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Sustainable Finance Kx "Inside Out" Podcast Episode 19
17 Plays9 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.
Recommended
Transcript
00:00:03
SFKx DJ
Woo hoo. Yeah.
Podcast Introduction
00:00:12
SFKx DJ
Hello and welcome to Would You Believe It?, the 19th edition of SFKX Sustainable Finance Inside Out podcast. You're with me, SF Guru, for our 19th episode.
Overview of Sustainable Finance KX
00:00:27
SFKx DJ
As you hopefully know by now, Sustainable Finance KX or Knowledge Exchange 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 this super fast evolving area of sustainable finance. We hope
Engagement and Resources
00:00:45
SFKx DJ
you like the podcast. Check us out at www.sustainablefinancekx.com.
00:00:52
SFKx DJ
twitter or x at s u s t finance k x that's a one word or linkedin's probably the other better place to check us out sustainable finance k x the s f k x inside our podcast is hosted by myself s f dj i should say s f guru s f dj is still on a beach in bali and we'll hopefully get him back eventually it's actually been a little while since we recorded the podcast coming into the back end of 2024. So some of this, if you're listening early January, will be a little bit dated, but still relevant. And we look forward to bringing out our next episode much more quickly to really start to focus on 2025. But hopefully this serves to sort of wrap up the year a little bit in terms of key themes.
00:01:40
SFKx DJ
as as
Market Trends: Green and Sustainability Bonds
00:01:42
SFKx DJ
well. Okay, so let's start by looking at market market volumes and and market news. SEB green newsletter, which comes out about every two or three months is probably the best place I think to to go. As at 30th of September 2, the CBI came out with a report as well. And I think what we're going to find is probably volumes will be up overall um this year. But if you break that down, nothing new to what we've talked about before. Green bonds will be up about 10. Social bonds, pretty flat. Sustainability bonds up um up a reasonable up a bit of reasonable ah reasonable amount, about 20 odd percent, I think, is the number here. Let me just check there.
00:02:31
SFKx DJ
um which is not a bad not a bad effort. um And then probably the biggest one is the sustainability linked um aspect of the market, which will probably come in at a pretty hefty discount, negative territory of you know year on year, first three, three and a bit quarters of 2024, probably about minus 40. So no no great structural um change um there. um The CBI report notes a couple of things.
00:02:59
SFKx DJ
uh what are we uh cumulative volume 5.4 trillion by the end of q3 2024 pretty much highlighting the the volumes i gave in that structure of the market again we'll see more go to green we'll see a little bit less social called out directly we'll see a little bit more on the sustainability um side and we'll see slb shrink in transition really being no man's land so to speak until hopefully 2025 but let's see how we Let's see how we go there.
Global Market Dynamics and Social Bonds
00:03:30
SFKx DJ
So the year, you know, you could really break it into a extremely strong start to 2024 after a really soft finish to 2023 Then soft for a couple of months then and broad sort of back mid-year then went bits off So it's really um it's really up and down but overall I think we can say will be 10% plus um in in
00:03:51
SFKx DJ
Quantum sort of terms at least in the bond market and we know that SLLs and then green loans Have been now pretty much smashed on a global volume basis. Although they continue to be pretty popular instruments in many markets particularly where we are in ah in Asia ah India outpaces China in green investments. Let's see what happens there um New social issues are joining with GSSS. It's probably one too many S's at bond market um dedicated social bond frameworks. We know that since COVID, you know, social brought ahead, then more was merged into green and sustainability frameworks. But German Development Bank, um ah IBB is a good example. What else have we got here? Ostrum Asset Management. it's a called Still calling out social. It's still an important theme, um but a little bit harder, as we know, to get our heads around and The Texas Good article, as always, do check them out and get under the newsletters. Borrowers get serious about sustainability link loan KPIs. um A pretty good report um there. And an interesting um graph they showed in terms of um sl ah SLBs, at at least in ah in Europe,
00:05:01
SFKx DJ
um Actually, let's look at this. More use of proceeds, you know, real estate, mostly use of proceeds, utilities, mostly use of proceeds, chemicals, and a couple of other industries, financial services, oil and gas, have have done some interesting um SLBs. That was sort of a 2022.
