ESG in Conversation

Episode Summary Host: Guests: AI Technology is Reshaping the World of ESG Assessments In recent years the marvels of artificial intelligence have been touted across various sectors. As applications of AI technology proliferate, in this episode of ESG in Conversation we chat about how it’s being used in the ESG research space. Members of Morningstar Sustainalytics data research and development teams discuss how the company has been leveraging AI technologies for the past decade and what’s on the horizon in terms of gathering and analyzing corporate ESG risk data. You’ll also learn more about ESG risks in global supply chains as we share insights from our recently published ESG Spotlight series. The reports explore the impact of supply chain incidents, with a focus on human rights and biodiversity loss. They also offer investors frameworks for assessing supply chain-related risks among portfolio companies and potential strategies to improve portfolio performance and mitigate losses. Share Your Thoughts About the Show Please take a moment to share your thoughts on ESG in Conversation. You can email us at podcast@sustainalytics.com or take this short survey. Key Moments 00:00:00 Introduction 00:01:17 Interview with Kilian Theil and Andrei Hera on how AI is changing the world of ESG research and assessments 00:20:52 Overview of the ESG Spotlight series on ESG risks in supply chains Links to Select Resources Artificial Intelligence for ESG AssessmentsSupply Chain Incidents: Understanding the ImpactsUnlocking Human Rights in Corporate Supply ChainsBiodiversity in the Balance: Hedging Portfolio Risks

Episode Summary Host: Guest: Survey Says... Asset Owners Are Committed to Sustainable Investing In this episode of ESG in Conversation, Thomas Kuh, Head of ESG Strategy at Morningstar Indexes shares the results from Morningstar Indexes and Morningstar Sustainalytics’ Voice of the Asset Owner Survey. Not surprisingly, asset owners are concerned about the influence of global events on the market. They are confused about ever-changing regulations and are seeking improvements and reliability from ESG service providers. Despite these challenges, asset owners also say they remain committed to sustainability and are putting more resources towards their ESG strategies. You’ll also learn more about the low-carbon transition risks facing some of the world’s biggest food companies and the steps they can take to get their emissions reductions back on track. Finally, the start of 2024 brings new sustainability-focused regulations. The Corporate Sustainability Reporting Directive (CSRD) came into effect in the European Union on Jan. 1 and will apply to nearly 60,000 companies globally. The directive could be a watershed moment for corporate reporting as well as investors seeking more sustainability data from issuers. Tell Us What You Think Please take a moment to share your thoughts on ESG in Conversation. You can email us at podcast@sustainalytics.com or take this short survey. Key Moments 00:00:00 Introduction 00:01:30 Interview with Thomas Kuh discussing asset owners’ views on ESG investing 00:10:52 Insights on the low-carbon transition risks of major food companies and how they can reduce emissions 00:12.33 Details on the Corporate Sustainability Reporting Directive Links to Select Resources Voice of the Asset Owner 2023: Quantitative AnalysisBig Food’s Broken Promises: The Data Behind the Food Industry’s Rising EmissionsCSRD Reporting: Preparing for Mandatory ESG Disclosure Deadlines More Episodes

Episode Summary Host: Melissa Chase, Senior Content Marketing Manager, Sustainalytics Guest: Ruthann Bartello, Commercialization Director, Stewardship Services Investors’ Greenwashing Concerns and How to Address Them Greenwashing is a growing concern among financial market participants. Whether it’s measuring the sustainability performance of companies in a portfolio or ensuring that their own firms and offerings are not making exaggerated claims about their sustainability impacts, asset managers are on the lookout for potential greenwashing risks. Adding to the confusion is a lack of clarity around what defines a sustainable investment, as well as the growing list of regulations and reporting frameworks asset managers need to comply with. In this episode, we discuss the European Sustainability Reporting Standards, the cornerstone of the Corporate Sustainability Reporting Directive, which should pave the way for more accessible and standardized corporate sustainability information. You also hear from Morningstar Sustainalytics’ Ruthann Bartello about the key strategies investors can use to mitigate greenwashing risks in their investment products and across their portfolios. Share Your Feedback With the Team Please take a moment to share your thoughts on ESG in Conversation. You can email us at podcast@sustainalytics.com. Key Moments 00:00:00 Introduction 00:01:50 Morningstar Sustainalytics new ebook “Seeing Through the Green: As Guide to Greenwashing Risks for Asset Managers” 00:03:00 The final Corporate Sustainability Reporting Directive and its standards are published 00:4:09 Investor stewardship as a tool to combat greenwashing. 00:5:30 Interview with Ruthann Bartello on key strategies institutional investors can use to address greenwashing 00:06:07 Greenwashing explained 00:08:15 Investor concerns around greenwashing 00:09:58 What’s behind investors’ concerns 00:11:35 Consequences of greenwashing for investors 00:15:05 Key regulations related to greenwashing 00:19:31 Strategies for asset managers to mitigate against greenwashing risks 00:20:23 Tips for asset managers to build a robust investment strategy 00:24:49 Final thoughts Links to Select Resources Seeing Through the Green: As Guide to Greenwashing Risks for Asset ManagersImplications of CSRD: What the Final Standards Mean for Investors and IssuersESG Stewardship: A Powerful Tool to Mitigate Greenwashing Risks More episodes

Episode Summary Host: Guest: New Format, Same Great Insights We are excited to share with you the revamped ESG in Conversation! In this new format, we’re expanding the focus beyond sustainable finance to share the latest environmental, social and corporate governance insights. In addition to highlighting recent research from our global team of ESG experts, we will continue to bring you deep dives into the ESG, climate, impact, sustainable finance and regulatory insights you need to know about. In this episode you’ll learn about the upcoming greenhouse gas reporting requirements for companies in North America, the implications of Europe’s policy response to the climate crisis, the Fit for 55 package, and what it means for companies that supply goods and services in the EU. Also, Morningstar’s Arthur Carabia discusses what the recently published International Sustainability Standards Boards reporting standards mean for companies and investors. Tell Us What You Think Please take a moment to share your thoughts on ESG in Conversation. You can email us at podcast@sustainalytics.com. Key Moments 00:00:00 Introduction 00:01:45 Greenhouse gas emissions requirements for North American companies 00:03:50 Interview with Arthur Carabia about the launch of the ISSB standards 00:10:40 Highlights of the EU’s Fit for 55 legislation Links to Select Resources Mandatory Scope 3 Emissions Reporting in the U.S. and Canada: Most Companies Are UnpreparedPolicy Responses to Climate Change: The EU’s Fit for 55 Package and Its Implications for Companies and InvestorsWhat the New ISSB Climate Standard Means for Investors More Episodes

In this episode of ESG in Conversation, we’re exploring the question: what does it take to be a sustainability leader in 2023 and beyond? You’ll hear from Joseph Hill, London Techstars alumn and CEO of Zephframe, about the sustainability challenges facing start-ups. You’ll also hear from Eileen Buckley, VP of Corporate Responsibility at Stryker, about the importance of integrating sustainability across an organization. Gabriel Presler, Global Head for Enterprise Sustainability at Morningstar, also joins in to discuss the role investors play in sustainability leadership.

