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Sustainable Finance Kx "Inside Out" Podcast - Episode 10
20 Plays1 year ago
www.sustainablefinancekx.com
Sustainable Finance Knowledge Exchange
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 global finance – how the world funds the transition to Net Zero.
Think of us as a curator or sorts (much a like a museum or gallery that curates the finest paintings, sculptures, etc.) as we source only the best educational knowledge around Sustainable Finance worth sharing.
Recommended
Transcript
Episode Introduction
00:00:02
Speaker
Hello and welcome to Episode 10 of Sustainable Finance KX.
00:00:07
Speaker
SF Inside Out podcast. It's just me solo today, SF Guru. I nearly said SF DJ. SF DJ is away on holidays and we expect him back hopefully for the next episode or so.
About SF KX Initiative
00:00:21
Speaker
For those of you who are not as familiar with us, SF KX or Sustainable Finance KX Knowledge Exchange is a media and training initiative. We strive to bring in the critical news stories, events, major breakthroughs and key concepts covering happenings in the super fast
00:00:36
Speaker
sustainable finance space, sometimes from an Asian perspective, more often than not from a global perspective. We hope you like our podcast. Please check out us at our socials, sustainablefinancekx.com.
00:00:50
Speaker
Twitter or X as they say now, Sust Finance, KX, LinkedIn you can find a sustainable finance KX and also on Spotify and maybe even some of the other podcasts tools. So anyway, pretend SFDJ is here, let's get into it with the news markets and volumes and good morning, good evening, good afternoon and good everything else salutation wise.
00:01:13
Speaker
to our loyal listeners. And we've great that we've made it to episode 10. And we look forward to bringing you more regular podcasts as we settle into 2024.
Sustainable Finance Market Developments
00:01:25
Speaker
So in terms from a market perspective, it's been an interesting, certainly an interesting time. And also, I forgot to say, we haven't managed to find our funky music track. So just pretend there's a bit of funk music playing before I start talking. But anyway, let's dive back into it.
00:01:41
Speaker
Look sustainable finance markets last year ended up about a trillion. Let's see how they go this year as mentioned in previous podcasts January Fed were pretty good bit of a record in Jan Feb came off a bit, but still a bit of a record. So
00:01:58
Speaker
Not too bad as far as a first quarter's perspective is there. Sustainable bond market cumulatively, cumulatively, that's hard to say, is across the 4 million outstanding mark. We're seeing a bit of bouncing around of greeniums. China continues to expand rapidly. We're seeing biodiversity
00:02:20
Speaker
We're seeing the SLB market sort of peak and trough and peak and trough and bounce around. SLLs will hopefully come back. We're seeing gender bonds to have a pretty solid year according to Moody's and others. So look, let's see how this year goes. Hopefully around a trillion across the bond space. And if we're lucky across the half billion to a billion mark on the SLLs, they're more cyclical in terms of refinancing and liquidity needs. So let's see how that goes.
00:02:49
Speaker
The Texas always comes out with great reports, so do check those out. A couple of things related to trends and
Geopolitical Influences on Energy
00:02:56
Speaker
things. Geopolitics will keep driving transformation and regionalization of our global economy, and that drives changes around energy usage, around industrial policies, all sorts of things. Nature, huge theme. Transition away from fossil fuel energy systems. Again, the Texas coming out with some great research.
00:03:17
Speaker
On that, avoided emissions is another key trend we picked up from some recent podcasts. So plenty of issues sort of swirling around. MUFG also came out with a great report on the ESG research site. Oil and gas, looking at just an orderly transition, still a lot of challenge in that sector. Methane, huge focus. Hydrogen, huge focus. Coal, phasing out. How do we do that in APAC?
00:03:42
Speaker
That key trend around avoided, avoided emissions and you scope for I think will really play into that getting handled over time.
Grid Capabilities & Weather Challenges
00:03:50
Speaker
Let's see. Nuclear is back and center grids.
00:03:54
Speaker
We can't keep pumping renewables endlessly into various grids without the grids catching up. That'll be a massive area for this year, finance, blended finance, transition finance, insurance, getting a bit battered by some extreme weather. Let's see if cap bonds and other things can be themed up there, health care, underlying social flame technologies, climate tech and others.
