My new publication: “Public-Private Partnership in Energy Infrastructures: Experiences in Latin America”

Featured

Energy infrastructures in Latin America deserve a particular study with regard to Public-Private Partnerships (PPPs). Its different regulatory frameworks and degrees of institutional and operational maturity, make them to have a unique map of risks, policies and best practices. My publication on “PPPs in the Energy Infrastructures: experiences in Latin America” thus is proposed. The demographic increase and the economic growth of the Latin America countries emphasize the need for large investments in infrastructure to reduce the gap, which are also linked to their plans for sustainable development, climate action and interconnection to the infrastructures of the region (for example, electrical networks, gas pipelines and gasification terminals), and the regional energy markets. It is expected that the Public-Private Partnerships can funnel these investments. To do this, governments must create an environment in which the private sector can grow, by developing transparent regulatory frameworks. These reforms should gain the confidence of investors in these countries, which now compete with the other countries in a globalized world, to attract Foreign Direct Investment (FDI) to their energy markets. All this leads to reforms in each country in order to establish a more attractive environment to do business. A new field of opportunities opens up, driven by the national and international expansion plans of the private sector, and the search for better returns by the large investment funds in a context of low interest rates. In this scenario, the International Financial Institutions (IFI) must continue supporting infrastructure development.

Publication available on http://www.scioteca.caf.com/handle/123456789/1225

Captura

My book “Internationalization, Sustainable Development and Renewable Energy: Latin America”.

Featured

The book makes a multidisciplinary analysis (trade, electricity market, sustainable development, regulation, technology, market agents, investments and financing) of the renewable energy sector in Latin America.

The work starts with an introductory chapter presenting the need for internationalization of the renewable energy sector, which has a natural development market in Latin America. It then shows the needs, threats and opportunities of the Latin American Electricity Markets. It subsequently proceeds to analyse the sustainable development question in the energy sector, which allows us to enter into the issues associated with climate change and univWIP Cover Frontal Resized ENersal access to energy, focusing the analysis on Latin America. From here, the job carries out a critical study of the different renewable energy support mechanisms in the region. Afterwards, it studies the national R&D programs. The writing continues with the agents of the market and the roles and issues they find in their value chain within the region. From it, the book introduces the subject of investment, uncovering the ultimate problem, as well as the origin and destination of the investment flows that Latin America has received in renewable energy. Before finalizing, it analyses the financial instruments used for investment in renewable energy. Finally, the work ends with two real business cases of investment in power plants, which are financially modelled (Project Finance and Project Bonds). As a final conclusion, the writing highlights business opportunities, obstacles and solutions, all influencing the development of renewable energies in the region.

“The book is a vivid example of the great importance of the coordination among different sectors and areas (e.g. financial, monetary, fiscal, political, economic, business, technological, social, etc.), which have different cycles and operations, in order to face the major challenges of mankind today.”

Available now on Amazon here

Follow me on twitter: @MiguelChamochin

Sustainable Finance Disclosure Regulation (SFRD) – Q&A published by the EU Commision

The following points were addressed:

1. The 500-employee criterion includes employees of a parent undertaking and of subsidiary undertakings regardless of whether they are established inside or outside the EU.

2. The definition of ‘financial market participant’ outlined in the regulation includes both EU Alternative Investment Fund Managers (AIFMs) and non-EU AIFMs.

3. Registered AIFMs must also fulfil the requirements laid down in the SFDR.

4. In addition to ‘sustainable investments’, Article 9 products may also include investments for specific purposes such as hedging or liquidity, which must meet minimum environmental or social safeguards.

5. A financial product that promotes environmental, social or sustainability requirements or restrictions laid down in law, including international conventions or voluntary codes, in its investment policy is subject to Article 8. Additionally, financial products having an environmental objective but not meeting the DNSH principle should also qualify as Article 8 products.

Furthermore, the promotion of ESG characteristics does not refer solely to pre-contractual disclosures, but also to a broad range of documents including marketing communications, advertisements, use of product names or designations, and factsheets.

This Q&A was published in response to questions asked by the European ESAs (ESMA, EIOPIA and EBA). It provides clarity for financial market participants in response to a broad range of questions relating to the disclosure requirements specified in the Sustainable Finance Disclosure Regulation 2019/2088.

