Corporate ESG Monthly – 3 December 2021

03 December 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

  • COP26 final agreement reached. Following several marathon negotiation sessions, that went on a day longer than planned, COP26 concluded with nearly 200 countries agreeing to the Glasgow Climate Pact; a pact that attempts to keep the target of a 1.5oC temperature rise (or less) alive and finalise the outstanding elements of the Paris Agreement. The pact includes references to fossil fuels for the first time, though the language was substantially watered-down in the lead-up to the final agreement being signed. One of the fiercest disagreements in the final hours was over the wording of an intention to abandon coal, which was watered-down from a “phase-out” to a “phase-down”. On a more positive note, one of the most significant, and surprising, national-level developments at the COP26 climate conference, was the U.S. and China releasing a joint declaration pledging to cooperate on a series of actions and initiatives focused on combatting and addressing climate change over the next decade. In an emotional concluding statement for the conference, COP26 President, Alok Sharma noted that while he believed the conference had succeeded in keeping the goal of ‘limiting global temperature increases to 1.5oC’ alive, he described the win as “fragile”. Read more.
  • ECB’s bank review finds that banks fall short on managing climate and environmental risk. A comprehensive review by the European Central Bank (ECB), into the management of climate and environmental (C&E) risks by the European banking sector, uncovered major shortfalls in preparedness, with no banks meeting expectations, and many lacking plans to improve sufficiently. The assessment covered 112 banks under ECB supervision, representing EUR 24trn of combined assets. The report follows the launch of the ECB's Guide on climate-related and environmental risks (C&E risks) last year, which set-out a series of expectations for banks regarding the integration of C&E risks into their business models and strategies, governance and risk appetite. The new assessment includes the results from the follow-up benchmarking exercise into the banks' preparedness to manage and disclose C&E risk. Read more.
  • BoE becomes the first central bank to green its corporate bond buying programme. The Bank of England (BoE) has adopted a green lens for its corporate bond buying programme, positioning the transition to a net-zero emissions economy as a secondary objective to its role as a monetary policy tool. The purchases will be subject to climate-based eligibility and a green “tilt” within sectors, to incentivise stronger performers; with companies being assessed under a scorecard that weighs their emissions intensity and reduction progress, as well as published climate data disclosures and targets. The BoE will use a ‘scorecard’ approach, composed on several metrics, to allocate firms to different climate buckets. This will be used to assess their performance across multiple climate metrics, and to drive their investment decisions. A BoE spokesperson noted “We are trying to set-out a clear framework and approach for climate-conscious, pro-transition to net-zero investing, hoping to do thought leadership and influence other investors”. Read more.

Disclosure

Reporting: UK to institute mandatory disclosure of net-zero transition plans

As part of the development of the UK’s approach to sustainability reporting, the government has announced that it will introduce requirements for mandatory disclosure of net-zero transition plans from UK financial institutions and listed companies. This follows an earlier announcement made by the UK government, stating that it will introduce legislation, effective April 2022, requiring UK-registered companies trading on a UK-registered market with more than 500 employees – as well as private companies with over 500 employees and £500 million in revenue – to provide disclosures in line with the Task Force on Climate-Related Financial Disclosures (TCFD). The new requirements are aimed at helping investors and businesses to better understand the financial impacts of their exposure to climate change, and to more accurately price climate-related risks, whilst supporting the ‘greening’ of the UK economy. Read more.

Reporting: International Sustainability Standards Board launches

The International Financial Reporting Standards (IFRS) Foundation has announced the formation of the International Sustainability Standards Board (ISSB) to create a global baseline for corporate sustainability disclosures that meet investor demands. The aim of the new Board is to unify disclosures from corporates, helping investors and other stakeholders properly compare their sustainability performance and related risks. While the unifying of reporting standards can be regarded as a positive development, concerns have been raised over the ISSB’s focus on using sustainability disclosures (that inform the prediction of value, timing and certainty of future cash flows) to calculate company enterprise value. As company value can be accounted for by a number of intangible factors, a focus on cash flows may only provide a partial account of the relevance of sustainability issues to a business and, so may provide investors with disclosures that fall short of their needs and / or expectations. Read more.

Ratings: IOSCO firms up proposals for tighter controls on ESG ratings

The International Organization of Securities Commissions (IOSCO) has issued its final report on ESG ratings and data providers (following consultation with the industry) which includes further detail on how the lack of transparency, conflict of interests and reliability of data could be improved. The report found little clarity and alignment on definitions; a lack of transparency regarding the methodologies underpinning these ratings or data products and uneven coverage of products offered, meant certain industries or geographical areas benefitted from more coverage than others. It outlined recommendations for regulators, market participants (e.g. investors), and ESG rating and data providers, to develop and follow voluntary common industry standards non-exhaustively. These included: to promote additional transparency concerning the methodologies that ESG ratings and data product providers use in developing their products; and ensuring their procedures for managing conflicts of interest were suitable. From a covered / rated entity perspective, recommendations on how to consider interacting with ESG ratings and data products providers are provided. Read more.

