• Key takeaways from the COP27 climate summit in Egypt. Nations for the first time agreed to set-up a fund to provide pay-outs to developing countries that suffer “loss and damage” from climate-driven storms, floods, droughts and wildfires. This is a major step towards a just and equitable transition; however, there are many details still to be worked out before it is presented at COP28 in the UAE. The final deal failed to secure progress on the commitment to phase down coal, or to add a pledge to phase down fossil fuels, with the final agreement only calling for an “increase in low-emission” energy and renewables. This is viewed as keeping the door open for continued fossil fuel use paired with carbon capture initiatives. More private finance is needed to help countries cut their carbon emissions and adapt their economies to the changes brought by global warming. Among the steps likely to free up more cash is a plan to reform leading public lenders such as the World Bank so that they can take more risk and lend more money. By doing so, countries hope more private investors will join in.
  
  
• UK financial watchdog proposes rules to stamp out ‘greenwashing’. The Financial Conduct Authority (FCA) has proposed a series of new measures intended to protect customers and improve confidence in sustainable investment products; targeting greenwashing and exaggerated claims regarding ESG-friendly investments. This is in line with the EU’s Sustainable Finance Disclosure Regulation (SFDR) and follows similar announcements made by the Securities and Exchange Commission (SEC). The measures form part of the FCA’s ESG strategy launched last year and include the introduction of sustainability labels for investment products and restrictions on how certain sustainability-related terms like ‘ESG’, ‘green’ and ‘sustainable’ are used. The FCA has also put forward a general anti-greenwashing rule covering the marketing of products by regulated firms; when finalised and introduced in 2024, companies will be held responsible for how classify their products.
  
  
• UK taxonomy may need ‘another year’ to finish. According to the UK Sustainable Investment Forum (UKSIF) CEO James Alexander, the publication of the UK Treasury’s green taxonomy could be delayed by up to 12 months. The general consensus seems to be that the UK taxonomy ought to align with its EU counterpart as much as feasible. In addition, the release of the updated Green Finance Strategy (following consultation in May) and the launch of a new Energy Security Strategy are to be postponed, thereby missing the COP27 deadline. Whilst industry specialists suggest it’s highly improbable that the government would abandon the taxonomy, they warn that the potential 12-month delay would push the project “dangerously close” to January 2025; by which time a general election would have to be held.
  
  
• EU Council approves rules to improve gender balance on listed company boards. The EU Council has approved new rules intended to promote gender balance on the boards of public companies; this brings the draft one step closer to being adopted into law by the European Parliament. The new rules, initially discussed in the July issue of the Corporate ESG Briefing, require public companies to target 40% of non-executive director or 33% of all director positions to be held by women by 2026 and to disclose the information on an annual basis. As a result, listed companies faced with equally qualified candidates, are directed to prioritise female candidates and those who fail to achieve these targets will be required to implement fair and transparent selection procedures.
  
  
• CBI expands standards into SLBs. The Climate Bond Initiative (CBI) announced the expansion of the Climate Bonds Standard and Certification Scheme to include Sustainability-Linked Bonds (SLBs). The extended scheme will help design a more credible transition by providing robust standards, actionable policy recommendations, and up-to-date market intelligence. Not only do the aforementioned measures seek to help investors identify bonds, loans and other debt instruments that are aligned with limiting global warming to 1.5°C, but they also target greenwashing concerns in the fast-growing SLB market. Following the launch of the scheme in December 2022, SLB issuers who have laid out 1.5°C pathways (or are on track do so by 2030) can be certified. This includes corporates who are near zero or those with a CBI-verified transition plan for the achievement of those targets.

Reporting: CDP reports surge in companies disclosing environmental data

The Carbon Disclosure Project (CPD), a climate research provider and environmental disclosure platform, reported a 40% increase in the number of companies (totalling 18,700) disclosing environmental data through its platform. This is in line with the 37% surge in 2021 and the 233% rise since the 2015 Paris Agreement.

