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Sustainable Finance Kx "Inside Out" Podcast Episode 22
18 Plays6 months ago
Sustainable Finance Knowledge Exchange
We strive to bring you the critical news, events, major breakthroughs and key concepts covering the happenings in this super fast, evolving area of global finance – how the world funds the transition to Net Zero.
Think of us as a curator or sorts (much like a gallery that curates the finest paintings and sculptures) as we source only the best educational knowledge around Sustainable Finance worth sharing.
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Transcript
Introduction and Podcast Overview
00:00:10
SFKx DJ
Hello and welcome to episode 22 of the Sustainable Finance KX podcast. We're actually trying out a new microphone today, so hopefully that pleases your ears and it is even more clear than we have been before. I couldn't work out the drums and the dodgy intro music, so it's straight in for episode 22 today.
00:00:34
SFKx DJ
As many of you know, Sustainable Finance KX is a media and training initiative. We strive to bring you the critical news stories, events, major breakthroughs and key concepts covering the happenings in the super fast evolving area of sustainable finance.
00:00:50
SFKx DJ
If you like what we're about, we hope you subscribe through your podcast platform. You download us every month. And if you want to check us out, check us out on Twitter at SustFinanceKX, one word, or LinkedIn, our main presence at Sustainable Finance KX.
00:01:07
SFKx DJ
And you can get all the bits and pieces and historical items that we've been up to. So anyway, my name is SFDJ. No, I'm SFGuru. And without any further ado, let's move straight on to the podcast and get um and get straight
Market Predictions and Reports
00:01:24
SFKx DJ
in.
00:01:24
SFKx DJ
So it's still sort of early enough in the year that many out... Looks and forecasts have come out. ING's produce some pretty good ah pretty good material, suggesting a total, including loans as well, of about $1.7 billion.
00:01:45
SFKx DJ
The loan portion of that is about $200,000, about $500,000 or $600,000. at five or six hundred millions So I guess similar to Moody's and others was sort of predicting the bond market of a billion plus.
00:01:57
SFKx DJ
And then you throw in your loans of SLLs about 300 and a few of the other types, um green being the other major um loan category of about 200, 1.7, 1.8. Let's see how that goes.
00:02:10
SFKx DJ
ING produced a really good report referencing BNEF data as well. Again, from a use of proceeds um perspective, let's have a look.
00:02:21
SFKx DJ
Yeah, look, green bonds continuing to dominate, um social bonds after that, sustainability bonds actually pretty much paired. um green loans, and and then probably the biggest change in the market the last few years, we know as SLBs and SLL pressure on that, and then the emerging um label of transition. Let's see how that goes.
00:02:41
SFKx DJ
If you're really into your outlooks and your rear view mirrors, good Pearl Jam song, by the way, um Check out the green bond report that SEB Bank does every sort of two or three months.
00:02:53
SFKx DJ
And they have encapsulated 2024 numbers. Again, green bonds up about 6% year on year. Social bonds about 8% off a much lower base. Sustainability bonds surprisingly 27% year year growth.
00:03:07
SFKx DJ
Link bonds minus 44, transition almost a rounding error. Green loans up about 24% and link loans about 15%. fifteen percent I don't actually know how that was calculated. I've seen lots of different numbers with those getting hammered earlier in the year. So let's just say they're flattish, but definitely on the bond side going up.
00:03:30
SFKx DJ
going down if we If we look at the sustainable bond market share, according to SEB, interestingly enough, global about 3%, Europe 5.4%, and then the Nordics about 10%.
00:03:42
SFKx DJ
S&P outlook, again, not too dissimilar to what we've discussed before. um One item that I really liked and see if you can get your hands on it, it is a subscription basis though, is environmental finance news and they've come out with their their annual type of type of report.
00:03:59
SFKx DJ
I also looked at some of the recent deals that have been happening. And again, from a use of proceeds perspective, I always like to look at this because again, of proceeds anchors the market, green anchors the unit appropriate use of proceeds. And within that, it's the usual suspects.
00:04:17
SFKx DJ
Renewables, water, green buildings, energy efficiency, and green, or should say green, or clean ah clean transportation. So they pretty much dominate the market. There's a few other bits and pieces, but they're really the major ones.
