Corporate ESG Monthly – 4 December 2020

04 December 2020

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Breaking down trending ESG trades & themes to help Corporates get ahead of the latest issues shaping the market.

Institutional Developments

  • UK Government announces Green Industrial Revolution with up to £12bn investment. Prime Minister Boris Johnson has unveiled a 10 Point Plan for a green industrial revolution, focusing investment on a wide array of clean technologies and low carbon projects. The ten-point plan will mobilise £12 billion of government investment and will require up to c£30 billion of private sector investment, potentially creating up to 250,000 jobs. Read more.
  • UK Government introduces mandatory disclosure requirements. The UK Government intends to introduce mandatory reporting of climate-related financial information across the economy by 2025, with a significant portion of mandatory requirements in place by 2023. The reporting requirements will be in line with the currently voluntary recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD), which calls for companies to disclose their governance, strategy, risk management and targets and metrics in relation to climate change. Read more.
  • FCA outlines its direction of travel on ESG reporting and disclosure. The FCA will publish a policy statement to enhance climate-related disclosures by listed issuers, by requiring disclosures in line with TCFD recommendations. The regulator is working closely with the UK Government and other regulators on how to implement the ambitions of the EU’s Sustainable Finance Action Plan in the UK. The FCA is also considering whether it would be helpful to articulate publicly a set of guiding principles to help firms with ESG product design and disclosure. Read more.

Disclosure

Reporting: BlackRock pushing for a single global reporting framework for sustainability

BlackRock has said enhanced, standardized sustainability reporting “is critical” to investors’ ability to account for material ESG factors and that it would “support more accurate asset pricing and enhance understanding of the drivers of risk and value in companies’ business models”.

There are already a number of new initiatives to standardise ESG reporting. One is backed by the leading sustainability reporting frameworks (SASB1, GRI2, CDP3) and frameworks that promote further integration between non-financial and financial reporting (IIRC4, CDSB5). Another, led by the International Financial Reporting Standards Foundation (IFRS), is backed by the International Federation of Accountants.

According to BlackRock the IFRS initiative “would be the optimal outcome and it called SASB a “globally relevant” standard that is “grounded in the language of business planning and operations.” SASB has said the IFRS “is complementary” to its own efforts and “we are supportive.” Read more.

Reporting: IIRC and SASB announce intention to merge to simplify corporate reporting

The IIRC and the SASB, today announced their intention to merge into a unified organization ‘The Value Reporting Foundation’ (VRF). The VRF will form a credible, international organization that maintains the Integrated Reporting Framework and sets sustainability disclosure standards. The merger responds to calls from global investors and corporates to simplify the corporate ESG reporting landscape. Read more.

Ratings: Stocks with higher ESG ratings outperformed, according to new research by Fidelity

Fidelity has found that the market does, in fact, discriminate between companies based on their attention to sustainability matters, both in crashes and recoveries. Over the months January-September this year, stocks with an ESG rating of ‘A' outperformed the MSCI AC6 World index, with the exception of April – where groups with higher ESG ratings fell less even as the markets collapsed and rose less when they recovered sharply. 

Fidelity carried out the performance comparison across 2,659 companies covered by its equity analysts, and 1,450 companies in fixed income, using its proprietary ESG rating system, and found similar results in fixed income. Fidelity also found there was a "clear linear relationship demonstrated across the ESG ratings groups", with each group beating its lower-rated group from ‘A’ down to ‘E’. Read more.

Ratings: Nasdaq launches new ESG analytics tool for investors to improve impact investing decisions

Nasdaq has released a new tool – dubbed the Nasdaq ESG footprint – that allows investors to track the ESG impact of a company or portfolio of companies. The tool analyses the sustainable competitive advantages and disadvantages of more than 13,000 globally listed companies from 60 different global data source. It converts ESG data into everyday metrics to show investors the impact of their portfolios and investors can leverage the analytics to help inform portfolio construction and risk management decisions at the portfolio – and individual – security level. Read more.

Capital Markets

Primary Market

  • Veritas, Sustainability-linked Bond. The transaction is the first in the bond space to link the coupon of the instrument to an external ESG rating score. It will receive +10 bps coupon step-up if Veritas has not been assigned with an ESG upper-tier rating (by either EcoVadis, ISS7 or Sustainalytics) before November 2024. Read more. 
  • Stora Enso, Green Bond. An inaugural green benchmark bond in the EUR bond market. The 0.625% coupon is a record low for Stora Enso and marks the lowest coupon ever achieved on a 10yr financing for a Finnish company. Read more.
  • Holcim Finance, Sustainability-linked Bond (SLB). Holcim Finance published a new Sustainability-linked Financing Framework followed by a EUR 850 million SLB issuance. The framework is the first linked to the company’s ESG performance to date that allows for multiple forms of penalty (i.e. #1 coupon step-up, #2 donation to NGO8 or research institute, #3 R&D budget top up). Read more.
  • Anglian Water: Sustainability finance framework. The company issued a GBP 50 million green bond off its newly updated Sustainability Finance Framework. The framework is the first sustainable finance Framework to incorporate both use of a proceeds based and KPI-based instrument flexibility. 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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Or, for Corporates looking to discuss any of the above further, please reach out to our authors:

Glossary

1 SASB Sustainability Accounting Standards Board
2 GRI Global Reporting Initiative
3 CDP CDP (formerly Carbon Disclosure Project)
4 IIRC International Integrated Reporting Council
5 CDSB Climate Disclosure Standards Board
6 MSCI AC MSCI All Country
7 ISS Institutional Shareholder Services
8 NGO Non-governmental organization
9 CSPP Corporate sector purchase programme
10 IG Investment Grade
ESG/Sustainability
ESG


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