• COP15 ends with a landmark biodiversity agreement (UN Environment Programme). The United Nations Biodiversity Conference (COP 15) resulted in the adoption of the ‘Kunming-Montreal Global Biodiversity Framework’ (GBF), which “aims to address biodiversity loss, restore ecosystems and protect indigenous rights”. The framework sets out 23 targets to achieve by 2030, including: to ensure at least 30% of “areas of degraded terrestrial, inland water, and coastal and marine ecosystems are under […] restoration” and to reduce global food waste by 50%. In addition, targets to increase financial resources available (to at least $200bn by 2030) for biodiversity strategy implementation, are also included. At least $30bn of the above would be provided to developing countries, with a focus on the smallest and most disadvantaged islands.
• EU to introduce a carbon tax on imports. The European Parliament and the European Council agreed to implement a new scheme, the Carbon Border Adjustment Mechanism (CBAM), which is designed to reduce “carbon leakage”. Such a process occurs when firms either move carbon-intensive production to an area with less stringent climate regulation or when products are replaced by more carbon-intensive imports. The CBAM will require importing firms to declare emissions embedded in their annual imports. Companies will subsequently hand over the required number of CBAM certificates, which will be priced based on weekly Emission Trading Scheme allowances, to ensure the import price reflects the equivalent carbon price domestic producers would incur. On 1st October 2023, CBAM will begin its transitional phase, during which importers will only be required to report greenhouse gas (GHG) emissions embedded in their imports without having to make payments; the latter will, however, be required from 1st January 2026 onwards.
• FCA announces ESG Advisory Committee to its board. The FCA has created an ESG Advisory Committee to assist it in carrying out its ESG responsibilities; these include “having regard” for the UK’s commitment to a net zero economy by 2050 when performing its duties and formulating its goals. The FCA has already completed a significant amount of work relating to its ESG priorities. For instance, it has set up a working group to formulate a voluntary Code of Conduct for ESG data and ratings providers alongside publishing proposals for measures to combat greenwashing. The committee will also advise the board on emerging ESG issues and guide the FCA on how it can align its ESG strategy with its statutory objectives and regulatory principles.
• ISDA identifies opportunities to standardise terms for SLDs. The International Swaps and Derivatives Association (ISDA) is contemplating producing standardised definitions for use in sustainability-linked derivative (SLD) documentation, building on its previously published papers. Research conducted by ISDA in April 2022 found that firms viewed Interest Rate Swaps, the most common underlying product for SLD trades, as the priority for future standardised documentation. The survey also found that GHG emissions reduction targets and those relating to ESG ratings from third-party providers, respectively, were the most frequently used key performance indicators (KPIs). ISDA have identified a few terms within SLD confirmations that are “consistent in purpose across firms”, and as such could be standardised across the industry; however, ISDA are acutely aware of the need for contracts to have some scope for customisation, a factor they will continue considering.

Reporting: GRI unveils biodiversity reporting standard

The Global Reporting Initiative (GRI) has announced the publication of its new biodiversity standard, seeking to enable companies to publicly disclose their key biodiversity impact alongside improving the comparability and quality of biodiversity-related reporting for stakeholders.

The proposed standard updates GRI’s existing biodiversity reporting guidelines and will allow firms to report impacts across the supply chain, thereby highlighting supplier activities with the most noteworthy impact on biodiversity; the new standard will also help provide information on downstream value chain in addition to several other updates.

Given that CDP has announced plans to use the new standard and that GRI is participating in the Taskforce on Nature-related Financial Disclosures (TNFD), industry experts expect that the standard will influence emerging voluntary and mandatory disclosure systems worldwide.

Reporting: 2022 summary on CSRD, CSDDD and the EU Taxonomy

As discussed in last month’s edition, the Corporate Sustainability Reporting Directive (CSRD) will require more companies, including those with “significant activity” in the EU, to report on environmental, human rights and social impacts.

The proposed Corporate Sustainability Due Diligence Directive (CSDDD) is central to the European Green Deal, as it will seek to impose due diligence requirements on companies regarding their operations’ adverse impact on human rights and the environment.

The EU Taxonomy, a classification system that defines sustainable economic activities through technical screening criteria based on six key objectives, was also launched. As a result, other jurisdictions around the world, including the US and Japan, are considering enacting legislation regarding ESG disclosures and climate change more broadly.

Ratings and data: Regulatory pressure and consolidation in the ESG data industry

Opimas, a management consulting firm, stated that the global market for ESG data reached $1 billion for the first time in 2021. If the market’s 2022 growth followed a similar trajectory, by the end of 2023 the figure is likely to have hit $1.3 billion.

The main driver for the rise in ESG data continues to be regulatory pressure, which has intensified scrutiny on ESG ratings providers and exerted pressure on companies to improve their monitoring and disclosures. Growing regulation also happens to be a threat to the industry; according to a McKinsey partner, new legislation and standards could cause investors to adjust their boundary markers and influence the quality and quantity of data they collect.

Partly as a result of regulatory pressure and the increasing costs deriving from it, recent years have seen a rise in market consolidation; this is expected to continue and to make it difficult for new entrants to compete with better-known firms.