00:04:34
SFKx DJ
Moving right along, many of you will know that we're big fans of the Nitexis research that's put out of the market. They had a webinar a couple of weeks ago when they were talking about Omnibus from an EU perspective and whether that's ah you know from principles to implementation, is it a backing off too much to keep in sync with what's happening in
Regulations and Political Influences
00:04:56
SFKx DJ
the US? Is it just removing scope? Is it refocusing?
00:05:01
SFKx DJ
Lots of potential issues there. We won't go into that too much. you can I'm sure your inboxes have been hammered with those sorts of things. ESG backlash not materialising so far in some of the other markets. But look, I think we're in the climate, pardon the pun, of literally institutions will be backing away from goals.
00:05:21
SFKx DJ
Governments will hopefully be upping the ante, but everyone else will be having various levels of of hushing, silencing, getting on with the business and we'll see what what happens there.
00:05:33
SFKx DJ
and The US, I guess Trump quite continues to have ripples right across different aspects of the market. So I guess keep a um keep an eye on that. But look, regulations, disclosures,
00:05:45
SFKx DJ
Hushing, shouting. i like to still think I even said it on the last podcast. Sustainability ESG going forward really going to be for the next period, you know, forward, backwards, inside out and all together at the same time. But I think we'll just see people knuckling knuckling down there um Greenwashing, couple of articles there. NZBA still continues to be topical. Nomura, SMBC from the Japan side leaving the alliance, which is an interesting um interesting development. You can draw your own conclusions from...
00:06:18
SFKx DJ
From that, chemicals continues to be a good transition topic. Climate in action, BCG report, climate in action could cost a third of global GDP this century. So, you know, whether people back away from alliances, whether people hush The fact is there's lots of science backing up. We've got some issues. We've got to deal with those. We've got to finance the solutions and get on with it no matter what form we take that action, whether that's a group alliance, whether it's individual aura or otherwise.
Emerging Trends and Global Agreements
00:06:49
SFKx DJ
um Blended finance has probably never been more important with USAID pulling out of match much funding ah that is that is needed. So that's... um that continues to be a development across the market.
00:07:05
SFKx DJ
Nuclear, we've seen a first bond in Korea, KHNP, so more nuclear expect um expect that. Even Vietnam's announced some projects quite um quite recently.
00:07:16
SFKx DJ
um carbon Carbon markets, again, pretty interesting. I think we're gonna see a bit of a bit of action there, cross border, bilateral agreements and um the implementation of 6.2 and 6.4 of the Paris paris Agreement.
00:07:30
SFKx DJ
BP, I won't say much about that, but again, um you know reading the tea leaves, not surprising. Companies will be changing, backing away, altering, but let's see what they do and and and how they do it.
00:07:44
SFKx DJ
Again, we won't want to get into the politics around that, but of course, we're for you know climate climate pro rather than otherwise. um Omnibus, we really talked about it again. It's really just a simple an ongoing simplification of various EU rules. cs I can't even remember all of these various so various types, but at the end of the day, the debate is whether that goes too thin or whether that um is really dismantling um the heart of what that was supposed to do.
00:08:14
SFKx DJ
um CSRD, CSDDD and the various sort of impacts of of that. Let's see what happens next. It still needs to go through all the EU Parliament procedures, which I won't even...
00:08:27
SFKx DJ
attempt to to explain and that's how that will work. But let's see how it goes. In terms of the EU GSB or Green Bond Standard, I think that's going to have more relevance to directly to the sustainable finance markets.
00:08:43
SFKx DJ
And I think what it basically means is it means we're going to have a bifurcated market of some issuers meeting that standard, other media other issues meeting other standards. It's pretty hard to meet that being outside of the EU.
00:08:55
SFKx DJ
More broadly speaking, I like the term multi-speed. a fragmented transition across different markets. um And again, SEBs produce some great material on that as well as some summaries on the only boss shenanigans, shall we say.
00:09:12
SFKx DJ
Let's move right along. One of our favourite topics being transition. Transition lots about plans, are they going to be regulatory requirements? um The EU platform identifies core elements of transition plans, more market references, who's actually got one, what's going on, watch this space. um A little bit in line with what I said before, the forward, backwards, inside out.