00:05:19
SFKx DJ
um piece I think that's all changed now, and better to look at 2024 numbers when they when they come out. But looking at the structure of the KPIs probably hasn't changed. 90% environment, 5% social governance, you know the really um small amount there. And of you know climate action, um of environments, really climate action, which is GHGs, a little bit on renewables, a little bit on circular, a little bit on waste.
00:05:48
SFKx DJ
pretty much summarizes that whole um that whole ah that whole market. Two innovations which the Texas noted, the state sustainability performance target is defined as an interval, leaving more leeway for potential adjustments and and flexibility. So that's a, I think that's okay.
00:06:07
SFKx DJ
And also having stretched targets is ah is a good thing. Coupon mechanism comprises a step up and step down. We'll probably see a little bit more of that, but we know overall that fixed income investors are probably not the biggest fans of adjustments down and maybe not even up um as that brings systems into bit of disarray.
00:06:24
SFKx DJ
Our latest trends in transition bonds, so let's see how that goes next year.
Green Bond Trends and Innovations
00:06:29
SFKx DJ
U.S. green bonds near record high, a bit counterintuitive, but that's good, I suppose. ING optimistic about investment green urns. Look, let's see how that goes. Again, a little bit like the market up and down, in and out, sideways.
00:06:42
SFKx DJ
um Royal DFI is accelerating mobilisation green capital blended finance linking to trend transition finance will still be a key topic and we'll see more structures evolve more funds evolve over the the years and hopefully into 2025. Just a reminder to act Initiative, that's one word.org, I think is housed and sponsored by French stakeholders, um has done a really good piece on both agriculture and fashion luxury in terms of decarbonization curves and, and how to measure the ongoing performance and transition to net zero of companies in those sectors. So they do a little bit of different work.
00:07:21
SFKx DJ
versus some of the other CBIs and SBTIs. So do check them out and make sure that they're on your list of marked or bookmarked tabs, because they do have some different industries, which it's just good to know the different references there. Google unveils first mass timber off cutting building, um reducing emissions by 90 plus percent. Excellent, we're gonna see more.
00:07:42
SFKx DJ
ah ne North Vault, we saw that cave in in Europe somewhere about EV batteries, um don't run on star power. Look, hopefully new products and business models come out. There's been some interesting articles about the transition and more a profitability issue and a timing issue um rather than companies you know wanting to get in there. First, profitability is ah is a massive um issue for lots of different types of tech technologies.
00:08:12
SFKx DJ
What happens if we got here? ASEAN bursting at the seams in terms of green finance, which is which is good. um EU green bond standard, again, really that came out, I remember, in 2019 in the first guise of the EU taxonomy. So I really talked about for five years, you know that'll come in.
00:08:32
SFKx DJ
ultimate gold standard, how many people can meet it between 2% and 10%, it's good to have um ambitions. It's not really being used as a transition tool, the underlying EU taxonomy, but I think the green bond standard and the transparency that will require, the disclosure that will require, the the strength of frameworks that that'll drive and improvement. in I think that's all good stuff. The connection back to the taxonomy will be tenuous because that's difficult, but all the other things will be better because I think we need a quantum shift going forward in terms of two things. The depth of frameworks and then the depth of the second-party opinions which are connected to those if we're really serious about getting to the next nuanced sort of stage of sustainable finance and then starting to get into much more judgment-based aspects of of transition. So let's see how that goes.
00:09:21
SFKx DJ
I really like the piece by MUFG about the COP29. Let's have a look at a couple of things, ah a scorecard there. Pretty low on um emissions and NDCs, mitigation, not too much better in terms of fossil fuel phase out, adaptation, maybe a 4 out of 10.
