The Sustainalytics Podcast
 

The Sustainalytics Podcast

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A global leader in sustainability research & analysis, serving investors & financial institutions with responsible investment solutions.

Episodes

What’s Happening in Sustainable Finance: The Shifting Regulatory Landscape, Reporting on Impact, Focus on Biodiversity, and More

Thursday Aug 04, 2022

Thursday Aug 04, 2022

Episode Summary

Hosts

  • Nicholas Gandolfo, Director, Corporate Solutions
  • Sabrina Tang, Sales Associate, Sustainable Finance Solutions

In this episode, Nick and Sabrina recap recent developments in the global green, social, sustainability, and sustainability-linked market. They highlight a major milestone for Morningstar Sustainalytics’ sustainable finance team, which delivered its 1,000th second-party opinion in the spring. They also discuss the ever-evolving regulatory environment around ESG disclosures and reporting, the prevalence of measuring impact in the green, social, sustainability and sustainability-linked (GSSS) bond market, and share some of the updated GSSS guidance coming from International Capital Markets Association (ICMA).      

ESG and Sustainable Finance Regulations Continue to Roll Out Globally  

As noted in previous episodes, the regulatory train continues to roll along for issuers, investors, and service providers in the sustainable finance space. In the U.S., the Securities and Exchange Commission is proposing greater corporate disclosures related to climate and scope 1, 2, and 3 emissions. Also, in Europe, negotiations for the EU Green Bond Standard continue. Finally, there are continued calls for regulation of ESG data and ratings providers as this information is increasingly integrated into global investment decisions. Companies and investors should continue to monitor the shifting regulatory landscape and be prepared to disclose more when it comes to climate and other ESG-related issues.

Reporting on Impact: The Next Big Thing in the GSSS Market

It’s a promising sign that a growing number of issuers are funding green and social projects with labeled bonds, but investors also want to know that proceeds from their GSSS bonds are having a positive impact. So, more and more issuers are crunching the numbers on the impact of their sustainable bonds and loans. During its annual conference, the ICMA released new and updated guidance for GSSS bonds, which includes new metrics for impact reporting for green and social projects. Sustainalytics’ Corporate Solutions offers Impact Reporting for Bonds and Loans providing issuers with analysis of the expected and achieved impacts of their financed projects.

Growing Focus on Biodiversity

The Taskforce for Nature-based Financial Disclosures has published the next iteration of its reporting framework, which is looking at issues related to biodiversity and metrics. The International Finance Corporation and World Benchmark Alliance are also working to help advance the biodiversity finance market. Nick anticipates that we’ll start to see and hear more about companies being “nature positive,” how that can be measured, which KPIs should be targeted and tracked, and which use of proceeds are eligible. With over half of the world’s GDP at risk due to biodiversity loss, it’s great to see a growing spotlight on biodiversity.

Key Moments

0:01:25

Market overview

0:01:36

Sustainalytics’ 1,000th SPO

0:02:07

Bond market headwinds

0:03:12

Mainstreaming of sustainable finance

0:03:35

Blue carbon credits

0:03:40

Scrutiny over greenwashing continues

0:04:41

EU Green Bond Standard

0:05:11

Measuring impact in the GSSS bond market

0:06:13

Nuclear, gas and the Green Taxonomy

0:06:41

SEC proposal for scope 1, 2, and 3 disclosures

0:07:02

TNFD published next draft framework

0:07:36

GFANZ released guidance for decarbonizing portfolios

0:07:59

ICMA guidance updates 

0:10:14

Australian Sustainable Finance Initiative taxonomy

0:10:51

FIFA World Cup going carbon neutral?

0:11:09

New reports from CBI

0:11:51

SLB overview

0:15:14

SLL overview

0:19:40

Audience questions

0:25:00

Green bonds overview

0:31:45

Green loans overview

0:34:09

Social bonds and loans overview

0:35:33

Labeled products overview

0:36:35

Transition bonds overview

0:38:07

Regulatory and country updates

List of Select Resources

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The Sustainalytics Podcast | Aligning Executive Action to Strategy With Sustainability-Linked Compensation

Thursday Jul 21, 2022

Thursday Jul 21, 2022

Episode Summary

Host:

  • Adam Gorley, Marketing Manager, Corporate Solutions

Featuring:

  • Upasna Handa, Senior Associate, Product Commercialization
  • Henry Hofman, Associate Director, Corporate Governance Research

In this episode of the Sustainalytics Podcast, Adam talks with Upasna and Henry to explore what it means to link executive compensation to ESG metrics and how to meet some of the key challenges. You’ll learn about how tying ESG performance to compensation can enhance a company’s accountability and transparency, the types of metrics firms use, industries and regions with high pay-link adoption, existing and proposed regulations, steps to make your company’s program credible and transparent, and more.

What ESG Metrics Are Companies Using To Assess Executive Compensation?

The metrics a company will use in its ESG-linked compensation program will depend on the nature of the business, but there are common themes. Perhaps it’s no surprise that there is a particular focus on environmental issues, such as emission levels, sustainable production, energy efficiency, and waste management. But companies are increasingly using metrics to focus executives’ attention on social and governance issues like diversity and inclusion, culture, employee engagement, shareholder relations, and board composition.

