Secondary Analysis

ESG Secondary Analysis (9fin) (4/08/23)

This week's secondary digest is a tale of earth and water as 9fin’s ESG team provide you with the most material ESG considerations for select HY names. Covered this week are Thames Water, Anglian Water, Graanul Invest, Ardagh Metal Packaging and UGI International.

9fin featured content

Green Bonds — Is the grass really greener on the other side? (9fin Educational)(7/08/2023)

This 9fin ESG educational explores the green bond market, where instruments fund projects with environmental or climate benefits. It covers topics such as the elusive "greenium" debate, the downsides of green bonds, the suitability of use of proceeds, and potential impacts of the EU green bond standard on markets.

HY company news

Spirit AeroSystems' stock plummets 27%; leaders address strike impact, supply chain pressures (2/08/2023)

Spirit AeroSystems' shares plunged 27% after the company disclosed $105 million in losses on Boeing and Airbus production and a weak cash flow forecast. It warned of growing labour costs, supply chain disruptions and rising debt as it struggles to meet orders from the two companies. A two-week work stoppage by employees and the resulting labour agreement added $80 million in annual labour costs and contributed to losses on Boeing programmes.

PG&E Scraps Tree-Trimming Programme Once Seen as Key to Fire Prevention (02/08/2023)

PG&E spent $2.5B to reduce wildfire risk by cutting over a million trees near power lines. But the programme was ineffective, so PG&E is replacing it with changes to power line settings that shut off power for less than a second when branches touch them. Industry officials warn of more power outages if the company's scaled-back tree trimming leads to more branches hitting wires, but PG&E said it will continue with targeted and legally required tree trimming.

News stories

Ratings Firms Struggle With Climate Risk in $133tr Market (1/08/2023)

Credit rating analysts are being accused of misreading climate risks in the $133tr global bond market, according to research by the European Central Bank. Even when climate variables are big, they only play a minor role in influencing sovereign ratings. Some experts worry that analysts are underestimating potential climate losses in a short-term focussed rating system akin to the misjudgement of subprime mortgage risk that triggered the 2008 financial crisis.

The beginning of the end of Britain’s net zero consensus (1/08/2023)

Labour lost a by-election in Uxbridge, as opposition to a green levy helped to tip voters. UK Prime Minister Rishi Sunak then endorsed fossil fuels and drilling in the North Sea, marking the end of Britain's net-zero consensus. The UK’s commitment to net-zero GHG emissions in 2019 was easier when its economy was stable and inflation was low. But now, as its economy struggles, there is political concern that voters may reject green policies that come with a cost.

Companies with good ESG scores pollute as much as low-rated rivals (31/07/2023)

Highly rated companies based on ESG metrics pollute just as much as lowly rated companies, according to a study by Scientific Beta. Correlations between ratings were low, even when comparing carbon emissions to environmental ratings. Adding ESG objectives to portfolios with low carbon intensity may lead to a loss in their intensity performance.

Government cuts cost of polluting in Britain in latest anti-green move (30/07/2023)

Changes made to the UK’s carbon trading scheme by the Government allow companies to compensate for their greenhouse gas emissions with more carbon allowances than expected. As a result, carbon prices in the UK are much lower than in the EU.

Sustainable Bond Issuance Rebounds From 2022, but Not in North America (27/07/2023)

Sustainable bonds comprised 15% of the global bond market in Q2 2023, totalling $258bn. Half of the $129bn issuance was European, while Asia Pacific and North America issuers made up 21% and 10%, respectively. Sustainable bonds have grown in most regions, except for North America, where it hit a low of $25bn in Q2, its lowest since Q2 in 2020. In the past two years, sustainable bonds were around 20% of total bond issuance in Europe but only 4.2% in North America in H1 2023.

Regulatory roundup

EU Commission unveils final sustainability reporting standards (31/07/2023)

The European Commission has updated the Non-Financial Reporting Directive (NFRD) with the European Sustainability Reporting Standards (ESRS). Over 50,000 companies are now required to report on their impacts related to the environment, human rights, social standards, and sustainability risks. The ESRS is compatible with the ISSB and GRI standards and is set to commence in 2024 after a two-month scrutiny period. However, some sustainability investors expressed concerns about the removal of mandatory disclosures in ESRS, allowing companies to focus on their own material sustainability factors.

EU attempt to tax polluting aviation fuel hits impasse (02/08/2023)

The EU's plan to tax aviation fuels has stalled because member states cannot agree on making green fuels cheaper and fossil fuels more expensive. The countries are negotiating to align energy taxes with new climate change targets, but after two years, there is no deal in sight. The difficult issue is whether to introduce an EU-wide minimum tax for aviation fuels that escape levies. Changing EU tax policy requires unanimous approval from all member states.

German boiler ban ‘violates EU Single Market principles (1/08/2023)

Manufacturers have criticised Germany's plan to ban gas boilers and replace them with heat pumps that use renewable energy, saying this violates EU Single Market principles. It is expected that the draft legislation will be approved in the autumn.