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Join us for a digest of the latest research, analysis and insights on the relationships between environmental social and corporate governance issues and global business, finance and society. In each episode, hear from experts sharing their insights on how institutional investors can identify and mitigate risks related to ESG factors, but also leverage opportunities in sustainable investment and debt capital markets. This is ESG in Conversation.
Episodes
Tuesday Mar 28, 2023
Tuesday Mar 28, 2023
With all the noise about ESG in the news, it can be hard to discern what is really going on. We know that the increased demand for companies to address ESG issues has meant that organizations have had to make significant changes to how they work. But when it comes to addressing, managing and reporting on ESG issues, what’s really going on behind corporate doors?
In this episode of ESG in Conversation, we explore that question by examining how the roles of CSR and sustainability professionals are evolving to address material ESG issues. You’ll hear about the results of the Morningstar Sustainalytics Corporate ESG Survey, with insights about the challenges, concerns, and evolving roles of CSR and sustainability professionals around the world.
View the show notes in full detail at the Sustainalytics Resource Centre.
Read the full Morningstar Sustainalytics Corporate ESG Survey Report 2022
Download the report to learn about the ESG challenges companies face around the world and the resources CSR and sustainability professionals are using to meet them, key steps to ESG maturity, where companies are focusing their ESG investments, and how companies are using their ESG ratings and scores.
Wednesday Mar 15, 2023
Wednesday Mar 15, 2023
Episode Summary
Hosts:
- Winnie Chung, Senior Associate, Corporate Solutions
- Nicholas Gandolfo, Vice President, Corporate Solutions
Growing Innovation with Sustainable Finance Instruments
In this episode, Nick and Winnie chat about the latest news and transactions in the sustainable finance space. With a focus on innovation, they discuss the new ways in which issuers are leveraging sustainable finance instruments to fund their green and social projects. For instance, the World Bank’s recent bond issuance will forgo investor coupon payments, instead using the funds to finance a project manufacturing water purifiers in Vietnam. Using purifiers will replace biomass burning (traditionally used to boil water to make it safe to drink), resulting in lower carbon emissions. The carbon emissions saved will be turned into carbon credits and sold to fund a coupon payment to bond investors. Nick also notes innovation picking up in the areas of blue bonds and the maritime economy as well as biodiversity-focused finance activities.
Investors Swing Back to Use of Proceed Instruments
Winnie and Nick also touch on the growing ambivalence towards sustainability-linked instruments. In 2022, sustainability-linked bonds and loans seemed to lose some of their appeal as scrutiny of targets and performance indicators intensified and accusations of greenwashing arose. Adding to the discontent – slipping targets. Analysis from Barclays finds that nine out of 12 SLBs with target measurement dates in 2023 are off track to hit those targets. Consequently, we’re seeing a swing back toward traditional use of proceed instruments. This is particularly true within the green bond market which took less of a hit compared to other types of labelled bonds in 2022. With more green bond disclosure guidance and regulations expected from more jurisdictions, such as India, Bolivia, EU and Latin America, investors will likely continue to seek security in the more structured green bond market.
Key Moments
0:02:20 |
Market overview |
0:02:37 |
Expected market rebound |
0:03:15 |
Innovative structure from World Bank |
0:04:03 |
Swing back to use of proceeds? |
0:04:23 |
Innovative structure from ENEL |
0:05:10 |
Blue and biodiversity activity |
0:05:31 |
Continued scrutiny of SLLs and SLBs |
0:06:40 |
ASEAN developments |
0:07:34 |
New CBI reports |
0:08:04 |
SLB and SLL overview |
0:11:52 |
Green bonds overview |
0:17:35 |
Green loans overview |
0:17:57 |
Audience questions |
0:21:05 |
Social bonds and loans overview |
0:22:03 |
Labeled products, transition bonds and regulatory updates |
Links to Select Resources
- Bloomberg – ESG Bond Sales Hit 12-Month High; Debut Deals Pile Up
- Environmental Finance – Sustainable Bonds Insights 2023 Published
- Environmental Finance – World Bank Issues ‘Unique’ Carbon Credit-Linked Bond
- Environmental Finance – IFC adds ‘Blue’, Biodiversity Projects to Green Bond Framework
- UN Environment Programme – Countries Search for Financing to Counter Biodiversity Crisis
- Responsible Investor – SLB Issuers ‘Likely to Miss Majority of 2022 and 2023 Targets’
- Environmental Finance – SLB Issuers ‘Lose Their Halo,’ says HSBC
- LSTA – Drafting Guidance for Sustainability-Linked Loans (Feb 17, 2023)
- Environmental Finance – Philippines Opens Consultation on Sustainability-Linked Bonds Standards
- Financial Times – Sustainability Bond Market Stumbles as Investors Get Picky
- CarbonCredits.com – JBS “Green Bonds” and GHG Emissions Under Investigation
- Bloomberg – Barclays Sees Real Greenwashing Risk in ESG Debt-Swap Market
- Climate Bonds Initiative – Sustainable Agriculture Brief
- Climate Bonds Initiative – Scaling Credible Transition Finance – ASEAN Edition
- Capital Monitor – Why Japan Embraces Transition Bonds
- Business Standard – SEBI Asks Issuers for Additional Disclosure in Guidelines on Green Bonds
- ESG Clarity – Mandatory Climate Finance Disclosure ‘Evens Playing Field’ for Australia
- Sustainalytics SPOs:
Monday Feb 27, 2023
Monday Feb 27, 2023
Episode Summary
Hosts
- Nicholas Gandolfo, Vice President, Corporate Solutions
- Sabrina Tang, Sales Associate, Corporate Solutions
In this episode, Nick and Sabrina reviewed what’s new in sustainable finance and shared some notable deals and transactions that have hit the market. They discussed the overall decline of global bond markets and expressed some optimism for the year to come, as sustainability is a central issue for investors, companies and governments and is still closely tied to capital markets. They also shared research on the carbon performance of food producers and a report on how to scale credible transition finance among countries in Southeast Asian.
