Issuance of Social bonds and STAGE / 社會責任債券和可持續及綠色交易所 (STAGE)

Green Finance Advisor of Friends of the Earth (HK) / 香港地球之友綠色金融顧問

The outbreak of COVID-19 is affecting countries, big and small, around the world. Governments and organisations are stepping up support for people and businesses. This gives rise to the popularity of issuance of social bonds, which are used to finance projects that having positive social influence. Paying for healthcare system, providing subsidies for SME/employment and building affordable homes are project examples.

In March 2020, the International Capital Markets Association (ICMA) highlighted the role of social bonds in helping the fight of coronavirus pandemic. According to data shared by Morgan Stanley, about US$32 billion of social bonds have been issued in April 2020 alone, exceeding the issuance of green bonds for the first time. Some of the issuers include European Investment Bank, Cassa depositi e prestiti and Bpifrance. Both social bonds and green bonds are under the umbrella of sustainable bonds.

We recommend the HKSAR government to issue social bonds in response to COVID-19. This will not only give more financial support to the Hong Kong people but also help promote Hong Kong’s strengths and thought leadership on green and sustainable finance regionally and globally. This is among the things that the Green and Sustainable Finance Cross-Agency Steering Group (established last month, initiated by HKMA and SFC) wants to achieve. Noticeably, the HK Exchange recently announced the launch of Sustainable and Green Exchange – STAGE. An online repository for sustainability, green and social bonds and ESG-related Exchange Traded is expected to roll out later this year as part of the initial phase of STAGE. COVID-19 social bonds could be put into this repository.

More about the STAGE (https://sc.hkex.com.hk/TuniS/www.hkex.com.hk/news/news-release/2020/200618news?sc_lang=zh-cn.)

COVID-19的爆發正在影響世界各地的大小國家。各地政府和機構正在加大對人民和企業的支持。這引起了社會責任債券發行的普及,這些債券用於為具有積極社會影響力的項目提供資金。支付醫療保健系統費用,發放中小企業務補貼/就業補貼和建造負擔得起的房屋就是項目的例子。

2020年3月,國際資本市場協會(ICMA)強調了社會責任債券在幫助抗擊新冠病毒大流行中的作用。根據摩根士丹利(Morgan Stanley)的報告,僅在2020年4月全球已發行了約320億美元的社會責任債券,首次超過了綠色債券的發行量。其中一些發行人包括歐洲投資銀行、意大利國有銀行和法國國家投資銀行。社會責任債券和綠色債券都屬於可持續債券的範疇。

我們建議香港特區政府針對COVID-19發行社會責任債券。這不僅將為香港人提供更多的財政支持,而且還將有助於在區域和全球範圍內增強香港在綠色和可持續金融方面的實力和思想領導力。這是由金管局和證監會在上月共同發起成立的綠色和可持續金融跨機構督導小組希望實現的目標之一。值得一提的是,香港交易所最近宣布啟動可持續及綠色交易所。作為STAGE初始階段的一部分,有望在今年晚些時候推出有關可持續性、綠色和社會責任債券以及與ESG相關的交易所交易的線上儲存庫。COVID-19社會責任債券可以放入此儲存庫中。

有關STAGE的更多資訊 (https://www.hkex.com.hk/News/News-Release/2020/200618news?sc_lang=zh-HK)

Image source 圖片來源: Scaling Impact

但願牛隻不會放屁

香港地球之友綠色金融顧問

筆者過往曾多次提出,ESG標準及報告指引出問題,ESG報告顧問水平出問題,ESG審核沒能力形成標準化的問題,結果ESG報告,甚至ESG評分機構,也不可能得出有意義結果,今天,筆者想給大家一個強而有力的例子。

筆者手頭上有一位上市公司客戶,持有上海一所中小型酒店,以及國內一些房地產,過去數年的ESG報告都相對簡單,但在去年,這個客戶在南美收購了一個農場及一個牧場,農場種稻米及玉米,牧場則養了一千五百頭牛,部份是肉牛,而部分是乳牛。手頭客戶中,這是第一個涉及養牛,當然難掩興奮,因為第一次有機會計算牲畜的直接溫室排放。