Challenges To Adopting ESG-Linked Compensation

If your organization is tracking ESG metrics, you may have already dealt with some of the main challenges: determining the most material ESG issues for your company, setting targets and KPIs, and measuring your efforts. Nonetheless, this remains new territory for many, and any organization planning to set up an ESG-based executive incentive program should take a step back to understand what is required in order to make the program credible, transparent, and effective.

Read Our eBook, Real ESG Accountability: Tying Your Company’s ESG Performance to Leadership Compensation

Download our ebook, Real ESG Accountability: Tying Your Company's ESG Performance to Executive Compensation

 

 

Download the ebook to discover how linking executive compensation to ESG metrics can support corporate goals, the current state of ESG-based incentives from Sustainalytics’ research, why ESG-linked compensation is a practical step forward on accountability, details on what any firm can do to execute a credible and transparent ESG pay-link.

 

 

Key Moments

00:20 Episode overview
01:50 Intro to sustainability-linked compensation
02:11 Commonly used metrics in ESG pay-links
03:15 Key challenges and questions
04:10 Long-term and short-term incentives
05:30 Accountability and transparency
06:30 Regional overview
07:54 Industry overview
08:40 Regulatory outlook
09:08 UK Investment Association “Principles of Remuneration”
09:22 EU Shareholders Rights Directive II
09:48 U.S. Tax Code amendments and SEC comments
10:18 Meeting the challenges of ESG pay-links
11:34 Setting up credible and transparent pay-links
12:44 Looking to the future

 

Transcript

00:07

Adam Gorley: Hello and thanks for tuning into the latest episode of the Sustainalytics Podcast! I’m Adam Gorley, Producer with Sustainalytics, and I’ll be your host today as we look at sustainability-linked compensation.

 

Many companies around the world are introducing programs and practices to improve their sustainability with respect to the environment, social issues, and corporate governance. These organizations are examining the ESG issues that are most material to them, setting goals and targets to address those issues, and developing methods to measure the results so they can understand their progress.

 

But despite all that valuable effort, it’s also essential to put in place a process to align action with those goals. To effectively meet this challenge, many organizations are starting to incentivize executives by linking a portion of their compensation to the company’s performance on specific ESG metrics. Is this something your organization has introduced or considered implementing? We’d love to hear your thoughts. You can get in touch at podcast@sustainalytics.com.com.

 

In this episode, you’ll hear about ESG-linked compensation from two of Sustainalytics’ in-house experts on the topic: Upasna Handa, Senior Associate, Product Commercialization, and Henry Hofman, Associate Director, Corporate Governance Research. We’ll be looking at how tying executive compensation to ESG performance can enhance a company’s accountability and transparency and the challenges organizations are facing. We’ll also talk about the types of metrics firms use for ESG-linked compensation programs, how you can ensure your company’s ESG-based incentive program is credible and transparent, and much more.

 

But first, let’s take a closer look at what sustainability-linked compensation means. In essence, it’s a variation on the standard practice of linking executive compensation to financial and operational metrics, such as profit, growth, employee turnover, customer churn, and so on. The key difference is that sustainability-linked compensation is tied to non-financial ESG metrics. Upasna outlines some of them:
02:11

Upasna Handa: While the details of ESG-linked executive compensation vary from company to company, and also from sector to sector, there are some common issues or common metrics that performance is measured against. For example, across the environment pillar, we often see emission levels, sustainable production, energy efficiency, and waste management. Across social and governance, we see diversity and inclusion, culture, employee engagement, and community. And across the governance pillar, we see corporate governance, shareholder relations, and board composition pretty often across industries.
02:45

AG: Companies may be choosing these particular ESG issues to respond to stakeholder pressure, meet or prepare for regulations, enhance their reputation, reach new markets, and other reasons. But, as Upasna notes, the specifics will depend on the individual firm. Henry adds:
03:02

Henry Hofman: Ultimately, we expect the firms to be able to identify which metrics are most important to them and most relevant to their business model to ensure that executives are being incentivized in the correct way to achieve meaningful change.
03:15

AG: Unfortunately, while ESG pay-links are based on a tried-and-tested business practice, they come with several unique and important challenges. While most companies understand clearly the strategic financial and operational risks they face, their targets and key performance indicators (KPIs), and how to measure them, the same cannot be said for the material ESG issues (or MEIs) companies face. Basically, this is unfamiliar territory for many organizations. Upasna explains some of the core challenges facing companies when it comes to tying executive compensation to ESG metrics:
03:49

UH: The major challenges in incorporating ESG metrics into executive pay includes structuring the ESG-linked pay. So, clearly articulating material ESG issues, ensuring the board understands them, deciding on appropriate KPIs, and also measuring the success of these ESG programs based on those.