Sustainable Market Hopes for 2023
If you’ve been following sustainable finance market activities, it’s no surprise that 2022 was not a great year overall. Markets were down in volume for the first time in 11 years. According to figures from Environmental Finance, total annual sustainable bond issuance fell 19%, from US$1.05 trillion in 2021 to US$845 billion in 2022. Social, sustainability and sustainability-linked bonds were hit hardest – down about 25% compared to 2021, while green bonds fared a bit better with a more modest 14% issuance decline.
Despite the lower issuance volumes, there is hope for a rebound in 2023 as overall markets stabilize and issuers seek financing. This year may see use of proceed instruments like green bonds continue to gain ground compared to performance based, sustainability-linked bonds. We may also see more transition deals, social and biodiversity focused activity, as well as more complicated transactions going to market. It’s still early days, so let’s see how things develop.
Updated Standard for Reporting Financed Emissions in Sovereign Debt
If you’re a bank trying to figure out how to report on your financed emissions, be sure to read through Partnership for Carbon Reporting Financials’ (PCAF) recently updated standard. Global GHG Accounting and Reporting Standard for Financed Emissions addresses demands from financial institutions and provides a methodology to help investors in sovereign debt account and report greenhouse gas emissions. The methodology on sovereign debt includes bonds and loans of all maturities, however, only debt issued by the central bank on behalf of the sovereign would be covered. The methodology also requires reporting of scope 1, scope 2 and scope 3 emissions and recommends getting the information from countries’ reported data via the United Nations Framework Convention on Climate Change.
Key Moments
0:01:16 | Market overview |
0:03:24 | COP15 insights |
0:04:22 | Australia sustainable finance taxonomy |
0:05:04 | BNP Paribas social impact bond |
0:05:16 | TPI paper on food producers' carbon performance |
0:06:53 | Updated PCAF standard |
0:07:31 | Banks' transition planning under scrutiny from ECB |
0:08:05 | Activity in carbon markets |
0:08:45 | Austria launches green commercial paper program |
0:09:14 | CBI paper on transition finance in ASEAN |
0:10:17 | SLB and SLL overview |
0:15:34 | Audience questions |
0:21:00 | Green bonds overview |
0:23:56 | Green loans overview |
0:25:06 | Social bonds and loans overview |
0:27:38 | Labeled products, transition bonds and regulatory updates |
Links to Select Resources
- Environmental Finance – Annual Sustainable Bond Issuance Falls for First Time Since 2011
- Bloomberg.com – Global Debt Market Lost at Least $75 Billion of Business in 2022
- Reuters – ESG Watch: Despite Setbacks, Green Finance Ends 2022 in Good Health
- Global Capital – High Hopes for Corporate Issuance in 2023
- Environmental Finance – COP15 Agreement 'Significant,' but Credit Impact Depends on Implementation
- Environmental Finance – Climate Change Litigation: 11 Key Cases for Insurers to Watch
- Australian Sustainable Finance Institute – Taxonomy Project
- Global Capital – Saving Biodiversity: The Next Mountain for Capital Markets
- Transition Pathways Initiative – TPI Carbon Performance Assessment of Food Producers: Discussion Paper
- Environmental Finance – PCAF Sovereign Debt Methodology Plugs Gap in Emissions Accounting, Says Allianz
- European Central Bank – Supervisory Priorities and Risk Assessment for 2023-2025
- Environmental Finance – Carbon Markets Can Help Provide Nature-based Solutions
- The Hindu Business Line – Sovereign Green Bonds Will Act as Benchmark for Private ESG-linked Debt: RBI’s Rao
- Global Capital – Austria to Launch Green Commercial Paper in 2023
- Climate Bonds Initiative – Scaling Credible Transition Finance – ASEAN Edition
- Sustainalytics SPOs:
Wednesday Feb 01, 2023
Wednesday Feb 01, 2023
Episode Summary
Hosts
- Nicholas Gandolfo, Vice President, Corporate Solutions
- Aditi Bhatia, Senior Regional Sales Manager, Corporate Solutions
In this episode, our hosts Nick and Aditi discuss the recently held COP27 and COP15 conferences and what their outcomes could mean for green and social financing globally. They also touch on the concept of blended finance and how that might be used to support climate adaptation in emerging markets. Increasing activity among sovereigns is also discussed, as countries come to market more frequently with sustainable debt. Lastly, Nick and Aditi share a rundown of other notable sustainable finance transactions.
Climate High on the International Agenda
Given the current climate crisis, expectations were high for COP27. From an environmental standpoint, the final agreement was seen as a disappointment by some observers. However, the conference closed with a ground-breaking agreement to set up a loss and damages fund, which aims to provide financial assistance to countries vulnerable to, or impacted by, the effects of climate change.
COP15, the United Nations Biodiversity Conference, also concluded late last year with a landmark agreement that includes measures to halt and reverse nature loss – such as putting 30% of the planet and 30% of degraded ecosystems under protection by 2030. The plan also includes a target of mobilizing at least US$200 billion per year from public and private sources for biodiversity-related funding.
Finally, the G20 conference in Bali also turned its attention to issues around climate change, low-carbon transition, and climate adaptation.