經資料搜集及計算後,發覺這家公司牛隻的溫室氣體排放,約佔整家公司的33%,一向以來,我們接觸的新聞訊息,都不斷指出牛隻的溫室排放極嚴重,所以這結果亦符合筆者的內心估計。以這家公司的數字看來,如果是純乳牛公司,牛隻的溫室氣體排放可能會達公司總排放的百分之70以上。在好奇心驅使下,筆者立刻翻查在香港上市的所有乳牛公司,看看他們的驚人排放數字,但結果可能會讓大家大吃一驚,驚的不是驚人數字,而是根本沒有計算。

港交所2016年開始強制所有上市公司披露ESG報告,而報告指引中當然包括所有溫室氣體排放,但指引內容只教了燃料使用的氣體排放計算方法,沒有提過牧業,所以香港的上市牧業公司,全部都有披露他們使用的煤量與電量,但沒有一家披露動物本身的溫室氣體排放。好奇心再驅使下,筆者再查看香港上市的養豬公司,結果也是一樣。即是這類公司全少報了一大半的溫室氣體,而這類公司排放量動輒以十萬噸計,這個少報數字的驚人程度,可以想像。

好了,大家看到這裏,你們認為是港交所指引的不專業,還是這些公司聘請的顧問公司不專業?以筆者的經驗,當然看到當中有不少是四大的「作品」,還有一些是經過第三方國際機構審核!筆者深深相信,一般環保人士,雖然未必了解ESG報告,但對牛隻的溫室排放,卻是123的小學水平,大家不但理解,還已經關注多年,但問題究竟出在哪裏?其實問題很簡單,一個理應嚴謹的報告,由不專業的人訂定規則,不專業亦不認真的人執法,不專的人做顧問搶佔市場,不專業的所謂審核機構進行審核,到報告出街時,不專業的政策執行者視而不見或無力執行,或根本沒有誠意執行,就會得出這樣的結果了。

大家試想像,如果上市公司財務報表少報一大半收支,結果會是如何?

The Growth of ESG Integration

Michele Leung, Green Finance Advisor of Friends of the Earth (HK)

According to Global Sustainable Investment Review, USD $32 trillion of assets are professionally managed under sustainable responsible investment strategies in 2018[1]. It represented a compounding annual growth rate of 43% over the past 12 years. As more institutional investors are integrating ESG into their portfolios, studies have been done on the leading factors for such trend.

Undeniably regulation is one of the main drivers. For example, EU has introduced the “EU Climate Transition Benchmark” and “EU Paris-Aligned Benchmark”, which aimed at reallocating capital towards a low-carbon and climate resilient economy. Domestically, we are also seeing stricter disclosure requirement enforced by various exchanges. Fiduciary duty is a primary driver for asset owners, particularly for the pension funds and endowments that have to respond to their stakeholders. Risk management is also an important aspect as ESG is considered to have some downside protection nature, from mitigating ESG risk to avoiding reputation risk.

Surprisingly, generating outperformance doesn’t yet to be considered as a key factor for ESG adoption. Despite the ongoing skeptics, more researches have been done to establish the financial relevancy. For example, in one industry study (link), it looked at the correlation between ESG and market performance, which found ESG integration generally demonstrated historically higher active return profiles in Emerging Market and Asian equities. 

ESG funds are also gaining traction under current situation. As of Jun 1, 2020, iShares ESG MSCI USA Leaders (SUSL) outperformed S&P 500 year-to-date by 176 bps, the underlying benchmark was based on best-in-class approach which targets the companies that have the highest ESG rated performance in each sector of the parent index. In the meanwhile, COVID-19 has underscored the importance of ESG issues to company resilience and long-term performance. Social and Governance issues are at the forefront with spotlights on labor practices, employee health and safety and supply chain management.

Overall, it is encouraging to see ESG integration is on the rise with more investors bringing ESG into their investment decisions and achieve sustainable value creation.

