Corporate ESG Monthly – 3 September 2021

06 September 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 IPCC’s Sixth Assessment Report on climate change. The Intergovernmental Panel on Climate Change (IPCC) report highlights the global consensus of the ‘unequivocal’ role humans have in global warming and the rapid transformational changes needed by policymakers, companies, and investors to accelerate plans to lower emissions. The world is currently at or near the tipping point for certain climate impacts and could reach 1.5 degrees in the early 2030s under all emission scenarios. Companies and investors will need to prioritise and accelerate the transition to net zero, moving their focus from what (target) to the how (action) by using climate assessment tools to better understand how climate change might affect their operations, physical assets, and investment portfolios. Greater emphasis has been placed on the regional impacts of climate change, with additional details on adaptation strategies expected in subsequent reports. Going forward, companies should expect renewed questions from investors and regulators on how they are using information available from the scientific community to plan for and adapt to regional impacts. Read more.
  • The UK launches strategy to develop hydrogen as a major low carbon power source. The UK government announced the launch of its first-ever Hydrogen Strategy, aiming to promote the development and use of hydrogen as a major energy source to help fuel a decarbonised economy. The initiatives announced aim to enable the UK to reach the plan’s goal to achieve 5GW of low carbon hydrogen generation capacity by 2030. The capacity will be sufficient to power 3 million homes, as well as providing energy to transport and industry. In the long-term, government analysis suggests that the country’s energy consumption could be 20-35% hydrogen based by 2050. Read more.
  • Carbon price rises above €60 to set new record. The EU carbon price has reached an all-time high on August 30th, as the prospect of tighter environmental regulations, as well as a brief reduction in supply, pushed the market to a new record. The EU compliance market trades in credits that give the owner permission to emit one tonne of carbon dioxide. Larger producers including most coal power plants are required by the EU to purchase enough credits to cover their emissions. EU carbon prices have risen from about €30 per tonne at the start of this year; doubling over the course of the first eight months of 2021. Read more.

Disclosure

Reporting: Willis Towers Watson launches Climate Modelling Tool

Willis Towers Watson announced the launch of Climate Diagnostic, a new climate scenario modelling tool that enables organizations to assess the impact of climate factors on specific properties, enabling clients to determine how best to mitigate risk across their property portfolios. The tool utilizes advanced data and analytics to demonstrate the impact of potential changes in acute hazards and chronic stress factors, including extreme wind, flood, rising sea levels and heat stress under multiple combinations of climate scenarios and time horizons. Read more.

Ratings and Data: Moody’s launches SDG Alignment Screening Tool for investors

Moody’s ESG Solutions has launched Sustainable Development Goal (SDG) Alignment Screening, a data solution that helps investors integrate the United Nations SDGs into SDG-aligned investment strategies, funds, indices, and reporting. The new solution provides data for approximately 5,000 listed companies covering over 300 data points. It also employs a screening methodology that adopts a dual materiality approach, meaning that it captures both the contributions that a company makes to the SDGs through its products and services, as well as a company’s impact on the SDGs through its management systems and stakeholder relations. Read more.

Capital Markets

Primary Market

  • EnBW, Green Hybrid. EnBW launched a €500m Green NC7 and a €500m NC11 - the first time both a green and a non-green hybrid tranche have been marketed simultaneously. The transaction underlines EnBW’s strategic focus on sustainable finance, with green bonds supporting its climate neutrality plan which includes reaching net zero emissions and exiting coal-fired generation by 2035. Net proceeds from the Green NC7 tranche will be allocated to finance projects in categories: Renewable Energy, Energy Efficiency and Clean Transportation. This is as per EnBW’s Green Financing Framework on which ISS ESG provided a second party opinion (SPO). Read more.
  • Philip Morris International, Transformation-Linked Financing Framework. Philip Morris International marked its entry into Sustainability Linked Financing with its new business Transformation-Linked Financing Framework. This was a distinct use of the Sustainability-Linked Bond (SLB) structure, focusing on a “social transition” from cigarettes to smoke free products, as opposed to the more conventional focus on carbon transition. Philip Morris International is one of the first issuers to include a revenue-based Key Performance Indicator (KPI) in a SLB framework, when compared to a focus on non-financial KPIs. S&P Global have published an SPO on this Framework. The SPO assigned a ‘satisfactory’ (minimum) rating for all aspects of the Framework (including on the KPIs) principally as a result of not tracking health directly. Read more.
  • Mondelez, Green Bond. An inaugural green bond for Mondelez, in the form of a triple-tranche green bond in 8,11 and 20 years. The transaction was launched off the back of its newly established Green Bond Framework and obtained an SPO from ISS ESG. Mondelez identified green eligible projects (e.g. Renewable Energy, Energy Efficiency) in two key areas that align with their sustainability priorities: 1) Building a thriving ingredient supply chain 2) Reducing environmental impact. Mondelez is one of the few issuers in the Food & Beverage sector to issue a green bond this year, with sustainability-labelled debt issuances from the Food & Beverage sector remaining rare. Read more.

Investor Developments

Investor coalitions/partnerships: PRI delays ambitious reporting changes to 2023

Following a number of delays and feedback from more than 1,700 signatories, the Principles for Responsible Investment (PRI) has delayed the launch of the new reporting framework for its signatories until 2023. Many signatories found that the time and resource required to report on the pilot framework was too high, noting issues with the new online reporting tool. However, they did also recognise that the new framework does better capture responsible investment activities. The PRI are currently working with an external consultant to ensure that there are no further dataset issues which they’ve yet to identify. PRI CEO, Fiona Reynolds, acknowledges they “bit off more than they could chew in trying to make as much change as they did, in one reporting cycle”. Read more.

Investor coalitions/partnerships: Nature Action 100 and science-based targets for nature gather pace

A collaborative engagement initiative for nature, involving Science-based targets (SBTs) for nature and Nature Action 100 (NA100), is set to be launched in the coming months. The two nature-related initiatives are similar to the Science Based Targets initiative (SBTi) and the Climate Action 100+. The initiatives are set up to address the key area of focus of biodiversity and natural capital issues for investment companies globally. Read more.

Investment funds: The majority of climate-themed funds are misaligned with Paris goals

Climate change think-tank ‘Influence Map’ analysed 723 funds, with assets under management of more than $330bn (£240bn), regarding their alignment to the goals of the Paris Agreement. The research results are based on the Paris Agreement Capital Transition Assessment tool, and showed that more than half of climate-themed funds in the market are misaligned with the goals of the Paris Agreement. Full analysis of the 723 funds is available here. Negative scores in the survey indicated a fund's portfolio is “overweight in companies whose production plans negatively diverge from climate scenarios in the coal mining, oil and gas, power, and automotive sectors”. Read more.

Investment funds: Amundi launches Fixed Income strategies investing in ESG improvers

Amundi announced the launch of two Fixed Incomes strategies to its ESG Improvers funds range. The ESG improver funds range was launched last year and helps investors identify companies with ESG-related growth potential at an early stage. Read more.

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