ESG round-up: HSBC to halt new oil and gas project financing

The latest developments in sustainable finance: GFANZ forms working group for Vietnam JETP; ANZ leads first Orange Bond for IIX.

HSBC has announced that it will stop financing new oil and gas projects following criticism for investing around $8.7 billion in new oil and gas in 2021. The bank’s updated oil and gas policy states that it will no longer finance any oil and gas fields where the investment decision was made after 31 December, 2021. ShareAction has called on other major banks to follow HSBC’s example. The NGO’s head of banking programme, Jeanne Martin, said: “HSBC’s announcement sends a strong signal to fossil fuel giants and governments that banks’ appetite for financing new oil and gas fields is diminishing. It sets a new minimum level of ambition for all banks committed to net zero.”

The Glasgow Financial Alliance for Net Zero (GFANZ) has set up a working group to support capital mobilisation for the Vietnam Just Energy Transition Partnership (JETP). Vietnam is the third country to launch a JETP, following South Africa and Indonesia. The initial working group members include Bank of America, Citi, Deutsche Bank, HSBC, Macquarie, Mizuho Financial Group, MUFG, Prudential Plc, Shinhan Financial Group, SMBC Group and Standard Chartered. The working group will aim to ramp up renewable energy and accelerate the phasing out of fossil fuels, alongside investment in transition-aligned jobs and industries of the future.

G7 countries, along with Denmark and Norway, have offered Vietnam a $15.5 billion financial package, with a 50/50 split between public and private funding, to accelerate the country’s move away from coal and develop its renewable energy sources. The package comprises $7.75 billion of public sector finance and $7.75 billion to be mobilised by private finance with the support of some GFANZ members, including HSBC, Bank of America and Mizuho.

The Australia and New Zealand Banking Group has led an inaugural $50 million four-year Orange Bond for Impact Investment Exchange. The Women’s Livelihood Bond 5 is the world’s first gender-lens impact investing security to be listed on a stock exchange. Orange bonds aim to mobilise gender-lens investing under an orange-labelled asset class. The bond’s proceeds will support 280,000–300,000 women across Asia and Africa to transition to more sustainable, climate-resilient livelihoods. The $50 million bond comprises a $45 million senior tranche and a $5 million first-loss subordinated tranche, with a 50 percent credit guarantee on the underlying loan portfolio by the US International Development Finance Corporation and the Swedish International Development Cooperation Agency. The transaction complied with ICMA Sustainability Bond Guidelines, ASEAN Capital Markets Forum’s Social Bond Standards and UN SDG Impact Standards.

The Climate Bonds Initiative excluded roughly a quarter of all green bonds issued in 2022 from its green bond database for not meeting inclusion standards, the influential NGO has said. Green bonds were excluded for either insufficient disclosures or unaligned use of proceeds. Almost half of Chinese green bonds were excluded, mainly for including allocations to general working capital an issue that has since been addressed in an updated set of Chinese green bond principles. The second and third-largest sources of rejected bonds were the US and Germany, mainly for not meeting minimum criteria for green building standards in their proposed use of proceeds. Both green bonds issued in Saudi Arabia this year were rejected due to insufficient disclosures.

MEPs have reached a provisional agreement with the Council of the EU to set up a Carbon Border Adjustment Mechanism for the bloc. CBAM will cover iron and steel, cement, aluminium, fertilisers and electricity, as proposed by the European Commission, and has been extended to hydrogen, indirect emissions under certain conditions, certain precursors, and some downstream products. It will aim to equalise the price of carbon paid for EU products operating under the EU Emissions Trading System (ETS), as well as the price for imported goods. Companies that import into the EU will have to purchase CBAM “certificates” to pay the difference between the carbon price paid in the county of production and the price of carbon allowances in the EU ETS. The new bill will be the first of its kind and is designed to be in full compliance with World Trade Organisation rules. It will apply from 1 October, 2023, but there will be a transition period where the obligations of the importer will be limited to reporting.

The US Sustainable Investment Forum’s 14th trends report has identified sustainable investment assets of $8.4 trillion in 2022. The figure represents 13 percent of total US assets under professional management. Both money managers and institutional asset owners cited climate change or carbon emissions as the top issue they addressed in ESG incorporation, with each group saying it applied to more than $3 trillion of the assets under their purview. Additionally, money managers reported applying fossil fuel divestment policies across $1.2 trillion of their assets under management.

The International Sustainability Standards Board (ISSB) has defined sustainability as “the ability for a company to sustainably maintain resources and relationships with, and manage its dependencies and impacts within, its whole business ecosystem over the short, medium and long-term”. “Sustainability is a condition for a company to access over time the resources and relationships needed, ensuring their proper preservation, development and regeneration, to achieve its goals,” the ISSB said. The body’s General Sustainability-related Disclosures Standard’s definition of sustainability aims to make it easier for a company to explain how it is working on sustainability to investors.

The European Banking Authority, Europe’s banking watchdog, has published a new sustainable finance roadmap, covering the next three years. Among its priority areas is the prudential treatment of ESG risks and whether further regulatory enhancements are needed. The regulator will also contribute to the development of green standards and labels, and other measures to address emerging risks such as greenwashing.

The European Central Bank’s Banking Supervision division has set out its priorities for 2023-25. These include: targeted work on any failures identified in the 2022 climate risk stress test and thematic review; a review of banks’ compliance with implementing technical standards reporting and Pillar 3 disclosure requirements related to climate risk; work on reputational and litigation risk linked to climate-related or environmental strategies; preparation for reviews of banks’ transition planning capabilities and readiness for ESG-related mandates expected in the sixth Capital Requirements Directive; and targeted onsite inspections of climate-related risks.

Only 1.3 percent of companies are leading on environmental issues, according to research from CDP. Just 12 of the more than 900 companies requested to disclose against three CDP questionnaires were awarded a Triple A for their transparency and action across climate change, forests and water security. Nearly 30,000 companies, worth around $25 trillion, failed to respond to requests for disclosure. This year, 15,000 companies were scored on their environmental disclosure after nearly 700 investors and 300 large purchasers requested thousands of companies to disclose through CDP.

Lowe’s has disclosed its racial and gender pay gap data following a shareholder vote put forward by Arjuna Capital, where 58 percent voted in favour. The report found that, in 2021, female associates’ median pay was around 97 percent of male associates’ median pay, and that minority associates’ media pay was around 99 percent of non-minority associates’ median pay.

The 30% Club has released data on board statistics for the FTSE 100, FTSE 250, and FTSE 350. Companies in the FTSE 250 have achieved more than 40 percent women on boards for the first time, overtaking the FTSE 100, where the figure stands at 39.6 percent. The data was collected between 1 January and 30 November this year.