Ratings and data: S&P Global acquire Shades of Green business from CICERO

Credit and ESG ratings provider S&P Global has announced the acquisition of the “Shades of Green” business, a firm providing second party opinions (SPOs), from the Norway-based Centre for International Climate Research (CICERO). S&P stated that the transaction would help it expand the breadth and depth of its SPO offering.

Shades of Green offer climate risk and impact reporting reviews based on climate science as well as independent, research-based SPOs of green, sustainability and sustainability-linked financing. In 2008 they delivered the SPO for the first green bond framework issued by the World Bank and have since been considered a leading provider of SPOs.

While the acquired business will be integrated into S&P Global, CICERO will continue to provide climate insights to Shades of Green and to S&P Global’s other green businesses, as part of the deal.

Primary Market

Engie, triple tranche green bond. Engie debuts €2.75bn Senior triple tranche (7yr / 12yr / 20yr) Green bond. This is Engie’s 5th Green issuance off their 2020 Green Financing Framework and includes Eligible Green Projects that are intended to support the transition to a low-carbon economy. Engie’s Green curve trade inside their conventional curve despite a significant volume of Green issuance from the borrower.

Air France-KLM, sustainability-linked bond. Air France-KLM, after publishing their sustainability-linked financing framework in December, priced their inaugural Sustainability-Linked Bond (SLB) in two parts with a EUR 500M 3-year & EUR 500M 5-year offering. This is the first European airline to issue an SLB and the third SLB for an airline globally. The SLB includes a Greenhouse gas emissions intensity reduction target of 10% by 2025 from a 2019 baseline.

Motability Operations, dual tranche social bond. Motability Operations launched a dual tranche 8.5yr EUR and 20yr GBP social bond. The bond is Motability Operations’ 3rd social bond in a two-year timeframe. Net proceeds raised will be allocated to support the lease of vehicles, powered wheelchairs or scooters to persons with disabilities.

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.

ISDA launches standard definitions for the voluntary carbon market

The International Swaps and Derivatives Association (ISDA) has created new guidelines for the trading of verified carbon credits to support the shift towards a sustainable economy.

The ISDA Verified Carbon Credit Transactions Definitions, and accompanying template agreements for spot, forward, and options contracts, are adaptable to different carbon standards and registries. They also offer the option for parties to accept a variety of verified credits for delivery or to set specific requirements for the credits, such as being connected to a specific registry or project.

ISDA identifies opportunities to standardise terms for SLDs

The International Swaps and Derivatives Association (ISDA) is contemplating producing standardised definitions for use in sustainability-linked derivative (SLD) documentation, building on its previously published papers

Research conducted by ISDA in April 2022 found that firms viewed Interest Rate Swaps, the most common underlying product for SLD trades, as the priority for future standardised documentation. The survey also found that GHG emissions reduction targets and those relating to ESG ratings from third-party providers, respectively, were the most frequently used KPIs

ISDA have identified a few terms within SLD confirmations that are “consistent in purpose across firms”, and as such could be standardised across the industry; however, ISDA are acutely aware of the need for contracts to have some scope for customisation, a factor they will continue considering.

Nordea Asset Management launches global social bond fund to support sustainability and social impact

Nordea Asset Management (NAM) is expanding its offerings for addressing social and societal issues with the introduction of the Article 9 Nordea 1 - Global Social Bond Fund. This fund meets the criteria for the Article 9 label by investing in social bonds that are geared towards sustainable objectives, following good governance practices, and adhering to the principle of causing no significant harm. The fund focuses on investing in labelled social bonds and debt issued by companies that make a positive contribution to social and environmental goals, ultimately creating a beneficial impact and sustainable value for stakeholders.

Investor groups express disappointment over delay in implementing the UK Green Taxonomy

Investor groups and the UK’s Green Technical Advisory Group (GTAG) have expressed disappointment and criticism over the government’s announcement that it will not meet the deadline for implementing the green taxonomy. Economic Secretary to the Treasury, Andrew Griffith, stated in a written statement to Parliament that the government is currently reviewing its approach and will not be able to legislate on the taxonomy by January 1st 2023.

The government has also promised to provide updates on the green finance strategy in early 2023. However, GTAG and the investor groups have raised concerns on the lack of progress as the government’s green finance roadmap, published in October, had set a goal of consulting on technical screening criteria for climate change mitigation and adaptation during the first quarter of 2022, but no consultation materialised.

PwC ESG survey: key investor takeaways

PwC’s Global Investor Survey has revealed that while c.44% of investors want companies to continue focusing on climate change, c.80% believe that greenwashing is widespread in corporate sustainability reporting; in addition, only c.22% of respondents place significant reliance on ESG rating agencies.

Furthermore, three-quarters of investors suggested that financial statements-like assurance would give them confidence in sustainability reporting; c.78% emphasised the need for assurance practitioners to know the subject matter.

Moreover, investors were deeply concerned about their short-term exposure to climate risks and geopolitical conflicts, as they deem the energy transition as the primary factor affecting their profitability. Interestingly, a large number stated that they would like to see businesses disclose the monetary value of their operations’ effects on society and the environment.

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

• Why sustainability-linked bonds could help save the Amazon
• Green Hydrogen: The Impact on Transport and Energy
• Managing your green bond asset pool
• NatWest Group publishes SBTi validated science-based targets
• Alison Rose receives DBE for services to Financial Services

For the full monthly newsletter login to Agile Markets. Don’t have access? Contact us 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
• 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