Ratings: Sustainalytics launches supply chain ESG solutions for companies

Sustainalytics has announced the launch of its Corporate Supply Chain Solutions tool, which includes access to company-level ESG ratings and data within Sustainalytics’ research universe; enabling users to holistically evaluate the ESG risk management performance of a company’s direct and indirect suppliers. The applications of the solutions include: assessing suppliers’ ESG issues to better understand exposure to material ESG risks; conducting an in-depth sustainability assessment that measures a company’s full economic and social impact, including the activities of partners and suppliers; and reviewing potential vendors and partners before entering new supplier or partnership agreements. Read more.

Capital Markets

Primary Market

  • Ford Motor Company, Green Bond. The Bond was the first sustainable debt issue by a North American Original Equipment Manufacturer (OEM), highlighting continued growth of the US ESG debt asset class with particular support from “household brands”. It was structured as a “family framework”, allowing both parent company and leasing entity Ford Credit to issue. Read more.
  • Lendlease, Green Bond. Lendlease completed its inaugural Green GBP transaction, which marked their return to the GBP market after a 15-year absence. It was also the first Green Corporate Bond to print over the new July 2033 green gilt. NatWest acted as Green Structuring Adviser, Active Bookrunner and B&D Bank on this transaction.
  • Maersk, Green Bond. One of the world’s largest shipping companies launched its inaugural Green Bond. The bond had very high demand partially due to the company clarifying that the proceeds will be used to fund methanol-fuelled ships and also because the issuance supports Maersk’s long-term targets (i.e. having a carbon neutral fleet by 2050). Alignment of projects with EU Taxonomy can be seen as a possible way that helped in dealing with greenwashing concerns. Read more.
  • Teva, Sustainability-Linked Bond. The $5 billion issuance is the largest of any Sustainability-Linked Bond from any sector and the first issued by a generic medicines company. Teva is also the first pharmaceutical company to execute Sustainability-Linked Bonds tied to both green and social targets. 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.

Investors

BlackRock Raises $673 Million, Targeting Infrastructure Investments in Emerging Markets

BlackRock announced that it has raised $673 million for the Climate Finance Partnership (CFP), that focuses on investments in climate infrastructure across emerging markets. CFP is a partnership between BlackRock, governments’ development agencies and several impact organisations that attempts to spearhead the circulation of capital into climate-related investments in developing markets. The fund will target investments in select non-OECD countries in Asia, Africa and Latin America. Read more.

Credit Suisse and JP Morgan Asset Management Launch Sustainable Nutrition Fund

Credit Suisse and J.P. Morgan Asset Management have partnered to launch a Sustainable nutrition-focused Fund, which will aim at investing in companies addressing the links between nutrition, health, biodiversity and climate. The fund launched with Assets Under Management (AUM) of over $250 million and will have a global portfolio, that includes small- and medium-cap companies. Read more.

BlueBay Launches ESG Multi-Asset Credit Fund

BlueBay launched a multi-asset ESG strategy aimed at enabling fixed income investors to gain exposure to the firm’s ESG-focused ‘best ideas,’ across several types of securities (i.e. global high yield, bank loans, structured credit, convertible bonds, etc.). The fund is categorised under Article 8 of the Sustainable Finance Disclosure Regulation (SFDR). 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:

·         Dr Arthur Krebbers, Head of Sustainable Finance, Corporates

·         Gustavo Brianza, Head of Ratings & ESG Advisory

·         Daniel Bressler, Vice President Sustainable Finance, Corporates

·         Darren Hook, Head of IG Corporates Research

·         Philippe Bradshaw, Head of IG Syndicate

·         Helen Ferguson, ESG Advisory

·         Thomas Gidman, Vice President ESG Advisory

·         Jaspreet Singh, ESG Advisory

·         Dean Shahfar, Sustainable Finance Corporates

·         Pietro Stimamiglio, Sustainable Finance Corporates

·         Niceasia Mc Perry, Sustainable Finance Corporates

·         Hui Ying, Structured Real Estate Finance

·         Samuel Nejman, Sustainable Finance Corporates

*For any unfamiliar terms used within this article please refer to our Insights glossary.

ESG
ESG/Sustainability


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