Corporate ESG Monthly - 9 March 2022

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

Institutional Developments: Regulators / Standard setters

  • ‘Grave and mounting threat’: IPCC again raises alarm that climate impacts are proving worse than feared. The Intergovernmental Panel on Climate Change (IPCC) has released a landmark report sounding the alarm over the intensifying impacts of climate change, warning that the world faces unavoidable and worsening climate hazards over the next two decades as global temperatures are driven up by human activity. The findings of the report highlight how deforestation, pollution and land use change is hampering nature’s ability to provide services essential to human life, such as coastal protection, food supply or climate regulation, through the capture and storage of carbon from the atmosphere. The report calls for drastic and concerted action to bring down emissions, providing the strongest call yet, for protection of nature to be placed at the heart of efforts to tackle climate change, warning that safeguarding and strengthening nature is critical to securing a liveable future. Read more on the IPCC's landmark report.
  • European markets regulator targets ‘greenwashing’ and transparency in new Sustainable Finance Roadmap. The European Securities and Markets Authority (ESMA) has released its new Sustainable Finance Roadmap, setting out its priority areas for action and implementation of deliverables to address the rapidly emerging and evolving sustainable finance market over the next three years. A top priority area for ESMA’s new roadmap is addressing the risk of ‘greenwashing’, referring to situations in which the claims made regarding the sustainability profile of an issuer, or a financial instrument, are misleading or misrepresented. The new roadmap outlines ESMA’s strategy to investigate, better define, address and help find, common EU-wide solutions for greenwashing. Other top priority areas include: building capacities in sustainable finance for ESMA and National Competent Authorities (national-level regulatory authorities “NCAs”); monitoring, assessing and analysing ESG markets and risks. ESMA is preparing to institute sustainable finance training programmes for ESMA and NCA staff, developing climate scenario analysis and stress testing, along with enhancing common risks analysis methodologies. Read more on the Sustainable Finance Roadmap.
  • European Commission issues major proposal in support of protecting human rights and the environment across supply chains. The European Commission has issued a proposal for a Directive on Corporate Sustainability Due Diligence to tackle human rights and environmental impacts across global value chains. This Directive would impose a corporate duty to identify and take steps to prevent and / or mitigate potential adverse impacts on human rights and the environment in the company’s own operations and across their value chains. Concurrently, the Commission published a Communication on ‘Decent Work Worldwide’, outlining plans to tackle forced labour, including a proposal to ban goods produced with forced or child labour from the EU market. The Proposed Directive will also complement the Sustainable Finance Disclosure Regulation and the Taxonomy Regulation. Read more on the European Commission's proposal.
  • Bank of England launches second round of climate stress tests for banks and insurers. The Bank of England has announced the launch of the second round of the Biennial Exploratory Scenario (BES) exercise, its stress test aimed at assessing financial risks from climate change for the UK’s largest banks and insurers. The tests use three scenarios based on those prepared by the Network (for Central Banks and Supervisors) for Greening the Financial System (NGFS), including ‘early’, ‘late’ and ‘no action’, which highlight a range of outcomes encompassing scenarios that follow the most efficient pathway to net-zero, as well as those from pursuing late or insufficient action. The second round of BES is focussed on the Bank of England’s objective to understand the challenges to banks’ business models arising from climate risks, and gauging their likely responses as well as the implications for the provision of financial services. Read more on the Bank of England's stress test.


Reporting: Carbon Call launched – new carbon emissions accounting initiative

Climateworks Foundation announced the launch of ‘Carbon Call’, a new initiative, with participation from over 20 companies (incl. Microsoft, EY, and KPMG), aimed at addressing the need for a reliable and interoperable global carbon emissions accounting system. The initiative will mobilise collective investment and resources towards expanding transparent, comprehensive, and regular emissions reporting from companies. Carbon Call supports underlying data and science to produce comparable, combinable, and sharable information to enable efficient assessment of companies’ carbon accounting. Read more about Carbon Call.

Reporting: Investor-backed initiative TPI launches sector-specific framework to assess companies’ climate goals and progress

The Transition Pathway Initiative (TPI) published ‘the Sectoral Decarbonisation Pathways’, its detailed framework for guiding investors in assessing corporate climate targets across high-emitting sectors (Energy, Industrials and Transport). TPI’s pathways are used by the Climate Action 100+ investor engagement network, and by major asset managers and owners. The new framework utilises an economy-wide emissions budget approach to develop sectoral budgets, whilst considering the unique sectoral challenges, where emissions are concentrated, and how costly it is to reduce for each. Read more about TPI.

Ratings: ERM launches ESG ratings platform for private markets

Sustainability advisory firm ERM announced today the launch of ‘ESG Fusion’, its new AI-enabled, on-demand, custom ESG ratings platform for private markets; which aims to enable faster investment decision-making and opportunity identification, and act as an early stage ESG due diligence tool. The new platform is powered by intelligent web-crawlers, APIs from an ecosystem of data providers, and alternate data sources to provide detailed ESG data and content, which is reviewed and curated by ERM experts. Read more about ESG Fusion.