00:04:17
Speaker
just shared with you a smattering of the sort of trends that lurked around in first quarter that we think will power the remainder of the year. Some pretty interesting stuff happening in the UK just to change channels there in biodiversity, net gain rules, builders, building new sites have had to compensate for nature loss where they're building.
UK Biodiversity Net Gain Rules
00:04:40
Speaker
So I think we're gonna see that really start to come in rather than offsetting, you'll have to replace
00:04:48
Speaker
Other things, let's see how that goes. Some green repos in the market. Nature tech, bit of a new theme there. Cold buyouts we talked about before, gaining more talk. Headlines in Asia. ACT released a decarbonizing chemical. So ACT, decarbonization or transition. Check that out, it's from a French think tank. Pretty good resource. Lots of sectors that are often not covered by the SBTI initiative.
00:05:17
Speaker
Ongoing challenges and debate around gas, is it a bridge? Is it not a bridge? Often better, less bad is better than nothing at all. Fashion and luxury. SFDJ would love that coming into the forum more articles. I think an aggregate fashion is probably almost 2% global emissions. Really same as shipping. So let's get our brand chords out and see how we go there. Index is coming out to measure our climate change and transition.
00:05:47
Speaker
What else have we got here? Adaptation is still a key theme. IISB coming out more formally. Anxiety over climate change. Lots of articles about that. Some trend that I've picked up on the World Bank really spearing this that we may have mentioned or spearheading this, I should say, in the last podcast was about results-based financing. So more milestones-based, staggering out money as those
00:06:12
Speaker
milestones are completed. So pretty interesting stuff there. There's a couple of initiatives run by the World Bank, so do check that out. I think we're going to see a new dawn of different types of outcomes based sustainability linked aspects, carbon credit aspects, different types of kickiers, receiving less if something doesn't happen, receiving more if it does.
Energy Partnerships in Asia
00:06:36
Speaker
Jack P initiatives,
00:06:37
Speaker
Change the channel again. Just Energy Transition Partnerships have been launched in a major way in Vietnam and Indonesia. Rockefeller came out with a pretty interesting report about what's getting jammed in the cogs there. Very difficult to go from an overall political initiative to drive the economics around that. Big money.
00:06:57
Speaker
Both countries have come out with some pretty major plans in their power sector. And that's where we think a lot of the monies will go. So let's see how that goes and a great opportunity for blended finance to come in and whip a few things up.
00:07:08
Speaker
and blend and get money moving to where it's not. So keep a look out on that.
Tracking Methane Emissions with Satellites
00:07:14
Speaker
Google launched a satellite tracking methane. So let's see how that goes. And maybe naming and shaming is actually going to turn the needle on some things. Methane has been a key issue, which is obviously gas is 94% methane. It's multiple times worse for the environment. It heats the environment faster. So let's see, maybe name and shame is a new
00:07:34
Speaker
is a new trend there, sleeper SLLs. Again, bit topical, couple of articles on that. Don't label your SLL unless you've got everything in place. If you do, and then you want to trigger something later, don't see an issue with it. Just make sure it's done properly and you're allowing enough time for something to be achieved that's tangible and ambitious. Articles about the granium. Again, you can read stuff about it's not there, it is there, it's a bit there.
00:08:03
Speaker
saw a period in the market of longer tenor specific auto names, probably get the best greeniums over time. And I think, again, it's strategic, not transactional. If you're thinking transactional for a lot of the sustainable finance instruments, then you're probably not going to optimize the opportunity that that represents.
Transition Finance Guidance
00:08:23
Speaker
IKMA has come out with a good paper on transition plans. Get in there, early adopt it, that'll help.
00:08:29
Speaker
Overall opportunities for transition financing and regulatory developments, which will no doubt grow. The LMA provided some new guidance on external reviews for SLLs. Check that out. Impact Accounting Initiative, which is pretty interesting, looking at the impact of different aspects on balance sheets and revenues and costs, came out with a set of accounts.
00:08:52
Speaker
236 euros or dollars, I think, per ton of of CO2, which would obviously, if that was fully accounted for on balance sheet, would really skew and change a number of aspects of other accounts for many companies. So check that out. Interesting to see how that develops. Maybe it won't be ever fully fully adopted, but the aspect of bringing externalities onto balance sheet accounting for them, dealing with them.
