-time-on-racism/57 https:/www.greeneking.co.uk/newsroom/latest-news/greene-king-s-releasing-potential-scheme-helps-100-prison-leavers-find-employment/58 https:/ 59 https:/ 60 https:/ 61 https:/www.greeneking.co.uk/newsroom/latest-news/greene-king-launches-new-long-term-team-member-support-scheme-with-one-off-financial-grants-of-up-to-5-000/62 https:/www.bighospitality.co.uk/Article/2022/05/04/brewdog-to-give-staff-shares-worth-120-000-and-split-of-bar-profits 63 https:/ https:/ https:/www.foodfoundation.org.uk/publication/broken-plate-2022 66 https:/www.livingwage.org.uk/what-real-living-wage 67 https:/www.foodfoundation.org.uk/publication/broken-plate-2022 68 https:/ OT P RIN T D RI NK S E SG T R E ND S R E PO RT 20 23Strategy and CultureEnergy andemissionsClients and consumersWasteRaw materials,the environment and waterSocial impact and employees123456
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