Innovative Solutions to Fund Sustainable Development
With an estimated US$9.2 trillion needed to meet global climate and environmental goals,1 private and public sectors are looking for more ways to funnel money to finance mitigation and conservation efforts. To address this need, market participants are discussing innovative solutions like blended finance, which is the strategic use of development finance (such as public or philanthropic capital) and private investment capital to fund sustainable development projects in developing countries.2
Check Out Our Special Episode on Sustainable Finance in the Metals and Mining Sector
Key Moments
0:00:51 | Market overview |
0:01:38 | COP27 insights |
0:03:48 | G20 Summit |
0:04:35 | COP 15 insights |
0:05:00 | State of the bond market and outlook for 2023 |
0:05:56 | Sovereigns’ ambitions in sustainable finance |
0:06:33 | Social taxonomy update |
0:06:52 | Green bond tokenization |
0:07:12 | Emergence of blended finance |
0:08:02 | More activity in transition finance market |
0:08:19 | Market scrutiny of SLBs |
0:10:08 | ICMA paper on sustainable repos |
0:10:34 | Food security as social use of proceeds |
0:10:54 | More activity around carbon markets globally |
0:11:15 | PCAF publishes second version of Global GHG Account and Reporting Standard |
0:11:48 | CBI principles for transitioning agriculture sector |
0:12:23 | SLB and SLL overview |
0:17:39 | Audience questions |
0:23:26 | Green bonds overview |
0:26:51 | Green loans overview |
0:28:50 | Social bonds and loans overview |
0:31:04 | Labeled products, transition bonds and regulatory updates |
Links to Select Resources
- IFLR - COP15: Financial Firms Look to Scale Up Nature Finance
- Bloomberg - Global ESG Bond Issuance Headed for First Full-Year Decline Ever
- GlobalCapital – Record Volumes Spark January Debate in FIG Market
- Responsible Investor – World Bank: Only 31 Southeast Asian Companies Have Issued Sustainable Debt Since 2017
- OMFIF – Sovereigns Need to Show More Ambition With ESG Bond Frameworks
- GlobalCapital – ESAs Call for Evidence of Greenwashing
- Open Access Government – Social Taxonomy: A Step Towards Social Sustainability
- Environmental Finance – Banks Urged to Rework Financing Instruments for Climate Adaptation
- Blockchain News – HK to Issue Tokenized Green Bond, Open Market for Virtual Assets ETFs Trading
- China Dialogue – China’s Central Bank to Focus on Transition Finance
- The Manila Times – ASEAN Launches Sustainable and Responsible Fund Standards
- Bloomberg Law – ESG-Linked Bonds Seen Stalling on Greenwash and Legal Fears
- Environmental Finance – Snam’s Return to Transition Bonds ‘A Big Sign’ SLBs are Under Pressure
- GlobalCapital – Crunch Time Coming for SLBs as First Step-Ups Appear
- The Business Times – ESG is Taking Over the Loan Market
- Environmental Finance – ICMA Principles Could be Adapted for ‘Sustainable Repos’
- Climate Home News – John Kerry: Carbon Offsets Can Help Wean Developing Countries Off Coal
- World Economic Forum – Climate Adaptation: The $2 Trillion Market the Private Sector Cannot Ignore
- Responsible Investor – Scope 3 Emissions Key to Financial Sector Net Zero Plans, says GFANZ
- Climate Bonds Initiative – Principles and Hallmarks for Transitioning Agri-Food Systems: Opportunities, Pathways and Actions
- Sustainalytics SPOs:
- AIB Green Bond Framework Second-Party Opinion
- Storebrand Green Bond Framework
- Volkswagen Aktiengesellschaft Green Finance Framework Second-Party Opinion
- City of Atlanta Social Bond Framework Second-Party Opinion
- CABEI Green and Blue Bond Framework Second-Party Opinion
- VPBank Social Finance Framework Second-Party Opinion
Sources
1Roston, E. 2022. “McKinsey Pegs the Price Tag for a Livable Climate at $9.2 Trillion a Year.” Bloomberg. January 25, 2022. https://www.bloomberg.com/news/articles/2022-01-25/mckinsey-pegs-price-tag-of-livable-climate-at-9-2-trillion-a-year
2 See OECD: https://www.oecd.org/development/financing-sustainable-development/blended-finance-principles/ and Bank of America: https://about.bankofamerica.com/en/making-an-impact/blended-finance
3 See Earth.org: https://earth.org/debt-for-nature-swaps/
Wednesday Jan 25, 2023
Wednesday Jan 25, 2023
Episode Summary
Host:
- Curtis File, Editorial Manager, ESG and Sustainable Finance
Featuring:
- Melissa Hudson, Associate Director, Research Products
- Liam Zerter, Associate Director, Quantitative Research Manager
In this episode of the Sustainalytics Podcast, Curtis explores cybersecurity and data privacy issues, with commentary from Melissa Hudson and Liam Zerter about the real impact of cyberattacks on businesses. You’ll learn about the 2021 United Kronos Group ransomware attack, cybersecurity trends that organizations should monitor, how cyberattacks affect the bottom line, and why companies should invest in developing robust cybersecurity and data privacy policies.
The Current Cybersecurity and Data Privacy Trends Companies Should Monitor
Within the last two years in particular, both the frequency and severity of cyberattacks against businesses have continued to climb. As companies have modernized and expanded their digital infrastructure to remain competitive, they have also increased their vulnerability. High-profile data breaches have led to increased pressure from regulators, consumers, and the insurance industry, who increasingly view such incidents as market failures.
Why Having a Strong Cybersecurity Policy is Important
Perhaps most importantly for a company’s bottom line, Morningstar Sustainalytics’ researchers found that companies that had robust data privacy and cybersecurity policies were able to recover faster from a cyberattack compared to peers with poor or weak policies. Beyond providing a boost to recovery, companies must also invest in their cybersecurity infrastructure in order to keep up with the rapidly changing regulatory landscape. Those that don’t take immediate action will be left behind.
Read Our eBook, Data Privacy, Cybersecurity and ESG: Managing Risks in a Changing Business Environment
Download the ebook to learn about the types of data privacy and cyber threats companies are facing, the potential ESG risks for companies that do not properly address data privacy and security, and how organizations can manage and mitigate data privacy and security risks.