00:09:20
Speaker
I think that's going to really grow. I guess we'll see that around carbon taxes and other things. The APLMA came out with a really good guidance paper on funds. Again, funds seeking to do SLLs and use of proceeds type instruments. How do you know what to set when the underlying investees are changing? Check that out. SSE being active, their climate rules have come out. I think since
00:09:46
Speaker
drafting this note and recording the podcast. They've sort of paused. So just watch this space. The tennis that ESG is in the US backwards and forwards and backwards and forwards and forwards and back. I think we'll just continue as the issue ramps up into the part of the election cycle. So who knows what will happen? What will happen there? What else have we got here? Let's have a look. China Stock Exchange coming out with mandatory sustainability reporting. Hopefully that provides a nice underlying
00:10:16
Speaker
foundation for more sustainable finance in China. We've seen taxonomies come out for Indonesia, Philippines, and also Colombia. Check those out. Again, smell, feel, and look similar, although the Indonesian one had some interesting stuff in there about coal-fired power plants related to metal-related assets there.
00:10:37
Speaker
You know, we'll let our own listeners debate those and decide those, but the more guide rails we have, the more confidence it should give to the market. And I think people can see through some of these things now that may not be fully, fully in line with where we need to head. I'm CSRD getting implemented across over in the EU. So just more, more, more, more, more disclosures over, over there, fast charging, a few articles.
00:11:05
Speaker
on that SME programs, again, bringing SMEs along for the SLL ride. We're seeing some interesting news about that. The GBS green bond standard, again, pretty topical coming up and down. A really landmark report that was brought out over the recent times was the Science-Based Target Initiative
00:11:26
Speaker
on helping accelerate corporate climate action beyond the value chain or beyond their own value chain. So do check those out. Some interesting studies and reports always being brought out by the CBI. So do check those out. A couple of things, if we just race into the Sustainable Loan Markets 2024 report released by Environmental Finance, some pretty interesting trends.
00:11:52
Speaker
amongst that. We know that GHG, if we're just looking at KPIs for SLLs, continue to dominate 70 to 80% of the market. If we look at use of proceeds, we're seeing a bit of a change in spread of instruments, green continuing to dominate, sustainability holding up well, gobbling up most of the individual labeled social side. So no major change there.
00:12:19
Speaker
From a use of proceeds perspective on the bond side, again, renewables, clean transport, energy efficiency, green buildings, affordable housing, back to the social side, continuing to dominate there, which is pretty stable year on year. I think we've talked about a number of the trends of the move back to use of proceeds, consolidating around the more traditional instruments, SLBs being under pressure, SLLs being cyclical. So let's whip through that. In terms of the
00:12:48
Speaker
second-party opinion side of things also was included in that great report which was released on the bond market as well by environmental finance. We saw some pretty interesting moves there, Sustainalytics getting absolutely smashed on their market share with some changes, S&P catching up, ISS.
00:13:07
Speaker
Certainly catching up. So I think we'll see those credit agencies really start to dominate from this year onwards in terms of that second party opinion space. Let's see what happens in Europe with the ongoing regulation or pending regulation of second party opinion providers as part of that GBS market there.
Comprehensive Climate Report Summary
00:13:28
Speaker
OK, if we just keep moving along, what have we got here? A really interesting report that was released by Nat Bollard a couple of months ago now. It's a 200 pager. I just got notified by this from The Catalyst, a great podcast from Shail Khan. Check that out. Apparently, this report comes out every couple of years. I just wanted to highlight a couple of key
00:13:50
Speaker
a couple of key aspects of it. Warmest year in 125,000 years, I think. First two degree day, temperature anomalies almost becoming the norm. So the decade to attack solutions. Solar and wind adding faster than gas on nuclear ever had.
00:14:09
Speaker
L.A.D. greater than 50 percent light, greater than 50 percent light, light sales, which is pretty, pretty interesting globally, globally there. Asia has dominated on the battery production side. Let's see how that continues to grow. One point eight trillion in the energy transition spending power grids, electrified transport, renewables dominating there. So nothing new that we're really telling anyone.