Host: Featuring: Juliette Goulet, Project Manager, Ellen MacArthur FoundationWayne Hubbard, CEO, ReLondonJoris Laseur, Associate Director, Stewardship, Morningstar SustainalyticsJonathan Kellar, Manager, Stewardship, Morningstar Sustainalytics As global leaders gain a more nuanced understanding of climate change, they are looking at the circular economy as a potential solution to mitigate their impact. In a circular economy, organizations aim to prevent waste throughout the value chain instead of relying solely on recycling. This approach involves sharing, leasing, reusing, repairing, and recycling materials and products for as long as possible. Proponents say the approach comes with huge potential upside. The Ellen MacArthur Foundation, for example, projects that a circular economy could reduce greenhouse gas emissions by 25%, create 700,000 jobs, and save $200 billion per year by 2040. But the path to achieving those goals is far from clear, and it will require an all-hands-on-deck effort. In this episode of ESG in Conversation, we’re exploring the question: how do businesses, governments and investors fit into the circular economy? You’ll hear from Juliette Goulet, a seasoned sustainability practitioner from the Ellen MacArthur Foundation, about the challenges of implementing a circular economy. You’ll also hear from Wayne Hubbard, CEO of ReLondon, about putting the circular economy into practice in London, England. Joris Laseur and Jonathan Kellar from Morningstar Sustainaltyics’ stewardship team also join to discuss the role investors play in helping businesses reduce their waste and implement circular business practices.

Episode Summary Hosts What Will the EU Green Bond Standard Mean for the Market? With the European Union’s Green Bond Standard set to come into effect sometime next year, we look at what it could mean for the global sustainable finance market more broadly. Although the highly anticipated framework is expected to be the gold standard for what we see in the market going forward, there are ongoing concerns about its usability. Some market participants are worried about the potential difficulty in meeting all the requirements of the Green Bond Standard and whether the standard is too prescriptive in its requirements to set up a framework. Sustainable Finance Meets AI The sustainable debt market continues to see innovations in the types of projects being funded. One example is the use of green bonds to raise money for artificial intelligence (AI) projects related to green or social initiatives. The green bond issuance highlighted in this episode will finance AI projects related to improving the environmental performance of buildings through data analytics and energy management software. Using AI to support corporate sustainability improvements is not new, but funding such projects using sustainable debt instruments could be the next wave. Changes Coming to the Podcast! Our sustainable finance insights show will be taking a break for the summer. We’ll be back this fall with some exciting changes to bring you more ESG, sustainable finance and responsible investing insights. In the meantime, please subscribe to ESG in Conversation on your favorite podcast platform and enjoy new episodes each month! Key Moments 0:00:49 Market overview 0:01:36 CBI Q1 highlights report 0:03:04 LMA sustainability linked loan drafting model 0:03:28 Sustainable bond market risks 0:04:44 Gender-focused social bonds 0:05:37 Transition plan guidelines 0:05:58 Debt for nature swaps 0:06:23 IRENA report on the cost of energy transition 0:07:00 New CBI reports 0:07:42 SLB and SLL overview 0:11:35 Audience questions 0:16:08 Green bonds and loans overview 0:19:25 Labeled products, transition bonds and regulatory updates Links to Select Resources Sustainable Debt Market Summary Q1 2023 LMA Publishes ‘Vital’ Sustainability-Linked Loan Drafting Model Anticipating the Inevitable: What to Expect from the European Green Bonds RegulationDetails Emerge on EU Green Bond Standard as Concerns About Uptake RemainSustainable Bond Market Risks Fragmentation Amid ‘Regulatory Overload’ No Plans for Follow-Up Offer of Catastrophe Bonds – De LeonBhutan Takes Steps to Set Up Green Cryptocurrency Mining Operation: Report‘Huge Opportunities’ for Gender-Focused Corporate Sustainable Bond Growth GSAM: 36% of European Investors Ready to Invest in Social Bonds Companies Going Green Should Add Finance To Sustainability StrategiesThe Next Wave of Greenwashing: Offsets, Competitor Claims and ‘Transition-Washing’Banks Call on EU to Provide Transition Plan GuidelinesCredit Suisse Arranges $1.6bn Debt-for-Nature Conversion With EcuadorLow-Cost Finance for the Energy TransitionConcrete Policies to Underpin the Cement TransitionASEAN Sustainable Finance State of the Market 2022 Property Certification Opportunities in Tokyo Sneak Peek: The CBI’s Resilience Taxonomy Blueprint TDC NET Sustainability-Linked Finance Framework Second Party OpinionUMH Properties Inc. Sustainable Finance Framework Second-Party Opinion Grupo Bimbo Sustainable Financing Framework Second-Party Opinion More Episodes