Key Moments
00:00 | United Kronos Group Ransomware Attack |
01:54 | Introduction to the Cybersecurity and Data Privacy Landscape |
03:35 | Five Global Events Driving Cybersecurity and Data Privacy Trends |
05:18 | Consequences of Under-Investment in Cybersecurity |
06:40 | The Increasing Frequency and Severity of Cyberattacks |
08:00 | How Cyberattacks Impact Stock Price |
09:45 | The Importance of Strong Data Privacy and Cybersecurity Policy |
10:34 | A Developing Regulatory Landscape |
12:09 | Looking Forward |
Transcript
00:02 |
Curtis File: In December 2021, a group of cybercriminals sent panic across the United States. United Kronos Group, a payroll and HR software company, was targeted by a ransomware attack. The attack took out its Kronos Private Cloud platform, and this left major retailers and state governments scrambling to pay employees as the holidays approached. But worse, a number of hospitals were affected. Kronos was a mission critical provider of administrative services for hospitals across the United States. From small, remote hospitals to urban medical systems, the attack interrupted services and, in many cases resulted, in delayed health care delivery. So why was this able to happen? |
00:46 |
John Riggi: In response to the pandemic, hospitals rapidly deployed and expanded network-connected and internet-connected technologies to accommodate a surge of COVID patients and a remote administrative workforce. So, what this did is create many more opportunities for bad guys to penetrate our networks. It's what we call an expanded attack surface.1 |
01:18 |
CF: That was a clip of John Riggi, Senior Adviser for cybersecurity and risk for the American Hospital Association. At the time of the Kronos attack, he spoke openly to media about his concern for the cybersecurity threats the health care industry is facing. He told NPR: “As we always do, hospitals and health systems will get it done and care for patients, but under additional stress and burden they don't need right now.” The incident highlighted the real impact of cybersecurity breaches when corporations and government systems are attacked, our coworkers, friends and family are the collateral damage. I'm Curtis File, Editorial manager with Sustainalytics and your host for today as we look at cyberattacks and what they mean for ESG risk management. Cybersecurity and data privacy have become hot button issues, particularly in the last two years. Consumers have become more informed about data privacy issues, demanding companies take accountability for how they process user data. At the same time, there's been a significant increase in the number and severity of cyberattacks against businesses. To better understand the concrete business impact of cyberattacks, Sustainalytics’ experts set out to create a report based on our own research and data, asking, “does a major cybersecurity incident have a meaningful impact on stock price returns?” And it turns out... |
02:45 |
Melissa Hudson: The answer is yes. |
02:47 |
CF: That's Melissa Hudson, Associate Director, Research Products and one of the authors of the report. You'll be hearing more from her today, along with another Sustainalytics expert, Liam Zerter, Associate Director, Quantitative Research Manager. We'll be taking a closer look at the results of the report to get a better understanding of cybersecurity and data privacy. But before we get into the data in numbers, let's take a broader look at cybersecurity as an ESG risk. Melissa Hudson explains. |
03:15 |
MH: If I could sum up what we're seeing, it's that both data and digitization have become a double-edged sword. They are key drivers of value and efficiency, but they also create a significant new target commodity and increased corporate vulnerability. We see five recent global events as key. First, COVID 19 and the unprecedented disruption and movement to remote work that came with it. Second, the 2020 SolarWinds attack, a game changer that Microsoft CEO called the largest and most sophisticated attack the world has ever seen. Then came the 2021 Colonial Pipeline hack that showed the U.S. public the real-life, real-time impact of a cyberattack on critical infrastructure. Fourth, the Russian invasion of the Ukraine earlier this year, which led many to fear the possibility of cyber warfare. Finally, over the course of this time-period, we've seen the emergence of ransomware and in particular its productized form known as “ransomware as a service”. So, on the one side, disruption, sophisticated technologies, supply chains and critical infrastructure attacks are placing an increased focus on how vulnerable our integrated cyber ecosystem has become. While, on the other, ransomware is leveling the playing field in terms of risk. Companies and industries once considered immune are having to deal with business interruption and extortion as ransomware is made available to less sophisticated actors. In short, we're reckoning with a significant realignment in global cyber security risk. And the pace of corporate investment in cybersecurity has not kept up. |
05:29 |
CF: That underinvestment in cybersecurity is a critical issue. The frequency of cyberattacks only continues to climb, and so does the severity of losses. As a result, stakeholders are being taken off guard as they're suddenly confronted with significant transition risks. And the public costs of underinvestment in cybersecurity are increasingly being viewed as market failures in much the same way as environmental issues. These costs are driving increased regulation, stronger enforcement, and pressure from the insurance industry. |
05:59 |
MH: Marsh and McLennan see an inflection point in the market comparable to that faced by property insurers 30 years ago following Hurricane Andrew in Florida. Following Andrew, almost a million policyholders lost coverage after their insurance companies went bankrupt. In today's context, we are seeing a cyber-insurance market with increasing premiums, more exclusions, and, in a signal that mirrors our own analysis, coverage availability tightly linked to implementing industry standard cybersecurity safeguards. |
06:40 |
CF: With regulators and insurers increasingly scrutinizing companies’ cybersecurity practices. Sustainalytics researchers wanted to know: Are cybersecurity incidents really increasing in number and severity? Do cyberattacks impact share price? And if so, how? And do strong privacy and security practices pay off? Let's start with the first question. Liam Zerter has the answers. |
07:03 |
Liam Zerter: Let's take a look at the data privacy and security incidents that Sustainalytics tracks. If we take a look at 2013, moving to 2021, data privacy and security has been growing at a cumulative aggregate growth rate of 37%. If you compare this to the total incident growth rate, which is influenced by a coverage, that's been growing at 24%. We have a pretty clear double-digit growth that's occurring. But the more interesting story is when you look down at the risk level from before 2018 and post 2018. So, from 2013 to 2017, those high-risk business incidents have been going for about an average of, you know, five per year. But in 2019 to 2021, now you're averaging 26. So, you're looking at what might be a 5x increase and those big write tail events occurring. |
08:00 |
CF: To get a better understanding of what that fivefold increase in incidents means, Sustainalytics researchers put together an event study to look at the price reaction to news of a major cyberattack. They compared a portfolio of companies that had been involved in a high-risk cybersecurity incident against the S&P 500 and a global sector benchmark. |
08:20 |
