Sustainability

Private Finance Sustainability Monthly: July 2022

Breaking down trending sustainable* trades and themes to help those within Private Finance get ahead of the latest issues shaping the market.

Sustainable syndicated lending market: H1 2022

A. Overview

  • Sustainable lending volumes finished H1 2022 marginally lower than in H1 2021. At the end of June 2022, total sustainable lending was $326bn (compared to $333bn at the end of H1 2021). 
  • Despite sustainable lending volumes remaining flat, the relative share of sustainable lending vs total lending activity has grown year-on-year (YoY) from 11.3% in 2021 to 13.2% in 2022. Given the geopolitical backdrop and a slowdown in the broader lending market, this serves as further evidence of the growing appeal for incorporating sustainability features into lending facilities. 
  • Share of sustainable lending activity by month in the first 4 months of the year was ahead of 2021, with March seeing the greatest proportion of activity (16%). 

 

Global cumulative sustainable lending, H1 2019 to H1 2022 ($ billion)

Source: Dealogic, 26/07/22

Share of sustainable lending per month, 2021 Vs 2022

Source: Dealogic, 26/07/22

B. Geographic trends 

As expected, the majority of global sustainable lending volumes originated from the United States, which saw $122bn of activity. 

Europe, the epicentre for all things sustainable, saw sustainable lending volumes driven by both France and Spain. Interestingly though, despite having half the total lending activity, the volume of sustainable lending in Spain was commensurate with that of France. Much of this can be attributed to a change in behaviour and attitudes in Spain where sustainable lending has very much become the market standard. 

Green (or ‘Use of Proceeds’) lending was very much dominated by activity in both China and the United States. In the US case, the trend was very much in support of the developing sustainable securitisation market.

 

Sustainable lending volumes by country, year-to-date (YTD) 2022

Source: Dealogic, 26/07/22

Most active countries for sustainable lending, YTD 2022

Source: Dealogic, 26/07/22

C. Sectoral trends

Over 50% of total sustainable lending volumes can be attributed to just 5 sectors: Utility & Energy; Real Estate/Property; Computers & Electronics; Auto/Trucks and Finance.

Given the nature of their business and asset pool, the majority of green lending activity was centred around Utilities & Energy and Real Estate, with both contributing to $23bn of green lending activity collectively. 

The top 10 sustainable lending transactions (see Table 1) were all over $4.0bn in size and covered a range of sectors with half of the firms based in the United States. Ford has been the largest transaction YTD (an amendment to the sustainability linked facility signed in 2021) and included key performance indicators (KPIs) on greenhouse gas (GHG) emissions and renewable electricity.

 

Volume of sustainable lending by sector ($ billion)

Source: Dealogic, 26/07/22

Table 1: Largest Sustainable Lending Transactions, YTD 2022

Source: Dealogic, 26/07/22
Climate and ESG announcements by sponsors (as at 27 July 2022)
  • Schroders and US non-profit set up natural capital impact investment firm in Singapore. UK asset manager Schroders plc and Conservation International, a US environmental non-profit, have partnered to establish Akaria Natural Capital in Singapore – described as one of the first dedicated natural capital impact investment managers in the city state. Akaria will initially deploy capital into 15-20 natural climate solutions projects across Southeast Asia over the first five years; highlighted by Schroders in a statement on July 25. Read more about the natural capital investment firm.
  • Systemiq secures $70 million to fund early-stage climate tech founders. Systemiq Capital, a backer of early-stage climate tech start-ups, says it has secured $70 million to kick-off its second fund. Systemiq says it is out to fund founders who are focused on making large industries and cities “more efficient and sustainable”. In practice, it’ll fund key areas like regenerative land use, oceans, transportation and the circular economy. Read more about the funding secured by Systemiq.
  • NN Investment Partners launches new social impact bond fund. ESG investor NN Investment Partners has launched a new social impact bond fund to invest in projects with social benefits for specific populations and is predicting issuance of €250bn this year, in the area. Read more about the social impact bond fund launched by NN Investment Partners.
  • Foresight to buy Australian manager Infrastructure Capital. UK-listed infrastructure and private equity investment manager Foresight Group is acquiring Australian manager Infrastructure Capital Group for up to A$140m (€94m). Foresight said the combined group is expected to be one of the “leading independent renewable generation and infrastructure investors in Australia and will benefit from enhanced product and distribution capabilities”. Read more about the acquisition by Foresight Group.
  • LGIM launches new net zero corporate bond fund: 

The fund, targeted at UK and European institutional investors and wealth managers, has the ambition to reach 1.5°C temperature alignment by 2030, and net zero emissions by 2050. According to LGIM, the fund adopts a progressive approach to reducing carbon emissions intensity, which includes measuring the climate risk embedded in the portfolio and its climate alignment, as well as drawing on the energy transition scenario insights of LGIM’s climate risk framework. (ESG Today: Read more). 