Episode Summary Hosts: Is the Sustainable Finance Market Rebounding in 2023? In this month’s episode, Nick and Sabrina dig into the sustainable finance market’s rebound in Q1. Despite the market pressures caused by inflation and the banking shake-ups at UBS and Credit Suisse, sustainable finance activity saw an upward trend in the first part of the year. Although Nick and Sabrina stop short of making any predictions about where volumes will land by the end of the year, they do note some interesting dynamics in the market: green use of proceed bonds remain strong, social and sustainability focused bonds are down slightly, and sustainability-linked finance appears to be gaining some ground again despite continued market scrutiny. Scrutiny Continues for Sustainability-Linked Bonds Despite the rebound in sustainability-linked bond (SLB) activity in Q1 this year, concerns remain about this sustainable debt instrument. Several recent articles and reports discuss the credibility of SLB targets, whether coupon rates offer enough of a penalty if targets are missed, and whether the performance targets and indicators have an impact on sustainability. There’s also some media coverage on SLB issuers missing their stated sustainability performance targets. Although not ideal, missed targets among SLB issuers could be viewed as a sign of their rather than an indication of something being fundamentally wrong. For issuers considering sustainability-linked debt instruments and seeking additional guidance, check out the latest market references from Climate Bonds Initiatives (CBI). The Sustainable Sovereign Debt Club Continues to Grow CBI’s 2022 market summary highlights the growth of sovereign bond issuances. This is great to see because sustainable debt from sovereigns catalyzed the market in many cases. Sabrina highlights the recent activity from Turkey, Austria, Italy, and Cyprus as well as the sovereign green bond program being considered by the Australian government. In addition to more countries seeing the opportunities in sustainable debt instruments, regulators across a growing number of jurisdictions are ramping up sustainable finance activities in their countries. Developments are ongoing in India, Indonesia, Malaysia, Sri Lanka, Japan, and Vietnam to name just a few. Key Moments 0:00:59 Market overview 0:02:07 Q1 market overview 0:03:25 CBI 2022 state of the market report 0:05:22 Continuing SLB scrutiny 0:06:46 Climate transition plan transparency 0:08:34 More updates to the EU taxonomy 0:09:34 Additional articles and reports to read (see links below) 0:11:34 SLB and SLL overview 0:14:15 Audience questions 0:18:14 Green bonds overview 0:21:13 Green loans overview 0:22:30 Social bonds and loans overview 0:23:25 Labeled products, transition bonds and regulatory updates Links to Select Resources Green and Other Labelled Bonds Fought Inflation to Amass USD858.bn Volume in 2022Sustainable Debt: Global State of the Market 2022‘It’s time to stop step-up-only sustainability-linked bonds’Union Investment: SLBs Can Have ImpactCBI Launch Sustainability-Linked Bond Certification SchemeAre We About to See a Surge in Sovereign Sustainability-Linked Bonds?Sustainability-Linked Targets Could Add ‘Discipline’ in Green Bond MarketsCaixaBank Rolls Out Metaverse Initiative to Promote SustainabilityMarket Hails ‘Surprisingly Helpful’ SFDR Clarifications from European CommissionShould Sustainability Teams Report Directly to the CEO?Climate Action 100+ Releases the Latest Evolution of the Net Zero Company BenchmarkNew Standards Keep the Greenwash off Green BondsCompanies Risk Penalties as Asia and Australia Target Greenwashing‘Greenwashing is rife’ in Green Bonds, Says EU’s TangAR6 Synthesis Report: Climate Change 2023Nature-Related Sovereign Issuances Set to Grow, Insight PredictsSustainability-Linked Debt Instrument CertificationHera Group’s Green Financing Framework Second-Party OpinionCouncil of Europe...

Host: Featuring: Sune Andersen, Manager, Stewardship Simon Butler, Associate Professor, University of East AngliaGayaneh Shahbazian, ESG Research Manager, Biodiversity The statistics are concerning. The International Union for the Conservation of Nature (IUCN) estimates that up to 28% of all species are at risk of extinction. Given these alarming figures, it is crucial for investors to take action and ensure their investments do not further harm our vulnerable ecosystems. Join us on the latest episode of ESG in Conversation, where we delve into the critical question: how can investors effectively address biodiversity loss? Gain valuable insights from Dr. Simon Butler, an esteemed professor specializing in acoustic ecology, whose work underscores the urgent need to tackle biodiversity issues. Additionally, hear from Morningstar Sustainaltyics' stewardship and ESG research teams, providing valuable perspectives on investor engagement on biodiversity loss and the challenges faced by corporations in disclosing nature-related risks.

Episode Summary Hosts: Regulation, Guidance and Taxonomy Updates Keep Market Participants on Their Toes In this episode, Nick and Nishant discuss the flurry of updates in the sustainable finance regulation and guidance space. The European Union has reached a long-awaited deal on the first set of comprehensive rules for issuing green bonds. Although voluntary, the EU Green Bond Standards will help investors identify high-quality green bonds and may set a precedent for other jurisdictions. The Green Loan Principles, Social Loan Principles, and Sustainability-Linked Loan Principles were also recently updated to align more closely to current market practice and provide additional guidance to borrowers (e.g., recommendations that borrowers obtain an independent external review of their green, social and sustainability-linked loan processes). Other updates include recommendations for the sustainable finance taxonomies being developed in Australia and Canada, as well as the new draft version of the Taskforce for Nature-related Financial Disclosures (TNFD) framework. What the Final TNFD Framework Could Mean for Sustainable Finance With the release of the fourth beta framework from the TNFD, market participants eagerly await the final version, due to be published this fall. This latest beta release includes a full draft reporting framework and a set of disclosure metrics, along with assessment metrics to be used by companies. The disclosure metrics will also include some core measures which are applicable to all sectors. The final framework will help to standardize the sustainability metrics companies report on, making them usable in sustainability-linked instruments and speeding up the framework’s adoption. Key Moments 0:00:59 Market overview 0:02:32 Market forecast 0:03:22 SVB failure and climate tech 0:04:05 Morningstar Sustainalytics launches Low Carbon Transition Ratings 0:04:37 Relinking in sustainable finance 0:05:11 TNFD release beta version 4 of framework 0:05:56 Insights from Kanga News Sustainable Debt Conference 0:06:30 Taxonomy developments in Australia and Canada 0:07:24 Agreement of EU Green Bond Standards 0:08:33 High Seas Treaty will boost blue bond issuance 0:08:45 SLBs as a hedge against sustainability policies 0:09:00 Transition finance standards 0:09:12 Updated principles for green, social and sustainability-linked loans 0:10:58 SLB and SLL overview 0:13:48 Audience questions 0:17:43 Green bonds overview 0:20:56 Social bonds and loans overview 0:22:40 Labeled products, transition bonds and regulatory updates Links to Select Resources Asian ESG Debt Markets Take a Breath After Record RunGreen Bonds Turbo Charge ESG Debt Sales to Busiest February Ever Natixis Q&A: ‘Liquidity Will Be Driven by ESG Transparency and Clarity’Credit Suisse: Another Headwind for 'Green' AT1 BondsMorningstar Sustainalytics Launches its Low Carbon Transition RatingsSustainability Re-Linked Notes Coupon Adjustment: Annual Coupon Adjustment of Sustainability Re-Linked NotesForthcoming TNFD Metrics Would Work in Sustainability-Linked Instruments Traffic-Light System Recommended for Australia's TaxonomyEU Green Bond Standard: Provisional Deal on Landmark Regulation AgreedHigh Seas Treaty Will Boost Interest, Access and Issuance of Blue BondsIndia’s Debut in the Sovereign Green Bond Market: First Deal Landed a Greenium!Investments in Renewables Reached Record High, But Need Massive Increase and More Equitable Distribution Global CO2 Emissions Rose Less Than Initially Feared in 2022 as Clean Energy Growth Offset Much of the Impact of Greater Coal and Oil UseClimate Bonds Standard Expands With New Agri-Food Transitions Criteria: Commodity and Supply Chain TWGs And IWGs Now Onboarding More Episodes