More on https://bit.ly/3xdbaFi

Spain’ Sovereign Green Bond Issuance in September

The Spanish Sovereign Green Bond Framework is aligned with the four core components of the Green Bond Principles 2021 (GBP) and follows best market practices identified by Vigeo Eiris (VE). The Kingdom of Spain’s Sovereign Sustainability Rating from VE is 78/100, which indicates an ‘advanced’ sustainability performance, the highest level on VE’s four-point scale.

Spain will sell its inaugural green bond in September. The Spanish Treasury’s first such bond will have a 20-year maturity. Spanish government did not specify how much it plans to raise, though the government has identified 13.6 billion euros ($16.1 billion) of projects to finance or refinance projects tied to the country’s environmental objectives, including renewable energy, biodiversity protection, and climate change adaptation.

In addition, Spain will invest around 20 billion euros on other environmental programs through 2023 that will be financed by the European Union’s executive arm. The bloc is also expected to make its green bond debut later this year and ultimately become the world’s biggest seller, channelling those funds to member states as part of its pandemic recovery package.

The EU has also laid out a voluntary green bond framework and Spain plans to align its spending with the bloc’s classification of sustainable investments, or taxonomy. The first green bond is included in the country’s plan to issue 80 billion euros of net debt this year.

Spain’s Sovereign Green Bond Framework: https://bit.ly/3zNr22V

Vigeo Eiris’ Second Party Opinion: https://bit.ly/3rGEP8v

ESG Ratings and Data Products Providers

The International Organization of Securities Commissions (IOSCO) has made a fact-finding exercise on these topic, revealing that:

A. There is little clarity and alignment on definitions, including on what ratings or data products intend to measure;

B. There is  a lack of transparency about the methodologies underpinning these ratings or data products;

C. While there is wide divergence within the ESG ratings and data products industry, there is an uneven coverage of products offered, with certain industries or geographical areas benefitting from more coverage than others, thereby leading to gaps for investors seeking to follow certain investment strategies;

D. There may be concerns about the management of conflicts of interest where the ESG ratings and data products provider or an entity closely associated with the provider performs consulting services for  companies that are the subject of these ESG ratings or data products; and

E. Better communication with companies that are the subject of ESG ratings or data products was identified as an area meriting further attention given the importance of ensuring the ESG ratings or other data products are based on sound information.

To understand the implications of the activities of ESG ratings and data products providers the the Board of IOSCO has published a consultation. Comments may be submitted before 6 September 2021.

More on https://bit.ly/3iVfyU2

The EU Fit for 55 Package

It is intended to fundamentally revise the EU’s energy policy framework and thus adapt it to the EU updated climate targets. By 2030, the EU’s GHE are to be reduced by 55% compared to the amount emitted in 1990. While the focus in December 2021 will be on decarbonised gas and the buildings sector, ten initiatives was planned last 14 July 2021. Overall, the “Fit for 55 Package” with the initiatives listed below is the central measures package of the European Green Deal:

1.- Revision of the EU Emissions Trading System (ETS), including maritime transport, aviation and CORSIA

2.- Carbon Border Adjustment Mechanism (CBAM)

3.- Revision of the Effort Sharing Regulation (ESR)

4.- Revision of the Energy Tax Directive (ETD)

5.- Amendments to the Renewable Energy Directive (RED) to implement the ambition of the new 2030 climate target

6.- Amendments to the Energy Efficiency Directive (EED) to implement the ambition of the new 2030 climate target

7.- Reduction of methane emissions in the energy sector

8.- Revision of the regulation on the inclusion of greenhouse gas emissions and removals from land use, land use change and forestry (LULUCF)

9.- Revision of the Directive on the Deployment of Alternative Fuels Infrastructure

10.- Revision of the Regulation setting CO2 standards for new passenger cars and for new light commercial vehicles

11.- Revision of the Third Energy Package for gas (Directive 2009/73/EU and Regulation 715/2009/EU) to regulate competitive decarbonised gas markets in Q4 2021

12.- Revision of the energy performance of Buildings Directive (EPBD) in Q4 2021

Vice-President Franz Timmermans presented the plans in Brussels last Wednesday. That was the kick-off for a long process, looking for agreement among the Commission, the Parliament, and the Member States. This will be a challenge, as the new seems to be on achieving the reduction targets, which open to the countries’ challenges of what adjustments are necessary to achieve them. Another key aspect is how to support industries and companies that compete with others abroad EU, maintain international competitiveness. Specially with competitors in countries where the financial burden of environmental protection is lower. Nowadays, these are only draft initiatives, we do not know yet when the implementation will begin in the individual Member States, and what specific content will have agreed on at that time.