LZ: From day zero going forward, in the first four days, you have a -2.3% drop in the first four days and a partial rebound. Some companies start getting some confidence back in the market, but this is short lived. The absolute bottom that occurs is 60 trading days in. This is particularly interesting because some analysts and news anchors on BNN Bloomberg for example, will actually reference that, if a big controversy happens to a company, you know, wait three months and sometimes the market forgets about that controversy, even occurring. That's very interesting to see that this also aligns to that type of saying. |
09:06 |
CF: But that's not the end of the story. The real surprise for researchers came when looking at the long-term impact. One year later. |
09:14 |
LZ: The incident portfolio is actually still negative in absolute terms returns. But it's even worse off when compared to the S&P 500 and the sector benchmark. Now we have a scenario where, you know, it's clearly showing that there is a drag being placed on these companies for a longer-term period. Some studies may, that are out there, may actually say it could take up to two years for some companies that have been severely cyber attacked to start acting normal again. |
09:45 |
CF: The reports are bleak. Malicious actors don't just deal from corporations, they damage the relationship between companies and their stakeholders. So, what can companies do to protect themselves? Liam says having robust security and data privacy policies can buffer the negative impact. |
10:02 |
LZ: When we looked at data privacy and security policy management scores, those companies that had really strong scores, 75 to 100, 1 year after the incident actually traded pretty close in line with their relative benchmark. They actually weren't affected all too much in most cases. But those companies that had a score of zero or no score available at all because the industry that they participate in, they were down nearly -5%. So, there's a significant gap difference. |
10:34 |
CF: Beyond providing a boost to recovery, the regulatory landscape is changing. Taking a casual approach to cybersecurity and data privacy is no longer an option. New and stricter data privacy regulations are on the horizon, with many nations looking to the EU GDPR as an example. On the cybersecurity front, laws, design requirements and reporting standards are continually evolving. Melissa says organizations must pay close attention to both data privacy and cybersecurity regulations to ensure they maintain compliance. |
11:05 |
MH: In general, we're seeing a broad convergence towards GDPR-like regulatory regimes, at least in the developed world. California's New privacy laws have set a high bar for the U.S. and the majority of states now have their own. Canada, for example, is in the process of amending the breadth and depth of its privacy law to meet or closely aligned with GDPR standards. While Australia has just greatly increased the fines for privacy breaches in light of at least two major incidents. On the cyber security front, we have also begun to see significant developments related to freestanding cybersecurity law, technology design requirements, and increasing attention to critical infrastructure standards and reporting. A trend that has only accelerated with the SolarWinds and Colonial Pipeline attacks. |
12:09 |
CF: Those attacks have highlighted that as a society, we have greatly underestimated cybersecurity risk. While digitization has made it easier for businesses to scale and operate more efficiently. It's also made it easier for malicious actors to exploit vulnerabilities—as demonstrated by the Kronos attack. Going forward, organizations are going to be facing increased pressure and scrutiny from government regulations, the insurance industry and stakeholders conducting due diligence on cybersecurity risks. As a result, companies are going to have to both increase their investment in cybersecurity, and increase their level of disclosure around risk mitigation, with particular attention to controls related to privacy and security management. Companies that failed to do so may ultimately face operational and remediation costs, financial penalties, reputational damage and lost business. That's it for this episode of the Sustainalytics podcast. If you'd like more information about data privacy and cybersecurity threats companies are facing around the world, and how your company can better manage these risks, head over to the resource center at www.sustainalytics.com and read our e-book Data Privacy, Cybersecurity and ESG: Managing Risks in a Changing Business Environment. We'll put the link in the show notes. Alternatively, you can check out the full report, The Impact of Cyberattacks on Stock Prices authored by Melissa Hudson and Liam Zerter. Or watch their in-depth webinar Cyber Attacks, Corporate Exposure and Material ESG Risk. If you have any questions, or suggestions for topics you'd like to learn more about, email us at podcast@sustainalytics.com. Thanks again to Melissa and Liam for providing their insight. And thank you for listening. |
References
1. CyberMed Summit. “Cyberattack Preparedness and Hospital Readiness Across American Healthcare.” YouTube Video, 22:37. February 6, 2022. https://www.youtube.com/watch?v=0gfSxfHSzzI
Wednesday Dec 14, 2022
Wednesday Dec 14, 2022
Episode Summary
Hosts
- Nicholas Gandolfo, Director, Corporate Solutions
- Aditi Bhatia, Regional Sales Manager, Corporate Solutions
In this episode, Nick and Aditi highlight developments in the sustainable finance markets as 2022 winds down. They note that global cumulative green bond issuance has surpassed the US$2 trillion threshold, marking another milestone for sustainable finance. They also discuss the diversification of key performance indicators used in sustainability-linked instruments, the growing opportunities for using sustainable finance as a tool to fund climate adaptation in emerging markets, and regulators’ increasing focus on reporting for scope 3 emissions. Finally, they respond to audience questions about impact investing and sleeper sustainability-linked loans.
Cumulative Issuance of Climate-aligned Bonds Passes $2 Trillion Mark
According to the Climate Bonds Initiative, to date over US$2 trillion in greens bonds have been issued globally, marking another major milestone in sustainable finance. Despite broader market conditions resulting in lower volumes year-over-year, use of proceed bonds, such as green bonds, are rebounding slightly.
Using Sustainable Finance to Support Funding in Emerging Markets
When thinking about how to ensure a just transition, a recurring question is, "How can market participants initiate more financing for adaptation, resilience, and development, to help countries who most vulnerable to climate change, but that are not major contributors to it?" One answer is sustainable finance. Sustainability-labeled debt can provide opportunities to drive and scale financial flows in emerging markets. Though issuing a green bond doesn’t eliminate the liquidity, currency or country risk facing some emerging market nations, hopefully more funds can be leveraged under the sustainable finance umbrella to drive additional financing and a just climate transition for these countries.
Growing Regulatory Focus on Scope 3 Reporting
Regulators globally continue to push for disclosure and reporting of scope 3 emissions. In October 2022, the International Sustainability Standards Board (ISSB) voted unanimously to require companies to disclose scope 1, scope 2 and scope 3 greenhouse gas emissions, and will develop relief provisions to help companies apply the scope 3 requirements.2 This follows the U.S. Securities and Exchange Commission’s proposal for climate disclosure published earlier this year which includes reporting on Scope 3 for large U.S. companies.
