Welcome to the Sustainable Money Mail! We think investing should be about trying to beat the market while providing capital to companies that make the world a better place. From creating the next major global hydrogen hub to banning harmful chemicals, here are out top stories this week.
India to issue first-ever green bond, worth $2 billion
The Reserve Bank of India has announced the country’s first-ever green bond auction to go ahead this year. The Government of India is aiming to raise approximately US$2 billion to support green infrastructure to reduce the carbon intensity of the economy.
The issuance is planned in two 80 billion rupee ($970 million) tranches, including both 5- and 10-year maturities, with auction dates scheduled for January 25 and February 9.
In recent years, India has implemented several climate-related goals, including reaching 500 GW of non-fossil energy capacity and reducing carbon emissions by one billion tonnes by 2030. At the beginning of January, the cabinet approved India’s National Green Hydrogen Mission, its strategy to establish India as a major green hydrogen production hub, with plans to reach 5 million tonnes of production, along with over $2 billion in incentives for related infrastructure and production.
In November 2022, the Indian government published its Sovereign Green Bonds framework, outlining eligible use of proceeds from green bond issuances, as well as project selection and evaluation, management of proceeds, and reporting obligations. The framework includes a broad range of eligible green project categories, including renewable energy, energy efficiency, clean transportation, climate change adaptation, sustainable water and waste management, pollution prevention and control, green buildings, and biodiversity conservation.
ESG accounts for majority of European ETFs
Funds aligned with ESG outcomes accounted for 65% (€51bn) of all net inflows into the European ETFs market (€78.4bn) in 2022. Although the totals were down on 2021, ESG’s share jumped significantly from the 51 per cent recorded then.
“In principle, this speaks of a long-term structural change, which tells us that investors are taking the long-term view” said Jose Garcia-Zarate, associate director of passive fund research at Morningstar.
2022 certainly wasn’t a good year for those investing in ESG for quick returns. Morningstar’s data shows that “sustainable” large-cap equity European ETFs have significantly underperformed traditional ETF counterparts over the 12 months.
Despite weak returns and accusations of greenwashing, the popularity of ESG funds continues to grow in Europe. The U.S is much slower to adopt ESG, in part because of political backlash lead by an “anti-wokeness” movement in Republican states.
Looking forward, researchers expect to see continued inflows, with regulation playing an increasingly important role in preventing greenwashing and determining what funds truly qualify for the ESG label.
ESG risks will drive up credit risk
A new report by Moody’s indicates that corporate and sovereign credit quality is likely to be impacted by increased ESG risk in 2023. These factors include greater scrutiny of climate-related plans and growing regulatory and political pressures exacerbated by macroeconomic and geopolitical issues and the Russia-Ukraine conflict. The social risks impacting credit will arise from the growing unaffordability of basic services like energy and food, and this will put pressure on governments to support vulnerable populations.
According to the ‘2023 ESG Outlook’ report by Moody’s, credit risk will rise the most for lower-rated entities which face higher liquidity and refinancing risks, as they tend to exhibit more challenged governance attributes, with more leveraged capital structures and weak risk management policies in a volatile macroeconomic environment. The report highlighted particular risk for speculative-grade non-financial companies in sectors such as consumer products, restaurants and retail, as well as for lower-rated sovereigns with large 2023 maturities.
Zendesk achieves carbon neutrality
CRM software provider Zendesk announced several climate-related milestones, including reaching carbon neutrality across its product supply chain, and on employee travel-related emissions, as of the end of 2022.
“I am proud that we delivered our customers a carbon neutral product, and are continuing our climate actions based on the latest climate science,” said Megan Trotter, VP of Social Impact at Zendesk. “We hope that our progress not only helps our customers with their sustainability goals, but also helps them to provide more environmentally responsible products to their own customers.”
Additionally, Zendesk revealed that it has joined the Science Based Targets initiative (SBTi), which is an organization focused on aligning corporate environmental sustainability action with the global goals of limiting climate change. Zendesk stated that by joining SBTi, it has committed to set additional climate goals in line with the 1.5°C target.
NY bans ‘forever chemicals’ in clothing
New York state governor Kathy Hochul has signed a bill into law that would ban PFAs (perfluoroalkyl and polyfluoroalkyl substances) in clothing by December 31, 2023.
PFAs, widely used in waterproof clothing, non-stick cookware and takeout containers have been linked to major health risks including liver damage, thyroid disease and cancer. They remain in the environment for long periods of time, and once in the bloodstream they do not go away - hence the moniker, “forever chemicals.”
Avi Car, Senior Attorney and Senior Director for health and food at the National Resource Defense Council said: "It's important that we do away with unnecessary uses of these harmful chemicals wherever possible to protect people's health and safety. … New York continues to build on its leadership by enacting this law that adds to previous bans on PFAS in firefighting foam and paper-based food packaging."
Retailers of PFA products and restaurants that sell food in PFA packaging have all come under fire in recent times. Large chemical manufacturers and cosmetics companies including Cover Girl, Shiseido, L’Oréal, and Coty have been named in lawsuits seeking to redress the reported harm caused by PFAs.
COP15 Global Biodiversity Forum
The UN Biodiversity Conference (COP15) was held in Montreal in early December. The summit was widely regarded as an urgent appeal to accelerate global efforts to protect and restore nature. This week, we’re seeing nations take action on the newly-agreed Global Biodiversity Framework.
The new framework aims to “take urgent action to halt and reverse biodiversity loss”. It promotes “conserving and sustainably using biodiversity, and ensuring the fair and equitable sharing of benefits from the use of genetic resources.” However, not all delegates believe the new framework is up to the task of preserving the planet.
The member states finalized 23 action-orientated targets to be achieved by 2030 with the framework aiming to “progressively close” a $700bn annual biodiversity finance scheme. They plan to restore 30% of degraded ecosystems on land and sea by 20230 and unlocking new finance streams for nature recovery. They further aim to “eliminate, phase out or reform incentives, including subsidies harmful for biodiversity” by 2025.
Nations will also be requested to set biodiversity strategies and ramp up biodiversity spending from $10bn current to $20bn per year from 2025 and $30bn from 2030.
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All opinions are the author’s own. This is not investment advice. Please consult your financial advisor before making investment decisions.
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