Corporate ESG Monthly - 11 January 2022

11 January 2022

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

Contents

Institutional Developments

  • European Commission (EC) proposes including nuclear and gas as green investments under EU Taxonomy. The EC announced that consultations have begun on the inclusion of gas and nuclear energy as green investment areas under the EU Taxonomy classification system, following the approval in December of the EU Taxonomy Climate Delegated Act. This differs from the EU Green Bond Standard with the draft proposal excluding both energy sources. Consultations are ongoing with the Member States Expert Group on Sustainable Finance and the Platform on Sustainable Finance, however several sustainability-focused groups have warned that their inclusion in the taxonomy could undermine the classification system’s purpose and open it up to concerns of greenwashing. The Commission said that it “considers there is a role for natural gas and nuclear as a means to facilitate the transition towards a predominantly renewable-based future” and that these energy sources would be classified under tight and clear conditions, such as requiring gas to come from renewable sources or have low emissions by 2035. Read more.
  •  EU sets out plans to decarbonise buildings. The EC announced a series of legislative proposals aimed at key sources of greenhouse gas (GHG) emissions; including proposed rules and regulations to decarbonise EU buildings, promote the uptake of low carbon gases, and reduce methane emissions. Under the proposals all new buildings as of 2030 will be required to be zero-emission, existing building stock will have minimum energy performance standards, and the worst performing 15% of buildings in each member state will need to be upgraded by 2027 for non-residential buildings and 2030 for residential. The energy proposals are aimed at facilitating the uptake of low carbon gases (e.g. hydrogen and bioethane), and shift the energy mix away from fossil-based natural gas. Proposals include removing or lowering tariffs in order to make it easier for renewable and low carbon gases to access the existing gas grid, and establishing a certification system for low-carbon gases. Methane proposals in the package include requiring the oil, gas and coal sectors to measure, report and verify methane emissions, detect and repair methane leaks, and limit venting and flaring. Read more.
  • UK Government opens ‘biggest round’ of CfD energy auctions to date. The UK government has opened the fourth round of the Contracts for Difference (CfD) auction scheme, designed to increase investment in low-carbon energy; aiming to support 12GW of new generation capacity. The fourth round of the scheme will provide £285m of support annually to low-carbon energy generation. The majority of the funding – £200m annually – will be made available for offshore wind. There is also a specific £24m annual allocation for floating offshore wind technologies and a £20m allocation for tidal stream projects. The remainder of the allocation is split between other technologies classed as “emerging” by the Department for Business, Energy and Industrial Strategy (BEIS) (£21m), and mature onshore wind and solar projects (£10m). Read more.

Disclosure

Reporting: SASB launches initiative to set reporting standards for diversity and inclusion

The Sustainability Accounting Standards Board (SASB) announced the launch of a standard-setting project to address Diversity, Equity and Inclusion (DEI) across multiple SASB Standards and will evaluate the addition or revision of disclosure topics and / or metrics to better account for how DEI can impact enterprise value within each of these industries. The project stems from SASB’s Human Capital Research Project, which aimed to: analyse and document emerging evidence supporting the financial materiality of human capital issues, review how human capital issues are accounted for across the existing SASB Standards, and develop evidence-based recommendations for subsequent standard setting activities. As a next step, research will be conducted to refine the industry list, examine channels and industries across markets, and to develop a view on the scope of disclosure topics and general issue category mapping. Read more.

Reporting: Singapore Exchange announces mandatory climate and diversity disclosure

The Singapore Exchange (SGX) has announced a new series of sustainability and transparency-related rules for issuers, including its roadmap for mandatory climate disclosures and reporting on board diversity policies and progress. According to the new roadmap, all issuers will be required to provide climate-related disclosures based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) on a “comply or explain” basis from FY2022, with mandatory disclosures for different sectors introduced in subsequent years. The announcement follows the UK government’s green finance strategy, which envisions mandatory TCFD-aligned reporting economy-wide by 2025. Read more.

Ratings: CDP releases 2021 company environmental scores

Climate research provider and environmental disclosure platform CDP has published its company scores for 2021, including its annual “A List” of top performers. Overall, more than 13,000 companies reported environmental data through CDP in 2021, an increase of 37% over the prior year. CDP scores companies across key environmental categories of Climate Change, Forests and Water Security, providing rankings from D- to A, with “D” indicating that companies are at a disclosure level, “C” showing awareness of impact, “B” the companies taking action to manage their environmental impact, and “A” are companies achieving leadership level. Despite the increase in reporting companies, the list of those achieving a top “A” rating in at least one of the key categories of Climate Change, Forests or Water Scarcity declined to 272 from 313, as CDP raised the threshold to achieve an “A” rating. Overall, only 14 companies achieved an “A” rating across all categories. Read more.

