Google goes renewable, Mercedes issues Panda Bonds ... and more!

ESG Weekly Digest

Welcome to the Sustainable Money Mail! We think that investing should be about providing capital to companies that make the world a better place - whilst generating returns on your capital! This week, we’re looking at six the ESG investing stories that caught our eye.

Mercedes-Benz looks to green bonds to fund China expansion:

On Friday, automaker Mercedes-Benz announced plans to issue a RMB 500 million (€68 million) Green Panda Bond in China, the company’s first green bond offering outside of the European market.

Green Panda Bonds are bonds issued in mainland China by foreign issuers, with proceeds allocated to green projects or assets. According to Mercedes-Benz, this is also the first green panda bond issuance by an automotive company.

Mercedes-Benz said that the proceeds from the offering will be used to finance new customer leasing contracts with Battery Electric Vehicles, as part of the company’s plan to go all-electric by 2030.

Steffen Hoffmann, Head of Treasury and Investor Relations of Mercedes-Benz Group AG, said:

“The first Mercedes-Benz Green Panda Bond shows our ambition to further expand our sustainable finance strategy to our important growth regions around the globe.”

The company stated that demand for the panda green bond was strong, with the offering more than 3x oversubscribed. The bond was issued with a two year term and an annual coupon of 2.9% (for reference, China’s government two year bond yields 2.3%).

Sports industry under scrutiny at the World Cup:

The Qatar World Cup has caused several controversies, with criticism of social and ethic practices leveled at both the host country and its preparations for the event. This is putting sports-related ESG investing under the spotlight, with more fuel added to the fire thanks to suspicions surrounding possible governance failures at FIFA.

Probably the most controversial in World Cup host history, Qatar has faced criticism over its treatment of migrant workers and approach to LGBT+ rights in the country. In May 2022, this came to the attention of Amnesty International and 23 other organizations which wrote an open letter to FIFA President Gianni Infantino urging a “remedy for labor abuses behind the 2022 World Cup.”

Amnesty reports thousands of deaths amongst migrant construction workers in Qatar since 2010, when the tiny oil-rich nation was selected to host this tournament. Qatar itself claims a much lower (although still non-zero) number, with the country’s Supreme Committee for Delivery and Legacy, which is overseeing the World Cup, described Amnesty’s letter as “inaccurate”.

The repercussion of the World Cup controversies has caused difficulties for the tournament’s big brand sponsors including Coca-Cola, Visa and McDonald’s. This year’s beer sponsor Budweiser in particular has faced issues following Muslim-majority Qatar’s last-minute ban on all beer sales in stadiums. 

ESG is still relatively overlooked in sports - surprisingly so, according to economists who have pointed out the power that the sports world - particularly football - has on driving collective change. This isn’t just a social and political issue - businesses have started to suffer due to the controversies and a lack of transparency.

Google to operate at 90% carbon-free energy (CFE) in UK and Spain through new wind and solar deals:

On Thursday, Google announced today two new renewable energy power purchase agreements in the UK and Spain, enabling the company to operate at or near 90% carbon-free energy in each region by 2025.

The agreements are the first ever long-term PPAs for Google in each country and include deals to buy 100 MW of offshore wind from ENGIE in the UK, and 149 MW of solar energy from ib vogt GmbH in Spain.

In a post announcing the new agreements, Matt Brittin, President of Google Europe, Middle East and Africa, said:

“At Google, we’re committed to being a helpful partner and to finding ways that we can make a meaningful, scalable impact. That means not only reaching our own goal to operate on carbon-free energy around the clock by 2030 – but helping create greener and more resilient electricity grids in the areas where we operate.”

FCA announces ESG Conduct Code Focus Group:

The United Kingdom’s Financial Conduct Authority (FCA) has announced formation of a focus group tasked with developing the official code of conduct for ESG data and ratings providers. With £86bn invested in responsible funds in the UK (out of £1.3tn total), it is crucial that regulators keep pace with the expanding market.

One concern is what actually qualifies as ESG - particularly regarding ESG benchmarks, which may not align with the expectations of their users and the end investors due to its subjective nature and how data and rations are incorporated into benchmark methodologies. This gives rise to an increased risk of poor disclosures in benchmark statements. Advisers have been struggling amid a lack of transparency on definitions of the various terms used such as ‘green’ and ‘sustainable’. This leads to a discourse as advisers will be judged on asset allocation decisions made today by criteria developed in the future.

The FCA focus group will be co-chaired by investment manager M&G, ratings agency Moody’s, the London Stock Exchange Group and Magic Circle law firm Slaughter and May. Other members will include major investment funds, ESG data and ratings providers, and research centers which will all meet for the first time later this year.

Although the FCA does not currently regulate ESG data and ratings providers, this initiative marks a step forward to collaboration across the industry towards collective standardization. The FCA added that it is supporting the industry to develop a code of conduct while the government considers whether to extend its remit, and will seek to make the code internationally consistent to encourage the development of globally consistent standards.

A thousand employees on strike:

In Spain, over 1,000 employees in major high-street fashion brands such as Zara, Pull & Bear and Massimo Dutti (owned by Inditex) have gone on strike during the critical time of Black Friday sales. They are protesting against working conditions and the brand’s delay in wages increase which has led many to suffer the high inflationary environment and cost of living crisis. With 95% of Inditex workers protesting in the region, the collective dissatisfaction towards the brand is clear.

Some workers in Spanish capital Madrid earn less than €1,400 per month, against an average household living cost being €2,250 per month.

Studies by the University of Leeds shows that the 2021 Black Friday generated 851,520,000 pounds of carbon into the atmosphere on delivery alone. This is about the same as a thousand cars each driving a million miles. 80% of products purchased end up in landfill, incinerated or recycled poorly, with electronic waste in particular being recycled just 20% of the time.

Black Friday isn’t even good for consumers - 98% of discounts advertised were marked as the same price or cheaper 6 months earlier.

Goldman Sachs to pay $4mn penalty over ESG fund claims:

Goldman Sachs will pay a $4mn penalty over US regulatory charges from the SEC that the bank’s asset management division misled customers about environmental, social and governance (ESG) investments.

The case involves two Goldman mutual funds and a separately managed account strategy, all marketed as ESG investments. The SEC found that Goldman investment teams completed several internal ESG questionnaires — supposedly used to evaluate companies for potential investment — only after they had already decided to include the securities in question.

A $4mn fine for Goldman might not seem that much. But the specifics of the settlement underscore the fact that the SEC is willing to go after relatively minor infractions in its hunt for potential greenwashing. Expect the agency to bring additional ESG cases in the months ahead.