Corporate ESG Monthly – 2 June 2021

02 June 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

  • EU Parliament approves $21billion fund for Green Transition. On Tuesday 18 May, the European Parliament provided its final approval of a €17.5billion fund, that will help the most coal-dependent EU regions shift to a climate-neutral economy. The fund will include €7.5billion from the EU budget for 2021-2027 and €10billion from the region’s economic recovery programme; it will help finance investments in areas such as renewables, energy efficiency, sustainable transport and digital innovation. The biggest beneficiaries of the instrument will include Poland, Germany, Romania and the Czech Republic, of which access is proposed to be made available through grants. Read more.
  • Options for greening the Bank of England’s Corporate Bond Purchase Scheme (CBPS). The Bank of England has laid out plans to tilt its corporate bond buying programme towards issuers that are doing the most to decarbonise their businesses. In a discussion paper unveiled on 21 May, the central bank revealed its current thinking on how it should integrate climate considerations into its own investments. The paper discussed potential options around making eligibility for the CBPS conditional on climate-related actions by issuers and also limiting future bond purchases to issuers with credible net-zero plans, verified by a third party. Read more.
  • European Banking Authority (EBA) climate risk exercise reveals only 8% of EU bank lending is EU Taxonomy aligned. The EBA said just 8% of EU bank financing exposure is 'green', as judged by its alignment with the EU Taxonomy. The EU-wide pilot exercise was run by the EBA on a sample of 29 volunteer banks from 10 countries, representing 50% of the EU banking sector’s total assets. The EBA emphasised that this pilot exercise was just a "starting point" for its work on climate risk and data gaps, but it hopes the findings highlight the sense of urgency to remedy them if they are to achieve a meaningful and smooth transition to a low-carbon economy. Read more.

Disclosure

Reporting: 'Be clear and upfront', CMA1 urges UK businesses to avoid greenwashing

After finding that 40% of sustainability-related claims by businesses online could be misleading, the CMA has set-out recommendations to ‘avoid greenwashing’.  The CMA outlined six initial principles designed to uphold the accuracy and transparency of environmental claims, noting the investigation is ongoing. The CMA began its inquiries into greenwashing last year, focusing on a string of consumer-facing sectors where claims by businesses were found to be the most common and most confusing. Sectors include health and beauty products, home cleaning products, food and drinks and fashion. Read more.

Reporting: Companies commit to SDG2 collaboration

A new GRI3 programme to enhance corporate reporting on the SDGs – by making it more relevant to stakeholders – has commenced. The programme brings together senior representatives from multiple international companies. The Business Leadership Forum (BLF) on ‘Corporate Reporting as a Driver for Achieving the SDGs’ will help companies use transparency to increase their contributions to national and global SDG commitments. Companies that have joined the BLF so far span from a range of geographies and sectors: from energy to healthcare, and textiles to telecoms administration. Last month, the SEC4 announced plans to update its guidelines on climate risk disclosures and created a taskforce on climate-related compliance. The Fed, SEC and Treasury department all acknowledge that climate risks are an area of acute focus with current climate disclosures not providing sufficient decision-useful information. The TCFD5 and the IFRS6 Sustainability Standards Board present likely potential solutions. Read more.

Ratings: Should sustainability ratings be more forward looking?

Much of the sustainable investment industry follows a 'quantamental' model, that assembles data about a company from a variety of third-party sources and weights each accordingly. According to Jenn-Hui Tan at Fidelity International, this model of ‘top-down’ ratings is useful for scalability, but to really impact the investment process and decision making, it should be integrated ex-ante not ex-poste, with a more ‘ground-up’ approach being favoured. It takes a forward-looking stance, whilst overlays an analyst’s view, which helps paint a picture of where the company is going – this is of course informed by historic activity, but not limited to it. Read more.

