Corporate ESG Monthly – 11 May 2022

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

Institutional Developments: Regulators / Standard setters

  • UK taskforce to develop transition plan ‘gold standard’. The UK treasury has created a ‘transition plan taskforce’ to develop ‘the gold standard’ for climate transition plans to support a range of use cases including the development of sustainability-linked instruments, financial regulation and corporate strategy. The taskforce will create a ‘sector-neutral framework’ for private sector transition plans, sector-specific guidance for finance and real economy sectors, and recommendations for companies preparing transition plans and the investors that use them. From 2023, UK-listed companies, asset managers, life insurers and pension providers, regulated by the FCA, will be required to publish transition plans as part of the Task Force on Climate-related Financial Disclosures (TCFD).  

  • EU Council agrees to move ahead with creation of European Green Bond Rules. The Council of the European Union announced that a proposal to create European Green Bonds (EuGBs) has been greenlighted by its members. This will lead to the creation of a supervisory framework and requirements for issuers wishing to use the “EuGB” designation for issuances. The EuGB framework aims to become the “gold standard” for how companies and public authorities can use green bonds to raise capital, whilst also meeting rigorous sustainability requirements and protecting investors from greenwashing. Key components of the framework include the requirement for full allocation of funds to projects aligned with the EU Taxonomy and the provision of full transparency on the allocation of proceeds, both of which are to be checked by an EU-supervised external reviewer. 

  • Britain plans nuclear and offshore turbines to boost energy independence. Britain set out plans to expand nuclear, solar and offshore wind power to bolster its energy independence in the wake of rising energy prices and the current geopolitical environment. As Britain removes the relatively small proportion of oil and gas it receives from Russia, it is set to expand nuclear production capacity to 25 gigawatts (GW) by 2050 (accounting for 25% of UK electricity demand, from 14% currently), with the potential for eight new reactors to be delivered. Plans are also in place to increase offshore wind to 50GW by 2030, compared to 10GW currently, as well as the potential for a new licensing round for North Sea oil and gas, and a consultation on rules for solar projects. Given surging prices caused consumer bills to rise 54% in April, critics have expressed frustration that more focus was not placed on options that could have delivered a more immediate impact, such as targets to expand onshore wind and improve home insulation.


Reporting: FCA to require companies to disclose on board and executive diversity

The FCA has announced it will require listed companies in the UK to disclose on diversity and inclusion, and state whether they have met specific targets set by the regulator from financial periods starting 1 April 2022. The targets include: >40% women at Board level (including audit, remuneration and nominations committee); a woman in at least 1 senior board position (Chair, CEO, CFO, or Senior Independent Director), and at least 1 board member from a non-white ethnic background. Companies will be required to report on a “comply or explain” basis, meaning companies that fail to meet the targets will have to explain why not – this is to provide flexibility for smaller firms or those based overseas.


Reporting: IFRS releases first draft of ISSB’s new Sustainability and Climate Disclosure Standards

The International Financial Reporting Standards Foundations (IFRS) announced the release of the first exposure drafts of proposed standards for company sustainability and climate related disclosures by its International Sustainability Standards Board (ISSB). The new standards are aimed at addressing the demand by global capital markets for more comprehensive and consistent sustainability information. The proposals envision sustainability-related financial information being reported and would require disclosure on how this information is related to financial statements. The ISSB has initiated a 120-day consultation period and anticipates issuing the new standards by the end of this year.


Ratings: Moody’s launches new ESG platform for portfolio managers

Moody’s ESG Solutions announced the launch of Moody’s ESG360™, a new platform with access to Moody’s physical and transition climate risk data sets for 10,000 large companies globally. The new platform aims to provide portfolio managers with climate and ESG data and insights on public and private companies to analyse portfolios, screen target companies, manage and mitigate risk, conduct ESG research and meet reporting requirements. Moody’s stated that it plans to expand the platform over the coming months with ESG insights and coverage of millions of companies through a combination of modelled and ESG analyst-verified scores.


