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This year has been one of highs and lows for ESG as HY sustainable bond and loan issuance lagged the record levels of 2021. Despite this, several key themes emerged as the sustainable finance market matures and regulators assess the sector with greater scrutiny.
Throughout the year, our team assessed the sustainable instruments that came to market. Among highlights, we noted the proceeds of Ericsson’s green bond may not lead to a net positive environmental impact, and Paprec’s green bond reporting was not aligned with good practice.
One theme that emerged from 2023 was the increased attention investors are giving to climate transition plans as companies are being called to act on their targets. In 2023, 9fin’s ESG team introduced climate transition plan assessments into our ESG QuickTakes and also released a guide for investors on transition plan analyses.
2023 has been a year of massive growth for the 9fin ESG team. We have introduced new series like the Olive Tranche, a column by our Head of ESG, and introduced a new product feature, the ESG company data screener that allows side by side comparisons across a portfolio.
This 2023 Wrapped highlights some of the ESG team's favourite moments of the year, including snippets from conferences, podcast episodes, reporting blunders, and our most popular QuickTakes.
Reporting Blunders
In 2023, our ESG team added data on hundreds of companies, which meant a lot of time spent scouring sustainability reports. So of course we were bound to stumble across some quotes. Below are some of our favourites.
Nowadays, anything goes, and social media was apparently an important Governance theme according to some HY issuers:
According to luggage manufacturer Samsonite, “water use and wastewater discharge are not material issues for [its] business” despite the fact that, in 2022, its “manufacturing facilities consumed 46 million liters of water”. For context, thats the equivalent of roughly 750 standard sized swimming pools
Financial services provider, Apex Group, took revolutionary steps to decarbonisation by digitalising its business cards:
IVC Evidencia engaged in puppy-washing:
Finally, Modulaire Group joined the anti-ESG movement, deciding to the use the term ESGS instead:
Conference Corner
The ESG team went to several conferences this year and some comments stood out above the rest.
CBI Connect’23— CBI’s CEO Sean Kidney said on the fate of fossil fuels:
“There is no new capex in coal, renewable energy is simply more profitable now.”
ESG Investing Europe — one high yield fund manager when asked about their readiness for the CSRD:
“Sure, we’re ready, [our reporting] is full of questionable data and it has huge gaps. But, we’re ready”.
Regulation Roundup
Regulation plays a big role in advancing sustainable finance, and investors have bemoaned the challenges of navigating an increasingly complex regulatory landscape.
However, some sustainable finance experts have questioned whether or not the regulations are fit for purpose, particularly in the context of high-emitting sectors.
Europe
The EU Sustainable Finance Disclosure Regulation continues to be a source of contention for everyone in the sustainable finance sector as the regulators attempt to backtrack and fill in gaps left by the controversial regulation through amendments and public consultations. 9fin discusses the SFDR blunder with Rupert Davies, ESG specialist, on the Cloud 9fin podcast.
The European Commission (EC) proposed the Green Claims Directive that would require all consumer goods and services sold in the EU with environmental claims to be backed by science and undergo third-party verification.
In the UK, the Financial Conduct Authority (FCA) released the policy document for its Sustainable Disclosure Regulation which will begin taking effect in May 2024. The UK SDR is a labelling regime that introduces new criteria and restrictions on financial products with sustainability features. The SDR also introduces an anti-greenwashing regulation applying to all FCA regulated products, which limits the use of sustainability phrases like ESG on funds.
US
In the US, ESG remains divided. California introduced an ESG disclosure regulation requiring all Californian private and public companies with an annual revenue of more than $1bn to disclose all three scopes of greenhouse gas emissions. The Act also requires companies with an annual revenue of more than $500m to disclose their material climate-related risks and measures to reduce them.
The California regulations go further than those proposed by the US SEC. The SEC’s proposed climate disclosure regime which has been delayed for a second time until April 2024, has a narrower scope as it only focuses on public companies. It remains to be seen if the final rule will require companies to disclose their scope 3 emissions, which has been the subject of significant pushback.
The second part of the two-part Carbon Markets educational explores the controversies that surround the voluntary carbon market and identifies ways to spot good from bad practices.
In the second iteration of the ESG Sector Selector series, 9fin takes a deep dive into the main ESG risks that threaten the food industry including deforestation and biodiversity, water management, and emissions.
This 9fin ESG Educational seeks to answer questions like: Does a greenium exist? What are the drawbacks of green bonds? Do issuers actually invest in green projects following issuance?
TLDR: Aggreko, a supplier of temporary power generation and temperature control equipment, has improved its net zero and climate change targets since 9fin’s analysis in March 2023. These are more ambitious than peers, although they are not SBTi-verified. Recent progress in cutting operational carbon emissions has been strong. Between 2020 and 2022, Aggreko developed its offering of cleaner technologies and fuels compatible with a low-carbon transition economy. Cyber security processes have improved slightly, with NIST scoring and ISO certification added. The board was 0% female in 2022, from 36% in 2020.
TLDR: EG Group’s emissions reduction targets are not SBTi-verified and only span its own operations. The group reports that a transition away from petrol and diesel has not yet materially impacted its forecourt operations, although fuel sales accounted for 80% of total revenue in 2022. Only 1.8% of EG Group’s energy comes from renewable sources. Deloitte resigned as auditor of EG Group in October 2020 over governance concerns. In December 2021, CMA launched a probe to address the competition concerns related to EG Group’s acquisition of ASDA.
Cable and telecommunications company Altice International’s (AI) subsidiary Altice Portugal is involved in a criminal investigation by the Portuguese Public Prosecutor for alleged corruption, which has resulted in five arrests. AI lacks group-wide emissions targets, and some of its emissions reporting is partial with unexplained restatements. However, it has low emissions intensity compared to peers. AI’s Israeli subsidiary has operations within Israeli settlements in the West Bank. The group also has numerous legal proceedings pertaining to competition and tax violations, which have resulted in big fines.
We Soda, a soda ash producer, uses a solution-extraction “natural” production method. This is less water-, CO2- and energy-intensive than the “synthetic” production method (and We Soda claims to be less environmentally impactful than other “natural” methods), but it still carries a high environmental impact. We Soda’s Turkish facilities pose a risk to biodiversity and are located close to areas that are at risk of earthquakes. The US administration has imposed sanctions on Turkey in the past. Further sanctions could impact We Soda (both of its production sites are in Turkey).
INEOS Enterprises is dependent on fossil fuels (e.g. crude oil and natural gas) for its manufacturing activities and energy consumption. The chemical producer shares its parent company’s (INEOS AG) net zero target and 2030 goal to cut CO2 emissions by 33% by 2030. It is on track to meet its 2030 target. Key data metrics are not reported at company level such as non-carbon GHG emissions and hazardous waste production. INEOS Enterprises’ primary biodiversity risks are pollution and media scrutiny (per the WWF’s Biodiversity Risk Filter). Chemicals the company manufactures are subject to restrictions in some jurisdictions.
That's all folks!
Continue to tune into our ESG content and as we bring necessary analysis on all things ESG. There are some exciting new projects in the works for 2024, including more SFDR-aligned data across the HY universe.
From 9fin’s ESG Team, we hope you have a happy holiday season!
