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In This List

Updated Proposal for a Green Bond Evaluation


These ESG Trends will Shape 2019, Sustainability Experts Say

S&P Global Ratings

COP24 Special Edition Shining A Light On Climate Finance

S&P Global Ratings

S&P Global Ratings' Global Outlook 2019

S&P Global Platts

Energy: What to Watch in 2019

Updated Proposal for a Green Bond Evaluation

On Sept. 2, 2016, S&P Global Ratings proposed a Green Bond Evaluation Tool that would provide a second opinion(1), plus a relative green impact score on capital market instruments targeted at financing environmentally beneficial projects. The Green Bond Evaluation is not a credit rating. The proposed framework evaluates the governance and transparency of the bond and provides an analysis of the environmental impact of the projects financed by the bond's proceeds over their lifetime, relative to a local baseline. When evaluating environmental impact, the approach would consider both climate change mitigation and adaptation projects.

Mitigation projects aim to bring environmental benefits and target areas of concern, such as natural resources depletion, loss of biodiversity, pollution control, and climate change. Adaptation projects aim to take practical steps toward reducing the exposure to and managing the impacts of natural catastrophes, such as building the resilience of communities and critical infrastructure against an increased risk of extreme weather events due to climate change.

The output of the Green Bond Evaluation would include at least three scores (a transparency score, a governance score and a mitigation and/or adaptation score, as relevant,) which combine into an overall final score as follows:

  • The transparency score would focus on the quality of disclosure, reporting, and management of bond proceeds.
  • The governance score would assess what steps have been taken to measure and manage environmental impact of the use of proceeds of the bond, including certification, impact assessment, risk monitoring, and risk management.
  • The mitigation score would consider the key environmental impacts of the use of bond proceeds, taking into account environmental impacts beyond reductions in greenhouse gas emissions and water use. It is proposed to be based on a consideration of key variables determining the level of environmental impact in each category (such as technology and location), supporting a quantitative assessment of sustainability.
  • The calculation considers a range of quantifiable environmental impacts, termed environmental key performance indicators or eKPIs, such as carbon dioxide, water, and waste.
  • The impact calculation would be done on a net benefit basis, meaning both negative and positive environmental impacts of the project are considered relative to the appropriate local baseline (for example, a new renewable energy project compared to the conventional grid) for each eKPI.
  • The net benefit for each individual eKPI would be compared against a range of modeled net benefit outcomes derived from a universe of relevant countries in order to derive a relative score. For example, green energy generation projects are compared against a range of net benefit calculations for every green energy generation type (wind, solar, hydroelectricity etc.) in 61 countries that produce over 95% of global generation capacity(2).
  • The resulting score is proposed to be a weighted average across eKPIs, and is labelled the unadjusted green impact score, a best-in-class assessment of the bond's green impact.
  • The adaptation score would reflect the estimated reductions in the costs of expected damages achieved by the initiatives financed. To determine the environmental resilience benefit that may be achieved through the use of bond proceeds, we propose to analyze and assess the benefit studies prepared for the project.

In addition to the unadjusted green impact score for mitigation projects, a hierarchy of sector positions relative to one another would be overlaid in order to transform the score from a best-in-class approach to a sector-relative approach. The adjusted green impact score will place the bond's mitigation activities within the broader context of different sectors and indicate its relative contribution to the ongoing effort to avoid and cope with climate change.

This relative hierarchy would imply that projects that are financing climate change solutions, such as renewable energy, for example, would have a higher adjusted environmental benefit than projects looking to improve conditions within conventional technologies (such as coal-to-gas). The resulting mitigation score would provide a flexible and user-friendly assessment of the relative importance of net benefit impacts and broader sector-level considerations. For example, if a bond were financing coal-to-gas switching, the mitigation score would reflect how the bond compared to best-in-class bonds within this project type, while also providing information on the difference between these and more advanced renewable projects.

The proposed approach would evaluate the bond's financing against each category, with the resulting scores weighted and amalgamated into an overall final Green Bond Evaluation.

Listen: These ESG Trends will Shape 2019, Sustainability Experts Say

Progress on corporate disclosures. A looming talent shortage. Climate change mitigation. These are among the top trends that sustainability experts predict will shape the ESG landscape in 2019. In the inaugural episode of ESG Insider, a new podcast from S&P Global, co-hosts Esther Whieldon and Lindsey White speak to several ESG leaders about the key themes they are watching this year, including Rakhi Kumar, State Street Global Advisors’ head of ESG investments and asset stewardship, Mindy Lubber, CEO and president of Ceres, and Libby Bernick, Trucost managing director and global head of corporate business.

"ESG investing is no longer a sideshow," State Street Global Advisors Inc.'s Rakhi Kumar said in the inaugural episode of ESG Insider, which will focus on environmental, social and governance issues.

Kumar, SSGA's head of ESG investments and asset stewardship, also highlighted the importance of leadership teams setting goals around issues like diversity to achieve progress toward building more sustainable businesses in the long term.

Some other takeaways:

Why companies are starting to pay more attention to the physical risks of climate change

Amid an increase in extreme weather events such as hurricanes, droughts and heat waves, companies are beginning to take a closer look at how climate change could threaten their operations and even their bottom line, said Libby Bernick, Trucost managing director and global head of corporate business.

"It's not just 'what's my company's impact on climate,' it's 'what's climate's impact on my company,'" Bernick said.

Trucost is a research group within S&P Global Market Intelligence that assesses business risks related to climate change and other ESG factors.

Companies are responding to investor pressure to tackle sustainability issues

Investor pressure has already prompted a number of companies to step up their environmental efforts, particularly those tied to climate change and water shortages, according to Ceres President and CEO Mindy Lubber. Ceres is an organization that helps coordinate sustainability discussions between major companies and shareholders.

