The road to sustainable finance continues

In our monthly Corporate ESG newsletter we breakdown the trending ESG* trades and themes, helping Corporates get ahead of the latest issues shaping the market.

Institutional Developments: Regulators / Standard setters

  • EU calls to the EBA for advice on green loans and mortgages. The EU Commission has reached out to the European Banking Authority (EBA) to propose the merits of devising a green loan label, based on the EU Taxonomy. This request to the EBA is in the context of the EU encouraging households and small and medium-sized enterprises (SMEs) to adopt sustainable finance as part of their wider strategy. The EBA has been asked for advice on numerous topics, including: regulatory and legislative measures that could be introduced in the green loan market; suggestions related to origination and monitoring requirements of existing green loans; and an evaluation of the most common approaches used to assess green loans. The report by the EBA is also set to include hindrances to the development of the green loan market and provide guidance on how to link green loans into the financing instruments issued by credit institutions. The EU body has been given until 29 December 2023 to deliver its recommendations.
  •  ECB sets deadlines for banks to deal with climate risks. The European Central Bank (ECB) has set deadlines for banks to progressively meet all supervisory expectations, that the ECB established in the Guide on Climate-Related and Environmental Risks. This follows the ECB’s publication of the results of its thematic review, highlighting that banks are ‘inadequately identifying and managing climate and environmental risks’. Banks are expected to meet the first of three milestones (to conduct a full assessment of the named risks’ impact on their activities) by March 2023, with full alignment expected by the end of 2024. The exercise will be closely monitored and, if goals are not met, enforcement actions may be implemented. The ECB has also published a compendium of good practices enacted by market-leading Financial Institutions (FIs). In addition, bank-specific climate and environmental findings are already being included in the Supervisory Review and Evaluation Process (SREP), with the ECB imposing binding qualitative requirements on more than thirty banks.


Reporting: Council gives final green light to CSRD

The EU Council has given its final approval to the Corporate Sustainability Reporting Directive (CSRD) regarding the establishment of new rules intended to increase companies’ accountability, prevent divergent sustainability standards, and facilitate the transition to a sustainable economy.

The new rules require companies to indicate the impact of their business model on their sustainability, and the influence of external attributes – such as climate change or human rights issues – on their activities. This, in essence, amounts to a double materiality requirement.

The Directive will be applicable to all large and to all listed companies in regulated markets with the exception of listed micro undertakings. All non-European companies with a net turnover of EUR 150 million in the EU will be required to publish a sustainability report from 2029, subject to meeting certain thresholds.

Reporting: UK unveils disclosure framework for net zero transition plans

The UK’s Transition Plan Taskforce (TPT), which officially launched in April, announced the introduction of a new framework to improve the quality and consistency of companies’ commitments to net zero.

The release includes: the TPT disclosure framework which makes recommendations on transition plans; the TPT implementation guide, which details the stages of developing a transition plan and guidance on the disclosure of a company’s plan; and a “sandbox” to allow for testing of the framework and guidance.

The TPT’s new framework, which will help shape future regulation in the UK, draws on existing and emerging standards and recommendations such as the International Sustainability Standards Board (ISSB), Taskforce on Climate-related Financial Disclosures (TCFD) and the Glasgow Financial Alliance for Net Zero (GFANZ).

Reporting: Survey suggests businesses and investors have different ESG priorities

A recent survey by EY, of 1,040 Chief Financial Officers, 320 institutional investors and other senior finance leaders, found a large gap between investors’ expectations and companies’ actions in the ESG investment and reporting space.

In the survey, 99% of investors stated that ESG considerations were a crucial part of their decision-making; however, 76% answered that organisations were highly selective about which data and information they provide, making decisions harder and increasing the likelihood of greenwashing.

Investors and businesses also disagreed on the prioritisation of ESG improvements; 78% of investors were in favour of investing in ESG-related improvements, even if these may reduce short-term profits, whilst only 55% of business leaders favoured this stance. Interestingly, 53% of companies responded that their attempts to effect long-term investments are currently impeded by investor demand to deliver short-term profits.

Ratings and data: FCA set-up focus group on ESG ratings

The Financial Conduct Authority (FCA) has set up a focus group to create a code of conduct for ESG data and rating providers that will be chaired by M&G, Moody’s, the London Stock Exchange Group, and Slaughter & May. The group will comprise investors, ESG data and ratings providers, and rated entities.

The FCA announced that providers of ESG ratings will be encouraged to apply a ‘voluntary best practice code’, the development of which will be led by the International Capital Market Association (ICMA) and the International Regulatory Strategy Group (IRSG).

At present the FCA is waiting for the Treasury to decide on whether to extend the FCA’s regulatory perimeter to cover certain ESG data and ratings providers. Should that be the case, the FCA will “focus on outcomes in areas highlighted in the International Organization of Securities Commissions’ (IOSCO) recommendations”, such as transparency, good governance, management of conflicts of interest and systems & controls.