00:09:38
SFKx DJ
ah finance in terms of the pledged amounts and the updated amounts and then the carbon market 6.2 probably a 6 or 7 out of 10 so some good areas, some not so good areas. um Do check out a bunch of publications that came through that but I think we can safely say just just with the really pragmatic view to COP finance, COP delivered fragile climate pledge um What else? The stock standard articles about does it work? Does it not work? Who pays for what? um ah Singapore and the EU and China have an expanded green taxonomy. that So some of those um aspects are interesting. Nuclear to triple, NGFS publications, capital adaptation finance. ISO releases some principles for ESG. So look, there's there's always good bump. I call it around.
00:10:33
SFKx DJ
um around COP, but if you look at the scorecard, pretty average, it was probably an overall pretty light COP and and maybe in Brazil next year we'd really see COP back with ah with a vengeance with updated NDCs and and so forth.
00:10:47
SFKx DJ
um Also, interestingly enough, though, that yeah it could be remembered as a blended finance
COP29 Outcomes and Implications
00:10:52
SFKx DJ
cop. And I think, you know, more and more programmatic structures for how to move money around and maximize it, I think will come out in the future. um We mentioned before, cop needs an overall overhaul, you know, that ah that goes without saying every time you can probably prewrite that for for every other cop.
00:11:10
SFKx DJ
um yeah so let's move on from there airlines not switching quickly enough for saff i guess it's a bit of a catch 22 uh we'll try to assume more responsibility for global but global finance that was global blended finance global climate finance that was sort of an undertone to cop so let's see how that goes up next year um trump winning the winning the election again this is not a political podcast we'll we won't get into a political debate here but let's look at some of the the role on sort of aspects of what that will mean. Retrenchment or reform, let's see, SCC and ESG proposals under Trump. um you know We might say withdrawal from Paris. We might see more climate skeptic actions. I think we'll see the IRA continue, given that the Republicans benefit from jobs and investments in mostly um Republican states with the IRA. um EVs, who knows, with Elon Musk.
00:12:03
SFKx DJ
at the driver's seat, no pun intended there with Trump. Ultimately, no one can run from the climate crisis, not even Trump. Interesting headlines, political decisions that disregard evidence will be harshly caused, corrected by the hard physical reality of climate change. You're probably right.
00:12:20
SFKx DJ
um lead not undermine a bit of a wrecking ball. So look, let's see what happens. But if you look at the US, again, pretty high in terms of global volumes of of sustainable finance, and probably the most radical and effective overall program to the IRA. So, you know, you continuing to see banks in the US also get out of the net zero banking Alliance, and there's a lot of noise.
00:12:43
SFKx DJ
But I think what we see and what, sorry, what we read and what's actually happening in practice is is largely should should be viewed with a political lens is probably what I'd say there. So let's see where the proof's in the pudding and whether we just, who talks about the pudding and the noise.
00:13:01
SFKx DJ
um you and The US investors still actively seeking green bonds, again, evidencing the point that AI will continue to be yeah really, really topical. Power, power, power. Is it nuclear power? Where is all this power coming from? Biodiversity credits, I forgot to mention in terms of COPPA 4. Finally, the UK and France have come up with some um you You know really practical guidance about how those markets can build but I would say if we can't even do carbon moving to ultimately a very localized Aspects of biodiversity. I think it's gonna be pretty tough but you know it's a necessary evil of putting some some value on nature and Incorporating that because we know that there's you know the carbon Decarbonization crisis and nature crisis. They're they're all sort of two sides of the same
00:13:46
SFKx DJ
coin at the end of the day. ah UK exploring value of taxonomy after repeated delays. yeah UK government launches carbon and credit nature market principles. We talked about that already. ah Some doubts over that the biodiversity credit market. Of course and it's much harder than carbon and carbon's got some issues. Buyouts, early phase outs of coal will continue to be topical, sort of came in and out of, um in and out of COP. If you are unaware of the transition carbon credit aspect of closing coal plants early and using carbon credits to issue backed by avoided emissions to make sponsors hold, to do other things with an initiative run by the MAS in Singapore called Traction, and they came out with a report that's public around COP. So do check that out. There's some pretty interesting structures.
