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COP28 preparations kick in, bonds maintain momentum

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Last week was a mixed bag, with Energy Ministers holding the first of pre-COP meetings failing to agree on an approach to the fossil fuel problem, Republican’s attempting federal rules for banning ESG activity but a growth in finance for climate action, circular economy and more. Much of the news flow these days seems scary and depressing but remember that the technology and expertise exists to address climate change and sustainability challenges – we just need to get the political will aligned.

Bond markets

TDK Corporation (TSE:6762) announced plans to raise long-term funds with a total amount of up to 100 billion yen this year. TDK plans to raise the funds with green bonds and sustainability-linked loans.

Goldman Sachs Asset Managing is launching two sustainable bond funds, built by the team acquired through the 2022 purchase of NN Investment Partners. The Goldman Sachs Global Impact Corporate Bond and USD Green Bond funds will be managed by the specialist team. The funds are both Article 9 funds and are expected to provide exposure to sustainable strategies for private investors.

Swire Properties became the first Hong Kong corporate to issue a Renminbi-denominated public green bond and the first Hong Kong corporate to return to the public “dim sum” bonds market since 2019. Subsidiary Swire Properties MTN Financing Limited issued CNY2.5 billion 3.30% Green Notes due 2025 and CNY700 million 3.55% Green Notes due 2028. The Notes were issued under Swire Properties’ US$4 billion Medium Term Note Programme. The Notes are guaranteed by Swire Properties Limited and are listed on the Hong Kong Stock Exchange.

The Green for Growth Fund (GGF), an impact investment fund advised by Finance in Motion, has invested €20 million in NLB’s €500 million inaugural green bond. The fund aims to provide support specifically for various projects in the field of renewable energy in North Macedonia, Montenegro, Serbia, Bosnia and Herzegovina, and Kosovo.

Preparing for COP 28

 As COP28 gets closer, the G7 Energy Ministerial closed with little agreed on fossil fuels and renewables. Despite widespread recognition of the need to halt new fossil fuel use, ministers could not agree on whether they should focus on the phase down of fossil fuels or unabated fossil fuels – it’s the same argument that’s been being had for the last few years. Ministers couldn’t even agree on language for a post meeting communique, and all that came out of the meeting was a summary and outcome document.

In other news, COP28 launched its COP28 Food Systems and Agriculture Agenda, part of its ambitious action plan – based on an understanding that keeping 1.5C within reach means that climate change cannot be addressed in silos, and its about more than carbon footprints.

The COP Presidency called on world leaders to sign the first-ever Leaders Declaration on Food Systems, Agriculture and Climate Action during the Food Systems Summit in Rome. The Declaration will invite national governments to align their national food systems and agriculture strategies, with their Nationally Determined Contributions (NDCs), National Adaptation Plans (NAPs), and National Biodiversity Strategies and Action Plans (NBSAPs).

In addition, the COP28 Presidency will call upon a diverse group of stakeholders in the food and agriculture sector to accelerate existing initiatives across food systems, agriculture, and climate action. The COP28 Presidency intends to bring together businesses, farmer and producer organisations, and other non-state actors to drive progress across production, consumption, food loss and waste.

The partnership will work with over 15 leading CEOs and involve actors across each stage of the agriculture process, from production to consumption and finance. As part of this collaboration, a flagship initiative was also launched to promote the widespread adoption of regenerative agriculture in large food landscapes underpinned by procurement and investment commitments. This initiative will be co-chaired with the UN Climate Change High Level Champions, the World Business Council for Sustainable Development (WBCSD) and Boston Consulting Group (BCG).

Republican’s try federal action on ESG

 Republicans on the House Financial Services Committee introduced four comprehensive bills to address the threats environmental, social, and governance (ESG) initiatives pose to the American financial system. In a statement they said: “These measures represent the first step in Republican efforts to combat the ESG movement by restricting politically motivated, non-material disclosure mandates, reforming the proxy voting and shareholder proposal processes, increasing transparency for federal banking regulators, and limiting the Securities and Exchange Commission’s (SEC) authority to regulate shareholder proposals.”

Given recent issues around extreme temperatures and their knock-on effect on food security, productivity, its fascinating to watch the political theatre involved in ignoring reality in order to score points. Depressing but fascinating as reality (and long term economic impact) doesn’t seem to be part of the discussion.

