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S&P Global — 3 Jun, 2020

COVID-19 Daily Update: June 3, 2020

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By S&P Global

As the acute phase of the coronavirus pandemic is ending in developed countries while intensifying in emerging economies, experts warn that prolonged climate risk could yield additional global health crises. As protests against systemic oppression surge across the U.S., consumers worldwide are demanding that companies support their cause or suffer scrutiny. As the global community seeks respective economic recoveries, a strong spotlight is shining on leadership as governments navigate how to restart industries, provide work for populations, and achieve growth.

According to the World Economic Forum’s most recent COVID-19 Risks Outlook report, which surveyed approximately 350 senior risk professionals in May, “as countries seek to recover, some of the more lasting economic, environmental, societal, and technological challenges and opportunities are only beginning to become visible. While societies, governments, and businesses collectively grapple with these possibilities, it is vital to anticipate the emerging risks generated by the repercussions from the pandemic.”

Two-thirds of respondents to the WEF survey identified a prolonged global recession as a top concern for business. Eighteen percent said that a shortfall of investment in climate action is one of the most likely outcomes from the pandemic, and 16% considered this to be one of the most concerning risks. One-third anticipate that in the medium term a developing economy will collapse, inflicting calamitous humanitarian consequences as vulnerable groups disproportionally suffer the impacts. Many risk professionals fear another global health crisis, evident by the 40% of respondents who said that another outbreak of infectious disease is likely to be a major global societal risk.

“To ensure positive outcomes from this crisis, the immediate and longer-term emerging risks must be managed,” the WEF said. “The results of the survey and the associated analyses are not intended as forecasts. Instead, they are a reminder of the need for proactive action today to shape the desired new normal rather than one that may develop if emerging risks are not addressed. The crisis offers a unique opportunity to shape a better world. As economies restart, there is an opportunity to embed greater societal equality and sustainability into the recovery, accelerating rather than delaying progress towards the [United Nation’s] 2030 Sustainable Development Goals and unleashing a new era of prosperity.”

The pandemic has brought to light the materiality of environmental, social, and governance (ESG) related risks and the deep linkages between businesses and their stakeholders across value chains. The materiality of environmental and social risk factors has become visible, along with the importance of strong governance, according to S&P Global Ratings.

The growing complexity posed by intersecting ESG risks are conspiring in ways that require deftness, adaptability, and resilience for entities to remain relevant, both now and in the long-term. Even for companies that survive the coronavirus’ impacts, the way that they conduct business will be irreversibly altered. As such, if the current moment is any indication, ESG factors can no longer be seen as separate considerations of varying importance. Rather, their interdependence highlights how the global economy can achieve sustainable growth through effective action. Widespread adoption of ESG practices provides an opportunity for the creation of a greener and more equitable post-COVID-19 world.

The ESG acronym refers to a broad range of criteria on which companies are measured, and reflects both the growing sensitivity of consumers to how companies operate as factors in their buying decisions and investors’ increasing interests in companies and countries’ adoption of practices that will mitigate risk and ensure their long-term sustainability. Since the term was first popularized in 2005, investors have increasingly seen value in using ESG factors to guide investment decisions as part of a broader framework for looking at social impact—beyond simply excluding companies associated with negative outcomes from their portfolios. Research indicates that prior to the pandemic, companies that embedded ESG goals in their growth strategies suffered no statistically significant performance disadvantage at individual and portfolio levels and may have outperformed their peers.

“Governments will be looking to do a number of different things to boost economic recovery during this crisis,” Richard Mattison, CEO of Trucost, part of S&P Global Market Intelligence, said in a CNBC interview on June 2. “Particular governments in Europe, for example, are actually creating economic stimulus packages that are linked to the green agenda and to climate change.”

The European Commission’s plans for a €750 billion ($839 billion) coronavirus stimulus package, presented on May 28, is explicitly tied to green principles, S&P Global Market Intelligence reported, although the plans are still lacking in detail and environmental groups have criticized the continued support for some fossil fuels.