0:00:51 |
Market overview |
0:01:24 |
Use of proceed rebound |
0:02:15 |
CBI conference outcomes |
0:03:22 |
Green bond issuances pass US$2 trillion globally |
0:04:08 |
FCA report on fund labeling |
0:04:58 |
CBI reports and consultations |
0:05:36 |
Scope 3 reporting in the news |
0:06:21 |
Sustainable finance for emerging markets |
0:07:01 |
Funding instruments to support conservation - blended finance and debt to nature swaps |
0:09:00 |
Green and social loans tied to banks SLL pools |
0:09:46 |
SLB and SLL overview |
0:14:04 |
Audience questions |
0:19:47 |
Green bonds and loans overview |
0:25:40 |
Social bonds and loans overview |
0:29:05 |
Labeled products, transition bonds and regulatory updates |
Links to Select Resources
- Environmental Finance – World Bank Warns of SLB Greenwashing Risk From 'Structural Loopholes'
- Environmental Finance – Climate Bonds Standard Extension to SLBs to 'Fire Integrity'
- Global Capital – French Agencies Struggle to Tighten Green Deals
- Environmental Finance – EM Financial Institution Green Bond Impact Reporting Study Published
- IISD - AfDB Report Assesses Feasibility of Debt-for-Nature Swaps in Africa
- Environmental Finance – Investors Calling on TNFD to Address Nature Restoration
- Environmental Finance – Inflation Reduction Act 'Could Transform Bond Market', Conference Hears
- Global Capital – Bonds Tied to Banks’ SLL Pools Could Spread in 2023
- Global Capital – Dearth of Climate Adaptation Bonds Spurs Call for New Asset Class
- Delano – Green Bonds Issuers Adapt to EU Taxonomy: LuxSE
- Climate Bonds Initiative – 101 for Policymakers
- Climate Bonds Initiative Hydrogen Production Criteria
- Sustainalytics SPOs:
- Uruguay’s Sovereign Sustainability-Linked Bond Framework Second-Party Opinion
- CEMEX Sustainability-Linked Financing Framework Second-Party Opinion
- PT Semen Indonesia (Persero) Tbk Sustainability-Linked Finance Framework Second-Party Opinion
- Government of Chile Sustainability-Linked Bond Framework Second Party Opinion
- Japan Bank for International Cooperation Green Bond Second-Party Opinion
- IIFL Home Finance Limited Sustainable Finance Framework Second-Party Opinion
- Georgian Renewable Power Operations Green Bond Framework Second-Party Opinion
- Carmila Green Bond Framework Second-Party Opinion
- First Help Financial Social Bond Framework Second-Party Opinion
Tuesday Dec 06, 2022
Tuesday Dec 06, 2022
Episode Summary
Hosts
- Aditi Bhatia, Regional Sales Manager, Corporate Solutions
- Nicholas Gandolfo, Director, Corporate Solutions
- Nishant Bhagchandani, Sales Manager, Corporate Solutions
- Vanessa Tang, Sales Associate, Corporate Solutions
Key Moments
0:00:57 |
Introductions |
0:02:44 |
Overview of Sustainalytics’ approach to sustainable finance |
0:04:29 |
Exploring the growing interest in sustainable finance for the mining sector |
0:08:42 |
Use of proceeds or linked finance? Considerations for mining companies and banks |
0:12:48 |
Applying the Climate Transition Finance Handbook |
0:15:24 |
External reviewer landscape – how does Sustainalytics compare? |
0:19:38 |
The benefits of labeling transactions from the mining sector |
0:26:13 |
How Sustainalytics supports banks’ sustainable finance activities |
0:29:45 |
Sustainable finance questions from banks |
0:37:08 |
A look at transaction trends and market developments |
0:45:03 |
Green Bond Impact Reporting – The next frontier in sustainable finance |
0:53:17 |
Outlook for sustainable finance in the metals and mining sector |
Links to Select Resources
- International Energy Agency (IEA) – The Role of Critical Minerals in Clean Energy Transitions
- International Capital Market Association (ICMA) – Climate Transition Finance Handbook
- World Bank – Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition
- ICMA – Registry of key performance indicators for sustainability-linked bonds
- ICMA – Principles, Guidelines and Handbooks
- Loan Syndications and Trading Association (LSTA) – Sustainability-Linked Loan Principles
- Task Force for Climate-Related Financial Disclosures (TCFD)
- Taskforce for Nature-Related Financial Disclosures (TNFD)
- Global Reporting Initiative (GRI) – Sector standard project for mining
- Sustainalytics Bond Impact Reporting
- Sustainalytics Corporate Impact Reporting
- Sustainalytics Supply Chain Solutions – ESG Assessment Platform
Sources
1 IEA. 2021. “The Role of Critical Minerals in Clean Energy Transitions.” May 2021. https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions.
2 Delevingne, L., Glazener, W., Gregoir, L., and Henderson, K. 2020. “Climate Risk and Decarbonization: What Every Mining CEO Needs to Know.” McKinsey Sustainability. January 28, 2020. https://www.mckinsey.com/capabilities/sustainability/our-insights/climate-risk-and-decarbonization-what-every-mining-ceo-needs-to-know.
Monday Nov 28, 2022
Monday Nov 28, 2022
Episode Summary
Hosts
- Nicholas Gandolfo, Director, Corporate Solutions
- Sabrina Tang, Sales Associate, Sustainable Finance Solutions
Despite continued pressure on global financial markets, our hosts Nick and Sabrina highlight some bright spots within sustainable finance. From the array of green bond transactions coming to market in recent months, to sovereigns exploring sustainable finance opportunities to fund biodiversity, marine conservation and social programs, the sustainable finance market continues to push against market headwinds.