With all the noise about ESG in the news, it can be hard to discern what is really going on. We know that the increased demand for companies to address ESG issues has meant that organizations have had to make significant changes to how they work. But when it comes to addressing, managing and reporting on ESG issues, what’s really going on behind corporate doors? In this episode of ESG in Conversation, we explore that question by examining how the roles of CSR and sustainability professionals are evolving to address material ESG issues. You’ll hear about the results of the Morningstar Sustainalytics Corporate ESG Survey, with insights about the challenges, concerns, and evolving roles of CSR and sustainability professionals around the world. View the show notes in full detail at the Sustainalytics Resource Centre. Read the full Morningstar Sustainalytics Corporate ESG Survey Report 2022 Download the report to learn about the ESG challenges companies face around the world and the resources CSR and sustainability professionals are using to meet them, key steps to ESG maturity, where companies are focusing their ESG investments, and how companies are using their ESG ratings and scores.

Episode Summary Hosts: Growing Innovation with Sustainable Finance Instruments In this episode, Nick and Winnie chat about the latest news and transactions in the sustainable finance space. With a focus on innovation, they discuss the new ways in which issuers are leveraging sustainable finance instruments to fund their green and social projects. For instance, the World Bank’s recent bond issuance will forgo investor coupon payments, instead using the funds to finance a project manufacturing water purifiers in Vietnam. Using purifiers will replace biomass burning (traditionally used to boil water to make it safe to drink), resulting in lower carbon emissions. The carbon emissions saved will be turned into carbon credits and sold to fund a coupon payment to bond investors. Nick also notes innovation picking up in the areas of blue bonds and the maritime economy as well as biodiversity-focused finance activities. Investors Swing Back to Use of Proceed Instruments Winnie and Nick also touch on the growing ambivalence towards sustainability-linked instruments. In 2022, sustainability-linked bonds and loans seemed to lose some of their appeal as scrutiny of targets and performance indicators intensified and accusations of greenwashing arose. Adding to the discontent – slipping targets. Analysis from Barclays finds that nine out of 12 SLBs with target measurement dates in 2023 are off track to hit those targets. Consequently, we’re seeing a swing back toward traditional use of proceed instruments. This is particularly true within the green bond market which took less of a hit compared to other types of labelled bonds in 2022. With more green bond disclosure guidance and regulations expected from more jurisdictions, such as India, Bolivia, EU and Latin America, investors will likely continue to seek security in the more structured green bond market. Key Moments 0:02:20 Market overview 0:02:37 Expected market rebound 0:03:15 Innovative structure from World Bank 0:04:03 Swing back to use of proceeds? 0:04:23 Innovative structure from ENEL 0:05:10 Blue and biodiversity activity 0:05:31 Continued scrutiny of SLLs and SLBs 0:06:40 ASEAN developments 0:07:34 New CBI reports 0:08:04 SLB and SLL overview 0:11:52 Green bonds overview 0:17:35 Green loans overview 0:17:57 Audience questions 0:21:05 Social bonds and loans overview 0:22:03 Labeled products, transition bonds and regulatory updates Links to Select Resources ESG Bond Sales Hit 12-Month High; Debut Deals Pile UpSustainable Bonds Insights 2023 PublishedWorld Bank Issues ‘Unique’ Carbon Credit-Linked BondIFC adds ‘Blue’, Biodiversity Projects to Green Bond FrameworkCountries Search for Financing to Counter Biodiversity CrisisSLB Issuers ‘Likely to Miss Majority of 2022 and 2023 Targets’SLB Issuers ‘Lose Their Halo,’ says HSBCDrafting Guidance for Sustainability-Linked Loans (Feb 17, 2023)Philippines Opens Consultation on Sustainability-Linked Bonds StandardsSustainability Bond Market Stumbles as Investors Get PickyJBS “Green Bonds” and GHG Emissions Under InvestigationBarclays Sees Real Greenwashing Risk in ESG Debt-Swap MarketSustainable Agriculture BriefScaling Credible Transition Finance – ASEAN EditionWhy Japan Embraces Transition BondsSEBI Asks Issuers for Additional Disclosure in Guidelines on Green BondsMandatory Climate Finance Disclosure ‘Evens Playing Field’ for AustraliaNokia Sustainable Finance Framework Second Party OpinionState Bank of India ESG Financing Framework Second-Party OpinionHertz Green Finance Framework Second-Party Opinion More Episodes

