Requiring companies to add data about their environmental impact to financial accounts could greatly expand the market for space-based Earth monitoring services.
Many businesses are already reporting this information as part of environmental, social, and governance (ESG) disclosures they are voluntarily making to attract community-conscious investors and customers. Mandatory disclosure rules in the United States and abroad could put this trend into a higher gear, accelerating demand for satellites that can better monitor a company’s links to greenhouse gas emissions, deforestation, and other metrics that make up their ESG scorecards.
However, the ESG movement also faces significant pushback that has ramped up in recent years from companies, industry-funded groups, and right-wing politicians and activists quick to decry a progressive corporate stance as “woke capitalism.” Space companies also face unique environmental challenges, ranging from the impact of their satellite launches to how they operate in congested orbits.
A lack of regulation to date has led to a confusing mix of competing ESG standards that have reduced the movement to being just a “greenwashing” marketing ploy, according to critics. At the same time, some see rules that would fix this problem as government overreach.
Opponents include SpaceX founder Elon Musk, who called ESG a scam last year after his electric car maker Tesla failed to make a stock index that tracks socially conscious companies.
ESG has been “weaponized by phony social justice warriors,” Musk tweeted, joining a side in an increasingly polarized and charged debate.
Incoming rules
The Securities and Exchange Commission (SEC) outlined plans in March 2021 to put ESG at the core of the U.S. financial market regulator’s agenda.
The SEC proposed rules in March 2022 for mandating certain climate-related disclosures for publicly listed companies.
However, as intense discussions wage on, the regulator is still working on issuing final regulations more than a year later.
The proposed rules would require companies to detail greenhouse gas emissions, disclose information on the climate risks their business faces, and — most controversially — their expenses and investments to deal with climate-related issues.
Republican lawmakers have threatened litigation for what they see as government overreach, and businesses have also expressed concerns about a lack of resources to keep close tabs on these metrics in a challenging economy.
Robert Jackson, who served as an SEC commissioner between 2018 and 2020, told a webinar hosted by carbon accounting firm Watershed in April that he had learned the rules had been pushed back to at least this fall.
The SEC declined to comment on the timing of its rule-making process.
Europe is more advanced in this area and recently strengthened environmental reporting rules for large and listed companies under its Corporate Sustainability Reporting Directive (CSRD). Similar rules for smaller European companies are set to follow, although work is continuing to clarify standards for companies of all sizes.
Resilient trend
“Despite pushback, all signs suggest ESG is very much here to stay and the need for company ESG response and planning is certainly set to increase,” NSR research analyst Sarah Halpin said.
Generally, customers and investors are increasingly attracted to socially conscious businesses despite a vocal backlash against “woke capitalism,” and Halpin said this will push more companies to engage in the ESG movement regardless of home country requirements.
Justyna Kosianka, a senior remote sensing scientist at U.S.-based geospatial and analytics company Ursa Space Systems, pointed to sustained interest in satellite imagery that focuses on environmental topics, particularly illegal fishing, natural disaster response, oil spills, and deforestation.
According to Kosianka, satellite-derived data provides unique benefits for measuring exposure to environmental risks that companies and governments cannot ignore, such as tracking emissions.
“Obviously, some companies and governments want to hide their emissions,” she added, but with “satellite data growing so rapidly, it’s getting increasingly harder to hide.”
Kosianka said she expects the appetite for quantifiable climate data will remain strong, regardless of U.S. regulatory action.
While having rules in place would provide clarity and direction, she said the underlying need stems from a desire by companies to adjust and be prepared — or risk incurring enormous costs.
“For the satellite industry, yes, we need to keep an eye on the regulatory framework, but we also need to remain focused on providing unique solutions.”
Investment driver
Bogdan Gogulan, CEO of private equity firm NewSpace Capital, said data obtained from space is also increasingly valuable to keep governments from falling behind pledges they have made to tackle climate change.
“We’re increasingly at risk of missing our climate targets,” Gogulan said, and “space applications are now key enablers to achieving Net Zero” — the concept of taking as much carbon from the atmosphere as that going in to address climate change.
According to Gogulan, data obtained from space is critical to creating transparency and keeping countries accountable when it comes to ESG, in addition to individual companies and industries.
“This creates a significant market opportunity, so we look to invest in companies where the underlying product is a game-changer for environmental performance,” he said.
NewSpace Capital is an investor in Paris-based Kayrros, which analyses satellite imagery to support the United Nations and the International Energy Agency (IEA) in tackling methane emissions.
The number of partnerships between satellite companies and non-space organizations has been rising as environmental issues climb political agendas. Last year, Earth observation operator Planet said it had agreed on a deal to help financial ratings firm Moody’s explore and address the growing demand for assessing and monitoring ESG risks.
Double-edged sword
ESG’s rising prominence will also shine more light on how green space businesses are and the sustainability of the space environment itself, where there are growing concerns about orbital congestion and debris.
More than two-thirds of 67 companies from across the space industry that NSR surveyed in January said they would likely need to report against some climate-related regulation in the next five years.
ESG is often perceived to be focused on risks and mitigation, noted investment firm Seraphim Space CEO Mark Boggett, which has negative connotations and possibly explains some resistance to the trend.
However, aided by satellite technology, Boggett pointed to how improving ESG scores can also help companies become more efficient and ultimately reduce their costs.
“We believe that the negative perception of space from a launch and emissions perspective is far outweighed by the positive aspects that are delivered from space,” he added.
As more data becomes available, Boggett said it would also be easier to show the benefits of improving ESG ratings, which should help build momentum for the trend.
Alongside regulatory coordination, the space industry has an important role to play in delivering robust data to help dispel greenwashing concerns.
This article originally appeared in the June 2023 issue of SpaceNews magazine.