00:09:34
SFKx DJ
I read an interesting article that said, don't call it ESG, call it resilience. A new taxonomy around environment social governance investing comes as political pressures mount. So in addition to what I said before, really, I think what we're going to see is um a real change in some of the narrative around um you know ESG and sustainability. and Maybe ESG is an easy target because it's a bit hard to to define. And I think we're going to see some much different types of narratives. But really, our hope at SFKX is at the end of the day, let's get on with it.
00:10:11
SFKx DJ
And let's get on with financing the solutions. rather than getting caught up in the politics. That's what we hope on a very pro-climate basis. But let's just get on with it.
00:10:23
SFKx DJ
ah Climate tech again coming up, some capital moving there, interesting reports coming coming out. What else have we got here? Currency risk and whether that will be substituted or subsidised under some structures by a few of the development banks continues to be a watch this space.
00:10:40
SFKx DJ
AI, AI, AI, part of the problem, part of the solution. Biodiversity and nature continues to be an interesting topic too. um There was one of the COPs, again, the main COPs, I think we're up to COP 30, but the biodiversity COP, I think we're up to 15 or 16.
00:10:55
SFKx DJ
And the latest one talked about nations backing a 200 billion a year plan to reverse nature losses. i not going to hold my breath on that. Most multilateral, multi-party, multi-government, multi-country agreements will get announced and then we'll actually see if there's any proof in terms of funding there. But better to have one than not.
00:11:18
SFKx DJ
Speaking of biodiversity, ACT, do check that out. A French think tank that produces some pretty good decarbonisation reports and curves coming out with some biodiversity standards there.
00:11:29
SFKx DJ
Outcome bonds, Alliance Bernstein produced a pretty interesting... report there and maybe that's the way to do things to release money on the basis of results that have far that have come in.
00:11:40
SFKx DJ
What else have we got here? Katashivit bonds again, that's sort of come up every now and then being a contingent instrument for physical or bad climate climate losses and we saw the recent hurricane in Australia. So hurricanes, storms, various things and physical issues adaptation becoming much more prevalent.
00:12:01
SFKx DJ
And who knows, we might see some different instruments for that. Should they fit under sustainable finance? If it gets them moving and it helps us invest, why not? um TPI, people will know that we're big fans of that transition pathway initiative.
00:12:15
SFKx DJ
have come up with some pretty interesting reports. The annual ones in relation to oil and gas and diversified mining in particular. Do check those out. I think they're really good benchmarking and look at not only just decarbonisation where you are on a curve, but also the management actions that are going into into that.
Transition Finance and Global Strategies
00:12:35
SFKx DJ
Where do we go? ESG, Roundup, Wells Fargo ditches net zero targets. Again, sort of back before. It's a constant loop throughout the podcast already, isn't it? Hushing, backing off, silencing, maybe this, maybe that. Again, let's get on with it.
00:12:50
SFKx DJ
At the same breath, though, you saw banks like DBS release its latest version of its transition finance framework, which is an excellent document, and double down on its target. So talk about a multi-speed world. It's almost multi-speed, multi-speed. I don't know if that's even a word, but...
00:13:08
SFKx DJ
we'll We'll create one for the podcast next time. A little bit interesting too, some of the rhetoric coming from the banks. HSBC says it's time to end negative bias towards fossil fuels. Maybe fossil fuels.
00:13:21
SFKx DJ
said fossil fuels, but I mean fossil fuels. Yeah, look, we need them for a short term, but we need a really good plan to get beyond them, and that's not going away. and What else do we have here?
00:13:32
SFKx DJ
um um German elections, again, more to the right side. We'll see if that filters through any of the ah multilateral discussions and positions. US, we know, has pulled out of the JetP initiative, and I think Germany stepped up for at least Indonesia, but we're not sure how that's landed in terms of the new the new government.
00:13:52
SFKx DJ
Lots of articles about it the omnibus, the turning point for supply chain due diligence, We can see a CDD limit investor leverage, investors left to ask what corporate reporting cuts mean and end of the Brussels effect, C-Band delayed, blah, blah, blah.
00:14:09
SFKx DJ
And look, at the end of the day, we know that markets like Japan are very much roadmap based. Markets like US are very much incentive based and markets like the EU are very much rules based.
00:14:20
SFKx DJ
What is best in the end? Don't know. I'm probably not that smart to figure that out. But it is interesting that the EU is looking at it on the back of the Draghi report as well, which is all about competitiveness. and And markets like Japan have been pretty progressive if you look behind some of the sustainability strategies. Is it part of competitiveness as well?