 

Another important component would be the time period that we're looking at when it comes to structuring to effect meaningful changes. An important question here would be: will a short-term or a long-term timeframe be the most effective for our company? Is it better to set ambitious well-calibrated one-year targets rather than vague long-term ones? And also, because companies looking to progress on core strategic priorities need to incentivize top leadership to think more long-term, so are we going to have those KPIs as more long-term incentive plans? Environmental goals sit comfortably within long-term incentive plans as of now because of the long-term orientation, but some ESG targets, such as health, safety, gender pay targets, and even diversity and inclusion targets, can be calibrated over a single year.

 

So, for example, BP uses ESG metrics in both its annual bonuses and its long-term incentive plans. Starting in 2020, the bonus has a 15% weightage on safety, which was a well-established metric, and on the environment, which relates to short-term emission reduction targets. The long-term incentive plan now has a 40% weighting to strategic goals including input measures around renewables, energy transition, etc.
05:24

AG: We’ll come back to how companies are meeting the challenges in a few minutes. Before that, I want to explore the important question of value. Specifically, how can linking executive pay to ESG metrics enhance a company’s accountability and transparency?
05:38

UH: When we talk about accountability, tying variable compensation to ESG performance provides an additional tool for firms and boards to hold their executives accountable, while they're communicating their principles and objectives with employees, investors, regulators, and other important stakeholders. This is especially important when it comes to companies in high ESG risk industries, which may have more difficult material ESG issues to address.

 

And coming to transparency, when companies incorporate ESG into incentive plans, their boards, investors, employees, communities, and other stakeholders have a valuable tool to track their progress on ESG issues.
06:21

AG: So, ESG pay-links are growing in popularity due to increased demand for accountability and transparency, but how is this trend affecting different regions and industries? Not surprisingly, some places and types of business are seeing more activity than others when it comes to linking compensation to sustainability metrics. Here’s Henry Hofman:
06:40

HH: Looking at the data, I think there's some interesting patterns that emerge. It’s probably important to note as well though that our research is obviously based on publicly disclosed information, so there is a bit of a correlation between those regions that tend to have just generally good governance disclosures and where we see stronger examples of ESG being related to pay.

 

But having said that, the European companies and U.S. companies based on our data are the highest adopters with 17% and 13% of our universe incorporating ESG metrics into their executive remuneration, either as a part of their long-term compensation plans or their short-term programs. There are some other countries outside of Europe and the U.S. that have particularly strong practices: Australia and South Africa both stand out as having a high adoption rate.
07:34

AG: As Henry suggests, the likely reasons for these numbers are fairly clear. Where there are strong corporate governance regimes, active stakeholders, investor pressure, effective say-on-pay mechanisms, and so on, those are the regions where you’ll find more companies implementing ESG pay-links.

 

But what about industries? Are organizations in some sectors more likely to adopt ESG pay-links?
07:58

HH: So, I think that's really interesting, and the data suggests that those industries that are most often in the public eye, I would say, for perhaps having ESG practices that are less than ideal — there's no hard and fast rule — but those industries do tend to have a reasonable uptake. So, we're talking about precious metals and diversified metals, oil and gas producers, refiners and pipelines, and utilities. These are the industries that we are seeing that actually have the higher takeup in terms of setting ESG metrics and linking it to executive compensation.

 

I would say though that, even within these industries, there's still at most only about a 30% takeup. So, there's certainly a long way still to go.
08:42

AG: This leads us to the issue of regulations. While it is common to hear about broad ESG and sustainability-related regulations — particularly with respect to reporting — the development of requirements specifically related to compensation is still in the early stages. I’ll let Upasna fill us in.
09:00

UH: There are multiple efforts from government, industry, and professional bodies around the world to establish more ESG reporting standards for disclosure, measurement, remuneration, and so on.

 

Starting off with The Investment Association in the UK, this body has released a document titled, “The Principles of Remuneration,” which includes guidance on how to develop ESG bonuses and compensation schemes.

 

We have the Shareholder Rights Directive II from the EU. These are actually say-on-pay provisions that provide shareholders with the right to vote on remuneration policies and reports. And the updated directive requires numerous additional European countries to regulate shareholders’ right to vote on executive board pay. Many more companies that have ESG pay-links must now disclose their own plans.

 

Coming to the U.S., we have the U.S. Tax Code. Amendments now enable firms to increase bonuses with their assessment of a company's commitment to ESG principles. Another very important change that has taken place in the U.S. is a push for ESG-linked compensation from the SEC. The SEC Commissioner Allison Herren Lee is urging corporate boards to make changes in line with the agency's push for more ESG disclosures and also tying executive compensation to ESG metrics.
10:18

AG: And this brings us back to the challenges companies face when it comes to implementing an ESG-linked compensation program — and how they can overcome the obstacles. Recall, the key challenges include: uncovering the ESG issues that are material to your organization; clearly articulating the MEIs so that the board understands their importance; determining appropriate goals and KPIs; and measuring progress.