Lubber expects the momentum will continue in 2019 with companies beginning to tackle climate-related issues in a "more concentrated, focused, systemic way."

To read more of S&P Global's coverage of sustainability issues, you can subscribe here to receive our weekly ESG Insider newsletter.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.

COP24 Special Edition Shining A Light On Climate Finance


− Green loans are evolving, with the Climate Bond Initiative forecasting nearly $1 trillion in green bond issuance by 2020.

− Despite the uptick in green bond and loan issuance, the market still remains relatively small, especially compared to the universe of assets comprising CLO 2.0 transactions.

− In our view, a green CLO market has large growth potential, boosted by regulatory initiatives and emerging interest from both issuers and investors in 2018.

− We built a hypothetical rating scenario for a green CLO to compare and contrast the underlying portfolio and structure with a typical European CLO 2.0 transaction.

− Our hypothetical green CLO analysis showed that green loans may have different fundamental characteristics to corporate loans, such as lower asset yields, higher credit quality, and higher recovery rates assumptions.

The global collateralized loan obligation (CLO) market has experienced a rebirth (2010 in the U.S. and 2013 in Europe). New issuance continues to increase due to investor familiarity with the product, as well as low historical default rates. While a market for green assets, such as green loans and bonds has been established for a while, although still of a relative size, a sustainable securitization market is still in its infancy. Considering the challenge in financing the amounts, S&P Global Ratings expects green CLOs to play a role in increasing the private sector presence in the sustainable finance market.

Following the Paris Agreement that came into force in November 2016, 184 parties have ratified the action plan to limit global warming. For this purpose, developed nations have pledged to provide $100 billion (about €87 billion) annually until 2025. As part of this deal the EU has committed to decrease carbon emissions by 40% by 2030. In March 2018 the European Commission (EC) proposed the creation of environmental, social, and corporate governance 'taxonomy', regulating sustainable finance product disclosures, as well as introducing the 'green supporting factor' in the EU prudential rules for banks and insurance companies.

Read the Full Report

S&P Global Ratings' Global Outlook 2019

 A deep dive into S&P Global Ratings’ insights on the credit outlook for 2019 and what are the risks and vulnerabilities to look out for.

Access all the Global Outlook
Read More

Energy: What to Watch in 2019


S&P Global Platts Analytics Issues Two Special Reports

Pricing across the global energy markets will face headwinds in 2019, with a weaker and more uncertain macroeconomic framework deflating price formation in general, according to two special reports just issued by S&P Global Platts Analytics. Such headwinds will require the industry and portfolio managers to take a big-picture approach.

See the Executive Summary of the S&P Global Platts Analytics special report 2018 Review and 2019 here. Access the full S&P Global Platts Analytics Top Factors to Look Out For in 2019 for Energy here.

"One of the key lessons learned in 2018, painfully by some, is that market sentiment can shift violently without much change in fundamentals, requiring a steady, holistic perspective," said Chris Midgley, global head of analytics, S&P Global Platts. "It is clear that this volatility will remain a feature across the energy markets in 2019, particularly as IMO 2020 nears."

Particularly blustery headwinds are in store for markets where prices finished 2018 at elevated levels, and well above costs, such as North American natural gas and global coal. However, if the supply side can adjust to the reality of slowing demand growth, energy prices can find support. For natural gas liquids (NGLs), the ongoing logistical constraints at the US Gulf Coast are likely to manifest on continued price volatility, particularly for ethane and liquid petroleum gas (LPG), over the next year despite strong global demand.

LPG, such as propane and butane and used in transportation fuel, refrigeration, heating and cooking, is rapidly facing US export capacity constraints, especially along the US Gulf Coast. For LPG feedstock propylene, there is clear potential for high volatility globally over the next 12-18 months.

Analysts at S&P Global Platts see weakening prices of Henry Hub natural gas. The slowdown in US demand growth will exceed that of supply. But if winter temperatures prove to be colder than normal, near-term prices will need to move higher to bring on enough supply to replenish depleted storage levels.

For global liquefied natural gas (LNG), it will be end-user-backed LNG demand that faces particular struggle to cope with the speed and force of new supply entering the market in 2019. Non price-responsive demand in Asia will be easily met and JKM spot physical prices (reflecting LNG as delivered into Japan, Korea and China) will sag next year.

Access the full S&P Global Platts Analytics Top Factors to Look Out For in 2019 for Energy here. Among the 22 key take-away themes:

  • NGL supply growth will strain the North American energy system
  • Saudi Arabia will need to be nimble to balance 2019 oil supply
  • US oil supply limited by pipelines
  • Oil demand slowing: trade war, industrial slump
  • 2019 LNG supply additions largest since the Qatari mega-trains
  • US gas supply growth to exceed demand growth even with LNG exports
  • Global solar growth slowing
  • Shipping disruption looming - IMO 2020
  • New Russian gas pipeline advantage over Ukraine
  • US coal demand to decline again in 2019
  • Growth in new refineries and complex capacity likely to weigh on refinery margins especially in Asia

Year 2019 will certainly be one of transition for crude and refined oil products as it will lead into 2020 when roughly three million barrels per day of high-sulfur fuel oil must be “destroyed” (including enhanced usage of HSFO in power generation) due to the International Marine Organization (IMO) mandate of eco-friendly shipping fuels in use at sea. A similar amount of middle distillate/low sulfur fuel must be created (by refinery changes and by running more crude oil. The increase in refinery capacity between now and 2020 is large, but mostly needed to cover normal demand growth. Expect prices of light sweet crudes to be bid up in 4Q19.