ESG Briefing, May 29: ‘Green bonds don’t help green transition’ says new report

Environmental

Climate think-tank 2 Degrees Investing Initiative has concluded that there is not sufficient evidence to show that use-of-proceeds green bonds contribute to a transition to a low-carbon economy. “In other words, the booming green bond market might be comparable to a hot air balloon festival: great to raise awareness and turn people’s heads towards the sky, but more than air and gas alone are needed to reach the moon,” the authors argue. To see the report, click here
The Global Public Investor 2018 report has found public investors are increasingly investing in sustainable assets. The report, published by think tank OMFIF, analyses the trends of public investors managing $36trn collectively including central banks, sovereign funds and public pension funds. If finds that for asset owners whose portfolios are partially managed externally, 76% require external managers to consider ESG issues in their investments. The report also finds that green bonds are a popular asset class, with 62% of those who invest in sustainable assets investing in green bonds, compared with 46% for green equities. Looking ahead, 36% responded that they were planning to ‘increase’ or ‘significantly increase’ their green bond investments over the next 12-24 months, with the equivalent figure of 18% for green equities.
Italian insurance giant Assicurazioni Generali has added “innovative ESG features” to its recently renewed €4bn revolving credit facilities. The facilities will now link borrowing costs to targets on green investments and to progress made on sustainability initiatives. Designed to protect the Group’s financial flexibility in case of adverse scenarios, the facilities consist of two syndicated lines of €2bn each, with a duration of 3 and 5 years, led by UniCredit and Santander.
The Swedish Government and the European Commission, along with a number of other countries and businesses, have urged stakeholders to back new measures they have identified to “develop battery technologies in an environmentally, economically and socially sustainable” way. Last week, Sweden, Denmark, Finland, Norway, the European Commission and the Nordic Council of Ministers hosted the Clean Energy Ministerial and Mission Innovation conference in Malmö and Copenhagen.
Origami Energy, a tech company building a marketplace for the distributed energy world, has been crowned the winner of the Future Planet Awards 2018, organised by Future Planet Capital. Future Planet Capital is a new impact-focused investment platform. It launched the Future Planet Capital Fund (FPC) in February with $200m in seed investment, including from local government pension scheme fund Royal Berkshire Pension Fund. FPC will seek partnerships with top-tier universities to find innovative impact-focused ideas to back.
Sales of electric vehicles (EVs) are set to rise from a record 1.1m worldwide last year to 11m in 2025, and then to 30m in 2030, according to Bloomberg New Energy Finance’s (BNEF) latest Electric Vehicle Outlook. The surge is expected to occur as the result of EVs establishing cost advantage over internal combustion engine (ICE) cars, with falling battery costs and larger-scale manufacturing. China will lead this transition, with sales there accounting for almost 50% of the global EV market in 2025 and 39% in 2030. Colin McKerracher, lead analyst on advanced transportation for BNEF, commented: “The big new feature of this forecast is electric buses. China has led this market in spectacular style, accounting for 99% of the world total last year. The rest of the world will follow, and by 2040 we expect 80% of the global municipal bus fleet to be electric.”h6. Social

Former UK Prime Minister Gordon Brown is launching a $10m initiative to catalyse blended finance for developing countries to widen access to education. The International Finance Facility for Education is backed by the UN and the World Bank. It will provide donor countries with $2bn in guarantees that are expected to mobilise $8bn in new financing. Brown is chair of the Education Commission set up to mobilise investment in education.
UK local government pension scheme The West Midlands Pension Fund has reportedly divested South Korean arms manufacturer Hanwha Corporation over its connections with cluster munitions. The £15.3bn (€17.5bn) fund has decided to deselect the company from its internally-managed passive equity portfolio, worth around £4.5bn (€5.1bn), following pressure from members on the issue. The stock made up less than 0.01% of the fund’s assets under management.
WHEB Asset Management has launched its fourth impact report, and for the first time reported on its positive social impact. In what it says is a first for a listed equity investor, WHEB demonstrates how £1m invested in 2017 is linked to positive social impact, such as 55 people receiving healthcare treatment and the provision of 109 days of tertiary education. The impact report also details how the FP WHEB Sustainability Fund directly supports seven UN Sustainable Development Goals, the impact of its company-level engagement and its positive environmental impact. Alongside the launch of the report, WHEB has launched a dedicated impact reporting microsite, which includes a online calculator where investors can see the impact of their own investment.

Governance

US Congress’ watchdog has called on the Department of Labor to provide clearer information to plan administrators about how to use ESG factors, such as climate risks, executive compensation, and workplace safety, to fulfil their fiduciary duties. The Government Accountability Office (GAO) also found that few US retirement plans currently incorporate ESG into their investing strategies, but those that do believe that it provides better risk management and improved performance.
German automotive manufacturer Schaeffler has announced that its latest sustainability report follows the new reporting standards set out by sustainability standard setting non-profit the Global Reporting Initiative (GRI). It claims that the move “underscores the company’s aspiration to achieve sustainability work that is comprehensive, transparent, and pioneering”. The 2017 report, which the company claims goes beyond “the reporting obligations according to the CSR Directive Implementation Law”, provides information on how the company is contributing to the UN’s Sustainable Development Goals (SDGs).
Leading investors and asset managers believe that “ESG analysis should be integrated within the portfolios managed by commercial asset managers”, according to a new white paper –‘Responsible Investing Roundtable: The metric for success?’ – by investment analysis firm Camradata. Based on roundtable discussions between investment professionals, the paper also cites a consensus view that shareholders collectively have not pressed hard enough for long-term thinking at investee companies.