Sustainable lending volumes robust, despite challenging macro backdrop

In our monthly Private Finance Sustainability newsletter, we breakdown the trending ESG* trades and themes to help you get ahead of the latest issues shaping the market.

Sustainable syndicated lending market

  • Despite the challenging macro backdrop, with overall global syndicated lending volumes lagging behind those in 2021, sustainable lending volumes continue to remain robust: cumulative lending year-to-date (YTD) 2022 is ahead of 2021 YTD values. 
  • As at the end of August, global cumulative green and sustainability-linked (SL) lending amounted to $445 billion (compared with $410 billion at the same point in 2021) as outlined in Chart 1.
  • While there is a degree of correlation between green lending activity and SL across the core European sustainable lending markets, we note (Chart 2) France has a relatively low volume of green lending given the volume of SL lending in the country. The UK on the other hand, only the 4th largest by overall sustainable lending, is the largest by green lending activity; primarily attributable to ‘Utility & Energy’ and ‘Real Estate’ sectors. This can generally be explained by nations such as France and the Netherlands driving their green ‘use of proceeds’ financing via the public markets, in which they have been more active than the UK.
  • Particular transactions of note occurring in August 2022 include Virgin Media O2’s $1.8 billion sustainability-linked loan (SLL) and the amendment of the c$400 million facility for Economical Mutual Insurance Co with the incorporation of ESG key performance indicators (KPIs).

Chart 1: Cumulative Global Sustainable Lending $Billion: 2021 Vs 2022 YTD

Source: Dealogic, 29/09/2022

Chart 2: Core European Sustainable Lending Markets and Green Bond Issuance YTD 2022

Source: Dealogic, Bloomberg, 29/09/22

Sustainable deal activity

  • Americold upsized and extended its senior unsecured credit facilities from $1.5 billion to $2.0 billion with part of the proceeds going to refinance a tranche of its secured, commercial mortgage-backed securities (CMBS) debt (due to mature in May 2023). The new facility also includes an ESG ratchet linked to Americold’s annual GRESB rating.
  • AirTrunk successfully closed the first green loan in Japan to use eligibility criteria based on operating power usage effectiveness (PUE) and water productivity. The green loan will finance AirTrunk’s 110+MW West Tokyo data centre, AirTrunk TOK2, enabling progression towards a sustainable digital future for Japan.
  • Glenmont Partners launched a €250 million green credit fund to invest in low-carbon power generation projects such as wind, biomass, solar and small-scale hydropower plants. 
  • North Star Investment Management signs £73.8m Sustainability Linked Loan (SLL) with Silbury Finance. The facility includes a discount on the exit fee for North Star if certain sustainability criteria are met, including a minimum high B Energy Performance Certificate (EPC) rating. 
  • M&G finances consumer-tech subscription platform, Grover, via a €270 billion Asset Backed Security. The proceeds will be used to expand Grover’s product inventory, which is focussed on keeping electronic consumer products in use for longer, until the end of their usable life.

Spotlight: EDHECinfra Infrastructure ESG Data Investor Survey 2022

77 investors and consultants participated in this year’s EDHEC infrastructure ESG Data Investor Survey. Asset Managers are the most represented group (80%), followed by Institutional Investors (13%). Regarding the geographic repartition, Europe represents 59% of all participants while North America represents 23%.

Type of respondents

Source: EDHECinfra Infrastructure ESG Data Investor Survey 2022

Geographic distribution of respondents

Source: EDHECinfra Infrastructure ESG Data Investor Survey 2022

The main reasons Infrastructure Investors require ESG data disclosure and reporting is to identify and manage risks to investments. Reporting to regulators is the second most important reason in Europe, while in North America reporting to stakeholders is considered more important than reporting to regulators. Interestingly, in North America, identifying new investments is the third reason for requesting data while in Europe it came third, and in both Asia and Australia wasn’t mentioned at all.

Why infrastructure investors require ESG data disclosure and reporting, ranked

Source: EDHECinfra Infrastructure ESG Data Investor Survey 2022

Drivers of demand for ESG data, ranked by survey respondents

Source: EDHECinfra Infrastructure ESG Data Investor Survey 2022

Physical risk is considered as the most important risk across all regions except Australia, where organisation risk was the most cited. In Europe, access to natural resources comes in second while in North America the social acceptability comes in at the same position.