According to industry specialists, the growth in reporting figures is attributable to the fact that companies globally are seeking to comply with the increasingly stringent climate and sustainability disclosure requirements.

However, whilst the growth in companies’ reporting is to be welcomed, the vast majority do not yet report on all aspects of environmental data, such as water security or forests. As a result, the CDP intends to expand its data repository to include 90% of the world’s most influential businesses by 2025.
 

Reporting: ISSB confirms Scope 3 emissions will be included in IFRS’ climate disclosure standard

Under the new standards being developed by the International Sustainability Standards Board (ISSB), reporting on Scope 3 emissions will be a requirement for companies; this will have an impact on regulators in major jurisdictions worldwide, including the UK, Europe and the US.

Additionally, the International Accounting Standards Board (IASB) stated that it would produce “relief provisions” to assist businesses in implementing Scope 3 requirements. The provisions might grant businesses more time to disclose the relevant information. In addition, “safe harbour” provisions might be included, partially shielding firms from liability for disclosed Scope 3 information.

Prior to ISSB’s statement regarding the global integration of disclosure frameworks, the Task Force on Climate-related Financial Disclosures (TCFD) clarified its position around disclosures and stated that it would act as a bridge to the ISSB framework. 
 

Ratings and data: Coriolis launch automated ESG ratings tool

Analytics and trade data provider Coriolis has developed a tool to increase supply chain transparency by measuring impact across all tiers of emissions. Coriolis stated that their ratings will include insight on a company’s alignment with the UN’s Sustainable Development Goals (SDGs), EU Taxonomy and Scope 1-3 emissions.

According to their press release, the tool currently scores millions of companies globally and was designed to keep costs low for small and medium-sized businesses. It generates an automated score from 1 to 1000 (the higher the better), having aggregated company information from numerous open sources and scored it against sustainability regulations. 
 

Ratings and data: Bloomberg increase carbon emissions data to cover 100,000 companies

Bloomberg has extended the scope of its dataset in response to the challenge of “limited and inconsistent corporate disclosure” of emissions in the ESG reporting space.

If company-reported carbon emissions data is unavailable, Bloomberg applies estimation methods; the first is “Bloomberg’s machine learning-based smart model”, which is used for Scope 1 & 2 emissions and combines in excess of 800 data points.

Should sufficient data be unavailable for machine learning to work, Bloomberg’s industry-implied technique is utilised, which relies on peer comparisons to produce an estimate. In this case, a reliability score that uses the Partnership for Carbon Accounting Financials (PCAF) proposed scale, is to be attached to the data.

Primary Market

ESG corporate supply picks-up in the second half of October.

• Supply in the ESG corporate space picked-up in the second half of October off the back of windows of reduced volatility; illustrating the renewed importance of the ESG agenda when the market stabilises. 
• Long-dated tenors have made their return, supported by demand from Article 8 funds and insurance companies, which also helped execution dynamics. For example, EDF chose a longer tenor (12yr) for their Green Use of Proceeds issuance.
• Buckets of liquidity for frequent ESG borrowers, such as TenneT, tend to remain intact.
   

Südzucker, sustainability-linked bond. Südzucker, an integrated group of companies with plant-based solutions for: food, animal feed and energy industries, launched an inaugural EUR 500m SLB under its sustainability-linked financing framework. Linked to a single key performance indicator (KPI) – absolute greenhouse gas (GHG) Scope 1 and 2, a goal to reduce emissions 32% by year end 2026, with 2018 as a base year – and non-Science Based Targets initiative (SBTi) aligned; as the methodology for land-intensive sectors FLAG (Forest, Land and Agriculture) is still under development.
 

Carrefour, sustainability-linked bond. Carrefour launched a EUR 500m SLB off their May 2022 SLB Framework – this follows their inaugural SLB trade from March 2022 which was issued under a previous version of the Framework. For this SLB the company selected 2 KPIs: #1 Tonnes of packaging avoided; and #2 Food Waste generated by the stores.
 

