Corporate ESG Monthly – 3 March 2021

03 March 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

  • LSEG Launches Transition Bond Segment. The London Stock Exchange Group plc (LSEG) has become the first exchange to launch a dedicated Transition Bond Segment. The segment will display debt instruments from issuers who have a corporate strategy or transition framework aligned to the Paris Agreement. The new segment joins Green, Social, Sustainability, Sustainability-Linked and Green revenues bond segments to form the London Stock Exchange Sustainable Bond Market. In addition to this commitment, LSEG has become the first global exchange group to commit to net zero through a Business Ambition for 1.5° and hence has become a member of the United Nations Climate Change ‘Race to Zero’. Read more.
  • New criteria for chiefs’ bonuses: diversity and climate change. Board directors are now under greater pressure to consider issues, from climate change to diversity, when deciding on the size of bonuses for company chiefs. According to an ISS1 ESG report, 20% of the 6,500-business examined currently consider environmental or social metrics when deciding executive pay awards; double that of 2018. So, whilst ESG linked variable renumeration is not new to the agenda, the size and scope of the impact on bonuses and long-term incentives has increased and looks set to continue. Read more.
  • Leeds and London set to become global centres of green finance. Leeds and London will be home to a new UK centre for driving global green finance and investment – kicking off in April 2021. The research hubs in the two cities will provide world-class data, analytics and environmental intelligence to financial institutions and services such as banks, lenders, investors, and insurers around the world. This initiative, alongside the Prime Minister’s Ten Point Plan, exemplifies the UK’s drive to build back greener whilst creating thousands of new green jobs. Read more.

Disclosure

Reporting: ‘TCFD ASAP’ Inside the fast-evolving world of TCFD reporting

The Task Force on Climate-related Financial Disclosures (TCFD) was given the remit to "make recommendations for consistent company disclosures that will help financial market participants understand their climate-related risks".

The current state of adoption: over 1,300 companies with a market capitalisation of $12.6tr, and financial institutions responsible for assets of $150tr, are now reporting in line with the TCFD guidelines.

As the TCFD guidelines look set to gather further traction, with the UK mandatory disclosure deadline approaching, this article explores a myriad of views that consider, the investor, the asset manager and the researcher. Read more.

Reporting: SFDR, new ESG challenges for asset managers

What is the Sustainable Finance Disclosure Regulation (SFDR)? The SFDR is part of the European Commission’s package of reforms to implement its sustainable finance strategy.

How does it apply to UK firms? Although not adopted in UK domestic law post Brexit, SFDR will remain relevant where firms wish to market in the EU or manage EU-based funds.

What changes will SFDR bring? Amongst others, a requirement to disclose “principal adverse impacts” of investment decisions on sustainability factors on a “comply or explain” basis. Read more.

Ratings: ESMA2 calls for legislative action on ESG ratings, assessment tools

The EU financial markets watchdog has written to the European Commission to suggest it take legislative action on ESG ratings and assessment tools. Any regulatory requirements would present difficulties as the market is complex and still developing through product innovation. So, it would be essential that any definitions are consistent across other areas of EU capital markets and sustainable finance legislation, including the taxonomy. Read more.

Ratings: Seven ESG trends to watch in 2021

S&P Global analysis emphasises the importance of taking a long-term view, to ensure both policies and business strategies look beyond the next quarter. This is an approach that appropriately translates when seeking to understand ESG risks and opportunities to create equitable societies for decades to come. The seven trends are: Data Improvement, Biden Administration Impacts, Threats to Nature and Biodiversity, Increasingly Nuanced Energy Transition Conversations, Shift to Climate Resilience, Investors and Social Issues, Global Traction of Social Issues. Read more.

Capital Markets

Primary Market

  • H&M, Sustainability-linked Bond (SLB). An inaugural €500m 8.5-year Sustainability Linked Transaction. It is the first EUR-denominated SLB transaction of 2021 and H&M is the second fashion retailer and sixth European issuer to issue an SLB. The SLB is a novel structure for the bond market where 3 KPI’s separately contribute to the economic magnitude of the coupon step-up. The targets are related to use of recycled materials, Scope 1 and Scope 2 emissions and the reduction of indirect Scope 3 emissions in its supply chain. Read more.
  • Whitbread, Green Bond. An inaugural £550m green dual-tranche bond. The proceeds will be used for green construction, green operations, and sustainable procurement. The transaction highlights a number of ESG trends: 1) The growth of the UK sustainable bond market 2) The growing emergence of new sectors entering the sustainable bond market 3) The ability to use OPEX3 as part of a ‘use of proceeds’ framework. Read more.
  • Iberdrola, Green Hybrid. A €2bn Green Hybrid Dual Tranche, the largest Green hybrid to date. This marks Iberdrola’s fourth Green hybrid and now makes the issuer the largest green hybrid issuer with currently €3.5bn Green hybrid outstanding. The net proceeds of the transaction will be on-lent or deposited with another member or members of the group and will exclusively finance or refinance, in part or in full, offshore wind power projects in France and Germany. 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.

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

ISS

Institutional Shareholder Services

2

ESMA

European Securities and Markets Authority

3

OPEX

Operating expense

4

IG

Investment Grade

 

ESG


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