New EU rules on carbon-neutral claims backed by offsetting

The EU Parliament has voted to support new rules to improve product durability and combat greenwashing; the Directive is aimed at helping consumers make more environmentally-friendly choices. New anti-greenwashing rules now ban: i) environmental claims based on carbon offsetting schemes, such as ‘CO2 neutral’ or ‘carbon neutral’; and ii) the use of unsubstantiated claims such as ‘environmentally-friendly’, ‘natural’, ‘biodegradable’ or ‘eco’, while only allowing labels based on official certification schemes recognised by public authorities. Regarding product durability, the draft Directive bans the introduction of design features that limit a product’s life or lead to goods malfunctioning prematurely.

Stricter rules on methane emissions backed by EU lawmakers

The EU Parliament has approved stricter measures to reduce emissions of methane, with tighter rules for monitoring emissions as well as more stringent leak detection and repair (‘LDAR’) requirements to tackle leaky fossil fuel infrastructure. These measures amend legislation initially proposed by the EU Commission in December 2021, which was more limited in scope and only covered about a fifth of the bloc’s methane emissions. The law now extends the measures to imports of oil and gas, which account for more than 90% of the bloc’s consumption of fossil fuels. German Greens MEP Jutta Paulus stated that “from 2026, those importing into the EU will have to prove that they are adhering to these requirements; this regulation has the potential to reduce emissions worldwide”. Meanwhile, Brussels’ attempt to tackle agricultural methane (over 50% of total EU emissions) through its revamp of the Industrial Emissions Directive has encountered significant pushback, with no proposal to address waste emission (over a quarter of the bloc’s methane emissions) having been put forward thus far.

Single point of access for financial and sustainability-related information established

As part of the EU’s action plan towards achieving a Capital Markets Union (CMU), an agreement has been reached on a regulation to establish the European Single Access Point (ESAP), a platform which will facilitate the cross-border circulation of company information, and in turn encourage cross-border investments. Both the EU Parliament and EU Council emphasised that there would be no additional reporting requirements for companies as a result of this Regulation; ESAP only aims to gather publicly available data that companies are required to produce and share anyway, due to other legislation such as the Corporate Sustainability Reporting Directive (CSRD). The Regulation is likely to come into effect this summer, with ESAP expected to be made publicly available from the summer of 2027; in total, it will incorporate relevant information stemming from over 20 pieces of existing European legislation.

Reporting: G7 encourages active ISSB engagement

G7 finance ministers and Central Bank governors have issued a Communique which welcomes the inauguration of the International Sustainability Standards Board (“ISSB”) and its work on the global baseline of sustainability reporting standards. In the statement, the G7: (i) calls on all relevant stakeholders to participate in the ongoing consultation on the proposed standards; and (ii) urges the ISSB, as well as standard-setters and other reporting initiatives, to actively cooperate, with the aim of reaching standards that can be implemented globally. 

Reporting: 94% of companies are planning to comply with CSRD, even if they don’t need to

A new survey by Workiva, covering 509 finance leaders, finds that nearly all companies (94% of survey respondents) across Europe and the UK are planning to comply with the EU’s upcoming CSRD, even in most cases where the company is not covered by the legislation.

However, the survey also indicated the need for greater progress on integrating sustainability reporting functions and processes. While most respondents (81%) stated that they are satisfied with the integration of ESG within the financial reporting process, the majority also indicated that their definition of integrated reporting does not extend to the integration of teams (67%), processes around document compilation (68%), or data collation (60%).

Reporting: More than a third of global public companies are now reporting Scope 3 emissions

A new study by MSCI finds that the proportion of public companies providing disclosures on Scope 3 emissions has increased to 35%, up from around 30% only 7 months ago; this trend is aligned with a significant increase in corporate decarbonisation commitments. Despite this finding, the study also reports that direct emissions from companies have not declined in 2023, and are on track to significantly exceed those needed to achieve the global goal to limit temperature increase to 1.5°C.

Ratings and data: NGO calls for three-in-one ESG ratings to be split out into E, S and G

Non-Governmental Organisation (NGO) Finance Watch has argued that EU regulation of ESG ratings should ‘prioritise transparency’ by ensuring scores are split into environmental, social and governance, rather than combined into one ‘synthetic rating’. This is one of the recommendations outlined in a new Finance Watch report, published ahead of the EU’s planned proposal on regulating ESG rating providers, expected by mid-June 2023. The report also notes that rating providers need to be clearer on what is being assessed by these individual scores, specifying whether it is risks to financial returns or real-world impacts.