"We have to make sure... that this takes us into the future, not the past. And the future is with a green, resilient, digital economy," Frans Timmermans, executive vice-president for the European Green Deal in the commission, said in a news briefing on the proposal, according to S&P Global Market Intelligence.

Dr. Ernest Moniz, former U.S. Department of Energy Secretary and current president and CEO of the Energy Futures Initiative think tank, told S&P Global Market Intelligence’s Energy Evolution podcast that tapping into the potential of new energy technologies could be the key to avoiding some of the worst impacts of climate change, as well as creating employment opportunities, while global economies start recovering from coronavirus-related shutdowns.

“There's a whole spectrum of issues, from deployment to some incentives to supply chain development to research and development for breakthrough technology, that we have to look at as a system to get to a whole, net-zero energy economy,” Mr. Moniz said on the June 1 podcast episode. “We cannot meet, in any practical sense, the net-zero target by midcentury without some innovation breakthroughs.”

Still, “there are three things companies themselves can do in the absence of any government policy” that will create the basis for sustainable growth, Mr. Mattison said. “Cutting business travel by 40% would put the entire aviation sector onto a 2-degree Celsius aligned climate pathway—a climate-aligned pathway in alignment with the Paris Accord. If the professional services sector set a work-from-home policy for three days a week, that would actually align the entire passenger transportation system in alignment with climate goals. Reshoring production and buying locally for just seven percent of dry shipped goods would put the whole shipping sector on a climate-aligned pathway.”

Mona Naqvi, S&P Dow Jones Indices’ head of ESG Product Strategy for North America, said in a June 1 CNBC interview that “ESG is just another channel through which people can align their values with their actions by incorporating these types of considerations into their investments.”

““It’s also important through ESG to take into account things like diversity. How does a company actually [embody ESG]—what are its hiring practices? Is it diverse throughout broader business operations?” Ms. Naqvi said. “These are the types of issues that these protesters [in the U.S.] are demonstrating are very important to many people that ESG can help capture.”

“Firms are looking to [integrate ESG] across their entire platforms for lending and investing. It's not a corner, it's not even one business line. It's something that's fundamental to business strategy. And that I think is a big change,” Sonja Gibbs, Managing Director and Head of Sustainable Finance of the Institute for International Finance, told S&P Global’s Change Pays podcast at the beginning of this year.

“That's been partly bottom-up, because customers and clients have been demanding it, and partly that whole sort of picking up a newspaper in the morning or looking out your window and seeing protests, seeing that people in so many parts of the world are fed up with how the system works. They feel compelled to do something about it,” Ms. Gibbs said. “Part of it is certainly a policy impetus [and] regulatory driver. The combination of those two things—the sort of bottom-up demand from clients and customers and then maybe a top-down steer from policy makers and regulators—have combined to put all of these ESG issues right at the forefront of attention.”

Today is Wednesday, June 3, 2020, and here is today’s essential intelligence.

Uncertainty in the Global Economy

COVID-19- And Oil Price-Related Public Rating Actions On Corporations, Sovereigns, And Project Finance To Date

In response to investors' growing interest in the coronavirus pandemic and its credit effects on companies, S&P Global Ratings is publishing a regularly updated list of rating actions we have taken globally on corporations and sovereigns (see list of article titles below) as well as summary table and supporting charts. Also included is a summary of project finance rating actions. These are public ratings where we cite the coronavirus pandemic, oil prices, or both as a factor. This information is as of May 29, 2020, unless stated otherwise.

—Read the full report from S&P Global Ratings

US high-yield bond market logs busiest May ever as deal volume nears $44B

Boosted by Federal Reserve initiatives to prop up the asset class, raging risk-on sentiment, and tightening yields and spreads, U.S. high-yield bond issuance closed out May with $43.8 billion in activity, the largest on record for that month, according to LCD. The figure edges out the previous $43.5 billion peak from May 2013. The last month with more volume was September 2013, at $47.7 billion. Year-to-date volume through May is $152.9 billion, with 28% of that figure placed over the four full weeks of last month. The issuance tally for the current year marks a 48% increase from the first five months of 2019.