European companies fail to align with green taxonomy

According to ESG Book in its latest report Challenging Road Ahead, nearly two-thirds of European companies have failed to align with the EU’s Green Taxonomy in any meaningful way. The majority of businesses are struggling to meet new sustainability standards and analysis of 683 companies reports that there is only an 8% alignment of turnover with green activities and only 13% of investment. Not only does that mean that sales of products and services are not aligned, but neither are investments – which means that companies are not strategically investment in the future.

This could prove a significant competitive problem. As the report says: “As sustainability becomes an increasingly prominent part of the global standard-setting agenda, regulatory bodies and governing authorities are likely to tighten reporting requirements and enhance the enforcement of the EU taxonomy over time.”

Big boost for the circular economy

The European Union’s largest public promotional banks and institutions – Bank Gospodarstwa Krajowego (BGK – Poland), Caisse des Dépôts Groupe (CDC – France), including Bpifrance, the French investment bank, Cassa Depositi e Prestiti (CDP – Italy), Instituto de Crédito Oficial (ICO – Spain) and Kreditanstalt für Wiederaufbau (KfW – Germany) – and the European Investment Bank (EIB)  have decided to prolong their joint initiative on circular economy (JICE) beyond the original timeframe of 2023.

The Joint Initiative on Circular Economy (JICE), launched in 2019,  aims to provide long-term financing for projects that accelerate the transition to a circular economy. As of the end of 2022, JICE has funded projects worth €8.9 billion across various sectors, including agriculture, industry, mobility, waste management, and more. The initiative supports companies and projects that promote sustainability, resource efficiency, and innovation in the circular economy. At the same time, the partners decided to open their initiative to further interested and committed European public promotional banks and institutions.

Germany proposes €5 billion special fund for climate

The €5 billion fund, proposed by Finance Senator Stefan Evers (CDU) is to be financed through loans and flow into projects that are not paid for through the regular state budget. This covers projects that could speed up climate protection in transport and mobility, energy production and supply and the building sector. The aim is to accelerate the conversion to fossil-free energy and the reduction of emissions. The bill will now be discussed in the House of Representatives and then passed with the aim of starting the special fund in 2024.

Evers said that it was a combination of social and climate policy reasons driving agreement on the special fund. The energy crisis, dependence on Russian oil and gas and the increase in extreme weather (and its impacts) drove recognition of the need to take action on climate change. The challenge, according to Evers, is that the amount of investment required is so large that it won’t fit into normal budgets.

Carbon credits and climate finance

 Finance is one of the key challenges in developing new technologies and processes for carbon sequestration. Australia’s Commonwealth Bank (CBA) has entered a strategic alliance with plant nutrition company RLF AgTech, financing a pilot program that pre-pays for the development of soil carbon credits. The transaction is the latest milestone in the bank’s strategy to accelerate the development of high-quality Australian carbon credits.

RLF AgTech, a specialist in plant nutrition, has launched a soil carbon pilot program with Australian farmers who will utilise its Accumulating Carbon in Soil System (ACSS) technology. The pilot aims to demonstrate that ACSS increases soil carbon sequestration and generates Australian Carbon Credit Units (ACCUs).

Meanwhile German startup Kaya has launched, intending to  mobilise green financial investments, particularly in Africa. While the continent is one of the world’s most climate-vulnerable regions, it currently receives only 3% of sustainable investment flows. Built around leveraging multiple revenue streams including emerging biodiversity credits as well carbon credits , the company plans to mobilise financial investments into large-scale nature restoration and conservation projects. Its focus is bridging the accountability and climate justice gap between private sector emitters and developing regions.

TCW buys its way into ETF market

The TCW Group, a leading global asset management firm, announced the acquisition of the exchange traded fund (ETF) business and its infrastructure from Engine No. 1, a San Francisco-based investment firm that is well known as an activist investor – and for its engagement with the Exxon board in 2021. Its investment approach is built on the idea that solving large scale problems, like climate change, is a huge opportunity. Deals terms weren’t disclosed but is understood not to impact Engine No.1’s private investment approach.

TCW is acquiring the entirety of Engine No. 1’s Transform ETF platform, which includes the thematic funds focused on supply chain onshoring and energy transition: Transform Climate ETF (NETZ); Transform Supply Chain ETF (SUPP); and the Transform 500 ETF (VOTE) index fund. Combined, the Transform ETF platform manages more than $600 million in U.S. equity ETFs focused on supply chain onshoring, and energy transition.

It’s the first time TCW will have in-house ETFs but the ETFs, which have assets of around $600 million, are targeting artificial intelligence, space technology, next-generation mobility, and renewable energy infrastructure – all of which are already of interest for TCW.

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