 

Regulations also pose a challenge, but the good news is that the same steps an organization takes to tackle the broader challenges will also help them prepare to meet regulations. Moreover, by investing the time and effort to get it right, organizations will help ensure they are setting up their ESG pay-links in a credible and transparent way.
11:00

UH: So, companies can actually prepare by ensuring the relevance and the materiality of their key performance indicators or KPIs and the level of ambition demonstrated by the sustainable performance targets or the SPTs to ensure transparency. This is important when we look at any ESG metrics, so we need to make sure the KPIs and the SPTs are in place.

 

It is, of course, important to understand also what your peers are doing as well as the investor perspective. But more than that it is crucial to understand your own ESG agenda and how you want to measure the success.

 

To have a credible and effective ESG compensation program, that would involve multiple elements including a clear articulation of material ESG issues, solid board engagement and buy-in from senior leadership, selection of appropriate metrics supported by operational data, and the means for measuring that success.

 

Selecting the right ESG metrics is not an easy task, so for most board members, they find it challenging to narrow down the discussion on suitable ESG metrics out of the hundreds of options presented. The consensus is not to consider this as a “check the box” kind of exercise, but to identify metrics that are linked to more of the company's purpose and the ones that truly drive long-term sustainable value creation for the firm.
12:19

AG: While it might not be an easy task, companies that do not take meaningful steps toward “sustainable value creation” will likely have trouble growing their business over the long term. That’s essentially why practices that align executive action to strategic priorities — like ESG-based compensation — are so important: it’s one thing to set goals, but taking the necessary steps to achieve those goals is where change and growth happens.

 

Looking to the future, we can expect to see more companies around the world adopt ESG pay-links as good corporate governance practices advance, stakeholders take a more active role in calling for accountability, and regulators step in to guide the process and prevent greenwashing.

 

That’s it for this episode of the Sustainalytics Podcast! If you want more details on ESG-linked executive compensation, please visit Sustainalytics Resource Center and download our recent ebook, “Real ESG Accountability: Tying Executive Compensation to ESG Performance” or see the link in the show notes. Have a question or a suggestion on what we should talk about next? You can email us at podcast@sustainalytics.com.com.

 

Thanks again to our guests, Upasna Handa and Henry Hofman, and thank you for listening. Until next time!

 

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What’s Happening in Sustainable Finance: Whether War Could Spur Adoption of Renewables, Thoughts on Just Adaptation, and More.

Wednesday Jun 22, 2022

Wednesday Jun 22, 2022

Episode Summary

Hosts

  • Nicholas Gandolfo, Director, Corporate Solutions
  • Marika Stocker, Senior Manager, Corporate Solutions 

In this episode, Nick and Marika highlight recent developments in the sustainable finance market. They note that the market is coming off a banner year — over US$1 trillion in volumes overall in 2021 —and shed light on the deals and transactions contributing to market growth. They also answer audience questions, sharing Sustainalytics’ take on where nuclear energy and mining could fit in sustainable finance. Be sure to submit your questions to podcast@sustainalytics.com.

Could Geopolitical Conflict Spur Adoption of Renewables?

Discussion around the adoption of renewable energy is growing given the impact of Russia’s war in Ukraine and other global conflicts on oil and gas exports and imports. These geopolitical conflicts have exposed the risks of overreliance on producers and certain types of energy. One possible reaction to the disrupted and restricted energy supply from Russia is an acceleration of renewables deployment across Europe. This would hopefully spur broader adoption within the region and beyond. 

Just Adaptation: Helping Nations Build Resilience to Climate Change

As governments consider what it takes to transition to a low-carbon economy, the concept of just adaptation is also being discussed. Stakeholders are looking beyond a just transition and examining the inequity between developed and developing countries in their abilities to adapt to climate change. Developing nations are more likely to be affected and have fewer resources to adequately prepare their populations and natural environments despite contributing less to the drivers of climate change compared to developed nations. Nick notes that there is potential to use sustainable finance to balance this inequity. Hopefully, we will see an evolution in sustainable finance issuances from sovereigns and corporates, with use of proceeds and KPIs that tap into some of these issues.

Real ESG Accountability: Tying Your Company’s ESG Performance to Leadership Compensation

Stakeholders are increasing pressure on companies to tie executive compensation to ESG performance for enhanced accountability and transparency. Download our latest ebook to discover how ESG incentive plans can align executive action with strategic priorities.

Download the eBook

 

 

Key Moments

0:00:52 Market overview
0:01:22 CBI report 2021 review
0:02:21 EF Article — GB market growth 100-fold in 10 years
0:02:50 IPCC reports
0:03:35 IFC — Guide to issuing green bonds
0:03:40 Ukraine conflict and social bonds
0:04:41 Fintech and climate tech
0:05:11 Just transition and just adaptation
0:06:13 Social taxonomy
0:06:41 EU Green Bond Standards
0:07:02 Financed emissions
0:07:36 ESG and derivatives
0:07:59 From CBI — webinar on China and new criteria for chemicals sector 
0:08:36 SLB overview
0:14:14 SLL overview
0:18:10 Audience questions
0:26:09 Green bonds overview
0:30:47 Green loans overview
0:32:02 Social bonds and loans overview
0:33:42 Labeled products overview
0:34:27 Transition bonds overview
0:35:37 Regulatory and country updates

 