Biodiversity Rising on Sustainable Finance and Corporate Agendas
With COP27 ending and the UN Conference on Biodiversity (COP15) coming up in December, the issue of biodiversity continues to resonate among sustainable finance market participants. Companies are starting to focus more on biodiversity issues and their impact, and the Taskforce on Nature-related Financial Disclosures has also updated its beta framework. Sovereigns, such as Uruguay, are also joining the movement by funding efforts around biodiversity using sustainability-linked bonds.
Use of Proceed Instruments Increase as Sustainability-Linked Instruments Faces Scrutiny
Contracting global financial markets has put pressure on the bond market. However, Nick does note a slight uptick in the number and variety of labeled use of proceed bond issuances in recent months relative to sustainability-linked bond issuances. This could be due, in part, to the growing scrutiny of linked bond instruments. Should they be more nuanced? Do the benefits of the pricing dynamics outweigh the penalties for not meeting targets? These are all valid questions being raised about these financing instruments that have seen tremendous growth over the last few years. It remains to be seen whether these questions translate into new norms for the market.
Key Moments
0:00:57 |
Market overview |
0:01:29 |
GSSS market pressures |
0:02:40 |
Biodiversity and sovereign SLBs |
0:03:51 |
Continuing scrutiny of SLBs |
0:04:25 |
FCA consultation paper |
0:05:15 |
Banks explore funding pools of SLLs |
0:05:45 |
Singapore banks commitments to Net Zero |
0:06:32 |
New reports from Climate Bonds Initiative |
0:07:55 |
SLB and SLL overview |
0:13:39 |
Audience questions |
0:17:56 |
Green bonds overview |
0:20:47 |
Green loans overview |
0:22:25 |
Social bonds and loans overview |
0:23:46 |
Labeled products overview |
0:24:50 |
Transition bonds overview |
0:26:41 |
Regulatory and country updates |
List of Select Resources
- Investment Magazine: Responsible Investment Hits Record in 2021
- Investment Week: S&P Global Ratings Downgrades GSSSB Forecast by 16%
- Environmental Finance: Sustainable Bonds Take Record Market Share
- Environmental Finance: NatWest: Biodiversity-linked Sovereign SLBs Could Be 'Powerful'
- Environmental Finance: HSBC: COP15 Will See More Green Bond Focus on Biodiversity
- Environmental Finance: SLB Step-ups Have Almost No Correlation With Credit Quality
- Environmental Finance: Sovereign Sustainability-linked Debt Initiative Launched
- Financial Conduct Authority (FCA): Sustainability Disclosure Requirements and Investment Labels
- Finance Asia: Social Risks Can Be Credit Risks: Evaluating the 'S' in ESG
- Finextra: Greenwashing is a Systemic Problem at UK Banks
- Climate Bonds Initiative: New Social and Sustainability Bond Database: Enhanced Screening Capabilities for Full GSS+ Market
- Sustainalytics SPOs:
Wednesday Sep 28, 2022
Wednesday Sep 28, 2022
Episode Summary
Hosts
- Nicholas Gandolfo, Director, Corporate Solutions
- Sabrina Tang, Sales Associate, Sustainable Finance Solutions
In this episode, Nick and Sabrina examine some of the interesting transactions and developments in the global sustainable finance market. Despite a general slowdown in the volume of issuances, there are still innovative transaction structures being proposed and sustainability-linked instruments (i.e., bonds and loans) continue to perform well. Green bonds continue to anchor the sustainable debt market, with several notable transactions in the blue bond space. Finally, audience questions are addressed, regarding clarity on whether sustainability-linked instruments can be structured in a program and the difference between social bonds and social impact bonds.
Blue Bonds Making Waves in Sustainable Finance
More corporate and sovereign issuers are exploring blue bonds to help finance their environmental conservation efforts. A blue bond is a debt instrument similar to a green bond, but with a focus on marine and ocean-based projects. In their market overview, Nick and Sabrina highlight blue bond proposals from the Securities and Exchange Board of India, the issuance of the first blue bond in Japan, and blue bond-related activities in Indonesia. The protection and conservation of oceans, waterways, and the life within them is essential for both business and society.
“Sleeping” Sustainability-Linked Loans: A Concern for the Sustainable Finance Market?
Nick notes the emergence of “sleeping” sustainability-linked loans, in which companies seek to build into their conventional loan documentation the ability to convert to an SLL at a later date. The key performance indicators (KPIs) and sustainability performance targets (SPTs) are also set at a later date. These types of loans are raising concerns among market participants around transparency, as its important to make sure that SLLs are not labelled as such until they have KPI and SPTs in place. The credibility of sustainability-linked instruments and sustainability washing is an area of evolving interest and scrutiny in the market.
As defined by the Sustainability-Linked Loan Principles, SLLs “incentivize the borrower’s achievement of ambitious, predetermined sustainability performance objectives.” Sustainability performance is measured using predefined sustainability performance targets (SPTs), as measured by predefined key performance indicators (KPIs). It is also recommended that borrowers and lenders have the appropriateness of the SPTs, and the methodology applied to assess them, reviewed by an external party as a condition preceding the loan.
Details of U.S. Inflation Reduction Act Show Promise for Renewables
The recently passed Inflation Reduction Act in the United States aims to control inflation by reducing the deficit, lowering prescription drug prices and investing in domestic energy. A key component of this last goal is the promotion of clean energy. This legislation will result in the biggest infrastructure spend on renewables in recent history, hopefully setting the tone for the future. Government stimulus like this could be significant in paving the way for more rapid acceleration towards net zero.