00:14:37
Speaker
ESG reports are growing in size, declining in clarity, at least from a US perspective. A century of gains for batteries, lithium IOM, solid state batteries. Let's see how that changes from lead acid, nickel acid, sodium, and other types. What else have we got here? I'll probably just skip through to the rest there. Some interesting dynamics around. I like this one on BlackRock.
00:15:07
Speaker
farcing sustainability and climate mentions in BlackRock's annual CEO letter peaked in 2020 and then gone down to virtually none now. So interesting, just representing, I think, indicating the level of politicization of ESG related issues in the US. So a really interesting report, 200 pages
00:15:30
Speaker
in PowerPoint format, easy to absorb, some of the key things that really jumped out to me. So do check that out. Now, moving along to transactions and just highlighting and looking at a few things that have happened recently.
00:15:48
Speaker
On the link side, we've seen Bromford, the first of reducing its properties, live in repairs, an interesting KPI. So Bromford being not the bicycles, being a property company and having a targeted approach to reducing in-house repairs, I guess is an interesting or housing association on the affordable housing side. So pretty cool there.
00:16:10
Speaker
Gold Story, Sustainability Linked Transaction, Vener Energy on the renewable side. Vosseo, also on the linked transaction, Siemens Energy, renewables related, Susano, paper related, Bracel, Aluminium, Dunkirk, presumably Aluminium related work there. What else we got? Kew Collection in Singapore, Parral, although not much disclosed on
00:16:39
Speaker
on that one. Pretty cool to see a transaction from Banco, Banco de Brazil, which had GHG emissions of the corporate credit portfolio for corporate credits over 200 million. I can't even remember what the currency is there and then a gender and racial diversity in senior leadership position. So again, nice to see banks creeping, creeping towards the sustainability linked aspect of the market and measuring your emissions in your portfolios where the action's at. So good to see there.
00:17:08
Speaker
RISHKAM on the property side, Sato Corporation ID Solutions doing link side, LREAT, ESR, TUI on the travel side of things, maybe a banana lounge production there, so Ibu Railway over in Japan, and the other general types of issuers. We've also seen some linked Islamic related, Sukuk's and financing over in
00:17:37
Speaker
over in Saudi as well, so Nomi centers. We've seen a bit of action in Bangladesh and also our JoYo bank, again, doing more use of proceeds, sort of measuring the donuts, so to speak.
Innovations in Bond Market
00:17:52
Speaker
If we shift and move across to use of proceeds, I do need to take a breath. I'm missing SFDJ for sure. Let's just have a look. Hong Kong issuing another landmark digital bond in terms of how that's
00:18:07
Speaker
How that's processed and measured. Canada allowing nuclear in their latest iteration of the bond. Romania going to market again. Kulte de Ivory getting amongst the Emirates of Georgia. Mixed use of proceeds there. Some municipals, again, the US having a huge municipal market, sometimes dipping into this market.
00:18:30
Speaker
and a whole bunch of banks, HDFC, Volkbank, CBA, Cassiar, and Tazjikistan, I think, AB&M, some usual suspects there. So probably I think where we ended up last year and what we're seeing at the moment is pretty much a 30% sovereign SSA.
00:18:49
Speaker
30% corporates, 30% FIs, in terms of an issuance on the bond action side, pretty balanced sort of market. Let's see how that goes. The bond market's ripping along at the moment. We'll see how that goes. Some utilities, Allianz in Wisconsin, Romanus Electrica, Darny Green,
00:19:07
Speaker
Greening Group over in Spain, Tag Energy in Portugal, Telcos, Verizon, an interesting sixth bond there really to fund PPA purchases of renewables. A little bit interesting there, Mazda doing a transition bond. Don't know if we'd call that transition if it's to fund EVs, which are clearly, what you'd say most people see as a really cost-effective, renewable, low-carbon solution now. But anyway, that did occur. NBN in Australia.
00:19:35
Speaker
on the network connectivity side, which is great. A little bit more action on the chemical sides. We need to see more chemical action. So we saw Dow Chemicals funding a whole range of things. Some of these bonds you could probably count as a transition. But we've seen a few instances of those being just captured under a green umbrella. But let's get on with it. Let's fund what we need. Let's move ahead and debate it if we need. We also saw Manen on the chemical side.