Episode Summary Hosts In this episode, Nick and Sabrina reviewed what’s new in sustainable finance and shared some notable deals and transactions that have hit the market. They discussed the overall decline of global bond markets and expressed some optimism for the year to come, as sustainability is a central issue for investors, companies and governments and is still closely tied to capital markets. They also shared research on the carbon performance of food producers and a report on how to scale credible transition finance among countries in Southeast Asian. Sustainable Market Hopes for 2023 If you’ve been following sustainable finance market activities, it’s no surprise that 2022 was not a great year overall. Markets were down in volume for the first time in 11 years. According to figures from Environmental Finance, total annual sustainable bond issuance fell 19%, from US$1.05 trillion in 2021 to US$845 billion in 2022. Social, sustainability and sustainability-linked bonds were hit hardest – down about 25% compared to 2021, while green bonds fared a bit better with a more modest 14% issuance decline. Despite the lower issuance volumes, there is hope for a rebound in 2023 as overall markets stabilize and issuers seek financing. This year may see use of proceed instruments like green bonds continue to gain ground compared to performance based, sustainability-linked bonds. We may also see more transition deals, social and biodiversity focused activity, as well as more complicated transactions going to market. It’s still early days, so let’s see how things develop. Updated Standard for Reporting Financed Emissions in Sovereign Debt If you’re a bank trying to figure out how to report on your financed emissions, be sure to read through Partnership for Carbon Reporting Financials’ (PCAF) recently updated standard. Global GHG Accounting and Reporting Standard for Financed Emissions addresses demands from financial institutions and provides a methodology to help investors in sovereign debt account and report greenhouse gas emissions. The methodology on sovereign debt includes bonds and loans of all maturities, however, only debt issued by the central bank on behalf of the sovereign would be covered. The methodology also requires reporting of scope 1, scope 2 and scope 3 emissions and recommends getting the information from countries’ reported data via the United Nations Framework Convention on Climate Change. Key Moments 0:01:16 Market overview 0:03:24 COP15 insights 0:04:22 Australia sustainable finance taxonomy 0:05:04 BNP Paribas social impact bond 0:05:16 TPI paper on food producers' carbon performance 0:06:53 Updated PCAF standard 0:07:31 Banks' transition planning under scrutiny from ECB 0:08:05 Activity in carbon markets 0:08:45 Austria launches green commercial paper program 0:09:14 CBI paper on transition finance in ASEAN 0:10:17 SLB and SLL overview 0:15:34 Audience questions 0:21:00 Green bonds overview 0:23:56 Green loans overview 0:25:06 Social bonds and loans overview 0:27:38 Labeled products, transition bonds and regulatory updates Links to Select Resources Annual Sustainable Bond Issuance Falls for First Time Since 2011Global Debt Market Lost at Least $75 Billion of Business in 2022ESG Watch: Despite Setbacks, Green Finance Ends 2022 in Good HealthHigh Hopes for Corporate Issuance in 2023COP15 Agreement 'Significant,' but Credit Impact Depends on ImplementationClimate Change Litigation: 11 Key Cases for Insurers to WatchTaxonomy ProjectSaving Biodiversity: The Next Mountain for Capital MarketsTPI Carbon Performance Assessment of Food Producers: Discussion PaperPCAF Sovereign Debt Methodology Plugs Gap in Emissions Accounting, Says AllianzSupervisory Priorities and Risk Assessment for 2023-2025Carbon Markets Can Help Provide Nature-based SolutionsSovereign Green Bonds Will Act as Benchmark for Private ESG-linked Debt: RBI’s RaoAustria to Launch Green Commercial Paper in 2023Scaling Credible Transition Finance...

Episode Summary Hosts In this episode, our hosts Nick and Aditi discuss the recently held COP27 and COP15 conferences and what their outcomes could mean for green and social financing globally. They also touch on the concept of blended finance and how that might be used to support climate adaptation in emerging markets. Increasing activity among sovereigns is also discussed, as countries come to market more frequently with sustainable debt. Lastly, Nick and Aditi share a rundown of other notable sustainable finance transactions. Climate High on the International Agenda Given the current climate crisis, expectations were high for COP27. From an environmental standpoint, the final agreement was seen as a disappointment by some observers. However, the conference closed with a ground-breaking agreement to set up a loss and damages fund, which aims to provide financial assistance to countries vulnerable to, or impacted by, the effects of climate change. COP15, the United Nations Biodiversity Conference, also concluded late last year with a landmark agreement that includes measures to halt and reverse nature loss – such as putting 30% of the planet and 30% of degraded ecosystems under protection by 2030. The plan also includes a target of mobilizing at least US$200 billion per year from public and private sources for biodiversity-related funding. Finally, the G20 conference in Bali also turned its attention to issues around climate change, low-carbon transition, and climate adaptation. Innovative Solutions to Fund Sustainable Development With an estimated US$9.2 trillion needed to meet global climate and environmental goals,1 private and public sectors are looking for more ways to funnel money to finance mitigation and conservation efforts. To address this need, market participants are discussing innovative solutions like blended finance, which is the strategic use of development finance (such as public or philanthropic capital) and private investment capital to fund sustainable development projects in developing countries.2 A new crop of instruments is also emerging to offer potential solutions. This includes instruments like debt-for-nature swaps, a financial mechanism that allows portions of a developing country’s foreign debt to be forgiven, in exchange for commitments of investment in biodiversity conservation and environmental policy measures.3 We anticipate seeing more variety in the types of instruments being developed to support conservation and climate adaptation in countries most vulnerable to climate change. Check Out Our Special Episode on Sustainable Finance in the Metals and Mining Sector In case you missed it, we recently took a deep dive into the sustainable and transition finance opportunities within the metals, mining and commodities sector. Our panel discussed key considerations for banks, issuers and investors interested in using sustainable finance instruments to help fund improvements across the sector and mitigate potential risks. The sector is incredibly important because of its crucial role in the global transition to a low-carbon economy. However, these companies face numerous environmental and social challenges, which if not managed effectively could negatively impact their access to capital. Listen here: Sustainable Finance Insights: Special Episode on Sustainable Finance in the Metals, Mining and Commodities Sector Key Moments 0:00:51 Market overview 0:01:38 COP27 insights 0:03:48 G20 Summit 0:04:35 COP 15 insights 0:05:00 State of the bond market and outlook for 2023 0:05:56 Sovereigns’ ambitions in sustainable finance 0:06:33 Social taxonomy update 0:06:52 Green bond tokenization 0:07:12 Emergence of blended finance 0:08:02 More activity in transition finance market 0:08:19 Market scrutiny of SLBs 0:10:08 ICMA paper on sustainable repos 0:10:34 Food security as social use of proceeds 0:10:54 More activity around carbon markets globally 0:11:15 PCAF publishes second version of Global GHG...

