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Climate finance boost, ESG required to access markets and sustainable bonds

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Climate finance was a focus again this week, as the Climate Finance Mobilisation Forum saw commitments of over $ 2 billion to cut emissions and build climate resilience across Africa, Asia and Latin America.

Emerging and developing economies are going to need around $1 trillion a year just in clean energy investments by 2030 to keep on track for the Paris goals. That’s more than 7 times what’s happening today – but given that global temperatures have been recorded at around 1.4°C above baseline, that’s investment that has to happen. As US Special Presidential Envoy for Climate said: “The climate crisis is here.” It’s time that we accepted that and started working together to accelerate change.

Climate finance got a boost in Windsor

Builders Vision, Mitsui & Co. and Renewable Resources Group Partnership are to put $1 billion into nature based solutions – such as regenerative farming, agroforestry, and sustainable water management – across emerging markets. LeapFrog Investments has committed to investing $500 million in climate change companies across Africa and Asia, focused on green tools and technologies for lower income populations. The Tony Elumelu Foundation (TEF) is launching a $500 million Coalition for African Entrepreneurs, focusing on fragile states, female entrepreneurs and green entrepreneurship.

Forrest Group (Fortescue, Minderoo Foundation and Tattarang) announced an intention to pursue a unique portfolio of blended philanthropic, private and public finance with 7 priority actions to continue the scale-up of its green metals and green businesses – looking at green hydrogen, ethical and secure supply chains for critical clean technologies and a target of $20 billion in renewable energy projects globally.

Boston Consulting Group (BCG) previously announced that it expects to invest $2 billion in the next decade to reach their “Net Zero by 2030” commitment and to provide consulting support to society and organizations in addressing critical climate and sustainability efforts across a broad range of partnerships including COPs, the First Mover Coalition, and many others. They supported the initial set up of the Energy Transition Accelerator (ETA) design process and in a statement said they “are excited about its potential.”

Meanwhile King Charles’ Sustainable Market Initiative (SMI) has announced its Terra Carta Accelerator Fund with a target of £100 million. The initial focus of the Accelerator Fund will be to bring natural capital projects, with climate co-benefits, to investability and scale with a focus on emerging and developing markets.  It also aims to pilot Nature and climate-aligned supply chain transitions across industries globally.

Blackrock announced the final close of iClimate Finance Partnership (CFP), a blended finance investment vehicle that seeks to accelerate the flow of capital into climate-related investments in emerging markets; Bloomberg Philanthropies, in partnership with the Glasgow Financial Alliance for Net Zero, said it plans to build on existing commitments – with a focus on Just Energy Transition Partnerships in countries including Indonesia and Vietnam; Community Jameel, a global organisation focused on helping communities thrive, has announced that they are increasing their funding for climate initiatives ahead of COP28; while Three Cairns Group and Sea Change Foundation International announced the formation of Allied Climate Partners, Inc. (ACP), a philanthropic investment organization; and the World Bank announced chief executives for its Private Sector Investment Lab.

Perhaps most interesting for those involved in sustainable finance was the news that Ninety One, a global investment manager, has initial funding for its new strategy –  Emerging Market Transition Debt (EMTD). This strategy aims to provide commercial financing to support real-world efforts in reducing carbon emissions where it is most needed. The firm is now raising more funds with the goal of turning EMTD into a large-scale initiative worth billions of dollars.

By actively participating in the Sustainable Markets Initiative, Ninety One says it is contributing to the creation of a new investment category focused on transition debt. They provide credit to high-emitting companies that have a strong potential for transitioning towards sustainability. The aim is to inspire other companies to offer similar opportunities and promote transition financing on a larger scale.

Markets are focused on ESG and SBT

The European Security and Markets Authority (ESMA) released new guidelines on sustainability disclosures for companies planning to go public in Europe – it will have an impact on both equity and non-equity prospectuses. It means that the bodies known as ‘National Competent Authorities’ will need to co-ordinate action on what needs to appear in prospectuses.

Obviously its requiring that ESG disclosures are made but the key issue will be finding agreement on what constitutes material information. What is encouraging is the demand that claims are backed up with data, adherence to specific standards and that issuers cannot disclaim a risk factor when it has control – as for example over its Scope 1 and 2 emissions.

Euronext announced the launch of two new science based targets (SBT) indices: the Euronext Europe SBT 1.5° and the Euronext Eurozone SBT 1.5° (gross return Bloomberg codes: EZSBT15G and EUSBT15G). These two indices invest solely in companies within the Europe 500 index and within the Eurozone 300 index, respectively, that have emissions reduction targets approved by the Science Based Targets initiative (SBTi) to be in line with the 1.5°C goal of the Paris Agreement.

The carbon markets gained momentum as well, with news that environmental asset trading platform ACX (formerly known as AirCarbon Exchange),  has signed a Memorandum of Understanding with Blue Carbon, the Dubai-based project developer, to develop carbon markets in the Middle East and North Africa region.

In a statement the firm said: “With the successful establishment of the world’s first regulated carbon exchange in Abu Dhabi, ACX is making significant strides in positioning itself as a major player in the carbon trading landscape, in the MENA region and on a global scale.”

In Africa, one of the outcomes of the inaugural African Voluntary Carbon Credits Forum (AVCCM) was an agreement to initiate and install a Regional (Pan African) Carbon Registry owned and operated in Zimbabwe plus a locally operated, owned, and branded version of the worlds first and leading global Voluntary Carbon platform, Carbon Trade Exchange (CTX). The Victoria Falls Carbon Registry (VFCR) will support the migration of Zimbabwe and other African nations projects and Carbon Credits back to Africa to be re-issued under their control.

Engagement versus divestment

Amundi released details of its engagement with investees over the last year, with news that it had voted against 500 directors over climate strategy concerns, and supported 88% of climate-related shareholders resolutions in 2023. While it continues to invest in the oil and gas industry, as it considers oil an essential energy source, it said “Amundi considers that encouraging the transition of energy companies, and especially oil companies, is part of its fiduciary duty.”

Meanwhile BNP Paribas Asset Management reported that it had maintained a demanding voting policy during 2023 AGM season with 37% opposition rate. The investor said: “In line with its commitment to the Climate Action 100+ initiative and its Net Zero roadmap, BNPP AM expects companies to achieve net-zero emissions by 2050 at the latest, underpinned by credible decarbonisation strategies and intermediate targets.  In terms of biodiversity, BNPP AM requires companies to assess and report on their main impacts and dependencies on nature, starting with those in high impact sectors, with priority given to deforestation and water-related issues.  Failure to meet these requirements will result in the rejection of ordinary resolutions such as the re-election of directors, or the discharge or approval of accounts. “

Green bonds are generating widespread interest

Zurich is understood to have issued its first green bond, with a significant ‘greenium’ meaning that it was priced at a higher than expected rate due to its green potential. The European Bank for Reconstruction and Development (EBRD) said it had invested €72.5 million in Zagreb Holding’s first sustainability-linked €305 million bond. As part of this new issue, Zagrebacki Holding will work on specific targets related to municipal waste management and increasing renewable energy as a share of Zagreb’s total electrical energy consumption.

In North America, the real estate arm of Quebec’s largest pension fund Ivanhoe Cambridge has also issued its first sustainability bond a CA$ 300 million bond that is intended to help fund one of Toronto’s new office developments.  While Canada headquartered Sun Life Financial, an international financial services group offering asset management, wealth, insurance, and health solutions, also recently closed a CA$ 500 million sustainability linked bond – it’s understood that the proceeds will be used to finance and refinance new and existing green assets.

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