Ratings: Morningstar culls 27% of European sustainable funds after fresh review

Morningstar has reversed a previous decision to label more than 1,200 EU funds as ‘sustainable’, after scrutinising their documents. Most of those that had the label removed recently self-identified as ‘light green’ Article 8 funds under the EU Sustainable Finance Disclosure Regulation (SFDR). Under the SFDR, funds can self-describe as ‘light green’ Article 8 funds if they claim to promote environmental or social characteristics in their investment policy or ‘dark green’ Article 9 if the policy has sustainable investment as its objective. In contrast, Article 6 funds do not integrate any kind of sustainability into their investment process. Morningstar said it had now reverted to its “pre-SFDR European universe of sustainable funds” which includes any funds that have “sustainability-related terms in their names and clear descriptions of their ESG-focused processes in key investor information documents”. This reversion to its earlier methodology has resulted in a “smaller” universe of ‘sustainable funds’. Read more about the EU's sustainable funds.

Capital Markets

Primary Market

  • Hurtigruten Group SA, Green Bond. Hurtigruten Group SA (HRG) issued the first green bond as a cruise line operator; which was also the first high yield ESG labelled bond issued with project categories focussed on retrofitting sea vessels and R&D dedicated to low carbon fuel vessels & technologies. Their Green Bond Framework is aligned to SDGs #13 – Potential emission offsetting schemes and #14 – Avoid unintended spills in protected waters. Read more on HRG.
  • Vestas Wind Systems, Sustainability-Linked Bond. Vestas issued its inaugural Sustainability-Linked Bond from their newly established Sustainability-Linked Bond Framework. Despite the explicit reference to “bonds” in the framework name, the company will be able to issue “different securities including bonds and Schuldscheins”. The framework includes multiple Key Performance Indicators (KPIs); (1) absolute scope 1 and 2 emissions, (2) intensity scope 3 emissions, and (3) material efficiency ratio to tackle one of the main issues faced in the industry – i.e. what to do with wind turbine blades when they are no longer needed. Read more on Vestas Wind Systems.
  • Peabody, Sustainability Bond. Peabody issued its £350m 12-year inaugural Sustainability Bond. The creation of the Sustainable Finance Framework represents another important milestone in Peabody’s ESG Strategy and this transaction marks Peabody’s inaugural issuance under their newly established Sustainable Finance Framework. The framework focuses on the following categories: Social (Affordable Housing, Access to Essential Services and Employment Generation) and Green (Green Buildings, Energy Efficiency and Renewable Energy) and has received a Second Party Opinion from DNV. Read more on Peabody.

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.

Carbon Markets

Shared Wood Company, a carbon offset business recently launched

The Shared Wood Company (SWC), a recently-established carbon-offset business supported by AXA Investment Managers (IM) and ENGIE, has been launched. The company plans to specialise in delivering carbon reductions through nature-based projects in Africa, Latin America and Europe. The launch of SWC comes amid the growth of the voluntary carbon market. The voluntary carbon market is a critical enabler to support the transition to a low carbon economy. Read more on Shared Wood Company.

More banks to join forces to create voluntary carbon marketplace

In July 2021, NatWest Group, along with CIBC, Itaú Unibanco and National Australia Bank, announced plans to launch the world’s first voluntary carbon marketplace. Three other banks have now publicly joined the platform (UBS, Standard Chartered and BNP Paribas) forming a group of 7 banks involved. Read more about the carbon marketplace.


Allianz GI will reject executive pay at Large European firms if they fail to include ESG KPIs

Allianz GI has mentioned that it will vote against executive pay at large companies that fail to include ESG metrics. The asset manager has recently updated its Global Corporate Governance policy to place more emphasis on sustainability-related issues. It now expects large European companies to include ESG key performance metrics in their remuneration guidelines. Furthermore, it has also mentioned that it will strengthen its voting rules on ethnic diversity to ensure companies within the UK and US come up with a diversity approach beyond gender. Read more on Allianz GI.

AXA IM launches social and sustainable bond fund

AXA Investment Managers (IM) has recently established its first social and sustainable bond fund that aims to deliver positive social impact such as job creation and healthcare. The fund will focus on three key themes: empowerment to promote access to education, as well as inclusion to promote access to basic needs, as well as health and safety. The fund which is classified as an SFDR 9 product will invest at least 75% in social and sustainability bonds as well as contribute to UN Sustainable Development Goals (SDGs) 1,3,8 and 11. Read more on AXA IM.

For Corporates looking to discuss any of the above further, please reach out to our authors and contributors:

📧 Gustavo Brianza, Head of Ratings & ESG Advisory

📧 Daniel Bressler, Vice President Sustainable Finance, Corporates

📧 Darren Hook, Head of IG Corporates Research

📧 Philippe Bradshaw, Head of IG Syndicate

📧 Thomas Gidman, Vice President ESG Advisory

📧 Pietro Stimamiglio, Sustainable Finance Corporates

📧 Niceasia McPerry, Sustainable Finance Corporates

📧 Jaspreet Singh, ESG Advisory

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