Corporate ESG Monthly – 3 February 2021

03 February 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

  • The Bank of England must do more to secure green recovery from Covid, say MPs. According to a committee of MPs, the Bank of England must do more to ensure a green recovery from the Covid-19 crisis, as current emergency finance measures have not carried conditions relating to greenhouse gas emissions. The environmental audit committee has written to Andrew Bailey, the governor of the Bank of England, urging him to force large companies receiving millions of pounds in taxpayer money, to publish information on their exposure to climate-related risks. Such disclosures are not yet mandatory but have been recommended by the former Bank governor Mark Carney. Read more.
  • Why the US re-joining the Paris climate accord matters: The United States helped bring the world into the Paris climate accord in 2015, but under the leadership of Donald Trump became the first and only country to withdraw. However, with Joe Biden at the helm the US will now re-join the Paris Agreement, effective Feb. 19. What this means … as the world’s 2nd largest emitter of CO2, the US will be required to demonstrate decarbonisation leadership to both 1) rebuild international standing following the withdrawal and 2) credibly “name and shame” other countries into action. Read more.
  • Investors and companies pressing on diversity and racial equality. In a year when the pandemic sent the world into a tailspin, ESG investing moved from the peripheries of finance to the mainstream. And, so did many of the “S” issues that seasoned environmental, social and governance investors have for years pressed companies to address, such as racial disparities, worker pay and fair access to health care. In response, corporations such as Bank of America Corp, Sephora USA Inc. and Nike Inc. have either earmarked specific funds, formed task forces to address racial inequality or pledged support for Black-owned businesses; actions that are expected to continue through 2021. Read more.

Disclosure

Reporting: More than 60 global businesses announce commitment to transparency

Last September, the World Economic Forum (WEF) drew up a curated list of ESG goals, to encourage businesses to inform stakeholders of non-financial considerations. The WEF has since compiled a set of universal metrics, in line with the United Nations’ Sustainable Development Goals - comprising 21 core “stakeholder capitalism metrics,” and 34 expanded ones, all under four main pillars. Sony, Unilever, and Dell are among the 61 companies that have made the pledge, with an expectancy that more will follow this year. Read more.

Reporting: ELFA and PRI launch guidance on ESG disclosure (ESG Fact Sheets)

The European Leveraged Finance Association (ELFA) and the Principles for Responsible Investment (PRI) have launched sector-specific guidance on ESG disclosures for sub-investment grade corporate borrowers. The ESG Fact Sheets are designed to support borrowers in preparing sector level ESG disclosures and for providing guidance on where reporting efforts should be focussed. Three sectors are initially covered: debt collectors, paper and packaging, and telecoms companies. And, the following sectors are currently being evaluated: chemicals, industrials, retail, technology/software and towers/infrastructure. Read more.

Ratings: Fitch paper on ESG Credit trends

Fitch Ratings’ have shared ESG-related research from over 1,400 credit analysts in more than 30 countries. They identified 5 broad ESG trends expected to affect credit ratings in 2021, with the help of Fitch’s ESG Relevance Scores (ESG.RS). Fitch expect the sustainable market to evolve to incorporate labels beyond “green”. Innovations such as sustainability-linked bonds (SLBs) will widen access to a broader range of sectors and asset classes. This evolution could help address the social risks that emerge from the “new normal” centring around affordability and access to basic needs. Read more.

Ratings: NatWest analysis on ESG rating landscape

Over the last few years, we’ve seen a significant growth in the use of ESG ratings, particularly by investors, and we’ve seen the ESG rating industry grow considerably. The ESG rating industry has already experienced a phase of consolidation and a new wave of competitors – such as ESG data providers – extending their services to compose ESG ratings. In a recent article, we introduce the universe of ESG rating agencies and cover how such agencies arrive at their respective ESG scores. Read more.

Capital Markets

Primary Market

  • Tesco Corporate Treasury Services, Sustainability-linked Bond (SLB). Tesco is the first food retailer and first UK corporate to issue a SLB bond and this was the first EUR-denominated SLB transaction of 2021. Selected KPIs are Scope 1 and Scope 2 emissions and interest may be increased by +25 bps if the company fails to achieve its Sustainability Performance Targets. Read more.
  • CBRE Pan European Core Fund, Green Bond. An inaugural EUR 500 million 7-year green bond. CBRE’s framework only allows the Pan European fund to issue in a green format, rather than applying to multiple subsidiaries of the group (so not a “family framework”). But, the global approach to green financing allows for the issuance of both bonds and loans across different geographies. Read more.
  • United Utilities, Sustainability Bond. An inaugural GBP 300 million 0.875% note, due October 2029. The bond was issued in a sustainability format to fund a combination of green and social projects. It was also fully aligned with the International Capital Market Association (ICMA) Green Bond Principles and Loan Market Association (LMA) Green Loans Principles. Read more.
  • Level 3 Financing, Sustainability-linked notes. The notes were set-up in a two-target format with the aim to reduce the company’s absolute emissions: 1) Sustainability Performance Target (SPT) Scope 1 and 2 and 2) SPT Scope 3, by 2025. A Coupon step-up of 6.25 bps or 12.5 bps is triggered if the company fails to satisfy either or both of the SPTs. A 2-step structure such as this has not seen before in a public bond. 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.

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Glossary

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IG

Investment Grade

 

ESG


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