Key Moments
0:01:29 |
Market overview |
0:01:29 |
CBI half-year market review |
0:02:44 |
Major issuance locations - China, Germany, Netherlands, U.S., France |
0:03:58 |
U.S. Infrastructure Reduction Act good sign for renewables |
0:04:58 |
Nuclear popping up |
0:05:10 |
ESG increasingly being linked to remuneration |
0:05:32 |
More green taxonomies being developed |
0:05:56 |
Sustainability being integrated into leveraged loan market |
0:06:19 |
China Green Bond Standard |
0:06:36 |
Diversifying nature of sustainable bonds across Asia |
0:06:55 |
"Sleeping” sustainability-linked loans on the market |
0:07:58 |
SLB overview |
0:11:28 |
SLL overview |
0:15:52 |
Audience questions |
0:22:03 |
Green bonds overview |
0:28:20 |
Green loans overview |
0:29:25 |
Social bonds and loans overview |
0:31:17 |
Labeled products overview |
0:33:27 |
Transition bonds overview |
0:33:36 |
Regulatory and country updates |
List of Select Resources
- Climate Bonds Initiative: Sustainable Debt Market Summary H1 2022
- Environmental Finance: Rise of SLBs Helps Labelled Debt Retain 19% Share of European Market
- Bloomberg: Green Bond Sales Drop to 19-Month Low on Tight Issuance Windows
- The Edge Singapore: Economic Uncertainties a Boost for SGD Bonds
- The Telegraph: Fund Nuclear Power With Green Bonds, Treasury Told
- NT News: ESG Looms as Potential Remuneration Hurdle, UBS Says
- Environmental Finance: Half of European ESG Leveraged Loans Have 'Weak' Target Promises
- Caixin Global: China’s New Green Bond Standards Aim to Curb ‘Greenwashing’
- China Dialogue: China’s New Green Finance Guidelines Have a Deforestation Blind Spot
- Environmental Finance: Comment: Sustainability-Linked Finance - Failure Must Be an Option
- Bloomberg: 'Sleeping' ESG Loans Are a Worrying Trend, BNP Says
- IntraFish Finance: Maruha Nichiro to Issue Japan's First Blue Bond as it Reports 25% Earnings Hike
- Responsible Investor: Indian Blue Bond Mining Provision Draw Market Scepticism
- Sustainalytics SPOs:
Wednesday Aug 24, 2022
Wednesday Aug 24, 2022
Episode Summary
Hosts
- Nicholas Gandolfo, Director, Corporate Solutions
- Aditi Bhatia, Regional Sales Manager, Corporate Solutions
In this episode, Nick and Aditi share recent developments in the global sustainable finance market. They touch on the cooling bond market and the shifting geographic split in green bond issuance, noting that EU dominance is waning as other jurisdictions close the gap. Nick gives his thoughts on the impact of the forthcoming EU green bond standard on what future bond frameworks will include, what will be reported, and the level of external review required.
In her update on sustainability-linked loans and bonds, Aditi highlights a couple of transactions, notable for their use of gender-based KPIs aiming to increase the number of women in management positions. Finally, Nick applauds Sustainalytics’ Corporate Solutions business for providing the most second-party opinions in the first half of the year, as cited by Environmental Finance.
Study of Greenhouse Gas Targets Used in Linked Finance
Environmental Finance recently published a report analyzing the types of key performance indicators being used in sustainability-linked bonds and loans. Across sustainability-linked instruments, carbon and greenhouse gas emission reduction KPIs accounted for about 75% of KPIs used, with other environmental issues, such as water, making up 10%, social issues another 10% and less than 5% related to governance issues. This makes sense, given the quantitative nature of GHG and carbon emission metrics. The report also noted the emergence of KPIs tied to scope 3 emissions, which is a promising trend given the high impact of scope 3 emissions for some industries.
Focus on Supply Chain Sustainability Improvements
For organizations looking to support ESG and sustainability improvements in their supply chain, it’s important to understand suppliers’ needs and motivations. Some large players in food and agriculture are offering financial incentives to farmers to implement sustainable practices. Others are supporting programs to pilot and scale innovative sustainability solutions. Still others are working to advance social goals, such as furthering opportunities for minority and female entrepreneurs. Sustainalytics’ Corporate Solutions is working more and more with clients to support their evaluation of suppliers – from KPIs connected to suppliers to ESG assessments of their suppliers.
Key Moments
0:00:48 |
Market overview |
0:02:01 |
Changing geographic in green bond market |
0:02:25 |
Sustainalytics leads SPOs in H1 2022 |
0:02:55 |
Green/social split tranche instead of sustainability issuance |
0:03:40 |
Nuclear back on the radar |
0:04:33 |
Malaysia Islamic financing |
0:04:45 |
EU Green Bond Standards coming soon |
0:05:29 |
Guidance for finance sector decarbonization |
0:06:05 |
Updated Climate Bonds Initiative methodology |
0:06:41 |
Securitization and structured deals |
0:06:45 |
Sustainable finance and supply chain |
0:07:21 |
New NNIP social bond fund |
0:07:39 |
More articles on biodiversity |
0:08:00 |
KPIs used is sustainability-linked instruments |
0:09:52 |
SLB and SLL overview |
0:13:54 |
Audience questions |
0:18:32 |
Green bonds overview |
0:22:52 |
Green loans overview |
0:24:28 |
Social bonds and loans overview |
0:26:15 |
Labeled products overview |
0:27:40 |
Transition bonds overview |
0:28:25 |
Regulatory and country updates |
List of Select Resources
- Environmental Leader: Sustainable Finance Markets Cool After Record-Setting Year
- Investment Executive: As markets wobble, sustainable finance suffers too
- S&P Market Intelligence: Europe's dominance in green bond market fades amid record growth in China
- Environmental Finance: Sustainalytics delivers most SPOs in first half of 2022
- Asia One: New World Development offers world's first USD social and green dual tranche bond in public markets totalling USD700m
- Bloomberg: Once-Unthinkable Nuclear Green Bonds Are Coming to Europe
- Environmental Finance: Issuers opt for SLBs as EU tightens green bond rules, says BdF
- Environmental Finance: Focus on banking transition plans as priority, IIGCC recommends
- Environmental Finance: CBI tightens green bond criteria and readies social expansion
- Green Biz: Supply chain emissions are top of mind for food and ag
- Environmental Finance: Green securitisations 'under-utilised in Europe'
- Funds Europe: NN IP launches SDG-focused social bond fund
- Environmental Finance: Sustainability-linked Debt - Carbon Emissions KPIs