—Read the full article from S&P Global Market Intelligence

Growth in Saudi Arabia's mortgage market outruns refinancer's targets

Funding from the Saudi Real Estate Refinance Co., or SRC, is helping bolster smaller lenders in Saudi Arabia's burgeoning but highly concentrated mortgage market that is dominated by three banks. Al Rajhi Banking & Investment Corp., National Commercial Bank and Riyad Bank have an estimated market share above 60%, according to an Al Rajhi Capital report. Banks in the country wrote residential mortgage loans worth 21.42 billion riyals in the fourth quarter of 2019, roughly equal to the total value of residential mortgage loans issued in the entire first half of 2019 and more than the entirety of 2018, according to the Saudi Arabian Monetary Authority. This rate is expected to slow in the second quarter, with movement restrictions in place due to the pandemic.

—Read the full article from S&P Global Market Intelligence

Gulf region to suffer worst recession in 2020 due to oil crash, coronavirus: IIF

The six-member Gulf Cooperation Council will suffer from the worst recession ever in 2020 due to the oil price crash and the coronavirus pandemic, the Institute of International Finance said in a report June 2. The economy of the energy-exporting GCC region will shrink 4.4% in 2020, with Oman having the worst contraction of 5.3% among the six countries. GCC countries are Saudi Araba, Kuwait, UAE, Oman, Qatar and Bahrain.

—Read the full article from S&P Global Platts

Commodities Were Energetic in May

Bullish sentiment propelled the S&P GSCI higher by 16.4% in May, its best monthly performance in 11 years. The broad commodity index’s more than 50% exposure to energy was a key contributor to its performance. Energy led the way, with the WTI-based S&P GSCI Crude Oil up 55.0%, bouncing impressively off the lows in April. Despite economic data points, like U.S. consumer spending dropping the most on record, commodities posted an overall strong month. Industrial and precious metals exhibited positive gains, while agriculture and livestock were mixed.

—Read the full article from S&P Dow Jones Indices

ESG in the Time of COVID-19

S&P Podcast: Former DOE chief envisions jobs revival from energy transition

Tapping into the potential of new energy technologies could be the key to avoiding some of the worst impacts of climate change and creating employment opportunities as global economies begin to heal from coronavirus-related shutdowns, according to former U.S. Department of Energy Secretary Ernest Moniz. Until the pandemic struck, the transitioning energy sector created jobs at about twice the pace of the economy as a whole, Moniz told S&P Global Market Intelligence's "Energy Evolution" podcast. Moniz now leads the Energy Futures Initiative, a think tank that recently partnered with the American Federation of Labor and Congress of Industrial Organizations to create a framework focused on creating and preserving jobs in the context of addressing climate change.

—Listen and subscribe to Energy Evolution, a podcast from S&P Global Market Intelligence

INTERVIEW: EU policies prompt Poland's PGE to pursue green transition

Poland's largest power utility Polska Grupa Energetyczna (PGE) is targeting phasing out its coal-fired power station fleet by 2040-2045, company officials told S&P Global Platts on June 2. We're talking about withdrawing the entire hard coal and lignite fleet in 20-25 years," said Maciej Burny, director of the company's Brussels office. "In Poland, we're thinking of a similar direction to the one that Germany is taking. If you look at the timeframe for both countries it is quite comparable. The Germans are doing it in 2038 with a smaller coal base in the energy mix," he said.

—Read the full article from S&P Global Platts

EU needs Eur430 billion to scale up hydrogen by 2030: trade body

Scaling up the EU's hydrogen sector by 2030 would cost around Eur430 billion ($480 billion), including around Eur145 billion of public support, trade body Hydrogen Europe said June 2. The European Commission has said investing in hydrogen will help the EU become climate neutral by 2050 and also help kick-start EU economies after the coronavirus pandemic lockdowns. "We are ready to invest massively into the use of hydrogen," Hydrogen Europe said in a letter to EU commissioners on behalf of the CEOs of 93 of its member companies.