Episode Summary Host: Featuring: In this episode of the Sustainalytics Podcast, Curtis explores cybersecurity and data privacy issues, with commentary from Melissa Hudson and Liam Zerter about the real impact of cyberattacks on businesses. You’ll learn about the 2021 United Kronos Group ransomware attack, cybersecurity trends that organizations should monitor, how cyberattacks affect the bottom line, and why companies should invest in developing robust cybersecurity and data privacy policies. The Current Cybersecurity and Data Privacy Trends Companies Should Monitor Within the last two years in particular, both the frequency and severity of cyberattacks against businesses have continued to climb. As companies have modernized and expanded their digital infrastructure to remain competitive, they have also increased their vulnerability. High-profile data breaches have led to increased pressure from regulators, consumers, and the insurance industry, who increasingly view such incidents as market failures. Why Having a Strong Cybersecurity Policy is Important Perhaps most importantly for a company’s bottom line, Morningstar Sustainalytics’ researchers found that companies that had robust data privacy and cybersecurity policies were able to recover faster from a cyberattack compared to peers with poor or weak policies. Beyond providing a boost to recovery, companies must also invest in their cybersecurity infrastructure in order to keep up with the rapidly changing regulatory landscape. Those that don’t take immediate action will be left behind. Read Our eBook, Data Privacy, Cybersecurity and ESG: Managing Risks in a Changing Business Environment Download the ebook to learn about the types of data privacy and cyber threats companies are facing, the potential ESG risks for companies that do not properly address data privacy and security, and how organizations can manage and mitigate data privacy and security risks. Key Moments 00:00 United Kronos Group Ransomware Attack 01:54 Introduction to the Cybersecurity and Data Privacy Landscape 03:35 Five Global Events Driving Cybersecurity and Data Privacy Trends 05:18 Consequences of Under-Investment in Cybersecurity 06:40 The Increasing Frequency and Severity of Cyberattacks 08:00 How Cyberattacks Impact Stock Price 09:45 The Importance of Strong Data Privacy and Cybersecurity Policy 10:34 A Developing Regulatory Landscape 12:09 Looking Forward Transcript 00:02 Curtis File: In December 2021, a group of cybercriminals sent panic across the United States. United Kronos Group, a payroll and HR software company, was targeted by a ransomware attack. The attack took out its Kronos Private Cloud platform, and this left major retailers and state governments scrambling to pay employees as the holidays approached. But worse, a number of hospitals were affected. Kronos was a mission critical provider of administrative services for hospitals across the United States. From small, remote hospitals to urban medical systems, the attack interrupted services and, in many cases resulted, in delayed health care delivery. So why was this able to happen? 00:46 John Riggi: In response to the pandemic, hospitals rapidly deployed and expanded network-connected and internet-connected technologies to accommodate a surge of COVID patients and a remote administrative workforce. So, what this did is create many more opportunities for bad guys to penetrate our networks. It's what we call an expanded attack surface.1 01:18 CF: That was a clip of John Riggi, Senior Adviser for cybersecurity and risk for the American Hospital Association. At the time of the Kronos attack, he spoke openly to media about his concern for the cybersecurity threats the health care industry is facing. He told NPR: “As we always do, hospitals and health systems will get it done and care for patients, but under additional stress and burden they don't need right now.” The incident highlighted the real impact of cybersecurity breaches...

Episode Summary Hosts In this episode, Nick and Aditi highlight developments in the sustainable finance markets as 2022 winds down. They note that global cumulative green bond issuance has surpassed the US$2 trillion threshold, marking another milestone for sustainable finance. They also discuss the diversification of key performance indicators used in sustainability-linked instruments, the growing opportunities for using sustainable finance as a tool to fund climate adaptation in emerging markets, and regulators’ increasing focus on reporting for scope 3 emissions. Finally, they respond to audience questions about impact investing and sleeper sustainability-linked loans. Cumulative Issuance of Climate-aligned Bonds Passes $2 Trillion Mark According to the Climate Bonds Initiative, to date over US$2 trillion in greens bonds have been issued globally, marking another major milestone in sustainable finance. Despite broader market conditions resulting in lower volumes year-over-year, use of proceed bonds, such as green bonds, are rebounding slightly. Using Sustainable Finance to Support Funding in Emerging Markets When thinking about how to ensure a just transition, a recurring question is, "How can market participants initiate more financing for adaptation, resilience, and development, to help countries who most vulnerable to climate change, but that are not major contributors to it?" One answer is sustainable finance. Sustainability-labeled debt can provide opportunities to drive and scale financial flows in emerging markets. Though issuing a green bond doesn’t eliminate the liquidity, currency or country risk facing some emerging market nations, hopefully more funds can be leveraged under the sustainable finance umbrella to drive additional financing and a just climate transition for these countries. Growing Regulatory Focus on Scope 3 Reporting Regulators globally continue to push for disclosure and reporting of scope 3 emissions. In October 2022, the International Sustainability Standards Board (ISSB) voted unanimously to require companies to disclose scope 1, scope 2 and scope 3 greenhouse gas emissions, and will develop relief provisions to help companies apply the scope 3 requirements.2 This follows the U.S. Securities and Exchange Commission’s proposal for climate disclosure published earlier this year which includes reporting on Scope 3 for large U.S. companies. 0:00:51 Market overview 0:01:24 Use of proceed rebound 0:02:15 CBI conference outcomes 0:03:22 Green bond issuances pass US$2 trillion globally 0:04:08 FCA report on fund labeling 0:04:58 CBI reports and consultations 0:05:36 Scope 3 reporting in the news 0:06:21 Sustainable finance for emerging markets 0:07:01 Funding instruments to support conservation - blended finance and debt to nature swaps 0:09:00 Green and social loans tied to banks SLL pools 0:09:46 SLB and SLL overview 0:14:04 Audience questions 0:19:47 Green bonds and loans overview 0:25:40 Social bonds and loans overview 0:29:05 Labeled products, transition bonds and regulatory updates Links to Select Resources World Bank Warns of SLB Greenwashing Risk From 'Structural Loopholes'Climate Bonds Standard Extension to SLBs to 'Fire Integrity'French Agencies Struggle to Tighten Green DealsEM Financial Institution Green Bond Impact Reporting Study PublishedAfDB Report Assesses Feasibility of Debt-for-Nature Swaps in AfricaInvestors Calling on TNFD to Address Nature RestorationInflation Reduction Act 'Could Transform Bond Market', Conference HearsBonds Tied to Banks’ SLL Pools Could Spread in 2023Dearth of Climate Adaptation Bonds Spurs Call for New Asset ClassGreen Bonds Issuers Adapt to EU Taxonomy: LuxSE101 for PolicymakersClimate Bonds Initiative Hydrogen Production CriteriaUruguay’s Sovereign Sustainability-Linked Bond Framework Second-Party OpinionCEMEX Sustainability-Linked Financing Framework Second-Party OpinionPT Semen Indonesia (Persero) Tbk...

