This week saw the green bond market continue to grow, but greater clarity is needed on use of proceeds and standard. Yet another carbon platform launched to build trust in the carbon markets, Chevron is looking at carbon sequestration and Australia took a pension fund to court.
Metrics and reporting continues to evolve
Novata has partnered with GIIN to simplify the collection of impact metrics
Demand is on the rise for investments that generate positive, measurable social and environmental impact alongside financial return, otherwise known as impact investing, which has now grown to a $1.164 trillion industry. However, until now, a lack of impact data and platform interoperability has posed challenges for investors to integrate impact measurement and management tools into their day-to-day operations.
Novata and the Global Impact Investing Network (GIIN) announced that the GIIN’s IRIS+ standard impact metrics are now integrated in Novata’s data management platform, tailored specifically for investing in private markets. This move enables fund managers to collect, manage and analyse standardised impact data from companies to inform their investment practices and report relevant information to their stakeholders.
S&P Global abandons alphanumeric ESG scores
Credit rating agency S&P Global is reported to have said it will no longer publish ESG scores along with its credit ratings as the company adjusts its approach. This is in response to investor feedback that there is a widespread lack of consensus on how to effectively evaluate the long term implications of ESG risks.
Despite discontinuing ESG scores within credit ratings and focusing on narrative explorations of the impact, the company said that update will not impact its commitment to ESG principles, criteria, or research relating to the challenges addressed. S&P has been the target of anti-ESG fervour from Republicans in the US.
Green and sustainable bonds
Pensioenfonds SNS Reaal goes green
Pensioenfonds SNS Reaal is reported to have increased the allocation to green bonds within its corporate bond portfolio from 20% to 100%, as it focuses on building leadership in sustainable finance. Earlier this year the €3.1 billion pension fund of Volksbank and insurance firm Athora fully converted its €300 million corporate bond portfolio into a green bond mandate. The new mandate is to be managed by Goldman Sachs Asset Management (GSAM), which runs a large green bond fund. But it’s not all good news.
Sustainable Fitch warns on UoPdebtbult
Sustainable Fitch’s latest analysis of the green and sustainable bond market – ESG Ratings Insights: Use of Proceeds in Instrument Ratings – suggests that its not working quite as it should, especially when it comes to use of proceeds (UoP).
Bonds are usually given a score between 1 and 2, dependent on their alignment with screening criteria and best practice. Green bonds with UoP supporting clean transportation and renewable-energy projects scored the highest on average, while affordable housing and employment generation-related scored best across social bond UoPs. Overall however the report makes clear that further transparency is needed.
The concern is that there is a focus on refinancing existing rather than new projects, which reduces the overall impact of labelled bonds issuances and UoP scores – and potentially means that they’re not fit for purpose. This is because financing new projects contributes more substantially to improving environmental and/or social outcomes. Over one-third of instruments targeted projects that were more than three years old or lacked information on the age of target projects.
The report also called out a disproportionate focus on climate mitigation initiatives across instrument UoPs relative to climate adaptation, signalling a potential lack of preparedness or resilience to the physical effects of climate change.
Concern grows about the impact of climate change on debt
Research on how climate change will increase the cost of sovereign and corporate debt globally has been published by the University of East Anglia (UEA) and the University of Cambridge. Sovereign ratings assess the creditworthiness of countries and are a key gauge for investors. Covering more than $66 trillion in sovereign debt, the ratings – and agencies behind them – act as gatekeepers to global capital.
The first climate-adjusted sovereign credit rating shows that many national economies can expect downgrades unless action is taken to reduce emissions. The study, published in the journal Management Science, anchors climate science within “real world” financial indicators. It suggests that 59 nations will experience a drop in sovereign credit rating in the next decade without emissions reduction. That will in turn have a knock on impact on corporate debt ratings and could become a potential challenge in terms of access to capital for transition.
Carbon markets
Centigrade launches new data platform for carbon markets
Addressing climate change and nature loss effectively requires effective credit markets, and Centigrade, a climate-focused technology provider, has launched an open data platform focused on restoring trust in global voluntary carbon markets.
Centigrade says its platform provides the fundamental data quality, availability, and transparency required for a liquid, fair, and efficient carbon market – thus enabling the necessary elements required for trust and increased participation in a durable market. Because the company doesn’t own or trade credits, nor provide rating or certification services, Centigrade argues that this allows them to remain neutral and focus on delivering valuable data to all ecosystem players – sellers, buyers, and service providers including digital measurement providers, verifiers, auditors, certifiers and ratings agencies.
Chevron dips a toe into soil carbon and blue carbon sequestration
In other news Chevron Australia has announced its investment into two carbon projects – one addressing soil carbon sequestration, and the other looking at blue carbon. The first will see Chevron provide funding to Western Australia (WA)’s Carbon Sync, which is leading a soil carbon sequestration pilot project involving up to 80,000 hectares of WA’s cropping and grazing region. Chevron has also joined a multi-year research project with Deakin University’s Blue Carbon Lab to explore potential CO2 sequestration opportunities in WA’s coastal wetlands.