Ratings: Bloomberg spotlight on ESG ratings

Bloomberg has published an article critically evaluating the MSCI ESG ratings methodology. MSCI is the world’s largest ESG ratings provider, whose data is used to construct ESG funds which Bloomberg Intelligence estimates 60% of global sustainable retail investments have been allocated to. The article highlights that MSCI’s ratings do not measure a company’s impact on the Earth and society, but the impact of the world on the company and its stakeholders. MSCI does not dispute this characterisation and defends its methodology as the most financially relevant for the companies it rates. As a consequence of this approach to evaluating sustainability, a company’s poor record on climate change action may not inhibit improvements in its MSCI rating. Read more.

Capital Markets

Primary Market

  • Newmont Corporation Mining, Sustainability-Linked Bond. Newmont Corporation Mining issued their inaugural $1bn 10Y at 2.6% Sustainability-Linked Bond (SLB), linked to three KPIs. They are the first company in the mining industry to issue an SLB; noteworthy for a sector subject to exclusionary policies from some impact investors. It is a “Holistic” SLB structure with environmental and social KPIs in the framework, including Scope 1, 2, 3 and gender diversity targets. Read more.
  • Merck & Co, Sustainability Bond. The global healthcare company launched its inaugural $1 billion sustainability bond under a family framework, which allows the issuance of a broad range of financing instruments – “bonds and commercial paper, among other options” – at group or subsidiary level, thereby providing extra flexibility for future issuances. The use of proceeds are intended to support Merck’s strategic sustainability commitments such as (1) access to health services, (2) environmental sustainability and (3) employees diversity and well-being. Read more.
  • Icade, Green Bond. Icade has updated its Green Financing Framework which includes having identified nearly €2.5bn in assets as “Green”. As a result, the issuer has sought approval from the holders of its €600 million bond (issued in January 2021) to be labelled as Green. The use of proceeds category in the Green Financing Framework are: renewable energy, energy efficiency, green buildings and clean transportation. Read more.
  • VodafoneZiggo, Sustainability-Linked Notes. The first benchmark European trade (high-yield) to include a sustainability-linked redemption discount adjustment (instead of a coupon adjustment). It is a unique Sustainability-Linked structure which includes a redemption discount based on performance of 2 KPIs: I) Scope 1 and 2 II) Scope 3. It’s also launched off a holistic (instrument and sustainability technology) framework which allows for the issuance of a number of debt instruments within the same framework, therefore providing a consistent corporate financing narrative.

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.

Investors

Amundi to exclude oil and gas companies

Asset manager Amundi has recently announced that it will exclude companies with more than 30% activity exposure to unconventional oil and gas extraction starting this year. The leading asset manager shared the news as part of their ESG plan for 2025. Under its ESG plan for 2025, Amundi has also announced that it would introduce new environmental transition ratings for companies as well as ensure that 40% of its passive funds are made up of ESG funds among a series of other goals and initiatives. Read more.

PGIM has launched a new Strategic Income ESG fund

The fund is classified as an Article 8 fund under the Sustainable Finance Disclosure Regulation (SFDR). Issuers’ impact on the environment and society will be assessed utilising a proprietary ESG impact rating framework. The fund invests across investment grade, high yield, emerging market, commercial mortgage-backed securities, asset-backed securities, and government bonds, across sectors. Read more.

PRI launches human rights engagement initiative

The UN Principles for Responsible Investments (PRI) is launching a collective engagement effort on human rights. The network will try to improve the human right actions of 30 companies by driving stewardship from investors in those companies. Read more.

Aviva launches social and natural capital ‘transition’ funds

Aviva has expanded its sustainable transition range by adding two new funds – a social and natural capital transition funds. The two funds are underpinned by United Nation’s Sustainable Development Goals (SDGs). The Social Transition Fund is aligned with SDGs 5, 8 and 10 and will invest in companies that have changed their business models “to respect human rights, promote decent working conditions and engage in responsible corporate behaviour”. The Natural Capital Transition fund is aligned to SDGs 12,13,14 and 15 and will target companies that provide solutions across the themes of sustainable land, sustainable oceans, the circular economy and climate change. 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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