ESG risks ranked by geography

Source: EDHECinfra Infrastructure ESG Data Investor Survey 2022

Climate and ESG announcements by sponsors (as at 3 October 2022)

Brookfield Renewable to acquire Scout and Standard Solar for $1.5bn

  • Brookfield Renewable and its institutional partners have agreed to acquire US-based renewable energy firms Scout Clean Energy and Standard Solar for $1.5bn.
  • Brookfield Renewable will pay $1bn to Scout Clean Energy as part of the deal. It has also committed to investing an additional $350m to support Scout’s business development activities. Scout currently has an operating wind portfolio of 1.2GW, 400MW of which is managed on behalf of third parties. It also has a pipeline of more than 22GW of wind, solar and energy capacity across 24 US states.
  • For the Standard Solar acquisition, Brookfield Renewable will pay a $540m consideration, with the potential to invest an additional $160m to support the business’ growth initiatives.
  • The two investments will be made through Brookfield’s renewable energy fund, Brookfield Global Transition Fund I.

Read more about Brookfield Renewable’s recent acquisitions

$39trn investor group urges governments to step up on climate action

  • 533 institutional investors managing a total of about $39 trillion in assets have urged governments to enact climate policies to leverage private finance.
  • The policies outlined in the 2022 Global Investor Statement to Governments on the Climate Crisis are the "most ambitious" yet from investors, according to the Investor Agenda – which co-ordinated the letter ahead of the COP27 UN climate summit being held in Egypt in November.
  • The 2022 letter has already been signed by more than 530 investors – including Amundi, Nomura Asset Management, and California Public Employees Retirement System – and will remain open to signatories until COP27, which starts on 6 November.
  • Five of the key recommendations in the statement are:
    • Ensure that the 2030 targets in their nationally determined contributions align with the goal of limiting global temperature rise to 1.5°C.
    • Implement domestic policies across the real economy and take early action to ensure that their 2030 greenhouse gas emissions are aligned with the goal of keeping global temperature rise to 1.5°C.
    • Contribute to the reduction in non-carbon dioxide greenhouse gas emissions and support the effective implementation of the Global Methane Pledge to reduce emissions by at least 30% from 2020 levels by 2030.
    • Scale up the provision of climate finance from the public and the private sector for mitigation, and for adaptation and resilience, with a particular focus on the needs of developing countries.
    • Strengthen climate disclosures across the financial system.
  • Read more about how investors want governments to step up on climate action – (Environmental Finance subscription may be required)

Nordea issues innovative bond to fund sustainability-linked loans

  • The new framework allows investors to invest in Nordea's SLL financing activity that tackles climate change. 
  • The new bond format is modelled closely after the so-called “use-of-proceeds” structure that covers green bonds, where proceeds from the bonds are earmarked for specific green investments. 
  • In Nordea’s case, that could be green loans to clients for projects that are labelled “green”. However, with this new bond format, the bond’s proceeds aren’t earmarked for green loans or assets but rather SLLs.
  • Money from the bond is used to finance or refinance SLLs that have been selected to be part of the SLL Funding asset pool. Loans in the pool must:
    • Be aligned to the Sustainability-linked Bond (SLB) Principles
    • Contribute to combating climate change, for example through the reduction of greenhouse gas emissions or energy consumption
    • Have KPIs and targets that are considered “material” and “ambitious” by an external reviewer
  • Once the suitable assets are identified, they are assessed by external provider ISS ESG, which also reviewed the funding framework.
  • A cross-functional Nordea committee will regularly review the asset pool, and if a SLL no longer complies with the required criteria, for example by failing to meet a relevant target, it will be removed from the pool. Nordea will also report annually on the performance of the underlying companies and KPIs on an aggregated basis.
  • Read more about Nordea's new innovative bond

BlueOrchard releases InsuResilience Investment Fund Private Equity II

  • The firm has said it will invest in Asian, African, and Latin American companies that are ‘active in the climate insurance value chain’, which will include insurers and reinsurers. BlueOrchard said that the fund is backed by German development bank KfW on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). It has a target size of $100m. 
  • The first InsuResilience Investment Fund (IIF), that closed in June 2020, mobilised $80m from public and private investors. The fund has made nine equity investments in eight countries, and together with its sister debt sub-fund reaches over 40 million climate insurance beneficiaries in 26 countries as of June 2022. 
  • The fund attracted investments from established investors in both the public and private sectors, including the European Investment Bank and Soros Economic Development Fund.
  • The funds are the only components of the G20 InsuResilience Global Partnership (IGP) that are investing private capital in private sector companies to increase commercial insurance offerings in developing countries. 
  • Read more about BlueOrchard’s release

AXA IM Alts expands Natural Capital platform with the launch of a €500m strategy and strategic appointments