This stablishes the EU positioning of climate policy in everyday Europeans’ life, impacting firms and the way Europe makes business. It is key to ensure no one must be left behind in the process, to guarantee a social and society fair transition.

More on: https://bit.ly/2VJlB6i

Overhaul of the EU Emissions Trading System (ETS), the Energy Taxation Directive (ETD), and the introduction of a Carbon Border Adjustment (CBAM)

The European Commission has adopted a package of measures intended to put the EU firmly on the road to climate neutrality by 2050 with the intermediate step of a minimum 55% reduction in net greenhouse gas emissions by 2030. An overhaul of the EU Emissions Trading System (ETS) and of the Energy Taxation Directive (ETD), and the introduction of a Carbon Border Adjustment (CBAM) form part of the package:

A.- ETS overhaul: it would bring maritime transport within the scope of the ETS and accelerate the reduction of the number of emissions allowances that can be issued each year. A separate proposed directive would lead to the gradual reduction of free emissions allowances available to the airline industry. It also envisages the establishment of a separate emissions trading system for road transport and heating fuels which would apply from 2026 at the fuel supplier level. Its introduction would be accompanied by the establishment of a Social Climate Fund.
B.- ETD overhaul: the ETD does not reflect the current mix of energy products and criticized that it does not link the minimum tax rates to energy content and CO2 emissions.
Minimum tax rates would be based on the real energy content and environmental performance of each product, with most polluting fuels taxed at the highest level. The tax base would also be expanded – including through the removal of existing exemptions. An eye-catching change in this respect is that fuels for the aviation and maritime industries would lose existing exemptions.
The burden of higher minimum levels of energy taxation may be felt disproportionately by consumers and poorer households. The mitigation of this risk does, however, appear to be left mostly to each Member State’s tax system and the commission encourages Member States to consider using energy tax revenues to support vulnerable households.
C. CBAM introduction: the overarching aim is to prevent carbon leakage. The CBAM has been designed as a system of certificates to complement the ETS rather than, for instance, an import tax. Importers will be required to purchase certificates at a price to be set by the Commission on a weekly basis to mirror average ETS prices (which are established on a daily basis) in respect of relevant goods (being, at least initially, only iron and steel, cement, fertiliser, aluminium and electricity generation as per Annex I to the proposed CBAM regulation) imported into the EU customs territory from third countries. Imports from countries that participate in the ETS or have an emissions trading system linked to it are exempt from CBAM.

More on: https://bit.ly/3yYDk8a

EU social taxonomy and taxonomy extension linked to environment reports

The draft proposal for a social taxonomy will argue that in the face of a pandemic, unanswered social questions around a sustainable transition, continuing human rights abuses and continuously rising costs for housing, the time is right to identify economic activities that contribute to advancing social objectives. Just as the EU environmental taxonomy defines activities that substantially contribute to environmental objectives, a social taxonomy would do the same for social objectives.

Built on the foundation of international norms and principles like the sustainable development goals (SDG) and the UN guiding principles for businesses and human rights, a social taxonomy would help investors to contribute to finance solutions around ensuring decent work, enabling inclusive and sustainable communities and affordable healthcare and housing. A social taxonomy would be a tool to help investors identify opportunities to contribute to these objectives.

The Public Consultation Report on Taxonomy extension options linked to environmental objectives will be focussed on support for the environmental transition needed in the whole economy – it proposes further clarity on both: activities that are significantly harmful to environmental sustainability, and those that have no significant impact on it. The aim is to support transitions in areas currently of “significant harm”. They should transition to a level that at least does not cause significant harm, even if they do not actually reach substantial contribution (green). The report will set out options to build on the existing taxonomy and its use.

The Platform on Sustainable Finance will welcome stakeholder feedback on both drafts through two calls for feedback, which will run from 12 July to 27 August 2021. Platform’s advice on this will feed into Commission’s report on potential extension of taxonomy framework to be adopted by the end of 2021.

