The Hill’s Sustainability Report: Brazil’s climate turbulence could threaten local coffee shops

Today is Thursday.  Welcome to Equilibrium, a newsletter that tracks the growing global battle over the future of sustainability. Subscribe here: digital-release.thehill.com/newsletter-signup.

Climate change in Brazil could turn your local coffee shop into a Starbucks.

Last month, sub-freezing temperatures hit Brazil’s coffee-growing regions, killing the leaves and branches of coffee bushes throughout a region already grappling with both wildfires and the worst drought in nearly a century, as The New York Times reported. 

Add that to unrest in other coffee-producing countries and pandemic-related supply gridlocks and local cafe owners like Quincy Henry, in Tacoma, Wash., are now paying $2.49 a pound for Brazilian arabica beans that used to cost $1.90.

If Henry pushes these added costs on to “price sensitive” customers, they may go elsewhere — like, say, Starbucks, which has the enormous storehouses needed to sell coffee at current prices for the next 14 months, the company’s president said.

By that point, Henry’s Campfire Coffee could be out of business. And as climate change bites into mountainous equatorial regions that grow most of the world’s coffee, that squeeze is liable to get worse. “It’s got me thinking,” Henry told the Times, “about how we’re going to survive.”

Today, we’ll look at whether the best way to cut fossil fuel company emissions is to change them from the inside. And we’ll explore how the Colorado River’s first shortage declaration will take a toll on southwestern farmers. 

For Equilibrium, we are Saul Elbein and Sharon Udasin. Please send tips or comments to Saul at selbein@digital-release.thehill.com or Sharon at sudasin@digital-release.thehill.com. Follow us on Twitter: @saul_elbein and @sharonudasin. 

Let’s get to it.

Investors want to change fossil fuel companies from within

A group of 100 small environmental investors wants to keep Australian mining giant BHP Group from selling off its coal mines, according to Bloomberg Green. And that points to a much bigger change in how climate-focused investors are treating fossil fuels.

Top line: The investors don’t want the coal mines sold because they want them closed “responsibly,” Bloomberg reported. 

In the past, climate-focused investors pushed for “divestment” from highly carbon polluting assets. Now some are rethinking that approach. Mines or oil wells sold off by a company like BHP may be bought up by independent or national companies, and the production continues on someone else’s balance sheet — often leaving communities with wrecked ecologies and economies.

At BHP’s annual meeting later this year in Australia, the investor group will propose that rather than sell the mines, the company should hold on to them long enough to see production wind down, the site rehabilitated and local workers reemployed in something other than coal.

Shareholder upheaval for climate action: These sorts of shareholder resolutions rarely succeed, according to Bloomberg. 

But recently they’ve been getting a big boost from “heavyweight investors” such as BlackRock Inc., The Wall Street Journal reported.

With $9 trillion dollars in assets invested across virtually every sector of the economy, BlackRock has increasingly used its power to back environmental reforms at the companies it’s invested in.

Change from within: Between June 2020 and June 2021, BlackRock supported 64 percent of the environmental proposals at companies in which it was a shareholder. 

In May, BlackRock teamed up with rival Vanguard to generate the votes necessary to install three directors — who had been chosen by a small environmental activist fund — on the board of Exxon Mobil. Now Vanguard, too, is warning that it may oppose company directors who aren’t sufficiently active in addressing social or environmental risks, the Journal reported. 

And with shareholder dissatisfaction with company leaderships at a four-year high, many companies are quite vulnerable to that intervention. As soon as a director’s approval drops below 80 percent, “it’s a red flag for companies — and it’s shark bait for activist investors,” one lawyer who specializes in shareholder activism told the Journal.

Those investors are lobbying for more data. Existing standards of environmental, social and governance (ESG) performance are so “inconsistent and incomplete” that the Journal found that nearly two-thirds of companies got divergent scores from different rating firms.

Nearly one-third, like oil major Chevron, were rated as “leaders” by one and “laggards” by another.

It now seems very likely that the Securities and Exchange Commission will demand new standardized rules of climate disclosure from publicly traded companies — like Cheniere Energy Inc. and EQT Corp. — by the end of the year, the Journal reported.

And many investors want those rules to be subject to audit, according to the Journal.

Natural gas companies are scrambling to come up with better accounting for emissions under similar pressure from investors and customers, another Journal article reported.

EQT, the top U.S. natural gas producer, is teaming up with the top exporter, pipeline company Cheniere, to fly drones and helicopters over the fracking sites of southwest Pennsylvania, hunting with infrared cameras for invisible leaks of the potent greenhouse gas methane, which is dozens of times more powerful at trapping heat than carbon dioxide.

For decades, those leaks have undercut the natural gas industry’s promise to be a cleaner alternative to coal. If it wants to back that up, EQT’s chief financial officer told the Journal, the company has to “put our money where our mouth is.”

Takeaway: Over the next decade, expect a booming market for anyone who can help companies credibly and rigorously ground truth their emission numbers.

 

Western drought milestone precipitates conservation and innovation

Drought conditions in the Western U.S. have become so severe that the Bureau of Reclamation is expected on Monday to declare a water shortage for Lake Mead, the largest storage reservoir for the Colorado River, a Las Vegas CBS affiliate reported.