00:20:04
Speaker
Kogamo on the property side. Alcoa, again, you've seen Dow chemicals and even MERSC on the shipping side with recent bonds that could be more on the transition labeling side. Alcoa, looking at one of the biggest aluminium producers in the world, circular economy, adaptive products, technologies and processes, renewable energy, pollution prevention, control and water. So great to see that. Again, under a green umbrella,
00:20:30
Speaker
Again, let's get on with it, fund what we need, worry about some of the specific labeling at some stage. Speak of the devil, MERSC, as I mentioned before.
00:20:42
Speaker
green bond there, but interesting that the main use of proceeds there were to fund methanol enabled dual fuel carrier vessels or dual fuel methanol retrofits. Again, there's no sort of clear winner on the alternative fuel side for the shipping side of things. So let's see how that goes. We're good to see some shipping companies active in the market on a use of proceeds basis and not just linked there.
00:21:09
Speaker
Metro Green, I think, on the train side in Chile, some data center action in the US data center there. What else we got here? NG on the renewable side, CitiCon on the property side, European Investment Bank, again, banks powering along. I'll skip through the others, but we saw ABB active IRBD, Casa Depositi, so FI is very, very active over the other month, and I think we've mentioned a lot of the others.
00:21:38
Speaker
A couple more interesting ones, Capital Impact Partners, some green notes there, some buildings, Verizon I mentioned, I mentioned before, Cathay United on the green trade, the green trade side, data center dynamics on the more the loan side, Capital Impact Partners, I think there's more of a bond or sorry, loan or possibly PP. So that's a little bit of action on the use of proceeds side. A couple of questions which I'll answer.
Preventing Greenwashing in Finance
00:22:08
Speaker
that Murray, our friend Bot sent in, will fund labelling prevent greenwashing, eventually impact labelling of green social sustainability bonds. So there's lots of initiatives from the UK to Europe that are very directed towards asset managers, how you should label your funds, SFDRs, all about that. Are you Article 6 or 7 or 8? I can't even remember now.
00:22:34
Speaker
And I think over time that will impact what we label green, social, transition and other things. Those labels will have to match up or else it'll be very confusing about what type of products are put in what type of label of funds. So yeah, I do think it will have an impact. How will carbon credits be integrated into sustainable finance? Case in point, I guess what I mentioned earlier in the podcast, the results-based financing approach, I think we've seen
00:23:00
Speaker
impact bond where you may invest. If you don't meet an outcome or the issuer doesn't meet an outcome, you will receive a lower coupon. If they meet an outcome that's pretty ambitious, you receive a higher coupon. I think we're going to see results based, staggered payments, kickers, and carbon credits get integrated into the market that way. We'll see pre-financing for carbon credits
00:23:24
Speaker
but I think we're gonna see kickers, coupons, different risks, sort of payoffs, results-based, milestone financing, and carbon credits get integrated that way. Nearly finished in the podcast, so hang with us for a few more minutes.
New Sustainability Products
00:23:41
Speaker
Products and programs, a little bit more of the same. BMO over in Canada coming out with an innovative new sustainability link product, check that out. Kiavi, can't actually remember where that is.
00:23:53
Speaker
looking at some revolving programs across their book. CommBank in Australia or CBA looking at emissions calculators and working with some providers there with some borrowers and Australian property side NAB launching green finance for commercial building upgrades and some thematics around that. So Aussie banks continue to power along.
00:24:15
Speaker
So look, I know you've missed SF DJ like I have. We hope you've enjoyed the podcast. We will try and get our episodes out a bit faster. We've had some logistics issues and personnel issues. Keep listening to us. We appreciate the support.
Closing and Gratitude
00:24:32
Speaker
So really, that's all we've got time for today. We hope you like our podcast and please check it out at www.sustainablefinancekx.com at X or Twitter handle
00:24:43
Speaker
SUS Finance KX, a LinkedIn sustainable finance KX. Until next time, pretend the closing funk music is on. We'll catch you then. Thanks for your support. Goodbye.