Ratings and data: Morningstar Sustainalytics expands ESG risk ratings coverage

Morningstar Sustainalytics have increased their ESG risk ratings coverage to assess material ESG risks for more asset classes and regions; it now features fixed income and private equity asset classes and a more geographically diverse footprint, with a greater number of Chinese firms. This is partly in response to investor feedback, which highlighted the unavailability of consistent ESG data in certain markets.

With an increase of around 30% in issuer ratings, the Sustainalytics coverage universe has been expanded to include in excess of 16,300 analyst-based ESG risk ratings. A number of Chinese companies that are listed in Shanghai and Shenzhen and often have considerable weight in emerging markets indices are amongst the newest additions.

Furthermore, the coverage has been extended beyond public equities; this is due to trends such as greater allocation to sustainable fixed income funds and larger sustainability opportunities in the US 

Capital Markets


Primary Market

GSA, sustainability bond. The transaction marks the first issuance under GreenSquareAccord (GSA)’s newly established Sustainable Finance Framework (SFF). GSA has a range of sustainability commitments, such as converting all properties to net zero carbon by 2050/2051 and to target a minimum EPC C by 2030/2031. The SFF has received a second-party opinion (SPO) from DNV who have confirmed that the SFF is aligned with the relevant ICMA and Loan Market Association (LMA) principles whilst it also highlights GSA’s strong commitment to Sustainability.

Ørsted, green hybrid. A repeat issue off Ørsted’s Green Finance Framework from May 2022 (replacing the April 2019 version) which includes reference to the EU Taxonomy/Green Bond Standard (GBS). The SPO was provided by Cicero, who rated it “excellent”, the highest level out of 3. The use of proceeds (UoP) project category was also expanded to include onshore wind projects and solar PV (solar photovoltaics) projects in addition to offshore wind projects.

SNAM, transition bond. SNAM reopened the European transition-labelled market with a EUR 300m, off its SFF (an holistic framework covering green, transition, and sustainability-linked labels). Transition projects will focus on “Network Readiness and Pollution Prevention, Leak Detection and Control”. Sustainable finance is deeply embedded into SNAM’s corporate strategy (ca. 60% of total available funding); beginning in 2018 with a sustainability-linked RCF, and continuing with the issuance of transition UoP bonds (2019 onwards), establishment of an ESG Euro Commercial Paper (ECP) programme in 2020, and term loans linked to ESG key performance indicators (KPIs) (2021).

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

dynaCERT launches private placement of CCCNs

dynaCERT has announced the launch of an offering of up to $10,000,000 of Carbon Credit Convertible Notes (CCCNs) through a private placement exemption in Canada. Each CCCN will be priced at CAD1,000 and will have a maturity date of ten years after the date of issue. 


A number of Article 9 funds have been “downgraded” to Article 8

The number of Article 9 funds downgrading to Article 8 due to uncertainty surrounding the EU’s Sustainable Finance Disclosure Regulation (SFDR) has increased significantly in recent months. Over 130 funds, representing more than 10% of all Article 9 funds, have announced plans to change their classification since the beginning of November. These include many exchange-traded funds (ETFs) tracking Paris-aligned (PAB) and Climate Transition benchmarks (CTB).

Vanguard quits NZAMI

Vanguard, the world’s second largest fund manager, has announced that it is leaving the Net Zero Asset Managers initiative (NZAMI) in order to provide clarity to investors and show that the firm “speaks independently”. The initiative is a group of asset managers who have committed to achieving net zero carbon emissions by 2050. 

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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*For any unfamiliar terms used within this article please refer to our Insights glossary

This article has been prepared for information purposes only, does not constitute an analysis of all potentially material issues and is subject to change at any time without prior notice. NatWest Markets does not undertake to update you of such changes.  It is indicative only and is not binding. Other than as indicated, this article has been prepared on the basis of publicly available information believed to be reliable but no representation, warranty, undertaking or assurance of any kind, express or implied, is made as to the adequacy, accuracy, completeness or reasonableness of the information contained in this article, nor does NatWest Markets accept any obligation to any recipient to update or correct any information contained herein. Views expressed herein are not intended to be and should not be viewed as advice or as a personal recommendation. The views expressed herein may not be objective or independent of the interests of the authors or other NatWest Markets trading desks, who may be active participants in the markets, investments or strategies referred to in this article. NatWest Markets will not act and has not acted as your legal, tax, regulatory, accounting or investment adviser; nor does NatWest Markets owe any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on NatWest Markets for investment advice or recommendations of any sort. You should make your own independent evaluation of the relevance and adequacy of the information contained in this article and any issues that are of concern to you.

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