Corporate ESG Monthly – 1 April 2021

01 April 2021

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Breaking down trending ESG trades & themes to help Corporates get ahead of the latest issues shaping the market.

Institutional Developments

  • Shining a light on climate risks: the ECB1 economy-wide climate stress test. Climate risks differ from the more familiar risks that arise during the standard business cycle. So, to measure the impact of these risks, the specific transmission channels in the economy and the financial system – which traditional financial models may not fully capture – must be carefully identified and measured. With this in mind, the ECB designed the first economy-wide climate stress test to help both authorities and financial institutions assess the impact of climate risks on companies and banks over the next 30 years. Read more.
  • UK Budget includes at least £15 Billion Green Sovereign Bonds. Plans for “Green Curve”. The UK took a significant step closer to joining the growing ranks of sovereign green bond issuers with an announcement in the new budget that they are committing to at least £15 billion of green gilt issuance in this financial year. The green gilt announcement follows a commitment made last year by Rishi Sunak that the UK will issue its first green bond, with the proceeds used to help the UK meet its 2050 net zero target and other environmental objectives. Read more.
  • First meeting of the G20 Sustainable Finance Study Group (SFSG). Discussions on the development of a ‘multi-year G20 roadmap for sustainable finance’ began at the end of March, which marked the start of what could become a cornerstone of global policy strategy in managing sustainability issues. The roadmap is designed to present an overview of the major gaps and barriers in mobilising sustainable finance, and to outline key actions and milestones for the consideration of G20 members. The first meeting of the Sustainable Finance Study Group (SFSG), which sits within the G20’s finance track and comprises G20 finance ministers and central bank governors, was held virtually on 26 March and will feed into April’s updated G20 Action Plan. Read more.

Disclosure

Reporting: GRI2 publishes updated guidance for SDG alignment

Transparency is fast becoming the new paradigm for conducting business, coupled with an increasing drive to align activities to the Sustainable Development Goals (SDGs). In partnership with the UN Global Compact, GRI has recently published guidelines for developing and strengthening disclosures in line with the SDGs. The document is structured in four main pillars: Analysis of the goals and targets, Integrating SDGs into corporate reporting, Linking SDGs and the GRI standards and Addressing investor needs in business reporting on the SDGs. Read more.

Reporting: FactSet launches the TruValue labs Sustainable Development Goals monitor

Whilst ‘standards’ setters offer guidance on how to embed SDG alignment within disclosures, FactSet has announced the launch of the Truvalue Labs SDG Monitor. A tool designed to enable investors and other interested parties to view the alignment of corporations to the UN Sustainable Development Goals (SDGs) in real time and at no cost. Leveraging artificial intelligence and human expertise, Truvalue Labs has built a dataset underpinning the SDG Monitor that arises from more than 100,000 information sources in 13 languages, and now covers more than 21,000 companies worldwide. Read more.

Ratings: Stock price reactions to ESG news, the role of ESG Ratings and disagreement

In a recently published study, Harvard found that ESG ratings are useful for predicting future ESG news, but their predictive ability diminishes for firms with large disagreement between raters (e.g. Sustainalytics, MSCI). In the presence of high disagreement between raters, the relation between news and market reaction weakens, while the rating with most predictive power predicts future stock returns. However overall, while rating disagreement hinders the incorporation of value relevant ESG news into prices, ratings do predict future news and can proxy for market expectations of future news. Read more.

Ratings: ESG ratings, status, and key issues ahead

The European Securities and Markets Authority (ESMA) has published its recurring report on Trends, Risks and Vulnerabilities, with an analysis of the ESG Rating market on page 104. The article describes the market for ESG ratings, including types of ratings and key providers, along with several use cases. ESMA’s position is that the absence of a regulatory framework can introduce several issues and risks and reduce the potential benefits of ESG ratings. In addition, the lack of a common definition of an ESG rating and of comparability, together with transparency issues, may ultimately be detrimental to investor confidence and to the transition towards a more sustainable financial system. Read more.

Capital Markets

Primary Market

  • Hapag-Lloyd, Sustainability-linked Bond (SLB). An inaugural EUR 300m 7-year sustainability-linked bond that provides further evidence of the ESG high yield growth. There is clearly a mounting interest in the international transportation industry for sustainability-linked financing solutions, with Odfjell (shipping), Seaspan (shipping), and Simpar Europe (air freight) setting a strong precedent. Read more.
  • Verbund, Green and sustainability-linked Bond. A EUR 500m 20-year bond that combines a green use-of-proceeds and a sustainability-linked structure in the same instrument. The concept of a combined framework was first seen in Europe through Anglian Water in late 2020. Read more.
  • Ahold Delhaize, Sustainability-linked Bond. The third retailer this year to issue an SLB after Tesco and H&M issued in the same format. The issuer successfully issued its first sustainable-labelled debt instrument in 2019 and with this issuance has moved to an SLB format. Read more.
  • Workspace, Green Bond. An inaugural GBP 300m green bond issued as part of the Workspace “Do the Right Thing” ESG strategy. The framework is wide-ranging and covers the full breadth of the company’s sustainability capex3, opex4 and asset base. Read more.

Secondary Market

For further analysis and information on the Secondary Market, please take a look at the full monthly newsletter on Agile Markets. If you do not have access to Agile Markets, please contact us here.

Investor Developments

Global investors accelerate ESG investments in response to pandemic – MSCI survey

Over three-quarters (77%) of investors increased ESG investments “significantly” or “moderately” in response to Covid-19, with this figure rising to 90% for the largest institutions (over $200 bn of assets). ESG and Climate have now firmly established themselves as high priority issues, despite having previously been issues for ‘green funds’ and side-pockets. Also, investors have said they are putting greater emphasis on the “S” in ESG, when exploring future ESG investments, with over a third (36%) wanting “Social” to comprise a larger proportion of the mix in 2021. Read more.

Nuveen: Investors to put more money into alts, multi-asset strategies post-COVID

Nuveen’s survey revealed its investors planned to rely heavily on multi-asset approaches. Global investors cited multi-asset as the most favoured approach for portfolio construction (58%), with liability-driven investment (LDI) at 36% and outcome-focused/oriented strategies at 35%. Nearly seven in 10 (69%) say they also plan to seek out in 2021 alternative investments that are oriented toward ESG factors. And, Nuveen’s survey also found that “organisational values and social responsibility” – not risk/return profiles – are “overwhelmingly the primary driver of ESG integration across investor types and regions”. Read more.

Regular updates and tools to keep you informed

Regular articles from us on market moving themes, and updates on what we are doing to further our ESG commitment.

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Glossary

1

ECB

European Central Bank

2

GRI

Global Reporting Initiative

3

CAPEX

Capital expenditure

4

OPEX

Operating expense

5

IG

Investment Grade

 

ESG


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