Category Archives: Finance

The ESG Green Bond Principles (GBP) 2021 edition has been updated by the International Capital Market Association @ICMA

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The GBP seek to support issuers in financing environmentally sound & sustainable projects that foster a net-zero emissions economy & protect the environment. An estimated 97% of sustainable bonds issued globally in 2020 referenced the Principles.

The four core components that an issuer should disclose to align with the GBP remain unchanged (use of procedes, evaluation & selection, management of procedes, & reporting). The GBP identifies recommendations regarding green bond frameworks and external reviews for heightened transparency. It recommends heightened transparency for issuer-level sustainability strategies & commitments. It recognises that ongoing developments of taxonomies may require parties to consider such taxonomies when determining the environmental sustainability of projects.

The 2021 editions of the the Social Bond Principles (SBP) & the Sustainability Bond Guidelines (SBG) have been similarly revised. The 2021 edition of the Guidance Handbook has also been updated & reflects such revisions.

More on: https://bit.ly/2SgLXez

The EU Green Bond Standard (EU GBS

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It will be logically voluntary. It will be ready to be used in 2022 and aims to set the global standard. Global ESG debt market tops 3 TUSD, with Europe taking a lead as nearly a quarter of its bond sales this year were related to social factors.

Sovereign issuers will be granted some flexibility to assess government spending programs based on their terms and conditions. The 27-member bloc itself is set to become one of the largest issuers, with 30% of its 800 BEUR pandemic recovery funding planned as green debt.

The ESMA will determine whether a bond is green or not, with external reviewers to be approved by the body. Issuers should disclose impact assessments at least once, as well as annual allocation reports for how the funds were used and they will be free to align their bonds alongside other standards.

EU GBS affords issuers an opportunity to launch taxonomy-aligned green bonds at a potentially lower cost of capital. For investors, the standard affords an opportunity to make investments in green bonds that are credible and easier to report on.

More on: https://bit.ly/3gBg7m2

Call for an EU Biodiversity Law

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A new resolution to improve biodiversity in Europe was proposed by the European Parliament’s Committee on Environment, which includes binding environmental targets for 2030 and 2050. This includes: 30% of EU’s land and sea must be protected áreas; binding targets for urban biodiversity such as green roofs on new buildings; urgent action needed to stop population decline of bees and other pollinators.

MEPs regretted that the EU didn’t achieve its biodiversity targets for 2020 and stated that the new strategy must adequately address the five main drivers of transformation in nature: changes in land and sea use, direct exploitation of organisms, climate change, pollution, and invasive alien species. They are also asking for 20 KMEUR/y for action on biodiversity in Europe.

In addition, they demand the next United Nations conference in October 2021 creates a Paris Agreement that sets global biodiversity priorities for 2030 and beyond.

More on: https://bit.ly/3pW1Wek

Network for Greening the Financial System (NGFS) update of their economic scenarios

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Reaching net zero by 2050 could lift growth and employment but would require an inflation-boosting $160 per tonne carbon price — or equivalent “shadow price” — by the end of the decade. This will push up inflation and also raise unemployment in some countries with energy-intensive industries.

Only a relatively quick and orderly transition to a low carbon economy would add to growth while a delayed transition or no action would cut deep into the economy.If these changes occur in an orderly fashion, the scenarios suggest that it could lead to some increase in global GDP, and lower unemployment relative to prior trends.If the transition fails, the scenarios suggest that up to 13% of global GDP would be at risk by the end of the century, even before accounting for the potential consequences of severe weather events.

Currently about a fifth of the world’s greenhouse gas emissions are covered by a carbon price.

More on: https://bit.ly/3ziT7j6

EU-wide pilot exercise on banks’ climate risk by EU Banking Authority

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The EU aggregated GAR stands at 7.9%, which identifies the institutions’ assets financing activities that are environmentally sustainable according to the EU taxonomy.

More disclosure on transition strategies and GHG emissions would be needed to allow banks and supervisors to assess climate risk more accurately. It is important banks to expand their data infrastructure to include clients’ information at activity level.

Regarding the EU taxonomy classification, banks are currently in different development phases to assess the greenness of their exposures. The two estimation techniques, banks’ bottom-up estimates and a top-down tool, are considered in the exercise and the report highlights the differences in outcomes.

The scenario analysis shows that the impact of climate-related risks across banks has different magnitudes and is concentrated in some particular sectors. The findings should be considered as starting point estimates for future work on climate risk.

More on: https://bit.ly/3ufO53o

“ESG rating disagreements” – new research paper

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Rating agencies disagree substantially about how they assess individual firms. Without agreement on what constitutes good ESG performance, market participants can be misled by these ratings.

The authors of this paper found ESG disagreement is most pronounced for firms with high levels of ESG disclosure, contrary to the argument that disclosure reduces disagreement. While thousands of companies now claim to integrate ESG issues in their business strategy and operations, it is not clear whether those claims are merely cheap talk.

Ratings could help investors and other stakeholders to choose companies that exhibit their preferred ESG outcomes. Having rating agencies focus on ESG outcomes could motivate companies to show real outcomes in their disclosures rather than highlighting the adoption of policies or initiatives that might not generate any real effects.

Lot of work still needs to be done to develop rules and norms that determine what characterises good ESG performance.

Authors of the research paper:

Dane Christensen, @GeorgeSerafeim, @AnywhereSikochi . More on https://bit.ly/3ooKChi

Citation:

Christensen, Dane M. and Serafeim, George and Sikochi, Anywhere, Why is Corporate Virtue in the Eye of the Beholder? The Case of ESG Ratings (February 26, 2021). The Accounting Review. DOI: 10.2308/TAR-2019-0506

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

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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 study: The finance, sustainability and energy nexus

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CapturaThe study highlights the importance of promoting and coordinating the collaboration of the different financial actors to address the priority sustainability challenges (sustainable finace). It analyses the different mechanisms that are facilitating the integration of climate change policies and emphasizes the interest of considering the financial sector, in the coordination of policies, such as the implementation of new Laws on Climate Change and Energy Transition.

The study analyses the different mechanisms that are facilitating the integration of sustainability policies in the financial sector driven by the  and the Sustainable Development Goals. The G20 and UNEP FI are driving the finance, sustainability and energy nexus through different initiatives which are covered in the work (e.g. TCFD, GFSG, CFSG, PRI, PSI, SSE, PIF). The analysis highlights the importance of other initiatives related to green and climate bonds (green finance), sustainable banking, standards, reporting, indexes, methodologies and sustainability associations.

The inclusion of green securities in the stock market would foster new possibilities for channelling investments, financing debt and opening the door to new sustainable business models nationally and regionally. The analysis highlights the importance of promoting and coordinating the collaboration of the different financial actors to address priority challenges such as climate change, through consulting and involving key actors such as banking regulators, stock exchanges, financial institutions, insurance companies, institutional investors, credit agencies, corporations and relevant ministries.

The complete Spanish version is accessible on http://bit.ly/2prIEBo
An executive summary in English is accessible on http://bit.ly/2pIEq5A