Links to Select Resources

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Addressing Material ESG Issues: Practical Insights from our Expert Webinar Panel

Monday Jun 06, 2022

Monday Jun 06, 2022

Episode Summary

On this episode:

  • Melissa Chase, Content Marketing Manager, Corporate Solutions
  • Toshi Batbuyan, ESG Research Senior Analyst, Oil and Gas Sector Research
  • Frances Fairhead, ESG Research Senior Analyst, Mining Sector Research
  • Shilpi Singh, Corporate Solutions Director

With rising demand from investors and other key stakeholders to address the environmental, social and governance issues they face, companies are considering how they can effectively manage their most material ESG issues. In this episode, featuring insights from our recent webinar on the topic, we examine some of the key ESG issues facing companies in industries with the highest average ESG risk and explore how companies can manage those issues effectively.

Companies with lower ESG risk can also learn important lessons in ESG risk management from those in high ESG risk industries. Many of these issues are common across industries, giving companies an opportunity to learn more about managing ESG risk exposure from their peers. 

For more, watch the on-demand webinar or download the ebook that inspired the session, Understanding Materiality: Lessons from Industries With High ESG Risk.

Key Moments

0:01:38

Episode overview

0:03:04

Explanation of how the ESG Risk Ratings are assessed

0:05:18

Overview of the industrial conglomerates industry

0:06:20

Overview of the steel industry

0:07:10

Overview of the diversified metals and precious metals industries

0:08:55

Overview of the oil and gas producers industry

0:10:53

Insights on how to manage material ESG issues

0:11:27

Environmental issues

0:12:45

Business ethics

0:13:47

Community relations

0:15:01

Occupational health and safety

0:15:33

Industry and international standards and guidance

0:17:00

The importance of ESG target setting, reporting and transparency

0:20:03

Importance of having a corporate ESG strategy

0:20:49

Takeaways from the webinar

 

To read the full transcript, please visit our website.

 

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What’s Happening in Sustainable Finance: Rhino Bonds Support Conservation, Spotlight on Social Bonds, and More

Thursday May 19, 2022

Thursday May 19, 2022

Episode Summary

Hosts

  • Nicholas Gandolfo, Director, Corporate Solutions
  • Aditi Bhatia, Regional Sales Manager, Corporate Solutions

In our latest episode, we have a round-up of recent developments in the global sustainable finance market. From innovative instruments for financing conservation efforts to growing ESG activity in the private equity space, to a new taxonomy for social bonds, our hosts Nick and Aditi have you covered. Check out the highlights below or listen to the full episode wherever you stream your podcasts.

Social Bonds in the Spotlight

There have been some key market developments in recent months. The Platform on Sustainable Finance published its report on the EU’s Social Taxonomy providing clarification on the types of investments that would be considered socially sustainable and proposing a structure for a social taxonomy. Overall activity in social bonds issuance appears to be declining compared to recent years. This is partly due to market stabilization following a surge of issuance during the height of the pandemic and social use of proceeds frequently being included in sustainability bonds frameworks which cover both green and social projects. However, there is growing diversity in the types of social factors being addressed as more issuances come to market related to matters around gender, race, and LGBTQ issues. 

Rhino Bonds: Market Innovation Support Conservation Efforts

This new form of social impact bond was recently issued by the World Bank. The USD 150 million “rhino bond” or Wildlife Conservation Bond will help to fund conservation efforts for the black rhino population in South Africa. The Rhino Bond channels investments to achieve specific conservation outcomes with proceeds being used to help staff in national parks battle poachers and improve conditions for the animals. This bond offers a new model to finance conservation efforts by directly linking the outcome of rhino conservation to investor payouts, and investment success. You can read more about the bond issuance here.

Recommended Reading

Nick once again provides a list of his recommendations for reports on ESG, sustainable finance, climate change, and transition issues.

Gain Insight on the Material ESG Issues Companies Face and Approaches for Effective Management

Are you aware of the material ESG issues facing your company? Do you know how to effectively address them? Watch our recent webinar, Addressing Key Corporate ESG Issues: Lessons From Industries With High ESG Risk. Our panel of ESG sector analysts provide insight on the material ESG issues facing five high risk sectors. Learn how companies with high exposure to ESG risk manage their most material issues and how you can too.

Watch the Webinar 

 

Key Moments

0:00:46

Market overview

0:01:11

Ongoing market growth

0:01:14

Sustainable bonds in emerging markets

0:01:24

ESG performance and bond premiums

0:01:49

Social bond market under threat?