  • AXA IM Alts, a global leader in alternative investments with over €190 billion of assets under management, announces the launch of a new Natural Capital strategy (‘the Strategy’), designed to support nature-based solutions. 
  • Represents the next step in the evolution of AXA IM Alts’ current natural capital offering and underpins AXA IM Alts’ broader strategic plans to further extend its efforts to address climate change and biodiversity loss.
  • This commitment forms part of AXA Group’s €1.5 billion commitment to protect and sustainably manage forest ecosystems, and this latest investment will further contribute to its target to remove or avoid up to 25 million tonnes of carbon dioxide each year.
  • The Natural Capital Strategy will focus on financing activity that ensures that vulnerable or high value natural habitats are protected from deforestation, including both financing to address the drivers of deforestation and to improve forest conservation efforts, quantified through the issuance of voluntary carbon credits. 
  • The portfolio will combine strategic equity investments, with stakes in companies supporting the natural capital ecosystem in local markets, the provision of carbon solutions, and direct project financing.
  • Read more about AXA IM Alts’ Natural Capital platform expansion

ESG data, articles and market initiatives

ECB announced further details on the decarbonisation of its corporate bond holdings

The announcement follows the European Central Bank’s (ECB) July statement where it outlined the intention to incorporate climate change considerations into its monetary policy framework and is in line with its goal to reduce Eurosystem’s exposure to climate-related financial risk, and to support the green transition of the economy.

The decarbonisation will be based on issuer-specific climate score and will tilt corporate bond holdings towards issuers with better scores. It sends a strong signal to the market, despite impact being somewhat reduced, given no new investments have been made through the CSPP programme.

Issuer specific climate score will be based on a combination of 3 sub-scores: i) backward-looking emissions, ii) forward-looking target, and iii) climate disclosure. See additional detail on the scoring calculation below: 

  • Detailed scoring methodology or weightage of each sub-score has not been disclosed, however, issuers with self-reported emissions data, performing better vs peers in emissions, having ambitious decarbonisation targets and high-quality disclosures will receive a higher i.e. a better score
  • Backward-looking emissions sub-score encompasses Scope 1 and 2 data for the issuer and Scope 3 data at the sector level – sector level Scope 3 data used given issues with obtaining issuer-level granularity
  • Scores of individual corporates will not be made public, however, aggregate climate-related information on corporate bond holdings will be published annually, beginning in the first quarter of 2023
  • Scoring methodology to be reviewed after one year, at the latest, and may be amended if warranted

Implications for issuers with higher climate scores:

  • Higher weighting
  • Will be favoured in primary market bidding process

Implications for issuers with lower climate scores:

  • Lower weighting
  • Maturity limit on new purchases
  • No immediate sales to manage market stability, however, future purchases from such issuers will be reduced or even halted until improvement in climate scores

It is applicable to all European corporate bond purchases including the corporate sector purchase programme (CSPP) as well as the pandemic emergency purchase programme (PEPP). Given net purchases under both programmes have been discontinued, the new criteria applies to ongoing reinvestment purchase of corporate bonds settled as of 1 Oct 2022.

In terms of preferential treatment, it could give preferential treatment to green bonds in primary market bidding behaviour, subject to certain conditions.

Given the lack of uniform green bond standards within the EU, Eurosystem will adopt a stringent identification process for green bonds. As a starting point, the criteria will include:

  • Alignment of Green bond framework with ICMA Principles or Climate Bonds Initiative
  • Second Party Opinion indicating adherence to standards
  • Pledge in the bond prospectus to maintain regular third-party assurance on the use of proceeds

Read the full ECB Announcement here along with a list of useful FAQs.

S&P Global and Novata partner to provide ESG data to Private Markets investors

  • S&P Global Market Intelligence and ESG-focused technology platform Novata announced today a new strategic partnership aimed at providing private markets investors with a solution to collect and manage both financial and ESG data.
  • Novata’s platform will be made available for S&P Global Market Intelligence customers through iLEVEL, S&P Global MI’s alternative investments-focused portfolio monitoring software solution.
  • Developed in collaboration with general partners (GPs) and limited partners (LPs), the platform was designed to provide private markets investors with a solution for ESG measurement, data collection and benchmarking, and enable reporting on ESG data.
  • The new partnership enables GPs and LPs investors to manage their financial and ESG data all in one place and assess the financial materiality of ESG data, helping to ease the process of collecting key data for their stakeholders.
  • Read more about the recent S&P Global and Novata partnership.

SDI AOP introduces significant enhancements to dataset for investing in the UN’s Sustainable Development Goals

  • The Sustainable Development Investments Asset Owner Platform (SDI AOP) and Qontigo, its exclusive distribution partner, have announced significant enhancements to the SDI AOP dataset as part of the August 2022 data release. The data analyses corporate alignment with the United Nations Sustainable Development Goals (SDGs)
  • The approach taken to determine negative SDG contributions follows the same methodology as for the existing positive contributions. The SDI classification focuses on companies’ product and service-related contributions to the SDGs based predominantly on revenues.
  • Read more about SDI AOPs introduction of enhancements to their dataset for investing.

