ESG Briefing, June 1: Asia’s ‘first sustainability bond’ and new engagement initiative on labour rights in food chains

The round-up of the latest ESG developments


Bank of China has set a series of precedents in the bond market this week by issuing what it claims is the first sustainability bond in Asia and the first ever Hong Kong-denominated sustainability bond, and by becoming the first issuer to sell green and sustainability notes alongside each other. Bank of China’s London branch issued $1bn of green bonds, while its Hong Kong branch sold HK$3bn of sustainability bonds. The USD deal was offered in three-year and five-year floating rate tranches, and the HKD deal was a two-year fixed rate offering.
The green economy represents 6% of the entire market capitalization of listed companies, according a FTSE Russell report, which claims that, at $4trn, it “represents a significant investment opportunity, approximately the same size as the fossil fuel sector”. And while the fossil fuel sector is shrinking, the global cap of the green economy is growing. “Until now the transition to a sustainable and ‘green’ economy1 has been a loose concept rather than a defined, investable, industrial system,” the authors say. “This lack of definition and data has led to the impression that it is of limited size; small cap dominated; lacking diversification and that investors give up performance in exchange for environmental benefits.” The analysis instead finds “a large investment opportunity” which is “diversified across company size, geography and sector and has delivered outperformance of the global equity market”.
Caisse de dépôt et placement du Québec (CDPQ) has led a fundraising round for ‘smart’ thermostat developer Ecobee, alongside AGL Energy the and Business Development Bank of Canada. The firm raised C$47m to expand its products. Ecobee was founded in 2007, and claims to have acquired more than one third of its market so far, experiencing more than 100% year-on-year growth.
Pennon, a British water utility and waste management company, has announced it is entering into two sustainability-linked Bilateral Impact Loan Revolving Credit Facilities (RCF) with Societe Generale. The facilities represent £30m for Pennon Group and £20m for its subsidiary South West Water. The latter inked an additional £30m green RCF with NatWest. While these RCFs are among the first of their kind in the UK, credit arrangements with interest rates directly dependant on the company’s sustainability rating have been gaining traction in Europe and other markets.
Tensions over fossil-fuel divestment at Cambridge University have been growing, with academics denouncing a recent report from the university’s Divestment Working Group, calling it “a transparent attempt to thwart the direct and positive action of divestment by offering a range of more distant and ill-defined proposals in its place”. In an open letter with 119 signatories, the academics criticised the report’s “insulting” claim that those arguing for divestment “do not understand” that “not all of the University’s investments are direct”. The letter found issue with the report’s lack of disclosure regarding the “extent of the University’s collaborations with fossil fuel companies, or of funding received directly or indirectly from such companies”, arguing that could “seriously compromise” its objectivity.
A report released by the World Resources Institute (WRI) has found that banks are largely unable to track their own climate progress, based on an analysis of 35 large development and commercial banks. While many report and announce ‘green’ investments, ‘brown’ investments and financing that contributes significantly to GHG emissions are often unclear. However, there have been encouraging signs, the report says: 23 financial institutions, including banks, have committed to set GHG emission reduction targets in line with the Paris Agreement through the Science Based Targets initiative.The Institute of Environmental Management and Assessment (IEMA), the global professional body for environmental practitioners, has said
that the UK Government’s proposed Environmental Principles and Governance Bill “lacks ambition” and will fail to deliver the Government’s ambitions, set out in its 25 Year Environment Plan earlier this year. The proposed bill is aimed to fix the post-Brexit environmental governance gap, although IEMA argues that it does not achieve “equivalence” with existing protections.


Investors are being invited to join an initiative led by Swedish pension fund AP7 and ESG services firm GES, looking at labour rights in food supply chains. The pair have launched a new engagement initiative until 2020, which will target 20 food and beverage produces. The focus will be on agricultural workers on plantations, independent smallholders, forced labour, provision of a living wage, and the exploitation of migrants. Coffee, rice, sugar, tea and tomatoes have been highlighted as key sectors. “The objective is to improve companies’ preparedness to address risks of child labour and forced labour in their supply chains, as well as to remediate other potential adverse labour rights impacts,” the pair said in a statement.
Impact investing network Toniic has launched a report looking at participants’ investment themes in relation to UN Sustainable Development Goals to establish how pureplay impact investors address the goals. T100: Powered Ascent found that surveyed portfolios have deployed capital to projects and investments that have supported all but one of the 17 SDGs (Goal 15: Life Below Water). The largest share has gone to SDG11, which deals with community development. The report is based on a longitudinal study of portfolios in Toniic’s 100% Impact Network of investors, a total of 76 private portfolios totalling $2.8bn committed capital.
The Belong Ltd Retail Charity Bond that was announced last week has raised £50m and closed early due to high demand, it has confirmed. The eight-year bond was sold via Retail Charity Bonds Plc – a structure that issues bonds on behalf of UK charities. It offers a 4.5% interest rate and was oversubscribed within eight days, according to Belong. The proceeds will finance village-style communities for elderly people with dementia or medical needs.


The OECD has recommended that enterprises “conduct due diligence in order to identify, prevent or mitigate and account for how actual and potential adverse impacts are addressed” when it comes to their operations, supply chains and other business relationships. The body released its Due Diligence Guidance for Responsible Business Conduct, to offer advice on how to implement its Guidelines for Multinational Enterprises – relating to workers, human rights, the environment, bribery, consumers and corporate governance. “This guidance also seeks to promote a common understanding among governments and stakeholders on due diligence for responsible business conduct,” the OECD added.
The Canadian Coalition for Good Governance (CCGG) has released The Directors’ E&S Guidebook, to address the growing focus by corporates and investors on environmental and social issues. The report is the work of CCGG’s E&S Committee, chaired by Barbara Zvan, Chief Risk & Strategy Officer at Ontario Teachers’ Pension Plan. It summarises information and insights gathered on tangible recommendations for boards to consider on integration and reporting around environmental and social topics, especially when material to a company’s long-term value.