0:02:46

ESG activity in private equity

0:03:07

Implications for Ukraine conflict on green transition

0:03:49

Prevalence of sovereigns in ESG transactions

0:04:05

Sustainable securitization

0:04:44

Just transition

0:05:23

Gender-themed social bonds

0:05:56

Continuing conversation around greenwashing

0:06:31

Big pharma going green

0:07:06

Rhino bond

0:08:32

SBTi – public consultation on cement

0:08:48

Social Taxonomy Report

0:10:00

ACT Transition Methodologies

0:10:07

CBI bond pricing report

0:10:13

CBI report on taxonomies

0:10:29

TNFD beta report

0:10:57

GRI sector standard for coal

0:11:15

IPCC assessment report

0:11:33

Environmental Finance SLL/ SLB metrics report

0:12:00

SLB overview

0:15:52

SLL overview

0:18:02

Audience questions

0:22:05

Green bonds overview

0:28:16

Green loans overview

0:29:33

Social bonds overview

0:31:45

Labeled products, transition, and regulatory overview

 

Links to Select Resources

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Setting Up Your Corporate ESG Program for Success and Avoiding Early Obstacles

Wednesday Apr 20, 2022

Wednesday Apr 20, 2022

Episode Summary

Host: Adam Gorley, Marketing Manager, Corporate Solutions

Guest: Shilpi Singh, Director, Corporate Solutions

In this special episode of the Sustainalytics Podcast, Adam and Shilpi discuss important considerations for any organization starting an ESG program and how to set up your program for success. You’ll hear about gaining leadership buy-in, planning and resourcing your program, meeting reporting requirements, communicating your progress with stakeholders, and the role of third parties, plus potential obstacles you can avoid.

What Successful Corporate ESG Programs Require

As with most projects, good planning and commitment are strong drivers of a successful ESG program. To make the most of their effort, companies starting an ESG program need to have a clear understanding of the ESG issues that affect them, what their impacts are, and how they relate to the business strategy. With this knowledge, a company can effectively address the issues that are most material to the business and confidently and transparently communicate its ESG activities with stakeholders.

Can You DIY ESG?

Can a firm plan and implement an ESG program on its own — that is, without guidance from an external ESG specialist? Yes, says Shilpi, but it’s not for every company. No third party knows your business like you, your team, and your stakeholders, so there is a lot of valuable ESG information that companies can gather and analyze — if you have the resources. At the same time, ESG specialists have a lot to offer in terms of understanding what actions to prioritize, competitive insights, and credibility.

Read Our New eBook, Getting Started With ESG: What Every Company Needs to Know

Download our practical guide to starting a corporate ESG strategy for additional details on the considerations we talked about in the podcast. Discover key action steps for gaining top leadership buy-in, planning and resourcing your program, developing your strategy, and reporting and communicating your progress.

 

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What’s Happening in Sustainable Finance: Impact Reporting for Bonds, the Low-carbon Transition for the Cement Industry, and More

Monday Apr 18, 2022

Monday Apr 18, 2022

Episode Summary

Hosts

  • Nicholas Gandolfo, Director, Corporate Solutions
  • Marika Stocker, Senior Manager, Corporate Solutions

In this episode, Nick and Marika welcome special guest Simon Vacklen, Senior Manager with Sustainalytics’ Corporate Solutions  to discuss impact reporting for use of proceed bonds. As more funds are allocated to labeled and sustainability-linked bonds, there is growing demand from investors to understand and measure the positive impact of the assets and projects financed. Simon notes that while the current focus is on environmental and climate impacts, such as the amount of greenhouse gases avoided, the market is also looking toward ways to effectively quantify positive social impact.

Sustainalytics Launches Impact Reporting for Bonds and Loans

To support companies and investors looking for opportunities to analyze and investigate the impact of their projects and investments, Sustainalytics now offers Impact Reports for Bonds and Loans. Available for pre- and post-issuance assessments, the reports provide issuers with a credible and independent analysis of the impacts both expected and achieved by financed projects.

Climate Bonds Standard Shares Criteria for Hard-to-Abate Sectors

The Climate Bonds Standard announced that it will be expanding to include criteria and certification for credible transition for heavy industrial sectors, starting with the cement industry. The cement criteria will provide science-based requirements which identify when investment and activity in the sector are aligned with the transition to the Paris Agreement objectives. Throughout 2022, the Climate Bonds Standard plans to expand its criteria to support the low-carbon transition of other heavy-emitting sectors such as basic chemicals and steel.   

Download Our New eBook, Understanding Materiality: Lessons From Industries With High ESG Risk

Book image: Download Our New eBook, Understanding Materiality: Lessons From Industries With High ESG Risk The business case for addressing material ESG issues is clear: the effective management of ESG risks can contribute to superior long-term enterprise value. Sustainalytics Corporate Solutions can help you better understand how ESG risks can impact your operations. Download our analysis of the five industries with the highest ESG risk to learn how companies in any industry can find opportunities for improving ESG risk management.