Launch of its ‘net zero’ corporate bond fund will be the “first in a series” of ‘net zero’ credit funds, amid “significant” interest from institutional investors. The ‘net zero’ credit funds will utilise the proprietary LGIM ‘destination@risk’ model which has been used to develop transition scenarios to inform sectoral decarbonisation pathways. In particular, the funds will use the LGIM Temperature Alignment metric – a tool of the ‘destination@risk’ model – which compares forward-looking assessments of a company’s decarbonisation pathway with sectorial decarbonisation scenarios aligned with 1.5°C, 2°C and 4.5°C global temperature rises. (Read more on Environmental Finance: subscription required)

  • Amundi launches corporate green bond fund. The fund incorporates both a top-down and bottom-up investment approach and invests in a selection of corporate issuers from sectors including alternative energy and utilities, financial, transport and real estate. It also seeks to offer investors yield potential through corporate debt, while supporting the energy transition. Read more aboout Amundi and its green bond fund.
  • BlackRock acquires Vanguard Renewables from Vision Ridge. BlackRock Real Assets has bought US organics-to-renewable-energy company Vanguard Renewables from Vision Ridge Partners. Read more about the acquisition by Blackrock.
  • Algebris raises €200 million for Private Equity Fund targeting green transition opportunities. Global asset manager Algebris Investments announced the first close of its private equity fund, the Algebris Green Transition Fund. The fund supports the expansion of companies active in key green transition areas including energy transition, circular economy and smart cities and agritech, with a focus on Italian and other European businesses. Read more about the finances raised by Algebris.
Government and regulatory updates

Check-out the following article for a full review of the key ESG Regulatory updates from June.

ESG data, articles and market initiatives
  • Financial Markets Standards Board publishes Spotlight Review of ESG Ratings. The Financial Markets Standards Board has dedicated its latest Spotlight Review, chaired by NatWest, to ESG ratings. The paper outlines ESG ratings methodologies and data collection processes with the aim of improving the understanding of ESG ratings. Link to NatWest article; Link to spotlight review.
  • NZAOA-sponsored research tackles Scope 3 pathway. Three publications commissioned by the Net-Zero Asset Owner Alliance (NZAOA), that aim to help investors calculate their Scope 3 GHG emissions have been published. The UN-convened NZAOA, commissioned the University of Technology Sydney Institute for Sustainable Futures to clarify the methodology for calculating Scope 3 emissions for the OneEarth Climate Model (OECM). First launched in 2019, the OECM provides detailed data for calculating Scope 1, Scope 2 and Scope 3 emissions for 12 sectors ranging from utilities to real estate. The Glasgow Financial Alliance for Net Zero (GFANZ) highlighted OECM, alongside four other cross-sectoral pathways, as a key model for its members to use in guidance published last month. Read more about the NZAOA-sponsored research (requires Environmental Finance subscription). Three papers led by UTS Institute for Sustainable Futures: Paper 1; Paper 2; Paper 3
  • Environmental Finance has launched the latest annual update to its ESG Data Guide. Reflecting the growth of the market, the guide has increased in size, and now features 98 data providers and 231 products. This is up from 78 data providers and 192 products the previous year. The free-to-use guide is an easily searchable portal to help investors and other market players peruse the ever-expanding market of data products. Read more about Environmental Finance’s update to its ESG Data Guide (Environmental Finance subscription required); Guide index
  • ESG Book launches fund sustainability scoring solution. Sustainability data and technology company ESG Book (formerly Arabesque S-Ray) announced the launch of Fund Scores, a new solution aimed at enabling investors to analyse and compare the sustainability profiles of thousands of funds. The new solution provides coverage of over 30,000 mutual funds and 4,000 exchange-traded funds (ETFs) across equity, corporate fixed income and hybrid investment strategies, and provides sustainability metrics including; ESG scores on 22 topics, UN Global Compact scores, climate scores, and emissions intensity ratios. Read more about Fund Scores
Upcoming webinars and events
  • On the Road of Pursuing Best Practices for Climate Risk Management (4 August 2022, 4:00am BST). Hosted by SAS and Asia Risk, this webinar brings together leading specialists from firms including Commonwealth Bank and HSBC as they discuss best practices for implementing the TCFD (Task Force on Climate Related Financial Disclosures) standard. “Join us at our webinar to explore the impacts of climate change on financial performance and how you can redefine and future-proof your business while transitioning to a sustainable future”. Register here
  • ESG Regulation, Data and TCFD Reporting (6-7 September 2022 Leonardo Royal City, London). Enabling asset managers, asset owners and analysts to shape investment strategies under the converging regulatory framework. Understand how the financial services industry are implementing the evolving regulatory expectations around non-financial disclosures and data harmonisation, and how this knowledge is being used to channel finance towards sustainable companies and projects. Register here; complimentary places available for regulated financial services firms (including asset owners, asset managers, banks and insurance providers), as well as regulators and corporate issuers.
  • Environmental Finance’s Future of ESG Data 2022 (17 October 2022, London, Hilton Tower Bridge, 5 More London Place): Building on the enormous success of last year’s event, 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 experts on all aspects of the field. Register here

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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