ESG round-up: Sustainable debt issuance down one-quarter on last year, says CBI

The latest developments in sustainable finance: Two-thirds of fashion companies face human rights controversies; insured catastrophe losses up 22 percent.

Sustainable debt issuance in the first half of this year is down 27 percent on the first six months of 2021, according to the Climate Bonds Initiative’s (CBI) half-yearly market summary. January was the highest month for issuance, with £108 billion ($131.6 billion; €128.8 billion) in primary sales – a year-on-year increase of 74 percent – but the Russian invasion of Ukraine and deteriorating global economic conditions have since depressed issuance.

The sovereign market continued on a strong footing, however, with debuts from the Philippines, Mexico and Denmark, as well as the first inflation-linked bond from France. Transition bonds also experienced a boost, with eight deals each in China and Japan, both of which have published dedicated transition financing guidelines. Krista Tukiainen, the CBI’s head of markets and data, said signs of a rebound had emerged in the second quarter and the initiative expected a steady revival through to year-end.

Roughly two-thirds of fashion companies in Morningstar’s coverage have faced a human rights controversy, according to new research by the financial services firm. Of the 36 companies in its sector coverage, 25 have been publicly challenged over human rights, with six incidents rated at three out of five on the firm’s severity scale. Morningstar highlighted Swiss luxury goods firm Richemont as facing the highest potential valuation impact from ESG issues, due to the fact that the raw materials it uses – including diamonds – are frequently linked to human rights abuses, as well as its “lack of disclosure surrounding its suppliers locations”. H&M and Inditex were highlighted as facing enhanced risks from environmental concerns as well as data issues.

Insured losses from natural catastrophes in the first half of 2022 were 22 percent higher than the 10-year average, Swiss Re has said, warning that “the effects of climate change are evident in increasingly extreme weather events”. Losses in H1 reached $35 billion, higher than the average of $29 billion over the past decade, with the costs associated with wildfires and drought caused by record temperatures in Europe still yet to be calculated.

Just under one-fifth of European funds have some sort of exclusions criteria in place, according to an analysis of 78,000 European ESG Templates (EET) by data firm FE Fundinfo. The EETs, which allow managers to provide information on product ESG credentials in a standardised manner, show that unconventional weapons are the most popular exclusion, with 17.7 percent of funds avoiding the sector, followed by coal on 15.4 percent and tobacco on 14.7 percent.