—Read the full article from S&P Global Platts

Policy analysts see EPA water ruling having narrow impact for gas pipeline projects

The US Environmental Protection Agency's long-awaited regulation on state water-quality certifications was greeted with a round of applause by oil and gas industry groups eager for clarification. But several policy analysts saw mostly modest implications for interstate gas pipeline projects in their quick takes following the release of the lengthy rule. The regulation comes as the Trump administration and pipeline companies have accused New York and other states of improperly using their Clean Water Act authorities to delay or block infrastructure projects needed to get natural gas to demand centers. Analysts with Height Securities said June 2 they viewed the rule as "largely symbolic and an effort to demonstrate the Trump administration's commitment to the energy sector and infrastructure development."

—Read the full article from S&P Global Platts

The Outlook for Energy & Commodities

Watch: Market Movers Asia, Jun 1-5: OPEC+ meeting, commodities demand recovery in focus

OPEC+ ministers are considering to move up their meeting to June 4, from the previously scheduled June 9-10, so that July nominations can factor in any changes to oil production quotas. Faster-than-expected recovery seen in China's crude imports rekindles expectations that Asia's commodity demand could soon normalize. Phase 1 trade deal between US and China remains intact but Asian markets on the edge. Also in this episode: rise in construction activities in China could support steel and iron ore demand, Australian coal prices face geopolitical uncertainties, LNG prices remain under pressure.

—Watch and share this Market Movers video from S&P Global Platts

OPEC-led production cuts will likely pack a punch in lifting oil prices: survey

OPEC+'s landmark production cut deal along with a pickup in demand in the east of Suez may prove effective in raising the official selling prices for Middle East crude grades flowing to Asia, a survey by S&P Global Platts showed June 2. "Clearly OSPs will get a good hike -- extra cuts had the kind of significant impact on the market that the PG producers wanted," said a Singapore-based crude trader, responding to Platts' monthly OSP survey.

—Read the full article from S&P Global Platts

FEATURE: Private E&P companies make strides in Mexican shallow waters; challenges remain

Private exploration and production companies are making progress in Mexican oil blocks in the Gulf of Mexico long neglected by state Pemex. The success of the private companies in finding reserves is a result of the studies conducted prior to bid rounds through which they won the contracts, organized by the previous administration, sources told S&P Global Platts this week. However, hurdles lay ahead for these companies to ramp up production profitably, they said. Companies that won production contracts in oil blocks located in shallow waters during Mexico´s oil rounds are reaching first oil or increasing their production faster than expected, even as the government suspended many of industrial activities because of the coronavirus pandemic and government offices remained closed.

—Read the full article from S&P Global Platts

Peak power prices in most central, eastern US power markets gain over 8% in May

Average on-peak power prices climbed 6% to 10% between April and May in most eastern and central power markets but continued month-over-month declines in the western and Gulf regions. Among nine regions tracked, the Midcontinent ISO market showed the largest month-to-month gain, of 9.9% to $22.57/MWh, after prices in the region declined 6.2% between March and April. Spot natural gas prices in the region averaged $1.650/MMBtu in May, up 2.2% from the prior-month average.

—Read the full article from S&P Global Market Intelligence

INTERVIEW: Global grain trade to see less intervention in 2020-21 from major producers: FAO economist

Global grain exports could see less intervention by major agriculture producers in 2020-21, despite the food supply chain risks in the event of a second wave of the coronavirus pandemic, Abdolreza Abbassian, senior economist with the Food and Agriculture Organization, told S&P Global Platts in an interview. "Putting export restrictions in the current environment and in the 2020-21 season [by major producers] is quite unlikely. I don't see a problem there. What I do see a major issue is in some countries, [especially which are price-sensitive and economically weak], may want to come into the market and buy more grain than they usually do, because they are worried about the second wave of the pandemic," Abbassian said.

—Read the full article from S&P Global Platts

Written and compiled by Molly Mintz.