Episode Summary Hosts In this special episode, we focus our lens on sustainable and transition finance opportunities within the metals, mining and commodities sector, amid growing interest from companies and investors. The sector is incredibly important because of its crucial role in the global transition to a low-carbon economy. The demand for minerals used in clean energy technologies is expected to increase four-fold by 2040 to meet climate goals.1 However, mining is also resource intensive, contributing to between four and seven percent of global greenhouse gas emissions,2 and affecting water resources. The various social challenges the sector faces greatly impact local communities, even after mines are closed. As with other harder-to-abate sectors, maintaining access to capital amid a long list of environmental, social and governance risks can be a challenge. Listen to our panelists discuss key considerations for banks, issuers and investors interested in using sustainable finance instruments to help fund improvements across the metals and mining sector and mitigate potential environmental, social and regulatory risks. They share insights on the trends they’re seeing in the market, the conversations they’re having with issuers and banks, and what’s next in sustainable finance for the metals and mining sector. Key Moments 0:00:57 Introductions 0:02:44 Overview of Sustainalytics’ approach to sustainable finance 0:04:29 Exploring the growing interest in sustainable finance for the mining sector 0:08:42 Use of proceeds or linked finance? Considerations for mining companies and banks 0:12:48 Applying the Climate Transition Finance Handbook 0:15:24 External reviewer landscape – how does Sustainalytics compare? 0:19:38 The benefits of labeling transactions from the mining sector 0:26:13 How Sustainalytics supports banks’ sustainable finance activities 0:29:45 Sustainable finance questions from banks 0:37:08 A look at transaction trends and market developments 0:45:03 Green Bond Impact Reporting – The next frontier in sustainable finance 0:53:17 Outlook for sustainable finance in the metals and mining sector Links to Select Resources The Role of Critical Minerals in Clean Energy TransitionsClimate Transition Finance HandbookMinerals for Climate Action: The Mineral Intensity of the Clean Energy TransitionRegistry of key performance indicators for sustainability-linked bondsPrinciples, Guidelines and Handbooks Sustainability-Linked Loan Principles Task Force for Climate-Related Financial Disclosures (TCFD) Taskforce for Nature-Related Financial Disclosures (TNFD) Sector standard project for mining Sustainalytics Bond Impact ReportingSustainalytics Corporate Impact Reporting Sustainalytics Supply Chain Solutions – ESG Assessment Platform Sources 1 IEA. 2021. “The Role of Critical Minerals in Clean Energy Transitions.” May 2021. https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions. 2 Delevingne, L., Glazener, W., Gregoir, L., and Henderson, K. 2020. “Climate Risk and Decarbonization: What Every Mining CEO Needs to Know.” McKinsey Sustainability. January 28, 2020. https://www.mckinsey.com/capabilities/sustainability/our-insights/climate-risk-and-decarbonization-what-every-mining-ceo-needs-to-know. More Episodes

Episode Summary Hosts Despite continued pressure on global financial markets, our hosts Nick and Sabrina highlight some bright spots within sustainable finance. From the array of green bond transactions coming to market in recent months, to sovereigns exploring sustainable finance opportunities to fund biodiversity, marine conservation and social programs, the sustainable finance market continues to push against market headwinds. Biodiversity Rising on Sustainable Finance and Corporate Agendas With COP27 ending and the UN Conference on Biodiversity (COP15) coming up in December, the issue of biodiversity continues to resonate among sustainable finance market participants. Companies are starting to focus more on biodiversity issues and their impact, and the Taskforce on Nature-related Financial Disclosures has also updated its beta framework. Sovereigns, such as Uruguay, are also joining the movement by funding efforts around biodiversity using sustainability-linked bonds. Use of Proceed Instruments Increase as Sustainability-Linked Instruments Faces Scrutiny Contracting global financial markets has put pressure on the bond market. However, Nick does note a slight uptick in the number and variety of labeled use of proceed bond issuances in recent months relative to sustainability-linked bond issuances. This could be due, in part, to the growing scrutiny of linked bond instruments. Should they be more nuanced? Do the benefits of the pricing dynamics outweigh the penalties for not meeting targets? These are all valid questions being raised about these financing instruments that have seen tremendous growth over the last few years. It remains to be seen whether these questions translate into new norms for the market. Key Moments 0:00:57 Market overview 0:01:29 GSSS market pressures 0:02:40 Biodiversity and sovereign SLBs 0:03:51 Continuing scrutiny of SLBs 0:04:25 FCA consultation paper 0:05:15 Banks explore funding pools of SLLs 0:05:45 Singapore banks commitments to Net Zero 0:06:32 New reports from Climate Bonds Initiative 0:07:55 SLB and SLL overview 0:13:39 Audience questions 0:17:56 Green bonds overview 0:20:47 Green loans overview 0:22:25 Social bonds and loans overview 0:23:46 Labeled products overview 0:24:50 Transition bonds overview 0:26:41 Regulatory and country updates List of Select Resources Responsible Investment Hits Record in 2021S&P Global Ratings Downgrades GSSSB Forecast by 16%Sustainable Bonds Take Record Market ShareNatWest: Biodiversity-linked Sovereign SLBs Could Be 'Powerful'HSBC: COP15 Will See More Green Bond Focus on BiodiversitySLB Step-ups Have Almost No Correlation With Credit QualitySovereign Sustainability-linked Debt Initiative LaunchedSustainability Disclosure Requirements and Investment LabelsSocial Risks Can Be Credit Risks: Evaluating the 'S' in ESGGreenwashing is a Systemic Problem at UK BanksNew Social and Sustainability Bond Database: Enhanced Screening Capabilities for Full GSS+ MarketUruguay’s Sovereign Sustainability-Linked Bond Framework Second-Party Opinion More Episodes