[1] Source: https://sdg.iisd.org/news/gsia-report-finds-increase-in-sustainable-investing/

Asia Sustainable Finance Events, Webinars & Reports: June 2020

Idea Exchange – James Robertson

Consultation: Practice Assurance Standards for SDG Bonds
Organised by: UNDP

UNDP SDG Impact is pleased to share the first consultation draft of Practice Assurance Standards for SDG Bonds (the Standards) and is seeking your feedback.

The Standards are being designed to help investors ensure their processes are in line with best practice impact measurement and management, and to demonstrate an investor’s contribution to the SDGs. The Standards also serve to operationalize important existing Principles to drive more consistent implementation and provide credibility for the market, reducing the risk of impact or SDG washing.

Please provide your feedbacks using the Feedback form and send it directly to sdgimpact.standards@undp.org by 17th July 2020.

The Guiding Questions and Frequently Asked Questions are also provided to assist in focusing feedbacks.
For more information, please visit the website: https://sdgimpact.undp.org/ .

Consultation: Revisions to the International <IR> Framework
Organised by: International Integrated Reporting Council (IIRC)

Over the next 90 days, the International Integrated Reporting Council (IIRC) calls for your feedback on a new Consultation Draft, proposing revisions to the International <IR> Framework.

The IIRC calls on stakeholders globally to share their thoughts on the Consultation Draft to ensure the <IR> Framework responds to the evolving market context and supports robust, effective reporting. Feedback is requested through an online survey and via participation in one of over 20 virtual roundtables hosted by the IIRC’s partners globally.

The Consultation Draft has been informed by the 300 responses the IIRC received on three topic papers published in February this year, ongoing observation of market practice internationally, as well as the detailed deliberations of the IIRC’s <IR> Framework Panel, a diverse group of reporting experts from the business, investor and accountancy communities. A companion document that sets out the basis for the proposed <IR> Framework revisions is also available.

The consultation is open until 19 August 2020, with further details available via www.integratedreporting.org/2020revision

Webinar: Ensuring a Sustainable Recovery in the ASEAN region: What Role for the Finance Sector?
Date & Time: 11th June 12:30pm HKT
Organised by: ILO, UN Women, UNICEF, UNHRSP, United Nations ESCAP and Business & Human Rights Asia Pacific

As part of the main session of the UN Virtual Forum on Responsible Business and Human Rights – Asia Pacific (9-12 June), UNEP FI is co-organising a session on the role of the finance sector in the sustainable and inclusive recovery from the COVID-19 crisis in the ASEAN region, with speakers from CIMB Group, Malaysia, WWF Singapore, UN Environment Programme and Government Pension Fund, Thailand.

This session will discuss the role of the finance sector in driving more responsible business practices and investments, in support of a more sustainable recovery. It will hear what banks and responsible investors, including institutional investors are doing in that regard, and discuss how government can help drive the change towards more integration of ESG criteria in investment and financing decisions, to push more ambitious action of companies, including as regards climate change.

Webinar: Growing Sustainable Finance in Asia in the New Normal
Date & Time: 18th June 9:30pm HKT
Organised by: Impact Entrepreneur, LLC

In this virtual fireside chat, Impact Entrepreneur’s Laurie Lane-Zucker and Asia Value Advisors’ Philo Alto will discuss with our distinguished group of panellists — Leonie Kelly of Sustainable Finance Initiative, En Lee of LGT, Ronie Mak of RS Group, and James of PRI — the trends and developments in growing sustainable finance in Asia in the new post-pandemic normal.

The conversation will tackle topics such as:

– Trends and developments in sustainable finance in Asia in the private, institutional and development sectors in the current transition phase to a new post-pandemic normal
– Political and economic headwinds in the post-pandemic normal and how sustainable finance is (or is not) staying the course in Asia
– Playing the long-game — building a cross-sector talent pipeline in sustainable finance
– Practical considerations — state of impact measurement and management; challenges and gaps in the sustainable finance ecosystem in Asia; and, how US, Europe and Asia regions can learn from and support each other
– Turning crisis into opportunities for the future — role of policy and ecosystem capacity building; advice on how one’s own professional journey can support sustainable finance and contribute to systems change in the new normal.