00:14:41
SFKx DJ
Markets, countries and regional blocks need to be competitive too. or we're going to be adding sustainability to something that's not sustainable in the first place. Anyway, let's move um let's move right along.
00:14:53
SFKx DJ
Ghana selling carbon credits to different markets. Pretty interesting there. I think we're going to see sort of under that just transition, a lot more developed countries hopefully support and buy carbon credits from developing countries um under the Article 6.2, 6.4.
00:15:11
SFKx DJ
Energy Transition Commission, one of our great sources or a great source achieving zero carbon buildings. Check that out. We talked about DBS already. and Decarbonizing India's steel industry, how transition finance can help. Good stuff. India produces 50% of all of those hard-to-abate sort of Products, we could say.
00:15:31
SFKx DJ
um are ESG funds about to bite the bullet and invest in defence? Who knows? All Ukraine and everything else. And again, we not a public sorry we're not a political podcast, but obviously geopolitics is having a probably a disproportionate impact on sustainability in the short term, but we want to look behind that.
00:15:50
SFKx DJ
And we really want to talk about and shout about sustainable finance as a vehicle to support solutions and the funding thereof that we're going to need to get to. And many of those are very good from dollars and cents, not just a fluffy good thing to do.
00:16:07
SFKx DJ
All right, let's move right along the linked linked to transactions. So where are we now? Mixed bag, Sunrise Communications on the telco side, Echo Material Technologies on the green cement um side, Solaris, Automotive, Origin on Agri, GR Value on energy, Enel, a repeat issuer, linked side, Susano Forestry,
00:16:32
SFKx DJ
Sonio Achouro, Portugal Manufacturing, Cuoco Land, closer to home in Singapore on the real estate side, Aon Tana on the financial, but I should say financial side.
00:16:45
SFKx DJ
So look, pretty mixed bag and good to see there is, even though some little bit nasty numbers on some of the flows for SLL linked instruments, I should say, overall, there's still action going. Kinetic,
00:16:59
SFKx DJ
Prices 250 million private placement linked. PDG converts 105 million to green financing or data center, SLL, ESR, REIT. I think that's one of the biggest in ah in Asia or was recently um on the real estate side.
Frameworks and Instruments in Sustainable Finance
00:17:15
SFKx DJ
Cezano, we talked about already. Credit Agricole closes ah credit linked export prepayment facility with Cezano. So pretty cool stuff there. And again, the linked products fit well to applying to different types of structures, whether they're prepayments or um ECA structures and and vice versa. And another forestry one, SAPI Limited as well.
00:17:36
SFKx DJ
Just taking a big breath there. We'll see how the new microphone picks that up. um Use of proceeds. So from a use of proceeds, we'll start with the sovereigns. France um having a plan and China coming up with the framework. Cameroon talking about something. Hong Kong issuing again.
00:17:54
SFKx DJ
um Canada wanting to get into its third issuance. um Saudi also the blue sovereign, NIB, Green Bond, which is Iceland, that's a bank. I've jumped ahead there.
00:18:08
SFKx DJ
let's Let's look at the mixed bag and then we'll look at the banks. um EU, um International Development Association, so some supernationals. We mentioned Saudi, Central America Bank.
00:18:20
SFKx DJ
Enel we talked about China Mingshan Bank, Avion Emera, Raisin on some of the waste-to-energy type products in Brazil, Rabobank. um I think we've mentioned the other ones, Power Finance Corp over in India and Avion Energy um in the US. If you look at banks then, more our ordered sort of way of doing things, China Bohai,
00:18:43
SFKx DJ
MiBanko, NIBC, Rabba we talked about, ABNM we talked about, Banco to America, Bank Tabogna Nagara over in Indonesia, Abivian, Dubai Islamic Bank did an interesting, SLLB, Sustainability little Link Loan but in bond format, Skandinaviska Banken, my god I think that's S-E-B,
00:19:09
SFKx DJ
um Those are probably the most interesting ones there. Property side, Adias, Acropolis, CTP, LL properties.
00:19:21
SFKx DJ
Then if we look at the utility side, Corkia, Genia, Brookfield, Audax, Hughgland, Kraft, I think more on the, manufacturing side maybe, but I've got that under utilities, that may be a mistake. Sri Lanka, ra resource, logistics, logistiak, Greek seafood.
