What’s Happening in Sustainable Finance: The Nuance of ESG Ratings, the Impact of Climate Change on Sport, and “Code Red” for Humanity

ESG in Conversation

Episode Summary Hosts

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

In this episode, Nick and Marika discuss recent developments in sustainable finance that have caught their eye. The diverse topics covered range from the growing momentum behind sustainability-linked bonds to the Tokyo Olympics’ focus on sustainability to the latest report from IPCC. They also note the continued growth of sustainable finance globally due to more issuers, markets, products, and diversification.

Climate Change Considerations for Global Sporting Events

With the summer Olympics behind us and the winter games only a few months away, Nick and Marika discuss the climate frameworks being developed by the International Olympic Committee and other global sporting organizations. These groups are considering the future impact of climate change on global sporting events and vice versa. The frameworks will address issues such as scope 3 emissions due to travel and transport and the effects of changing weather patterns on the locations for future events and athletes’ safety.

The Nuanced and Multidimensional Nature of ESG Ratings

In response to a recent article criticizing the use of ESG scores in credit analysis, Nick touches on the nuances of ESG ratings and how they are used. He cites the multidimensional nature of ESG ratings, noting that some of Sustainalytics’ clients don’t use the top-level ESG Risk Rating score, but rather use aspects of the data to inform their models and investment approach.

Earth Overshoot Day and IPCC's "Code Red" for Humanity

Two interesting and important sets of research are also highlighted. The first is Earth Overshoot Day, which fell on July 29 this year. This marks the date when the human population’s demand for ecological resources outstrips what the Earth can generate in that year. Unfortunately, the date continues to creep closer and closer to the start of the year.

The second is the Intergovernmental Panel on Climate Change’s (IPCC) sixth assessment report. Climate Change 2021: The Physical Science Basis analyzes global climate science research and warns that some of the key effects of climate change, such as rising sea levels, may be irreversible for thousands of years. This work on the current state of the global climate system and the effects of climate change will make for a sobering read ahead of the COP26 conference in Glasgow at the end of October.

Key Moments 00:00:09 Introduction 00:01:18 Market overview 00:03:11 EMIA's enhanced principles for labeled bonds 00:03:58 IOC climate framework 00:05:23 Earth Overshoot Day 00:06:07 Blockchain and green finance 00:06:42 ESG score's place in credit ratings 00:07:49 IPCC climate report 00:09:25 Carbon offsets vs targets 00:11:06 Green bonds overview 00:16:21 Social and sustainability bonds overview 00:18:12 Green loans overview 00:19:49 SLB overview 00:23:23 Audience questions 00:27:27 SLL overview 00:31:29 Labelled products 00:32:33 Transition bonds overview 00:33:28 Regulatory developments

Links to Select Resources

• South China Morning Post: What is Driving an Almost 200 Per Cent Growth in Sustainability-linked Debt Financing
• Environmental Finance: EMIA Releases 'Enhanced' Principles for Labelled Bonds
• Earth Overshoot Day
• Ledger Insights: BIS, HKMA to Explore Tokenizing Green Bonds, Including Public Blockchain
• Environmental Finance: 'Blunt' ESG Scores Have 'No Place' in Credit Rating Process, Says KBRA
• IPCC: Climate Change 2021: The Physical Science Basis
• Environmental Finance: Initiative Launches to Build 'Integrity' in Voluntary Carbon Markets
• GlobalCapital: Deutsche Bank Debuts Green Label in Formosa Format
• The Economic Times: Axis Bank to Now Raise up to $1 Billion Via Overseas AT1 Issue
• Bloomberg Green: JPMorgan Plots Derivatives Path Into New Era of ESG Finance
• Hellenic Shipping News: NYK Issues First Transition Bonds in Japan
• Bloomberg: China Firms Shy Away From ESG Loans Holding Them to Account
• Sustainalytics SPOs:
  • Scotiabank Sustainable Bond Framework Second-Party Opinion
  • Concordia Financial Group, Ltd. Green Bond Second-Party Opinion
  • Allied Properties REIT Green Financing Framework
  • Hysan Sustainable Finance Framework Second-Party Opinion
  • Baidu, Inc. Sustainable Finance Framework Second-Party Opinion

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