Sustainable Finance Webinar Recordings:

Sustainable Finance Reports & Research

1. New Report: Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change?
Published by: Oxford Smith School of Enterprise and the Environment

The COVID-19 crisis is likely to have dramatic consequences for progress on climate change. Imminent fiscal recovery packages could entrench or partly displace the current fossil-fuel-intensive economic system. 

Here, we survey 231 central bank officials, finance ministry officials, and other economic experts from G20 countries on the relative performance of 25 major fiscal recovery archetypes across four dimensions: speed of implementation, economic multiplier, climate impact potential, and overall desirability. 

We identify five policies with high potential on both economic multiplier and climate impact metrics: clean physical infrastructure, building efficiency retrofits, investment in education and training, natural capital investment, and clean R&D. In lower- and middle-income countries (LMICs) rural support spending is of particular value while clean R&D is less important. 

These recommendations are contextualised through analysis of the short-run impacts of COVID-19 on greenhouse gas curtailment and plausible medium-run shifts in the habits and behaviours of humans and institutions.

2. New Report: From farm to table: Ensuring fair labour practices in agricultural supply chains (Results from PRI Collaborative Engagement 2017-19)
Published by: PRI

This report summarises the results of the second phase of a PRI-led engagement on labour practices in agricultural supply chains. A first phase of the engagement, during 201316, sought to understand labour rights challenges and risks in supply chains. This second phase, which ran from 201719, involved deeper engagement between 29 PRI signatory investors and 33 companies in the Beverages, Food & Drug Retail, Food Producers and General Retailers sectors. Its objective was to identify and assess existing corporate practices, encourage enhanced communication and reporting, and support improvement of performance and impact by target companies.

The engagement involved an assessment of companies across six areas: supplier codes of conduct; governance and accountability; traceability and risk assessment; sourcing and supplier relationships; collaboration on systemic issues; and monitoring and corrective action.

3. New Reports: ESG Implications of Coronavirus
Published by: Fitch Ratings

Fitch Ratings has published a trio of reports on the ESG implications of Coronavirus. The reports are free to download through the links below:

Fitch’s ESG Framework and Coronavirus: A look at the short and longer-term implications of Coronavirus through Fitch’s ESG Relevance Score framework, including how deterioration of balance sheets may affect policy and ESG-related investments, as well as greater scrutiny of “social licenses to operate”.
Coronavirus May Slow but Won’t Derail Low-Carbon Transition: A deeper dive into how Coronavirus may affect climate risks and regulations both in the short and medium term.
Crisis Conditions to Expose Governance and Credit Risks: A look at how tougher economic times can reveal governance failures, and leave creditors of the affected companies exposed to potential losses.

What is Green?

Idea Exchange – Karen Ho

The People’s Bank of China plans to remove “clean fossil fuels” from the list of The Green Bond-supported Project Catalogue, according to the draft published by the Chinese regulators last week.

Unifying the policy within the country’s various regulators is a “hugely significant step that will be welcomed by international investors,” said Sean Kidney, chief executive officer of Climate Bonds Initiative. The removal of fossil fuels brings China into closer alignment with international practices, he said.

The inclusion of “clean coal” in 2015 list had put China at odds with global standards. Chinese green bond issuances that met international standards raised US$31.3 billion in 2019. Yet also in 2019, Chinese green bond issuances that did not meet such standards raised US$24.2 billion.

This new revision is likely welcomed by the international investors. The consultation process on the Green Project Catalogue is open to public comments until 12 June, with the final announcement of the Green Project Catalogue set to be made later in 2020.

What would be removed from the previous catalog:

  • Large ultra-supercritical or supercritical coal-fired power plants, which were previously included as energy-saving projects.
  • Projects that process coal to remove impurities.
  • Ventures that produce fuels and fuel additives including gasoline and diesel with higher environmental standards.

What will be added to the new catalog:

  • More clean energy projects, including hydrogen, geothermal, tidal power, biomass, energy storage, and carbon capture and sequestration.
  • A new category of “green services” which includes trading carbon emission credits and renewable energy certificates, as well as demand-side management in the power market and designing green industrial projects.
  • Infrastructure supporting new energy vehicles including distributed charging points and hydrogen charging stations.