More on https://bit.ly/3AVvi1P

How climate change drivers affect financial firms in the EU

The European Central Bank (ECB) and the European Systemic Risk Board (ESRB) published a join report on climate-related risk and financial stability. It states three forms of risk concentration:

A.- Physical climate hazards: are concentrated at the regional level, with more vulnerability to river flooding, wildfire, heat and water stress risk. Around 30% of the euro area banking sector’s credit exposures to non-financial companies are to firms that are subject to a combination of these physical hazards.

B.- Emission-intensive firms: occupy 14% of collective euro area banking sector balance sheets. It is mainly concentrated in the manufacturing, electricity, transportation & construction sectors.

C.- Climate risk drivers: are concentrated in specific financial intermediaries. Around 70% of banking system credit exposures to firms subject physical risk are concentrated in 25 banks. Scope for financial market repricing associated with transition risk will be particularly large for investment funds. EU Taxonomy stands at only 1% of assets.

More on https://bit.ly/3xqB4X3

Commission puts forward New strategy for Sustainable Finance and proposes new European Green Bond Standard

The Commission also adopted yesteday a Delegated Act on the information to be disclosed by financial and non-financial companies about how sustainable their activities are, based on Article 8 of the EU Taxonomy.

Thus, EU took another major step towards achieving the goals in the Green Deal by ensuring a comprehensive approach to funding the green transition.

EU proposed incorporating climate-related risks into banks’ capital requirements. The challenge for lenders is weaning themselves off their lending exposure to fossil fuels. Their initial disclosures have been limited and commercial lenders still have “patchy” data regarding their exposure to climate change.

The ECB will hold a stress test next year to see how their balance sheets may fare as the climate and economy shifts. EU states will be asked to assess by June 2023 how their financial markets contribute to reaching the bloc’s climate goals. ECB will then calibrate the right pace for the transition by setting intermediate targets for the financial sector. Insurance capital rules may also be similarly amended.

The Commission confirmed it will publish taxonomy rules later this year for agriculture, certain industries and possibly nuclear and gas power plants. EU needed to guard against the risks associated with the transition, thus considering an “intermediate taxonomy” that would allow transition bonds.

The strategy seeks to empower individuals and the bloc’s 23 million SME by defining green loans and mortgages by 2022. New accounting rules may also be needed to “recognise and report” ESG risks in financial statements.

The strategy sets out a positive vision of the reform needed in the financial system to support the European economy.

More on https://bit.ly/3jRgriU

New EU measures for transitioning to a Sustainable Economy

The EU Strategy for Financing the Transition to a Sustainable Economy, and the rulebook for green bonds will be unveiled next week. They center around the Green Deal to reach net-zero emissions by 2050.

The EU strategy will propose tightening reporting requirements for financial entities, by incorporating climate-related risks into credit ratings and bank capital requirements. It will also enable supervisors to address greenwashing.

The European Commission (EC) will invite the ESMA to assess how ESG factors are incorporated by credit rating agencies and will consider proposing an initiative to make sure those risks are captured by the assessments. The EC will also ask the ECB to conduct regular climate change stress tests.

The strategy paves the way for financing activities such as natural gas during the transition, after Germany and Poland pushed for including it in the taxonomy, despite the resistance of the others member states. Thus, BAU is falling under the agenda of sustainable finance.

Supervision of ESG risks for credit institutions and investment firms

The European Banking Authority (EBA) published yesterday a report which provides recommendations for institutions to incorporate ESG risks-related considerations in strategies and objectives, governance structures, and to manage these risks as drivers of financial risks in their risk appetite and internal capital allocation process. The EBA also recommends developing methodologies and approaches to test the long-term resilience of institutions against ESG factors and risks including the use of scenario analysis.

EBA sees a need applying at least a 10 years horizon to capture ESG related risks, proposing a phase-in approach. This Report should be considered in conjunction with the EBA and ESAs disclosure publications under the Capital Requirements Regulation (CRR), the Taxonomy Regulation and the Sustainable Finance Disclosure Regulation (SFDR). The EBA will publish Pillar 3 disclosure requirements on ESG risks, transition risks and physical risks, as defined in this Report, later this year.

The report will be taken into consideration in the context of the Renewed Sustainable Finance Strategy, the review of CRR/CRD, and an update of the SREP Guidelines to include ESG risks in the supervision of credit institutions.

More on https://bit.ly/35LC5wH