Ratings: New 'Eco Rating' will measure environmental impact of your smartphone

Five of Europe’s largest mobile operators have created a new ‘eco-rating’ labelling scheme that will allow consumers to compare the environmental impact of a particular smartphone and encourage manufacturers to make their products more sustainable. Telefonica, Deutsche Telekom, Orange, Telia and Vodafone will all display a score out of 100 alongside devices from 12 manufacturers at the point of sale. The score calculates the cost of producing, using, transporting and disposing of the device and it is hoped this will inform consumers and corporate procurement teams around the circularity of devices. Read more.

Capital Markets

Primary Market

  • EDF, Social Bond. EDF successfully issued an inaugural Social hybrid bond with €1.25bn of Social Perpetual Notes. It is the first European corporate social hybrid, highlighting the growing interest in combining equity-like issuance with sustainability objectives. Read more.
  • Eni, Sustainability-Linked Financing Framework. The first Sustainability-Linked Financing Framework from a fully integrated Oil and Gas company. It follows Total’s announcement earlier this year that it would only be issuing Sustainability-Linked Bonds in the future, albeit none have been issued to date. Read more.
  • Air Liquide, Green Bond. Returned to the sustainable capital market with a €500million 10-year green bond after the company issued a thematic “SRI7” bond back in 2012. It is the first European name with which the Climate Transition Finance Handbook is explicitly referenced in the Second Party Opinion report. Read more.
  • Kellogg's, Sustainability Bond. An inaugural €300m 8-year sustainability bond from a sector where sustainability-labelled debt issuances remains rare. It is the first U.S. Food & Beverage company to debut its sustainability bond in the EUR market. 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

  • Climate change trumps diversity and inclusion in institutional investor ESG considerations. The top three ESG themes investors expected to focus on this year were climate change and carbon footprint; diversity and inclusion; and supply chain resiliency. Procensus found that investors believe US, European and Chinese governments will modestly accelerate the timetables for their net-zero commitments. On average, respondents to the Procensus survey estimated that only 30 per cent of investors cared enough about diversity and inclusion factors to integrate them into their investment decisions. Read more.
  • Green bonds are most popular sustainable fixed income investment among institutional investors. An NN Investment Partners’ (NN IP) poll found that green bonds are the most popular sustainable fixed income instruments among institutional investors, with 45 per cent saying they make the greatest positive impact. The greatest barrier to green bond investing is the perception of inferior investment returns, according to 44 per cent of respondents, followed by fear of greenwashing (38 per cent) and insufficient market capacity (19 per cent). Read more.

”At times, yields might be a little bit lower but over the last seven years, on average a euro-denominated green bond portfolio has generated 40 basis points more than a regular bond portfolio, and for corporate bonds, the difference is 60 basis points” - Bram Bos, NN IP.

  • Blackstone asks its companies to regularly report on sustainability. Blackstone Group Inc has, for the first time, asked executives in companies controlled by its private equity arm to regularly report on environmental, social and governance matters to their boards, according to a letter seen by Reuters. The world's largest manager of alternative assets such as private equity and real estate has been seeking to bolster its sustainability credentials as investors increasingly question companies on their impact on the environment and workers. Read more.

Legal

  • Shell forced to slash global emissions after landmark court ruling. Climate activists who have taken fossil fuel giant Royal Dutch Shell to court over its emissions of harmful greenhouse gases have successfully forced the multinational company to reduce its emissions. The case was filed in April 2019 by seven activist groups including Greenpeace and Friends of the Earth Netherlands, and is the first lawsuit in which environmental groups have turned to the courts in an effort to force companies to lessen their impact on the planet. They had demanded that Shell must cut its carbon emissions by 45 per cent by 2030, a much steeper reduction than the company’s current goal of reducing the carbon intensity of the products it sells by 20 per cent over the next decade. 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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Or, for Corporates looking to discuss any of the above further, please reach out to our authors:

Glossary

1

CMA

Competition and Markets Authority

2

SDG

Sustainable Development Goals

3

GRI

Global Reporting Initiative

4

SEC

Securities and Exchange Commission

5

TCFD

Task Force on Climate-related Financial Disclosures

6

IFRS

International Financial Reporting Standards

7

SRI

Socially Responsible Investing

ESG/Sustainability


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