Data providers support free-to-use data platform, says GFANZ

  • Data providers have supported the creation of a free-to-use public climate data platform, despite it potentially signalling the end of their pay-for-data model, according to Glasgow Financial Alliance for Net Zero (GFANZ).
  • To make climate data more financially accessible and easier to aggregate, the platform would make data free to use and end the current commercial subscription model used by most sustainability data providers.
  • Read more about the proposed creation of a new free-to-use public climate data platform – (Environmental Finance subscription may be required)

ISS to provide portfolio-level biodiversity analysis in 2023

  • ISS ESG will update its biodiversity impact assessment tool in the first half of 2023 to enable investors to evaluate their whole portfolio, rather than just individual companies, an executive has said.
  • The capability will enable investors to assess the 'potential disappeared fraction of species' (PDF) and 'mean species abundance' (MSA) of their portfolio.
  • Read more about ISS ESG’s decision to provide portfolio-level biodiversity analysis in 2023 – (Environmental Finance subscription may be required)

Datamaran secures £11.7 million Series B investment to deliver on rising demand for strategic ESG insight

  • Datamaran today announced the completion of a £11.7 million Series B funding round led by Fortive with participation from American Electric Power, both long-standing partners and clients.
  • The Datamaran platform enables evidence-based insights and a near real-time assessment of material ESG risks that can be tailored to a client's sector, geography, or stakeholder context. 
  • Read more about Datamaran’s recent £11.7 million Series B funding round

Measurabl launches ESG advisory services for Real Estate

Upcoming webinars and events

UNEP FI Global Roundtable (10-14 October 2022, virtual event):

  • UNEP FI’s Global Roundtable (GRT) is a major, global agenda-setting event on sustainable finance. Held under the theme of “Transforming Finance, Accelerating Change”, the GRT will bring together specialists and thought leaders on a virtual event platform to help shape approaches to integrating environmental, social and governance issues and accelerating sustainable banking, insurance and investment. 
  • This year's stellar line-up of speakers includes: Al Gore, Former US Vice-President and Founding Partner and Chairman of Generation Investment Management; Mark Carney (UN Special Envoy on Climate Action and Finance); Christiana Figueres (Founder, Global Optimism); Ravi Menon (Managing Director, Monetary Authority of Singapore & Chair of NGFS); Elizabeth Mrema (Executive Secretary, Convention on Biological Diversity); Oliver Bäte (CEO, Allianz; Emmanuel Faber, Chair, International Sustainability Standards Board); Diony Lebot (Deputy CEO, Societe Generale). 
  • Additional details of the UNEPFI Global Roundtable and a link to register

Cleantech Forum Asia (12-13 October 2022, Sheraton Towers, Singapore)

  • The 2022 edition of Cleantech Forum Asia is happening in Singapore on 12-13 October.
  • The event theme (“From commitments to actions: the sprint to net zero is on”) will inspire a research-led agenda where specialists discuss the big ideas with the power to deliver a cleaner, cooler world.
  • Additional details of the Cleantech Forum Asia and a link to register

Environmental Finance Future of ESG Data (17 October 2022, London)

  • The Future of ESG Data conference returns as a central source of discussion and learning for the rapidly evolving ESG Data industry. 
  • This one-day event will offer unrivalled insight from industry-leading specialists on all aspects of the field.
  • Keynote speakers: Lee White (Executive Director, IFRS Foundation); Kris Nathanail (Senior Policy Advisor, IOSCO General Secretariat); Jaime Lizarrago (Commissioner, US SEC)
  • Agenda, speakers and a link to register

Reuters ESG Investment North America 2022: Clarity. Materiality. Impact. Leading the global economy in the green transition (1-2 November, 2022 Marriott Brooklyn Bridge, New York): 

Reuters ESG Investment Europe 2022: Minimize Risk. Maximize Returns. Mobilize ESG. (22-23 November 2022; Leonardo Royal - London):

  • More than 300 senior decision-makers from all corners of the ESG investment ecosystem will be brought together, for the Reuters ESG Investment Europe 2022 event.
  • The focus will be on delivering practical solutions to industry-wide challenges holding the financial community back from full ESG integration capable of delivering low-risk, high-return, and purpose-driven investment strategy.  
  • Additional details of the Reuters ESG Investment Europe 2022 event and link to register

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

Rahel Haque, Vice President, Climate and ESG Capital Markets

Tom Cascales, Associate, Climate and ESG Capital Markets

Vishal Saxena, CFA, Associate, Climate and ESG Capital Markets

For any unfamiliar terms used within this article please refer to our insights glossary.

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