00:14:40
SFKx DJ
um there um Let's have a look, what else have we got um here? Another interesting one by um the Texas, again, the SEB Bank, the Texas, probably some of the the best reporting I see, MUFG, very public and very easily accessible, lots of good stuff there in terms of outlooks and what it is, FX and um you know really asg um ESG pieces.
00:15:05
SFKx DJ
um Where were we? So, Vulcan, um which is um a customer of Natexis, came out and did a what they call the first transaction of a green enabling projects. If we remember, in 2024, IKMA came out with a ah concept of green enabling to enable more issuance by companies into green that are further down the value chain.
00:15:31
SFKx DJ
you know, if you've got multiple use of a raw ingredient, you know, arguably is that green or not, but if you can designate it and and um label it. Why not? um To date, companies have been focused on mitigation. This was a focus of the entity scope one and two emissions increasing a focus on scope three. ah Because of this, this is yeah where the markets pushed to restricted investment in activities while not low carbon per se are critical to unlocking. Hence, enabling
00:16:02
SFKx DJ
and getting to net net zero so you know nickel and key ingredients again not necessarily green in their own right but they can enable green and that's the distinction in and allowing them now to come in so not too many labels on Not too many transactions with that specific label, but let's see. um The document provides definition and guidance for green enabling products and accompanying both induced and avoided emissions dimensions. Again, check that out. The new guidance solves a missing piece of how an electric car can be eligible green asset if its core and most critical components are not considered climate change mitigators. So again, it's it's it's dissecting that
00:16:42
SFKx DJ
value chain and and having the ability to label more of that as it's further away from the finished finished product. Just a couple more points on that. A number of green enabling activities are not currently considered as green. ECMA green enabling projects guidance is available on the ECMA side. It recognises the important role of green in opening projects playing catalyzing and scaling the transition to a net zero economy. Eligibility criteria for standard finance projects must span the entire value chains and including upstream again.
00:17:11
SFKx DJ
hopefully more transactions and the more well thought out guidance pieces that maintain a high level of standards, consistency and enables innovation, not to use the word enabling too much, I think is a good thing. Let's keep moving on, ASG ratings at last.
00:17:26
SFKx DJ
ah regulations um coming out more and more on places like Hong Kong, the UK and other other codes of conduct. ah The energy transition will be much cheaper than you think. Again, debates on that. I think Bloomberg always comes up with updated spending spending reports and various various things. um various things there. um The yeah ERIA, I can't remember what that actually stands for, tech lists and perspectives for Transition Finance in Asia, the second second update there. Do check that out, I think they provide a really good
00:17:58
SFKx DJ
an important framework to assessing transition technologies about reliability, social stability, affordability, sustainability. Is something um contribute to energy transition? Is it a lock-in? Do no significant harm? How affordable is it? Maturity? Those type of things I think are really interesting and not just look at a black and white
00:18:20
SFKx DJ
taxonomy perspective to some of these things, but look at the broader reliability, readiness, social aspects. Taxonomies do that a little bit, but I but i like the way that this is um has been ah dissected. So do check out that out.
EU's Leadership in Green Bonds
00:18:35
SFKx DJ
EU on track to become world's largest green bond issuer. Again, nice. We sort of talked about that a little bit at the start. Arena, a infrastructure roadmap for green hydrogen. Again, pretty similar stuff that comes out for you.
