Due to the political climate change tug of war and sustainability concerns, investors are increasingly focusing on businesses’ ESG (environment, social, governance) obligations. Moreover, many endeavours work counteractive to the goals they are aiming to solve. In discussion is the term greenflation and how it magnifies inflation.
How Greenflation plays a role in Inflation
The world faces a growing dichotomy in the movement to contain climate change. The growing desire by nations to make positive environmental changes quickly, especially in Europe, has seen strong commitments to carbon emission reduction policies. However, there has at times been little consideration given to the planning for how this transition will be delivered. Firm commitments to carbon reduction policies with little planning or stakeholder engagement are typical of top-down legislative approaches, and they are often contributing to inflationary pressures. A top-down approach tends to impact critical fuel and energy sectors first and mineral sectors and the prices of commodities like lithium, copper, cobalt, aluminium, and other rare earth elements that will be needed to transition to a greener economy. The quicker reliant substances increase in price, like oil and gas, the faster the derivatives like fuel and energy follow suit. These tightly linked sequences of events heighten inflation pressures, which spiral out of control, forcing price pressures to expand to all industry sectors. Europe’s reliance on Russian oil and gas proves the extent of the dilemma. We call these self-induced price pressures “greenflation”.
Tightening Regulation
Tightening environmental regulation also impacts the supply of critical minerals by discouraging investment in mines and smelters by limiting the licenses required to mine. Although limiting licenses seems like the right thing to do to address climate change urgently, it may also contribute to lengthier transition periods by drawing out the transition process. In order to achieve climate change goals and commitments, governments must realise that a ramp-up in mining activity is necessary. Limiting licenses adds to competing pressures, and larger conglomerates seize the opportunity to expand via acquisitions. The unintended result is monopolistic activity as well as “greenflation”: rising prices for metals and minerals such as copper, aluminium and lithium that are essential to solar and wind power, electric cars, and other renewable technologies.
Societal impacts of Inflation and Greenflation
Greenflation is explained as the increase in prices due to environmental taxes, whereas inflation is caused by tectonic macroeconomic movements, population demand and supply side drivers, government monetary policy, and spending on critical infrastructure. Irrespective of whether inflation is driven by federal reserve money tightening actions or environmental policy changes, an undesired consequence is the growing gap between the rich and the poor. Every price hike disproportionately impacts lower income earners, stripping income from consumers and driving up cost of living pressures as rents become unaffordable, and the everyday costs of food and other necessities take precedence. When contemplating whether to eat or pay rent, hunger always wins.
Shifting Government Focus
The new Australian government is directing policy and spending toward climate endeavours as well as aggressively monitoring environmental and social governance (ESG) claims. Companies and organisations are recognising the growing consumer expectation that businesses must do more to achieve positive environmental and social outcomes. This expectation is also increasingly reflected in the companies that consumers choose to buy from and, inevitably many companies have sought to jump on the net-zero or sustainability bandwagon without actually delivering any tangible improvements or positive outcomes. A term called greenwashing. Targeting the negative impacts of greenwashing is high on the agenda of government agencies like the ASX and ATO. Regulators are increasing their scrutiny of funds, and ESG claims to hold companies to account and maintain the integrity of the green ecosystem. Annual reports and other documents structured to attract investors are now being analysed, and carbon reduction pledges are tracked. Misleading statements that overstate green credentials are front and centre of current probes. Therefore, legal action will expand dramatically on false and misleading claims that lure investment without the substance to back up the claims.
The Ocean Blocks Australia approach
At Ocean Blocks, we understand the challenges for many companies. ESG has become a hot topic at the board level for many organisations and the wide ranging scope of ESG makes it a complex problem to solve. The current ‘soft’ approach to legislating ESG responsibilities also presents a somewhat ambiguous landscape for organisational decision makers and boards, further clouding the path from awareness to ESG leadership. Environment, Social & Governance considerations impact almost every aspect of a business’ operations, and therefore it is critical that companies develop integrated, wholistic and value-adding approaches to meeting and exceeding ESG obligations and expectations. OceanBlocks can support organisations to better understand, plan for and implement ESG strategies to deliver positive environmental, social and governance outcomes whilst also delivering innovation and fiscal performance.
In brief, the Ocean Blocks approach includes:
- Working to deeply understand an organisation, their operational landscape, supply chain and business goals, strategy, and objectives.
- Helping organisations and their boards to understand the risks associated with ESG, climate change and the changing regulatory landscape and how these will impact the organisation (both now and in the future)
- We work with you to address those risks in order of priority and develop precise, measured and implementable solutions to where possible eliminate the risks or mitigate and control them.
- We help organisations to connect corporate, operational and ESG strategies to form a cohesive approach that delivers sustained value across all pillars of ESG and business.
- Establishing organisational ESG baselines and associated plans and frameworks necessary to support growth and transformation.
- Providing the necessary tools, infrastructure and support to accurately determine and account for an organisations’ carbon footprint
- Executing decarbonisation endeavours on behalf of organisations via a fit-for-purpose strategy that defines the key milestones and measures that align with government commitments and the goals of the 2030 and 2050 agreements.
- Development and implementation of adaptive, integrated strategies to accommodate for legal, economic, and geopolitical shifts while staying on course to deliver measured improvements to decarbonisation.
Reach out to explore how Ocean Blocks can work with you on your journey toward carbon neutrality.