Finance and investment commitments
Blackstone closes the world’s largest energy transition credit fund
Alternative investment manager Blackstone (NYSE: BX) announced the final close of its energy transition credit fund, Blackstone Green Private Credit Fund III (BGREEN III). BGREEN III closed at its hard cap of $7.1 billion, representing the largest energy transition private credit fund ever raised.
BGREEN III is managed by Blackstone Credit’s Sustainable Resources Platform, which focuses on providing private credit to the renewable energy, infrastructure, and energy transition marketplace. The Platform has approximately 40 investment professionals across North America, Europe, and Asia and invests across the credit spectrum in investment grade credit, non-investment grade credit, preferred and convertible securities. In 2022, Blackstone announced that it sees an opportunity to invest an estimated $100 billion in energy transition and climate change solutions projects over the next decade across its businesses.
Germany approves expansion of its climate and transformation fund
The German state approved the budget for its climate and transformation fund (KTF) with a top up of €30 billion, which will take the value of the fund to €212 billion overall. Other areas earmarked for support are building modernisation, expanding electromobility and decarbonising heavy industry in Germany. The enlargement of the fund will be financed from the European Union Emissions Trading System and the existing economic stability fund created to mitigate the effects of the coronavirus pandemic.
Nuveen launches fund to provide insurers with access to sustainable real estate
Nuveen, the $1.1 trillion investment manager of TIAA, and Nuveen Green Capital (NGC), an affiliate of Nuveen and a leading provider of sustainable commercial real estate financing solutions, have launched a $252 million fund to give insurers access to a diversified portfolio of energy efficient, climate resilient, water conservation and renewable energy projects.
The Nuveen CPACE Lending Fund is designed to efficiently aggregate the financing of commercial property-assessed clean energy (C-PACE) projects for the unique requirements of insurance investors, providing a capital efficient opportunity to access investment grade clean energy assets. Six insurers have come together to form the initial group of investors.
In a recent Nuveen survey of major global institutional investors, 82% of insurers said they plan to consider impact investments in the next year. In North America, 55% of insurers said they take climate strategy into account in their impact investing approaches. About eight in 10 insurers globally said they were investing in, or planned to invest in, energy innovations in the next two years; 79% identified infrastructure as a focus area of their impact investing.
FMC Corporation commits over $30m to ending hunger
Meanwhile global agriculture sciences company FMC Corporation, has committed $30.5 million towards addressing the global zero hunger goal, or SDG 2, with finance for the Zero Hunger Private Sector Pledge. The Pledge, which emerged from the UN Food Systems Summit Action Track 1, is a call for companies to align their business initiatives and investments with a global movement to end hunger by 2030.
FMC’s commitment includes the company’s ongoing efforts to improve the productivity and incomes of smallholder farmers, provide training and development opportunities for rural women and youth, and advance digital and precision technologies for farmers across Asia, Africa and Latin America. Smallholder farmers are a vital part of the food production system globally and an increasingly important farmer segment in Asia Pacific, contributing to economic stability and food security within the region.
Overall the wider programme, which centers on technology, knowledge-building and community engagement, will is expected to directly impact more than 175,000 smallholder farmers across the region within a three-year period.
Financial greenwash continues to result inlitigation
The Australian Securities & Investments Commission (ASIC) has started civil penalty proceedings in the Federal Court against LGSS Pty Limited (Active Super) alleging misleading conduct and misrepresentations to the market relating to claims it was an ethical and responsible superannuation fund.
Active Super said on their website that they eliminated investments that posed too great a risk to the environment and the community, including tobacco manufacturing, oil tar sands and gambling. Active Super also stated that they had added Russia to their list of excluded countries, following the invasion of Ukraine.
ASIC alleges Active Super exposed its members to investments it claimed to restrict or eliminate.
ASIC Deputy Chair Sarah Court said, ‘There is much competition among super funds for new members, and we know that funds seek to attract members with promises their investments will not be exposed to certain industries. When making these claims super funds must have evidence to back their claims and ensure they are not promising exclusions that they cannot guarantee.’
From 1 February 2021 to 30 June 2023, ASIC alleges that Active Super held 28 holdings, either directly or indirectly, which exposed members to securities it claimed to restrict. Some of the holdings included:
- Gambling: Skycity Entertainment Group Limited, PointsBet Holdings Limited, The Star Entertainment Group Limited, The Lottery Corporation Limited and Tabcorp Holdings Limited;
- Tobacco: Amcor PLC;
- Russian entities: Gazprom PJSC and Rosneft Oil Company;
- Oil Tar Sands: ConocoPhillips;
- Coal Mining: Coronado Global Resources Inc., New Hope Corporation Limited and Whitehaven Coal Limited.