00:19:38
SFKx DJ
The Nordics have been pretty progressive and obviously fishing and maritime activity is pretty important there with a few companies and Greek coming back to market. On the social side, California housing,
00:19:49
SFKx DJ
ah Massachusetts housing, Standard Chartered raising a pretty major social bond, which is good to see. Again, less common these days, social in its own right um for corporates and and large banks, but still some activity there.
00:20:04
SFKx DJ
And some action in Iceland, a power company. So I don't know if that's affordable housing. Again, notes are a bit... Bit iffy there. Okay, um couple of questions from Murray, our question bot.
00:20:18
SFKx DJ
First question from Murray was, will SLLBs take off? So again, what's an SLLB? It's a bond that funds SLLs that a bank has. However, I'm yet to see where the bond coupon is kicked up or down dependent on the outcome of how those SLLs track.
00:20:37
SFKx DJ
So it's sort of like a UOP, p let's say EMAC money funding, general corporate purpose, SLLs. Look, I think the contexts concept's been around for a couple of years. I've seen a handful.
00:20:49
SFKx DJ
ICMA came out with some guidance last year and probably the Dubai Islamic Bank that we talked about before has got something. no I don't think they'll really take off. I think unless you can really link those coupons and have it more outcome-based, you know,
00:21:05
SFKx DJ
I won't say it's a gimmick. It's always good to have different products and platforms to fund things in. But I don't think we're going to see mass issuance in that in that format. format I still find it a bit confusing. Again, if all the coupons or the yeah SLLs linked up to then paying a a coupon up or down, I think that would be that would be better.
00:21:26
SFKx DJ
Will the withdrawal second question of USAID for funding landscape impact blended finance, which will or won't give more opportunities for
Impact of USAID Withdrawal and Conclusion
00:21:33
SFKx DJ
sustainable finance? So look, I think it's multifaceted, that particular question. So USAID, I think one of the largest multilateral funders of about 40 billion a year, whether there was over reliance on that, that's a question for those who are more involved in it than me.
00:21:52
SFKx DJ
But I think at the end of the day, when that funding's pulled, it provides an opportunity, again, within crisis to step up. Now, if that's family offices, if that's foundations, if that's philanthropies, if that's other governments, why not real opportunity there?
00:22:08
SFKx DJ
and And of course, every country has the right to review what money they spend. Maybe the way that that's done will leave that up to the people impacted, but it seemed pretty pretty rushed and maybe not handled the best the best way. But yeah, look, I think it really gives a shot at the arm to sustain it to blended finance, which is a cousin adjacent to sustainable finance. Most of the underlying projects will be transitioned in nature anyway.
00:22:32
SFKx DJ
There's a big social element to that as well. So I think, look, other funders and private players have to step up more. Does that mean there will a tag or a pull from but banks to fund some of these initiatives and funds? Yeah, I do think and there will be.
00:22:50
SFKx DJ
um Whether you call it directly sustainable finance or adjacent, it's close enough. and It's just a different different shade, if you like, and more more an approach and to structuring.
00:23:03
SFKx DJ
All right, products and programs, not a whole lot there. Burrowers still not asking if it's a green loan, an article in the UK. Debt for Nature Swaps needs a bit more liquidity to get moving. So, um you know, hopefully, I wouldn't say that necessarily a program, but they come up every now and then. And I like Debt to Nature Swaps, even though they haven't been done that are often.
00:23:24
SFKx DJ
in terms of developing country says we can't pay all our debt back, but or we can, but give us a haircut of 10% and we'll put that money that we would have had to spend paying you back, we'll put it to work across conservation style activities.
00:23:41
SFKx DJ
And then there's a bit of a reshuffle of of investors in those bonds. So let's see what happens there. Not a whole lot else in terms of new new on the product side. So look, that's a pretty quick roundup.
00:23:52
SFKx DJ
We hope you enjoyed the podcast. As I said before, do check us out. That's all we' got time for. We hope you like us. Check us out on Twitter or X at SustFinanceKX, one word, or LinkedIn, our main presence, Sustainable Finance KX.
00:24:08
SFKx DJ
um This is me, SFDJ. We hope your ears have been treated again. And until next time, we'll catch you later.