 

Key Moments

0:01:10

Market news

0:01:52

AFME - ESG Finance Report 2021

0:02:23

Green bond market forecast for 2022 and beyond

0:02:57

Nuclear and gas debate in the EU green taxonomy

0:03:18

Environmental Finance Sustainable Bonds Insight 2022

0:03:57

Boom in sovereign green issuances

0:04:09

IFC updates guidelines for blue bonds

0:04:18

Transition bond debates continue

0:04:34

Ongoing discussion around mapping Scope 3 emissions

0:05:01

Outlook on scaling up carbon markets

0:05:35

ISSB and the harmonization of disclosures

0:06:13

Challenge directed at SBTi process

0:06:59

EU Green Bond Standards

0:07:04

CBI report on premiums for green and social bonds

0:07:52

CBI China Transition Report

0:08:06

Climate Bonds Standard transition criteria for cement sector

0:08:28

Special Guest - Simon Vacklen discusses impact reporting for green and social bonds

0:16:45

SLB overview

0:21:03

SLL overview

0:25:25

Audience questions

0:30:38

Green bonds overview

0:34:13

Green loans overview

0:35:49

Social bonds and loan overview

0:36:39

Labeled products overview

0:38:25

Transition bond and regulatory news

 

Links to Select Resources

 

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What’s Happening in Sustainable Finance: ESG Market Continues Rapid Growth, Climate Risks Top WEF List, and More

Tuesday Mar 22, 2022

Tuesday Mar 22, 2022

Episode Summary

Hosts

  • Nicholas Gandolfo, Director, Corporate Solutions
  • Aditi Bhatia, Regional Sales Manager, Corporate Solutions

In this episode, hosts Nick and Aditi discuss notable trends and deals in sustainable finance – from rapid market growth, to increasing diversification of products, new taxonomies, sovereign green bonds and sustainability-linked bonds, impact accounting and reporting, and much more. Nick also tackles audience questions, offering some valuable insight on group frameworks and Sustainalytics’ approach to supporting transition finance.

Rapid Growth in Sustainable Finance

2021 saw incredible growth in sustainable finance and ESG assets under management (AUM) are projected to reach US$50 trillion by 2025 and make up one-third of global AUM. Sustainable bonds already made up 10% of global debt issued in 2021, with US$1 trillion issued for the first time and a 40% increase over 2020. And 2022 is showing no signs of slowing down, with a hot start to the year and good momentum looking forward.

World Economic Fund Risk Report 2022

Of the WEF’s top ten global risks by severity, five are environmental issues and the top three directly relate to climate change. View the report here. Maybe it’s no surprise that this theme is carried forward from the previous risk report, but it highlights the continued importance of funding for projects that address climate risk.

World Economic Fund Risk Report 2022

Download Our New eBook Getting Started With ESG: What Every Company Needs to Know

As more and more companies are thinking about incorporating ESG considerations into their strategies, Sustainalytics Corporate Solutions wants to ensure they start off on the right foot. Download our practical guide to starting a corporate ESG strategy. Discover key issues that could affect your company, the benefits of action, and the risks of inaction.

Key Moments

Market news

02:17

Hot start to the year: looking for $1tn ESG investment in 2022

03:31

Big year for taxonomies? ASEAN, Korea, Indonesia, plus EU changes

03:58

WEF Risk Report: top risks climate-related

05:10

ESG risk ratings scrutiny – usefulness and robustness

05:45

Fashion industry financing decarbonization and scope 3 emissions

06:20

Impact accounting

07:15

Nuclear & Gas and the EU Taxonomy

07:52

John Holland Sustainability Linked Bank Guarantee (Australia)

08:32

COVID recovery and Build Back Better

09:02

CBI report: Thailand infrastructure

09:25

World Bank report: sovereign SLB KPIs

09:51

IEA report: digitization as enabler for transition

10:20

Environmental Finance report: Green Bond Impact Reporting

Green bonds overview

11:25

Sovereigns: Egypt, Cyprus, Qatar, Denmark, Uruguay

12:00

Banks

13:40

Lots of activity and diversification in India

14:50

Social bonds to fund affordable housing, microfinance, employment

Green loans overview

16:15

Renewables

16:40

Property

17:05

Industrial machinery: sustainable water management

SLB overview

18:10

Coal terminals: scope 3 emissions and transition plans

19:02

Construction: reducing scope 1 and 2 carbon emissions

19:38

Private equity: coverage approach, science-based targets

20:40

Telecom: scope 1, 2 and 3 reductions

22:55

Chemicals: scope 1 and 2, recycling, SBT, Transition Pathway Initiative, IEA

Listener questions

24:20

Q: Can a group framework cover all the entities in the group?

26:13

Q: How does Sustainalytics sign off on transition and what’s our approach?

SLLs

29:15

Sector activity: shipping, pulp and paper, finance, property, retail, telecom, rail, IT, manufacturing, chemicals, construction, and more

Labeled products overview

32:30

Saudi Arabia: green deposits

32:40

Insurance connected to climate

32:58

Trade finance and solar loans

Transition finance overview

33:28

Hydrogen, mining, oil companies, McKinsey report, Japan

34:50

Countries and regulations

Links to Select Resources

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What’s Happening in Sustainable Finance: Evidence of a Social Bond Premium, the Elements of a Just Transition and More

Friday Feb 25, 2022

Friday Feb 25, 2022

Episode Summary

Hosts

  • Nicholas Gandolfo, Director, Corporate Solutions
  • Marika Stocker, Senior Manager, Corporate Solutions

In this episode, Nick and Marika provide a run-down of notable deals in the sustainable finance market, from sovereigns issuing sustainable debt, to corporate activity in green and social bonds and loans, to the introduction of new products and structures. They also answer audience questions about the outlook for labeled transition bonds and possible biodiversity-related indicators for linked transactions.