Episode Summary Hosts In this episode, Nick and Sabrina examine some of the interesting transactions and developments in the global sustainable finance market. Despite a general slowdown in the volume of issuances, there are still innovative transaction structures being proposed and sustainability-linked instruments (i.e., bonds and loans) continue to perform well. Green bonds continue to anchor the sustainable debt market, with several notable transactions in the blue bond space. Finally, audience questions are addressed, regarding clarity on whether sustainability-linked instruments can be structured in a program and the difference between social bonds and social impact bonds. Blue Bonds Making Waves in Sustainable Finance More corporate and sovereign issuers are exploring blue bonds to help finance their environmental conservation efforts. A blue bond is a debt instrument similar to a green bond, but with a focus on marine and ocean-based projects. In their market overview, Nick and Sabrina highlight blue bond proposals from the Securities and Exchange Board of India, the issuance of the first blue bond in Japan, and blue bond-related activities in Indonesia. The protection and conservation of oceans, waterways, and the life within them is essential for both business and society. “Sleeping” Sustainability-Linked Loans: A Concern for the Sustainable Finance Market? Nick notes the emergence of “sleeping” sustainability-linked loans, in which companies seek to build into their conventional loan documentation the ability to convert to an SLL at a later date. The key performance indicators (KPIs) and sustainability performance targets (SPTs) are also set at a later date. These types of loans are raising concerns among market participants around transparency, as its important to make sure that SLLs are not labelled as such until they have KPI and SPTs in place. The credibility of sustainability-linked instruments and sustainability washing is an area of evolving interest and scrutiny in the market. As defined by the Sustainability-Linked Loan Principles, SLLs “incentivize the borrower’s achievement of ambitious, predetermined sustainability performance objectives.” Sustainability performance is measured using predefined sustainability performance targets (SPTs), as measured by predefined key performance indicators (KPIs). It is also recommended that borrowers and lenders have the appropriateness of the SPTs, and the methodology applied to assess them, reviewed by an external party as a condition preceding the loan. Details of U.S. Inflation Reduction Act Show Promise for Renewables The recently passed Inflation Reduction Act in the United States aims to control inflation by reducing the deficit, lowering prescription drug prices and investing in domestic energy. A key component of this last goal is the promotion of clean energy. This legislation will result in the biggest infrastructure spend on renewables in recent history, hopefully setting the tone for the future. Government stimulus like this could be significant in paving the way for more rapid acceleration towards net zero. Key Moments 0:01:29 Market overview 0:01:29 CBI half-year market review 0:02:44 Major issuance locations - China, Germany, Netherlands, U.S., France 0:03:58 U.S. Infrastructure Reduction Act good sign for renewables 0:04:58 Nuclear popping up 0:05:10 ESG increasingly being linked to remuneration 0:05:32 More green taxonomies being developed 0:05:56 Sustainability being integrated into leveraged loan market 0:06:19 China Green Bond Standard 0:06:36 Diversifying nature of sustainable bonds across Asia 0:06:55 "Sleeping” sustainability-linked loans on the market 0:07:58 SLB overview 0:11:28 SLL overview 0:15:52 Audience questions 0:22:03 Green bonds overview 0:28:20 Green loans overview 0:29:25 Social bonds and loans overview 0:31:17 Labeled products overview 0:33:27 Transition bonds overview 0:33:36 Regulatory...

Episode Summary Hosts In this episode, Nick and Aditi share recent developments in the global sustainable finance market. They touch on the cooling bond market and the shifting geographic split in green bond issuance, noting that EU dominance is waning as other jurisdictions close the gap. Nick gives his thoughts on the impact of the forthcoming EU green bond standard on what future bond frameworks will include, what will be reported, and the level of external review required. In her update on sustainability-linked loans and bonds, Aditi highlights a couple of transactions, notable for their use of gender-based KPIs aiming to increase the number of women in management positions. Finally, Nick applauds Sustainalytics’ Corporate Solutions business for providing the most second-party opinions in the first half of the year, as cited by Environmental Finance. Study of Greenhouse Gas Targets Used in Linked Finance Environmental Finance recently published a report analyzing the types of key performance indicators being used in sustainability-linked bonds and loans. Across sustainability-linked instruments, carbon and greenhouse gas emission reduction KPIs accounted for about 75% of KPIs used, with other environmental issues, such as water, making up 10%, social issues another 10% and less than 5% related to governance issues. This makes sense, given the quantitative nature of GHG and carbon emission metrics. The report also noted the emergence of KPIs tied to scope 3 emissions, which is a promising trend given the high impact of scope 3 emissions for some industries. Focus on Supply Chain Sustainability Improvements For organizations looking to support ESG and sustainability improvements in their supply chain, it’s important to understand suppliers’ needs and motivations. Some large players in food and agriculture are offering financial incentives to farmers to implement sustainable practices. Others are supporting programs to pilot and scale innovative sustainability solutions. Still others are working to advance social goals, such as furthering opportunities for minority and female entrepreneurs. Sustainalytics’ Corporate Solutions is working more and more with clients to support their evaluation of suppliers – from KPIs connected to suppliers to ESG assessments of their suppliers. Key Moments 0:00:48 Market overview 0:02:01 Changing geographic in green bond market 0:02:25 Sustainalytics leads SPOs in H1 2022 0:02:55 Green/social split tranche instead of sustainability issuance 0:03:40 Nuclear back on the radar 0:04:33 Malaysia Islamic financing 0:04:45 EU Green Bond Standards coming soon 0:05:29 Guidance for finance sector decarbonization 0:06:05 Updated Climate Bonds Initiative methodology 0:06:41 Securitization and structured deals 0:06:45 Sustainable finance and supply chain 0:07:21 New NNIP social bond fund 0:07:39 More articles on biodiversity 0:08:00 KPIs used is sustainability-linked instruments 0:09:52 SLB and SLL overview 0:13:54 Audience questions 0:18:32 Green bonds overview 0:22:52 Green loans overview 0:24:28 Social bonds and loans overview 0:26:15 Labeled products overview 0:27:40 Transition bonds overview 0:28:25 Regulatory and country updates List of Select Resources Sustainable Finance Markets Cool After Record-Setting YearAs markets wobble, sustainable finance suffers tooEurope's dominance in green bond market fades amid record growth in ChinaSustainalytics delivers most SPOs in first half of 2022New World Development offers world's first USD social and green dual tranche bond in public markets totalling USD700mOnce-Unthinkable Nuclear Green Bonds Are Coming to EuropeIssuers opt for SLBs as EU tightens green bond rules, says BdFFocus on banking transition plans as priority, IIGCC recommendsCBI tightens green bond criteria and readies social expansionSupply chain emissions are top of mind for food and agGreen securitisations 'under-utilised in Europe'NN IP...