This would be the first mandatory cuts for the Colorado River system, a water supply that serves some 40 million people across the West, according to The Associated Press. Such shortages are issued when Lake Mead’s water level drops to 1,075 above sea level. Lake Mead’s water level dropped to 1,067 feet as of Thursday, down 20 feet from early March, CBS reported.

But the CBS anchor assured viewers the shortage would not likely impact their water at home. “The levels we’d likely be reduced to are still higher than what we use on a regular basis,” he said.

Arizona farmers under threat: While that might be true for private urban residences, farmers may face more imminent damage.

The shortage declaration is expected to “spare cities and tribes but hit Arizona farmers hard,”according to the AP.

The Bureau of Reclamation won’t release the official projections for 2022 water deliveries until Monday. But here’s what we do know: Arizona is expected to lose 512,000 acre-feet of water. That is about one-fifth of the state’s Colorado River supply and about 8 percent of its total water, according to the AP. Nevada would lose 21,000 acre-feet and Mexico would lose 80,000 acre-feet.

An acre-foot is enough for one to two households a year, the AP noted.

The reason Arizona — and its farmers — would be hit so hard is that the state agreed in 1968 to accept junior water rights in exchange for federal construction of a 336-mile system that conveys water to cities throughout the desert. 

What are water rights? Water rights are a uniquely Western U.S. concept, linked to mid-19th century “prior appropriation” doctrines established during the gold rush and Homestead Act, as Sharon previously reported for Ensia. These laws, which were written in a far more favorable climate, allowed landowners to claim and divert water for “beneficial use,” such as irrigation, industry and power production. 

Because prior appropriation occurred on a first-come, first-serve basis, some users remain more senior than others — and those entities with junior rights are the first to lose water during a shortage.

INNOVATIONS TO HELP A STRUGGLING LOCAL FOOD ECONOMY

Expected but still a struggle: Farmers prepared for the coming shortages. They let fields lie fallow, lined canals, installed drip irrigation and tried out drought-resistant crops, the AP reported. But the reductions mean next year’s cotton and barley, as well as livestock, will suffer, also taking a toll on the local economy.

In both Arizona and Mexico, farmers are innovating. Across the Mexican border, growers are also testing out new techniques for an arid future. Mexican states that depend on the Colorado River, as mentioned above, will also experience cutbacks.

In the central state of Guanajuato — which does not receive Colorado River water but is dry nonetheless — one independent farmer piloted a system of intercropping agave with mesquite trees that are able to thrive on degraded lands, Mongabay reported.

A powerful pair: Agave absorb most of their carbon dioxide at night, meaning that less water evaporates from their leaves during the day, according to Mongabay. Mesquites, on the other hand, have deep roots and seek water far underground, while capturing nitrogen in the air and fertilizing the soil.

But the land is still so degraded that even reforestation with such resilient species “is a slow, tortuous process,” Mongabay reported.

It’s not just the West that’s suffering from extended drought. The National Drought Mitigation Center described current circumstances in the Midwest as “a feast or famine week,” after the High Plains received almost no rainfall. Extreme or exceptional drought now covers large swaths of the Dakotas, as well as central Minnesota, where the center recorded such conditions for the first time in its history.

Thursday Threats

To go with your coffee, a selection of looming troubles for the wind industry, a wildfire compensation fund and a whole lot of countries’ credit ratings.

Weaker winds threaten offshore wind output

• The world’s two largest offshore wind firms, Ørsted and RWE, suffered from weaker winds during the first half of 2021 — which Ørsted said led to one of its worst three quarters in more than 20 years, according to Reuters.
• These circumstances, Reuters said, demonstrate “that despite strong fundamentals, renewables continue to be an intermittent technology where swings in the level of winds and sunshine have a direct impact on earnings.”
• Ørsted, which is mainly focused on the North Sea, is expanding to other parts of the world, including the U.S. and Taiwan, and is also investing in technologies like solar and onshore wind to offset some of these risks, Reuters reported.

PG&E fire victim compensation under threat

• California utility Pacific Gas and Electric (PG&E) earmarked about $6.8 billion of its equity last year for people who had suffered losses from wildfires the company helped cause. But the firm’s poor financial performance has inhibited these victims from receiving what’s due to them, Reuters reported.
• When the company declared bankruptcy in 2019 after the 2018 Camp fire — sparked by its equipment — individual victims received $13.5 billion worth of cash and PG&E stock, which went into a trust on their behalf.
• But PG&E shares are at the same level they were when trust was created. That has threatened the ability of survivors to receive compensation, The Wall Street Journal reported.
• PG&E is also facing criminal charges after a northern California prosecutor determined that its equipment ignited a wildfire last year that killed four people and destroyed hundreds of homes, as we previously reported. The company has also taken responsibility for the ongoing Dixie fire.

A coming climate debt crisis

• As countries have gone deep into debt to secure their populations against coronavirus, climate change risks are wiping out their ability to pay that debt back, Reuters reported.
• “In a worst-case ‘hot house world’ scenario, developing countries including Malaysia, South Africa, Mexico, and even wealthier economies such as Italy may default on debt by 2050,” Reuters reported.
• And “higher-rated, richer countries” like China, Chile, the U.S., Germany and Australia could see their credit ratings fall by 2030 “because of climate change,” Reuters reported.
• That would raise borrowing costs at precisely the time that countries will need more money for climate adaptation, the energy transition and cutting carbon emissions.

Please visit The Hill’s sustainability section online for the web version of this newsletter and more stories. We’ll see you on Friday.{mosads}