A Premium for Social Bond Issuances?

While evidence of a premium for green bonds – or greenium – continues to emerge, a similar advantage is being seen for social bond issuances. According to research, compared with conventional bond equivalents, social bonds received a yield discount of around 12 basis points at issuance. The explosion of social bond issuance in response to the COVID-19 pandemic, and the oversubscription of social bonds are contributing to this social premium or “socium” found for some social bond issues.

Insight on Elements for a Just Transition

The World Benchmarking Alliance published a report examining the social elements of companies’ low carbon transition. The report assessed 180 companies across three sectors – oil and gas, electric utilities, and automotive – and found that the majority of high-emitting companies are not taking action to move toward a just transition. Other key findings suggest the people most at risk are left out of decision making; companies will need to reskill their workforce as part of their transition plans; companies are not using their influence to advocate for a just transition; and that a just transition needs to be underpinned by companies’ respect for human rights. Hopefully, we’ll see some of the findings from this report reflected in the performance indicators and use of proceeds of sustainable finance transactions going forward.

Download Our New eBook Getting Started With ESG : What Every Company Needs to Know

As more and more companies are thinking about incorporating ESG considerations into their strategies, Sustainalytics Corporate Solutions wants to ensure they start off on the right foot. Download our practical guide to starting a corporate ESG strategy. Discover key issues that could affect your company, the benefits of action, and the risks of inaction. 

Key Moments

01:45

Market news

02:09

Ideas for a "greener" holiday season

02:26

December market volumes

03:12

EU taxonomy discussions continue

03:34

Steeper borrowing costs for sovereigns slow on climate

04:21

Socium for social bonds

05:01

World Benchmarking Alliance just transition corporate assessments

05:49

Data centers and technology in green finance

06:48

Using avoided emissions as targets

06:54

SBTi report on private equity

07:22

TPI report on pathways for other high-emitting sectors

08:12

Green bonds overview

13:23

Social bond overview

15:03

Green loans overview

16:19

SLB overview

19:30

Audience questions

24:22

SLL overview

28:27

Labeled products, transition, and regulatory overview

Links to Select Resources

 

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What’s Happening in Sustainable Finance: Reflecting on COP26 Pledges, Sustainable Finance for Gender Equality, and More

Wednesday Feb 02, 2022

Wednesday Feb 02, 2022

Episode Summary 

Hosts 

  • Nicholas Gandolfo, Director, Corporate Solutions 
  • Aditi Bhatia, Regional Sales Manager, Corporate Solutions 

 

Your hosts Nick and Aditi showcase recent deals and transactions in the global sustainable debt and loan markets, share interesting reports, and highlight new labeled products and regulatory developments in this space.     

Climate Promises Made, but What Do They Mean in Practice? 

Reflecting on the outcomes from COP26, Nick and Aditi highlight some of the commitments made during the conference and what they could mean going forward. Many of the delegates, including some of the world’s largest polluters, made pledges to target net-zero emissions, curb deforestation, reduce methane emissions, and ‘phase down’ coal and fossil fuels.

The issue of what developed nations could and should do to support developing nations in building resilience against the impacts of climate change was also a hot topic. Some participants and observers were dissatisfied with the outcomes from COP26, and their disappointment was understandable. Though things may not be progressing as far or as quickly as needed, it is promising to see that these pressing climate issues continue to take center stage.     

Bridging the Gender Gap Through Sustainable Finance 

Among the recommended reading for this episode, a recent report from the International Capital Markets Association (ICMA), UN Women, and the International Finance Corporation (IFC) stands out. Bonds to Bridge the Gap: A Practitioner’s Guide to Using Sustainable Debt for Gender Equality, outlines how sustainable finance can help direct capital to reduce the financial and economic inequalities between women and men. The report offers case studies and examples of gender-related activities, targets, and key performance indicators for issuers to consider.

In a blog post from last year, Sustainalytics’ Ijeoma Madueke also discussed the idea of using gender lens investing and gender bonds to finance the empowerment and socio-economic advancement of women and girls globally. It’s clear that gender is a key issue that could, and should, be included in more sustainable finance transactions.

Key Moments 

00:08

Introduction

00:49

Market news

01:10

Forecast for 2022

01:32

CBI Q3 report

02:55

Post-COP 26 insights

04:30

STBi - Net Zero Target Setting Mechanism

05:04

World Bank report on ways to measure GDP

05:33

ICMA, IFC, UN Women Report - Bonds to Bridge the Gender Gap

06:04

Partnership for Carbon Accounting Financials (PCAF) report

07:35

EU/China Common Ground Taxonomy

07:52

IOSCO calling for ESG ratings regulation

08:51

Green bonds overview

14:22

Social bonds and loans overview

15:05

Green loans overview

16:11

SLB overview

20:45

Audience questions

24:25

SLL overview

26:12

Labeled products overview

27:35

Transition bonds overview

29:06

Regulatory update

 

Links to Select Resources

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