Ratings and data: FCA to publish draft ESG ratings code of conduct in coming weeks

The UK’s Financial Conduct Authority (FCA) will publish draft voluntary standards for ESG rating and data providers in the near future. The FCA finds there to be strong rationale for the regulation of ESG rating providers but emphasises the importance of a voluntary code “pending potential future regulation”.

The formation of an independent working group convened by the International Capital Market Association and International Regulatory Strategy Group was announced in November; it will seek to develop the code, a key aim of which is to ensure international coherence.

Primary Market

Statnett, Green Bond. Statnett priced a €500m 10yr green bond trade. The Green Bond Framework references three eligible categories: connecting renewable power, enabling efficient use of clean energy and increasing the market for renewable energy. Statnett Green Bonds will not directly finance nuclear or fossil energy generation projects. CICERO has provided a Second Party Opinion (SPO), allocating a Dark Green Shading to the framework.

Danfoss, Sustainability-Linked Bond (SLB). Danfoss debuted its inaugural €500m 6.5yr SLB. The issuer will pay a 75bps premium if it fails to reduce its scope 1 & 2 emissions by 75% in 2028 compared to a 2019 baseline. Interestingly, this is a more ambitious trajectory than their Science Based Targets initiative (SBTi) verified 1.5°C scenario. An SPO has been provided by S&P who confirmed the framework is aligned with the International Capital Market Association (ICMA) principles, notably they mentioned the key performance indicator (KPI) would have been stronger if it included scope 3 emissions seeing that those emissions account for 98% of the group’s carbon footprint.

Bacardi, 3-part bond with Green tranche. Bacardi priced a $1.5bn USD triple-tranche transaction which included a 5yr Green tranche. Bacardi’s framework includes 6 environmental categories eligible for green financing: green buildings, renewable energy, circular economy and sustainable packaging, sustainable water and wastewater management, energy efficiency, and environmentally sustainable management of living natural resources and land use. S&P provided the SPO and rated the Use of Proceeds as ‘Strong’ (2nd best out of 4) in accordance with market principles.

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.

Global carbon markets face upheaval as nations remake the rules

The market for carbon offsets, valued at $2 billion, is poised for a substantial transformation as a growing number of sovereign governments express their intentions to introduce measures such as taxation, regulation, or trade restrictions on credits generated within their own borders.

While the specific details may vary, countries including Indonesia, Kenya, and Honduras share a common objective: to secure a greater share of the benefits arising from emissions-reduction projects. This can be in the form of revenue or by utilising the credits to support their national climate goals. 

Majority of European professional investors embrace Social Bonds, survey finds

According to a survey conducted by Goldman Sachs Asset Management (GSAM), a significant majority of professional investors in Europe, comprising nearly two-thirds, have either already invested in social bonds or have intentions to do so. The survey encompassed over 700 institutional investors in Europe, including 166 pension funds.

NZIA faces challenges as major insurers withdraw

The Net Zero Insurance Alliance (NZIA) is currently facing a challenging situation as three major European insurers, namely Axa, Allianz, and Scor, have decided to withdraw from the initiative. With the recent departures of these insurers, the NZIA has experienced a significant reduction in its collective influence, giving rise to some concerns about its future trajectory.

While the asset management, banking, and asset owner subgroups of the Glasgow Financial Alliance for Net Zero (GFANZ) have managed to navigate through this period relatively well, the insurance sector has encountered some difficulties in attracting members from regions outside of Europe and Asia.

Regular articles from us on market-moving themes, and updates on what we are doing to further our ESG commitment.

• Drop in annual global sustainable lending volumes driven by tough market conditions
• SLB supply has regained momentum
• Investors look for clarity on issuers’ ESG ratings and performance ahead of issuance
• NatWest Group to provide £1 Billion in additional lending to UK Manufacturing to support net zero transition
• McCain Foods and Natwest join forces to support growers’ sustainable practices with new incentives

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Or, for Corporates looking to discuss any of the above further, please reach out to our authors:

• Dr Arthur Krebbers, Head of Corporate Climate and ESG Capital Markets
• Gustavo Brianza, Head of Debt & ESG Advisory
• Daniel Bressler, Climate and ESG Capital Markets
• James Lander, Credit Trader
• Philippe Bradshaw, Head of European Syndicate
• Rui Zu, ESG Advisory
• Thomas Gidman, ESG Advisory
• Dean Shahfar, Sustainable Finance UK
• Pietro Stimamiglio, Climate and ESG Capital Markets
• Niceasia Mc Perry, Climate and ESG Capital Markets

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