EDF, green bond. Électricité de France (EDF) launched a 12y green bond, part of a multi-tranche deal, off their newly updated Green Financing Framework (July 2022), marking their 6th issuance in green format. However, for this green deal EDF will not finance nuclear energy projects and instead will direct the proceeds to (a) renewable power projects, (b) hydropower generation including biodiversity, (c) energy efficiency projects, and (d) distribution of electricity.

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 at NatWest Corporates & Institutions here.

PSP Swiss Property AG reclassifies its outstanding public bonds as green bonds

PSP Swiss Property AG (A3) announced the reclassification of all its outstanding public bonds as green bonds on 8th November 2022, aligning with the newly published PSP green bond framework.

Under the green bond framework, the qualification of properties for the green asset portfolio is based on two criteria: one is the effective CO2 emissions per square meter and the other is a property specific ESG rating. The rating focuses on CO2 emissions along its existing reduction path, thus creating a coherent and dynamic system. The ESG rating is determined by the independent company Wüest Partner. Both criteria must be met for a property to qualify as a green building

ISS and Moody’s gave a Second Party Opinion on the green bond framework. The initial green asset portfolio consists of 68 properties in the amount of approximately CHF 3 billion.

London Stock Exchange launches voluntary carbon market

The London Stock Exchange announced the launch of a voluntary carbon market (VCM), with the publication of the final admission and disclosure standards for VCM designation.

Demand for carbon offset projects that counteract the release of greenhouse gases, and related credits, is expected to grow significantly over the next several years, as companies and businesses increasingly launch net zero ambitions, and turn to offsets as a bridge to their own absolute emissions reduction efforts, or to balance ‘difficult to avoid’ emissions

While corporate demand for carbon credits grows, the development of the market faces barriers, including the need for access to capital at scale to support new climate projects worldwide, and for primary market access to a long-term supply of high-quality carbon credits for corporates and investors.

BlackRock launches ESG bond fund with £500 million investment from insurance firm Scottish Widows

BlackRock launched a new ESG bond fund (BlackRock Global Corporate ESG Insights Bond Fund) aimed at providing investors with broad-based exposure to global investment grade bonds, while aligning with ESG-related goals. The fund was developed in consultation with investment and insurance firm Scottish Widows, which has signed on as its initial investor with a £500 million commitment.

The aim of the fund is to deliver a similar level of risk and return as the Bloomberg Global Aggregate Corporate Index GBP Hedged, with additional sustainability attributes including a portfolio objective of a carbon emissions intensity score that is 50% less than the index. The fund also uses ESG-related exclusionary screens to remove issuers involved in activities such as thermal coal and tar sands, tobacco, controversial weapons as well as violators of the UN Global Compact Principles.
 

Bloomberg launches suite of indices tracking green, social & sustainability bonds

At the end of October, Bloomberg announced the launch of a series of indices covering sustainable finance instruments including green, social and sustainability bonds: The new Bloomberg Global Aggregate Green, Social, Sustainability Bond Indices.

The new series comprises 24 indices, and includes eligible instruments ranging across corporates, sovereign, supranational and agency bonds, municipals and structured products. The indices are also being introduced with datasets from Bloomberg’s ESG data team, enabling Bloomberg Terminal users to access underlying bond documentation such as use of proceeds allocation to the eligible project categories, and SDG alignment. Bloomberg has also released a “Sustainable Index Eligibility Indicator,” allowing analysis of securities included in the index, as well as those facing potential exclusion.

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

• What ESG investors want webinar: COP27 Environmental breakthrough in Egypt? 
• Partial exclusions: A range of approaches
• “Rencontres Finance durable”: NatWest 2022 ESG Paris Event
• IJ Global recognises NatWest as Europe’s “ESG Financial Adviser of the Year 2022”
• SMEs plan to ramp up staff training in energy efficiency
• Banking on Racial Equality – two years on

For the full monthly newsletter login to Agile Markets. Don’t have access? Contact us at NatWest Corporates & Institutions here.

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
• Darren Hook, Head of IG Corporates Research
• 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.