Take Five: From America to the World
A selection of the major stories impacting ESG investors, in five easy pieces.
The Energy Permitting Reform Act was introduced in the US, while Australia and New Zealand pledged to strengthen their economic and investment ties to advance the climate transition.
Across the pond – Despite headwinds largely linked to Republican candidate Trump’s presidential campaign, climate action and policymaking did make some strides in the US this week. First, the US Treasury Department launched the ‘Amazon Region Initiative Against Illicit Finance’, aiming to associate federal expertise and resources with regional partners to combat the financing of nature crimes – and counter the transnational criminal organisations benefiting from it. Building on the Belém Declaration, the initiative will focus on four key components: convene a regional meeting in coordination with Brazil to boost cooperation on disrupting illicit finance; enhance information-sharing with regional partners in support of joint investigations involving corrupt actors, criminal organisations, drug traffickers, and others engaged in illegal nature-related activity; and host ‘follow the money’ trainings in the region to strengthen the capabilities of financial intelligence units, law enforcement, and other key stakeholders. In other US climate-positive news, the Biden administration recently awarded US$4.3 billion in federal grants across 30 states to 25 projects aiming to boost clean-energy development and reduce the nation’s greenhouse gas emissions. Meanwhile, Senators Joe Manchin and John Barrasso reached a deal after two years of negotiations, resulting in the introduction of the Energy Permitting Reform Act of 2024 – due to speed up the nation’s energy and infrastructure projects, and improve its ability to build out power lines by shortening regulatory approvals. The bill, however, does contain provisions that boost fossil fuels.
Bond-strong – A Moody’s report has shown that sustainable bond issuance remains on course to meet the ratings agency’s US$950 billion forecast for 2024 – with US$1 trillion now emerging as a “distinct possibility”. This, Moody’s explained, is despite an 8% decline in issuance during H1 2024 compared to the same period last year, and amid various challenges that could weigh on the market in H2. Second-quarter issuance represented US$238 billion, down 20% year-on-year, while global issuance of green, social, sustainability, sustainability-linked and transition bonds totalled US$238 billion – also down 20%. Guidance documents on green-enabling projects and sustainability-linked loans financing bonds (SLLBs) recently released by the International Capital Market Association (ICMA) and minor updates to its Sustainability-Linked Bond Principles and Impact Reporting Handbook, reflect a heightened market focus on transition finance, structural innovation and sustainability quality, Moody’s argued. In related news, NatWest Group issued this week the first bond by a UK bank dedicated to financing and re-financing electric vehicles (EV), raising net proceeds of €750 million (US$811.4 million) from institutional investors based in the UK, Europe and Asia. The EV Green Bond originated from the group’s asset finance arm – Lombard. In 2019, the bank developed its Green, Social & Sustainability Financing Framework, and has since issued three social bonds and three green bonds with a combined aggregate principal amount of £3.9 billion.
Lost at sea – A blog post from BNP Paribas’ Markets 360 team explained why EU Emissions Trading System (ETS)-covered shipping emissions increased in 2023, and why they are likely to rise again this year. An ongoing crisis in the Red Sea, in particular, has led to significantly higher emissions from cargo ships – the largest segment of shipping emissions, according to Markets 360. “We continue to see the ETS inclusion of shipping this year as a bullish driver, as limited affordable decarbonisation options at current EUA [Environmental Upgrade Agreement] prices will lead to significant forward hedging activity,” the ‘Lost at Sea’ report mentioned. The EU ETS covers 100% of emissions at or between ports and 50% of journeys to and from the EU. This year, shippers are responsible for surrendering allowances for 40% of their covered emissions. Next year, that figure will go up to 70%, and to 100% from 2026 and beyond. Crisis-related diversions in the Red Sea have resulted in much longer shipping distances, higher ship speeds – and hence much greater emissions, Markets 360 explained. “This is primarily being seen in the cargo ship segment, which we already estimate being 3 megatonnes (mt) higher year-to-date versus 2023,” the report noted. “Unfortunately, we don’t expect a resolution to this crisis over balance in 2024, and we forecast overall ETS shipping emissions to breach 100mt for the first time since 2019.”
In tandem – Australia and New Zealand decided to join efforts on the climate transition by aligning their sustainable finance taxonomies. Reunited for the second 2+2 Climate and Finance Dialogue, ministers from both countries acknowledged that “a rapid and effective global response to climate change is needed in this critical decade”, and that global warming represented the single greatest existential threat to the livelihoods, security and wellbeing of the peoples of the Pacific. “The transition to reliable, renewable energy to underpin climate-resilient economies represents a once-in-a-generation opportunity for Australia and New Zealand in the global economy,” the statement read. “[We] are committed to positioning [our countries], and the Indo-Pacific region, to benefit from this shift.” The governments pledged to continue building stronger economic and investment ties, remain aligned, and capitalise on opportunities to increase the benefit to both states. More specifically, the ministers agreed to conduct a review into regulatory barriers to the net-zero transformation, with an initial focus on standards for batteries and EV charging; to convene sector-based roundtables with representatives from the maritime sector, including exporters, shipping lines, ports and other stakeholders, to identify the conditions required for trans-Tasman green-shipping corridors and to strengthen supply-chain resilience; as well as to explore the development of a regional sustainable aviation fuel industry.
Keeping up the momentum – Climate finance and policymaking has been all the rage in the UK since the election of the new Labour government early last month. This week was no exception, with the confirmation of a record £1.5 billion budget allocation for the next Contracts for Difference (CfD) auction round – a funding uplift reflecting plans to accelerate the country’s grid decarbonisation. Due to take place this month, Allocation Round 6 (AR6) of the CfD scheme will also see £1.1 billion dedicated to offshore wind (which Labour wants to quadruple by 2030) – representing a £300 million raise on the level promised by the previous Conservative administration, and dwarfing the amount made available through all previous auction rounds combined. In 2023, developers did not bid for any UK offshore wind contracts, saying the price offered by the government was too low to make the projects viable. The incumbent administration reportedly said it hoped the new allocation would send a “strong signal” to industry to invest in UK waters. “Following the serious difficulties of the last auction, investors will be relieved to see the government’s budget increase for AR6. [But] make no mistake – further reforms will still be needed to unlock the full weight of private capital to support the UK’s green-power industry,” said James Alexander, CEO at UKSIF. “This budget increase was necessary, since the government will need to secure significant numbers of new offshore turbines in order to hit [its] target to decarbonise the power sector by 2030. We now want to see CfDs rewarding developers who invest in UK manufacturing, skills and port infrastructure. This would help increase inward investment and ensure that renewable energy supply chains are scaled up significantly to meet renewable energy targets by 2030.”
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