Ratings: Fitch extending climate vulnerability scores for all corporate sectors 

Fitch Rating announced the publication of Climate Vulnerability Scores for several new sectors, including auto manufacturing, aerospace and defence, transportation, and technology, media and telecommunications. The scores range from 10 to 90 and measure the relative vulnerability level of sectors and entities to carbon-related changes. Fitch plans to roll out the scores to more sectors globally in the coming months. The scores were developed in response to a need from investors for a long-term view of low-carbon transition risks and provide the agency’s view of the creditworthiness impact of sectors, companies and debt securities to a rapid low-carbon transition between 2025 and 2050.

Capital Markets

Primary Market

Deere & Co. (John Deere, JD), Sustainability-Linked Bond. John Deere issued an inaugural 7Y $600m Sustainability-Linked Bond (SLB). The bond is the first SLB in the agriculture machinery sector and only the fifth issuance in the machinery/equipment sector. Their newly established SLB Framework (April 2022), will support the company’s commitment to use the sustainable capital markets to align its strategic sustainability initiatives with its financing. The Key Performance Indicator (KPI) structure includes a single Scope 1 & 2 Greenhouse Gas (GHG) emissions target to reduce emissions 20% by 2025 against a 2021 baseline. S&P Global provided the external verification on the framework and considers its chosen KPI to be strong (second strongest score) and the Scope 1 and 2 Sustainability Performance Target (SPT) is considered advanced (strongest score).


Fortescue, Green Bond. Fortescue is an Australian iron ore mining company, who recently issued their inaugural 10yr $800m green bond. This issuance marks the first ESG-labelled mining issuance in 2022 and adds to the growing number of high yield issuers in the ESG-labelled space with around 20 HY issuances in Q1 2022. The transaction is issued under the Fortescue Sustainable Financing Framework which supports an array of Green and Social Projects. The Sustainable Financing Framework lists ‘excluded’ projects, to specify which expenditures this financing does not apply to. ISS ESG provided the Second Party Opinion on the framework.


Hexagon Housing Association, Sustainability Bond. Hexagon issued a £250m 26-year inaugural Sustainability Bond. This bond was Hexagon’s first entry to the capital markets and their first transaction under their recently established Sustainable Finance Framework (SFF). Hexagon’s framework focuses on Green buildings to help reduce greenhouse gas emissions and affordable housing to help reduce social inequality and contributes to UN Sustainable Development Goals (SDGs) 1, 2, 3, 4, 8 and 10. The SFF has received a Second Party Opinion from DNV who have confirmed that the SFF is aligned with the relevant International Capital Market Association (ICMA) and Loan Market Association (LMA) principles whilst it also highlights Hexagon’s strong commitment to Sustainability. Read more.


TenneT, Green Bond. TenneT issued a €3.8bn multi-tranche Green Bond, the largest Green transaction in the EUR market, and the first transaction launched off TenneT’s new Green Financing Framework. It is the largest EUR corporate transaction YTD and includes the first 20-year tranche of 2022 (the longest tenor the EUR market has seen since Nov-21). Effective ESG communication done with investors weeks before launching the transaction helped to de-risk the execution.


Secondary Market

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Carbon Markets

Invert and CarbonCure sign the world’s largest purchase agreement for carbon credits to store CO2 through carbon mineralization

Invert, Ripple and CarbonCure have signed a 10-year carbon credit purchase agreement for permanent CO₂ storage through carbon mineralization. The partnership worth USD $30 million represents the largest investment to date in carbon mineralization and storage.


Real estate investors call on regulators for dedicated ESG metrics

Eight real estate investor associations have proposed dedicated environmental, social and governance (ESG) reporting metrics for the Real Estate Industry to the UK’s Financial Conduct Authority to support its development of sustainability disclosure requirements and investment labels.


Investor groups urge EU to mandate climate transition plan disclosure to back-up net-zero commitments

The European Sustainable Investment Forum and the Principles for Responsible Investment have urged the European Commission, the European Parliament, and the EU Council that the upcoming Corporate Sustainable Reporting Directive (CSRD) include requirements for companies to disclose their climate transition plans to back-up their net-zero commitments.


AXA IM: Directors must have ‘proven’ ESG track record to drive sustainable value

AXA Investment Managers (AXA IM) has updated its corporate governance and voting policy for investee companies. Under the updated voting policy, the asset manager will vote against directors at investee companies if they have no proven track record of managing environmental and social issues.

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