00:18:49
SFKx DJ
in green hydrogen pieces, but keep that in yeah keep that in view, I would say. IEA did a great report. Technology breakthroughs are unlocking geothermal energies, vast potential in countries across the globe. Again, yeah geothermal is essentially everywhere, but you just can't access it or it's too deep and uneconomic. and So you know they're saying that could be 15% of the global energy mix. And I think with hydrogen and and its derivatives taking longer to come on,
00:19:15
SFKx DJ
um Probably hydro and things like geothermal are going to start to go through periods of innovation, certainly geothermal. That is a really good piece within that IEA ah that talks about um technological innovation um in terms of different types of clothes lose ah closed loop systems, ability to fracture ah rocks in different ways,
00:19:41
SFKx DJ
enhanced system and and therefore do do check that out. um Let's keep going. The TPI Center Transition Pathway Initiative came out with some other updated reports, particularly on countries. ASCOC, their model for that, do check that out. Standardization and certification to drive international markets for green hydrogen derivatives is an excellent initiative. We've seen some articles about that energytransitions.org, one of my favorite websites um have looked at leadership and global energy transition and just overall making NDCs more investable and what needs to happen happen there. A couple more articles, what has forced stomachs and could change the world. Cows love the title. We all know the the issue there with Agri.
00:20:28
SFKx DJ
um ah Weatherization, advanced weatherization. Google had a great article. John Doar bet on startup crush rocks to capture CO2. Let's see if that can gain some legs, so to speak. Proposal brings sustainable finance rules into single regulation or omnibus regulation in the EU. I don't understand after EU regulations how they hang together. They're generally good in Tampa. They're so complicated having an omnibus one. Goodness gracious. Let's see what happens there.
00:20:58
SFKx DJ
Bahama signs a record-breaking 300 million debt-for-nature swap. We're going to see more of these. Barbados closes its second um debt-for-nature swap. They're very real, they're very scalable. So, you know, talking about biodiversity and nature and bringing that into transactions, that's a perfect example of something which is actually quite difficult to monetize and giving debt haircuts in in lieu of doing something, maintaining something I think is super, super cool.
00:21:28
SFKx DJ
um Where are we are now? Repurposing EU subsidies effective to make Agri more effective. CBI did a great report on that. Only a fifth of SLBs, along with CBI ay methodology, which is pretty pretty gold-plated standard. Not a surprise. SPTI have come out with a chemical sector. Pathway to net zero joint consultation. So do check that out. That's super good stuff on chemicals.
00:21:53
SFKx DJ
If we move now into, that was quite ah quite a mouthful of news and and that old adage of smorgasbord for short. Let's move into link transactions that we've seen. Battonfall, I think on the steel side, um or energy um energy side in in Europe um issued. Zorlu Energy, Sanam on the gas infrastructure side, OPEC, Latin Airlines, Spark, Mushreg on the retail side,
00:22:21
SFKx DJ
I believe, Ayala over in the Philippines and interesting transactions there, China Resources Limited, Tantara Hotel. So again, property, property, poverty property, property, a little bit of energy, a little bit of airlines, a little bit of agri, a little bit of gas interest, pretty much the whole market. autos autoon Thailand SLB for the sovereign there in the public domain, good stuff. Shipping and of also precious shipping, sustainability link bond to issuers, PSL, good stuff there. um And access on the mining side, gun war on the commodity side. a The Yale Artex, I think in Bangladesh, for textiles, Blue Earth, Nambian Hospital, and Emirates NDB, and SLL there. so
00:23:08
SFKx DJ
you know, I'd say 80% in the stock standards, and then a little bit sort of around the edges there. If we now move into use of proceeds, again, sovereigns continue to to push and and diversify across the market, Qatar, India, Honduras, um some sovereigns, some canto basil, Auckland Council, then if we go into banks,
00:23:31
SFKx DJ
you know, MT Bank, Carbobank, Afri, Afrika XM Pirena Group, JSC, Disks, BNI, VietCom, TechCom, IFC, First Mac, Next Energy, all sorts there. Renewables, Iberola, Aluron, Adani Green, um all the usual suspects. um They're interesting transaction, ADB supporting golf energy.
