Environmental Finance Environmental www.environmental-finance.com | Winter 2020 Winter | WINTER 2020 Are banks really going green, or just greenwashing? The key themes The big debate: The case for Market Rankings of 2021 transition bonds natural capital winners revealed Corporate & Investment Banking Working together towards a more sustainable future BBVA has long been committed to sustainable development. As we strongly believe that banks are part of the solution, we announced in 2018 our Pledge 2025 with a roadmap for mobilizing, managing and engaging €100 billion in sustainable nance. BBVA’s expertise in sustainable nance is a fact. We partner with our clients on their sustainable journey and provide them with innovative nancing solutions, such as sustainable bonds and loans, as well as many short term nancing products, thanks to our sustainable transaction banking framework. BBVA is your ideal partner if you are looking to align your nancial priorities with your sustainable agenda. Follow us on Linkedin: bbva.info/CIBLinkedin AF PAG_Environmental Finance_279x216_Sostenibilidad_2020.indd 1 16/11/20 13:50 Contents 4 News 12 Green bonds Sustainability-linked bonds Green bonds begin to flow are ‘more powerful than from emerging market banks green bonds’ A pioneering initiative by the IFC to encourage green bond issuance by banks in emerging markets is bearing fruit, reports Graham Cooper 5 News S&P’s ESG capabilities boosted by $44bn IHS Markit 14 The big debate merger 6 Themes to watch Transition bonds: Is a transition bond label still needed, now that Looking the Sustainability-Linked Bond Principles have been published? ahead to 2021 Yes, argues No, argues Marisa Drew Jacob Michaelsen Peter Cripps assesses some of the key trends in sustainable finance to look out for over the next year of Credit Suisse of Nordea 16 Impact 10 Fixed income ESG ratings in fixed income: Impact is part of pension A good start trustees’ fiduciary duty, says coal pensions CIO ESG ratings should only be used as a first step when it comes to assessing issuers, a panel at Environmental Finance’s Managing a pensions investment portfolio in line with ESG and Fixed Income 2020 conference heard. environmental and social impact considerations can be part Ahren Lester reports of trustees’ fiduciary duty, Michael Hurley reports Environmental Finance | Winter 2020 1 Contents 18 Cover story 28 Are banks really going green, or just greenwashing? Some of the world’s largest banks have made hundreds of billions of dollars in commitments to sustainable financing, with many pledging to align their Environmental markets portfolios with the goals of the Paris Agreement. Christopher buoyant despite pandemic Marchant asks whether these commitments are impactful 30 GHG markets 24 Natural capital 38 Weather risk 40 Renewable Energy Certificates 45 Catastrophe risk ‘The time is right to 46 People moves invest in natural capital’ 48 Infographic How does HSBC Pollination Climate Asset Management aim to attract large-scale investment in natural capital, 2020: the year the social bond came of age Michael Hurley asks Editor Peter Cripps SUBSCRIPTIONS Environmental Finance or otherwise, without the written Consulting Editor Graham Cooper Business Development Manager (ISSN 1468-8573) is published permission of the publisher. Assistant Editor Michael Hurley Borte Mehmetcik quarterly by Field Gibson Media Ltd. 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No part of this Neil Porteous Pentagon House, 52-54 Southwark publication may be reproduced, Marketing Director Tracey Huggett Street, London SE1 1UN stored in or introduced into any Events Marketing Manager T: +44 (0)20 3651 7203 retrieval system, or transmitted, in Tommaso Dimitri F: +44 (0)20 3651 7205 any form or by any means, electronic, E: [email protected] mechanical, photocopying, recording 2 Environmental Finance | Winter 2020 HSBC Taking the long view on climate data HSBC’s analysts have been collecting climate data since 2007. Piers Butler and Ashim Paun explain the bank’s approach, how the data is used – and what comes next Environmental Finance: HSBC’s Climate wide decarbonisation has grown and evolved. One Solutions Database is one of the longest we’re watching particularly closely is the rise of running corporate climate datasets in the the hydrogen economy: we see an ecosystem of market. Can you explain its genesis? clean hydrogen production emerging to meet Piers Butler, head of Global Research demand from across the economy, including from Direct: The bank has long recognised the threat transport, heavy industry as well as domestic heat. posed by climate change and the responsibility of the finance sector to play its part in addressing it. EF: What plans do you have to develop We established the Climate Change Centre of HSBC’s sustainability-related data offering? Excellence in 2007 and, in the same year, HSBC AP: Our ESG Database, a new proprietary Global Research launched the HSBC Climate offering, includes 10 key environmental, social and Solutions Database. governance metrics for companies under HSBC We screen listed companies of all market caps coverage. This includes around 1,900 companies across all global markets for climate revenue globally, with half in Asia Pacific. Data collection exposure. The database is run jointly by the ESG is based on publicly available information and Piers Butler Ashim Paun and Equity Strategy teams, and it involves a year- undergoes a rigorous normalisation process. The round process of manual gathering of relevant EU Taxonomy – how aligned are the two database has a three-year history, from 2016-18. climate data. approaches? The 10 key metrics were selected to give a AP: Almost all the climate themes and technologies broad indication of the status of ESG information EF: What is unique about the database, and in our framework are covered in the EU Taxonomy, disclosure at companies covered by HSBC Global how is it used by your clients? including solar, wind, geothermal, marine, hydro, Research. Using this disclosure as a starting point, Ashim Paun, global co-head, ESG bioenergy, building efficiency and transport our equity analysts look in more detail at sector- Research: The database offers a toolkit that efficiency. The six environmental objectives of the specific ESG issues and work towards integrating enables identification of climate change-themed EU Taxonomy – climate mitigation, adaptation, ESG into their financial analysis. investment opportunities. Its long history of sustainable water use, transition to a circular Our Fragile Planet series of notes and curated data shows how themes, corporate activity economy, pollution prevention and ecosystem underlying framework of metrics is an additional in climate technologies, and country- and regional- protection – are all also covered, to a considerable proprietary offering. It explores climate change level cleantech industries have developed over time. extent, by our framework. vulnerability and resilience across 67 developed, Our taxonomy is detailed. The database However, the two approaches are somewhat emerging and frontier markets. In our most recent currently includes 21 climate themes, which are different, with the EU Taxonomy also addressing cut, we use 54 datapoints which explore transition further divided into more than 80 sub-themes negative ESG impacts, which our Climate risks associated with fossil fuel use and economic and over 100 product categories. From a starting Solutions database does not currently do. However, dependence, cleantech and industrial innovation universe of around 14,000 companies, just over we continually enhance our process, methodology potential, physical climate risks and aspects of 3,000 are currently found to have some climate and framework, and this is something we are climate governance. revenue and enter the database for a detailed examining. Our clients can then look at where they have analysis. asset exposure across corporate equity and debt, The raw data can help signed-up clients to EF: Presumably such a broad and long- sovereign debt and real assets, to identify either identify opportunities, integrate climate change running dataset generates some useful positive drivers or negative risks around specific into investment management processes and insights into how the climate theme is evolving metrics. determine the climate exposure of their portfolios. – what signals is it sending? We publish reports each year in which we update We publish related research notes. These PB: We’ve seen a substantial increase in the the methodology and provide the underlying data may include analysis of market trends in climate number of companies which our database picks up to clients. In the most recent, Finland was best themes – i.e. those which look fundamentally more as generating climate-related revenues – up around placed overall, given