Sustainability is increasingly becoming a priority, for investors and companies alike. With the rise in financing options available on the capital markets to fund environmental, social, and governance (ESG)-supportive growth, corporates around the world have access to a broader toolbox than ever before to align with Sustainable Development Goals.
Speaking to Investments & Pensions Europe (IPE), Noemie de la Gorce, associate director, sustainable finance at S&P Global Ratings says that new instruments – such as sustainability-linked bonds – can help investors “diversify their contribution to sustainability objectives.”
While tied to different incentive mechanisms, some investors may see these instruments as having the potential to be stronger drivers of change than green bonds – since vehicles like sustainability-linked bonds can give companies financial incentives to advance their sustainability agenda, by linking the cost of funding to specific sustainability objectives.
“Some investors see sustainability-linked bonds as more powerful than green bonds in embedding sustainability into a company’s strategy, because the environmental and social objectives apply to the whole company, instead of a specific transaction,” says de la Gorce.
In an interview with Seafood Source, Matthew McLuckie, Director of Research at financial think tank Planet Tracker, delved into the financial risks that investors in the US$45 billion farmed shrimp industry are facing.
Shrimp farming is the cause of 30% of mangrove deforestation and coastal land use change in Southeast Asia – which is in turn threatening the ecological sustainability of the industry, and consequently, its financial profitability.
“Investors around the world could be at risk as rules come into force preventing the importation of products linked to past and future deforestation,” says McLuckie.
According to McLuckie, neither shrimp companies nor the top 20 institutional investors report mangrove deforestation or emissions from farmed shrimp. As a result of this lack of disclosure, profit margins cannot be accurately assessed, meaning that investors cannot be confident of their risk exposure.
“These top 20 institutional investors exposed to farmed shrimp equities must insist upon greater transparency and reporting on farmed shrimp revenue from these companies because they are going to face ongoing environmental shock risks,” McLuckie continues. “These are large-scale Japanese conglomerates that are involved. This really is a global issue.”
A lack of economic diversification, coupled with a sometimes-lower availability of external funding sources, means that a decreased oil and gas prices and shifting investor appetite could contribute to deteriorated creditworthiness for some GCC banks. That’s according to S&P Global Ratings, in its recent report mini-series exploring the credit risks that the transition towards cleaner energy sources could have on the GCC’s banks and overall economy.
While GCC economies have somewhat diversified away from oil since 2012, S&P Global Ratings’ hypothetical long-run stress test suggests that the average rating of a Gulf sovereign could fall by two notches from ‘BBB+’ to ‘BBB-’ if oil prices fall below US$40 by 2040, highlighting that the current pace of economic and fiscal diversification is insufficient to counter the decline in oil prices.
Driven by an expansion of the pool of financing options for investors, the sustainable debt market will likely surpass US$400 billion in 2020, said S&P Global Ratings in the latest edition of its annual sustainable debt outlook.
According to the outlook, the strengthening of key market trends such as rising absolute global fixed-income issuance and private financing, as well as the regulatory and political push in Europe, will likely push green-labelled bond issuance to US$300 billion in 2020. Meanwhile, as investors continue to explore ways to contribute to sustainability objectives, the market will continue to diversify and innovate, with more nascent sustainable financing instruments complementing the continued expansion of the green bond market.
In its recent briefing paper, non-profit financial think tank Planet Tracker explored the financial impact that ongoing environmental risks could have on companies and investors in the US$45 billion shrimp industry.
Responsible for 30% of deforestation of South East Asia’s mangroves, shrimp farming is facing short-to-medium term sustainability-related supply chain risks as wholesale buyers such as Nestlé transition towards deforestation-free supply chains. The report also points to a key regulatory risk in regard to the sector’s biggest regional importer, the EU, which is seeking to ban all deforestation-linked soft commodities with its incoming Action Plan on Deforestation.
Yet despite the financial impact that such environmental risks could have on investors in the farmed shrimp industry, Planet Tracker has found no evidence of these institutions reporting against either historical mangrove deforestation or farmed shrimp emissions in their portfolios.
The payments landscape is evolving at a phenomenal rate. New technology developments are emerging faster than ever, driven by the growing culture for digital solutions, new regulatory requirements, and the increasing number of new entrants in the market that are challenging more traditional practices with cutting-edge concepts that appeal to the tech-savvy society of today. This convergence of factors is acting as a catalyst for banks to take action and modernise payments.
In the Journal of Payments Strategy & Systems, Michael Bellacosa, Global Head of Payments and Transaction Services, BNY Mellon Treasury Services, discusses the transformational power of SWIFT gpi. Importantly, the article also examines how banks need to maximise the possibilities of the new landscape and deliver real added value; looking beyond the payment itself and considering how they can harness toolkits such as SWIFT gpi to create solutions that best support their clients.
To read the full article, please click here (please note, the article lies behind a paywall)
The influx of fintechs into the payments space has kickstarted an unprecedented period of innovation in transaction banking. Faced with new, tech-savvy competition, evolving client expectations, and with their own legacy infrastructure far from optimal, there is an increasing urgency for banks to deliver an enhanced, digital experience to clients. In Global Finance, Marcus Sehr, Head of BNY Mellon Treasury Services – Europe, discusses how banks are rising to this challenge, and transforming the way in which payments are processed.
To read the full article, see the “Sibos Supersection” of the magazine or click here (please note, the article lies behind a paywall)
Green bonds have proliferated since the first green debt instrument was introduced in 2007, with banks and corporate bond issuers leading the pack. However, project bond and emerging market issuers have been more hesitant.
Speaking on TXF Proximo’s podcast, “Transmissions”, Michael Wilkins, Global Head of Analytics and Research, Sustainable Finance, S&P Global Ratings, argues that this may not be the case for much longer.
“Because there is interest among investors to benchmark according to environmental contribution as well as credit quality, there may be opportunity for green project bonds in emerging markets to grow,” said Wilkins.
Meanwhile, he believes that green project bonds may well see a surge in market interest if the high level of environmental contribution that S&P Global Ratings generally sees from the asset class is made explicit in offering circulars.
According to S&P Global Ratings, the development of the EU’s proposed green finance taxonomy is one of the most important developments in the world of sustainable finance in recent years.
However, as with any major change, questions surrounding the implications for the capital markets abound. In an article for Responsible Investor, Michael Wilkins, Global Head of Analytics and Research, Sustainable Finance, S&P Global Ratings, considers the “pain points” that the taxonomy will have to overcome if it is to be successfully implemented and effectively drive capital towards sustainable objectives.
Namely, according to Wilkins, defining what can and cannot be defined as a sustainable economic activity should be the main focus of the taxonomy’s development, if it hopes to effectively engage the broader market.