00:24:00
SFKx DJ
for a real ah platform type financing across a bunch of bunch of assets labeled as renewables over in ah in Thailand. ah Water, Tanzania water, good stuff there. Some property over, I read Swedish property side, Logistri, some data center, Equinex, Orange on the Telco side.
00:24:22
SFKx DJ
ah batteries, L-tech, fertilizers, senes, aquaculture, Vietnam, pangassus, highways, Enhai, in India, sewage, El Wapra, paper, Susano,
00:24:39
SFKx DJ
Ouroko on the paper side, Smurfit on the packaging, Jadran, oh my god, Galensky, Labora, Dredge, Farmer and Biotech, I have no idea how to say that, Agilex on the chemical side and Esfil on the social. So again, pretty mixed. um But you your sovereigns, semi sovereigns, your banks, your renewables, utilities, your property, you've sort of got 70, 80% of the market, and then you've got you gas in for your data centers, um you your telcos, your fertilizers, your highways, your water, your sewage, your paper, your packaging, your farmer, your chemicals. So reasonable spread.
00:25:22
SFKx DJ
A couple of questions from Murray, our question, but will we see the transition label at company level? I think the answer is no. That really is more of an equity type play. I think we're going to see taxonomies are really built around economic level of activities and that's what we'll see um going forward. That's just how taxonomies are being built and the economic level. But again, transition in terms of what you're financing at a activity level needs to be supported by an overall um solar transition plan. So that'll be my answer then. ah PCAF, which we didn't mention before, it's sort of like the gold standard for how to measure finance emissions, came up with a very interesting consultation piece just before Christmas around updating um approaches to avoided emissions, ah expected emissions reduction, structured finance, and a use of proceeds approach too. So rather than just picking up a
00:26:15
SFKx DJ
The percentage of a company's admission in line with your proportion of financing looking at well what if you're financing directly? Is it proceeds will zoom in a little bit further? So some really really interesting stuff in that and I think one that takes off and particularly these different types of transition carbon credits and avoided emissions and things like enabling that we went through before and That essentially has the ingredients for significant innovation going forward. And I think what we'll see overall is combined aspects of those to act together, not in isolation um going going forward. So let's see what happens there.
00:26:54
SFKx DJ
All right. We've nearly come to the end of the podcast. In terms of products and programs, a couple of things. Virgin Money launching a mobilizer fund to help struggling firms met ESG targets.
SME Sustainability Initiatives
00:27:04
SFKx DJ
ADB and Zach Bank signed 50 million deal to boost climate SME financing. ICC principles for sustainable trade. I think we're updated recently as good stuff.
00:27:14
SFKx DJ
Empowering SMEs to path to effective CSR implementations such asg implementation, G implementation, the Texas did a good piece there. More tax perks could drive Philippines SMEs to go green. Again, on the product side, yeah if we look at it, you know things like credit cards and money lenders, things like SME, things like sustainable trade, um those sort of um programs. And and again, HSBC launching a sustainability improvement plan for um SME. so some pretty interesting stuff there. So um that was a rather long podcast versus where we've been in previous months, but I hope that sort of gives a bit of a rounding off to 2024.
Podcast Conclusion and Future Outlook
00:27:53
SFKx DJ
So thanks for everyone's support and really look, that's all we've got time for today. We hope you like the podcast and check us out at Sustainable Finance KX.
00:28:01
SFKx DJ
dot com um Probably the best place to find us at the moment. LinkedIn, Sustainable Finance, KX, and the SFKX Insider Podcast, associated by myself, SF Guru. And until next time, I'll get the outgoing music and have a fantastic 2025. Whoo! All right. All right. Yeah, yeah, yeah. Whoo! Yeah.